<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 2, 1995
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 2, 1995, the number of shares outstanding of the registrant's
common stock, $1.50 par value, was 127,059,761.
<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) 1995 1994
...............................................................................
<S> <C> <C>
SALES $ 1,478.7 $ 1,347.9
---------- ----------
COSTS AND EXPENSES
Cost of sales 1,013.2 917.3
Research and development 78.8 72.2
Selling, general and administrative 287.9 270.6
Interest - net 17.3 12.6
Equity (income) loss (1.4) 1.2
---------- ----------
1,395.8 1,273.9
---------- ----------
INCOME BEFORE INCOME TAXES 82.9 74.0
PROVISION FOR INCOME TAXES 28.2 26.3
---------- ----------
NET INCOME $ 54.7 $ 47.7
---------- ----------
---------- ----------
EARNINGS PER COMMON SHARE $ 0.43 $ 0.36
---------- ----------
---------- ----------
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 127,156,836 130,837,509
</TABLE>
<PAGE>
Page 3
STATEMENT OF CASH FLOWS
HONEYWELL INC. AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months
---------------------
(DOLLARS IN MILLIONS) 1995 1994
...............................................................................
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 54.7 $ 47.7
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation 57.8 57.6
Amortization of intangibles 13.5 12.5
Deferred income taxes 13.2 1.0
Equity (income) loss, net of dividends received (1.4) 1.2
Loss on sale of assets 0.4 0.5
Contributions to employee stock plans 8.7 8.7
Decrease in receivables 19.0 9.0
Increase in inventories (50.0) (44.9)
Decrease in accounts payable (56.6) (61.8)
Increase in accrued income taxes and interest 14.0 23.6
Other changes in working capital, excluding short-term
investments and short-term debt (20.0) 16.5
Other noncurrent items - net (16.9) (16.1)
------ ------
Net cash flows from operating activities 36.4 55.5
------ ------
Cash Flows from Investing Activities
Proceeds from sale of assets 2.5 6.2
Capital expenditures (53.0) (65.2)
Investment in acquisitions (25.4) (5.7)
(Increase) decrease in short-term investments (7.1) 1.4
Other - net 3.4 21.2
------ ------
Net cash flows from investing activities (79.6) (42.1)
------ ------
Cash Flows from Financing Activities
Net increase in short-term debt 38.9 67.2
Repayment of long-term debt (10.2) (0.2)
Purchase of treasury stock (25.0) (58.6)
Proceeds from exercise of stock options 15.5 3.5
Dividends paid (31.4) (31.3)
------ ------
Net cash flows from financing activities (12.2) (19.4)
------ ------
Effect of Exchange Rate Changes on Cash 10.8 0.2
------ ------
Decrease in Cash and Cash Equivalents (44.6) (5.8)
Cash and Cash Equivalents at Beginning of Year 267.4 242.3
------ ------
Cash and Cash Equivalents at End of Three Months $222.8 $236.5
------ ------
------ ------
</TABLE>
<PAGE>
Page 4
STATEMENT OF FINANCIAL POSITION
HONEYWELL INC. AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) April 2, 1995 December 31, 1994
.............................................................................................
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 222.8 $ 267.4
Short-term investments 14.9 7.4
Receivables (less allowance for doubtful accounts:
1995, $32.2; 1994, $31.1) 1,417.9 1,406.9
Inventories (less progress billing on uncompleted
contracts: 1995, $40.1; 1994, $32.5) 819.3 760.2
Deferred income taxes 193.7 207.5
--------- ---------
2,668.6 2,649.4
Investments and Advances 237.4 242.8
Property, Plant and Equipment
Property, plant and equipment 2,830.3 2,716.8
Less accumulated depreciation 1,716.1 1,617.3
--------- ---------
1,114.2 1,099.5
Other Assets
Long-term receivables (less allowance for doubtful
accounts: 1995, $0.7; 1994, $0.7) 58.9 40.1
Intangible assets 581.1 566.2
Deferred income taxes 102.0 98.5
Other 202.9 189.4
-------- --------
Total Assets $ 4,965.1 $ 4,885.9
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 390.1 $ 360.6
Accounts payable 381.7 429.6
Customer advances 82.7 72.6
Accrued income taxes 318.9 309.6
Deferred income taxes 6.7
Other accrued liabilities 894.2 899.4
--------- ---------
2,074.3 2,071.8
Long-Term Debt 516.4 501.5
Deferred Income Taxes 37.5 39.8
Other Liabilities 415.4 418.1
Stockholders' Equity
Common stock - $1.50 par value
Authorized - 250,000,000 shares
Issued - 1995 - 188,275,492 shares 282.4
1994 - 188,286,000 shares 282.4
Additional paid-in capital 456.7 446.9
Retained earnings 2,623.4 2,600.4
Treasury stock - 1995 - 61,215,731 shares (1,595.2)
1994 - 61,030,565 shares (1,576.5)
Accumulated foreign currency translation 160.1 107.4
Pension liability adjustment (5.9) (5.9)
--------- ---------
1,921.5 1,854.7
--------- ---------
Total Liabilities and Stockholders' Equity $ 4,965.1 $ 4,885.9
--------- ---------
--------- ---------
</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
-----------------
1995 1994
------ -----
<S> <C> <C>
Interest expense $20.8 $16.4
Interest income (3.5) (3.8)
----- -----
Total $17.3 $12.6
----- -----
----- -----
</TABLE>
Interest paid amounted to $13.5 and $10.9 for the first quarters of
1995 and 1994, 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 $(3.5) and $3.8 for the first quarters of 1995 and 1994
respectively.
(4) Dividends per share of common stock were $.25 and $.24 for the first
quarters of 1995 and 1994 respectively.
(5) Inventories consist of the following:
<TABLE>
<CAPTION>
April 2, December 31,
1995 1994
-------- ------------
<S> <C> <C>
Finished goods $338.0 $297.4
Inventories related to long-term contracts 93.9 89.1
Work in process 174.0 156.9
Raw materials and supplies 213.4 216.8
------ ------
Total $819.3 $760.2
------ ------
------ ------
</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 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 in
European markets 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.
<PAGE>
Page 6
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 award in 1993 was
inconsistent with the clear weight of the evidence and permitting it to
stand would constitute a miscarriage of justice. Litton has filed its
notice of appeal of that judgment to the Federal Circuit Court of Patent
Appeals, Washington, D.C. Briefing and arguments by the parties on the
patent appeal are expected to be concluded in the Fall of 1995 with a
decision expected to follow shortly thereafter. In the companion
antitrust case, Honeywell has filed a motion for summary judgment to
dismiss all of Litton's claims as groundless. If any of Litton's
various antitrust claims survive that motion, a trial is scheduled to
commence in November 1995 before Judge Pfaelzer and a different jury.
Honeywell believes that the patent judgment against Litton will be
upheld on appeal, and that Litton's antitrust claims are without merit.
As a result, no provision has been made in the financial statements with
respect to this contingent liability.
(7) As of April 2, 1995, Honeywell had reserved 13,524,423 shares of
common stock for the issuance of shares in connection with 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 2, 1995, and April 3, 1994, respectfully.
Honeywell's accounting policies are described in the notes to financial
statements in its 1994 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 1995 was $54.7 million ($0.43 per share)
compared with $47.7 million ($0.36 per share) in the first quarter of 1994.
Worldwide sales were $1.479 billion in the first quarter of 1995, compared
with $1.348 billion in 1994. The weakness of the U.S. dollar had a positive
translation effect of approximately two percent on sales and orders compared
with the first quarter of 1994. This resulted in a two percent to three
percent benefit for both the Home and Building Control and Industrial Control
business segments for the first quarter of 1995. The increase in net
interest expense in the first quarter of 1995 was due primarily to an
increase in the interest rate on Honeywell's floating debt portfolio of
approximately three percentage points on average and higher debt levels.
Positive performance by companies which are owned 20 percent to 50 percent by
Honeywell provided equity income in the first quarter of 1995 compared with a
loss in the first quarter of 1994.
Home and Building Control sales increased 12 percent, benefiting from an
improving economy in Europe and continued economic strength in the United
States. Home Control's strong international performance was led by growth in
sales of combustion control and water control products. Building Control
experienced solid growth with its comprehensive energy retrofit and service
solutions. During the quarter, Honeywell announced two strategic
acquisitions that enable the business to provide a broader range of product
and service solutions: DMC Services, Inc., based in Massachusetts, which
serves the increasingly important utilities market; and Mantenimiento y
Control S.A., a Barcelona, Spain-based company that specializes in the
installation and maintenance of building management systems. Approximately
three to four percent of Home and Building Control sales growth is
acquisition related. Industrial Control sales increased 17 percent for the
quarter. Industrial Automation and Control continued to make inroads in key
markets such as pulp and paper as a result of increased demand for
TotalPlant-TM- open solutions. Sensing and Control benefited in the first
quarter from an increased demand in the onboard automotive and data
communications sectors. During the quarter, the business introduced SDS
(Smart Distributed System), a revolutionary sensor network for distributed
machine control, into Europe. Also during the quarter, Micro Switch
announced plans to expand its manufacturing facility in Freeport, Ill., by
more than 30
<PAGE>
Page 7
percent to meet the growing demand in its electronic sensor business. Space
and Aviation Control sales were flat for the quarter as increased sales in
the business jet market offset reduced government sales. Sales from other
operations which do not correspond with Honeywell's primary business
segments, including the activities of various units such as the Solid State
Electronics and the Honeywell Technology research and development centers,
declined in the first quarter of 1995.
Worldwide operating profit was $124.4 million in the first quarter of 1995,
compared with $109.1 million in the first quarter of 1994. Home and Building
Control operating profit increased 10 percent led by Home Control's strong
international volume increases. Industrial Control operating profit
increased 21 percent, primarily as a result of profits from the increased
demand for Sensing and Control products. Space and Aviation Control
operating profit increased 7 percent as a result of cost cutting activities
and the mix of programs in the Military business which earned revenue in the
quarter. Industrial Control and Space and Aviation Control also benefited
from favorable developments in certain employee-related liabilities. Other
operations had a small operating profit for the quarter compared with a small
operating loss in 1994.
Total worldwide orders increased 10 percent, compared with the first quarter
of 1994. Home and Building Control orders increased 15 percent from
year-earlier levels. Industrial Control orders were up more than 11 percent
for the quarter, with Industrial Automation and Control experiencing solid
order activity in the United States and international markets, including
China. Orders in Space and Aviation Control were down 4 percent from a
strong year-earlier quarter in which Honeywell won a substantial multi-year
space station contract.
FINANCIAL CONDITION
Stockholders' equity increased to $1,922 million from $1,855 million at the
end of 1994. The increase in stockholders' equity includes a $23 million
addition to retained earnings resulting from current year earnings less
dividends and a $53 million increase in the accumulated foreign currency
translation balance, partially offset by $9 million of net treasury stock
transactions.
Common shares outstanding decreased by 195,674 from the end of 1994 to 127.1
million. Shares repurchased during the first three months of 1995 totaled
850,000 at a cost of $31.7 million. Shares issued through stock option and
stock bonus plans totaled 654,326.
Debt as a percentage of total capital at the end of the first quarter was
32.1 percent compared with 31.7 percent at the end of 1994. Total debt
increased $44.4 million from 1994 year end. The increase was used to finance
general corporate requirements, including capital expenditures and working
capital, and $25.4 million of acquisitions.
Cash flows provided by operating activities less cash flows used by investing
activities for the first three months of 1995 resulted in a net use of $43.2
million.
Cash used for increases in the portion of working capital, consisting of
trade and long-term receivables and inventories offset by accounts payable
and customer advances, increased $85 million or 5% of working capital, which
is consistent with continued volume increases in sales and orders.
During 1994, 1993 and 1992 Honeywell established total reserves of $242.3
million for productivity initiatives to strengthen the company's
competitiveness. Expenditures of $18.1 million in the first quarter of 1995
included $14.0 million and $4.1 million related to work force reduction costs
and facilities consolidation costs, respectively. Accrued costs remaining to
be funded include $42.1 million related to work force reduction costs and
$12.4 million related to factory consolidation costs. Future cash flows from
operating activities are expected to be sufficient to fund these accrued
costs.
On April 2, 1995, Honeywell had $737 million of domestic committed credit
lines with twenty-one banks. There were no borrowings under these lines. In
addition, certain foreign units had $356 million in credit lines available
<PAGE>
Page 8
at the end of the first quarter. Honeywell believes its available cash,
committed credit lines and access to the public debt markets through its $500
million medium-term note program provide adequate short-term and long-term
liquidity.
Subsequent to the end of the first quarter, Honeywell issued $121 million of
medium-term notes with maturities ranging from 3 to 7 years. The proceeds
were used to repay outstanding commercial paper. Following this issuance,
$222 million was outstanding under the $500 million medium-term note program.
Honeywell's credit ratings remained unchanged during the quarter. Rating for
long-term and short-term debt are, respectively, A/A-1 by Standard and Poor's
Corporation, A/Duffl by Duff and Phelps Corporation and A3/P-2 by Moody's
Investors Service, Inc. On January 10, 1995, Moody's removed Honeywell from
credit watch and affirmed the A3/P-2 debt rating as a result of a favorable
court decision in the Litton litigation.
Honeywell utilizes various foreign currency exchange contracts and interest
rate swaps to manage its exposure to exchange rate and interest rate
fluctuations and its mix of fixed and floating interest rates. At April 2,
1995, the notional amount of outstanding foreign exchange contracts was
approximately $1.151 billion. The amount of hedging gains and losses
deferred was not material at April 2, 1995. The notional amount of
outstanding interest rate swaps was $232.5 million at April 2, 1995.
<PAGE>
Page 9
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, 1994, 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.
(12) Computation of Ratio of Earnings to Fixed Charges.
(27) Financial Data Schedule.
(b) (i) On January 9, 1995, the registrant filed a report on Form
8-K with respect to a Memorandum of Decision issued by Judge
Mariana R. Pfaelzer of the U.S. District Court in Los Angeles in
the matter of Litton Systems, Inc. v. Honeywell Inc.
(ii) On February 6, 1995, the registrant filed a report on
Form 8-K announcing the initiation of a share repurchase program
on that date and the completion of a prior share repurchase
program.
<PAGE>
Page 10
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 15, 1995 By: /s/ E. D. Grayson
---------------------------------
E. D. Grayson
Vice President and General Counsel
Date: May 15, 1995 By: /s/ P. M. Palazzari
---------------------------------
P. M. Palazzari
Vice President and Controller
(Chief Accounting Officer)
<PAGE>
Page 11
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
<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 2, APRIL 3,
1995 1994
------------ ------------
<S> <C> <C>
PRIMARY:
Income:
Net Income.................................................. $ 54.7 $ 47.7
------------ ------------
------------ ------------
Shares:
Weighted average of shares outstanding during the year....... 127,156,836 130,837,509
------------ ------------
------------ ------------
Earnings per share:
Net income................................................... $ 0.43 $ 0.36
------------ ------------
------------ ------------
ASSUMING FULL DILUTION:
Income:
Net income................................................... $ 54.7 $ 47.7
------------ ------------
------------ ------------
Shares:
Weighted average of shares outstanding during the year....... 127,156,836 130,837,509
Shares issuable in connection with stock plans
less shares purchaseable from proceeds...................... 1,210,652 726,095
------------ ------------
Total Shares............................................. 128,367,488 131,563,604
------------ ------------
------------ ------------
Earnings per share:
Net income................................................... $ 0.43 $ 0.36
------------ ------------
------------ ------------
</TABLE>
i
<PAGE>
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)
<TABLE>
<CAPTION>
Three Months Ended
April 2, 1995
------------------
<S> <C>
Income before Income Taxes................................. $ 82.90
Deduct:
Equity income............................................ 1.40
-------
Subtotal................................................. 81.50
Add (deduct):
Dividends from less than 50% owned companies............. -
Proportional shares of income (loss) before
income taxes of 50% owned companies..................... 0.04
-------
Adjusted income............................................ 81.54
-------
Fixed charges
Interest on Indebtedness................................. 20.08
Amortization of Debt Expense............................. 0.68
Interest Portion of Rent Expense......................... 12.16
-------
Total Fixed Charges........................................ 32.92
-------
Total Available Income..................................... $114.46
-------
-------
Ratio of Earnings to Fixed Charges......................... 3.48
-------
-------
</TABLE>
ii
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HONEYWELL
INC. AND SUBSIDIARIES FINANCIAL DATA SCHEDULE WORKSHEET EX-27 APRIL 2, 1995 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> APR-02-1995
<CASH> 223
<SECURITIES> 15
<RECEIVABLES> 1450
<ALLOWANCES> 32
<INVENTORY> 819
<CURRENT-ASSETS> 2669
<PP&E> 2830
<DEPRECIATION> 1716
<TOTAL-ASSETS> 4965
<CURRENT-LIABILITIES> 2074
<BONDS> 516
<COMMON> 282
0
0
<OTHER-SE> 1639
<TOTAL-LIABILITY-AND-EQUITY> 4965
<SALES> 1479
<TOTAL-REVENUES> 1479
<CGS> 1013
<TOTAL-COSTS> 1013
<OTHER-EXPENSES> 79
<LOSS-PROVISION> 3
<INTEREST-EXPENSE> 21
<INCOME-PRETAX> 83
<INCOME-TAX> 28
<INCOME-CONTINUING> 55
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.43
</TABLE>
