Honeywell Third Quarter 2005 Sales
MORRIS TOWNSHIP, N.J.--Oct. 1, 20059, 2005--| -- Company Realizes 5% Organic Growth and a Full Point of Margin Expansion |
Honeywell today announced an 8% increase in third quarter sales to $6.9 billion compared to $6.4 billion in 2004. The company reported earnings of 55 cents per share in the third quarter, an increase of 28% versus 43 cents per share in the third quarter of 2004. Net income was $470 million for the quarter compared with $372 million last year. Cash flow from operations was $705 million and free cash flow (cash flow from operations less capital expenditures) was $543 million.
"This was another strong quarter for Honeywell, highlighted by 5% organic growth and a full point of margin expansion," said Honeywell Chairman and Chief Executive Officer Dave Cote. "We continued to make significant progress in positioning the business for growth. We announced our intent to acquire the remaining 50% interest in our UOP joint venture, a leading technology provider to the petroleum refining, petrochemical and gas processing industries. In addition, we are divesting our non-core U.S. nylon carpet fiber operations. Both transactions are expected to close in the fourth quarter and will substantially complete the portfolio transformation of our Specialty Materials business. We also reached a definitive agreement to sell Indalex Aluminum Solutions, one of the two non-core Novar businesses, at terms that are in line with prior expectations."
The company also updated its previously announced 2005 financial guidance. Sales for the full year are anticipated to be up 8% to approximately $27.6 billion and free cash flow is expected to be $1.7 - $1.8 billion (cash flow from operations of $2.5 - $2.6 billion). Earnings per share (excluding the tax charge associated with the repatriation of foreign earnings related to the provisions of the American Jobs Creation Act of 2004) is expected to be $2.11 - $2.13 ($1.93 - $1.95 per share on a reported basis), up 30% on a reported basis.
Third Quarter Segment Highlights
Aerospace
-- Sales were up 6% compared with the third quarter of 2004, with 9% growth in commercial markets and 3% growth in defense and space sales.
-- Segment margins were 16.8% compared with 15.4% a year ago, due to strong volume growth.
-- Aerospace received European Aviation Safety Agency certification for its Runway Awareness and Advisory System (RAAS) on a range of business aviation aircraft. French regulatory authorities also approved RAAS for the Boeing 777 aircraft.
-- Defense and Space delivered RDR-4000M, the first of its next-generation weather radar systems, to the United States Air Force for installation in a C-17 Globemaster III. This system is the military variant of the commercial RDR-4000 system, selected for the new Airbus A380, and recently selected for Singapore Airlines new fleet of Boeing 777's.
-- Defense and Space was selected by Bell Helicopter to provide the HTS900 engine, the Radar Altimeter and the Embedded Global Positioning System/Inertial Navigation System for the Armed Reconnaissance Helicopter.
Automation and Control Solutions
-- Sales were up 23% compared with the third quarter of 2004, driven by organic sales growth of 4%, primarily in the Security and Life Safety businesses, and the impact of acquisitions of 19%.
-- Segment margins were 12.3% compared with 11.8% a year ago, as productivity gains more than offset the anticipated dilutive impact of acquisitions. Excluding the impact of acquisitions, segment margins would have expanded to 12.8%.
-- VisionPRO(TM) and FocusPRO(TM), the award-winning centerpieces of Honeywell's new thermostat offerings, continued to experience strong customer acceptance, which helped drive 15% growth in the North American trade channel of the Environmental and Combustion Controls business.
-- Building Solutions signed energy savings performance contracts totaling more than $50 million in the third quarter, including Altus Air Force Base in Oklahoma and Rochester, N.H. schools, and introduced Honeywell MiniRetrofit(TM) Service, a new facility-optimization program that allows building managers in the commercial/industrial sector to replace aging infrastructure with high-efficiency equipment and systems.
-- Process Solutions won a $48 million agreement to provide comprehensive e-retail solutions to the Indian Oil Corporation Ltd and the Hindustan Petroleum Corporation, as well as a $10 million five-year oil and gas process automation solutions contract to service four Sonatrach sites in Algeria.
Transportation Systems
-- Sales were flat compared with the third quarter of 2004, due to a shift in European consumer demand among automotive platforms and the impact of slightly lower European light vehicle production on Turbo Technologies sales, offset by continued growth in North America.
-- Segment margins were 11.4%, compared with 13.0% a year ago, due to higher raw material costs, unfavorable mix, and the operational costs associated with the exit from Friction Materials' North American original equipment business, partially offset by productivity gains.
-- Turbo Technologies' third generation VNT(TM) was launched on the Audi A8 4.2 TDI, BMW 745d and the Mercedes S 420 CDI. These three flagship vehicles were introduced at the Frankfurt Motor Show in September.
-- Consumer Products Group and Friction Materials have merged to form a single, global organization to better leverage worldwide sales and distribution capabilities and to realize greater operational efficiencies.
Specialty Materials
-- Sales were down 12% compared with the third quarter of 2004, with 6% organic growth, primarily in the Chemicals and Nylon businesses, which was more than offset by the loss of sales from the divested Performance Fibers and Industrial Wax businesses.
-- Segment margins were 7.5% compared with 4.3% a year ago, with price increases and productivity actions more than offsetting higher raw material costs.
-- Honeywell agreed to acquire the 50% interest in UOP LLC currently owned by Union Carbide, a wholly-owned subsidiary of The Dow Chemical Company, which will result in full ownership of the entity. UOP, a leading international supplier and licensor of process technology, catalysts, process plants and consulting services to the petroleum refining, petrochemical and gas processing industries, had revenue of $1.2 billion in 2004. The transaction is expected to close in the fourth quarter of 2005.
-- Specialty Materials agreed to sell its U.S nylon carpet fiber operations to Shaw Industries Group, Inc. The transaction is expected to close in the fourth quarter of 2005.
During the quarter the company recognized a pre-tax charge of $110 million for repositioning, environmental, litigation, and other matters, which is net of a favorable $67 million arbitration ruling.
Honeywell International is a $26 billion diversified technology and manufacturing leader, serving customers worldwide with aerospace products and services; control technologies for buildings, homes and industry; automotive products; turbochargers; and specialty materials. Based in Morris Township, N.J., Honeywell's shares are traded on the New York, 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. For additional information, please visit www.honeywell.com.
Honeywell International Inc.
Consolidated Statement of Operations (Unaudited)
------------------------------------------------
(In millions except per share amounts)
Three Months Ended
September 30,
---------------------
2005 2004
------- -------
Product sales $5,593 $5,046
Service sales 1,306 1,349
------- -------
6,899 6,395
------- -------
Costs, expenses and other
Cost of products sold 4,329 (A) 4,163 (C)
Cost of services sold 962 (A) 924 (C)
Selling, general and administrative expenses 982 (A) 820 (C)
(Gain) loss on sale of non-strategic
businesses (21)(B) (5)(D)
Equity in (income) loss of affiliated
companies (22) (24)
Other (income) expense - (50)(E)
Interest and other financial charges 83 81
------- -------
6,313 5,909
------- -------
Income from continuing operations before taxes 586 486
Tax expense 153 114
------- -------
Income from continuing operations 433 372
Income from discontinued operations, net of taxes 37 -
------- -------
Net income $ 470 $ 372
======= =======
Earnings per share of common stock - basic:
Income from continuing operations $ 0.51 $ 0.43
Income from discontinued operations 0.04 -
------- -------
Net income $ 0.55 $ 0.43
======= =======
Earnings per share of common stock - assuming
dilution:
Income from continuing operations $ 0.51 $ 0.43
Income from discontinued operations 0.04 -
------- -------
Net income $ 0.55 $ 0.43
======= =======
Weighted average number of shares outstanding -
basic 851 861
======= =======
Weighted average number of shares outstanding -
assuming dilution 856 864
======= =======
(A) Cost of products and services sold and selling, general and
administrative expenses include provisions of $60 million (net of
a credit of $67 million for a favorable arbitration ruling) and
$50 million, respectively, for environmental, litigation, net
repositioning and other charges (credits). Total net pretax
charges were $110 million (after-tax $76 million, or $0.09 per
share).
(B) Represents pretax adjustments related to businesses sold in prior
periods (after- tax $13 million, or $0.02 per share).
(C) Cost of products and services sold and selling, general and
administrative expenses include provisions of $100 and $1 million,
respectively, for environmental, litigation and net repositioning
charges. Total net pretax charges were $101 million (after-tax $56
million, or $0.06 per share).
(D) Represents pretax adjustments related to businesses sold in prior
periods (after- tax $3 million, with no effect on earnings per
share).
(E) Includes a gain of $27 million (after-tax $17 million, or $0.02
per share) related to the settlement of a patent infringement
lawsuit.
Honeywell International Inc.
Consolidated Statement of Operations (Unaudited)
------------------------------------------------
(In millions except per share amounts)
Nine Months Ended
September 30,
-----------------------
2005 2004
------- -------
Product sales $16,411 $15,015
Service sales 3,967 3,946
-------- --------
20,378 18,961
-------- --------
Costs, expenses and other
Cost of products sold 13,003 (A) 12,461 (D)
Cost of services sold 2,867 (A) 2,784 (D)
Selling, general and administrative
expenses 2,771 (A) 2,451 (D)
(Gain) loss on sale of non-strategic
businesses (11)(B) (270)(E)
Equity in (income) loss of affiliated
companies (82)(A) (48)(D)
Other (income) expense (27)(A) (78)(F)
Interest and other financial charges 260 247
-------- --------
18,781 17,547
-------- --------
Income from continuing operations before taxes 1,597 1,414
Tax expense 527(C) 386
-------- --------
Income from continuing operations 1,070 1,028
Income from discontinued operations, net of
taxes 65 -
-------- --------
Net income $ 1,135 $ 1,028
======== ========
Earnings per share of common stock - basic:
Income from continuing operations $ 1.25 $ 1.19
Income from discontinued operations 0.08 -
-------- --------
Net income $ 1.33 $ 1.19
======== ========
Earnings per share of common stock - assuming
dilution:
Income from continuing operations $ 1.25 $ 1.19
Income from discontinued operations 0.08 -
-------- --------
Net income $ 1.33 $ 1.19
======== ========
Weighted average number of shares outstanding-
basic 853 860
======== ========
Weighted average number of shares outstanding -
assuming dilution 857 864
======== ========
(A) Cost of products and services sold, selling, general and
administrative expenses, equity in (income) loss of affiliated
companies and other (income) expense include provisions of $277
million (net of a credit of $67 million for a favorable
arbitration ruling), $43, $2 and $10 million, respectively, for
environmental, litigation, net repositioning and other charges
(credits). Total net pretax charges were $332 million (after-tax
$242 million, or $0.28 per share).
(B) Represents pretax adjustments related to businesses sold in prior
periods; partially offset by the pretax loss related to the sale
of our Industrial Wax business (after- tax gain $57 million, or
$0.07 per share). The after-tax gain has been impacted by the
higher tax basis than book basis on the sale of our Industrial Wax
business.
(C) Includes a tax provision of $155 million, or $0.18 per share for
the repatriation of foreign earnings related to the provisions of
the American Jobs Creation Act of 2004.
(D) Cost of products and services sold, selling, general and
administrative expenses and equity in (income) loss of affiliated
companies include provisions of $384, $9 and $6 million,
respectively, for environmental, litigation, business impairment
and net repositioning charges. Total net pretax charges were $399
million (after-tax $249 million, or $0.29 per share).
(E) Represents pretax gains on the sales of our VCSEL Optical Products
and Security Monitoring businesses, and adjustments related to
businesses sold in prior periods (after-tax $147 million, or $0.17
per share).
(F) Includes a gain of $27 million (after-tax $17 million, or $0.02
per share) related to the settlement of a patent infringement
lawsuit.
Honeywell International Inc.
Segment Data (Unaudited)
-------------------------
(Dollars in millions)
Periods Ended September 30,
---------------------------
Net Sales Three Months Nine Months
--------- ------------ -----------
2005 2004 2005 2004
------- ------- ------- -------
Aerospace $ 2,619 $ 2,468 $ 7,772 $ 7,225
Automation and Control Solutions 2,445 1,994 6,824 5,909
Specialty Materials 773 876 2,369 2,633
Transportation Systems 1,061 1,057 3,412 3,193
Corporate 1 - 1 1
------- ------- ------- -------
Total $ 6,899 $ 6,395 $20,378 $18,961
======= ======= ======= =======
Periods Ended September 30,
---------------------------
Segment Profit Three Months Nine Months
-------------- ------------ -----------
2005 2004 2005 2004
------- ------- ------- -------
Aerospace $ 439 $ 379 $ 1,234 $ 1,053
Automation and Control Solutions 300 235 743 637
Specialty Materials 58 38 195 137
Transportation Systems 121 137 437 430
Corporate (41) (40) (129) (117)
------- ------- ------- -------
Total Segment Profit 877 749 2,480 2,140
Gain on sale of non-strategic
businesses 21 5 11 270
Equity in income of affiliated
companies 22 24 82 48
Other income - 50 27 78
Interest and other financial
charges (83) (81) (260) (247)
Pension and other postretirement
benefits (expense) (A) (141) (160) (423) (482)
Repositioning, environmental,
litigation and other
(charges) credits (A) (110) (101) (320) (393)
------- ------- ------- -------
Income from continuing
operations before taxes $ 586 $ 486 $ 1,597 $ 1,414
======= ======= ======= =======
(A) Amounts included in cost of products and services sold and
selling, general and administrative expenses.
Honeywell International Inc.
Consolidated Balance Sheet (Unaudited)
--------------------------------------
(Dollars in millions)
September December
30, 2005 31, 2004
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 1,452 $ 3,586
Accounts, notes and other receivables 4,772 4,243
Inventories 3,398 3,160
Deferred income taxes 1,161 1,289
Other current assets 564 542
Assets held for disposal 1,222 -
--------- ---------
Total current assets 12,569 12,820
Investments and long-term receivables 406 542
Property, plant and equipment - net 4,335 4,331
Goodwill 7,422 6,013
Other intangible assets - net 1,586 1,241
Insurance recoveries for asbestos related
liabilities 1,288 1,412
Deferred income taxes 738 613
Prepaid pension benefit cost 2,803 2,985
Other assets 1,059 1,105
--------- ---------
Total assets $ 32,206 $ 31,062
========= =========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Accounts payable $ 2,627 $ 2,564
Short-term borrowings 61 28
Commercial paper 425 220
Current maturities of long-term debt 952 956
Accrued liabilities 5,405 4,971
Liabilities related to assets held for
disposal 236 -
--------- ---------
Total current liabilities 9,706 8,739
Long-term debt 3,972 4,069
Deferred income taxes 530 397
Postretirement benefit obligations other than
pensions 1,685 1,713
Asbestos related liabilities 1,618 2,006
Other liabilities 3,320 2,886
Shareowners' equity 11,375 11,252
--------- ---------
Total liabilities and shareowners' equity $ 32,206 $ 31,062
========= =========
Honeywell International Inc.
Consolidated Statement of Cash Flows (Unaudited)
------------------------------------------------
(Dollars in millions)
Three Months Nine Months
Ended Ended
September 30, September 30,
---------------- ----------------
2005 2004 2005 2004
------- ------ ------- ------
Cash flows from operating activities:
Net income $ 470 $ 372 $ 1,135 $1,028
Adjustments to reconcile net income
to net cash provided by operating
activities:
(Gain) loss on sale of non-
strategic businesses (21) (5) (11) (270)
Repositioning, environmental,
litigation and other charges
(credits) 110 101 332 399
Severance and exit cost payments (35) (41) (105) (123)
Environmental and non-asbestos
litigation payments (62) (39) (169) (131)
Asbestos related liability
payments (138) (101) (418) (424)
Insurance receipts for asbestos
related liabilities 11 13 110 61
Depreciation and amortization 173 166 516 494
Undistributed earnings of equity
affiliates 49 (24) 8 (53)
Deferred income taxes 17 70 81 152
Pension and other postretirement
benefits expense 141 160 423 482
Pension contributions - U.S.
plans - (5) - (10)
Other postretirement benefit
payments (55) (53) (145) (152)
Other 76 (22) 1 (102)
Changes in assets and
liabilities, net of the effects
of acquisitions and
divestitures:
Accounts, notes and other
receivables (147) (75) (273) (318)
Inventories (22) (54) (86) (42)
Other current assets 1 8 20 1
Accounts payable (26) 69 (31) 186
Accrued liabilities 163 105 215 309
------- ------ ------- ------
Net cash provided by operating
activities 705 645 1,603 1,487
------- ------ ------- ------
Cash flows from investing activities:
Expenditures for property, plant
and equipment (162) (120) (456) (403)
Proceeds from disposals of
property, plant and equipment 14 10 39 12
Decrease in investments - - 285 80
Cash acquired in acquisition of
Novar plc - - 86 -
Cash paid for acquisitions (23) (111) (2,047) (220)
Proceeds from sales of businesses 3 (3) 35 391
------- ------ ------- ------
Net cash (used for) investing
activities (168) (224) (2,058) (140)
------- ------ ------- ------
Cash flows from financing activities:
Net increase (decrease) in
commercial paper (299) (75) 205 20
Net (decrease) in short-term
borrowings - (2) (693) (126)
Proceeds from issuance of common
stock 45 17 134 62
Payments of long-term debt (5) - (148) (23)
Repurchases of common stock (579) (50) (579) (342)
Cash dividends on common stock (176) (161) (528) (483)
------- ------ ------- ------
Net cash (used for) financing
activities (1,014) (271) (1,609) (892)
------- ------ ------- ------
Effect of foreign exchange rate
changes on cash and cash equivalents - 51 (70) 28
------- ------ ------- ------
Net (decrease) increase in cash and
cash equivalents (477) 201 (2,134) 483
Cash and cash equivalents at
beginning of period 1,929 3,232 3,586 2,950
------- ------ ------- ------
Cash and cash equivalents at end of
period $ 1,452 $3,433 $ 1,452 $3,433
======= ====== ======= ======
Honeywell International Inc.
Reconciliation of Cash Provided by Operating Activities to
Free Cash Flow (Unaudited)
--------------------------
(Dollars in millions)
Three Months Nine Months
Ended Ended
September 30, September 30,
-------------------------------
2005 2004 2005 2004
------ ------ ------ ------
Cash provided by operating activities $ 705 $ 645 $1,603 $1,487
Expenditures for property, plant and
equipment (162) (120) (456) (403)
------ ------ ------ ------
Free cash flow $ 543 $ 525 $1,147 $1,084
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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.