AlliedSignal Inc. Announces Fourth-Quarter Earnings
28 January 1998
AlliedSignal's Fourth-Quarter Earnings Rise 17% to $0.56 Per Share On a 12% Increase in Sales
Board Increases Quarterly Dividend by 15% to $0.15 Per Share
MORRIS TOWNSHIP, N.J., Jan. 28 -- AlliedSignal Inc.
today reported that basic earnings per share for the fourth
quarter of 1997 were a record $0.56, a 17% increase over 1996 fourth-quarter
basic earnings per share of $0.48. Diluted earnings per share increased 20%
to a record $0.55 from $0.46.
The three-month period ended December 31, 1997 was the 24th consecutive
quarter of earnings-per-share increases of 14% or more.
Fourth-quarter net income increased 16% to $314 million from $270 million
in the corresponding quarter of 1996. Excluding one-time items, which relate
to a net gain on a divestiture and repositioning and other charges, 1997
fourth-quarter net income was $310 million.
Sales for the fourth quarter grew 12% to $3.9 billion from $3.5 billion.
Excluding the effect of foreign exchange, 1997 fourth-quarter sales were up
14%. Operating margin excluding one-time items expanded to 11.2% from 10.6%
in the 1996 fourth quarter.
"Our strong fourth quarter performance was driven by broad-based sales
growth in all nine major business units and continued gains in productivity,
resulting in higher net income in seven of the nine," said Lawrence A.
Bossidy, Chairman and Chief Executive Officer.
"Most of the markets in which we participate continued to show strength at
the outset of 1998, and our strategies to improve sales through internal
growth and acquisitions are working, as evidenced by our strong 12% sales
increase in the fourth quarter of 1997. Higher sales coupled with intensified
Six Sigma productivity efforts should provide the capability to meet our
target of 13-to-17% earnings growth for 1998," said Bossidy.
1997 Full-Year Results
Net income for the 12 months ended December 31, 1997 was a record
$1.17 billion, an increase of 15% over 1996 net income of $1.02 billion.
Basic earnings were $2.07 per share in 1997 and $1.80 per share in 1996.
Diluted earnings per share were $2.02 in 1997 and $1.76 in 1996.
Sales were $14.5 billion in 1997, up 4% (6% excluding the effect of
foreign exchange) over $14.0 billion in 1996. Excluding revenues from the
divested hydraulic braking and safety restraints businesses from both years,
1997 sales increased by $1.2 billion, or 10% (12% excluding foreign exchange),
to $13.7 billion from $12.5 billion in 1996.
Operating margin excluding one-time items widened to 11.4% in 1997 from
10.7% in 1996, driven by a 5.9% productivity improvement achieved through
higher sales and continued implementation of the company's Six Sigma program.
Six Sigma is the company's term for its efforts to reach defect-free
performance in manufacturing and other processes as well as other productivity
initiatives, such as cycle-time reduction, capacity improvement and materials
management.
Total return to AlliedSignal shareowners in 1997, including share price
appreciation and reinvested dividends, was 17.4%.
Operating cash flow for 1997 increased to $1.3 billion. Free cash flow
was $401 million, a 28% increase over 1996 free cash flow of $313 million.
Return on average equity was 27.4%, and return on average investment was
18.3%.
At year end, the company had $1.0 billion in cash, cash equivalents and
short-term investments. Net debt (debt adjusted for surplus cash) as a
percentage of total capital was 24.0%.
Sixth Dividend Increase In Six Years
The Board of Directors approved a 15% increase in the quarterly common
stock dividend to $0.15 per share, effective in the first quarter of 1998.
This is the sixth consecutive annual double-digit dividend increase. The
first dividend at the new rate will be paid March 10 to shareowners of record
on February 20, 1998.
Fourth Quarter Detail
Results for the fourth quarter were as follows:
Aerospace had record net income of $177 million, an increase of 40% over
1996 fourth-quarter net income of $126 million. Sales were a record
$1.84 billion, an increase of 15% over sales of $1.59 billion in the year-
earlier quarter. Sales were higher across all major market segments, led by
continued strong demand in both the commercial original equipment (OE) market
and the commercial aftermarket. Sales of aircraft spare parts and repair and
overhaul services were spurred by the continued increase in world passenger
traffic and by AlliedSignal initiatives to capture additional aftermarket
business by providing airlines with operational incentives to outsource
maintenance activities. During the quarter, the company's aerospace
businesses won 12 major competitions, capturing over $4 billion in potential
business.
Aerospace Equipment Systems sales were substantially higher across all
product lines, including aircraft landing systems, environmental controls,
engine systems and accessories, and power management and generation systems.
Results also reflect the acquisition of Grimes Aerospace, an aircraft lighting
systems business. Net income was higher due to higher OE volume combined with
double-digit aftermarket sales growth. Separately, AlliedSignal announced
today that it has completed the acquisition of British Airways' wheel and
brake operations in London and signed a ten-year agreement to serve as the
exclusive supplier of wheel and brake aftermarket support services for British
Airways' designated fleets. The agreement has a potential value of
$150 million in revenue.
Engines sales were higher for both auxiliary power units (APUs) and
propulsion engines. Higher OE and aftermarket volumes combined with
productivity programs led to higher net income. During the quarter, the
company received new orders for the LF507 turbofan propulsion engine which
powers the Avro RJ regional aircraft; repair and overhaul services for these
engines; T55 turboshaft helicopter engine upgrades; and APUs for the new
Dornier 328 regional aircraft. Combined revenues from these orders is
expected to be approximately $300 million over the terms of the contracts.
Sales were brisk to the business aircraft industry, which has its highest
backlog in 20 years.
Electronic & Avionics Systems had significantly higher sales, as growth in
commercial flight safety and avionics products offset a decline in sales of
military communication equipment. Net income was higher due to higher sales
of flight safety avionics and productivity improvements realized as a result
of Six Sigma programs. At 1997 year end, AlliedSignal had orders for 3,600
units of its EGPWS(TM) enhanced ground proximity warning system, which
provides up to 60 seconds of warning of impending collision with terrain.
AlliedSignal is currently the only supplier of the enhanced system, which the
Air Transport Association (ATA) said will be retrofitted to all 4,300 aircraft
of member carriers. AlliedSignal estimates the worldwide potential market for
the system at $1 billion, including 40,000 other commercial, military and
general aviation aircraft.
Automotive net income was $36 million, down 10% from $40 million in the
corresponding 1996 quarter. Sales were $952 million, up 4% from $918 million
in the 1996 fourth quarter. Higher sales realized from the acquisition of
Prestone Products and Holt Lloyd and from internal sales growth of
Turbocharging Systems and Truck Brake Systems offset the loss of sales
resulting from the divestiture of the safety restraints business.
Turbocharging Systems sales and net income increased substantially,
reflecting continued high growth of sales to the European diesel-powered
passenger car and North American heavy-duty truck markets. Sales of
Garrett(R) variable nozzle turbochargers (VNT) increased 69%, and the company
plans to increase its VNT capacity at the request of Volkswagen. The company
expects to generate increased consumer business in North America from
turbodiesel-powered pick-up trucks and sport utility vehicles. During the
quarter, the company acquired low-cost machining capacity in Romania, and the
Shanghai plant, which supplies shaftings and housings for Japan and Korea,
received ISO 9000 certification. Turbocharging Systems also posted
accelerating double-digit growth in the aftermarket segment.
The higher truck build contributed as well to higher sales and net income
for Truck Brake Systems (TBS) in North America. TBS also benefited from
higher anti-lock braking system installation rates; long-term agreements to
supply compressors to Caterpillar and Detroit Diesel; and the rationalization
of plant capacity.
Automotive Products Group (APG) sales increased substantially because of
the acquisition of Prestone and Holt Lloyd and the better-than-expected
synergies achieved because of the rapid pace of integration. Excluding
acquisitions, APG sales were up 1% from last year (8% excluding foreign
exchange). Net income for APG declined due to competitive conditions in the
worldwide automotive aftermarket. Ambitious cost reduction measures,
including consolidation of operations, were begun in the fourth quarter of
1997 and continue in 1998.
Engineered Materials net income was $99 million, down 4% from $103 million
in the fourth quarter of 1996. Sales were $1.12 billion, an increase of 13%
over 1996 fourth-quarter sales of $986 million.
Polymers sales and net income were higher, led by growth of engineering
plastics and specialty films and the expansion of manufacturing, sales and
marketing efforts in Europe. Engineering plastics continued to benefit from
new applications and new customers in a variety of industries. In addition,
record volumes of packaging resins and compounded products were shipped from
the facility in Rudolstadt, Germany. Specialty films had record sales,
benefiting from strong demand for the company's proprietary Aclar(R)
fluoropolymer films and Capran(R) Emblem(TM) biaxially oriented nylon films.
Aclar, which has superior properties as a barrier to moisture and air, is used
by pharmaceutical manufacturers in blister packages of gelcaps, which are more
easily digestible but more perishable than tablets and capsules. Biax film is
used in food and specialty packaging. With the acquisition of Gomar National
Industries, the company now has a strong presence in the market for films
which dissipate electrostatic charges; these films are used for packaging
electronic components. Polymers net income growth was restrained by
compression of the spread between selling prices and raw materials costs. The
company expects that raw materials costs will ease in 1998.
Specialty Chemicals sales were substantially higher, led by successful
globalization efforts and the October 1997 acquisition of Astor Holdings Inc.,
a producer of application-specific waxes, adhesives and sealants. Astor
supplies 4,000 customers worldwide with 3,000 custom-designed proprietary wax
formulations, which are used as protectives, lubricants and fuels to improve
customers' manufacturing efficiency and product performance. The acquisition
of Astor significantly increases AlliedSignal's capacity and customer base in
the global specialty wax business. AlliedSignal's German specialty chemicals
operations benefited from a 10% increase in European sales (excluding the
effect of foreign exchange), led by gains in high-value chemical intermediates
sold to European pharmaceutical manufacturers; electronic chemicals; and
industrial specialties such as luminescent pigments. Sales of the European-
made products to North American customers increased substantially. Building
on existing relationships with European drug manufacturers, the company
received a substantial order from a major Japanese pharmaceutical
manufacturer. Net income for Specialty Chemicals was higher, reflecting
continued strength of the UOP joint venture in process technology, which
benefited from new licensing agreements and strong petrochemical catalyst
product sales. Net income also increased due to European volume growth and
the successful implementation of AlliedSignal Six Sigma programs at the
operations in Germany, which were acquired in late 1995. Specialty Chemicals
net income gains were restrained by pricing weakness for fluorine-based
refrigerants and foam products, which faced a difficult comparison to an
exceptionally strong quarter last year.
Electronic Materials sales were higher, led by strong volume growth of
multilayer laminates and continued market growth of advanced microelectronics.
Amorphous metals recorded higher sales due to strength in its electronic
components segment. Electronic Materials net income was lower due to
continued pricing weakness in the laminates business.
AlliedSignal is an advanced technology and manufacturing company serving
customers worldwide with aerospace and automotive products, chemicals, fibers,
plastics and advanced materials. Additional information on the company is
available on the World Wide Web at http://www.alliedsignal.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.
AlliedSignal Inc.
Consolidated Statement of Income
(In millions except per share amounts)
THREE MONTHS
ENDED DECEMBER 31
1997
Reported Adjusted(C) 1996
Net sales $3,910 $3,910 $3,498
Cost of goods sold 3,272(A) 3,035 2,761
Selling, general
and administrative
expenses 436 436 365
Gain on sale of business (226)(B) -- --
Total costs
and expenses 3,482 3,471 3,126
Income from operations 428 439 372
Equity in income of
affiliated companies 38(A) 51 39
Other income (expense) 15 15 28
Interest and other
financial charges (44) (44) (42)
Income before taxes
on income 437 461 397
Taxes on income 123 151 127
Net income $314 $310 $270
Earnings per share
of common stock-basic (D) $0.56 $0.55 $0.48
Earnings per share
of common stock -
assuming dilution (D) $0.55 $0.54 $0.46
Weighted average
number of shares
outstanding-basic (D) 562 562 566
Weighted average
number of shares
outstanding -
assuming dilution (D) 576 576 582
(A) Cost of goods sold includes a provision of $237 million for
repositioning and other charges. A charge of $13 million relating to the
writedown of an equity investment is included in equity in income of
affiliated companies. Total pretax repositioning and other charges were $250
million (after-tax $159 million, or $0.28 per share).
(B) Includes the pretax gain of $277 million (after-tax $196 million, or
$0.35 per share) on the sale of the automotive safety restraints business
effective November 1, 1997. Also includes a charge of $51 million
(after-tax $33 million, or $0.06 per share) related to the settlement of the
1996 braking business sale.
(C) Excludes the one-time impact from the sale of the automotive safety
restraints business, the settlement of the braking business sale and the
repositioning and other charges.
(D) Effective in the fourth quarter of 1997 the Company implemented FASB
No. 128 which establishes new requirements for computing and presenting
earnings per share and requires the disclosure of basic and diluted earnings
per share. The prior period earnings per share data has been recalculated to
reflect the provisions of FASB No. 128. Share and per share data for all
periods reflect the September 1997 two-for-one stock split.
AlliedSignal Inc.
Consolidated Statement of Income
(In millions except per share amounts)
TWELVE MONTHS
ENDED DECEMBER 31
1997 1996
Reported Adjusted(C) Reported Adjusted(F)
Net sales $14,472 $14,472 $13,971 $13,971
Cost of goods sold 11,481(A) 11,244 11,606(D) 10,969
Selling, general
and administrative expenses 1,581 1,581 1,511 1,511
Gain on sale of business (226)(B) -- (655)(E) --
Total costs and expenses 12,836 12,825 12,462 12,480
Income from operations 1,636 1,647 1,509 1,491
Equity in income of
affiliated companies 178 (A) 191 143 143
Other income (expense) 77 77 87 (D) 72
Interest and other
financial charges (175) (175) (186) (186)
Income before taxes on income 1,716 1,740 1,553 1,520
Taxes on income 546 574 533 509
Net income $1,170 $1,166 $1,020 $1,011
Earnings per share
of common stock-basic (G) $2.07 $2.06 $1.80 $1.78
Earnings per share
of common stock -
assuming dilution (G) $2.02 $2.01 $1.76 $1.74
Weighted average
number of shares
outstanding-basic (G) 565 565 566 566
Weighted average
number of shares
outstanding -
assuming dilution (G) 580 580 580 580
(A) Cost of goods sold includes a fourth quarter provision of $237
million for repositioning and other charges. A charge of $13 million relating
to the writedown of an equity investment is included in equity in income of
affiliated companies. Total pretax repositioning and other charges were $250
million (after-tax $159 million, or $0.28 per share).
(B) Includes the fourth quarter pretax gain of $277 million (after-tax
$196 million, or $0.35 per share) on the sale of the automotive safety
restraints business effective November 1, 1997. Also includes a fourth
quarter charge of $51 million (after-tax $33 million, or $0.06 per share)
related to the settlement of the 1996 braking business sale.
(C) Excludes the one-time impact from the sale of the automotive safety
restraints business, the settlement of the braking business sale and the
repositioning and other charges.
(D) Cost of goods sold includes a second quarter 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 $0.63 per share).
(E) Represents the second quarter pretax gain (after-tax $368 million, or
$0.65 per share) on the sale of the hydraulic braking and anti-lock braking
systems business effective April 1, 1996.
(F) Excludes the one-time impact from the sale of the hydraulic braking
and anti-lock braking systems business as well as from the repositioning and
other charges.
(G) Effective in the fourth quarter of 1997 the Company implemented FASB
No. 128 which establishes new requirements for computing and presenting
earnings per share and requires the disclosure of basic and diluted earnings
per share.
The prior year earnings per share data has been recalculated to reflect
the provisions of FASB No. 128. Share and per share data for all periods
reflect the September 1997 two-for-one stock split.
AlliedSignal Inc.
Segment Data
(In Millions)
THREE MONTHS ENDED DECEMBER 31
Net Sales Net Income
1997 1996
1997 1996 Reported(A) Adjusted(B) Reported
Aerospace $1,839 1,594 $163 $177 $126
Automotive 952 918 151 36 40
Engineered Materials 1,117 986 26 99 103
Total Businesses 3,908 3,498 340 312 269
Corporate & Unallocated 2 -- (26) (2) 1
Total $3,910 $3,498 $314 $310 $270
TWELVE MONTHS ENDED DECEMBER 31
Net Sales
1997 1996
Aerospace $6,412 $5,714
Automotive
Engineered Materials 4,254 4,013
Total Business 14,468 13,967
Corporate & Unallocated 4 4
Total $14,472 $13,971
Net Income
1997 1996
Reported(A) Adjusted(B) Reported(C) Adjusted(D)
Aerospace $515 $529 $206 $385
Automotive 285 170 521 202
Engineered Materials 389 462 361 432
Total Business 1,189 1,161 1,088 1,019
Corporate & Unallocated (19) 5 (68) (8)
Total $1,170 $1,166 $1,020 $1,011
(A) Includes a fourth quarter net after-tax gain of $4 million,
consisting of an after-tax gain of $196 million on the sale of the safety
restraints business by Automotive; offset by a fourth quarter after-tax charge
of $33 million related to the settlement of the 1996 braking business sale by
Automotive and a fourth quarter after-tax provision of $159 million for
repositioning and other charges as follows: Aerospace $14 million; Automotive
$48 million; Engineered Materials $73 million; and Corporate and Unallocated
$24 million.
(B) Excludes the fourth quarter one-time impact from the sale of the
automotive safety restraints business, the settlement of the braking business
sale and the repositioning and other charges.
(C) Includes a second quarter 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 business by Automotive; offset by a
second quarter 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.
(D) Excludes the second quarter one-time impact from the sale of the
hydraulic braking and anti-lock braking systems business as well as from the
repositioning and other charges.
SOURCE AlliedSignal Inc.