Honeywell's 3rd-Quarter Ongoing Net Income Is $360 Million - EPS $0.44
MORRIS TOWNSHIP, N.J.--Oct. 24, 2001--Honeywell :| - | Free Cash Flow Up 5% To $353 Million (Conversion Exceeds 98%), Company Incurs After-Tax Charge Of $668 Million - Reported Loss Per Share Of ($0.38) |
| - | Third-Quarter Sales Are $5.8 Billion - Double-Digit Sales Growth In Commercial Air Transport And Regional OE, Turbochargers And Industry Solutions; Sales Grow In Military OE And Fire & Security |
| - | Honeywell Expects 2002 Cost Productivity Of $1.3 Billion, Driven By Aggressive Cost Reductions In 2001 And Improved Productivity Across Company; Expects Earnings Performance To Improve In 4th Quarter And 2002 |
| - | 4th-Quarter EPS Expected To Range From $0.54 To $0.56; Sales Expected To Be $5.8 Billion |
Honeywell said today third-quarter ongoing net income was $360 million or $0.44 per share, excluding $668 million (after-tax) in repositioning and other charges. Reported third-quarter loss per share was ($0.38).
"Honeywell's third-quarter performance reflects a work in progress," said Honeywell Chairman and CEO Lawrence A. Bossidy.
"Prior to the tragic events of September 11, we were engaged in aggressive across-the-board repositioning actions to address a softening economy," Bossidy added. "The subsequent abrupt and unprecedented decline in the aviation industry led us to redouble our cost-reduction actions and further accelerate efforts to improve our performance. Even with the difficult operating environment this quarter, we saw double-digit sales growth in some key businesses."
"Despite the sharp decline in third-quarter ongoing earnings, free cash flow rose 5% to $353 million (exceeding 98% conversion), driven by improved working capital turnover," Bossidy said.
Sales in the third quarter were $5.8 billion, down roughly 4%, excluding the effects of divestitures and a stronger dollar. Double-digit sales growth occurred in Commercial Air Transport and Regional original equipment, Turbochargers and Industry Solutions. Sales growth also was seen in Military original equipment and Fire & Security.
Sales growth was offset by lower sales in Commercial Air Transport aftermarket, Electronic Materials, Performance Fibers and Automation & Control Products and Services. Lower volumes in these businesses drove third-quarter operating margin to 10.3%.
Third-quarter reported EPS results reflect a $668 million (after-tax - $0.82 per share) charge related primarily to severance actions and write-downs associated with business and manufacturing disposals and shutdowns. Census reductions are expected to total 15,800 by the end of the year.
"The comprehensive cost actions taken this year make us confident in our ability to deliver $1.3 billion of cost productivity in 2002," Bossidy said. "We are well ahead of the curve in reducing our costs. We expect these actions will lead to improved earnings performance in the fourth quarter and in 2002, which will help to restore investors' confidence in Honeywell."
"Our single goal is to ensure Honeywell executes its plans during this challenging period," Bossidy said. "We have built flexibility into our planning, based it on conservative economic assumptions and taken steps to strengthen our diverse portfolio."
"For example, the aggressive cost actions in Aerospace are designed to offset the downturn in commercial air transport," Bossidy added. "We're also fundamentally transforming the cost competitiveness of Automation & Control, reducing census and combining the former Industrial Control and Home & Building Control businesses into one global unit, which will increase accountability and eliminate regional redundancies and management layers."
Bossidy said Six Sigma is being reinvigorated with the goal of restoring the company's ability to achieve 6% year-over-year productivity improvement. Six Sigma and Digitization are being closely linked through a newly created Black Belt role designed specifically for driving the co-application of both disciplines across the company.
Positioned For Growth
"While we are focused intently on reducing costs, we continue to maintain high levels of investment in exciting new products, technologies and growth platforms," Bossidy said.
"Key Aerospace investments include our new AS907 business jet engine - part of the AS900 engine family - and Primus Epic(R) integrated avionics system, both of which just completed successful debut flight tests on new aircraft," Bossidy said. "Beyond our leadership in commercial and business aviation, more than one-third of our Aerospace revenues comes from broad coverage and penetration in a wide variety of defense and space applications."
Bossidy noted that Honeywell's recently launched Aviation Safety initiative is receiving widespread interest in the industry. He said near-term opportunities include hardened cockpit doors using the company's Spectra(R) fiber, airborne emergency alert systems, on-board video and audio surveillance and improved flight data and cockpit voice recorders.
In addition, the company's Automation & Control segment is developing advanced security technology for airport access control and surveillance applications. It is also continuing to invest in indoor air quality solutions, as well as strengthen the marketing of its web-based Atrium(TM) commercial building solutions, ManageAbility(TM) industrial automation offering and web-based integrated residential control technology.
"We are building on the success of our turbochargers in Europe by developing a new line of electronically assisted turbochargers," Bossidy said. "And we are continuing to invest in our broad line of non-ozone-depleting fluorocarbons, including building a major production facility to support our new HFC-245fa blowing agent for insulation applications."
Ready For Recovery
"We have a great company that's fundamentally sound, with talented and energized employees, broad portfolio diversity and the best technologies and products available," Bossidy said. "We are confident the government's fiscal stimulus packages and ample monetary liquidity will help the economy recover in 2002. We expect Honeywell, supported by a much improved cost structure and fueled by our renewed focus on growth and productivity, will emerge in 2002 a stronger company - one that is well positioned to grow in step with the economic recovery."
Fourth-quarter EPS is expected to range from $0.54 to $0.56, with sales expected to be $5.8 billion. Full-year 2001 revenue is expected to be approximately $23.6 billion, with ongoing EPS expected to range from $2.04 to $2.06. Full-year free cash flow is expected to range from $900 million to $1 billion.
Third-Quarter Segment Highlights
Aerospace - The segment's sales were down 2%, excluding the effects of divestitures. Higher original equipment sales in Commercial Air Transport, Regional and Military were offset primarily by lower commercial aftermarket sales as a result of the abrupt downturn in aviation travel following the events of September 11 and the weakened economy. The segment was awarded contract wins in the quarter valued at approximately $2.3 billion.
Operating margins were down due to lower aftermarket volume in Commercial Air Transport, which was partially offset by aggressive cost-reduction actions, including census reductions.
Automation & Control - The segment's sales were down 2%, excluding the effects of a stronger dollar and divestitures. Industry Solutions experienced double-digit sales growth driven primarily by an increase in ManageAbility(TM) orders. Sales were also higher in Fire & Security products. Sales growth was offset by lower sales in Control Products and Services.
Operating margins declined due to lower volumes in the higher-margin Control Products and Services. These were partially offset by ongoing productivity improvement initiatives and aggressive cost-reduction actions.
Specialty Materials - The segment's sales were off 19%, excluding acquisitions and divestitures. Sales in Electronic Materials were down 51% as a result of a dramatic slowdown in the electronics and telecommunications industries. Sales also were lower in Performance Fibers and Nylon System. The segment is seeing increased interest in its Spectra(R) fiber products for use in security and defense applications.
Operating margins were down due to lower volumes and pricing, which were partially offset by improving raw material costs, ongoing productivity improvements and aggressive cost reductions and repositioning actions, including segment-wide reductions in census and capacity.
Transportation & Power Systems - The segment's sales were up 1%, excluding the effects of a stronger dollar and divestitures. Turbochargers experienced double-digit growth driven by strong demand in the global diesel-engine-powered vehicle market, which was partially offset by lower sales in Commercial Vehicle Braking Systems, due to declining U.S. truck builds, and Automotive Consumer Products and Friction Materials.
Operating margins rose due to higher volumes and aggressive repositioning actions.
Honeywell is a US$25-billion diversified technology and manufacturing leader, serving customers worldwide with aerospace products and services; control technologies for buildings, homes and industry; automotive products; power generation systems; specialty chemicals; fibers; plastics; and electronic and advanced materials. Honeywell employs approximately 120,000 people in 95 countries and is traded on the New York Stock Exchange under the symbol HON, as well as on the London, Chicago and Pacific stock exchanges. It is one of the 30 stocks that make up the Dow Jones Industrial Average and is also a component of the Standard & Poor's 500 Index. Additional information on the company is available on the Internet at 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 Income (Unaudited)
--------------------------------------------
(In millions except per share amounts)
Three Months Ended September 30
-------------------------------
2001 2000
---------------------- ----------------------
Reported Adjusted(B) Reported Adjusted(D)
---------- ----------- ---------- -----------
Net sales $ 5,789 $ 5,789 $ 6,216 $ 6,216
---------- ----------- ---------- -----------
Costs, expenses and
other
Cost of goods sold 5,368(A) 4,452 4,845(C) 4,484
Selling, general
and administrative
expenses 803(A) 738 791 791
Equity in (income)
loss of affiliated
companies 17(A) (10) 68(C) (31)
Other (income)
expense - - (35) (35)
Interest and other
financial charges 99 99 125 125
---------- ----------- ---------- -----------
6,287 5,279 5,794 5,334
---------- ----------- ---------- -----------
Income (loss) before
taxes on income (498) 510 422 882
Taxes (benefit) on
income (190) 150 140 269
---------- ----------- ---------- -----------
Net income (loss) $ (308) $ 360 $ 282 $ 613
========== =========== ========== ===========
Earnings (loss) per
share of common
stock-basic $ (0.38) $ 0.44 $ 0.35 $ 0.76
========== =========== ========== ===========
Earnings (loss) per
share of common
stock - assuming
dilution (E) $ (0.38) $ 0.44 $ 0.35 $ 0.76
========== =========== ========== ===========
Weighted average
number of shares
outstanding-basic 813 813 801 801
========== =========== ========== ===========
Weighted average
number of shares
outstanding -
assuming
dilution (E) 813 816 806 806
========== =========== ========== ===========
(A) Cost of goods sold, selling, general and administrative expenses,
and equity in (income) loss of affiliated companies include
provisions of $916, $65 and $27 million, respectively, for
repositioning and other charges. Total net pretax charges were
$1,008 million (after-tax $668 million, or $0.82 per share) which
includes $537 million of net repositioning charges, $181 million
of probable and reasonably estimable legal and environmental
claims, $145 million of write-downs of fixed capital, goodwill and
other identifiable intangible assets of our Friction Materials
business, $106 million of write-offs principally related to asset
impairments, including receivables and inventory, and $39 million
of loss contracts.
(B) Excludes the impact from the items in (A) above.
(C) Cost of goods sold and equity in (income) loss of affiliated
companies include provisions of $361 and $99 million,
respectively, for repositioning and other charges. Total net
pretax charges were $460 million (after-tax $331 million, or $0.41
per share) which includes $86 million of net repositioning
charges, $245 million of write-downs of fixed capital, goodwill
and other identifiable intangible assets of our Friction Materials
business, $99 million for costs associated with closing an
affiliate's chemical manufacturing operations, and $30 million of
write-offs principally related to asset impairments, including
inventory.
(D) Excludes the impact from the items in (C) above.
(E) Dilutive securities issuable in connection with stock plans have
been excluded from the calculation of reported loss per share
because their effect would reduce the loss per share.
Honeywell International Inc.
Consolidated Statement of Income (Unaudited)
--------------------------------------------
(In millions except per share amounts)
Nine Months Ended September 30
------------------------------
2001 2000
---------------------- ----------------------
Reported Adjusted(B) Reported Adjusted(E)
---------- ----------- ---------- -----------
Net sales $ 17,799 $ 17,799 $ 18,569 $ 18,569
---------- ----------- ---------- -----------
Costs, expenses and
other
Cost of goods sold 15,408(A) 13,510 13,966(C) 13,509
Selling, general
and administrative
expenses 2,408(A) 2,257 2,312 2,312
(Gain) on sale of
non-strategic
businesses - - (112)(D) -
Equity in (income)
loss of affiliated
companies 205(A) 5 50(C) (49)
Other (income)
expense (18)(A) (23) (48) (48)
Interest and other
financial charges 313 313 365 365
---------- ----------- ---------- -----------
18,316 16,062 16,533 16,089
---------- ----------- ---------- -----------
Income (loss) before
taxes on income (517) 1,737 2,036 2,480
Taxes (benefit) on
income (300) 512 631 756
---------- ----------- ---------- -----------
Net income (loss) $ (217) $ 1,225 $ 1,405 $ 1,724
========== =========== ========== ===========
Earnings (loss) per
share of common
stock-basic $ (0.27) $ 1.51 $ 1.76 $ 2.16
========== =========== ========== ===========
Earnings (loss) per
share of common
stock - assuming
dilution (F) $ (0.27) $ 1.50 $ 1.74 $ 2.14
========== =========== ========== ===========
Weighted average
number of shares
outstanding-basic 811 811 799 799
========== =========== ========== ===========
Weighted average
number of shares
outstanding -
assuming dilution (F) 811 816 808 808
========== =========== ========== ===========
(A) Cost of goods sold, selling, general and administrative expenses,
and equity in (income) loss of affiliated companies include
provisions of $1,898, $151 and $200 million, respectively, for
repositioning and other charges. Other (income) expense includes a
net provision of $5 million, consisting of $6 million for a charge
related to the early extinguishment of debt, offset by a $1
million credit recognized upon the adoption of Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended (SFAS No. 133),
effective for Honeywell as of January 1, 2001. Total net pretax
charges, including the impact of adopting SFAS No. 133, were
$2,254 million (after-tax $1,442 million, or $1.78 per share).
(B) Excludes the impact from the items in (A) above.
(C) Cost of goods sold and equity in (income) loss of affiliated
companies include provisions of $457 and $99 million,
respectively, for repositioning and other charges. Total net
pretax charges were $556 million (after-tax $390 million, or $0.49
per share).
(D) Represents the pretax gain on the sale of the former Honeywell
Inc. TCAS product line of $112 million (after-tax $71 million, or
$0.09 per share).
(E) Excludes the impact from the items in (C) and (D) above.
(F) Dilutive securities issuable in connection with stock plans have
been excluded from the calculation of reported loss per share
because their effect would reduce the loss per share.
Honeywell International Inc.
Segment Data
(Dollars in Millions)
Net Sales Periods Ended September 30
Three Months Nine Months
---------------------- ----------------------
2001 2000 2001 2000
---------- ----------- ---------- -----------
Aerospace $ 2,372 $ 2,458 $ 7,315 $ 7,308
Automation and
Control Solutions 1,780 1,861 5,309 5,441
Specialty Materials 775 1,014 2,563 3,100
Transportation and
Power Systems 851 866 2,577 2,665
Corporate 11 17 35 55
---------- ----------- ---------- -----------
Total $ 5,789 $ 6,216 $ 17,799 $ 18,569
========== =========== ========== ===========
Segment Profit Periods Ended September 30
Three Months Nine Months
---------------------- ----------------------
2001 2000 2001 2000
---------- ----------- ---------- -----------
Aerospace $ 393 $ 565 $ 1,348 $ 1,604
Automation and
Control Solutions 192 277 566 742
Specialty Materials (19) 98 57 300
Transportation and
Power Systems 65 41 178 211
Corporate (32) (40) (117) (109)
---------- ----------- ---------- -----------
Total Segment Profit 599 941 2,032 2,748
Gain on sale of
non-strategic
businesses - - - 112
Equity in income
(loss) of affiliated
companies 10 31 (5) 49
Other income - 35 23 48
Interest and other
financial charges (99) (125) (313) (365)
Repositioning and
other charges (1,008) (460) (2,254) (556)
---------- ----------- ---------- -----------
Income (loss)
before taxes on
income $ (498) $ 422 $ (517) $ 2,036
========== =========== ========== ===========