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 June 30, 1997
-------------
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
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)
(973)455-2000
----------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
----------------------------------------------------
(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
-------- --------
At June 30, 1997 there were 282,984,589 shares of Common Stock
(par value $1 per share) outstanding, which does not reflect
the two-for-one stock split approved July 23, 1997.
AlliedSignal Inc.
Index
-----
Page No.
--------
Part I. - Financial Information
Item 1. Condensed Financial Statements:
Consolidated Balance Sheet -
June 30, 1997 and December 31, 1996 3
Consolidated Statement of Income -
Three and Six Months Ended June 30, 1997 and 1996 4
Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1997 and 1996 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
2
AlliedSignal Inc.
Consolidated Balance Sheet
(Unaudited)
June 30, December 31,
1997 1996
-------- ------------
(Dollars in millions)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,000 $ 1,465
Short-term investments 465 301
Accounts and notes receivable - net (Note 2) 1,594 1,661
Inventories - net (Note 3) 2,129 1,946
Other current assets 450 466
------- -------
Total current assets 5,638 5,839
Investments and long-term receivables 459 473
Property, plant and equipment 9,118 8,976
Accumulated depreciation and amortization (4,918) (4,757)
Cost in excess of net assets of acquired
companies - net 1,657 1,418
Other assets 958 880
------- -------
Total assets $ 12,912 $12,829
======= =======
LIABILITIES
Current Liabilities:
Accounts payable $ 1,180 $ 1,187
Short-term borrowings 27 32
Commercial paper 662 470
Current maturities of long-term debt 142 112
Accrued liabilities 1,583 1,895
------- -------
Total current liabilities 3,594 3,696
Long-term debt 1,263 1,317
Deferred income taxes 638 610
Postretirement benefit obligations other
than pensions 1,780 1,787
Other liabilities 1,285 1,239
SHAREOWNERS' EQUITY
Capital - common stock issued* 716 716
- additional paid-in capital* 2,296 2,189
Common stock held in treasury, at cost (2,184) (1,953)
Cumulative translation adjustment (112) 2
Unrealized holding gain on marketable
securities 6 12
Retained earnings 3,630 3,214
-------- --------
Total shareowners' equity 4,352 4,180
-------- --------
Total liabilities and shareowners' equity $12,912 $12,829
======== ========
*Reflects two-for-one stock split as described in Notes to Financial
Statements.
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
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in millions except
per share amounts)
Net sales $3,578 $3,347 $6,905 $7,125
------ ------ ------ ------
Cost of goods sold (Note 6) 2,764 3,235 5,369 6,247
Selling, general and
administrative expenses 386 366 751 767
Gain on sale of business
(Note 7) - (655) - (655)
------ ------ ------ ------
Total costs and expenses 3,150 2,946 6,120 6,359
------ ------ ------ ------
Income from operations 428 401 785 766
Equity in income of
affiliated companies 55 46 96 73
Other income (expense)
(Note 6) 14 33 48 33
Interest and other financial
charges (39) (47) (81) (97)
------ ------ ------ ------
Income before taxes on income 458 433 848 775
Taxes on income 153 161 284 278
------ ------ ------ ------
Net income $ 305 $ 272 $ 564 $ 497
====== ====== ====== ======
Earnings per share of common
stock (Note 8)* $ .54 $ .48 $ 1.00 $ .88
====== ====== ====== ======
Cash dividends per share of
common stock* $ .13 $.1125 $ .26 $ .225
====== ====== ====== ======
*Reflects two-for-one stock split as described in Notes to Financial
Statements.
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
----------------
1997 1996
---- ----
(Dollars in millions)
Cash flows from operating activities:
Net income $ 564 $ 497
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sale of business -- (655)
Repositioning and other charges -- 622
Depreciation and amortization (includes goodwill) 305 323
Undistributed earnings of equity affiliates (22) (14)
Deferred income taxes 67 128
Decrease (increase) in accounts and notes
receivable 76 (147)
(Increase) in inventories (158) (135)
Decrease (increase) in other current assets 16 (11)
Increase in accounts payable 6 35
(Decrease) increase in accrued liabilities (345) 9
Taxes paid on gain on sale of braking business (5) (81)
Other (40) (325)
------- -------
Net cash provided by operating activities 464 246
------- -------
Cash flows from investing activities:
Expenditures for property, plant and equipment (309) (346)
Proceeds from disposals of property, plant and
equipment 16 56
Decrease in other investments 17 --
(Increase) in other investments (5) (2)
Cash paid for acquisitions - net (382) (35)
Proceeds from sales of businesses 34 1,187
(Increase) in short-term investments (164) --
------- -------
Net cash (used for) provided by investing
activities (793) 860
------- -------
Cash flows from financing activities:
Net increase in commercial paper 192 685
Net (decrease) in short-term borrowings (5) (296)
Proceeds from issuance of preferred stock of
subsidiary 112 --
Proceeds from issuance of common stock 101 79
Proceeds from issuance of long-term debt 12 5
Payments of long-term debt (65) (72)
Repurchases of common stock (290) (203)
Cash dividends on common stock (148) (130)
Other (45) --
------- -------
Net cash (used for) provided by financing
activities (136) 68
------- -------
Net (decrease) increase in cash and cash
equivalents (465) 1,174
------- -------
Cash and cash equivalents at beginning of year 1,465 540
------- -------
Cash and cash equivalents at end of period $1,000 $1,714
======= =======
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 June 30, 1997 and the results of operations for the
three and six months ended June 30, 1997 and 1996 and the cash flows
for the six months ended June 30, 1997 and 1996. The results of
operations for the three- and six-month periods ended June 30, 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 June 30, 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:
June 30, December 31,
1997 1996
---------- ------------
Trade $1,246 $1,330
Other 381 362
------- -------
1,627 1,692
Less-Allowance for doubtful
accounts and refunds (33) (31)
------- -------
$1,594 $1,661
======= =======
Note 3. Inventories consist of the following:
June 30, December 31,
1997 1996
---------- ------------
Raw materials $ 581 $ 538
Work in process 861 762
Finished products 841 814
Supplies and containers 91 88
-------- -------
2,374 2,202
Less-Progress payments (118) (126)
Reduction to LIFO cost basis (127) (130)
-------- -------
$2,129 $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. In
July 1997, the preferred stock was redeemed by the Company.
Note 5. In June 1997 the Company amended its Five-Year Credit
Agreement by extending the maturity one year to June 30, 2002 and
increasing the amount available thereunder to $750 million. The
amendment also included certain other minor changes in terms and
conditions. The Company also terminated its $375 million 364-Day
Credit Agreement.
6
Note 6. 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 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 generally expected to be
completed by 1998.
In the second quarter of 1996, the Company adopted the provisions of
the American Institute of Certified Public Accountants' Statement
of Position 96-1, "Environmental Remediation Liabilities" (SOP 96-
1). The adoption of SOP 96-1 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 for 1996. Other income (expense) in
1996 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 for
1996 is $622 million (after-tax $359 million, or $0.63 per share).
Note 7. 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. The sale of the braking business resulted in
a gain of $655 million (after-tax $368 million, or $0.65 per share).
Note 8. On July 23, 1997, the Company's Board of Directors approved
a two-for-one common stock split for shareowners of record on August
21, 1997. The stock split is payable on September 15, 1997 and all
share and per share data in the financial statements reflect the
stock split for all periods presented. The weighted average number
of shares outstanding during each period, after adjusting for the
stock split, was: three months ended June 30, 1997, 565,383,810
shares, and 1996, 565,539,396 shares; and six months ended June 30,
1997, 566,185,136 shares and 1996, 565,620,152 shares. There is no
material dilutive effect on earnings per share of common stock due
to 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, 1997, and the
consolidated statements of income for the three-month and six-month
periods ended June 30, 1997 and 1996 and of cash flows for the six-
month periods ended June 30, 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
July 25, 1997
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Results of Operations
---------------------
Second Quarter 1997 Compared with Second Quarter 1996
- -----------------------------------------------------
Net sales in the second quarter of 1997 were $3.6 billion, an
increase of $231 million, or 7%, compared with the second quarter of
last year. Of this increase, $295 million was due to higher sales
volume, with acquisitions, net of divestitures, also contributing
$33 million of sales. The impact of foreign exchange on the
Automotive and Engineered Materials segments reduced sales by $52
million. Selling prices were lower by $45 million, mainly for the
Automotive and Engineered Materials segments.
Aerospace sales of $1,513 million in the second quarter of 1997
increased $143 million, or 10%, compared with the second quarter of
last year. Aerospace Equipment Systems had significantly higher
sales driven by aftermarket strength and higher air transport
original-equipment shipments. Aerospace Equipment Systems growth
was led by strong sales of environmental control systems, engine
fuel systems and aircraft landing systems; partially offset by lower
revenue from engineering services. Engines had moderately higher
sales due to increased shipments of auxiliary power units and continued
strength in the sales of spare parts and repair and overhaul services.
Commercial Avionics Systems sales were substantially higher reflecting
increased demand for flight management and safety avionics systems.
Electronic Systems sales were significantly lower due to order delays,
but Government Services had moderately higher sales.
Automotive sales of $976 million in the second quarter of 1997
were $21 million, or 2%, higher compared with the second quarter of
1996. Turbocharger sales were significantly higher as new products
continued to drive strong sales growth in Europe. Truck Brake
Systems sales in North America were also significantly higher as a
result of a strong aftermarket, an upturn in new truck builds and
increased installation rates of anti-lock braking systems.
Aftermarket sales were slightly higher, reflecting the acquisition
of Prestone Products Corporation in June 1997, partially offset by
continued weakness in market conditions. Safety Restraints had a
significant decline in sales mainly due to labor strikes at two key
North American customers and weak pricing in North America.
Engineered Materials sales of $1,089 million in the second
quarter of 1997 were $69 million, or 7%, higher compared with the
second quarter of last year. Polymers had moderately higher sales
due to increased demand for engineered plastics, carpet fibers and
industrial polyester. Engineered plastics benefited from new
products and applications in the automotive and packaging
industries. Polymers sales also benefited from expansion at two
industrial polyester plants and at the Company's phenol plant.
Sales of Specialty Chemicals were moderately stronger, primarily
reflecting strength in the industrial specialties and
pharmaceutical/agricultural market segments. Electronic Materials
also had a moderate sales increase driven by improved results at
laminate systems, as the printed wiring board industry starts to
show signs of a recovery, as well as by continued strength in the
advanced microelectronics business.
9
Cost of goods sold as a percent of net sales decreased from
96.7% in the second quarter of 1996 to 77.2% in the second quarter
of 1997. The 1996 second quarter includes repositioning and other
charges totaling $637 million. (See Note 6 of Notes to Financial
Statements for further information.) Excluding repositioning and
other charges, cost of goods sold as a percent of net 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 7 of Notes to Financial Statements for further information.)
Income from operations of $428 million in the second quarter of
1997 increased by $27 million, or 7%, compared with last year's
second quarter. The second quarter of 1996 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, income from
operations in the second quarter of 1997 increased by $45 million,
or 12%. On a segment basis, Aerospace income from operations
increased 26% and Engineered Materials improved 12%, but Automotive
income from operations was 6% lower. The Company's operating margin
for the second quarter of 1997 was 12.0%, compared with 11.4% for
the same period last year adjusted for special items. See the
discussion of net income below for information by segment.
Productivity (the constant dollar basis relationship of sales
to costs) improved by 6.9% compared with the second quarter of 1996
primarily reflecting ongoing initiatives to lower materials and
manufacturing costs.
Equity in income of affiliated companies of $55 million
increased by $9 million, or 20%, compared with last year mainly due
to higher earnings from the UOP process technology joint venture
(UOP) and several other affiliates.
Other income (expense), $14 million income in the second
quarter of 1997, decreased by $19 million, or 58%, compared with the
same quarter last year, mainly due to the minority interest share of
the 1996 repositioning and other charges.
Interest and other financial charges of $39 million in the
second quarter of 1997 decreased by $8 million, or 17%, from the
prior year's second quarter reflecting lower levels of short-term
debt.
The effective tax rate in the second quarter of 1997 was 33.5%
compared with 37.2% in 1996. The decrease is principally due to the
higher taxes on the gain in 1996 on the sale of the braking systems
business.
Net income of $305 million, or $0.54 per share, in the second
quarter of 1997 was 16% higher than last year's net income, after
excluding special items, of $263 million, or $0.46 per share. The
prior year's net income, including special items, was $272 million,
or $0.48 per share. 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)
10
Second Quarter
----------------------------------------------
Net Income Special Items Adjusted
as Reported (Gains)/Losses Net Income
----------- -------------- ------------
Aerospace
1997 $ 115 $ - $ 115
1996 (89) 179 90
------ ------ ------
Increase/(Decrease) $ 204 $ 179 $ 25
====== ====== ======
Automotive
1997 $ 48 $ - $ 48
1996 369 (319) 50
------ ------ ------
Increase/(Decrease) $(321) $(319) $ (2)
====== ====== ======
Engineered Materials
1997 $ 137 $ - $ 137
1996 47 71 118
------ ------ ------
Increase/(Decrease) $ 90 $ 71 $ 19
====== ====== ======
Aerospace net income for 1997 improved to $115 million from the
1996 adjusted net income of $90 million, an increase of $25 million,
or 28%. Strong sales growth and improvements in productivity
resulted in substantially higher earnings for Aerospace Equipment
Systems, Engines and Commercial Avionics Systems. Electronic Systems
incurred a substantial earnings decline due to lower sales.
Automotive net income for 1997 of $48 million was $2 million,
or 4%, lower than the adjusted net income in the prior year.
Earnings declined for Safety Restraints, mainly due to lower sales,
and for the Aftermarket and Filters & Spark Plugs due to continued
weakness in market conditions. Turbochargers had substantially
higher income on continued strong sales in Europe and Truck Brake
Systems also had substantial gains primarily reflecting strong
aftermarket sales.
Engineered Materials net income for 1997 increased to $137
million from the 1996 adjusted net income of $118 million, a $19
million, or 16%, increase. Specialty Chemicals had higher earnings,
driven primarily by productivity initiatives at Riedel-de Haen.
Electronic Materials had strong earnings, led by the advanced
microelectronics business. Polymers net income was flat due to
weaker selling prices for industrial polyester and acetone.
Six Months 1997 Compared with Six Months 1996
- ---------------------------------------------
Net sales in the first six months of 1997 totaled $6.9 billion,
a decrease of $220 million, or 3%, compared with the first six
months 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 $336 million,
11
or 5%, driven principally by higher sales volumes. The impact of
foreign exchange and lower selling prices, mainly for the Automotive
and Engineered Materials segments, somewhat offset the higher sales
volumes.
Aerospace sales of $2,911 million in the first six months of
1997 increased $241 million, or 9%, compared with the first six
months of 1996. Engines had significantly higher sales from
aftermarket parts and repair and overhaul services, as well as
higher shipments of auxiliary power units. Aerospace Equipment
Systems sales were also significantly higher, driven by continued
aftermarket strength, and substantially higher original-equipment
shipments of engine fuel systems, environmental control systems and
aircraft landing systems, however, lower revenue from engineering
services was a partial offset. Sales of Commercial Avionics Systems
were higher, primarily due to strength in flight management and
safety avionics systems. Electronic Systems sales were significantly
lower due to order delays. Government Services had significantly
higher sales, mainly to NASA.
Automotive sales of $1,903 million in the first six months of
1997 were $528 million, or 22%, lower compared with the first six
months of 1996 reflecting the disposition of the braking business.
Excluding the braking business, Automotive sales increased $28
million, or 1%. Continued strength of the U.S. dollar negatively
impacted sales growth by 3%. Turbocharger sales were significantly
higher, primarily reflecting the flow of new products and the
popularity in Europe of turbocharged, diesel-powered cars. Truck
Brake Systems sales in North America improved moderately, benefiting
from a strong aftermarket, an upturn in truck builds and increased
installation rates of anti-lock braking systems. Safety Restraints
had a moderate decline in sales mainly due to lower airbag sales in
North America, in part reflecting labor strikes at two key customers.
Engineered Materials sales of $2,090 million in the first six
months of 1997 were $68 million, or 3%, higher compared with the
first six months of 1996. Polymer sales were slightly higher due
principally to greater demand for engineered plastics. Specialty
Chemicals sales also improved slightly reflecting growing demand for
chlorofluorocarbon (CFC) replacement products and performance
chemicals. Sales for Electronic Materials and environmental
catalysts were lower.
Cost of goods sold as a percent of sales decreased from 87.7%
in the first six months of 1996 to 77.8% in the first six months of
1997 as the 1996 period includes repositioning and other charges
totaling $637 million. (See Note 6 of Notes to Financial Statements
for further information.) Excluding repositioning and other
charges, cost of goods sold as a percent of net sales was 78.7% for
the first six months of 1996. The improvement in 1997 is due
primarily to productivity programs to lower manufacturing and
material costs.
Gain on sale of business represents the pretax gain of $655
million on the sale of the braking business in April 1996. (See
Note 7 of Notes to Financial Statements for further information.)
12
Income from operations of $785 million in the first six months
of 1997 increased $19 million, or 2%, compared with last year's
first six months. The 1996 period includes a net pretax gain of $18
million from the impact of special items. Excluding the impact of
these special items, income from operations in the first six months
of 1997 increased by $37 million, or 5%. On a segment basis,
Aerospace income from operations increased 31%, but Automotive and
Engineered Materials income from operations decreased 21% and 2%,
respectively. The Company's operating margin for the first six
months of 1997 was 11.4% compared with 10.5% for the same period
last year adjusted for special items. See the discussion of net
income below for information by segment.
Productivity improved by 6.6% compared with last year's first
six months.
Equity in income of affiliated companies of $96 million
increased by $23 million, or 32%, compared with last year mainly due
to substantially higher earnings from UOP.
Other income (expense), $48 million income in the first six
months of 1997, improved by $15 million, or 45%, compared with the
same period last year mainly due to increased interest and dividend
income (included in the Corporate and Unallocated segment),
primarily reflecting the investment of cash received from the sale
of the braking business, and higher foreign exchange gains. A
partial offset was the minority interest share of the 1996
repositioning and other charges.
Interest and other financial charges of $81 million in the
first six months of 1997 decreased by $16 million, or 16%, compared
with the first six months of 1996 reflecting lower levels of short-
term debt.
The effective tax rate in the first six months of 1997 was
33.5% compared with 35.9% in 1996. The decrease is principally due
to the higher taxes on the gain in 1996 on the sale of the braking
systems business.
Net income of $564 million, or $1.00 per share, in the first
six months of 1997 was 16% higher than last year's net income, after
excluding special items, of $488 million, or $0.86 per share. The
prior year's net income, including special items, was $497 million,
or $0.88 per share. 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
1997 $ 214 $ - $ 214
1996 (18) 179 161
------- ------- -------
Increase/(Decrease) $ 232 $ 179 $ 53
======= ======= =======
Automotive
1997 $ 100 $ - $ 100
1996 441 (319) 122
------- ------- -------
Increase/(Decrease) $(341) $(319) $(22)
======= ======= =======
Engineered Materials
1997 $ 245 $ - $ 245
1996 156 71 227
------- ------- -------
Increase/(Decrease) $ 89 $ 71 $ 18
======= ======= =======
Aerospace net income for 1997 improved to $214 million from the
1996 adjusted net income of $161 million, an increase of $53
million, or 33%. 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 due
principally to increased sales. Earnings for Commercial Avionics
Systems were very strong, in part reflecting improved manufacturing
operations. Earnings for Electronic Systems decreased substantially
due to lower sales.
Automotive net income for 1997 declined to $100 million from
the 1996 adjusted net income of $122 million, a $22 million, or 18%,
decrease. The decrease reflects the absence of net income from the
disposed braking business. Excluding the braking business,
Automotive's net income increased $3 million, or 3%. Turbochargers
had substantially higher net income due to increased sales and
significant productivity improvements. Net income for Truck Brake
Systems, European Aftermarket and Friction Materials was also
favorable. However, earnings for Safety Restraints, Filters & Spark
Plugs and the North American Aftermarket were unfavorable.
Engineered Materials net income for 1997 increased to $245
million from the 1996 adjusted net income of $227 million, a $18
million, or 8% improvement. Specialty Chemicals had significantly
higher earnings, driven by UOP, as the petrochemical and refining
industries continued to be strong worldwide, as well as by
improvements for Riedel-de Haen and performance chemicals.
Electronic Materials also had higher income. Polymers had lower
income due to weak pricing in the polyester business and higher raw
material costs in the nylon business, mainly in the first quarter.
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 being undertaken to
consolidate manufacturing facilities,
14
rationalize manufacturing capacity and optimize operational
capabilities. Upon completion, the repositioning actions are
currently expected to generate additional annual income from
operations of approximately $170 million.
Financial Condition
-------------------
June 30, 1997 Compared with December 31, 1996
- ---------------------------------------------
On June 30, 1997, the Company had $1,465 million in cash and
cash equivalents and short-term investments compared with $1,766
million at year-end 1996. The current ratio at June 30, 1997 was
1.6X, the same as at year-end 1996.
The Company's long-term debt on June 30, 1997 was $1,263
million, a reduction of $54 million compared with year-end 1996.
Total debt of $2,094 million on June 30, 1997 was $163 million
higher than at year-end. The Company's total debt as a percent of
capital at June 30, 1997 was 30.3%, slightly higher than 29.5% at
year-end 1996.
During the first six months of 1997, the Company spent $309
million for capital expenditures compared with $346 million in the
corresponding period in 1996. Spending for the 1997 six-month period
was as follows: aerospace-$77 million; automotive-$76 million;
engineered materials-$140 million, and corporate-$16 million.
During the first six months of 1997, the Company repurchased
4.2 million shares (pre-split basis) of common stock for $290
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, 1997, the Company
was authorized to repurchase 47.0 million shares (pre-split basis)
of common stock.
In June 1997, the Company acquired Prestone Products
Corporation (Prestone) for approximately $400 million, including
assumed liabilities. Prestone is a leading supplier of premium car
care products and has annual sales of approximately $300 million.
In July 1997, the Company completed its acquisition of Grimes
Aerospace (Grimes), a manufacturer of exterior and interior aircraft
lighting systems for approximately $400 million including assumed
liabilities. Grimes, which has annual sales of approximately $230
million, also manufactures aircraft engine components such as valves
and heat exchangers, as well as electronic systems, including flight
warning computers and active matrix liquid crystal displays.
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. During the second quarter 1997, the Company sold
certain non-strategic Engineered Materials businesses.
15
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.
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:
10.13 Amendment and Restatement of Five-Year Credit
Agreement dated as of June 13, 1997 by and
between the Company and the banks, financial
institutions and lenders listed on the
signature pages thereof (the "Lenders"),
Citibank, N.A., as agent, and The Chase
Manhattan Bank, N.A. and Morgan Guaranty
Trust Company of New York, as co-agents for
the Lenders.
10.15 First Amendment to the restated and amended
Agreement dated May 6, 1994 between the
Company and Lawrence A. Bossidy
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
June 30, 1997, reports on Form 8-K were filed on April 15,
May 22 and June 19, in each case reporting, under Item 9,
unregistered sales of the Company's Common Stock in reliance on
Regulation S under the Securities Act.
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.
Date: August 14, 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)
17
EXHIBIT INDEX
Exhibit Number Description
2 Omitted (Inapplicable)
3 Omitted (Inapplicable)
4 Omitted (Inapplicable)
10.13 Amendment and Restatement of Five-Year
Credit Agreement dated as of June 13,
1997 by and between the Company
and the banks, financial institutions
and lenders listed on the signature
pages thereof (the "Lenders"),
Citibank, N.A., as agent, and The
Chase Manhattan Bank, N.A. and Morgan
Guaranty Trust Company of New York, as
co-agents for the Lenders.
10.15 First Amendment to the restated and
amended Agreement dated May 6, 1994
between the Company and Lawrence A.
Bossidy
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)
18