<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 April 3, 1994
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 April 3, 1994, the number of shares outstanding of the registrant's common
stock, $1.50 par value, was 130,081,036.
<PAGE>
Page 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INCOME STATEMENT
HONEYWELL INC. AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER
-------------------------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) 1994 1993
...........................................................................
<S> <C> <C>
SALES $ 1,347.9 $ 1,438.6
---------- ----------
COSTS AND EXPENSES
Cost of sales 917.3 989.8
Research and development 72.2 78.9
Selling, general and administrative 270.6 267.3
Interest - net 12.6 14.8
Equity loss 1.2 0.3
---------- ----------
1,273.9 1,351.1
---------- ----------
INCOME BEFORE INCOME TAXES 74.0 87.5
PROVISION FOR INCOME TAXES 26.3 30.2
---------- ----------
NET INCOME $ 47.7 $ 57.3
---------- ----------
---------- ----------
EARNINGS PER COMMON SHARE $ 0.36 $ 0.42
---------- ----------
---------- ----------
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 130,837,509 136,122,503
</TABLE>
<PAGE>
Page 3
STATEMENT OF CASH FLOWS
HONEYWELL INC. AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
-----------------------
(DOLLARS IN MILLIONS) 1994 1993
...............................................................................................
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 47.7 $ 57.3
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation 57.6 61.1
Amortization of intangibles 12.5 12.8
Deferred income taxes 1.0 0.6
Equity loss, net of dividends received 1.2 0.3
Loss on sale of assets 0.5 2.3
Contributions to employee stock plans 8.7 8.2
Decrease in receivables 9.0 24.5
(Increase) decrease in inventories (44.9) 4.4
Decrease in accounts payable (61.8) (43.6)
Increase in accrued income taxes and interest 23.6 13.3
Other changes in working capital, excluding short-term
investments and short-term debt 16.5 (58.9)
Other noncurrent items - net (16.1) (4.8)
-------- --------
Net cash flows from operating activities 55.5 77.5
-------- --------
Cash Flows from Investing Activities
Proceeds from sale of assets 6.2 0.2
Capital expenditures (65.2) (51.5)
Investment in acquisitions (5.7)
(Increase) decrease in short-term investments 1.4 (15.1)
Other - net 21.2 (5.2)
-------- --------
Net cash flows from investing activities (42.1) (71.6)
-------- --------
Cash Flows from Financing Activities
Net increase in short-term debt 67.2 70.3
Repayment of long-term debt (0.2) (6.0)
Purchase of treasury stock (58.6) (55.6)
Proceeds from employee stock plans 3.5 3.7
Dividends paid (31.3) (30.4)
-------- --------
Net cash flows from financing activities (19.4) (18.0)
-------- --------
Effect of Exchange Rate Changes on Cash 0.2 (4.3)
-------- --------
Decrease in Cash and Cash Equivalents (5.8) (16.4)
Cash and Cash Equivalents at Beginning of Year 242.3 342.4
-------- --------
Cash and Cash Equivalents at End of Three Months $ 236.5 $ 326.0
-------- --------
-------- --------
</TABLE>
<PAGE>
Page 4
STATEMENT OF FINANCIAL POSITION
HONEYWELL INC. AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) April 3, 1994 December 31, 1993
......................................................................................................
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 236.5 $ 242.3
Short-term investments 12.4 13.8
Receivables (less allowance for doubtful accounts:
1994, $24.5; 1993, $24.3) 1,262.3 1,275.9
Inventories (less progress billing on uncompleted
contracts: 1994, $44.5; 1993, $36.8) 796.2 760.1
Deferred income taxes 260.4 258.1
---------- ----------
2,567.8 2,550.2
Investment and Advances 198.4 227.7
Property, Plant and Equipment
Property, plant and equipment 2,600.0 2,549.4
Less accumulated depreciation 1,532.4 1,487.4
---------- ----------
1,067.6 1,062.0
Other Assets
Long-term receivables (less allowance for doubtful
accounts: 1994, $0.4; 1993, $0.5) 61.1 51.3
Intangible assets 476.7 489.1
Deferred income taxes 63.8 63.8
Other 168.0 154.0
---------- ----------
Total Assets $ 4,603.4 $ 4,598.1
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 252.0 $ 187.9
Accounts payable 318.5 381.9
Customer advances 89.2 61.4
Accrued income taxes 336.2 320.8
Deferred income taxes 11.1 10.2
Other accrued liabilities 882.5 893.9
---------- ----------
1,889.5 1,856.1
Long-Term Debt 503.1 504.0
Deferred Income Taxes 29.7 27.6
Other Liabilities 441.3 437.4
Stockholders' Equity
Common stock - $1.50 par value
Authorized - 250,000,000 shares
Issued - 1994 - 188,301,569 shares 282.5
1993 - 188,328,570 shares 282.5
Additional paid-in capital 438.5 431.5
Retained earnings 2,463.6 2,447.3
Treasury stock - 1994 - 58,220,533 shares (1,481.3)
1993 - 56,769,007 shares (1,428.4)
Accumulated foreign currency translation 49.3 52.9
Pension liability adjustment (12.8) (12.8)
---------- ----------
1,739.8 1,773.0
---------- ----------
Total Liabilities and Stockholders' Equity $ 4,603.4 $ 4,598.1
---------- ----------
---------- ----------
</TABLE>
<PAGE>
Page 5
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>
First Quarter
--------------------
1994 1993
---- ----
<S> <C> <C>
Interest expense $16.4 $18.6
Interest income ( 3.8) ( 3.8)
----- -----
Total $12.6 $14.8
----- -----
----- -----
</TABLE>
Interest paid amounted to $10.9 and $9.8 for the first quarters of 1994 and
1993, 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 $3.8 and
$19.0 for the first quarters of 1994 and 1993 respectively.
(4) Dividends per share of common stock were $.24 and $.2225 for the first
quarters of 1994 and 1993 respectively.
(5) Inventories consist of the following:
<TABLE>
<CAPTION>
April 3, December 31,
1994 1993
--------- ------------
<S> <C> <C>
Finished goods $ 307.6 $ 265.3
Inventories related to long-term contracts 96.1 97.7
Work in process 168.5 168.1
Raw materials and supplies 224.0 229.0
-------- --------
Total $ 796.2 $ 760.1
-------- --------
-------- --------
</TABLE>
(6) Litton Litigation.
On March 13, 1990, Litton Systems Inc. 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 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. Honeywell
has filed counterclaims against Litton alleging, among other things,
violations by Litton of various antitrust laws including attempted
monopolization of markets for inertial systems and interference with
Honeywell's relationships with suppliers.
The trial of the patent infringement and intentional interference claims
commenced June 4, 1993, and on August 31, 1993, a federal court jury in
U.S. District Court in Los Angeles returned a verdict against
<PAGE>
Page 6
Honeywell on each of these claims and awarded damages in the amount of
$1,200.0 and concluded that the patent infringement was willful. Honeywell
believes the verdict is unsupported by the facts; that the Litton patent is
invalid; and that Honeywell's process differs from Litton's. The judge in
the case held a hearing November 22, 1993, on various issues including,
among others, Honeywell's claims that the patent was improperly obtained
due to alleged "inequitable conduct" on the part of Litton and Honeywell's
other legal and equitable defenses. The court has not yet entered a
judgment. The trial will conclude when the court has resolved legal issues
that could alter or eliminate the jury verdict. Honeywell will evaluate the
outcome of the trial, including appealing any significant judgment against
the company. No trial date has been set for the antitrust claims of Litton
and Honeywell.
The court has yet to rule on significant, complex and interrelated issues
that could alter or eliminate the jury verdict; therefore, Honeywell and
its counsel have determined that it is not possible to estimate the amount
of damages, if any, that ultimately may be incurred. As a result, no
provision has been made in the financial statements with respect to this
contingent liability.
(7) As of April 3, 1994, Honeywell had reserved 19,403,657 shares of common
stock for the issuance of shares in connection with employee stock option
and stock bonus plans.
(8) 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 periods ended
April 3, 1994, and April 4, 1993, respectfully. Honeywell's accounting
policies are described in the notes to financial statements in its 1993
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 in the first quarter of 1994 was $47.7 million ($0.36 per share)
compared with $57.3 million ($0.42 per share) in the first quarter of 1993.
Worldwide sales were $1.348 billion in the first quarter of 1994, compared with
$1.439 billion in 1993. Home and Building Control sales increased 6 percent,
benefiting from an improving U.S. economy and growing consumer confidence. Home
Control gained market share as a result of continued acceptance of new products.
Home Control also benefited from inventory restocking as distributors responded
to improved demand, primarily in the United States. Building Control experienced
solid growth with its comprehensive energy retrofit and service solutions.
Excluding year-earlier results for the Keyboard business, which was sold in July
1993, Industrial Control sales were flat for the quarter. Industrial Automation
and Control continued to make inroads in key markets, such as hydrocarbon
processing and pulp and paper, with additional sales of TotalPlant-R- open
solutions. Control Components benefited in the first quarter from an improved
durable goods market in the United States. The business introduced SDS-TM-
Smart Distributed System, a revolutionary sensor network for distributed
machine control. As expected, Space and Aviation Control sales, which declined
21 percent, reflect lower aircraft production rates and reduced government
spending. 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 Honeywell Technology Center, declined in the first quarter of
1994.
Worldwide operating profit was $109.1 million in the first quarter of 1994,
compared with $123.8 million in the first quarter of 1993. Home and Building
Control operating profit increased 10 percent benefiting from increasing volume
in an improving U.S. economy, growing consumer confidence and favorable
developments in certain employee-related liabilities. Industrial Control
operating profit declined 10 percent, primarily as a result of increased R&D
expenditures. Lower aircraft production rates and reduced government spending
resulted in a 36 percent decline in operating profit for Space and Aviation
Control. Other operations had a small operating loss compared with a small
operating profit in 1993.
<PAGE>
Page 7
Total worldwide orders increased 20 percent, compared with the first quarter of
1993. Home and Building Control orders increased 10 percent from year-earlier
levels, with order activity in the targeted segments of schools and health-care
and industrial facilities up more than 20 percent. On a comparable basis,
Industrial Control orders were up 11 percent from year- earlier levels. Orders
in Space and Aviation Control were up more than 20 percent in the quarter as
Space Systems was awarded a significant contract to supply command and
data-handling systems for the International Space Station Alpha, and as Military
Avionics reported strong retrofit orders.
FINANCIAL CONDITION
Cash flow generated from operations net of investment activities for the first
quarter of 1994 was $13.4 million.
Debt as a percentage of total capital at the end of the first quarter was 30.3
percent compared with 28.1 percent at the end of 1993. Long-term debt declined
$1 million and short-term debt increased $64 million from 1993 year-end to
finance general corporate requirements, including working capital.
Common shares outstanding decreased by 1,478,527 from the end of 1993 to 130.1
million. Shares repurchased during the first quarter of 1994 totaled 1,833,000
at a cost of $61.2 million. Shares issued through employee stock plans totaled
354,473. Stockholders' equity decreased to $1,740 million from $1,773 million at
the end of 1993. The decrease in stockholders' equity includes a $16 million
addition to retained earnings resulting from current year earnings less
dividends offset by $46 million in net treasury stock transactions and a $3
million reduction due to changes in the accumulated foreign currency translation
balance.
On August 31, 1993, a federal court jury in U.S. District Court in Los Angeles
returned a verdict against Honeywell on patent infringement and intentional
interference claims in the amount of $1.2 billion. These claims were part of a
lawsuit brought by Litton Systems Inc. alleging, among other things, Honeywell
patent infringement relating to the process used by Honeywell to coat mirrors
incorporated in its ring laser gyroscopes. Honeywell believes the verdict is
unsupported by the facts; that the Litton patent is invalid; and that
Honeywell's process differs from Litton's. The judge in the case held a hearing
November 22, 1993, on various issues including, among others, Honeywell's claims
that the patent was improperly obtained due to alleged "inequitable conduct" on
the part of Litton and Honeywell's other legal and equitable defenses. The court
has yet to enter a judgment. The trial will conclude when the court has resolved
legal issues that could alter or eliminate the jury verdict. Honeywell will
evaluate the outcome of the trial, including appealing any significant judgment
against the company. No trial date has been set for the antitrust claims of
Litton and Honeywell.
The court has yet to rule on significant, complex and interrelated issues that
could alter or eliminate the jury verdict; therefore, Honeywell and its counsel
have determined that it is not possible to estimate the amount of damages, if
any, that may ultimately be incurred. As a result, no provision has been made in
the financial statements with respect to this contingent liability. Honeywell
continues to believe the lawsuit is without merit, and its financial position,
liquidity and business strategies have not been adversely affected by the jury
verdict.
On April 3, 1994, Honeywell had $1,875 million of committed credit lines with
fourteen banks. There were no borrowings under these lines. In addition, certain
foreign units had $333 million in credit lines available at the end of the first
quarter. The company believes its liquidity is adequate to meet its financing
requirements, including support of commercial paper and bank note borrowings and
an appeal bond that could be required in the Litton litigation.
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
Investor Service, Inc. On August 31, 1993, Moody's Investor Service, Inc. placed
Honeywell on credit watch status as a result of the jury verdict in the Litton
litigation. Any lowering of Honeywell's present credit ratings could lead to
higher interest costs by potentially reducing Honeywell's ability to access the
commercial paper market and other unsecured borrowing sources on terms as
favorable as those currently available.
<PAGE>
Page 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As previously reported in Item 3. "Legal Proceedings" of Part I of
Honeywell's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, 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.
The information reported in Note (6) to the Financial Statements set
forth in Item 1 of Part I of this report and the information reported
in Item 2 of Part I of this report regarding the financial condition of
the company, both with respect to recent developments in this
litigation, are incorporated by reference into this Item 1.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(11) Computation of Earnings Per Share.
<PAGE>
Page 9
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: May 18, 1994 By: /s/ E. D. Grayson
-------------------------------------
E. D. Grayson
Vice President and General Counsel
Date: May 18, 1994 By: /s/ W. M. Hjerpe
-------------------------------------
W. M. Hjerpe
Vice President and Controller
(Chief Accounting Officer)
<PAGE>
EXHIBIT (11)
HONEYWELL INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 4, APRIL 3,
1994 1993
----------- -----------
<S> <C> <C>
PRIMARY:
Income:
Net income............................................... $ 47.7 $ 57.3
----------- -----------
----------- -----------
Shares:
Weighted average of shares outstanding during the year... 130,837,509 136,122,503
----------- -----------
----------- -----------
Earnings per share:
Net income............................................... $ 0.36 $ 0.42
----------- -----------
----------- -----------
ASSUMING FULL DILUTION:
Income:
Net income............................................... $ 47.7 $ 57.3
----------- -----------
----------- -----------
Shares:
Weighted average of shares outstanding during the year... 130,837,509 136,122,503
Shares issuable in connection with stock plans
less shares purchaseable from proceeds.................. 726,095 1,012,427
----------- -----------
Total Shares........................................... 131,563,604 137,134,930
----------- -----------
----------- -----------
Earnings per share:
Net income............................................... $ 0.36 $ 0.42
----------- -----------
----------- -----------
</TABLE>
