Page 9
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 June 30, 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 June 30, 1996, the number of shares outstanding of the
registrant's common stock, $1.50 par value, was 126,566,332.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INCOME STATEMENT
Honeywell Inc. and Subsidiaries
(Unaudited)
<TABLE>
<CAPTION>
Second Quarter Ended
------------------------------
(Dollars in Millions Except Per Share Amounts) June 30, 1996 July 2, 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
SALES $ 1,771.6 $ 1,655.6
----------- -----------
COSTS AND EXPENSES
Cost of sales 1,222.6 1,137.8
Research and development 82.5 83.4
Selling, general and administrative 330.0 317.5
Interest - net 18.7 18.3
Equity income (8.3) (5.7)
----------- -----------
1,645.5 1,551.3
----------- -----------
----------- -----------
INCOME BEFORE INCOME TAXES 126.1 104.3
PROVISION FOR INCOME TAXES 42.8 35.4
----------- -----------
NET INCOME $ 83.3 $ 68.9
----------- -----------
----------- -----------
EARNINGS PER COMMON SHARE $ 0.66 $ 0.54
----------- -----------
----------- -----------
</TABLE>
INCOME STATEMENT
Honeywell Inc. and Subsidiaries
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
------------------------------
(Dollars in Millions Except Per Share Amounts) June 30, 1996 July 2, 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
SALES $ 3,391.1 $ 3,134.3
------------- -----------
COSTS AND EXPENSES
Cost of sales 2,331.6 2,151.0
Research and development 167.6 162.2
Selling, general and administrative 639.3 605.4
Interest - net 35.8 35.6
Equity income (8.0) (7.1)
------------- -----------
3,166.3 2,947.1
------------- -----------
INCOME BEFORE INCOME TAXES 224.8 187.2
PROVISION FOR INCOME TAXES 76.4 63.6
------------- -----------
NET INCOME $ 148.4 $ 123.6
------------- -----------
EARNINGS PER COMMON SHARE $ 1.17 $ 0.97
------------- -----------
------------- -----------
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 126,738,415 127,196,122
</TABLE>
STATEMENT OF CASH FLOWS
Honeywell Inc. and Subsidiaries
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
-----------------------
- ---------
(Dollars in Millions) June 30, 1996 July
2, 1995
- --------------------------------------------------------------------------------
- ---------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 148.4 $ 123.6
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation 112.0 118.8
Amortization of intangibles 24.5 28.2
Deferred income taxes 1.7 14.9
Equity income, net of dividends received (6.6) (7.1)
(Gain) loss on sale of assets (4.1) 1.7
Contributions to employee stock plans 20.3 15.9
Decrease in receivables 86.0 18.1
Increase in inventories (78.7) (56.2)
Decrease in accounts payable (52.3) (31.1)
Decrease in accrued income taxes and interest (25.3) (32.3)
Other changes in working capital, excluding short-term
investments and short-term debt (61.0) (23.5)
Other noncurrent items - net 6.1 (20.1)
----------- ----
- -------
Net cash flows from operating activities 171.0 150.9
----------- ----
- -------
Cash Flows from Investing Activities
Proceeds from sale of assets 39.2 11.1
Capital expenditures (144.5) (115.6)
Investment in acquisitions, net of cash acquired (316.6) (31.4)
Increase in short-term investments (2.4)
Other - net (2.0) 0.4
----------- ----
- -------
Net cash flows from investing activities (423.9) (137.9)
----------- ----
- -------
Cash Flows from Financing Activities
Net increase (decrease) in short-term debt 1.8 (54.2)
Proceeds from issuance of long-term debt 299.8 123.0
Repayment of long-term debt (104.0) (10.4)
Purchase of treasury stock (98.9) (58.7)
Proceeds from exercise of stock options 28.5 31.4
Dividends paid (66.0) (63.8)
----------- ----
- -------
Net cash flows from financing activities 61.2 (32.7)
----------- ----
- -------
Effect of Exchange Rate Changes on Cash (5.5) 10.5
----------- ----
- -------
Decrease in Cash and Cash Equivalents (197.2) (9.2)
----------- ----
- -------
Cash and Cash Equivalents at Beginning of Year 291.6 267.4
Cash and Cash Equivalents at End of Six Months $ 94.4 $ 258.2
----------- ----
- -------
----------- ----
- -------
</TABLE>
STATEMENT OF FINANCIAL POSITION
Honeywell Inc. and Subsidiaries
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in Millions) June 30, 1996
December 31, 1995
- --------------------------------------------------------------------------------
- ----------------
<S> <C>
<C>
Assets
Current Assets
Cash and cash equivalents $ 94.4 $ 291.6
Short-term investments 8.9 9.0
Receivables (less allowance for doubtful accounts:
1996, $33.3; 1995, $34.5) 1,437.2 1,477.3
Inventories (less progress billing on uncompleted
contracts: 1996, $49.0; 1995, $56.4) 912.3 794.4
Deferred income taxes 196.0 194.6
------------ ------------
2,648.8 2,766.9
Investments and Advances 238.2 244.8
Property, Plant and Equipment
Property, plant and equipment 2,960.7 2,857.1
Less accumulated depreciation 1,827.6 1,758.2
------------ ------------
1,133.1 1,098.9
Other Assets
Long-term receivables (less allowance for doubtful
accounts: 1996, $0.7; 1995, $0.7) 23.2 46.8
Intangible assets 835.4 624.2
Deferred income taxes 71.4 71.8
Other 217.2 206.8
------------ ------------
Total Assets $ 5,167.3 $ 5,060.2
------------ ------------
------------ ------------
Liabilities and Stockholders' Equity
Current Liabilities
Short-term debt $ 315.5 $ 312.4
Accounts payable 466.6 491.5
Customer advances 169.5 158.2
Accrued income taxes 254.1 274.8
Deferred income taxes 18.8 20.4
Other accrued liabilities 705.3 765.2
1,929.8 2,022.5
------------ ------------
Long-Term Debt 674.5 481.0
Deferred Income Taxes 49.3 39.2
Other Liabilities 487.1 477.4
Stockholders' Equity
Common stock - $1.50 par value
Authorized - 250,000,000 shares
Issued - 1996 - 187,931,129 shares 281.9
1995 - 188,126,704 shares 282.2
Additional paid-in capital 498.0 481.3
Retained earnings 2,888.5 2,805.8
Treasury stock - 1996 - 61,364,797 shares (1,721.2)
1995 - 61,306,251 shares (1,650.2)
Accumulated foreign currency translation 98.9 140.9
Pension liability adjustment (19.5) (19.9)
------------ ------------
2,026.6 2,040.1
------------ ------------
Total Liabilities and Stockholders' Equity $ 5,167.3 $ 5,060.2
------------ ------------
------------ ------------
</TABLE>
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 Ended Six Months Ended
---------------------------- ---------------------------
June 30, 1996 July 2, 1995 June 30, 1996 July 2, 1995
-------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Interest expense $19.3 $22.4 $40.2 $43.2
Interest income ( 0.6) ( 4.1) ( 4.4) ( 7.6)
------ ------ ------ ------
Total $18.7 $18.3 $35.8 $35.6
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
Interest paid amounted to $30.0 and $42.2 for the second quarter and six
months of 1996 and $30.2 and $43.7 for the second quarter and six 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 $74.1 and
$93.2 for the second quarter and six months of 1996 and $75.7 and $72.2 for
the second quarter and six months of 1995, respectively.
(4) Dividends per share of common stock were $0.26 and $0.52 for the second
quarter and six months of 1996 and $0.25 and $0.50 for the second quarter
and six months of 1995, respectively.
(5) Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- --------------
<S> <C> <C>
Finished goods $ 418.4 $ 356.6
Inventories related to long-term contracts 104.6 73.6
Work in process 162.7 159.5
Raw materials and supplies 226.6 204.7
Total $ 912.3 $ 794.4
--------- ---------
--------- ---------
</TABLE>
(6) Litton 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 state tort 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 has requested a rehearing by the full
Court of Appeals.
No decision has been issued with respect to Honeywell's request for a
rehearing by the full Court of Appeals. The case will conclude only when
the appellate courts resolve all of the legal issues that could reduce or
eliminate the jury verdict; and if 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 of the U.S. District Court in Los Angeles. 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 dealings 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, Judge Pfaelzer 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 issues of
damages only.
No date has been set for a new trial on the issue of damages. The case will
conclude only 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.
(7) As of June 30, 1996, Honeywell had reserved 9,395,210 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 second quarter and six 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 six-month
periods ended June 30, 1996, and July 2, 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 $83.3 million ($0.66 per share) and $148.4 million ($1.17 per
share) for the second quarter and six months of 1996 compared with $68.9 million
($0.54 per share) and $123.6 million ($0.97 per share) for the second quarter
and six months of 1995.
Worldwide sales increased 7 percent to $1,772 million for the second quarter and
8 percent to $3,391 million for the six months of 1996. Operating profit
increased 12 percent to $164.9 million for the second quarter and 14 percent to
$308.7 million for the six months of 1996. Orders increased 10 percent for the
second quarter and 7 percent for the six months when compared with last year. A
stronger U.S. dollar in the second quarter had a negative translation effect on
total orders and sales of approximately 1 percent to 2 percent and minimal
effect on profits for the quarter. On a year-to-date basis, the translation
effect has been neutral. Cost of sales was up slightly to 69.0 percent of sales
for the second quarter compared with 68.7 percent in the second quarter of 1995
reflecting lower margins in Home and Building Control. Earnings of companies
owned 20 percent to 50 percent, which are accounted for using the equity method,
increased for the second quarter compared with 1995 primarily as a result of
higher earnings at Yamatake-Honeywell Co., Ltd., and Lucky-Goldstar Honeywell,
our Korean joint venture.
Home and Building Control sales and operating profit increased 8 percent and 4
percent, respectively, for the second quarter and 8 percent and 6 percent,
respectively, for the six months of 1996. Orders were up 8 percent for the
second quarter and six months of 1996. Currency translation negatively impacted
sales and orders by 2 percent to 3 percent for the quarter. Home Control sales
showed strong second quarter growth benefiting primarily from the Duracraft
acquisition completed in March, 1996. Margins in Home Control declined in the
second quarter due to integration costs and the amortization of goodwill
associated with the Duracraft acquisition. Adjusted for Duracraft orders, Home
Control orders were down slightly in the second quarter of 1996. Building
Control sales improved modestly for the second quarter and six months of 1996;
operating profit declined, however, as continued profitability improvement in
installed systems and building security was offset by a lower-than-planned
volume of energy retrofit sales. Building Control orders increased slightly in
the second quarter primarily as a result of energy retrofit market strength in
the United States. During the second quarter Honeywell announced the
acquisition of Nord-Alarm and its subsidiaries, a German fire and security
installation and maintenance company. This acquisition positions Honeywell as a
total solution supplier for integrated building management systems in Central
Europe.
Industrial Control sales and operating profit increased 12 percent and 16
percent, respectively, for the second quarter of 1996. Sales and operating
profit increased 11 percent for the six months of 1996. Orders were up 7
percent for the second quarter and 6 percent for the six months of 1996.
Currency translation had an approximately 3 percent negative impact on sales and
orders for the quarter. Industrial Automation and Control sales and operating
profit were up sharply in the second quarter and six months of 1996. Sales in
the chemical and power generation markets picked up in North America as a result
of productivity and regulatory requirements, and sales in the hydrocarbon
processing and chemical industries also picked up in Europe. Margin improvement
initiatives put in place last year, including the North American overhead
reduction and the project management focus, continue to enhance operating
margins. Industrial Automation and Control orders increased modestly in the
second quarter. Strong order activity in the United States and Europe was
offset by the combination of a negative currency impact, order declines in Latin
America, and order declines in Asia Pacific compared to exceptionally strong
orders for the region in the second quarter of 1995. The acquisition of the
Leeds & Northrup measurement and control business completed in the first quarter
of 1996 contributed approximately 3 percent to Industrial Automation and Control
sales and orders in the second quarter of 1996. During the second quarter,
Industrial Automation and Control introduced TotalPlant-Registered Trademark-
Solution System, (TPS-TM-) the first industrial automation system designed to
unify business and control information throughout a plant or mill. The new
system, which takes full advantage of the power of Microsoft's Windows NT
operating system, enables users to improve productivity and profitability and
more easily meet or exceed environmental regulations. The business also
acquired the assets of Canada-based In-Line Measurements Inc. to expand its
TotalPlant-Registered Trademark- capabilities and offerings in the pulp and
paper industry. Sensing and Control sales increased slightly and operating
profit declined moderately in the second quarter and six months of 1996.
Operating profit was negatively affected by product mix, as we experienced low
sales volume in the industrial distribution business which carries higher
margins. Sensing and control orders were strong in the second quarter of 1996
with strength in on-board automotive orders in Europe and Latin America and
strengthening in the appliance and automotive markets in the United States.
Sensing and Control introduced a unique miniature flow-through pressure sensor
that measures pressure in medical, environmental and industrial applications
The business was also selected by Dow Chemical as exclusive global supplier for
solenoid valves to be used on Dow's automated valve packages.
Space and Aviation Control sales and operating profit increased 1 percent and 23
percent, respectively, for the second quarter and 7 percent and 34 percent,
respectively, for the six months of 1996. Orders increased 17 percent for the
quarter and 6 percent for the six months of 1996 as a result of strong order
activity for Commercial Aviation Systems. Commercial Aviation Systems sales
declined in the second quarter, but operating profit was up sharply in the
second quarter of 1996. Sales declined in the second quarter of 1996 compared
with the second quarter of 1995 when Honeywell made unusually large Boeing 777
initial spares shipments and significant Collision Avoidance system shipments to
European carriers. Second quarter and year-to-date operating profit improvement
is the result of volume increases in business and commuter aviation coupled with
continued efficiency improvements and lower R&D spending in Air Transport.
Military Avionics sales increased while operating profit declined for the second
quarter and six months of 1996. The decline in profit is the result of varied
timing and profitability of production contracts and increased development
expenses related to new programs. Space Systems sales increased while operating
profit declined for the second quarter and six months of 1996. The profit
decline is a result of the lower margin mix of programs.
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 for the second quarter and six months of 1996. These units had
operating profits of $3.6 million and $4.5 million for the six months of 1996
and 1995, respectively.
Financial Condition
Stockholders' equity decreased to $2,027 million from $2,040 million at the end
of 1995. Stockholders' equity includes an increase of $83 million to retained
earnings resulting from current year earnings less dividends offset by a $42
million decrease in the accumulated foreign currency translation balance and $54
million of net treasury stock transactions.
Common shares outstanding decreased from 126.8 million at the end of 1995 to
126.6 million. Shares repurchased during the first six months of 1996 totaled
1.9 million at a cost of $99 million. Shares issued through stock option and
stock bonus plans totaled 1.6 million shares and yielded $29 million in
proceeds.
Debt as a percentage of total capital at the end of the second quarter was 32.8
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 and working capital, and $317
million of acquisitions (net of cash required).
Cash flows used by investing activities exceeded cash flows from operating
activities by $253 million in the first six months of 1996, primarily due to
acquisition activities and capital expenditures offset by proceeds from asset
sales.
On June 30, 1996, Honeywell had $725 million of revolving committed credit lines
with twenty-one banks. There were no outstanding borrowings under these lines.
In addition, certain foreign units had $357 million in credit lines available at
the end of the second 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.
During the second quarter of 1996, Honeywell issued $300 million of long-term
debt through an underwritten offering with maturities of 5 and 12 years.
Honeywell has entered into interest rate swap agreements effectively converting
this debt from fixed-rate debt to floating-rate debt. The proceeds were used to
repay outstanding commercial paper.
Honeywell's credit rating for long-term and short-term debt are, 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.
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 June 30, 1996, the notional amount of outstanding
foreign exchange contracts was approximately $1,087 million. The amount of
hedging gains and losses deferred was not material at June 30, 1996. The
notional amount of outstanding interest rate swaps was $515 million at June 30,
1996.
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.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of Honeywell Inc. in Minneapolis,
Minnesota, on April 16, 1996, a proposal, to elect directors for the year
commencing April 17, 1996, was submitted to a vote of shareholders. A
majority of the shares represented by proxy or in person at the meeting
were voted in favor of electing management's nominees for directors as
follows:
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
Albert J. Baciocco, Jr. 104,938,808 949,152
Elizabeth E. Bailey 104,932,144 955,816
Michael R. Bonsignore 104,935,609 952,351
Earnest Hubert Clark, Jr. 104,967,534 920,426
William H. Donaldson 104,950,502 937,458
R. Donald Fullerton 104,949,289 938,671
Catherine M. Hapka 104,931,067 956,893
James J. Howard 105,000,405 887,555
Bruce E. Karatz 104,968,143 919,817
D. Larry Moore 104,888,247 999,713
A. Barry Rand 104,962,468 925,492
Steven G. Rothmeier 104,945,223 942,737
Michael W. Wright 104,967,593 920,367
</TABLE>
A proposal to ratify the selection of Deloitte & Touche LLP as the auditors
of the company was also submitted to a vote of shareholders. 104,966,648
shares voted in favor of the proposal, 441,601 shares voted against the
proposal and 479,711 shares abstained from voting.
A proposal to adopt the Honeywell Non-Employee Directors Fee and Stock Unit
Plan was also submitted to a vote of shareholders. 99,070,775 shares voted
in favor of the proposal, 5,259,044 shares voted against the proposal and
1,558,141 shares abstained from voting.
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 April 16, 1996, regarding the results of
Registrant's operations for the fiscal quarter ended March 31, 1996.
(ii) Report dated April 24, 1996, regarding the sale of
$100,000,000
of the Registrant's 6.60% Notes due April 15, 2001, and
$200,000,000 of the Registrant's 7.125% Notes due April 15,
2008.
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 14, 1996 By: /s/ E. D. Grayson
---------------------------------
E. D. Grayson
Vice President and General Counsel
Date: August 14, 1996 By: /s/ P.M. Palazzari
---------------------------------
P. M. Palazzari
Vice President and Controller
(Chief Accounting Officer)
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ----------- --------
<S> <C> <C>
11 Computation of Earnings Per Share i
12 Computation of Ratio of Earnings to Fixed Charges ii
27 Financial Data Schedule iii
</TABLE>
EXHIBIT (11)
HONEYWELL INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
----------------------------- -------------------------
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Primary:
Income:
Net income $ 83.3 $ 68.9 $ 148.4 $ 123.6
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Shares:
Weighted average of shares outstanding during the year 126,607,966 127,201,311 126,738,415 127,196,122
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per share:
Net income $ 0.66 $ 0.54 $ 1.17 $ 0.97
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Assuming full dilution:
Income:
Net income $ 83.3 $ 68.9 $ 148.4 $ 123.6
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Shares:
Weighted average of shares outstanding during the year 126,607,966 127,201,311 126,738,415 127,196,122
Shares issuable in connection with stock plans
less shares purchaseable from proceeds 2,179,291 1,865,301 2,339,746 1,941,974
----------- ----------- ----------- -----------
Total Shares 128,787,257 129,066,612 129,078,161 129,138,096
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per share:
Net income $ 0.65 $ 0.53 $ 1.15 $ 0.96
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
i
EXHIBIT (12)
HONEYWELL INC. AND SUBSIDIARIES
COMBINED WITH PROPORTIONAL SHARES OF 50% OWNED COMPANIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in Millions)
Six Months Ended
June 30, 1996
---------------------
<S> <C>
Income before Income Taxes $224.80
-------
Deduct:
Equity income (loss) 8.00
-------
Subtotal 216.80
Add (deduct):
Dividends from less than 50% owned companies 1.02
Proportional share of income (loss) before
income taxes of 50% owned companies (0.35)
-------
Adjusted Income 217.47
Fixed Charges
Interest on indebetedness 37.84
Amortization of debt expense 2.34
Interest portion of rent expense 24.90
-------
Total Fixed Charges 65.08
-------
Total Available Income $282.55
-------
-------
Ratio of Earnings to Fixed Charges 4.34
-------
-------
</TABLE>
ii
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 94
<SECURITIES> 9
<RECEIVABLES> 1,471
<ALLOWANCES> 33
<INVENTORY> 912
<CURRENT-ASSETS> 2,649
<PP&E> 2,961
<DEPRECIATION> 1,828
<TOTAL-ASSETS> 5,167
<CURRENT-LIABILITIES> 1,930
<BONDS> 675
<COMMON> 282
0
0
<OTHER-SE> 1,745
<TOTAL-LIABILITY-AND-EQUITY> 5,167
<SALES> 3,391
<TOTAL-REVENUES> 3,391
<CGS> 2,332
<TOTAL-COSTS> 2,332
<OTHER-EXPENSES> 168
<LOSS-PROVISION> 1
<INTEREST-EXPENSE> 40
<INCOME-PRETAX> 225
<INCOME-TAX> 76
<INCOME-CONTINUING> 148
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 148
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.15
</TABLE>
