Honeywell's Second-Quarter Earnings Per Share 37 Cents; Cash from Operations $553 Million
MORRIS TOWNSHIP, N.J.--July 17, 2003--Honeywell -0-
-- Revenues of $5.7 billion, up 2% vs. 2002
-- Free cash flow of $382 million equals 120% of net income
-- More than $1.3 billion in new Aerospace contracts announced at
Paris Air Show
-- Continued progress on Specialty Materials portfolio
Honeywell today announced second-quarter earnings per share of 37 cents, in line with prior earnings guidance. The results are 19 cents below the same period last year, due to nine cents worth of higher pension expense, including the effect of dilution from the prior year's contribution of shares to the company's pension plans; four cents from lower sales in higher margin businesses; and four cents from increased product development and other expenses. Revenues of $5.7 billion were up 2% from the previous year, driven by 4% of foreign currency translation. Free cash flow of $382 million includes the impact of a $170 million voluntary pension contribution.
"The results for the second quarter represent solid performance for Honeywell with good revenues, earnings and cash flow in a difficult economic environment," said Honeywell Chairman and Chief Executive Officer Dave Cote. "We continue to be focused on executing key strategies, improving customer service, reducing cycle times and investing to support our growth initiatives. The results from the quarter reflect the determination of our management team and the efforts of Honeywell employees worldwide."
Segment profit margins were 8.8%, compared with 12.2% in the same period last year. The increase in pension costs accounted for 1.5 percentage points of the change with the remainder primarily due to declines in commercial aerospace and increased product development and administrative expenses. Free cash flow equaled 120% of net income with working capital contributing approximately $100 million in the quarter after adjusting for the non-cash impact of foreign currency translation. Cash and cash equivalents reached $2.6 billion, resulting in net debt of $2.8 billion, or 22% of net capital.
"The second quarter also featured significant progress in each of our businesses," Mr. Cote said. "In addition to the $1.3 billion in new contracts announced at the Paris Air Show, Honeywell's Aerospace business received an order for Primus Epic integrated cockpits for 85 to 135 new Embraer regional jets purchased by US Airways. In another highlight, Primus Epic obtained its first government approval as part of the Bell/Agusta AB139 helicopter's certification in Italy.
"During the quarter in our Automation and Control Solutions business (ACS), cumulative orders climbed above $240 million for the Experion PKS(TM) process control system. Our turbocharger business had its fourth consecutive quarter of double-digit revenue growth, exhibiting strength in all geographic regions. And, we took an important step in the reorganization of our Specialty Materials business by completing transactions with BASF.
"We also named a highly regarded financial professional to be our new Chief Financial Officer. Dave Anderson's credibility and experience in global corporate finance will help Honeywell chart its course for the future."
Second-Quarter Segment Highlights
Aerospace
| -- | Revenues were down 2% compared with the second quarter of 2002, primarily as a result of commercial aerospace. |
| -- | Segment margins were 10.4%, down from 16.5%, due to lower sales of commercial original equipment and higher-margin commercial spare parts, as well as higher pension costs. |
| -- | The company announced more than $1.3 billion in new orders at the Paris Air Show, including contract wins to supply avionics, auxiliary power units, and wing anti-ice valves on easyJet's 120 Airbus A319 aircraft; Primus Epic integrated cockpits for 100 to 200 new Embraer regional aircraft purchased by JetBlue; avionics for the F-35 Joint Strike Fighter; pneumatics for General Electric's GP7200 engine for the Airbus A380 as well as engine accessories and valves for GE engines that power the U.S. Air Force C5 transport; and weather radar for the U.S. Air Force's fleet of C-17 "Globemaster" transport aircraft. |
| -- | The Federal Aviation Administration selected the company to provide development, manufacturing, airport installation, training and support for the new satellite-based precision approach and landing system known as the Local Area Augmentation System, a program with a lifetime value that, with the exercise of contract options, could exceed $350 million. |
Automation and Control Solutions
-- Revenues were up 4% compared with the second quarter of 2002,
due mostly to acquisitions and favorable foreign currency
translation.
-- Segment margins were 9.6%, compared with 12.5% in the second
quarter of 2002, driven by increased pension costs, a decline
in higher margin sales in ACS' service business and increased
research and development and other expenses.
-- ACS' service business announced a new contract to supply and
install advanced fire detection and life safety systems at the
Dallas/Fort Worth International Airport - the latest in a
series of integrated offerings to airport authorities
worldwide.
-- Frost & Sullivan, a global leader in market research, named
ACS the 2003 Industrial Controls Solutions Company of the
Year, attributing the success to products such as the Experion
PKS(TM) process control system that automates, controls and
monitors manufacturing operations.
Transportation Systems
-- Revenues increased 15% year-over-year driven by continued
strong growth in turbochargers and favorable foreign currency
translation.
-- Turbocharger sales continued to be strong in all regions as
Europe increased 34%, North America increased 30% and Asia
increased 17%.
-- Segment margins were 12.1%, compared with 12.9% a year ago,
primarily reflecting increased pension costs and new product
development and introduction expenses.
-- The company announced a $29.1 million agreement with
BorgWarner to extend the current license agreement on
Honeywell's innovative variable geometric turbocharger
technology in order to avoid any disruptions to automotive
customers, bringing the aggregate settlement agreement to
$54.1 million.
Specialty Materials
-- Revenues were down 5%, compared with the second quarter of
2002, due largely to the disposition of Advanced Circuits and
Pharmaceutical Fine Chemicals.
-- Segment margins of 3.4% were down slightly from the prior year
as the benefits of cost actions and divestitures of non-core
businesses partially offset lower prices and higher pension
and raw material costs.
-- The group completed two transactions with BASF in which
Honeywell sold its engineering plastics business to BASF in
exchange for BASF's nylon fiber business and $90 million in
cash.
-- Complementing Honeywell's already strong position in barrier
technologies, the company completed its acquisition of Kolon
Industries Inc.'s biaxally oriented nylon films facility in
Dangjin, South Korea.
-- Specialty Materials announced an agreement to sell its Metglas
Solutions business to Hitachi Metals, Ltd.
During the quarter, Honeywell also recognized an after-tax gain of $15 million on the settlement of a patent-infringement lawsuit, an after-tax gain of $9 million related to the sale of non-strategic businesses and recorded an after-tax liability of $21 million primarily related to environmental litigation. The company also purchased the assets under leases qualifying as variable interest entities resulting in the assumption of $268 million of debt.
Honeywell will discuss its results during its investor webcast at 8:30am ET today. The webcast and related presentation materials will be available at www.honeywell.com/investor.
Honeywell is a $22 billion diversified technology and manufacturing leader, serving customers worldwide with aerospace products and services; control technologies for buildings, homes and industry; turbochargers; automotive products; specialty chemicals; fibers; and electronic and advanced materials. Based in Morris Township, N.J., Honeywell is one of 30 stocks that make up the Dow Jones Industrial Average and is a component of the Standard & Poor's 500 Index. Its shares are traded on the New York Stock Exchange under the symbol HON, as well as on the London, Chicago and Pacific Stock Exchanges. For more about Honeywell, visit www.honeywell.com.
This release contains forward-looking statements as defined in Section 21E of the Securities Exchange Act of 1934, including statements about future business operations, financial performance and market conditions. Such forward-looking statements involve risks and uncertainties inherent in business forecasts as further described in our filings under the Securities Exchange Act.
Honeywell International Inc.
Consolidated Statement of Operations (Unaudited)
------------------------------------------------
(In millions except per share amounts)
Three Months Ended
June 30,
--------------------
2003 2002
-------- --------
Net sales $ 5,749 $ 5,651
-------- --------
Costs, expenses and other
Cost of goods sold 4,514 (A) 4,431 (D)
Selling, general and administrative expenses 762 (A) 660
(Gain) loss on sale of non-strategic
businesses (31)(B) 166 (E)
Equity in (income) loss of affiliated
companies (6) (3)(D)
Other (income) expense (24)(C) (6)
Interest and other financial charges 87 88
-------- --------
5,302 5,336
-------- --------
Income before taxes 447 315
Tax expense (benefit) 128 (144)
-------- --------
Net income $ 319 $ 459
======== ========
Earnings per share of common stock - basic $ 0.37 $ 0.56
======== ========
Earnings per share of common stock - assuming
dilution $ 0.37 $ 0.56
======== ========
Weighted average number of shares outstanding-
basic 860 819
======== ========
Weighted average number of shares outstanding -
assuming dilution 861 823
======== ========
(A) Cost of goods sold and selling, general and administrative
expenses include provisions of $29 and $5 million, respectively,
for legacy environmental matters deemed probable and reasonably
estimable in the second quarter of 2003 and net repositioning and
other charges. Total net pretax charges were $34 million
(after-tax $21 million, or $0.03 per share).
(B) Represents the pretax gain on the sale of our Engineering Plastics
business including the tax benefits associated with prior capital
losses (after-tax $9 million, or $0.01 per share).
(C) Includes a gain of $20 million (after-tax $15 million, or $0.02
per share) related to the settlement of a patent infringement
lawsuit.
(D) Cost of goods sold includes a provision of $127 million for net
repositioning and other charges. Equity in (income) loss of
affiliated companies includes a charge of $10 million for
severance actions by an investee. Total net pretax charges were
$137 million (after-tax $93 million, or $0.11 per share).
(E) Represents the pretax loss on the disposition of our
Pharmaceutical Fine Chemicals and Automation and Control's
Consumer Products businesses (after-tax gain $98 million, or $0.12
per share). The after-tax gain is due to the higher deductible tax
basis than book basis in the shares sold.
Honeywell International Inc.
Consolidated Statement of Operations (Unaudited)
------------------------------------------------
(In millions except per share amounts)
Six Months Ended
June 30,
---------------------
2003 2002
--------- ---------
Net sales $ 11,148 $ 10,850
--------- ---------
Costs, expenses and other
Cost of goods sold 8,754 (A) 8,504 (E)
Selling, general and administrative expenses 1,465 (A) 1,277 (E)
(Gain) loss on sale of non-strategic
businesses (31)(B) 41 (F)
Business impairment charges - 43 (E)
Equity in (income) loss of affiliated
companies (4) (10)(E)
Other (income) expense (27)(C) (22)
Interest and other financial charges 171 175
--------- ---------
10,328 10,008
--------- ---------
Income before taxes and cumulative effect of
accounting change 820 842
Tax expense 227 7
--------- ---------
Income before cumulative effect of accounting
change 593 835
Cumulative effect of accounting change (20)(D) -
--------- ---------
Net income $ 573 $ 835
========= =========
Earnings per share of common stock - basic:
Income before cumulative effect of
accounting change $ 0.69 $ 1.02
Cumulative effect of accounting change (0.02)(D) -
--------- ---------
Net income $ 0.67 $ 1.02
========= =========
Earnings per share of common stock - assuming
dilution:
Income before cumulative effect of
accounting change $ 0.69 $ 1.02
Cumulative effect of accounting change (0.02)(D) -
--------- ---------
Net income $ 0.67 $ 1.02
========= =========
Weighted average number of shares outstanding-
basic 858 818
========= =========
Weighted average number of shares outstanding -
assuming dilution 859 822
========= =========
(A) Cost of goods sold and selling, general and administrative
expenses include provisions of $29 and $5 million, respectively,
for legacy environmental matters deemed probable and reasonably
estimable in the second quarter of 2003 and net repositioning and
other charges. Total net pretax charges were $34 million
(after-tax $21 million, or $0.03 per share).
(B) Represents the pretax gain on the sale of our Engineering Plastics
business including the tax benefits associated with prior capital
losses (after- tax $9 million, or $0.01 per share).
(C) Includes a gain of $20 million (after-tax $15 million, or $0.02
per share) related to the settlement of a patent infringement
lawsuit.
(D) Effective January 1, 2003, we adopted Statement of Financial
Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" (SFAS No. 143). SFAS No. 143 requires recognition of
the fair value of obligations associated with the retirement of
tangible long- lived assets when there is a legal obligation to
incur such costs. This adoption resulted in an after-tax
cumulative effect adjustment of expense of $20 million, or $0.02
per share.
(E) Cost of goods sold and selling, general and administrative
expenses include provisions of $173 and $4 million, respectively,
for net repositioning and other charges. Equity in (income) loss
of affiliated companies includes a charge of $13 million
principally for severance actions by an investee. Including
business impairment charges, total net pretax charges were $233
million (after-tax $162 million, or $0.20 per share).
(F) Represents the net pretax loss on the dispositions of our Bendix
Commercial Vehicle Systems, Pharmaceutical Fine Chemicals and
Automation and Control's Consumer Products businesses (after-tax
gain $177 million, or $0.22 per share). The after-tax gain is due
to the higher deductible tax basis than book basis in the shares
sold.
Honeywell International Inc.
Segment Data (Unaudited)
------------------------
(Dollars in millions)
Periods Ended June 30,
----------------------
Net Sales Three Months Six Months
--------- ------------ ----------
2003 2002 2003 2002
-------- -------- --------- ---------
Aerospace $ 2,161 $ 2,204 $ 4,223 $ 4,293
Automation and Control Solutions 1,837 1,758 3,554 3,367
Specialty Materials 823 870 1,600 1,628
Transportation Systems 925 805 1,765 1,531
Corporate 3 14 6 31
-------- -------- --------- --------
Total $ 5,749 $ 5,651 $ 11,148 $ 10,850
======== ======== ========= =========
Periods Ended June 30,
----------------------
Segment Profit Three Months Six Months
-------------- ------------ ----------
2003 2002 2003 2002
-------- -------- --------- ---------
Aerospace $ 224 $ 364 $ 442 $ 671
Automation and Control Solutions 177 220 362 427
Specialty Materials 28 34 38 42
Transportation Systems 112 104 187 177
Corporate (34) (35) (66) (71)
-------- -------- --------- ---------
Total Segment Profit 507 687 963 1,246
Gain (loss) on sale of
non-strategic businesses 31 (166) 31 (41)
Business impairment charges - - - (43)
Equity in income of affiliated
companies 6 3 4 10
Other income 24 6 27 22
Interest and other financial
charges (87) (88) (171) (175)
Repositioning and other charges
included in cost of goods sold
and selling, general and
administrative expenses (34) (127) (34) (177)
-------- -------- --------- ---------
Income before taxes and
cumulative effect of accounting
change $ 447 $ 315 $ 820 $ 842
======== ======== ========= =========
Honeywell International Inc.
Consolidated Balance Sheet (Unaudited)
--------------------------------------
(Dollars in millions)
June December
30, 31,
2003 2002
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 2,626 $ 2,021
Accounts, notes and other receivables 3,353 3,264
Inventories 3,055 2,953
Deferred income taxes 1,592 1,296
Other current assets 490 661
--------- ---------
Total current assets 11,116 10,195
Investments and long-term receivables 649 624
Property, plant and equipment - net 4,222 4,055
Goodwill 5,717 5,698
Other intangible assets - net 1,087 1,074
Insurance recoveries for asbestos related
liabilities 1,370 1,636
Deferred income taxes 303 533
Prepaid pension benefit cost 2,775 2,675
Other assets 1,294 1,069
--------- ---------
Total assets $ 28,533 $ 27,559
========= =========
LIABILITIES & SHAREOWNERS' EQUITY
Current liabilities:
Accounts payable $ 2,093 $ 1,912
Short-term borrowings 147 60
Commercial paper 188 201
Current maturities of long-term debt 53 109
Accrued liabilities 4,168 4,292
--------- ---------
Total current liabilities 6,649 6,574
Long-term debt 5,042 4,719
Deferred income taxes 512 419
Postretirement benefit obligations other than
pensions 1,685 1,684
Asbestos related liabilities 2,394 2,700
Other liabilities 2,512 2,538
Shareowners' equity 9,739 8,925
--------- ---------
Total liabilities and shareowners' equity $ 28,533 $ 27,559
========= =========
Honeywell International Inc.
Consolidated Statement of Cash Flows (Unaudited)
------------------------------------------------
(Dollars in millions)
Three Months Six Months
Ended June 30, Ended June 30,
----------------- -------------------
2003 2002 2003 2002
-------- -------- --------- ---------
Cash flows from operating
activities:
Net income $ 319 $ 459 $ 573 $ 835
Adjustments to reconcile net
income to net cash provided by
operating activities:
Cumulative effect of accounting
change - - 31 -
(Gain) loss on sale of non-
strategic businesses (31) 166 (31) 41
Repositioning and other charges 34 137 34 190
Business impairment charges - - - 43
Insurance receipts for asbestos
related liabilities 475 35 477 55
Asbestos related liability
payments (357) (42) (388) (50)
Depreciation 148 164 290 340
Undistributed earnings of equity
affiliates (6) (13) (4) (23)
Deferred income taxes 85 (86) 134 35
Pension contributions - U.S.
plans (170) - (170) -
Other 90 (115) 65 (251)
Changes in assets and
liabilities, net of the effects
of acquisitions and
divestitures:
Accounts, notes and other
receivables (51) (247) (80) (77)
Inventories (5) 51 (95) 42
Other current assets (24) (32) 18 (26)
Accounts payable 65 40 175 (8)
Accrued liabilities (19) 205 (3) (19)
-------- -------- -------- ---------
Net cash provided by operating
activities 553 722 1,026 1,127
-------- -------- --------- ---------
Cash flows from investing
activities:
Expenditures for property, plant
and equipment (171) (152) (276) (299)
Proceeds from disposals of
property, plant and equipment - 13 - 21
Cash paid for acquisitions (32) (3) (122) (19)
Proceeds from sales of businesses 90 90 90 186
Decrease in short-term
investments - - - 7
-------- -------- --------- ---------
Net cash (used for) investing
activities (113) (52) (308) (104)
-------- -------- --------- ---------
Cash flows from financing
activities:
Net increase (decrease) in
commercial paper (190) - (13) 237
Net increase (decrease) in short-
term borrowings 82 (11) 78 (62)
Proceeds from issuance of common
stock 7 12 31 34
Payments of long-term debt - (182) (70) (382)
Cash dividends on common stock (161) (153) (322) (306)
-------- -------- -------- ---------
Net cash (used for) financing
activities (262) (334) (296) (479)
-------- -------- --------- ---------
Effect of foreign exchange rate
changes on cash and cash
equivalents 158 48 183 39
-------- -------- --------- ---------
Net increase in cash and cash
equivalents 336 384 605 583
Cash and cash equivalents at
beginning of period 2,290 1,592 2,021 1,393
-------- -------- --------- ---------
Cash and cash equivalents at end
of period $ 2,626 $ 1,976 $ 2,626 $ 1,976
======== ======== ========= =========
Honeywell International Inc.
(Dollars in Millions)
Reconciliation of Cash Provided by Operating Activities
to Free Cash Flow (Unaudited)
-----------------------------
Three Months Six Months
Ended June 30, Ended June 30,
----------------- -------------------
2003 2002 2003 2002
-------- -------- --------- ---------
Cash provided by operating
activities $ 553 $ 722 $ 1,026 $ 1,127
Expenditures for property, plant
and equipment (171) (152) (276) (299)
-------- -------- --------- ---------
Free cash flow $ 382 $ 570 $ 750 $ 828
======== ======== ========= =========
We define free cash flow as cash provided by operating activities,
less cash expenditures for property, plant and equipment.
We believe that this metric is useful to investors and management as a
measure of cash generated by business operations that can be used to
invest in future growth through new business development activities or
acquisitions, and to pay dividends, repurchase stock, or repay debt
obligations. This metric can also be used to evaluate our ability to
generate cash flow from business operations and the impact that this
cash flow has on our liquidity.
Reconciliation of Operating Income to Segment Profit (Unaudited)
----------------------------------------------------------------
Three Months Six Months
Ended June 30, Ended June 30,
----------------- -------------------
2003 2002 2003 2002
-------- -------- --------- ---------
Net sales $ 5,749 $ 5,651 $ 11,148 $ 10,850
Cost of goods sold (4,514) (4,431) (8,754) (8,504)
Selling, general and
administrative expenses (762) (660) (1,465) (1,277)
-------- -------- --------- ---------
Operating income 473 560 929 1,069
Add: Repositioning and other
charges included in cost of goods
sold and selling, general and
administrative expenses 34 127 34 177
-------- -------- --------- ---------
Segment profit $ 507 $ 687 $ 963 $ 1,246
======== ======== ========= =========
We evaluate segment and company performance based on segment profit,
which excludes (gains) losses on sales of non-strategic businesses,
equity (income) loss, other (income) expense, interest and other
financial charges and repositioning, litigation, business impairment
and other charges.
