SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
________________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 1-8974
AlliedSignal Inc.
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(Exact name of registrant as specified in its charter)
Delaware 22-2640650
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 Columbia Road
P.O. Box 4000
Morristown, New Jersey 07962-2497
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(Address of principal executive offices) (Zip Code)
(973)455-2000
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed since last report)
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
------- ------
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock September 30, 1997
- --------------------- -------------------
$1 par value 564,109,957 shares
<PAGE>
AlliedSignal Inc.
Index
-----
Page No.
Part I. - Financial Information --------
Item 1. Condensed Financial Statements:
Consolidated Balance Sheet -
September 30, 1997 and December 31, 1996 3
Consolidated Statement of Income -
Three and Nine Months Ended
September 30, 1997 and 1996 4
Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 1997 and 1996 5
Notes to Financial Statements 6
Report on Review by Independent
Accountants 8
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 9
Part II.- Other Information
Item 2. Changes in Securities 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
<PAGE>
AlliedSignal Inc.
Consolidated Balance Sheet
(Unaudited)
September 30, December 31,
1997 1996
------------- ------------
(Dollars in millions)
ASSETS
Current Assets:
Cash and cash equivalents $ 485 $ 1,465
Short-term investments 474 301
Accounts and notes receivable - net
(Note 2) 1,629 1,661
Inventories - net (Note 3) 2,191 1,946
Other current assets 449 466
------- -------
Total current assets 5,228 5,839
Investments and long-term receivables 495 473
Property, plant and equipment 9,253 8,976
Accumulated depreciation and amortization (5,005) (4,757)
Cost in excess of net assets of
acquired companies - net 2,092 1,418
Other assets 1,011 880
------- -------
Total assets $ 13,074 $12,829
======= =======
LIABILITIES
Current Liabilities:
Accounts payable $ 1,197 $ 1,187
Short-term borrowings 31 32
Commercial paper 875 470
Current maturities of long-term debt 147 112
Accrued liabilities 1,608 1,895
------- -------
Total current liabilities 3,858 3,696
Long-term debt 1,313 1,317
Deferred income taxes 538 610
Postretirement benefit obligations other
than pensions 1,792 1,787
Other liabilities 1,154 1,239
SHAREOWNERS' EQUITY
Capital - common stock issued 716 716
- additional paid-in capital 2,389 2,189
Common stock held in treasury, at cost (2,398) (1,953)
Cumulative translation adjustment (141) 2
Unrealized holding gain on marketable
securities 4 12
Retained earnings 3,849 3,214
------- -------
Total shareowners' equity 4,419 4,180
------- -------
Total liabilities and shareowners' equity $13,074 $12,829
======= =======
Notes to Financial Statements are an integral part of this statement.
3
<PAGE>
AlliedSignal Inc.
Consolidated Statement of Income
(Unaudited)
Three Months Nine Months
Ended September 30 Ended September 30
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in millions except
per share amounts)
Net sales $3,657 $3,348 $10,562 $10,473
------- ------- ------- -------
Cost of goods sold (Note 5) 2,840 2,598 8,209 8,845
Selling, general and
administrative expenses 394 379 1,145 1,146
Gain on sale of business
(Note 6) - - - (655)
------- ------- ------- -------
Total costs and expenses 3,234 2,977 9,354 9,336
------- ------- ------- -------
Income from operations 423 371 1,208 1,137
Equity in income of
affiliated companies 44 31 140 104
Other income (expense)
(Note 5) 14 26 62 59
Interest and other
financial charges (50) (47) (131) (144)
------- ------- -------- -------
Income before taxes on
income 431 381 1,279 1,156
Taxes on income 139 128 423 406
------- ------- ------- -------
Net income $ 292 $ 253 $ 856 $ 750
======= ======= ======= =======
Earnings per share of
common stock (Note 7)* $ .52 $ .45 $ 1.51 $ 1.33
======= ======= ======= =======
Cash dividends per
share of common stock* $ .13 $ .1125 $ .39 $.3375
======= ======= ======= =======
*Reflects two-for-one stock split as described in Notes to Financial
Statements.
Notes to Financial Statements are an integral part of this statement.
4
<PAGE>
AlliedSignal Inc.
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
September 30
-----------------
1997 1996
---- ----
(Dollars in millions)
Cash flows from operating activities:
Net income $ 856 $ 750
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sale of business -- (655)
Repositioning and other charges -- 622
Depreciation and amortization
(includes goodwill) 456 473
Undistributed earnings of equity affiliates (40) (22)
Deferred income taxes 68 242
Decrease (increase) in accounts
and notes receivable 67 (227)
(Increase) in inventories (179) (179)
Decrease in other current assets 17 21
Increase in accounts payable 8 26
(Decrease) in accrued liabilities (253) (79)
Taxes paid on gain on sale of braking business (5) (121)
Other (230) (337)
----- -----
Net cash provided by operating activities 765 514
----- -----
Cash flows from investing activities:
Expenditures for property, plant and equipment (471) (497)
Proceeds from disposals of property, plant and
equipment 31 64
Decrease in other investments 26 --
(Increase) in other investments (6) (6)
Cash paid for acquisitions (854) (59)
Proceeds from sales of businesses 35 1,356
(Increase) in short-term investments (173) --
----- ------
Net cash (used for) provided by
investing activities (1,412) 858
------- ------
Cash flows from financing activities:
Net increase in commercial paper 405 664
Net (decrease) in short-term borrowings (2) (298)
Proceeds from issuance of preferred
stock of subsidiary 112 --
Proceeds from issuance of common stock 135 113
Proceeds from issuance of long-term debt 23 10
Payments of long-term debt (97) (96)
Repurchase of preferred stock of subsidiary (112) --
Repurchases of common stock (534) (308)
Cash dividends on common stock (221) (196)
Other (42) --
------- -------
Net cash (used for) financing activities (333) (111)
------- -------
Net (decrease) increase in cash and cash equivalents (980) 1,261
Cash and cash equivalents at beginning of year 1,465 540
------- --------
Cash and cash equivalents at end of period $ 485 $1,801
======= ========
Notes to Financial Statements are an integral part of this statement.
5
<PAGE>
AlliedSignal Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in Millions except per share amounts)
Note 1. In the opinion of management, the accompanying unaudited
consolidated financial statements reflect all adjustments,
consisting only of normal adjustments, necessary to present fairly
the financial position of AlliedSignal Inc. and its consolidated
subsidiaries at September 30, 1997 and the results of operations for
the three and nine months ended September 30, 1997 and 1996 and the
cash flows for the nine months ended September 30, 1997 and 1996.
The results of operations for the three- and nine-month periods ended
September 30, 1997 should not necessarily be taken as indicative of
the results of operations that may be expected for the entire year
1997.
The financial information as of September 30, 1997 should be read in
conjunction with the financial statements contained in the Company's
Form 10-K Annual Report for 1996.
Note 2. Accounts and notes receivable consist of the following:
September 30, December 31,
1997 1996
------------- ------------
Trade $1,298 $1,330
Other 365 362
------- -------
1,663 1,692
Less-Allowance for doubtful
accounts and refunds (34) (31)
------- -------
$1,629 $1,661
======= =======
Note 3. Inventories consist of the following:
September 30, December 31,
1997 1996
------------- ------------
Raw materials $ 630 $ 538
Work in process 825 762
Finished products 886 814
Supplies and containers 91 88
------- -------
2,432 2,202
Less - Progress payments (110) (126)
Reduction to LIFO cost basis (131) (130)
------- -------
$2,191 $1,946
======= =======
Note 4. In the first quarter of 1997, a subsidiary of the Company
issued $112 million of preferred stock to third-party investors. In
the third quarter of 1997, the preferred stock was redeemed by the Company.
6
<PAGE>
Note 5. In the second quarter of 1996, the Company recorded a
pretax charge of $277 million relating to the costs of actions to
reposition some of its major business units. The components of the
repositioning charge include asset write-downs of $136 million,
severance costs of $127 million and other exit costs of $14 million.
All of the repositioning actions are expected to be completed by
1998.
In the second quarter of 1996, the Company adopted the provisions of
the American Institute of Certified Public Accountants' Statement of
Position 96-1, "Environmental Remediation Liabilities" (SOP 96-1).
The adoption of SOP 96-1 resulted in a pretax charge of $175
million, and is accounted for as a change in estimate. The Company
also recorded other charges primarily related to changes made in
employee benefit programs and in connection with customer and former
employee claims.
Repositioning and other charges totaling $637 million are included
as part of cost of goods sold for 1996. Other income (expense) in
1996 includes a $15 million credit for repositioning and other
charges representing the minority interest share of such charges.
The total pretax impact of the repositioning and other charges for
1996 is $622 million (after-tax $359 million, or $0.63 per share).
Note 6. In April 1996, the Company sold its worldwide hydraulic and
anti-lock braking systems (ABS) businesses (braking business) to
Robert Bosch GmbH, a privately-held German company. The braking
business had 1995 sales and income from operations of approximately
$2.0 billion and $154 million, respectively. The sale of the
braking business resulted in a reported gain of $655 million (after-
tax $368 million, or $0.65 per share). The Company received
consideration of $1.5 billion, subject to certain post-closing
adjustments which were finalized in October 1997 (see page 15).
Note 7. On July 23, 1997, the Company's Board of Directors approved
a two-for-one common stock split for shareowners of record on August
21, 1997. The stock split was effected on September 15, 1997 and
all share and per share data in the financial statements reflects
the stock split for all periods presented. The weighted average
number of shares outstanding during each period was: three months
ended September 30, 1997, 564,461,827 shares, and 1996, 565,701,706
shares; and nine months ended September 30, 1997, 565,604,387 shares
and 1996, 565,647,534 shares. There is no material dilutive effect
on earnings per share of common stock due to common stock equivalents.
7
<PAGE>
Report on Review by Independent Accountants
-------------------------------------------
To the Board of Directors
of AlliedSignal Inc.
We have reviewed the accompanying consolidated balance sheet of
AlliedSignal Inc. and its subsidiaries as of September 30, 1997, and
the consolidated statements of income for the three-month and nine-
month periods ended September 30, 1997 and 1996, and of cash flows
for the nine-month periods ended September 30, 1997 and 1996. This
financial information is the responsibility of the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the financial information referred to above
for it to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December
31, 1996, and the related consolidated statements of income, of
retained earnings, and of cash flows for the year then ended (not
presented herein); and in our report dated January 31, 1997 we expressed
an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying consolidated
balance sheet information as of December 31, 1996, is fairly stated,
in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
Price Waterhouse LLP
4 Headquarters Plaza North
Morristown, NJ 07962
October 27, 1997
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Results of Operations
---------------------
Third Quarter 1997 Compared with Third Quarter 1996
- ---------------------------------------------------
Net sales in the third quarter of 1997 were $3.7 billion, an
increase of $309 million, or 9%, compared with the third quarter of
last year. Of this increase, $320 million was due to higher sales
volume, and recent acquisitions, net of divestitures, contributed
$135 million of sales. The impact of foreign exchange on the
Automotive and Engineered Materials segments reduced sales by $77
million. Selling prices were lower by $69 million, mainly for the
Engineered Materials and Automotive segments.
Aerospace sales of $1,662 million in the third quarter of 1997
increased by $212 million, or 15%, compared with the third quarter
of last year. Commercial and military original-equipment (OE)
sales and commercial aftermarket sales had significant gains over
last year. Military aftermarket sales were down slightly.
Aerospace Equipment Systems had substantially higher sales as a
result of increased shipments of generators, power distribution
systems and engine fuel systems, as well as by the acquisition of
Grimes Aerospace (Grimes) in July 1997. Commercial Avionics Systems
also had substantially higher sales reflecting very strong demand
for the Company's enhanced ground proximity warning systems and
other flight safety and cockpit communications products. Engines
had moderately higher sales due to increased shipments of auxiliary
power units (APUs) and continued strong demand for repair and
overhaul services. Sales of Electronic Systems increased slightly
as strong sales of avionics programs offset weakness at
communications and ocean systems. Government Services had slightly
lower sales.
Automotive sales of $947 million in the third quarter of 1997
were $56 million, or 6%, higher compared with the third quarter of
1996. Turbocharger sales were significantly higher as both the
European diesel-powered passenger car and the North American heavy-
duty truck segments continued to deliver strong results. Truck
Brake Systems sales in North America were also significantly higher
due to increased truck builds, higher anti-lock braking systems
installation rates and a strong aftermarket. Sales of Safety
Restraints were slightly higher. The Automotive Products Group had a
slight sales gain reflecting the acquisition of Prestone Products
Corporation (Prestone) in June 1997, but other aftermarket and
friction materials sales in Europe and North America were
significantly lower due to unfavorable market conditions and foreign
exchange.
Engineered Materials sales of $1,047 million in the third
quarter of 1997 were $42 million, or 4%, higher compared with the
same quarter of last year. Sales of Polymers were moderately higher
reflecting strong demand and the introduction of new products and new
applications for engineered plastics and as a result of expanded capacity
and favorable pricing conditions for phenol. A partial offset was
slightly lower sales for carpet fibers and industrial polyester and
nylon, primarily reflecting continued pricing weakness. Electronic
Materials had strong sales, led by an upturn in volume by the
laminates and advanced microelectronics businesses. Sales of
Specialty Chemicals were slightly higher as improved sales for
performance chemicals were partially offset by reduced sales for
Riedel-de Haen, due to unfavorable foreign exchange.
9
<PAGE>
Income from operations of $423 million in the third quarter of
1997 increased by $52 million, or 14%, compared with last year's
third quarter. On a segment basis, Aerospace income from operations
increased by 36%, but Automotive and Engineered Materials income
from operations decreased by 10% and 1%, respectively. The
Company's operating margin for the third quarter of 1997 was 11.6%,
compared with 11.1% for the same period last year. See the
discussion of net income below for information by segment.
Productivity (the constant dollar basis relationship of sales
to costs) of the Company's businesses improved by 5.2% compared with
the third quarter of 1996 primarily reflecting ongoing initiatives
to lower material, manufacturing and other costs.
Equity in income of affiliated companies of $44 million in the
third quarter of 1997 increased by $13 million, or 42%, mainly due
to higher earnings from the UOP process technology joint venture
(UOP).
Other income (expense), $14 million income in the third quarter
of 1997, decreased by $12 million, or 46%, reflecting lower interest
income (included in the Corporate and Unallocated segment) primarily
due to a reduction in the cash invested in short-term securities.
The effective tax rate in the third quarter of 1997 was 32.3%
compared with 33.7% in 1996. The decrease is primarily due to an
increase in tax benefits on export income somewhat offset by an
increase in non-deductible goodwill as a result of the Prestone and
Grimes acquisitions.
Net income of $292 million, or $0.52 per share, in the third
quarter of 1997 was 15% higher than last year's third quarter net
income of $253 million, or $0.45 per share.
Aerospace net income of $138 million in the third quarter of
1997 improved by $40 million, or 41%, compared to the same period
last year. Strong unit volume increases, particularly in higher
margin aftermarket parts, as well as productivity improvements
resulted in substantially higher earnings for Aerospace Equipment
Systems, Engines and Commercial Avionics Systems. Commercial
Avionics Systems also benefited from the resolution of manufacturing
difficulties encountered during last year's third quarter.
Electronic Systems had substantially lower earnings from communications
and ocean systems.
Automotive net income of $34 million in the third quarter of
1997 was $6 million, or 15%, lower than in the third quarter of last
year. The Automotive Products Group had substantially lower income
due to continued weakness in the aftermarket, partially offset by
the sale of certain non-strategic assets. Turbochargers and Truck
Brake Systems both had substantially higher income on strong sales
volumes. Safety Restraints had lower income.
Engineered Materials net income of $118 million in the third
quarter of 1997 increased by $16 million, or 16%, compared to the
third quarter of 1996. Electronic Materials had strong earnings,
driven by the advanced microelectronics business and the mitigation
of losses from micro-optic devices. Specialty Chemicals income
increased as UOP earnings were higher, driven by strong product
sales in the aromatics market and increased licensing activity in
the Far East.
10
<PAGE>
Lower earnings for fluorine products was an offset. Polymers net income
was slightly lower as improved results for engineered plastics and
chemical intermediates were more than offset by net income decreases
for carpet fibers and industrial polyester and nylon. Polymers net
income continued to be adversely affected by pricing pressures.
Nine Months 1997 Compared with Nine Months 1996
- -----------------------------------------------
Net sales in the first nine months of 1997 totaled $10.6
billion, an increase of $89 million, or 1%, compared with the first
nine months of last year. However, excluding the sales of the
Company's automotive braking business which was sold in April 1996,
net sales increased $645 million, or 7%, driven principally by
higher sales volumes and recent acquisitions. The unfavorable
impact of foreign exchange and lower selling prices, mainly for the
Automotive and Engineered Materials segments, somewhat offset the
sales gains.
Aerospace sales of $4,573 million in the first nine months of
1997 increased by $453 million, or 11%, compared with the first nine
months of 1996. Aerospace Equipment Systems sales were significantly
higher, driven by continued aftermarket strength and substantially
higher original-equipment shipments of engine fuel systems, environmental
control systems and aircraft landing systems. The acquisition of Grimes
also contributed to higher sales. Engines had significantly higher
shipments of APUs and increased demand for repair and overhaul services.
Sales of Commercial Avionics Systems were substantially higher, primarily
due to strong demand for flight management and safety avionics systems.
Electronic Systems sales to the U.S. and foreign governments were
significantly lower, mainly at communications and ocean systems.
Government Services had moderately higher sales.
Automotive sales of $2,850 million in the first nine months of
1997 were $472 million, or 14%, lower compared with the first nine
months of 1996 reflecting the disposition of the braking business.
Excluding the braking business, Automotive sales increased by $84
million, or 3%. Continued strength of the U.S. dollar negatively
impacted sales growth by 4%. Turbocharger sales were significantly
higher, primarily reflecting the flow of new products and the
popularity of turbocharged vehicles in Europe. Truck Brake Systems
sales in North America also improved significantly, benefiting from
a strong aftermarket, an upturn in truck builds and increased
installation rates of anti-lock braking systems. The Automotive
Products Group sales were the same as last year. The aftermarket
business in North America had higher sales reflecting the
acquisition of Prestone, but sales of other aftermarket products and
friction materials in North America and Europe were lower,
reflecting unfavorable market conditions. Safety Restraints had a
slight decline in sales mainly due to lower airbag sales in North
America.
Engineered Materials sales of $3,137 million in the first nine
months of 1997 were $110 million, or 4%, higher compared with the
first nine months of 1996. Polymer sales were moderately higher due
mainly to greater demand for engineered plastics and chemical
intermediates. Lower sales of industrial polyester and nylon were
partial offsets. Specialty Chemicals sales increased slightly
reflecting improved demand for performance chemicals and
chlorofluorocarbon (CFC) replacement products. Sales for Electronic
Materials and specialty films also improved, but sales of automotive
catalysts were lower.
11
<PAGE>
Cost of goods sold, as a percent of net sales, of 77.7% in the
first nine months of 1997 decreased from 84.5% in the first nine
months of 1996 as the 1996 period includes repositioning and other
charges (special charges) totaling $637 million. (See Note 5 of
Notes to Financial Statements for further information.) Excluding
the special charges, cost of goods sold, as a percent of net sales,
was 78.4% for the first nine months of 1996. The improvement in
1997 is due primarily to productivity programs to lower manufacturing,
material and other costs.
Gain on sale of business represents the pretax gain of $655
million on the sale of the braking business in April 1996. (See
Note 6 of Notes to Financial Statements for further information.)
Income from operations of $1,208 million in the first nine
months of 1997 increased by $71 million, or 6%, compared with last
year's first nine months. The 1996 period includes the gain on the
sale of the braking business as well as special charges (special
items) resulting in a net pretax gain of $18 million. Excluding the
impact of these special items, income from operations in the first
nine months of 1997 increased by $89 million, or 8%. On a segment
basis, Aerospace income from operations increased by 33%, but
Automotive income from operations decreased by 18% and Engineered
Materials was 2% lower. The Company's operating margin for the
first nine months of 1997 was 11.4% compared with 10.7% for the same
period last year adjusted for special items. See the discussion of
net income below for information by segment.
Productivity of the Company's businesses improved by 6.2%
compared with last year's first nine months.
Equity in income of affiliated companies of $140 million in the
first nine months of 1997 increased by $36 million, or 35%, mainly
due to substantially higher earnings from UOP.
Interest and other financial charges of $131 million in the
first nine months of 1997 decreased by $13 million, or 9%, in part
reflecting lower average levels of debt.
The effective tax rate in the first nine months of 1997 was
33.1% compared with 35.1% in the first nine months of 1996. The
decrease is principally due to the higher taxes in 1996 on the gain
from the sale of the braking business.
Net income of $856 million, or $1.51 per share, in the first
nine months of 1997 was 16% higher than last year's net income,
after excluding special items, of $741 million, or $1.31 per share.
The prior year's net income, including special items, was $750
million, or $1.33 per share. A discussion of the operations of the
business segments follows. Adjusted net income (see table below)
for the segments excludes the impact of the special items. (Dollars
in millions)
12
<PAGE>
Nine Months Ended September 30
----------------------------------------------
Net Income Special Items Adjusted
as Reported (Gains)/Losses Net Income
----------- -------------- -----------
Aerospace
1997 $ 352 $ - $ 352
1996 80 179 259
------ -------- -------
Increase/(Decrease) $ 272 $ (179) $ 93
====== ======== =======
Automotive
1997 $ 134 $ - $ 134
1996 481 (319) 162
------ -------- -------
Increase/(Decrease) $ (347) $ 319 $ (28)
====== ======== ========
Engineered Materials
1997 $ 363 $ - $ 363
1996 258 71 329
------ -------- --------
Increase/(Decrease) $ 105 $ (71) $ 34
====== ======== ========
Aerospace net income of $352 million in the first nine months
of 1997 improved by $93 million, or 36%, from the 1996 adjusted net
income. Income from Aerospace Equipment Systems was substantially
higher due principally to increased sales. Engines had substantially
stronger earnings due to higher sales and a favorable mix of higher
margin aftermarket sales. Earnings for Commercial Avionics Systems
were also substantially higher based on increased demand and improved
manufacturing operations. Net income for Aerospace Equipment Systems,
Engines and Commercial Avionics Systems also benefited from productivity
improvements. Electronic Systems had lower net income based on reduced
sales of communications and ocean systems to the U.S. and foreign
governments. Government Services net income also declined.
Automotive net income of $134 million in the first nine months
of 1997 declined by $28 million, or 17%, from the 1996 adjusted net
income. The decrease primarily reflects the absence of net income
from the disposed braking business. Excluding the braking business,
Automotive net income decreased by $3 million, or 2%. Earnings for
the Automotive Products Group, mainly the aftermarket business in
North America, decreased substantially. Turbochargers had
substantially higher net income due to increased sales and
productivity improvements. Net income for Truck Brake Systems was
also substantially higher, due principally to sales volume. Net
income for Safety Restraints was unfavorable.
Engineered Materials net income of $363 million in the first
nine months of 1997 increased by $34 million, or 10%, from the 1996
adjusted net income. Specialty Chemicals had significantly higher
earnings, driven by UOP and improvements for Riedel-de Haen.
Electronic Materials also had improved performance. Polymers had
significantly lower income for carpet fibers and industrial
polyester and nylon. Partial offsets resulted from higher sales of
chemical intermediates and engineered plastics.
In the second quarter of 1996, the Company recorded a pretax
charge of $277 million related to the costs of actions to reposition
some of its major business
13
<PAGE>
units. Actions are being undertaken to consolidate manufacturing
facilities, rationalize manufacturing capacity and optimize operational
capabilities. Upon completion, the repositioning actions are currently
expected to generate additional annual income from operations of
approximately $140 million.
Financial Condition
-------------------
September 30, 1997 Compared with December 31, 1996
- --------------------------------------------------
On September 30, 1997, the Company had $959 million in cash and
cash equivalents and short-term investments compared with $1,766 million
at year-end 1996. The decrease results mainly from the acquisitions of
Prestone and Grimes in 1997.
The Company's long-term debt on September 30, 1997 was $1,313
million, a reduction of $4 million compared with year-end 1996.
Total debt of $2,366 million on September 30, 1997 was $435 million
higher than at year-end. This increase relates to debt assumed in
the Prestone and Grimes acquisitions and share repurchases in the
first nine months of 1997. The Company's total debt as a percent of
capital at September 30, 1997 was 33.1%, compared with 29.5% at year-
end 1996.
During the first nine months of 1997, the Company spent $471
million for capital expenditures, compared with $497 million in the
corresponding period in 1996. Spending for the 1997 nine month
period was as follows: aerospace-$121 million, automotive-$124
million, engineered materials-$201 million and corporate-$25 million.
The Company's common stock was split 2-for-1 for owners of
record as of August 21, 1997. Each shareowner of record received
one additional share for each share owned. Shares began trading at
the post-split price on September 16, 1997. Share and per share
data have been restated to reflect the stock split.
During the first nine months of 1997, the Company repurchased
13.5 million shares of common stock for $534 million. Common stock
is repurchased to meet the expected requirements for shares issued
under employee benefit plans and a shareowner dividend reinvestment
plan. At September 30, 1997, the Company was authorized to
repurchase 88.8 million shares of common stock.
In June 1997, the Company acquired Prestone for approximately
$400 million, including assumed liabilities. Prestone is a leading
supplier of premium car care products and has annual sales of
approximately $300 million. In July 1997, the Company acquired
Grimes Aerospace Company (Grimes), a manufacturer of exterior and
interior aircraft lighting systems for approximately $475 million,
including assumed liabilities. Grimes, which has annual sales of
approximately $230 million, also manufactures aircraft engine
components such as valves and heat exchangers, as well as electronic
systems, including flight warning computers and active matrix liquid
crystal displays. In October 1997, the Company acquired Astor
Holdings, Inc. (Astor) for approximately $350 million, including
assumed liabilities. Astor, a producer of value-added, wax-based
processing aids, sealants and adhesives, has annual sales of
approximately $300 million. During 1997, the Company also sold
certain non-strategic businesses and other assets.
14
<PAGE>
The Company continuously assesses the relative strength of its
portfolio of businesses as to strategic fit, market position and
profit contribution in order to upgrade its combined portfolio and
identify operating units that will most benefit from increased
investment. The Company considers acquisition candidates that will
further its strategic plan and strengthen its existing core
businesses. The Company also identifies operating units that do not
fit into its long-term strategic plan based on their market
position, relative profitability or otherwise. These operating
units are considered for potential divestiture, restructuring or
other action.
In November 1997, the Company completed the sale of its
automotive safety restraints business to Breed Technologies for $710
million in cash, subject to post-closing adjustments. The safety
restraints business had annual sales of seat belts and air bags in
excess of $900 million. It is expected that the proceeds will be
used to grow the Company's high-margin businesses and to pursue
acquisitions that will expand or complement the Company's business
portfolio. The sale of the safety restraints business will result
in a gain which will be material to fourth quarter 1997 earnings.
Management has determined to eliminate the Company's three
sector offices, consolidate its automotive products group and
reposition some of its businesses, and is currently formulating a
plan to effect these actions. The reorganization plan and
repositioning actions are likely to result in a material charge
against fourth quarter 1997 earnings.
As a result of post-closing and other adjustments related to
the sale of the braking business, the Company anticipates recording
a fourth quarter charge of approximately $50 million.
The combined net effect of the sale of the safety restraints
business, the reorganization plan and repositioning actions and
adjustments related to the sale of the braking business will not be
material to fourth quarter 1997 earnings.
Review by Independent Accountants
- ---------------------------------
The "Independent Accountants' Report" included herein is not a
"report" or "part of a Registration Statement" prepared or certified
by an independent accountant within the meanings of Section 7 and 11
of the Securities Act of 1933, and the accountants' Section 11
liability does not extend to such report.
15
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
On August 29, 1997, in reliance on Section 4(2) under the
Securities Act of 1933, as amended, the Company exchanged
937,202 shares of its common stock with two individuals in
consideration for all of their interest in Gomar Manufacturing
Co., Inc.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed with this
Form 10-Q:
15 Independent Accountants'
Acknowledgment Letter as to the incorporation of
their report relating to unaudited interim
financial statements
27 Financial Data Schedule
(b) Reports on Form 8-K. The following reports on Form 8-K were
filed by the Company during the quarter ended
September 30, 1997:
1. Reports were filed on July 18, August 14 and
September 23, in each case reporting, under Item 9,
unregistered sales of the Company's Common Stock in reliance
on Regulation S under the Securities Act.
2. On July 23, 1997, a report was filed reporting the
declaration of a two-for-one split of the Company's common
stock.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
AlliedSignal Inc.
November 7, 1997 By: /s/ Nancy A. Garvey
------------------------
Nancy A. Garvey
Vice President and Controller
(on behalf of the Registrant
and as the Registrant's
Principal Accounting Officer)
17
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
2 Omitted (Inapplicable)
3 Omitted (Inapplicable)
4 Omitted (Inapplicable)
10 Omitted (Inapplicable)
11 Omitted (Inapplicable)
15 Independent Accountants'
Acknowledgment Letter as to
the incorporation of their
report relating to unaudited
interim financial statements
18 Omitted (Inapplicable)
19 Omitted (Inapplicable)
22 Omitted (Inapplicable)
23 Omitted (Inapplicable)
24 Omitted (Inapplicable)
27 Financial Data Schedule
99 Omitted (Inapplicable)
18
Exhibit 15
November 7, 1997
Securities and Exchange Commission
450 Fifth Street
Washington, D.C. 20549
Dear Ladies and Gentlemen:
We are aware that the September 30, 1997 Quarterly Report on
Form 10-Q of AlliedSignal Inc. which includes our report
dated October 27, 1997 (issued pursuant to the provisions of
Statement on Auditing Standard No. 71) will be incorporated
by reference in the Prospectuses constituting part of
AlliedSignal Inc.'s Registration Statements, on Forms S-8
(Nos. 33-09896, 33-51455, 33-55410, 33-58347, 33-60261, 33-
62963, 33-64295 and 333-14673), on Forms S-3 (Nos. 33-13211,
33-14071, 33-55425, 33-64245 and 333-22355) and on Form S-8
(filed as an amendment to Form S-14, No. 2-99416-01). We
are also aware of our responsibilities under the Securities
Act of 1933.
Very truly yours,
/s/ Price Waterhouse LLP
Price Waterhouse LLP
<TABLE> <S> <C>
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This schedule contains summary financial information extracted from the
consolidated balance sheet at September 30, 1997 and the consolidated
statement of income for the nine months ended September 30, 1997 and is
qualified in its entirety by reference to such financial statements.
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