UNITED STATES
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 March 31, 1997
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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.
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(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
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(Address of principal executive offices) (Zip Code)
(201)455-2000
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(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 March 31, 1997
- --------------------- ------------------
$1 par value 283,011,634 shares
AlliedSignal Inc.
Index
Page No.
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Part I. - Financial Information
Item 1. Condensed Financial Statements:
Consolidated Balance Sheet -
March 31, 1997 and December 31, 1996 3
Consolidated Statement of Income -
Three Months Ended March 31, 1997 and 1996 4
Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1997 and 1996 5
Notes to Financial Statements 6
Report on Review by Independent
Accountants 7
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 8
Part II.- Other Information
Item 4. Submission of Matters to a Vote of
Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
AlliedSignal Inc.
Consolidated Balance Sheet
(Unaudited)
March 31, December 31,
1997 1996
------------ ------------
(Dollars in millions)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,265 $ 1,465
Short-term investments 400 301
Accounts and notes receivable - net
(Note 2) 1,636 1,661
Inventories - net (Note 3) 2,050 1,946
Other current assets 444 466
------- -------
Total current assets 5,795 5,839
Investments and long-term receivables 446 473
Property, plant and equipment 8,996 8,976
Accumulated depreciation and
amortization (4,833) (4,757)
Cost in excess of net assets of
acquired companies - net 1,400 1,418
Other assets 914 880
------- -------
Total assets $12,718 $12,829
======= =======
LIABILITIES
Current Liabilities:
Accounts payable $ 1,135 $ 1,187
Short-term borrowings 17 32
Commercial paper 516 470
Current maturities of long-term debt 139 112
Accrued liabilities 1,749 1,895
------- -------
Total current liabilities 3,556 3,696
Long-term debt 1,256 1,317
Deferred income taxes 590 610
Postretirement benefit obligations
other than pensions 1,794 1,787
Other liabilities 1,332 1,239
SHAREOWNERS' EQUITY
Capital - common stock issued 358 358
- additional paid-in capital 2,596 2,547
Common stock held in treasury, at cost (2,093) (1,953)
Cumulative translation adjustment (78) 2
Unrealized holding gain on marketable
securities 6 12
Retained earnings 3,401 3,214
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Total shareowners' equity 4,190 4,180
------- -------
Total liabilities and shareowners' equity $12,718 $12,829
======= =======
Notes to Financial Statements are an integral part of this statement.
3
AlliedSignal Inc.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
March 31
----------------------
1997 1996
(Dollars in millions except
per share amounts)
Net sales $3,327 $3,778
------ ------
Cost of goods sold 2,605 3,012
Selling, general and
administrative expenses 365 401
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Total costs and expenses 2,970 3,413
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Income from operations 357 365
Equity in income of affiliated companies 41 27
Other income (expense) 34 --
Interest and other financial charges (42) (50)
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Income before taxes on income 390 342
Taxes on income 131 117
------ ------
Net income $ 259 $ 225
====== ======
Earnings per share of common
stock (Note 5) $ .92 $ .80
====== ======
Cash dividends per share of
common stock $ .26 $.225
====== ======
Notes to Financial Statements are an integral part of this statement.
4
AlliedSignal Inc.
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
March 31
-------------------
1997 1996
---- ----
(Dollars in millions)
Cash flows from operating activities:
Net income $ 259 $ 225
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization (includes goodwill) 150 168
Undistributed earnings of equity affiliates (6) 4
Deferred income taxes 15 14
(Increase) in accounts and notes receivable (6) (77)
(Increase) in inventories (126) (129)
Decrease (increase) in other current assets 19 (4)
Increase (decrease) in accounts payable (27) 21
Increase (decrease) in accrued liabilities (184) 1
Other -- (167)
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Net cash provided by operating activities 94 56
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Cash flows from investing activities:
Expenditures for property, plant and equipment (146) (180)
Proceeds from disposals of property, plant and
equipment 6 55
Decrease in other investments 8 --
(Increase) in other investments -- (3)
Cash paid for acquisitions -- (41)
Proceeds from sales of businesses -- 59
(Increase) in short-term investments (99) --
------ ------
Net cash (used for) investing activities (231) (110)
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Cash flows from financing activities:
Net increase in commercial paper 46 568
Net (decrease) in short-term borrowings (14) (315)
Proceeds from issuance of preferred stock of subsidiary 112 --
Proceeds from issuance of common stock 68 62
Proceeds from issuance of long-term debt 8 5
Payments of long-term debt (43) (48)
Repurchases of common stock (123) (135)
Cash dividends on common stock (72) (65)
Other (45) --
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Net cash (used for) provided by
financing activities (63) 72
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Net increase (decrease) in cash and cash equivalents (200) 18
Cash and cash equivalents at beginning of year 1,465 540
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Cash and cash equivalents at end of period $1,265 $ 558
====== =====
Notes to Financial Statements are an integral part of this statement.
5
AlliedSignal Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions except per share amounts)
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
March 31, 1997 and the results of operations and cash flows for the three
months ended March 31, 1997 and 1996. The results of operations for the
three-month period ended March 31, 1997 should not necessarily be taken
as indicative of the results of operations that may be expected for the
entire year 1997.
The financial information as of March 31, 1997 should be read in conjunction
with the financial statements contained in the Company's Form 10-K Annual
Report for 1996.
Note 2. Accounts and notes receivable consist of the following:
March 31, December 31,
1997 1996
----------- ------------
Trade $1,293 $1,330
Other 376 362
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1,669 1,692
Less-Allowance for doubtful
accounts and refunds (33) (31)
------- -------
$1,636 $1,661
======= =======
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 all
other inventories.
Inventories consist of the following:
March 31, December 31,
1997 1996
------------- ------------
Raw materials $ 580 $ 538
Work in process 831 762
Finished products 802 814
Supplies and containers 89 88
------- --------
2,302 2,202
Less - Progress payments (123) (126)
Reduction to LIFO cost basis (129) (130)
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$2,050 $1,946
======= ========
Note 4. In the first quarter 1997, a subsidiary of the Company issued
$112 million of preferred stock to third-party investors. The preferred
stock is reflected as a minority interest included as part of Other
Liabilities in the Consolidated Balance Sheet.
Note 5. Based on the weighted average number of shares outstanding during
each period, as follows: 1997, 283,497,683 shares, and 1996, 282,850,453
shares. There is no material dilutive effect on earnings per share of
common stock due to common stock equivalents.
6
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 March 31, 1997, and the consolidated
statements of income and of cash flows for the three-month periods ended
March 31, 1997 and 1996. 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, 1996, 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 January 31, 1997 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, 1996, 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
April 24, 1997
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Results of Operations
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First Quarter 1997 Compared with First Quarter 1996
- ---------------------------------------------------
Net sales in the first quarter of 1997 were $3.3 billion, a decrease
of $451 million, or 12%, compared with the first quarter of last year.
Net sales were lower reflecting the sale of the Company's automotive braking
business in April 1996. Excluding the braking business, net sales increased
$105 million, or 3%. Of this increase, $185 million was due to higher
sales volume, mainly by the Aerospace segment. The impact of foreign
exchange on the Automotive and Engineered Materials segments reduced
sales by $47 million. Selling prices were lower by $38 million, mainly
for the Engineered Materials segment.
Aerospace sales of $1,398 million in the first quarter of 1997
increased $98 million, or 8%, compared with the first quarter of last year.
Engines had significantly higher sales from aftermarket parts and repair
and overhaul services, as well as higher shipments of original-equipment (OE)
auxiliary power units. Aerospace Equipment Systems' sales were slightly
higher, driven by continued aftermarket strength, and substantially higher
OE shipments of engine fuel controls, environmental control systems and
wheels and brakes, however, lower revenue from engineering services was a
partial offset. Sales of Commercial Avionics Systems were moderately higher,
primarily due to strength in flight management and safety systems.
Electronic Systems' sales were substantially lower due to order delays.
Government Services had significantly higher sales to NASA.
Automotive sales of $927 million in the first quarter of 1997 were
$549 million, or 37%, lower compared with the first quarter of 1996
reflecting the disposition of the braking business. Excluding the braking
business, Automotive's sales increased $7 million, or 1%. Continued
strength of the U.S. dollar negatively impacted sales growth by 3%.
Turbocharger sales were significantly higher, primarily reflecting the
continued preference by Europeans for turbocharged, diesel-powered cars.
Truck Brake Systems sales in North America were slightly higher, benefiting
from a strong aftermarket and high installation rates of anti-lock braking
systems, partially offset by decreasing medium- and heavy-duty truck
production. Sales of Filters & Spark Plugs were moderately higher. Sales
for the Automotive Aftermarket businesses were moderately lower as a result
of softening demand for passenger car and light truck replacement products.
Safety Restraints had a slight decline in sales mainly due to lower airbag
sales in North America. Friction Materials also had slightly lower sales.
Engineered Materials sales of $1,001 million in the first quarter of
1997 were $1 million lower compared with the first quarter of last year.
Sales for Electronic Materials were significantly lower due to continued
softness in the printed wiring board industry. Specialty Chemicals sales
increased slightly reflecting growing demand for chlorofluorocarbon (CFC)
replacement products. Polymer sales were also slightly higher due to
significantly greater demand for engineered plastics, partially offset by
lower prices in the polyester business.
8
Cost of goods sold as a percent of net sales decreased from 79.7% in
the first quarter of 1996 to 78.3% in the first quarter of 1997 due to the
divestiture of the braking business and productivity programs to lower
manufacturing and material costs.
Selling, general and administrative (SG&A) expenses decreased in the
first quarter of 1997 by $36 million, or 9%, compared with the same quarter
last year reflecting the divestiture of the braking business and
Company-wide efforts to reduce travel and other costs. SG&A expenses as a
percent of net sales, however, were slightly higher. Excluding the
divested braking business, SG&A expenses as a percent of net sales were
lower.
Income from operations of $357 million in the first quarter of 1997
decreased by $8 million, or 2%, compared with last year's first quarter.
Aerospace income from operations increased 36%, but Engineered Materials
and Automotive income from operations were 15% and 34% lower than last year,
respectively. Excluding the divested braking business, Automotive income
from operations improved by 8% and income from operations for the Company
improved by 12%. The Company's operating margin for the first quarter of
1997 was 10.7%, significantly higher compared with 9.7% 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)
improved by 6.4% compared with the first quarter of 1996 reflecting
initiatives to lower costs and as a result of the sale of the higher-cost
braking business.
Equity in income of affiliated companies of $41 million increased by
$14 million, or 52%, compared with last year mainly due to substantially
higher earnings from the UOP process technology joint venture (UOP).
Other income (expense), $34 million income in the first quarter of
1997, improved by $34 million compared with the same quarter last year
mainly due to increased interest income (included in the Corporate and
Unallocated segment) primarily reflecting the investment of cash received
from the sale of the braking business. In addition, higher foreign
exchange gains were recorded in the first quarter of 1997.
Interest and other financial charges of $42 million in the first
quarter of 1997 decreased by $8 million, or 16%, from the prior year's
first quarter reflecting lower levels of short-term debt.
Net income of $259 million, or $0.92 per share, in the first quarter
of 1997 was 15% higher than last year's net income of $225 million, or
$0.80 per share.
Aerospace net income improved to $99 million from $71 million, an
increase of $28 million, or 39%, compared with the same quarter last year.
Engines had substantially stronger earnings due to higher sales and a
favorable mix of higher margin aftermarket sales. Income from Aerospace
Equipment Systems was also higher and Government Services was flat with
last year, however, earnings for Commercial Avionics Systems and Electronic
Systems were lower. Commercial Avionics Systems earnings were adversely
affected by costs associated with the relocation and consolidation of
manufacturing facilities.
9
Automotive net income declined to $52 million from $72 million in the
prior year, a $20 million, or 28% decrease. The decrease reflects the
absence of net income from the disposed braking business. Excluding the
braking business, Automotive's net income increased $5 million, or 11%.
Turbochargers had substantially higher net income due to increased sales and
significant productivity improvements. Net income also increased for the
Automotive Aftermarket businesses despite lower sales reflecting a more
favorable product mix and continued efforts to reduce costs. Earnings for
Safety Restraints and Friction Materials were flat with last year.
Truck Brake Systems' net income was also flat due to weakness in the
European market. Filters & Spark Plugs had lower income.
Engineered Materials net income decreased to $108 million from $109
million in the first quarter of 1996, a $1 million decrease. Polymers had
substantially lower income due to weak pricing in the polyester business
and higher raw material costs in the nylon business. Specialty Chemicals
had substantially higher earnings, driven by UOP, as the petrochemical and
refining industries continued to be strong worldwide, as well as by
significant improvements for fluorine products and Riedel-de Haen.
Electronic Materials had slightly higher income.
In the second quarter of 1996 the Company recorded a pretax charge of
$277 million related to the costs of actions to reposition some of its major
business units. Actions are proceeding to consolidate manufacturing
facilities, rationalize manufacturing capacity and optimize operational
capabilities. Certain planned actions have been modified in response to
recent increases in production forecasts of aerospace original equipment
manufacturers. Upon completion, the repositioning actions are currently
expected to generate additional annual income from operations of
approximately $170 million.
Financial Condition
-------------------
March 31, 1997 Compared with December 31, 1996
- ----------------------------------------------
On March 31, 1997 the Company had $1,665 million in cash and cash
equivalents and short-term investments, compared with $1,766 million at
year-end 1996. The current ratio at March 31, 1997 was 1.6X, the same as
at year-end 1996.
The Company's long-term debt on March 31, 1997 was $1,256 million, a
reduction of $61 million compared with year-end 1996. Total debt of $1,928
million on March 31, 1997 was $3 million lower than at year-end. The
Company's total debt as a percent of capital at March 31, 1997 was 29.5%,
the same as at year-end 1996. During the first three months of 1997, the
Company received $112 million from the issuance of preferred stock by a
subsidiary.
During the first three months of 1997, the Company spent $146 million
for capital expenditures, compared with $180 million in the corresponding
period in 1996. The decrease of $34 million in capital expenditures relates
to the divestiture of the braking business. Spending for the 1997
three-month period was as follows: aerospace-$34 million; automotive-$33
million; engineered materials-$69 million, and corporate-$10 million.
10
During the first three months of 1997, the Company repurchased 2.5
million shares of common stock for $180 million. Common stock is
repurchased to meet the expected requirements for shares issued under
employee benefit plans and a shareowner dividend reinvestment plan. At
March 31, 1997, the Company was authorized to repurchase 48.7 million shares
of common stock.
The Company continuously assesses the relative strength of its
portfolio of businesses as to strategic fit, market position and profit
contribution in order to upgrade its combined portfolio and identify
operating units that will most benefit from increased investment. The
Company considers acquisition candidates that will further its strategic
plan and strengthen its existing core businesses. The Company also
identifies operating units that do not fit into its long term strategic plan
based on their market position, relative profitability or otherwise. These
operating units are considered for potential divestiture, restructuring or
other action.
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.
11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareowners of the Company held
on April 28, 1997, the following matters set forth in the Company's
Proxy Statement dated March 17, 1997, which was filed with the
Securities and Exchange Commission pursuant to Regulation 14A under
the Securities Exchange Act of 1934, were voted upon with the
results indicated below.
(1) The nominees listed below were elected directors for
a three-year term ending in 2000 with the respective votes set forth
opposite their names:
FOR WITHHELD
Lawrence A. Bossidy 217,887,242 3,652,138
Ann M. Fudge 218,023,945 3,515,435
Robert C. Winters 217,476,734 4,062,646
Henry T. Yang 218,412,982 3,126,398
The nominee listed below was elected director for
a two-year term ending in 1999 with the votes set forth
opposite his name:
Paul X. Kelley 217,753,722 3,785,658
(2) A proposal seeking approval of an amendment to the
Company's Restated Certificate of Incorporation to increase
the number of authorized common shares of the Company
from 500 million to 1 billion was approved, with
196,153,859 votes cast FOR, 23,094,621 votes cast AGAINST,
2,288,699 abstentions and 2,201 broker non-votes;
(3) A proposal seeking approval of the appointment of
Price Waterhouse LLP as independent accountants for 1997 was
approved, with 218,184,601 votes cast FOR, 1,869,236 votes cast
AGAINST and 1,485,543 abstentions;
(4) A shareowner proposal regarding director independence
was not approved, with 27,866,807 votes cast FOR,
167,212,228 votes cast AGAINST, 4,437,463 abstentions and
22,022,882 broker non-votes;
12
(5) A shareowner proposal recommending that steps be
taken to elect the directors annually was not approved, with
86,284,605 votes cast FOR, 109,317,682 votes cast AGAINST,
3,914,211 abstentions and 22,022,882 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed with this
Form 10-Q:
3(i) Restated Certificate of Incorporation
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. During the three months ended
March 31, 1997, reports on Form 8-K were filed on January 15,
February 20 and March 18, in each case reporting, under Item 9,
unregistered sales of the Company's Common Stock in reliance on
Regulation S under the Securities Act.
13
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.
Date: May 13, 1997 By: /s/ Nancy A. Garvey
-------------------
Nancy A. Garvey
Vice President and Controller
(on behalf of the Registrant
and as the Registrant's
Principal Accounting Officer)
14
EXHIBIT INDEX
Exhibit Number Description
2 Omitted (Inapplicable)
3(i) Restated Certification of Incorporation
4 Omitted (Inapplicable)
10 Omitted (Inapplicable)
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)
27 Financial Data Schedule
99 Omitted (Inapplicable)
15