AlliedSignal Reports Q2 Earnings
23 July 1997
AlliedSignal Second-Quarter Earnings Are A Record $1.08, Up 16%; Board Approves Two-For-One Stock Split, Declares Dividend
MORRIS TOWNSHIP, N.J., July 23 -- AlliedSignal Inc.
today reported record second-quarter net income of $305 million,
or $1.08 per share, a 16% increase over comparable 1996 second-quarter net
income of $263 million, or $0.93 per share. It was the company's 22nd
consecutive quarter of earnings growth of 14% or more. Including the gain on
the April 1996 sale of the passenger car braking business and repositioning
and other charges, year-ago second-quarter net income was $272 million, or
$0.96 per share.
The board of directors approved a two-for-one stock split and a regular
quarterly dividend of $0.26 per share on the pre-split shares. The dividend
will be paid on September 10 to shareowners of record on August 21. On
September 15, one additional share of stock will be mailed to shareowners for
each share they own of record on August 21. The shares are expected to begin
trading at the post-split price on September 16.
Lawrence A. Bossidy, Chairman and Chief Executive Officer, said the split
was designed to make the share price more attractive for individual investors.
Since the company last split the stock two-for-one in March 1994, the share
price has more than doubled.
Second-quarter net income was up 28% for Aerospace, up 16% for Engineered
Materials and down 4% for Automotive.
Sales in the second quarter were $3.6 billion, an increase of 7% over
sales of $3.3 billion in the second quarter of 1996. Although foreign
exchange and labor strikes at two major customers reduced second-quarter sales
by a total of 2%, sales increased 10% in Aerospace, 7% in Engineered Materials
and 2% in Automotive.
Operating margin in the second quarter expanded to a record 12.0% from
11.4% in the corresponding year-earlier quarter. Productivity improved 6.9%.
Operating cash flow for the quarter was $370 million; free cash flow was $150
million. At June 30, 1997, the company had $1.5 billion in cash and short-
term investments. Total debt adjusted for cash and short term investments was
16.2% of total capital.
"Outstanding internal sales growth in Aerospace, Engineered Materials,
Turbocharging Systems and Truck Brake Systems was augmented by rapid progress
in our accelerated productivity initiatives, including our maturing Six Sigma
efforts," said Bossidy.
"Many of our businesses are growing at multiples of the economic growth
rates in our global markets," said Bossidy. "In addition, our continued
ability to reduce costs and expand factory throughput while increasing sales
gives us a high degree of confidence that we'll achieve our goal of 13-to-17%
earnings growth for 1997 despite the second-quarter moderation of U.S. GDP
growth."
During the second quarter the company completed or announced acquisitions
which would add annualized sales of $550 million in businesses whose pace of
sales growth and profit margins exceed those of AlliedSignal as a whole. "We
continue to increase the proportion of growth and higher margin businesses in
our portfolio in our quest to generate consistent earnings growth," said
Bossidy.
Continued rapid sales growth of higher-margin Aerospace aftermarket
products and services was supplemented by a foreseen increase in original
equipment sales, reflecting the expansion of commercial aircraft production.
Aerospace Equipment Systems sales were higher, as were sales of Engines and
Commercial Avionics Systems. Earlier this week, the company completed the
acquisition of Grimes Aerospace, the world's leading supplier of aircraft
lighting systems. Aerospace also announced last month a global alliance with
Caterpillar Logistics Services, Inc. to leverage AlliedSignal's market
leadership in aerospace aftermarket parts and services by improving capacity
and service levels.
Automotive's Turbocharging Systems and Truck Brake Systems businesses each
had higher sales and net income, with strong aftermarket growth in both
businesses. The company's Garrett(R) turbocharger products continue to help
transform the European passenger car market, as consumers opt for cars which
use less-expensive diesel fuel in economical small engines whose turbocharged
performance equals that of larger gasoline engines. The Aftermarket business
units had higher sales because of the acquisition in June of Prestone Products
Corporation. The company plans to increase the sale of Prestone products
through AlliedSignal's global distribution system and to apply Prestone's
world-class merchandising abilities to AlliedSignal's other aftermarket
brands. During the quarter, the company contracted with United Parcel Service
to provide logistics services designed to enhance the efficiency and quality
of automotive aftermarket distribution services in the U.S.
Engineered Materials had higher sales in all three major business units.
In the Polymers group, sales grew for several key nylon- and polyester-based
products. Specialty Chemicals benefited from outstanding results at Riedel-de
Haen in Europe, offset partially by lower sales of fluorine refrigerants due
to cooler-than-usual spring weather in most of the U.S. During the quarter,
AlliedSignal announced the acquisition of Iropharm Ltd., an Ireland-based
manufacturer of pharmaceutical chemicals. Electronic Materials sales
benefited from continued growth in advanced microelectronic materials and from
improving laminates sales as the printed wiring board industry began to
strengthen.
For the six months ended June 30, 1997, AlliedSignal earned $564 million,
an increase of 16% over a comparable $488 million in the corresponding year-
earlier period. Earnings per share improved to $1.99 from $1.73. Including
the gain on the sale of the passenger car braking business and repositioning
and other charges, year-ago first-half net income was $497 million, or $1.76
per share. Sales for the first six months were $6.9 billion in 1997, an
increase of 5% over a comparable $6.6 billion in 1996. Including sales from
the divested braking systems business, sales for the first six months of 1996
were $7.1 billion.
Excluding the nonrecurring gain and charges from 1996 figures, results for
the second quarter were as follows:
Aerospace net income increased 28% to a record $115 million from $90
million in the 1996 second quarter. Sales rose 10% to a record $1.5 billion
from $1.4 billion.
Engines sales were higher, driven by increased shipments of auxiliary
power units and continued strength in aftermarket spares and repair and
overhaul services. Net income benefited from improved capacity utilization
and Six Sigma quality and productivity programs. Aerospace Equipment Systems
(AES) sales and net income were higher due to double-digit growth in
aftermarket and air transport original equipment shipments. AES growth was
led by double-digit sales increases in environmental control systems, engine
fuel systems, and wheels and brakes. Commercial Avionics Systems sales and
net income were higher, reflecting increased demand for safety avionics and
flight management systems and improved manufacturing performance. Electronic
Systems sales and net income were lower.
Automotive net income declined 4% to $48 million from $50 million in the
1996 second quarter. Sales rose 2% to $976 million from $955 million.
Sales and net income for Turbocharging Systems continued to grow, as the
company's technology leadership and flow of new products translated into
higher European sales of diesel-powered passenger cars equipped with
Garrett(R) turbochargers. Expansion was also strong in Truck Brake Systems
because of aftermarket growth, an upturn in new vehicle production and
increased anti-lock braking system installations. Sluggish Aftermarket filter
and spark plug sales were more than offset by the addition in June of the fast
growing Prestone(R) line of antifreeze/coolant and other products.
Aftermarket Americas launched the new FRAM(R) Tough Guard(TM) oil filter, an
innovative premium product which provides superior protection to engines
operating under severe conditions. Friction Materials achieved a number of
notable original equipment program wins, including the BMW 3-series. Lower
sales and net income for Safety Restraint Systems resulted primarily from
labor strikes at two key North American customers.
Engineered Materials net income increased 16% to a record $137 million
from $118 million in the second quarter of 1996. Sales increased 7% to a
record $1.1 billion from $1.0 billion. Higher sales of Polymers were driven
by continued unit volume growth across most businesses, including consumer
products and industrial byproducts of the nylon system. Engineered Plastics
benefited from new products and applications in the automotive and packaging
segments. Global sales of industrial polyester were higher, as were sales of
phenol produced at the recently expanded plant in Frankford, Pennsylvania.
Although unit volumes were higher, Polymers net income was flat due to weaker
selling prices for industrial polyester and acetone.
Specialty Chemicals had higher sales and net income, driven by improved
marketing efforts which resulted from the transition of sales responsibility
for Riedel-de Haen products from its former owner to AlliedSignal. The
industrial specialties and pharmaceutical/agricultural market segments were
particularly strong. Specialty Chemicals net income increased as a result of
volume growth and the adoption in Europe of AlliedSignal's productivity
initiatives.
Sales and net income for Electronic Materials were higher, driven by
continued strength in advanced microelectronics as well as improving sales of
laminates. During the quarter, amorphous metals, now part of Electronic
Materials, announced the formation of a joint venture with Crompton Greaves
Ltd. of Bombay, India to develop ultra-high efficiency amorphous metal
transformers for India's industrial power market.
AlliedSignal is an advanced technology and manufacturing company serving
customers worldwide with aerospace and automotive products, chemicals, fibers,
plastics and advanced materials.
AlliedSignal Inc.
Consolidated Statement of Income (Unaudited)
(Dollars in millions except per share amounts)
THREE MONTHS ENDED JUNE 30
1996
1997 As Reported Adjusted (D)
Net sales $3,578 $3,347 $3,347
Cost of goods sold 2,764 3,235 (A) 2,598
Selling, general and administrative
expenses 386 366 366
Gain on sale of business - (655)(B) -
Total costs and expenses 3,150 2,946 2,964
Income from operations 428 401 383
Equity in income of affiliated
companies 55 46 46
Other income (expense) 14 33 (A) 18
Interest and other financial charges (39) (47) (47)
Income before taxes on income 458 433 400
Taxes on income 153 161 137
Net income $305 $272 $263
Earnings per share of common
stock (C) $1.08 $0.96 $0.93
(A) Cost of goods sold includes a provision of $637 million for
repositioning and other charges. An offsetting credit of $15 million
representing the minority interest share of repositioning and other charges is
included in other income (expense). Total pretax repositioning and other
charges were $622 million (after-tax $359 million, or $1.27 per share).
(B) Represents the gain (after-tax $368 million, or $1.30 per share) on
the sale of the hydraulic braking and anti-lock braking systems businesses
effective April 1, 1996.
(C) Based on weighted average number of shares outstanding during each
period: three months ended June 30, 1997, 282,691,905 shares, and 1996,
282,769,698 shares. There is no material dilutive effect on earnings per
share of common stock due to common stock equivalents. All share and per
share amounts are on a pre-split basis.
(D) Excludes the one-time impact from the sale of the hydraulic braking
and anti-lock braking systems businesses as well as from the repositioning and
other charges.
AlliedSignal Inc.
Consolidated Statement of Income (Unaudited)
(Dollars in millions except per share amounts)
SIX MONTHS ENDED JUNE 30
1996
1997 As Reported Adjusted (D)
Net sales $6,905 $7,125 $7,125
Cost of goods sold 5,369 6,247 (A) 5,610
Selling, general and administrative
expenses 751 767 767
Gain on sale of business - (655)(B) -
Total costs and expenses 6,120 6,359 6,377
Income from operations 785 766 748
Equity in income of affiliated companies 96 73 73
Other income (expense) 48 33 (A) 18
Interest and other financial charges (81) (97) (97)
Income before taxes on income 848 775 742
Taxes on income 284 278 254
Net income $564 $497 $488
Earnings per share of common stock (C) $1.99 $1.76 $1.73
(A) Cost of goods sold includes a second quarter 1996 provision of $637
million for repositioning and other charges. An offsetting credit of $15
million representing the minority interest share of repositioning and other
charges is included in other income (expense). Total pretax repositioning and
other charges were $622 million (after-tax $359 million, or $1.27 per share).
(B) Represents the gain (after-tax $368 million, or $1.30 per share) on
the sale of the hydraulic braking and anti-lock braking systems businesses
effective April 1, 1996.
(C) Based on weighted average number of shares outstanding during each
period: six months ended June 30, 1997, 283,092,568 shares, and 1996,
282,810,076 shares. There is no material dilutive effect on earnings per
share of common stock due to common stock equivalents. All share and per
share amounts are on a pre-split basis.
(D) Excludes the one-time impact from the sale of the hydraulic braking
and anti-lock braking systems businesses as well as from the repositioning and
other charges.
AlliedSignal Inc.
Segment Data
(Dollars in Millions)
THREE MONTHS ENDED JUNE 30
Net Sales Net Income
1996
1997 1996 1997 As Reported (A) Adjusted (B)
Aerospace $1,513 $1,370 $115 ($89) $90
Automotive 976 955 48 369 50
Engineered Materials 1,809 1,020 137 47 118
Total Businesses 3,578 3,345 300 327 258
Corporate &
Unallocated - 2 5 (55) 5
Total $3,578 $3,347 $305 $272 $263
SIX MONTHS ENDED JUNE 30
Net Sales Net Income
1996
1997 1996 1997 As Reported (A) Adjusted (B)
Aerospace $2,911 $2,670 $214 ($18) $161
Automotive 1,903 2,431 100 441 122
Engineered
Materials 2,090 2,022 245 156 227
Total Businesses 6,904 7,123 559 579 510
Corporate &
Unallocated 1 2 5 (82) (22)
Total $6,905 $7,125 $564 $497 $488
(A) Includes a net after-tax gain of $9 million, consisting of an after-
tax gain of $368 million on the sale of the hydraulic braking and anti-lock
braking systems businesses by Automotive; offset by an after-tax provision of
$359 million for repositioning and other charges as follows: Aerospace $179
million; Automotive $49 million; Engineered Materials $71 million; and
Corporate and Unallocated $60 million.
(B) Excludes the one-time impact from the sale of the hydraulic braking
and anti-lock braking systems businesses as well as from the repositioning and
other charges.
SOURCE AlliedSignal Inc.