SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
________________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 1-8974
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AlliedSignal Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2640650
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 Columbia Road
P.O. Box 4000
Morristown, New Jersey 07962-2497
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(201)455-2000
----------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
--------- ---------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock June 30, 1996
- --------------------- ------------------
$1 par value 282,744,867 shares
AlliedSignal Inc.
Index
-----
Page No.
Part I. - Financial Information
Item 1. Condensed Financial Statements:
Consolidated Balance Sheet -
June 30, 1996 and December 31, 1995 3
Consolidated Statement of Income -
Three and Six Months Ended
June 30, 1996 and 1995 4
Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1996 and 1995 5
Notes to Financial Statements 6
Report on Review by Independent
Accountants 8
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 9
Part II. - Other Information
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
AlliedSignal Inc.
Consolidated Balance Sheet
(Unaudited)
June 30, December 31,
1996 1995
--------- ---------
(Dollars in millions)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,714 $ 540
Accounts and notes receivable - net
(Note 2) 1,947 1,751
Inventories - net (Note 3) 1,998 1,991
Other current assets 604 608
--------- ---------
Total current assets 6,263 4,890
Investments and long-term receivables 469 479
Property, plant and equipment 8,758 9,785
Accumulated depreciation and
amortization (4,712) (5,043)
Cost in excess of net assets of
acquired companies - net 1,395 1,572
Other assets 782 782
--------- ---------
Total assets $12,955 $12,465
========= =========
LIABILITIES
Current Liabilities:
Accounts payable $ 1,111 $ 1,385
Short-term borrowings 88 397
Commercial paper 743 58
Current maturities of long-term debt 77 189
Accrued liabilities 2,141 1,775
--------- ---------
Total current liabilities 4,160 3,804
Long-term debt (Note 4) 1,330 1,366
Deferred income taxes 504 551
Postretirement benefit obligations
other than pensions 1,800 1,864
Other liabilities 1,314 1,288
SHAREOWNERS' EQUITY
Capital - common stock issued 358 358
- additional paid-in capital 2,517 2,489
Common stock held in treasury, at cost (1,801) (1,658)
Cumulative translation adjustment -- 61
Unrealized holding gain on equity securities 29 27
Retained earnings 2,744 2,315
--------- ---------
Total shareowners' equity 3,847 3,592
--------- ---------
Total liabilities and shareowners' equity $12,955 $12,465
========= =========
Notes to Financial Statements are an integral part of this statement.
3
AlliedSignal Inc.
Consolidated Statement of Income
(Unaudited)
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in millions except
per share amounts)
Net sales $3,347 $3,630 $7,125 $7,049
------- ------- ------- -------
Cost of goods sold (Note 5) 3,235 2,902 6,247 5,649
Selling, general and
administrative expenses 366 374 767 732
Gain on sale of business
(Note 6) (655) - (655) -
------- ------- ------- -------
Total costs and expenses 2,946 3,276 6,359 6,381
------- ------- ------- -------
Income from operations 401 354 766 668
Equity in income of
affiliated companies 46 36 73 85
Other income (expense)
(Note 5) 33 1 33 (18)
Interest and other financial
charges (47) (46) (97) (87)
------- ------- ------- -------
Income before taxes on
income 433 345 775 648
Taxes on income 161 118 278 223
------- ------- ------- -------
Net income $ 272 $ 227 $ 497 $ 425
======= ======= ======= =======
Earnings per share of common
stock (Note 7) $ .96 $ .80 $ 1.76 $ 1.50
======= ======= ======= =======
Cash dividends per
share of common stock $ .225 $ .195 $ .450 $ .390
======= ======= ======= =======
Notes to Financial Statements are an integral part of this statement.
4
AlliedSignal Inc.
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
June 30
----------------
1996 1995
---- ----
(Dollars in millions)
Cash flows from operating activities:
Net income $ 497 $ 425
Adjustments to reconcile net income to net
cash flows from operating activities:
Gain on sale of business (655) -
Repositioning and other charges 622 -
Depreciation and amortization
(includes goodwill) 323 307
Undistributed earnings of equity affiliates (14) (34)
Deferred taxes 128 102
(Increase) in accounts and notes receivable (147) (88)
(Increase) in inventories (135) (146)
(Increase) in other current assets (11) (36)
Increase(decrease) in accounts payable 35 (98)
Increase in accrued liabilities 9 24
Taxes paid on gain on sale of business (81) -
Other (325) (127)
------- -------
Net cash flow provided by operating activities 246 329
------- -------
Cash flows from investing activities:
Expenditures for property, plant and equipment (346) (320)
Proceeds from disposals of property, plant and
equipment 56 20
Decrease in other investments - 26
(Increase) in other investments (2) (2)
Cash paid for acquisitions - net (35) (127)
Proceeds from sales of businesses 1,187 (9)
------- -------
Net cash flow provided by (used for)
investing activities 860 (412)
------- -------
Cash flows from financing activities:
Net increase in commercial paper 685 422
Net (decrease) in short-term borrowings (296) (39)
Proceeds from issuance of common stock 79 48
Proceeds from issuance of long-term debt 5 5
Payments of long-term debt (72) (86)
Repurchases of common stock (203) (91)
Cash dividends on common stock (130) (109)
------- -------
Net cash flow provided by financing activities 68 150
------- -------
Net increase in cash and cash equivalents 1,174 67
Cash and cash equivalents at beginning of year 540 508
------- -------
Cash and cash equivalents at end of period $1,714 $ 575
======= =======
Notes to Financial Statements are an integral part of this statement.
5
AlliedSignal Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in Millions)
Note 1. In the opinion of management, the accompanying unaudited
consolidated financial statements reflect all adjustments,
consisting only of normal adjustments, necessary to present fairly
the financial position of AlliedSignal Inc. and its consolidated
subsidiaries at June 30, 1996 and the results of operations for the
three and six months ended June 30, 1996 and 1995 and the changes in
cash flows for the six months ended June 30, 1996 and 1995. The
results of operations for the three- and six-month periods ended
June 30, 1996 should not necessarily be taken as indicative of the
results of operations that may be expected for the entire year 1996.
The financial information as of June 30, 1996 should be read in
conjunction with the financial statements contained in the Company's
Form 10-K Annual Report for 1995.
Note 2. Accounts and notes receivable consist of the following:
June 30, December 31,
1996 1995
-------- ------------
Trade $1,290 $1,477
Other 687 308
-------- ------------
1,977 1,785
Less-Allowance for doubtful
accounts and refunds (30) (34)
-------- ------------
$1,947 $1,751
======== ============
Note 3. Inventories are valued at the lower of cost or market using
the last-in, first-out (LIFO) method for certain qualifying domestic
inventories and the first-in, first-out (FIFO) or the average cost
method for other inventories.
Inventories consist of the following:
June 30, December 31,
1996 1995
-------- ------------
Raw materials $ 622 $ 650
Work in process 820 769
Finished products 765 747
Supplies and containers 84 98
-------- ------------
2,291 2,264
Less - Progress payments (168) (145)
Reduction to LIFO cost basis (125) (128)
-------- ------------
$1,998 $1,991
======== ============
Note 4. In June 1996 the Company amended its Five-Year and 364-Day
Credit Agreements by extending their maturities one year to June 30,
2001 and June 27, 1997, respectively. The amendments also included
certain other minor changes in terms and conditions.
6
Note 5. In the second quarter of 1996 the Company recorded a pretax
charge of $277 million relating to the costs of actions to
reposition some of its major business units. The repositioning
actions are intended to enhance the Company's competitiveness and
productivity and include consolidating production facilities,
rationalizing manufacturing capacity and optimizing operational
capabilities. As a result, approximately 6,100 positions will be
eliminated in some plants and 2,900 positions will be added in
others, for a net reduction of 3,200 positions. The components of
the repositioning charge include asset write-downs of $136 million,
severance costs of $127 million and other exit costs of $14 million.
All of the repositioning actions are expected to be completed by
1998. As of June 30, 1996 cash expenditures for repositioning
actions were insignificant.
In the second quarter of 1996 the Company adopted the provisions of
the proposed American Institute of Certified Public Accountants'
Statement of Position (SOP), "Environmental Remediation
Liabilities". This SOP provides additional guidance regarding the
manner in which existing authoritative accounting literature is to
be applied to the specific circumstances of recognizing, measuring
and disclosing environmental remediation liabilities. The adoption
of this SOP resulted in a pretax charge of $175 million, and is
accounted for as a change in estimate. The Company also recorded
other charges primarily related to changes made in employee benefit
programs and in connection with customer and former employee claims.
Repositioning and other charges totaling $637 million are included
as part of cost of goods sold in the Consolidated Statement of
Income. Other income (expense) in the Consolidated Statement of
Income includes a $15 million credit for repositioning and other
charges representing the minority interest share of such charges.
The total pretax impact of the repositioning and other charges is
$622 million (after-tax $359 million, or $1.27 a share).
Note 6. In April 1996 the Company sold its worldwide hydraulic and
anti-lock braking systems (ABS) businesses (braking business) to
Robert Bosch GmbH, a privately-held German company. The braking
business had 1995 sales and income from operations of approximately
$2.0 billion and $154 million, respectively. The Company received
consideration of $1.5 billion, subject to certain post-closing
adjustments. At June 30, 1996, approximately $300 million of this
amount was in escrow and is classified as part of other receivables
in the Consolidated Balance Sheet. The sale of the braking business
resulted in a gain of $655 million (after-tax $368 million, or $1.30
a share).
Note 7. Based on the weighted average number of shares outstanding
during each period, as follows: three months ended June 30, 1996,
282,769,698 shares, and 1995, 283,946,463 shares; and six months
ended June 30, 1996, 282,810,076 shares and 1995, 283,856,301
shares. No dilution results from outstanding common stock
equivalents.
7
Report on Review by Independent Accountants
-------------------------------------------
To the Board of Directors
of AlliedSignal Inc.
We have reviewed the accompanying consolidated balance sheet of
AlliedSignal Inc. and its subsidiaries as of June 30, 1996, and the
consolidated statements of income for the three-month and six-month
periods ended June 30, 1996 and 1995, and of cash flows for the six-
month periods ended June 30, 1996 and 1995. This financial
information is the responsibility of the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the financial information referred to above
for it to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December
31, 1995, and the related consolidated statements of income, of
retained earnings, and of cash flows for the year then ended (not
presented herein); and in our report dated February 1, 1996 we expressed
an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying consolidated
balance sheet information as of December 31, 1995, is fairly stated, in
all material respects, in relation to the consolidated balance sheet
from which it has been derived.
Price Waterhouse LLP
4 Headquarters Plaza North
Morristown, NJ 07962
July 19, 1996
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Results of Operations
---------------------
Second Quarter 1996 Compared with Second Quarter 1995
- -----------------------------------------------------
Net sales in the second quarter of 1996 totaled $3.3 billion, a
decrease of $283 million, or 8%, compared with the second quarter of
last year. Sales were lower reflecting the sale of the Company's
braking business in April 1996. (See Note 6 of Notes to Financial
Statements for further information.) Excluding the divested braking
business, net sales increased $277 million or 9%. Of this increase,
$209 million was due to higher sales volume and $122 million
resulted from the consolidation of recent acquisitions, offset in
part by a $34 million reduction for disposed businesses other than
the braking business. Prices and the impact of foreign exchange
rate fluctuations were slightly unfavorable.
Aerospace sales of $1,370 million in the second quarter of 1996
increased $146 million, or 12%, compared with the second quarter of
last year. Strength in Engines sales reflected substantially higher
aftermarket parts and repair and overhaul activity and strong
shipments of propulsion engines. Equipment Systems showed
significant sales growth across most product lines, driven by strong
commercial and military aftermarket volume. The acquisition of a
majority interest in a European supplier of aircraft heat exchange
equipment, in July 1995, also contributed to the increase.
Management and technical services provided to the U.S. Government
also had significant sales gains and Electronic Systems had moderate
gains, primarily as a result of the acquisition of Northrup
Grumman's precision products business in January 1996. Commercial
Avionics Systems had lower sales, in part reflecting softening
demand for certain safety-related products.
Automotive sales of $955 million in the second quarter of 1996
were $522 million, or 35%, lower, compared with the second quarter
of 1995 reflecting the disposition of the Company's braking business
in April 1996. Excluding the divested braking business,
Automotive's sales improved by $38 million, or 4%. Safety
Restraints had significantly higher sales volumes in Europe and
North America. Higher sales of air bags in Europe were supplied
from the Company's new plant in Italy and seat belt sales increased
in North America. Turbocharger sales were higher, reflecting the
popularity of turbodiesel-powered cars in Europe and turbodiesel-
powered pickup trucks in North America, partially offset by lower
sales in Japan and lower sales of heavy-duty trucks in North
America. In North America, Friction Materials and Filters and Spark
Plugs improved. The increase for Filters and Spark Plugs partially
reflects the introduction of new products earlier in 1996. European
Aftermarket and Friction Materials sales were unfavorably impacted
by weak economic conditions and sales of North American Truck Brake
Systems were also lower primarily because of the cyclical downturn
in North American heavy-duty truck production.
9
Engineered Materials sales of $1,020 million in the second
quarter of 1996 were $91 million, or 10% higher, compared with the
second quarter of last year. Specialty Chemicals sales increased
primarily reflecting the acquisition of Riedel-de Han in October
1995. The Polymers business had higher sales reflecting in part the
late 1995 acquisitions of Bridgestone/Firestone's industrial
polyester fiber plant in Hopewell, Virginia and a nylon plastics
and industrial fibers plant in Rudolstadt, Germany. Sales also
improved for Fluorine Products due to strong demand for CFC-free
refrigerants and fluorine specialties. Sales for Electronic
Materials were significantly lower due to a global slowdown in
integrated circuit production.
Cost of goods sold, as a percent of sales, increased from 79.9%
in the second quarter of 1995 to 96.7% in the second quarter of 1996
as the current quarter includes repositioning and other charges
totaling $637 million. (See Note 5 of Notes to Financial Statements
for further information.) Excluding repositioning and other
charges, cost of goods sold, as a percent of sales, was 77.6% in the
second quarter of 1996.
Gain on sale of business represents the pretax gain of $655
million on the sale of the braking business in April 1996. (See
Note 6 of Notes to Financial Statements for further information.)
Income from operations of $401 million in the second quarter of
1996 increased $47 million, or 13%, compared with last year's second
quarter. The current quarter includes the pretax gain of $655
million on the sale of the braking business and repositioning and
other charges totaling $637 million (special items). Excluding the
impact of these special items, Aerospace's income from operations
increased 20% and Engineered Materials improved 7%, but Automotive's
income from operations decreased 21%. The Company's operating
margin, adjusted for special items, for the second quarter of 1996
was 11.4% compared with 9.8% for the same period last year. See the
discussion of net income below for information by segment.
Productivity (the constant dollar basis relationship of sales
to costs) of the Company's businesses improved by 5.7% compared with
the second quarter of 1995.
Equity in income of affiliated companies of $46 million
increased by $10 million, or 28%, compared with last year mainly
because of higher earnings from the Company's UOP process technology
joint venture. A partial offset was due to the Company's exit from
its high-density polyethylene (HDPE) joint venture in December 1995.
Other income (expense), $33 million in the second quarter of
1996, improved by $32 million compared with the same quarter last
year mainly due to higher interest income reflecting the investment
of cash received from the sale of the braking business, the minority
interest share of the repositioning and other charges and higher
foreign exchange costs in the prior year's second quarter. This was
partially offset by the absence of a 1995 gain from the sale of an
investment.
10
The effective tax rate in the second quarter of 1996 was 37.2%
compared with 34.4% in 1995. The increase is principally due to a
higher tax rate on the gain on the sale of the braking systems
business.
Net income of $272 million, or $0.96 a share, in the second
quarter of 1996 was 20% higher than last year's net income of $227
million, or $0.80 a share. Net income, adjusted for special items,
was $263 million, or $0.93 a share, an increase of 16% over the prior year.
A discussion of the operations of the business segments follows. Adjusted
net income (see table below) for the segments excludes the impact of the
special items. (Dollars in millions.)
Second Quarter
--------------------------------------------------
Net Income Special Items Adjusted
as Reported (Gains)/Losses Net Income
------------- --------------- -----------
Aerospace
1996 $ (89) $ 179 $ 90
1995 72 - 72
---------- --------- ---------
Increase/(Decrease) $ (161) $ 179 $ 18
========== ========= =========
Automotive
1996 $ 369 $ (319) $ 50
1995 65 - 65
--------- --------- ---------
Increase/(Decrease) $ 304 $ (319) $ (15)
========= ========= =========
Engineered Materials
1996 $ 47 $ 71 $ 118
1995 105 - 105
--------- --------- ---------
Increase/(Decrease) $ (58) $ 71 $ 13
========= ========= =========
Aerospace adjusted net income improved to $90 million from $72
million, an increase of $18 million, or 25%, compared with the same
quarter last year. Strong sales growth and improvements in
productivity resulted in substantially higher earnings for the
Equipment Systems and Engines businesses. Commercial Avionics
Systems had decreased earnings, primarily reflecting lower sales and
unfavorable product mix.
Automotive adjusted net income declined to $50 million from $65
million in the prior year, a $15 million, or 23%, decrease. The
decrease reflects the absence of net income from the disposed
braking systems business. Income was substantially higher for
Safety Restraints and North American Aftermarket reflecting higher
sales and productivity improvements. Filters and Spark Plugs income
increased significantly, reflecting higher sales along with an
improved product mix. North American Truck Brake Systems reported
lower income due to decreased North American heavy-duty truck build
volume.
Engineered Materials adjusted net income increased to $118
million from $105 million, a $13 million, or 12%, increase. Income
improved reflecting substantially higher earnings for Specialty Chemicals,
reflecting higher sales and a strong contribution from the UOP joint venture.
Net income was higher for Fluorine Products, which benefitted from
higher sales and productivity
11
initiatives at the Geismar, Louisiana plant. A partial offset was
the absence of earnings from the HDPE joint venture.
Six Months 1996 Compared with Six Months 1995
- ---------------------------------------------
Net sales in the first six months of 1996 totaled $7.1 billion,
an increase of $76 million, or 1%, compared with the first six
months of last year. Of this increase, $342 million reflects the
consolidation of recent acquisitions, and $363 million was due to
higher sales volume. Largely offsetting this increase was a $625
million reduction for disposed businesses, mainly the braking
business.
Aerospace sales of $2,670 million in the first six months of
1996 increased $304 million, or 13%, compared with the first six
months of 1995. Engines had substantially higher aftermarket parts
and repair and overhaul activity and strong shipments of propulsion
engines. Equipment Systems showed strong sales growth with gains
across all product lines, driven by aftermarket strength. The
acquisition of a majority interest in a European supplier of
aircraft heat exchange equipment, in July 1995, also contributed to
Equipment Systems higher sales. Sales for Electronic Systems also
increased reflecting improvement in output and reducing order
backlog at communications systems and guidance and controls as well
as the acquisition of Northrop Grumman's precision products business
in January 1996. Government Services also improved, but Commercial
Avionics Systems sales were moderately lower.
Automotive sales of $2,431 million in the first six months of
1996 had a $432 million, or 15%, decrease, compared with the first
six months of last year. Excluding the divested braking business,
Automotive's sales increased $38 million, or 2%. Safety Restraints and
Turbochargers had significantly higher sales volumes in Europe, although
turbocharger sales were lower in Japan. European Aftermarket and Friction
Materials sales were impacted by weak economic conditions and sales
of North American Truck Brake Systems were lower primarily because
of decreasing heavy-duty truck build volume. In North America,
Friction Materials, Aftermarket and Filters and Spark Plugs had
higher sales.
Engineered Materials sales of $2,022 million in the first six
months of 1996 were $202 million, or 11%, higher, compared with the
first six months of 1995. Specialty Chemicals sales increased
mainly reflecting the acquisition of Riedel-de Haen in October 1995.
The Polymers business had higher sales of industrial fibers and
engineering plastics products primarily due to acquisitions in the
fourth quarter of 1995. Sales also improved for Environmental
Catalysts and Carbon Materials.
Cost of goods sold, as a percent of sales, increased from 80.1%
in the first six months of 1995 to 87.6% in the first six months of
1996 as the current period includes repositioning and other charges
totaling $637 million. (See Note 5 of Notes to Financial Statements for
further information.) Excluding repositioning and other charges, cost of
goods sold, as a percent of sales, was 78.7% for the first six months
of 1996.
Gain on sale of business represents the pretax gain of $655
million on the sale of the braking business in April 1996. (See
Note 6 of Notes to Financial Statements for further information.)
12
Income from operations of $766 million in the first six months
of 1996 increased $98 million, or 15%, compared with last year's
first six months. The current period includes a net pretax gain of
$18 million from the impact of special items. Excluding the impact
of these special items, Aerospace's income from operations increased
20% and Engineered Materials improved 17%, but Automotive's income
from operations decreased 13%. The Company's operating margin,
adjusted for special items, for the first six months of 1996 was
10.5% compared with 9.5% for the same period last year. See the
discussion of net income below for information by segment.
Productivity of the Company's businesses improved by 4.7%
compared with last year's first six months.
Equity in income of affiliated companies of $73 million
decreased by $12 million, or 14%, compared with last year mainly
because the Company exited from its HDPE joint venture in December
1995. A partial offset was higher earnings from the UOP joint
venture.
Other income (expense), $33 million in the first six months of
1996, improved by $51 million compared with the same period last
year mainly due to higher foreign exchange costs in the prior year's
first six months, increased interest income reflecting the
investment of cash received from the sale of the braking business
and the minority interest share of the repositioning and other
charges. This was partially offset by the absence of a 1995 gain
from the sale of an investment.
Interest and other financial charges of $97 million in the
first six months of 1996 increased by $10 million, or 11%, compared
with the same period last year due to higher levels of short-term
debt.
The effective tax rate in the first six months of 1996 was
35.9% compared with 34.5% in 1995. The increase is principally due
to a higher tax rate on the gain on the sale of the braking systems
business.
Net income of $497 million, or $1.76 a share, in the first six
months of 1996 was 17% higher than last year's net income of $425
million, or $1.50 a share. Net income, adjusted for special items,
was $488 million, or $1.73 a share, an increase of 15% over the
prior year. A discussion of the operations of the business segments
follows. Adjusted net income (see table below) for the segments
excludes the impact of the special items. (Dollars in millions.)
13
Six Months Ended June 30
-------------------------------------------------
Net Income Special Items Adjusted
as Reported (Gains)/Losses Net Income
------------ --------------- -------------
Aerospace
1996 $ (18) $ 179 $ 161
1995 128 - 128
----------- ----------- -----------
Increase/(Decrease) $ (146) $ 179 $ 33
=========== =========== ===========
Automotive
1996 $ 441 $ (319) $ 122
1995 127 - 127
----------- ----------- -----------
Increase/(Decrease) $ 314 $ (319) $ (5)
=========== =========== ===========
Engineered Materials
1996 $ 156 $ 71 $ 227
1995 199 - 199
----------- ----------- -----------
Increase/(Decrease) $ (43) $ 71 $ 28
=========== =========== ===========
Aerospace adjusted net income improved to $161 million from
$128 million, an increase of $33 million, or 26%, compared with the
same period last year. Strong sales growth and improvements in
productivity resulted in significantly higher earnings for the
Equipment Systems and Engines businesses. Electronic Systems and
Government Services also improved, but Commercial Avionics Systems
had reduced earnings primarily reflecting lower sales.
Automotive adjusted net income decreased to $122 million from
$127 million a year ago, a $5 million, or 4%, decrease. The
decrease reflects the absence of net income from the disposed
braking systems business. Partial offsets were higher income for
Safety Restraints, North American Aftermarket, Filters and Spark
Plugs and Turbochargers.
Engineered Materials adjusted net income increased to $227
million from $199 million, a $28 million, or 14% increase. Income
increased reflecting substantially higher earnings from Specialty
Chemicals. Net income was also higher for the Polymers business,
mainly reflecting improvements for industrial fibers, and for
Electronic Materials with income gains for microelectronic materials
and laminate systems. Fluorine Products was also favorable. A
partial offset was the absence of earnings from the HDPE joint
venture.
Financial Condition
-------------------
June 30, 1996 Compared with December 31, 1995
- ---------------------------------------------
On June 30, 1996 the Company had $1,714 million in cash and
cash equivalents, compared with $540 million at year-end 1995. The
substantial increase reflects the $1.2 billion cash consideration
received as of June 30, 1996 from the sale of the braking business
which is currently invested in short-term securities. The remaining
consideration from the sale of the braking business of approximately
$300 million was released from escrow at the end of
14
July 1996. It is expected that the proceeds will ultimately be used to
grow the Company's higher-margin businesses and to pursue acquisitions that
will expand or complement the Company's business portfolio. The
current ratio at June 30, 1996 was 1.5X compared with 1.3X at year-
end 1995.
The Company's long-term debt on June 30, 1996 was $1,330
million, a reduction of $36 million compared with year-end 1995.
Total debt of $2,238 million on June 30, 1996 was $228 million
higher than at year-end, reflecting an increase in outstanding
commercial paper. The Company's total debt as a percent of capital
increased slightly from 33.7% at year-end 1995 to 34.7% at June 30,
1996.
During the first six months of 1996, the Company made capital
expenditures of $346 million, compared with $320 million in the
corresponding period in 1995. Spending for the six month period was
as follows: aerospace-$50 million, automotive-$116 million,
engineered materials-$148 million and corporate-$32 million.
During the first six months of 1996, the Company repurchased
3.8 million shares of common stock for $207 million. Common stock
is repurchased to meet the expected requirements for shares issued
under employee benefit plans and a shareowner dividend reinvestment
plan. At June 30, 1996 the Company was authorized to repurchase 4.3
million shares of common stock.
During the second quarter of 1996, the Company recorded a
repositioning provision of $277 million which includes $136 million
in non-cash charges related to asset write-downs and $141 million of
charges to be settled in cash, primarily related to severance costs.
Additional repositioning costs approximating $260 million principally
relating to employee and asset relocation, system and plant integration
and capital improvements will be recognized in future periods. All of
the repositioning actions are expected to be completed by 1998 and will
not materially impact the Company's liquidity. Upon completion, the
repositioning actions are expected to generate additional annual income
from operations of approximately $200 million.
Review by Independent Accountants
- ---------------------------------
The "Independent Accountants' Report" included herein is not a
"report" or "part of a Registration Statement" prepared or certified
by an independent accountant within the meanings of Section 7 and 11
of the Securities Act of 1933, and the accountants' Section 11
liability does not extend to such report.
15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed with this
Form 10-Q:
10.1 Amendment No. 1, dated as of June 28,
1996, to the Five-Year Credit Agreement, dated
as of June 30, 1995, among AlliedSignal Inc., a
Delaware corporation, the banks, financial
institutions and other institutional lenders
listed on the signature pages thereof (the
"Lenders"), Citibank, N.A., as agent, and ABN
Amro Bank N.V. and Morgan Guaranty Trust Company
of New York, as co-agents, for the Lenders
10.2 Amendment No. 1, dated as of June 28,
1996, to the 364-Day Credit Agreement, dated as
of June 30, 1995, among AlliedSignal Inc., a
Delaware corporation, the banks, financial
institutions and other institutional lenders
listed on the signature pages thereof (the
"Lenders"), Citibank, N.A., as agent, and ABN
Amro Bank N.V. and Morgan Guaranty Trust Company
of New York, as co-agents, for the Lenders
15 Independent Accountants' Acknowledgment Letter
as to the incorporation of their report relating to
unaudited interim financial statements
27 Financial Data Schedule
(b) Reports on Form 8-K. A report on Form 8-K dated
April 26, 1996 was filed by the Company to report that
the Company completed the previously announced sale of
its hydraulic braking and anti-lock braking businesses
to Robert Bosch GmbH.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
AlliedSignal Inc.
August 14, 1996 By: /s/ G. Peter D'Aloia
------------------------
G. Peter D'Aloia
Vice President and Controller
(on behalf of the Registrant
and as the Registrant's
Principal Accounting Officer)
17
EXHIBIT INDEX
Exhibit Number Description
2 Omitted (Inapplicable)
4 Omitted (Inapplicable)
10.1 Amendment No. 1, dated as of
June 28, 1996, to the Five-Year
Credit Agreement, dated as of
June 30, 1995, among AlliedSignal
Inc., a Delaware corporation, the
banks, financial institutions and
other institutional lenders listed
on the signature pages thereof
(the "Lenders"), Citibank, N.A.,
as agent, and ABN Amro Bank N.V.
and Morgan Guaranty Trust Company
of New York, as co-agents, for
the Lenders
10.2 Amendment No. 1, dated as of
June 28, 1996, to the 364-Day
Credit Agreement, dated as of
June 30, 1995, among AlliedSignal
Inc., a Delaware corporation, the
banks, financial institutions and
other institutional lenders listed
on the signature pages thereof
(the "Lenders"), Citibank, N.A.,
as agent, and ABN Amro Bank N.V.
and Morgan Guaranty Trust Company
of New York, as co-agents, for
the Lenders
11 Omitted (Inapplicable)
15 Independent Accountants
Acknowledgment Letter as to the
incorporation of their report
relating to unaudited interim
financial statements
18 Omitted (Inapplicable)
19 Omitted (Inapplicable)
22 Omitted (Inapplicable)
23 Omitted (Inapplicable)
24 Omitted (Inapplicable)
18
27 Financial Data Schedule
99 Omitted (Inapplicable)
19