Honeywell International
Honeywell Second Quarter Sales up 10% to $7.0 Billion
Earnings Per Share up 29% before Tax Charge to Repatriate $2.7 Billion of
Foreign Earnings
Raises Forecast 10 Cents From Prior Guidance, Excluding Tax Charge For
Repatriation
Honeywell (NYSE: HON) today announced a 10% increase in second quarter sales to
$7.0 billion compared to $6.4 billion in 2004, primarily due to organic sales
growth in each of its four businesses. The company reported earnings of 36 cents
per share, including a tax charge of 18 cents per share for the repatriation of
$2.7 billion of foreign earnings related to the provisions of the American Jobs
Creation Act of 2004. Excluding this tax charge, earnings increased 29% to 54
cents per share (including 3 cents per share from discontinued operations)
versus 42 cents per share in the second quarter of 2004. Net income was $306
million for the quarter ($461 million before the aforementioned tax charge)
versus $361 million last year. Cash flow from operations was $569 million and
free cash flow (cash flow from operations less capital expenditures) was $410
million.
"Second quarter performance was excellent, driven by organic sales growth and
operational execution in each of our businesses," said Honeywell Chairman and
Chief Executive Officer Dave Cote. "We are confident that this performance will
continue for the remainder of the year and are increasing guidance accordingly."
The company increased its previously announced 2005 sales guidance by $400
million to $27.8 - $28.0 billion and earnings per share guidance (excluding the
abovementioned tax charge) 10 cents to $2.05 - $2.15 ($1.87 - $1.97 per share on
a reported basis). Free cash flow guidance was increased $100 million to $1.7 -
$1.8 billion (cash flow from operations of $2.5 - $2.6 billion).
Cote concluded, "Each of our businesses demonstrated strong first half
performance. Orders are up, pricing and productivity actions are offsetting
higher commodity and raw materials costs, we introduced great new products and
won important new contracts. We are repatriating $2.7 billion of foreign
earnings to enhance the flexibility of our already strong balance sheet."
Second-Quarter Segment Highlights
Aerospace
-- Sales were up 8% compared with the second quarter of 2004, with 14%
growth in commercial markets offset by flat defense and space sales.
-- Segment margins were 15.7% compared with 15.0% a year ago, due to strong
volume growth.
-- Boeing awarded Honeywell its fifth contract win on the 787 Dreamliner,
bringing the total potential value of all awarded content over the
expected life of the program to in excess of $2.8 billion.
-- Malaysia Airlines was the second airline in Asia to select Honeywell's
Runway Awareness and Advisory System (RAAS), a new safety system that
helps pilots avoid on-ground incidents. The airline will install RAAS on
its fleet of 92 aircraft and its three flight simulators. Over the past
two years, RAAS has been selected by four major air carriers and is now
scheduled to be installed on over 600 aircraft.
-- Honeywell received FAA certification for its traffic surveillance system
for the Airbus A330 and A340 aircraft. Honeywell's surveillance system
adds greater distance and flight information capability to its Traffic
Collision Avoidance System (TCAS) offering.
Automation and Control Solutions
-- Sales were up 21% compared with the second quarter of 2004, driven by
organic sales growth of 5%, primarily in Life Safety, Building Solutions
and Security, and the net impact of acquisitions and divestitures of
16%.
-- Segment margins were 10.1% compared with 10.5% a year ago, due to the
anticipated dilutive impact of acquisitions and divestitures, partially
offset by volume and productivity. Excluding the impact of acquisitions
and divestitures, segment margins would have expanded to 11.5%.
-- The Novar IBS integration is on track to deliver projected synergies.
The sales process for the divestiture of the non-core Security Printing
Services and Indalex Aluminum Solutions businesses was initiated in the
quarter. Divestiture of the $10 million Esser Italia Fire business, as
mandated by the European Union, was completed in June.
-- Building Solutions signed four major energy savings performance
contracts totaling $28 million, including a $10 million contract with
the Chattanooga (Tennessee) Housing Authority for energy- and
water-saving retrofits at 18 sites.
-- Life Safety completed the acquisition of Zellweger Analytics, a $170
million global leader in hazardous gas detection technology, providing
Honeywell customers with a full suite of gas detection solutions and
broadening the company's sensing and detection capabilities.
Transportation Systems
-- Sales were up 12% compared with the second quarter of 2004, reflecting
continued growth in the Turbo Technologies and Consumer Products
businesses.
-- Segment margins were 13.5%, compared with 14.1% a year ago, due to
higher raw material costs, partially offset by volume and pricing.
-- Turbo Technologies launched the latest version of its AVNT(TM) (advanced
variable nozzle turbine) turbocharger on the 2006 GM Duramax heavy duty
pickup.
-- The all-new FRAM(R) High Mileage oil filter, designed specifically for
vehicles with more than 75,000 miles, debuted with strong retail
performance.
Specialty Materials
-- Sales were down 12% compared with the second quarter of 2004, due to the
divested Performance Fibers and Industrial Wax businesses, offset by 1%
organic sales growth related to pricing actions and demand for
proprietary fluorines technology.
-- Segment margins were 9.8% compared with 5.7% a year ago, with price
increases and productivity actions more than offsetting higher raw
material costs.
-- Divestiture of the $186 million non-core Industrial Wax business was
completed.
-- Chemicals received approval for Genetron(R) R-245fa as a replacement for
a variety of ozone-depleting refrigerants, such as CFCs, used in air
conditioning and refrigeration for both new and retrofit applications.
R-245fa is one of a family of refrigerants developed and patented by
Honeywell to meet the challenge of replacing ozone-depleting substances,
such as CFC refrigerants.
-- Specialty Films launched Aclar(R) Flex moisture barrier film, a
specially-designed film for healthcare applications where transparency,
flexibility and moisture barrier is crucial.
During the quarter the company recognized a pre-tax charge of $123 million for
repositioning, environmental, litigation, and other matters, primarily
reflecting continued efforts to reduce the company's cost base and to address
remediation work.
Honeywell will discuss its results during its investor conference call today
starting at 8:00 a.m. EDT. To participate, please dial (706) 643-7681 a few
minutes before the 8:00 a.m. start. Please mention to the operator that you are
dialing in for Honeywell's investor conference call. The live webcast of the
investor call will be available through the "Investor Relations" section of the
company's Website (http://www.honeywell.com/investor). Investors can access a
replay of the webcast starting at 11:00 a.m. EDT, July 20, until 5:00 p.m. EDT,
July 27, by dialing (706) 645-9291. The access code is 6682637.
Honeywell International is a $26 billion diversified technology and
manufacturing leader, serving customers worldwide with aerospace products and
services; control technologies for buildings, homes and industry; automotive
products; turbochargers; and specialty materials. Based in Morris Township,
N.J., Honeywell's shares are traded on the New York, London, Chicago and Pacific
Stock Exchanges. It is one of the 30 stocks that make up the Dow Jones
Industrial Average and is also a component of the Standard & Poor's 500 Index.
For additional information, please visit www.honeywell.com.
This release contains certain statements that may be deemed "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934. All statements, other than statements of historical fact, that address
activities, events or developments that we or our management intends, expects,
projects, believes or anticipates will or may occur in the future are
forward-looking statements. Such statements are based upon certain assumptions
and assessments made by our management in light of their experience and their
perception of historical trends, current conditions, expected future
developments and other factors they believe to be appropriate. The
forward-looking statements included in this release are also subject to a number
of material risks and uncertainties, including but not limited to economic,
competitive, governmental, and technological factors affecting our operations,
markets, products, services and prices. Such forward-looking statements are not
guarantees of future performance, and actual results, developments and business
decisions may differ from those envisaged by such forward-looking statements.
Honeywell International Inc.
Consolidated Statement of Operations (Unaudited)
------------------------------------------------
(In millions except per share amounts)
Three Months Ended
June 30,
---------------------
2005 2004
------- -------
Product sales $5,630 $5,030
Service sales 1,396 1,358
------- -------
7,026 6,388
------- -------
Costs, expenses and other
Cost of products sold 4,505 (A) 4,277 (D)
Cost of services sold 989 (A) 951 (D)
Selling, general and administrative expenses 935 (A) 823 (D)
Loss (gain) on sale of non-strategic
businesses 18 (B) (233)(E)
Equity in (income) loss of affiliated
companies (29)(A) (17)(D)
Other (income) expense (3)(A) (18)
Interest and other financial charges 86 82
------- -------
6,501 5,865
------- -------
Income from continuing operations before taxes 525 523
Tax expense 247 (C) 162
------- -------
Income from continuing operations 278 361
Income from discontinued operations,
net of taxes 28 -
------- -------
Net income $ 306 $ 361
======= =======
Earnings per share of common stock - basic:
Income from continuing operations $ 0.33 $ 0.42
Income from discontinued operations 0.03 -
------- -------
Net income $ 0.36 $ 0.42
======= =======
Earnings per share of common stock - assuming
dilution:
Income from continuing operations $ 0.33 $ 0.42
Income from discontinued operations 0.03 -
------- -------
Net income $ 0.36 $ 0.42
======= =======
Weighted average number of shares
outstanding- basic 855 860
======= =======
Weighted average number of shares outstanding -
assuming dilution 858 863
======= =======
(A) Cost of products and services sold, selling, general and
administrative expenses, equity in (income) loss of affiliated
companies and other (income) expense include provisions
(credits) of $115, $(4), $2 and $10 million, respectively, for
environmental, litigation, net repositioning and other
charges. Total pretax charges were $123 million (after- tax
$96 million, or $0.11 per share).
(B) Represents the pretax loss related to the sale of our
Industrial Wax business; partially offset by a pretax
adjustment on the sale of our Performance Fibers business
which was sold in 2004 (after-tax gain of $39 million, or
$0.05 per share). The after-tax gain on the sale of our
Industrial Wax business is due to the higher tax basis than
book basis.
(C) Includes a tax provision of $155 million, or $0.18 per share
for the repatriation of foreign earnings related to the
provisions of the American Jobs Creation Act of 2004.
(D) Cost of products and services sold, selling, general and
administrative expenses and equity in (income) loss of
affiliated companies include provisions of $232, $6 and $4
million, respectively, for environmental, litigation, net
repositioning and other charges. Total pretax charges were
$242 million (after-tax $158 million, or $0.18 per share).
(E) Represents the pretax gain on the sale of our Security
Monitoring business, and adjustments related to businesses
sold in prior periods (after-tax $130 million, or $0.15 per
share).
Honeywell International Inc.
Consolidated Statement of Operations (Unaudited)
------------------------------------------------------
(In millions except per share amounts)
Six Months Ended
June 30,
-------------------
2005 2004
-------- -------
Product sales $10,818 $9,969
Service sales 2,661 2,597
-------- -------
13,479 12,566
-------- -------
Costs, expenses and other
Cost of products sold 8,674 (A) 8,298 (D)
Cost of services sold 1,905 (A) 1,860 (D)
Selling, general and administrative
expenses 1,789 (A) 1,631 (D)
Loss (gain) on sale of non-strategic
businesses 10 (B) (265)(E)
Equity in (income) loss of affiliated
companies (60)(A) (24)(D)
Other (income) expense (27)(A) (28)
Interest and other financial charges 177 166
-------- -------
12,468 11,638
-------- -------
Income from continuing operations before taxes 1,011 928
Tax expense 374 (C) 272
-------- -------
Income from continuing operations 637 656
Income from discontinued operations,
net of taxes 28 -
-------- -------
Net income $ 665 $ 656
======== =======
Earnings per share of common stock - basic:
Income from continuing operations $ 0.75 $ 0.76
Income from discontinued operations 0.03 -
-------- -------
Net income $ 0.78 $ 0.76
======== =======
Earnings per share of common stock - assuming
dilution:
Income from continuing operations $ 0.75 $ 0.76
Income from discontinued operations 0.03 -
-------- -------
Net income $ 0.78 $ 0.76
======== =======
Weighted average number of shares
outstanding- basic 854 860
======== =======
Weighted average number of shares outstanding -
assuming dilution 857 864
======== =======
(A) Cost of products and services sold, selling, general and
administrative expenses, equity in (income) loss of affiliated
companies and other (income) expense include provisions
(credits) of $217, $(7), $2 and $10 million, respectively, for
environmental, litigation, net repositioning and other
charges. Total pretax charges were $222 million (after-tax
$166 million, or $0.19 per share).
(B) Represents the pretax loss related to the sale of our
Industrial Wax business; partially offset by pretax
adjustments related to the sales of our Security Monitoring
and Performance Fibers businesses, which were sold in 2004,
(after-tax gain of $44 million, or $0.05 per share). The
after- tax gain on the sale of our Industrial Wax business is
due to the higher tax basis than book basis.
(C) Includes a tax provision of $155 million, or $0.18 per share
for the repatriation of foreign earnings related to the
provisions of the American Jobs Creation Act of 2004.
(D) Cost of products and services sold, selling, general and
administrative expenses and equity in (income) loss of
affiliated companies include provisions of $284, $8 and $6
million, respectively, for environmental, litigation, net
repositioning and other charges. Total pretax charges were
$298 million (after-tax $193 million, or $0.22 per share).
(E) Represents the pretax gains on the sales of our VCSEL Optical
Products and Security Monitoring businesses, and adjustments
related to businesses sold in prior periods (after- tax $144
million, or $0.17 per share).
Honeywell International Inc.
Segment Data (Unaudited)
----------------------------
(Dollars in millions)
Periods Ended June 30,
---------------------------------
Net Sales Three Months Six Months
------------ ------------ ----------
2005 2004 2005 2004
------- ------- -------- --------
Aerospace $2,649 $2,453 $5,153 $4,757
Automation and Control Solutions 2,387 1,968 4,379 3,915
Specialty Materials 795 901 1,596 1,757
Transportation Systems 1,195 1,065 2,351 2,136
Corporate - 1 - 1
------- ------- -------- --------
Total $7,026 $6,388 $13,479 $12,566
======= ======= ======== ========
Periods Ended June 30,
---------------------------------
Segment Profit Three Months Six Months
------------ ----------
2005 2004 2005 2004
------- ------- -------- --------
Aerospace $ 416 $ 367 $ 795 $ 674
Automation and Control Solutions 242 207 443 402
Specialty Materials 78 51 137 99
Transportation Systems 161 150 316 293
Corporate (44) (38) (88) (77)
------- ------- -------- --------
Total Segment Profit 853 737 1,603 1,391
(Loss) gain on sale of non-
strategic businesses (18) 233 (10) 265
Equity in income of affiliated
companies 29 17 60 24
Other income 3 18 27 28
Interest and other financial
charges (86) (82) (177) (166)
Pension and other postretirement
benefits (expense) (A) (145) (162) (282) (322)
Repositioning, environmental,
litigation and other charges (A) (111) (238) (210) (292)
------- ------- -------- --------
Income from continuing
operations before taxes $ 525 $ 523 $1,011 $ 928
======= ======= ======== ========
(A) Amounts included in cost of products and services sold and
selling, general and administrative expenses.
Honeywell International Inc.
Consolidated Balance Sheet (Unaudited)
----------------------------------------
(Dollars in millions)
June 30, December 31,
2005 2004
-------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,929 $ 3,586
Accounts, notes and other receivables 4,559 4,243
Inventories 3,376 3,160
Deferred income taxes 1,236 1,289
Other current assets 550 542
Assets held for disposal 1,220 -
-------- --------
Total current assets 12,870 12,820
Investments and long-term receivables 468 542
Property, plant and equipment - net 4,353 4,331
Goodwill 7,343 6,013
Other intangible assets - net 1,570 1,241
Insurance recoveries for asbestos related
liabilities 1,299 1,412
Deferred income taxes 718 613
Prepaid pension benefit cost 2,868 2,985
Other assets 1,079 1,105
-------- --------
Total assets $32,568 $31,062
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Accounts payable $ 2,657 $ 2,564
Short-term borrowings 62 28
Commercial paper 724 220
Current maturities of long-term debt 838 956
Accrued liabilities 5,171 4,971
Liabilities related to assets held for
disposal 220 -
-------- --------
Total current liabilities 9,672 8,739
Long-term debt 4,091 4,069
Deferred income taxes 1,059 397
Postretirement benefit obligations other than
pensions 1,706 1,713
Asbestos related liabilities 1,823 2,006
Other liabilities 2,699 2,886
Shareowners' equity 11,518 11,252
-------- --------
Total liabilities and shareowners'
equity $32,568 $31,062
======== ========
Honeywell International Inc.
Consolidated Statement of Cash Flows (Unaudited)
------------------------------------------------
(Dollars in millions)
Three Months Six Months
Ended Ended
June 30, June 30,
--------------- ---------------
2005 2004 2005 2004
------- ------- ------- -------
Cash flows from operating activities:
Net income $ 306 $ 361 $ 665 $ 656
Adjustments to reconcile net
income to net cash provided
by operating activities:
(Gain) loss on sale of non-
strategic businesses 18 (233) 10 (265)
Repositioning, environmental,
litigation and other charges 123 242 222 298
Severance and exit cost payments (38) (32) (70) (82)
Environmental and non-asbestos
litigation payments (64) (55) (107) (92)
Asbestos related liability
payments (188) (222) (280) (323)
Insurance receipts for asbestos
related liabilities 90 30 99 48
Depreciation and amortization 176 161 343 328
Undistributed earnings of
equity affiliates (18) (21) (41) (29)
Deferred income taxes 61 53 64 82
Pension and other postretirement
benefits expense 145 162 282 322
Pension contributions -
U.S. plans - (5) - (5)
Other postretirement benefit
payments (48) (51) (90) (99)
Other (69) (60) (75) (80)
Changes in assets and
liabilities, net of the
effects of acquisitions and
divestitures:
Accounts, notes and other
receivables (117) (75) (126) (243)
Inventories 21 58 (64) 12
Other current assets (25) 7 19 (7)
Accounts payable 8 42 (5) 117
Accrued liabilities 188 143 52 204
------- ------- ------- -------
Net cash provided by operating
activities 569 505 898 842
------- ------- ------- -------
Cash flows from investing activities:
Expenditures for property, plant
and equipment (159) (148) (294) (283)
Proceeds from disposals of
property, plant and equipment 24 2 25 2
Decrease in investments - - 285 80
Cash acquired in acquisition of
Novar plc - - 86 -
Cash paid for acquisitions (2,021) (13) (2,024) (109)
Proceeds from sales of businesses 37 323 32 394
------- ------- ------- -------
Net cash (used for) provided by
investing activities (2,119) 164 (1,890) 84
------- ------- ------- -------
Cash flows from financing activities:
Net increase (decrease) in
commercial paper 384 (270) 504 95
Net (decrease) in short-term
borrowings (691) (127) (693) (124)
Proceeds from issuance of common
stock 22 19 89 45
Payments of long-term debt (133) (3) (143) (23)
Repurchases of common stock - (63) - (292)
Cash dividends on common stock (176) (161) (352) (322)
------- ------- ------- -------
Net cash (used for) financing
activities (594) (605) (595) (621)
------- ------- ------- -------
Effect of foreign exchange rate
changes on cash and cash equivalents (23) (32) (70) (23)
------- ------- ------- -------
Net (decrease) increase in cash and
cash equivalents (2,167) 32 (1,657) 282
Cash and cash equivalents at beginning
of period 4,096 3,200 3,586 2,950
------- ------- ------- -------
Cash and cash equivalents at end of
period $1,929 $3,232 $1,929 $3,232
======= ======= ======= =======
Honeywell International Inc.
Reconciliation of Cash Provided by Operating Activities to
Free Cash Flow (Unaudited)
----------------------------------------------------------
(Dollars in millions)
Three Months Six Months
Ended Ended
June 30, June 30,
----------- ------------
2005 2004 2005 2004
----- ----- ------ -----
Cash provided by operating activities $569 $505 $898 $842
Expenditures for property, plant and
equipment (159) (148) (294) (283)
----- ----- ------ -----
Free cash flow $410 $357 $604 $559
===== ===== ====== =====
We define free cash flow as cash provided by operating activities,
less cash expenditures for property, plant and equipment.
We believe that this metric is useful to investors and management as a
measure of cash generated by business operations that will be used to
repay scheduled debt maturities and can be used to invest in future
growth through new business development activities or acquisitions,
and to pay dividends, repurchase stock, or repay debt obligations
prior to their maturities. This metric can also be used to evaluate
our ability to generate cash flow from business operations and the
impact that this cash flow has on our liquidity.
CONTACT: Honeywell
Media:
Robert C. Ferris, 973-455-3388
rob.ferris@honeywell.com
or
Investor Relations:
Nicholas Noviello, 973-455-2222
nicholas.noviello@honeywell.com
------- ------- ------- -------
Cash and cash equivalents at end of
period $1,929 $3,232 $1,929 $3,232
======= ======= ======= =======
Honeywell International Inc.
Reconciliation of Cash Provided by Operating Activities to
Free Cash Flow (Unaudited)
----------------------------------------------------------
(Dollars in millions)
Three Months Six Months
Ended Ended
June 30, June 30,
----------- ------------
2005 2004 2005 2004
----- ----- ------ -----
Cash provided by operating activities $569 $505 $898 $842
Expenditures for property, plant and
equipment (159) (148) (294) (283)
----- ----- ------ -----
Free cash flow $410 $357 $604 $559
===== ===== ====== =====
We define free cash flow as cash provided by operating activities,
less cash expenditures for property, plant and equipment.
We believe that this metric is useful to investors and management as a
measure of cash generated by business operations that will be used to
repay scheduled debt maturities and can be used to invest in future
growth through new business development activities or acquisitions,
and to pay dividends, repurchase stock, or repay debt obligations
prior to their maturities. This metric can also be used to evaluate
our ability to generate cash flow from business operations and the
impact that this cash flow has on our liquidity.
CONTACT: Honeywell
Media:
Robert C. Ferris, 973-455-3388
rob.ferris@honeywell.com
or
Investor Relations:
Nicholas Noviello, 973-455-2222
nicholas.noviello@honeywell.com
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