Honeywell Intl: 3rd Quarter Results
MORRIS TOWNSHIP, N.J.--
Honeywell's Third-Quarter Earnings Per Share
40 Cents; Cash from Operations $670 Million
-- Revenues of $5.8 billion, up 3.6% vs. 2002.
-- Record third-quarter free cash flow of $539 million.
-- Revenues increase in three of Honeywell's four operating segments.
-- Defense & Space and Turbochargers deliver double-digit revenue
growth.
Honeywell today announced third-quarter earnings per share
of 40 cents, in line with prior earnings guidance. The results are 10
cents below the same period last year, primarily due to higher pension
expense, including the effect of dilution from the prior year's
contribution of shares to the company's pension plans. Revenues of
$5.8 billion were up 3.6% from the previous year, driven primarily by
favorable foreign currency translation. Year-to-date cash flow from
operations reached $1.7 billion and year-to-date free cash flow (cash
flow from operations less capital expenditures) reached $1.3 billion.
"We delivered another solid quarter, with revenues and earnings on
target and record free cash flow, despite difficult market
conditions," said Honeywell Chairman and Chief Executive Officer Dave
Cote. "We had revenue increases in three of our four operating
segments, and our Defense & Space and Turbochargers businesses, which
represent about a quarter of our portfolio, posted double-digit
revenue growth. These results demonstrate that our management teams
and employees around the globe are focused on creating a stronger,
more growth-focused Honeywell."
Net income was $344 million for the quarter. Free cash flow of $539
million was positively impacted by inventory reductions, lower capital
expenditures relative to depreciation expense and favorable cash tax
payments. Total debt minus cash and cash equivalents resulted in net
debt of $2.3 billion, or 19% of net capital, versus 22% at the end of
the second quarter. Net capital is defined as shareowners' equity plus
net debt.
"We continue to demonstrate technological leadership across the
portfolio," Cote said. "Our Aerospace business was selected to develop
integrated software for the U.S. Army's Future Combat System program,
and received its first Federal Aviation Administration approval for
the Primus Epic(R) integrated cockpit. In Automation and Control
Solutions (ACS), Experion PKS(TM) process control system was
recognized by START magazine and Microsoft with a Vision Award for
innovation. Our Turbocharger business delivered another quarter of
impressive growth in all geographic regions and successfully completed
development of its third-generation Variable Nozzle Turbocharger.
"We also continued steady progress on rationalizing the Specialty
Materials portfolio by completing the sale of two non-core
businesses."
Third-Quarter Segment Highlights
Aerospace
-- Revenues were up 1.1% compared with the third quarter of 2002, as a
result of strong sales in Defense & Space, which offset declines in
Commercial Aerospace.
-- Segment margins were 13.6%, down from 15.3% a year ago, due
primarily to higher pension costs and commercial aftermarket sales
mix.
-- The company was selected by Boeing Co. and Science Applications
International Corp. to develop integrated software for the U.S. Army's
Future Combat System program. Estimated value of the contracts could
be more than $200 million during the program development phase.
-- Aerospace's Primus Epic(R) integrated avionics system received its
first Federal Aviation Administration approval for Gulfstream's G550
ultra-long-range business jet.
Automation and Control Solutions
-- Revenues were up 8.6% compared with the third quarter of 2002, due
to acquisitions and favorable foreign currency translation.
-- Segment margins were 10.9%, compared with 13.5% in the third
quarter of 2002, driven by pricing, higher pension costs, Building
Solutions' sales mix and increased research and development and other
expenses.
-- ACS' Process Solutions business received a 2003 Technology &
Business Award from START Magazine and Microsoft for Experion PKS, the
company's process control system.
-- The Honeywell Round(R) thermostat celebrated its 50th anniversary
during the third quarter. The Round(R), part of a Smithsonian
Institution collection of pioneering designs, has sold 85 million
units since 1953.
Specialty Materials
-- Revenues were down 2.5%, compared with the third quarter of 2002,
due to the disposition of Advanced Circuits and Metglas, partially
offset by favorable foreign currency translation.
-- Segment margins were (1.0%), compared with 1.3% in the prior year,
due to higher pension costs, plant disruptions and raw materials,
partially offset by divestitures and cost actions.
-- Specialty Materials completed the sale of its Metglas business to
Hitachi Metals, Ltd and its European textile operations to Glaeser
Textile.
Transportation Systems
-- Revenues increased 8.2%, compared with the third quarter of 2002,
driven by continued strong growth in turbochargers and favorable
foreign currency translation.
-- Turbocharger sales were up 16% and continued to be strong in all
regions as Europe increased 17%, Americas 12% and Asia 7%.
-- Segment margins were 10.3%, compared with 11.2% a year ago,
primarily reflecting higher pension costs and lower volume and
unfavorable mix in Friction Materials, partially offset by margin
expansion in Turbochargers.
-- Our Turbocharger business successfully completed development of its
third-generation Variable Nozzle Turbocharger to maintain its
leadership in the diesel car segment. Also, the Shanghai manufacturing
facility produced its one-millionth turbocharger during the quarter.
Honeywell will discuss its results during its investor webcast at 8:30
a.m. 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
September 30,
----------------------
2003 2002
--------- ---------
Net sales $ 5,768 $ 5,569
--------- ---------
Costs, expenses and other
Cost of goods sold 4,509 (A) 4,236
Selling, general and administrative (A)
expenses 729 698
(Gain) loss on sale of non-strategic (B)
businesses (9) -
Equity in (income) loss of affiliated (A)
companies (7) (7)
Other (income) expense 11 (4)
Interest and other financial charges 82 86
--------- ---------
5,315 5,009
--------- ---------
Income before taxes 453 560
Tax expense 109 148
--------- ---------
Net income $ 344 $ 412
========= =========
Earnings per share of common stock - basic $ 0.40 $ 0.50
========= =========
Earnings per share of common stock - assuming
dilution $ 0.40 $ 0.50
========= =========
Weighted average number of shares
outstanding - basic 862 821
========= =========
Weighted average number of shares outstanding
- assuming dilution 865 823
========= =========
(A) Cost of goods sold, selling, general and administrative expenses
and equity in (income) loss of affiliated companies include
provisions of $26, $2 and $2 million, respectively, for legacy
environmental matters deemed probable and reasonably estimable in
the third quarter of 2003 and net repositioning and other charges.
Total net pretax charges were $30 million (after-tax $1 million,
with no effect on earnings per share). The after-tax charge
includes a tax benefit from a tax settlement related to a prior
year asset impairment.
(B) Represents the net pretax gain on the sale of several
non-strategic businesses (after-tax loss $3 million, with no
effect on earnings per share).
Honeywell International Inc.
Consolidated Statement of Operations (Unaudited)
------------------------------------------------
(In millions except per share amounts)
Nine Months Ended
September 30,
----------------------
2003 2002
--------- ---------
Net sales $ 16,916 $ 16,419
--------- ---------
Costs, expenses and other
Cost of goods sold 13,263 (A) 12,740 (E)
Selling, general and administrative
expenses 2,194 (A) 1,975 (E)
(Gain) loss on sale of non-strategic
businesses (40)(B) 41 (F)
Business impairment charges - 43 (E)
Equity in (income) loss of affiliated
companies (11)(A) (17)(E)
Other (income) expense (16)(C) (26)
Interest and other financial charges 253 261
--------- ---------
15,643 15,017
--------- ---------
Income before taxes and cumulative effect of
accounting change 1,273 1,402
Tax expense 336 155
--------- ---------
Income before cumulative effect of accounting
change 937 1,247
Cumulative effect of accounting change (20)(D) -
--------- ---------
Net income $ 917 $ 1,247
========= =========
Earnings per share of common stock - basic:
Income before cumulative effect of
accounting change $ 1.09 $ 1.52
Cumulative effect of accounting change (0.02)(D) -
--------- ---------
Net income $ 1.07 $ 1.52
========= =========
Earnings per share of common stock - assuming
dilution:
Income before cumulative effect of
accounting change $ 1.09 $ 1.52
Cumulative effect of accounting change (0.02)(D) -
--------- ---------
Net income $ 1.07 $ 1.52
========= =========
Weighted average number of shares
outstanding - basic 860 819
========= =========
Weighted average number of shares outstanding
- assuming dilution 861 822
========= =========
(A) Cost of goods sold, selling, general and administrative expenses
and equity in (income) loss of affiliated companies include
provisions of $55, $7 and $2 million, respectively, for legacy
environmental matters deemed probable and reasonably estimable in
2003 and net repositioning and other charges. Total net pretax
charges were $64 million (after-tax $22 million, or $0.03 per
share). The after-tax charge includes a tax benefit from a tax
settlement related to a prior year asset impairment.
(B) Represents the net pretax gain on the sale of our Engineering
Plastics and several other non-strategic businesses (after-tax $6
million, or $0.01 per share). The after-tax gain includes tax
benefits associated with prior capital losses.
(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 September 30,
---------------------------
Net Sales Three Months Nine Months
--------- ------------ -----------
2003 2002 2003 2002
--------- --------- --------- ---------
Aerospace $ 2,231 $ 2,206 $ 6,454 $ 6,499
Automation and Control
Solutions 1,875 1,727 5,429 5,094
Specialty Materials 777 797 2,377 2,425
Transportation Systems 885 818 2,650 2,349
Corporate - 21 6 52
--------- --------- --------- ---------
Total $ 5,768 $ 5,569 $ 16,916 $ 16,419
========= ========= ========= =========
Periods Ended September 30,
---------------------------
Segment Profit Three Months Nine Months
-------------- ------------ -----------
2003 2002 2003 2002
--------- --------- --------- ---------
Aerospace $ 303 $ 338 $ 745 $ 1,009
Automation and Control
Solutions 205 233 567 660
Specialty Materials (8) 10 30 52
Transportation Systems 91 92 278 269
Corporate (33) (38) (99) (109)
--------- --------- --------- ---------
Total Segment Profit 558 635 1,521 1,881
Gain (loss) on sale of non-
strategic businesses 9 - 40 (41)
Business impairment charges - - - (43)
Equity in income of
affiliated companies 7 7 11 17
Other income (expense) (11) 4 16 26
Interest and other financial
charges (82) (86) (253) (261)
Repositioning, environmental
and other charges included
in cost of goods sold and
selling, general and
administrative expenses (28) - (62) (177)
--------- --------- --------- ---------
Income before taxes and
cumulative effect of
accounting change $ 453 $ 560 $ 1,273 $ 1,402
========= ========= ========= =========
Honeywell International Inc.
Consolidated Balance Sheet (Unaudited)
--------------------------------------
(Dollars in millions)
Sept. 30, Dec. 31,
2003 2002
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 2,870 $ 2,021
Accounts, notes and other receivables 3,354 3,264
Inventories 2,930 2,953
Deferred income taxes 1,424 1,296
Other current assets 645 661
---------- ----------
Total current assets 11,223 10,195
Investments and long-term receivables 643 624
Property, plant and equipment - net 4,168 4,055
Goodwill 5,712 5,698
Other intangible assets - net 1,101 1,074
Insurance recoveries for asbestos related
liabilities 1,253 1,636
Deferred income taxes 321 533
Prepaid pension benefit cost 2,767 2,675
Other assets 1,197 1,069
---------- ----------
Total assets $ 28,385 $ 27,559
========== ==========
LIABILITIES & SHAREOWNERS' EQUITY
Current liabilities:
Accounts payable $ 2,032 $ 1,912
Short-term borrowings 149 60
Commercial paper - 201
Current maturities of long-term debt 52 109
Accrued liabilities 4,361 4,292
---------- ----------
Total current liabilities 6,594 6,574
Long-term debt 5,006 4,719
Deferred income taxes 510 419
Postretirement benefit obligations other than
pensions 1,684 1,684
Asbestos related liabilities 2,217 2,700
Other liabilities 2,490 2,538
Shareowners' equity 9,884 8,925
---------- ----------
Total liabilities and shareowners'
equity $ 28,385 $ 27,559
========== ==========
Honeywell International Inc.
Consolidated Statement of Cash Flows (Unaudited)
------------------------------------------------
(Dollars in millions)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Cash flows from operating
activities:
Net income $ 344 $ 412 $ 917 $ 1,247
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 (9) - (40) 41
Repositioning and other
charges 30 - 64 190
Litton settlement
payment, net of tax
refund - (162) - (162)
Business impairment
charges - - - 43
Insurance receipts for
asbestos related
liabilities - 18 477 73
Asbestos related
liability payments (79) (14) (467) (64)
Depreciation 147 170 437 510
Undistributed earnings
of equity affiliates (7) (7) (11) (30)
Deferred income taxes 145 96 279 131
Pension contributions -
U.S. plans - (100) (170) (100)
Other 17 (60) 82 (311)
Changes in assets and
liabilities, net of
the effects of
acquisitions and
divestitures:
Accounts, notes and
other receivables 8 108 (72) 31
Inventories 112 78 17 120
Other current assets (39) 32 (21) 6
Accounts payable (57) (9) 118 (17)
Accrued liabilities 58 (63) 55 (82)
--------- --------- --------- ---------
Net cash provided by
operating activities 670 499 1,696 1,626
--------- --------- --------- ---------
Cash flows from investing
activities:
Expenditures for property,
plant and equipment (131) (145) (407) (444)
Proceeds from disposals of
property, plant and
equipment 13 1 13 22
Decrease in investments - 91 - 91
Cash paid for acquisitions (2) (13) (124) (32)
Proceeds from sales of
businesses 47 (3) 137 183
Decrease in short-term
investments - - - 7
--------- --------- --------- ---------
Net cash (used for)
investing activities (73) (69) (381) (173)
--------- --------- --------- ---------
Cash flows from financing
activities:
Net (decrease) in
commercial paper (188) (240) (201) (3)
Net increase (decrease) in
short-term borrowings 3 (9) 81 (71)
Proceeds from issuance of
common stock 8 3 39 37
Payments of long-term debt (11) - (81) (382)
Cash dividends on common
stock (161) (154) (483) (460)
--------- --------- --------- ---------
Net cash (used for)
financing activities (349) (400) (645) (879)
--------- --------- --------- ---------
Effect of foreign exchange
rate changes on cash and
cash equivalents (4) (4) 179 35
--------- --------- --------- ---------
Net increase in cash and
cash equivalents 244 26 849 609
Cash and cash equivalents at
beginning of period 2,626 1,976 2,021 1,393
--------- --------- --------- ---------
Cash and cash equivalents at
end of period $ 2,870 $ 2,002 $ 2,870 $ 2,002
========= ========= ========= =========
Honeywell International Inc.
Reconciliation of Cash Provided by Operating Activities
to Free Cash Flow (Unaudited)
-------------------------------------------------------
(Dollars in millions)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Cash provided by operating
activities $ 670 $ 499 $ 1,696 $ 1,626
Expenditures for property,
plant and equipment (131) (145) (407) (444)
--------- --------- --------- ---------
Free cash flow $ 539 $ 354 $ 1,289 $ 1,182
========= ========= ========= =========
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 will be used to
repay scheduled debt maturities and 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
prior to their maturities. 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.
