Document/Exhibit Description Pages Size
1: 10-K Annual Report 52 286K
2: EX-3.(II) Bi-Laws of Honeywell Inc. 46 129K
3: EX-10.3-F Restricted-Stock Retirement Plan 8 29K
4: EX-11 Computations of Earnings Per Share 2± 14K
5: EX-12 Computations of Ratios 1 9K
6: EX-21 Subsidiaries of Honeywell 5 31K
7: EX-23 Independent Auditors Report 1 7K
8: EX-24 Powers of Attorney 14 31K
9: EX-27 Financial Data Schedule 2 7K
10: EX-99.(I) Cautionary Statements 3 12K
1996
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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [ FEE REQUIRED ]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [ NO FEE REQUIRED ]
For the transition period from.......... to....................................
Commission file number 1-971
HONEYWELL INC.
(Exact name of registrant as specified in its charter)
DELAWARE 41-0415010
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
HONEYWELL PLAZA, MINNEAPOLIS, MINNESOTA 55408
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 612-951-1000
Securities registered pursuant to section 12(b) of the act:
Name of each exchange on which
Title of each class registered
Common Stock, par value $1.50 New York Stock Exchange
per share
Preferred Stock Purchase Rights New York Stock Exchange
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. /X/
Based on the closing sales price of $75.00 on February 14, 1997, the
aggregate market value of the voting stock held by nonaffiliates of the
registrant was $9,463,942,950.
As of February 14, 1997, the number of shares outstanding of the
registrant's common stock, par value $1.50 per share, was 126,755,156 shares.
DOCUMENTS INCORPORATED IN PART BY REFERENCE
Incorporated Documents Location in Form 10-K
-------------------------------------------------------- ---------------------
Honeywell Notice of 1997 Annual Meeting and Proxy Part III
Statement
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PART I
ITEM 1. BUSINESS
Honeywell Inc., a Delaware corporation incorporated in 1927, is a
Minneapolis-based international corporation that supplies automation and control
systems, components, software, products and services for homes and buildings,
industry, and space and aviation. The purpose of the company is to develop and
supply advanced-technology control products, systems and services that conserve
energy and protect the environment, improve productivity, enhance comfort and
increase safety. Development and modification occur continuously in Honeywell's
business as new or improved products and services are introduced, new markets
are created or entered, distribution methods are revised, and products and
services are discontinued.
INDUSTRY SEGMENT INFORMATION
Honeywell's products and services are classified by management into three
primary industry segments: (i) Home and Building Control, (ii) Industrial
Control, and (iii) Space and Aviation Control. Financial information relating to
these industry segments is set forth in Part II, Item 6 at page 11.
HOME AND BUILDING CONTROL
Honeywell's Home and Building Control business provides controls and systems
for building automation, energy management, fire and security, as well as
thermostats, air cleaners and other environmental controls products and services
for buildings and homes.
Honeywell manufactures, markets and installs mechanical, pneumatic,
electrical and electronic control products and systems for heating, ventilation
and air conditioning in homes and commercial, industrial and public buildings.
The systems, which may be generic or specifically designed for each application,
may include panels and control systems to centralize mechanical and electrical
functions.
Honeywell produces building management systems for commercial buildings and
controls for a variety of applications, including burner and boiler, lighting,
thermostatic radiators, pressure regulators for water systems, thermostats,
actuators, humidistats, relays, contactors, transformers, air-quality products,
and gas valves and ignition controls for homes and commercial buildings.
Honeywell also produces standalone consumer products such as fans, heaters,
humidifiers and water filtration products. Sales of these products are made
directly to original equipment manufacturers, including manufacturers of heating
and air conditioning equipment; through wholesalers, distributors, dealers,
contractors, hardware stores and home-care centers; and also through the
company's nationwide sales and service organization.
Services provided include indoor air-quality services, central-station
burglary and fire protection services for homes and commercial buildings, video
surveillance, access control and entry management services for commercial
buildings, contract maintenance services for commercial building mechanical and
control systems, automated management of building operations for building
complexes, energy management services, energy retrofit services and training.
INDUSTRIAL CONTROL
The Industrial Control business serves the automation and control needs of
its worldwide industrial customers as a major supplier of products, systems and
services ranging from sensors to integrated systems designed for specific
applications.
Honeywell's Industrial Control segment supplies process control systems and
associated application software and services to customers in a broad range of
markets, which include process industries such as the refining, petrochemical,
bulk and fine chemical, pulp-and-paper, electric utility, food and consumer
goods, pharmaceutical, metals and transportation industries. Industrial Control
has an
1
extensive customer base worldwide, including most of the leading oil refiners,
pulp and paper manufacturers and chemical companies. Honeywell also designs and
manufactures process instruments, process controllers, recorders, programmers,
programmable controllers, transmitters and other field instruments that may be
sold as stand-alone products or integrated into systems. These products are
generally used in indicating, recording and automatically controlling process
variables.
Under the MICRO SWITCH trademark, Honeywell manufactures solid-state sensors
(including position, pressure, airflow, temperature and current sensors), sensor
interface devices, manual controls, explosion-proof switches and precision
snap-acting switches, as well as proximity, photoelectric and mercury switches
and lighted/unlighted pushbuttons. These products are used in industrial,
commercial and business equipment, and in consumer, medical, automotive,
aerospace and computer applications.
Other products include solenoid valves, optoelectronic devices, fiber-optic
systems and components, as well as microcircuits, sensors, transducers and
high-accuracy, noncontact measurement and detection products for factory
automation, quality inspection and robotics applications.
Honeywell also furnishes industrial customers with various services,
including the following: product and component testing services; project
management, engineering and installation services, instrument maintenance,
repair and calibration services; contract services for industrial control
equipment including third-party maintenance for CAD/CAM and other industrial
control equipment; advanced control, networking and optimization services; and
training, customized products for customer applications and a range of other
customer support services.
Services are generally sold directly to users on a monthly or annual
contract basis. Products are customarily sold by Honeywell on a delivered,
supervised or installed basis directly to end users, to equipment manufacturers
and contractors, or through third-party channels such as distributors and
systems houses.
SPACE AND AVIATION CONTROL
Honeywell's Space and Aviation Control business supplies avionics for the
commercial, military and space markets. The company designs, manufactures,
services and markets a variety of sophisticated electronic control systems and
components for commercial and business aircraft, military aircraft and
spacecraft.
Products manufactured for aircraft use include the following: integrated
avionics systems; ring laser gyro-based inertial reference systems; navigation
and guidance systems; flight control systems; flight management systems;
inertial sensors; air data computers; radar altimeters; automatic test
equipment; cockpit display systems; and other communication and flight
instrumentation.
Honeywell products and services have been involved in every major U.S. space
mission since the mid-1960s. These products and services include guidance
systems for launch and re-entry vehicles, flight and engine control systems for
manned spacecraft, precision components for strategic missiles and on-board data
processing. Other products include spacecraft attitude and positioning systems,
and precision pointing and isolation systems.
Honeywell's avionics have been purchased by leading aircraft manufacturers
for use in aircraft throughout the world, including the Boeing 777, the
McDonnell Douglas MD-11 and MD 90, the GulfStream IV and V, the Cessna Citation
X and the Bombardier Global Expressjet. In the military and space markets, the
Company solutions are found on key platforms, including the F-15 and the F-16
military jets and Space Station Alpha.
Space and Aviation Control products are sold through an integrated
international marketing organization, with customer service centers providing
international service for commercial and business aviation users.
2
OTHER PRODUCTS
Products and services not included in the foregoing segment information are
described below.
The Honeywell Technology Center provides systems analysis and applied
research and development on systems and products, including, application
software, sensors and advanced electronics.
Solid State Electronics Center, a semiconductor facility in Minnesota,
designs and manufactures integrated circuits and sensors for Honeywell,
government customers and selected external customers.
Honeywell, through its operations in Germany, develops, markets and sells to
European countries, among other things, military avionics and electro-optic
devices for flight control and nautical systems, including sonar transducers and
echo sounders.
GENERAL INFORMATION
RAW MATERIALS
Honeywell experienced no significant or unusual problems in the purchase of
raw materials and commodities in 1996. Although it is impossible to predict what
effects shortages or price increases may have in the future, at present
management has no reason to believe a shortage of raw materials will cause any
material adverse impact during 1997.
PATENTS, TRADEMARKS, LICENSES AND DISTRIBUTION RIGHTS
Honeywell owns, or is licensed under, a large number of patents, patent
applications and trademarks acquired over a period of many years, which relate
to many of its products or improvements thereon and are of importance to its
business. From time to time, new patents and trademarks are obtained, and patent
and trademark licenses and rights are acquired from others. In addition,
Honeywell has distribution rights of varying terms in a number of products and
services produced by other companies. In the judgment of management, such rights
are adequate for the conduct of the business being done by Honeywell. See Item 3
at page 7 for information concerning litigation relating to patents in which
Honeywell is involved.
SEASONALITY
Although Honeywell's core businesses are not seasonal in the traditional
sense, revenues and earnings have tended to concentrate to some degree in the
fourth quarter of each calendar year, reflecting the tendency of customers to
increase ordering and spending for capital goods late in the year.
MAJOR CUSTOMER
Honeywell provides products and services to the United States government as
a prime contractor or subcontractor, the majority of which are described under
the heading "Space and Aviation Control" on page 2. Such business is significant
because of its volume and its contribution to Honeywell's technical
capabilities, but Honeywell's dependence upon individual programs is minimized
by the large variety of products and services it provides. Contracts and
subcontracts for all of such sales are subject to the standard provisions
permitting the government to terminate for convenience or default.
BACKLOG
The total dollar amount of backlog of Honeywell's orders believed to be firm
was approximately $3,919 million at December 31, 1996, and $3,676 million at
December 31, 1995. All but approximately $700 million of the 1996 backlog is
expected to be delivered within the current fiscal year. Backlog is not a
reliable indicator of Honeywell's future revenues because a substantial portion
of backlog represents the value of orders that can be canceled at the customer's
option.
3
COMPETITION
Honeywell is subject to active competition in substantially all products and
services. Competitors generally are engaged in business on a nationwide or an
international scale. Honeywell is the largest producer of control systems and
products used to regulate and control heating and air conditioning in commercial
buildings, and of systems to control industrial processes worldwide. Honeywell
is also a leading supplier of commercial aviation, space and avionics systems.
Honeywell's automation and control businesses compete worldwide, supported by a
strong distribution network with manufacturing and/or marketing capabilities,
for at least a portion of these businesses, in 95 countries.
Competitive conditions vary widely among the thousands of products and
services provided by Honeywell, and vary as well from country to country.
Markets, customers and competitors are becoming more international in their
outlook. In those areas of environmental and industrial components and controls
where sales are primarily to equipment manufacturers, price/performance is
probably the most significant competitive factor, but customer service and
applied technology are also important. Competition is increasingly being applied
to government procurements to improve price and product performance. In service
businesses, quality, reliability and promptness of service are the most
important competitive factors. Service must be offered from many areas because
of the localized nature of such business. In engineering, construction,
consulting and research activities, technological capability and a record of
proven reliability are generally the principal competitive factors. Although in
a small number of highly specialized products and services Honeywell may have
relatively few significant competitors, in most markets there are many
competitors.
RESEARCH AND DEVELOPMENT
During 1996 Honeywell spent approximately $694.7 million on research and
development activities, including $341.4 million in customer-funded research,
relating to the development of new products or services, or the improvement of
existing products or services. Honeywell spent $659.8 million in 1995 and $659.5
million in 1994 on research and development activities, including $336.6 million
and $340.5 million, respectively, in customer-funded research.
ENVIRONMENTAL PROTECTION
Compliance with current federal, state and local provisions regulating the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, has not had, and in the opinion of management
will not have, a material effect on Honeywell's financial position, net income,
capital expenditures or competitive position. See Item 7 at page 13 for further
information concerning environmental matters.
EMPLOYEES
Honeywell employed approximately 53,000 persons in total operations as of
December 31, 1996.
GEOGRAPHIC AREAS
Honeywell engages in material operations in foreign countries. A large
majority of Honeywell's foreign business is in Western Europe, Canada and the
Asian Pacific Rim.
Although there are risks attendant to foreign operations, such as potential
nationalization of facilities, currency fluctuation and restrictions on movement
of funds, Honeywell has taken action to mitigate such risks.
Financial information related to geographic areas is included in Note 17 to
the financial statements in Part II, Item 8 at page 39.
4
EXECUTIVE OFFICERS OF THE REGISTRANT
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POSITION HELD AGE AT
NAME OFFICE SINCE 3/1/97
----------------------------- -------------------------------------------------------------- ------------- -----------
M. R. Bonsignore (1) Chairman of the Board and Chief Executive Officer 1993 55
D. L. Moore (2) President and Chief Operating Officer 1993 60
D. E. Bogle (3) President, Home and Building Control 1997 51
E. D. Grayson (4) Vice President and General Counsel 1992 58
W. M. Hjerpe (5) President, Honeywell Europe 1997 45
B. M. McGourty (6) Senior Vice President 1997 59
P. M. Palazzari (7) Vice President and Controller 1994 49
J. T. Porter (8) Corporate Vice President, Human Resources 1996 45
D. K. Schwanz (9) President, Space and Aviation Control 1997 52
L. W. Stranghoener (10) Vice President and Chief Financial Officer 1997 42
M. I. Tambakeras (11) President, Industrial Control 1995 45
Officers are elected by the Board of Directors to terms of one year and
until their successors are elected and qualified.
------------------------
(1) Mr. Bonsignore was elected to this position effective April 20, 1993. For
more than five years prior thereto, he was an executive officer of the
company.
(2) Dr. Moore was elected to this position effective April 20, 1993. From
November 1990 to April 1993, he was Executive Vice President and Chief
Operating Officer, Space and Aviation, and Industrial.
(3) Mr. Bogle was elected to this position effective January 1, 1997. From
January 1996 to December 1996, he was Vice President and General Manager of
Honeywell's worldwide Home and Building Control strategic business unit.
From October 1994 to November 1996, he was Vice President and General
Manager of Home and Building Control. From May 1992 to September 1994, he
was Vice President and General Manager of Industrial Automation and Control.
From November 1990 to April 1992 he was President of U.S. Process Automation
Business for ASEA Brown Boveri.
(4) Mr. Grayson was elected to this position on effective April 1, 1992, when he
joined the company. For more than five years prior thereto, he was Senior
Vice President, General Counsel, Corporate Secretary and Clerk of Wang
Laboratories.
(5) Mr. Hjerpe was elected to this position effective March 1, 1997. From
February 1992 to October 1994, he was Vice President and Controller of the
company. From October 1994 to January 1997, he was Vice President and Chief
Financial Officer of the company.
(6) Mr. McGourty was elected an executive officer of the company effective April
1, 1994. He was appointed to his current position effective January 1, 1997.
From April 1994 to December 1996 he was President, Home and Building
Control. From December 1991 to March 1994, he was Vice President, Field
Operations for Home and Building Control.
(7) Mr. Palazzari was elected to this position effective October 16, 1994. From
May 1993 to October 1994, he was Vice President, Finance for Home and
Building Control. From March 1992 to April 1993, he was Vice President and
Assistant Controller of Operations for the company.
5
(8) Mr. Porter was elected an executive officer of the company effective April
16, 1996. He has held his current position since May 1993. From January 1992
to April 1993 he was Director, Human Resources, Home and Building Control.
(9) Mr. Schwanz was elected to this position effective January 1, 1997. From
September 1993 to December 1996 he was Vice President and General Manager of
Air Transport Systems. From March 1992 to August 1993, he was Vice President
of Marketing for Air Transport Systems.
(10) Mr. Stranghoener was elected to this position effective February 1, 1997.
From March 1996 to January 1997, he was Vice President, Business
Development. From July 1993 to February 1996, he was Vice President for
Finance for Industrial Automation and Control. From April 1992 to June 1993
he was Director, Corporate Financial Planning and Business Analysis.
(11) Mr. Tambakeras was elected to this position effective February 1, 1997.
From February 1995 to January 1997, he was President, Industrial Automation
and Control. From January 1992 to February 1995, he was President of
Honeywell Asia Pacific.
ITEM 2. PROPERTIES
Honeywell and its subsidiaries operate facilities worldwide comprising
approximately 18,706,200 square feet of space for use as manufacturing, office
and warehouse space, of which approximately 10,587,200 square feet is owned and
approximately 8,119,000 square feet is leased. In the judgment of management,
the facilities used by Honeywell are adequate and suitable for the purposes they
serve.
Facilities allocated for corporate use in the United States, including sales
offices, comprise approximately 1,511,500 square feet of space, of which
approximately 1,462,000 square feet is owned and approximately 49,500 square
feet is leased. These figures include Honeywell's principal executive offices in
Minneapolis, Minnesota which comprise approximately 957,400 square feet, all of
which is owned.
A summary of properties held by each segment of Honeywell is set forth
below, showing major plants, their location, size and type of holding. The
descriptions include approximately 545,800 square feet of space owned or leased
by Honeywell's operations in the United States that has been leased or subleased
to third parties. In addition, approximately 4,064,700 square feet of previously
leased space in the United States is under assignment to third parties
(including 2,417,300 square feet, 437,200 square feet and 79,000 square feet
which is assigned to Alliant Techsystems Inc., Federal Systems Inc. and Bull HN
Information Systems, Inc., respectively, all of which were formerly affiliates
of the company).
HOME AND BUILDING CONTROL
Home and Building Control occupies approximately 3,523,900 square feet of
space for operations in the United States, of which approximately 1,396,300
square feet is owned and approximately 2,127,600 square feet is leased.
Outside the United States, Home and Building Control operations occupy
approximately 3,637,400 square feet, of which approximately 1,063,100 square
feet is owned and approximately 2,574,300 square feet is leased. Principal
facilities operated outside the United States are located in Canada, Germany,
The Netherlands, the United Kingdom and Australia.
Facilities in the United States comprising 300,000 square feet or more are
listed below.
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APPROXIMATE OWNED OR
LOCATION MAJOR USE OF FACILITY SQUARE FEET LEASED
--------------------------- ------------------------------------ ------------ -----------
Arlington Heights, Ill. Manufacturing 500,000 Leased
Golden Valley, Minn. Manufacturing 1,185,300 Owned
Memphis, Tenn. Warehouse/Distribution Center 500,000 Leased
6
INDUSTRIAL CONTROL
Industrial Control occupies approximately 2,946,900 square feet of space for
operations in the United States, of which approximately 2,265,300 square feet is
owned and approximately 681,600 square feet is leased.
Outside the United States, Industrial Control operations occupy
approximately 2,461,700 square feet, of which approximately 1,080,600 square
feet is owned and approximately 1,381,100 square feet is leased. Principal
facilities operated outside the United States are located in the United Kingdom,
Australia, Canada, Switzerland, France, Germany, Belgium and The Netherlands.
Facilities in the United States comprising 300,000 square feet or more are
listed below.
[Download Table]
MAJOR USE OF APPROXIMATE OWNED OR
LOCATION FACILITY SQUARE FEET LEASED
--------------------------- ------------------- ------------ -----------
Freeport, Ill. Manufacturing 316,000 Owned
Phoenix, Az. Manufacturing 550,000 Owned
SPACE AND AVIATION CONTROL
Space and Aviation Control occupies approximately 4,439,300 square feet of
space for operations in the United States, of which approximately 3,179,300
square feet is owned and approximately 1,260,000 square feet is leased.
Outside the United States, Space and Aviation Control operations occupy
approximately 185,600 square feet, of which approximately 140,600 square feet is
owned and approximately 45,000 square feet is leased. Principal facilities
operated outside the United States are located in Canada, the United Kingdom and
Singapore.
Facilities in the United States comprising 300,000 square feet or more are
listed below.
[Download Table]
MAJOR USE OF APPROXIMATE OWNED OR
LOCATION FACILITY SQUARE FEET LEASED
--------------------------- ------------------- ------------ -----------
Phoenix, Ariz. Manufacturing 939,000 Owned
Albuquerque, N.M. Manufacturing 526,600 Owned
Minneapolis, Minn. Manufacturing 550,000 Owned
Clearwater, Fla. Manufacturing 914,800 Owned
St. Petersburg, Fla. Manufacturing 304,000 Leased
ITEM 3. LEGAL PROCEEDINGS
On March 13, 1990, Litton Systems, Inc. filed suit against Honeywell in U.S.
District Court, Central District of California, alleging patent infringement
relating to a process used by Honeywell to coat mirrors incorporated in its ring
laser gyroscopes; intentional interference by Honeywell with Litton's
prospective advantage with customers and with its contractual relationships with
Ojai Research, Inc.; and attempted monopolization and predatory pricing by
Honeywell in certain alleged markets for products containing ring laser
gyroscopes. Honeywell denied Litton's allegations; contested both the validity
and infringement of the patent; and alleged that the patent had been obtained by
Litton's inequitable conduct before the United States Patent and Trademark
Office.
U.S. District Judge Mariana Pfaelzer presided over the trial of the patent
and two state tort claims and on August 31, 1993, a jury returned a verdict in
favor of Litton and awarded damages against Honeywell in the amount of $1.2
billion for these claims. On January 9, 1995, the trial court set aside the jury
verdict and damage award, ruling, among other things, that the Litton patent was
unenforceable and invalid. The trial court also ruled that if its rulings were
vacated or reversed on appeal, Honeywell would be granted a new trial on the
issue of damages because the jury's award was inconsistent with the clear weight
of the evidence.
7
Litton appealed to the United States Court of Appeals for the Federal
Circuit, and on July 3, 1996, a three judge panel overruled the trial court's
rulings of patent invalidity, unenforceability and non-infringement, and also
found Honeywell liable under Litton's state tort claims. However, the panel
upheld the trial court's ruling that Honeywell is entitled to a new trial for
damages on all claims, as well as its granting to Honeywell of certain
intervening patent rights. Honeywell requested a rehearing by the full Court of
Appeals, which was denied on September 11, 1996. On November 26, 1996, Honeywell
petitioned the U.S. Supreme Court for review of the panel's decision, which
petition is still pending. In the interim, Litton filed a motion with the trial
court seeking injunctive relief which was denied on December 23, 1996.
The patent and tort damages retrial is scheduled to begin May 6, 1997. On
February 7, 1997, Litton submitted damage studies seeking damages as high as
$1.9 billion. Honeywell believes that Litton's damage studies are flawed and
speculative for a number of reasons. Although it is not possible to predict the
verdict of the jury in the upcoming trial, and such verdict could result in an
award which is material, Honeywell believes that any award should be based on a
royalty which reasonably reflects the value of the mirror coating process, and
that such an award would not be material to Honeywell's financial position or
results of operations.
The jury trial for the antitrust case began November 20, 1995, also before
Judge Pfaelzer. The trial court dismissed, for failure of proof, Litton's
contentions that Honeywell engaged in below-cost predatory pricing, illegal
tying and bundling, and an illegal acquisition of Sperry Avionics in 1986. On
February 2, 1996, the case was submitted to the jury on two claims,
monopolization and attempt to monopolize. These claims were based on allegations
that Honeywell entered into certain long-term exclusive dealing and penalty
arrangements with aircraft manufacturers and airlines to exclude Litton from the
commercial aircraft market, and that Honeywell failed to provide Litton with
access to certain proprietary software. On February 29, 1996, the jury returned
a $234 million single damages verdict against Honeywell for the monopolization
claim, which would have been automatically trebled. On March 1, 1996, the jury
indicated that it was unable to reach a verdict on damages for the attempted
monopolization claim, and a mistrial was declared on that claim. Following the
verdict, Honeywell filed a Motion for Judgment as a Matter of Law and a Motion
for a New Trial, contending that the jury's partial verdict should be overturned
because Litton (i) failed to prove essential elements of liability and (ii)
failed to submit competent evidence to support its claim for damages by offering
only a speculative, all-or-nothing $298.5 million damage study. Litton filed a
Motion for Injunctive Relief and a Motion for Entry of Judgment.
On July 24, 1996, the trial court denied Honeywell's Motion for Judgment as
a Matter of Law but concluded, that Litton's damage study was seriously flawed,
and granted Honeywell a retrial on damages only. The court also denied Litton's
Motion for Injunctive Relief and Litton's Motion for Entry of Judgment. No date
has been set for the retrial on damages. Honeywell believes there are questions
concerning what conduct the original jury found anti-competitive that may give
rise to damages in a retrial, and consequently a damages retrial should also
require a retrial of liability issues in some respects. Following the damages
retrial, Honeywell will have the right to appeal both the liability and damages
verdicts. Therefore, no provision has been made in the financial statements with
respect to this contingent liability.
In the fall of 1996, Litton and Honeywell commenced court ordered mediation
of the patent, tort and antitrust claims. No resolution of the claims has
occurred and the mediation is currently in recess.
On September 12, 1994, Honeywell filed a declaratory judgment action against
American Flywheel Systems, Inc. ("AFS") in the Superior Court of Maricopa
County, Arizona, seeking a declaration as to the rights and obligations of the
parties under an agreement regarding the development of an electro-mechanical
flywheel battery. In October 1994, Honeywell ceased work under the project as a
result of AFS's failure to make payments under the agreement. On July 21, 1995,
AFS filed an answer
8
and counterclaim alleging breach of contract and related tort claims, including
fraud. Honeywell denied AFS's allegations and amended its complaint to seek
damages for nonpayment of monies owed under the agreement. The trial in the case
began on October 7, 1996. On November 27, 1996, the jury returned three verdicts
against Honeywell which total $38 million and one verdict in favor of Honeywell
for relief which will be determined by the Court. On February 7, 1997, Honeywell
filed motions to contest the verdicts and resolve the remaining technology
issues in the case. Oral arguments on the motions are scheduled in mid-April
1997. Honeywell believes that it will be successful on some or all of these
motions, and that an adverse decision, if any, is not likely to be material to
Honeywell's net income, financial position or liquidity.
Honeywell is a party to other various claims, legal and governmental
proceedings, including claims relating to previously reported environmental
matters. It is the opinion of management that any losses in connection with
these matters and the resolution of the environmental claims will not have a
material effect on net income, financial position or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The principal U.S. market for Honeywell's common stock is the New York Stock
Exchange. The high and low sales prices for the stock as reported by the
consolidated transaction reporting system, of the two most recent fiscal years
is set forth in Note 21 to the financial statements in Part II, Item 8 at page
46.
Information regarding the frequency and amount of dividends paid by
Honeywell on its common stock during the two most recent years is set forth in
Note 21 to the financial statements in Part II, Item 8 at page 46. Further
information regarding the company's payment of dividends is set forth in Part
II, Item 7 at page 18.
Information regarding Honeywell's share repurchase plans is set forth in
Part II, Item 7 at page 18.
Stockholders of record on February 14, 1997 totaled 31,591, excluding
individual participants in security position listings.
9
ITEM 6. SELECTED FINANCIAL DATA
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS AND SHARES IN MILLIONS EXCEPT PER SHARE AMOUNTS)
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1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------
Results of Operations
Sales................................................ $7,311.6 $6,731.3 $6,057.0 $5,963.0 $6,222.6 $6,192.9
Sales growth rate.................................. 8.6% 11.1% 1.6% (4.2)% 0.5% (1.8)%
-------- -------- -------- -------- -------- --------
Cost of sales........................................ 4,975.4 4,584.2 4,082.1 4,019.6 4,195.3 4,185.1
Research and development............................. 353.3 323.2 319.0 337.4 312.6 300.7
Selling, general and administrative.................. 1,313.1 1,263.1 1,173.8 1,075.7 1,196.8 1,150.9
Litigation settlements (1)........................... (32.6) (287.9)
Discontinuance of product lines......................
Special charges...................................... 62.7 51.2 128.4
Interest -- net...................................... 72.9 68.9 60.2 51.0 58.5 61.4
Gain on sale of assets...............................
Equity income........................................ (13.3) (13.6) (10.5) (17.8) (15.8) (14.6)
-------- -------- -------- -------- -------- --------
6,701.4 6,225.8 5,687.3 5,484.5 5,587.9 5,683.5
-------- -------- -------- -------- -------- --------
Income from continuing operations before income
taxes............................................... 610.2 505.5 369.7 478.5 634.7 509.4
Provision for income taxes........................... 207.5 171.9 90.8 156.3 234.8 178.3
-------- -------- -------- -------- -------- --------
Income from continuing operations.................... 402.7 333.6 278.9 322.2 399.9 331.1
Income from discontinued operations..................
Extraordinary item (2)............................... (8.6)
Cumulative effect of accounting changes (3).......... (144.5)
-------- -------- -------- -------- -------- --------
Net income........................................... $ 402.7 $ 333.6 $ 278.9 $ 322.2 $ 246.8 $ 331.1
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Net income growth rate............................. 20.7% 19.6% (13.4)% 30.6% (25.5)% (13.3)%
Earnings Per Common Share
Continuing operations................................ $ 3.18 $ 2.62 $ 2.15 $ 2.40 $ 2.88 $ 2.35
Discontinued operations..............................
Provision for loss on disposal of discontinued
operations..........................................
Extraordinary item (2)............................... (0.06)
Cumulative effect of accounting changes (3).......... (1.04)
-------- -------- -------- -------- -------- --------
Net income........................................... $ 3.18 $ 2.62 $ 2.15 $ 2.40 $ 1.78 $ 2.35
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Earnings per share growth rate..................... 21.4% 21.9% (10.4)% 34.8% (24.3)% (6.7)%
Cash Dividends Per Common Share........................ $ 1.06 $ 1.01 $ 0.97 $ 0.91 $ 0.84 $ 0.77
Dividend growth rate................................. 5.0% 4.1% 6.6% 8.3% 9.1% 10.0%
Financial Position
Current assets....................................... $2,981.2 $2,766.9 $2,649.4 $2,550.2 $2,707.8 $2,698.9
Current liabilities.................................. 2,066.9 2,022.5 2,071.8 1,856.1 1,969.2 2,095.0
-------- -------- -------- -------- -------- --------
Working capital $ 914.3 $ 744.4 $ 577.6 $ 694.1 $ 738.6 $ 603.9
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Current ratio........................................ 1.4 1.4 1.3 1.4 1.4 1.3
Short-term debt...................................... $ 252.4 $ 312.4 $ 360.6 $ 187.9 $ 188.4 $ 168.4
Long-term debt....................................... 715.3 481.0 501.5 504.0 512.1 639.8
-------- -------- -------- -------- -------- --------
Total debt........................................... 967.7 793.4 862.1 691.9 700.5 808.2
Stockholders' equity................................. 2,204.9 2,040.1 1,854.7 1,773.0 1,790.4 1,850.8
-------- -------- -------- -------- -------- --------
Capitalization....................................... $3,172.6 $2,833.5 $2,716.8 $2,464.9 $2,490.9 $2,659.0
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
--------------------------
(1) In 1993, the settlement of the lawsuits against Unisys Corporation and other
parties in connection with Honeywell's 1986 purchase of the Sperry Aerospace
Group resulted in a gain of $22.4. Litigation settlements in 1993 and 1992
in the amounts of $10.2 and $287.9, respectively are one-time settlements,
after associated expenses, reached with various camera manufacturers for
their use of Honeywell's patented automatic focus camera technology.
(2) Extraordinary item resulting from the loss on early redemption of debt.
(3) The cumulative effect of accounting changes is the result of adopting
Statement of Financial Accounting Standards (SFAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," which reduced
net income by $151.3 ($1.09 per share); SFAS No. 109, "Accounting for Income
Taxes," which increased net income by $31.4 ($0.23 per share); and SFAS No.
112, "Employers' Accounting for Postemployment Benefits," which reduced net
income by $24.6 ($0.18 per share).
10
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS AND SHARES IN MILLIONS EXCEPT PER SHARE AMOUNTS)
[Enlarge/Download Table]
1996 1995 1994 1993 1992 1991
---------- ----------- ----------- ----------- ----------- -----------
Sales
Home and Building Control.................. $ 3,327.1 $ 3,034.7 $ 2,664.5 $ 2,424.3 $ 2,393.6 $ 2,249.1
Industrial Control......................... 2,199.6 2,035.9 1,835.3 1,691.5 1,743.9 1,626.8
Space and Aviation Control................. 1,640.0 1,527.4 1,432.0 1,674.9 1,933.1 2,132.3
Other...................................... 144.9 133.3 125.2 172.3 152.0 184.7
---------- ----------- ----------- ----------- ----------- -----------
$ 7,311.6 $ 6,731.3 $ 6,057.0 $ 5,963.0 $ 6,222.6 $ 6,192.9
---------- ----------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- ----------- -----------
Operating Profit (1)(2)
Home and Building Control.................. $ 345.8 $ 308.6 $ 236.5 $ 232.7 $ 193.4 $ 229.1
Industrial Control......................... 254.9 233.8 206.6 189.7 156.9 224.0
Space and Aviation Control................. 163.3 127.6 80.9 148.1 175.8 226.1
Other...................................... 6.2 2.8 (1.8) (9.5) (3.1)
---------- ----------- ----------- ----------- ----------- -----------
Total operating profit..................... 770.2 672.8 524.0 568.7 516.6 676.1
Operating profit as a percent of sales..... 10.5% 10.0% 8.7% 9.5% 8.3% 10.9%
Interest expense........................... (81.4) (83.3) (75.5) (68.0) (89.9) (89.4)
Litigation settlements..................... 32.6 287.9
Gain on sale of assets.....................
Equity income.............................. 13.3 13.6 10.5 17.8 15.8 14.6
General corporate expense.................. (91.9) (97.6) (89.3) (72.6) (95.7) (91.9)
---------- ----------- ----------- ----------- ----------- -----------
Income before income taxes................. $ 610.2 $ 505.5 $ 369.7 $ 478.5 $ 634.7 $ 509.4
---------- ----------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- ----------- -----------
Assets
Home and Building Control.................. $ 2,144.3 $ 1,727.2 $ 1,529.8 $ 1,327.3 $ 1,302.4 $ 1,282.8
Industrial Control......................... 1,376.1 1,307.2 1,273.3 1,059.8 1,057.5 1,001.7
Space and Aviation Control................. 1,037.3 971.1 1,174.9 1,219.6 1,403.6 1,594.5
Corporate and Other........................ 935.6 1,054.7 907.9 991.4 1,106.6 927.7
Discontinued Operations....................
---------- ----------- ----------- ----------- ----------- -----------
$ 5,493.3 $ 5,060.2 $ 4,885.9 $ 4,598.1 $ 4,870.1 $ 4,806.7
---------- ----------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- ----------- -----------
Additional information
Average number of common shares
outstanding............................... 126.6 127.1 129.4 134.2 138.5 140.9
Return on average stockholders' equity..... 19.7% 17.1% 15.6% 18.4% 13.8% 19.2%
Stockholders' equity per common share...... $ 17.44 $ 16.09 $ 14.57 $ 13.48 $ 13.10 $ 13.25
Price/Earnings ratio (3)................... 20.7 18.6 14.7 14.3 11.5 13.9
Percent of debt to total capitalization.... 31% 28% 32% 28% 28% 30%
Research and development
Honeywell-funded......................... $ 353.3 $ 323.2 $ 319.0 $ 337.4 $ 312.6 $ 300.7
Customer-funded.......................... 341.4 336.6 340.5 404.8 390.5 373.5
Capital expenditures....................... 296.5 238.1 262.4 232.1 244.1 240.2
Depreciation and amortization.............. 287.5 292.9 287.4 284.9 292.7 286.0
Employees at year end...................... 53,000 50,100 50,800 52,300 55,400 58,200
--------------------------
(1) Operating profit is net of special charges amounting to $62.7, $51.2 and
$128.4 in 1994, 1993 and 1992, respectively, as follows: Home and Building
Control, $28.7, $9.9 and $42.7; Industrial Control, $14.4, $9.0 and $38.6;
Space and Aviation Control, $19.6, $7.4 and $34.9; Other, $--, $16.4 and
$2.6; and General Corporate Expense, $--, $8.5 and $9.6.
(2) Operating profit is net of the additional operating expense impact of
adopting SFAS 106 and SFAS 112 amounting to $16.4 and $3.8, respectively, in
1992 as follows: Home and Building Control, $4.3 and $1.0; Industrial
Control, $4.0 and $0.9; Space and Aviation Control, $7.0 and $1.6; Other,
$0.5 and $0.1; and General Corporate Expense, $0.6 and $0.2.
(3) Price/Earnings ratio calculated using earnings from continuing operations
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OPERATIONS
SALES
Honeywell's sales increased to $7.312 billion in 1996, compared with $6.731
billion in 1995 and $6.057 billion in 1994. Sales in the United States of $4.478
billion were up 10 percent, as a result of increased volume in all three
business units. International sales, which represent 39 percent of total sales,
increased seven percent to $2.834 billion in 1996.
The international sales increase was the result of positive sales growth of
nine percent measured in local currency, partially offset by negative currency
effects as the U.S. dollar strengthened an average of two percent against local
currencies in countries where Honeywell does business. U.S. export sales,
including exports to foreign affiliates, were $973 million in 1996, compared
with $839 million in 1995 and $780 million in 1994.
COST OF SALES
Cost of sales was $4.975 billion in 1996, or 68.0 percent of sales, compared
with $4.584 billion (68.1 percent) in 1995 and $4.082 billion (67.4 percent) in
1994. Cost as a percentage of sales decreased slightly in 1996 due to improved
gross-margins in the commercial Space and Aviation business. In 1995, cost as a
percent of sales increased, from 1994, due to the increased sales in lower gross
margin Space and Aviation business and service business in Industrial Control.
RESEARCH AND DEVELOPMENT
Honeywell spent $353 million, or 4.8 percent of sales, on research and
development in 1996, compared with $323 million (4.8 percent) in 1995 and $319
million (5.3 percent) in 1994. The 1994 percentage reflects significant
investments in integrated avionics for the new Boeing 777 aircraft. Honeywell
expects to maintain its current rate of R&D spending in 1997 as we invest for
the future. Honeywell also received $341 million in funds for customer-funded
research and development in 1996, compared with $337 million in 1995 and $340
million in 1994.
OTHER EXPENSES AND INCOME
Selling, general and administrative expenses were $1.313 billion, or 18.0
percent of sales in 1996, compared with $1.263 billion (18.8 percent) in 1995
and $1.174 billion (19.4 percent) in 1994. Selling, general and administrative
expenses declined in 1996 as a result of the continued emphasis on improving
processes, automation and productivity. The higher percentage in 1994 was
primarily due to increased legal costs.
In 1994, Honeywell recorded special charges of $63 million, or $38 million
($0.29 per share) after income tax.
Net interest expense was $73 million in 1996, $69 million in 1995 and $60
million in 1994. Interest expense was 8.3 percent of average debt in 1996,
compared with 9.5 and 9.0 percent in 1995 and 1994, respectively. Net interest
expense decreased slightly as a percent of average debt in 1996 largely due to
lower interest rates on the $300 million of notes issuances. Net interest
expense increased in 1995, as compared to 1994, due to both higher average debt
and higher market interest rates. Information concerning Honeywell's exposure
to, and management of, interest rate risk through the use of derivative
financial instruments is provided on page 19 and in Notes 12 and 13 to Financial
Statements on page 33.
Earnings of companies owned 20 percent to 50 percent (primarily
Yamatake-Honeywell Co., Ltd.), which are accounted for using the equity method,
were $13 million in 1996, $14 million in 1995 and $11 million in 1994.
12
INCOME TAXES
The provision for income taxes was $208 million in 1996 or 34%, compared
with $172 million in 1995 (34 percent) and $91 million in 1994 (25 percent). The
1994 income tax provision was reduced by $38 million ($0.29 per share) as a
result of a favorable tax settlement. Further information about income taxes is
provided in Note 3 to Financial Statements on page 27.
NET INCOME
Honeywell's net income increased 21 percent in 1996, primarily due to
increased sales volume and lower operating expenses. Net income was $403 million
($3.18 per share) in 1996, compared with $334 million ($2.62 per share) in 1995
and $279 million ($2.15 per share) in 1994. Net income in 1994 included an
after-tax provision for special charges of $38 million ($0.29 per share) and a
reduction of the provision for income taxes of $38 million ($0.29 per share)
from a favorable tax settlement.
RETURN ON EQUITY AND INVESTMENT
Return on equity (ROE) was 19.7 percent in 1996, 17.1 percent in 1995 and
15.6 percent in 1994. Return on investment (ROI) was 15.1 percent in 1996, 13.5
percent in 1995 and 12.3 percent in 1994.
OTHER OPERATING SEGMENTS
The "other" category which generated revenues of $145, $133 and $125 million
in 1996, 1995 and 1994, respectively, is primarily the results of Honeywell's
research operations. Operating profit for the other operations totaled $6
million in 1996, compared to $3 million in 1995 and a break-even performance in
1994.
CURRENCY
The U.S. dollar strengthened an average of two percent in 1996 compared with
1995, in relation to the principal foreign currencies in countries where
Honeywell products are sold. A stronger dollar has a negative effect on
international results because foreign-exchange denominated transactions
translate into fewer U.S. dollars, which Honeywell manages through its hedging
strategies. Information about Honeywell's exposure to, and management of,
currency risk through the use of derivative financial instruments is provided on
page 19 and in Notes 4, 12 and 13 to Financial Statements on pages 28, 33 and
33, respectively.
INFLATION
Highly competitive market conditions have minimized inflation's impact on
the selling prices of Honeywell's products and the cost of its purchased
materials. Productivity improvements and cost-reduction programs have largely
offset the effects of inflation on other costs and expenses.
EMPLOYMENT
Honeywell employed 53,000 people worldwide at year-end 1996, compared with
50,100 people in 1995 and 50,800 people in 1994. Approximately 30,300 employees
work in the United States, with 22,700 employed in other regions, primarily in
Europe. Total compensation and benefits in 1996 were $2.8 billion, or 42 percent
of total costs and expenses. Sales per employee were $138,500 in 1996, compared
with $132,800 in 1995 and $118,600 in 1994.
ENVIRONMENTAL MATTERS
Honeywell is committed to protecting the environment, both through
Honeywell's products and in our manufacturing operations. Our use and release of
chemicals to the environment continues to decline steadily. Releases of toxic
and ozone-depleting chemicals are being phased out well ahead of regulatory
requirements. We are increasing our commitment to pollution prevention:
reducing, reusing and recycling to minimize wastes. The costs of managing wastes
are decreasing as well. For more information on environmental matters, see Note
20 on page 45.
13
NEW ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." In accordance with this
standard, after a transfer of financial assets has occurred, Honeywell will
recognize the financial and servicing assets it controls and the liabilities it
has incurred, derecognize financial assets when control has been surrendered and
derecognize liabilities when extinguished. This statement is effective for
transfers and servicing of financial assets and extinguishment of liabilities
occurring after December 31, 1996, and shall be applied prospectively. Adoption
by Honeywell is not expected to have a material effect on results of operations
or financial position.
In October 1996, The American Institute of Certified Public Accountants
issued Statement of Position (SOP) 96-1, "Environmental Remediation
Liabilities." This SOP provides guidance on specific accounting issues that are
present in the recognition, measurement, display and disclosure of environmental
remediation liabilities. The provisions of the SOP are effective for fiscal
years beginning after December 15, 1996, and adoption by Honeywell in 1997 is
not expected to have a material effect on results of operations or financial
position.
SAFE HARBOR CAUTIONARY STATEMENT
Honeywell may occasionally make statements regarding its businesses and
their respective markets, such as projections of future performance, statements
of management's plans and objectives, forecasts of market trends and other
matters, which to the extent they are not historical fact, may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Statements containing the words or phrases "will
likely result", "are expected to," "will continue," "is anticipated,"
"estimate," "project," "outlook" or similar expressions, which may appear herein
or in certain documents, reports, press releases, and written or oral
presentations made by officers of the company to analysts, shareholders,
investors, news organizations and others, identify such forward-looking
statements. No assurance can be given that the results in any forward-looking
statements will be achieved and actual results could be affected by one or more
factors, which could cause them to differ materially. Therefore, all
forward-looking statements are qualified in their entirety by reference to, and
are accompanied by, the factors listed in Exhibit 99(i) to this report and
subsequent quarterly reports on Form 10Q, as filed with the Securities and
Exchange Commission, which could cause Honeywell's actual results to differ
materially from those projected in such forward-looking statements.
DISCUSSION AND ANALYSIS BY SEGMENT
HOME AND BUILDING CONTROL
Home and Building Control is a global leader in providing comfortable,
healthy, safe and energy-efficient indoor environments. Customer loyalty to our
brand is based on more than 3,500 products, a broad range of systems and
services, and an unmatched distribution network that supports our customer
solutions.
THREE-YEAR SALES OVERVIEW
Sales in 1996 were $3.327 billion compared with $3.035 billion in 1995 and
$2.665 billion in 1994. Home Control experienced strong sales growth from the
retail business, new product introductions in Europe, expansion of our overall
distribution business, and OEM product globalization. Our Building Control sales
increased as we grew our presence in small- and mid-sized buildings, enhanced
our EXCEL 5000-Registered Trademark- building management systems and expanded
our European building service presence.
Strategic expansion through acquisitions helped drive sales growth. The 1996
acquisition of Duracraft combined our strong brand equity with Duracraft's
product portfolio, cost-effectiveness
14
and speed to market. This acquisition optimizes our strength in retail markets
and multiplies our visibility to homeowners. We also acquired Filtercold, a
premium water purification manufacturer. Another acquisition, Applied Products
Technology, adds compressed air control systems to our energy retrofit portfolio
and gives us a critical foothold into a large, untapped industrial market. Ten
acquisitions in Europe strengthened our capabilities there. For example,
Satronic Holding A.G., a Swiss manufacturer, expands our global boiler control
business.
We continue to grow through alliances forged with utilities and with
customers.
Because of our alliances with three energy suppliers -- LG&E, CNG Energy
Services Corp. and U.S. Energy Partners -- our customers in education, health
care, government and industrial markets can purchase natural gas at competitive
rates and reduce their energy costs.
Disney made us their preferred supplier of home comfort, convenience,
entertainment, security and indoor environment systems for the new town of
Celebration, Florida. Our Perfect-TM- Climate system products and the
TotalHome-Registered Trademark- home automation system will play prominent roles
in Celebration homes.
Our alliance with Lucent Technologies brings to customers an intelligent
building solution through integration of heating, ventilating, air conditioning,
fire, security, data and video communications in a single cable. Work with
Electric Power Research Institute resulted in a programmable line voltage
thermostat that dramatically improves comfort and reduces energy costs.
Sales in 1995 benefitted from growth in Europe and Asia Pacific. Home
Control grew sales from acquisitions, trade and retail business, and product
additions. Building Control's strong sales growth was fueled by Europe and by
U.S. energy retrofit and service business. Sales in 1994 grew moderately as the
U.S. economy and consumer confidence improved.
THREE-YEAR OPERATING PROFIT OVERVIEW
Home and Building Control 1996 operating profit was $346 million compared
with $309 million in 1995 and $236 million in 1994, which included $29 million
in special charges to streamline operations. In 1996, operating profit increased
12 percent. Home Control profit improved through volume increases and cost
reductions. Building Control profits declined due to a very competitive energy
retrofit business and investment in programs to enhance productivity.
In 1995, operating profit rose 16 percent, primarily from strong
international volume increases, new products and cost reductions. Excluding
special charges, 1994 operating profit increased moderately, due to improvement
in the U.S. economy and growing consumer confidence.
BUSINESS STRATEGIES
Increased regulation of the environment and a focus on energy management,
coupled with customer demands for greater comfort and security, position Home
and Building Control well for the future. Growth strategies include expanding
and globalizing the product portfolio, including consumer products and heating,
ventilation, and air conditioning (HVAC) products. Our strategies also include
broadening solution capabilities with a focus on open system technology,
globalizing energy retrofit and district energy solutions and enhancing life
cycle building service offerings.
INDUSTRIAL CONTROL
Industrial Control is a global leader in automation solutions from sensors
to integrated solutions. Industrial Automation and Control provides one-stop,
integrated system solutions including systems, products, and services for
process industries such as hydrocarbon processing, chemicals and pulp and paper.
Sensing and Control manufactures switches, sensors and solenoid valves for use
in vehicles, consumer products, data communication and industrial applications,
as well as smart position-sensing devices and systems used in factories and
package distribution systems.
15
THREE-YEAR SALES OVERVIEW
Industrial Control sales in 1996 were $2.200 billion, compared with $2.036
billion in 1995 and $1.835 billion in 1994. Sales benefitted from the successful
introduction of new measurement, sensing and control products that incorporate
leading technology; the excellent market reception of our
TotalPlant-Registered Trademark- open solutions; and continued strong demand for
upgrades and services that increase the value of our installed control systems.
Through our leading technologies, industry expertise and balanced worldwide
distribution, we were able to expand global alliances with major customers.
Sales in developing markets, including Asia and Eastern Europe, experienced
solid growth as these markets invested in advanced technology to equip new
factories and processing plants.
Industrial Automation and Control introduced the new
TotalPlant-Registered Trademark- Solution (TPS) system, the first industrial
automation system that unifies business and control information throughout a
plant or mill. TPS was supplemented by 30 new products and services introduced
in 1996.
We expanded our measurement and control product portfolio with smart
pressure and temperature instruments that transmit system control information
from remote field locations, such as pipelines. In addition, we acquired the
line of analytical instruments and fully integrated the operations of Leeds +
Northrup.
Sensing and Control sales continued to benefit from our strategy of
integrating factory floor solutions and intelligent sensors. Our Smart
Distributed System, which allows customers to link intelligent control devices
through a simple, open network, has enjoyed rapid acceptance.
In 1995 and 1994, Industrial Control sales increased moderately due to
widespread demand for TotalPlant-Registered Trademark- open solutions in
domestic and international markets. We also saw strong international sales of
commercial sensors and switches.
THREE-YEAR OPERATING PROFIT OVERVIEW
Industrial Control operating profit in 1996 was $255 million, $234 million
in 1995 and $207 million in 1994. Operating profits increased in 1996, and the
profit rate also showed improvement, as a result of continuing strategic actions
to reduce overhead, streamline business operations, improve the mix of
higher--margin field instruments and automate component manufacturing.
In 1995, operating profit increased, spurred by a sharp rise in
profitability in Sensing and Control as switch margins improved in the United
States and as Europe experienced favorable volumes and lower product costs.
Operating profit in 1994 included special charges of $14 million to streamline
operations and improve productivity.
BUSINESS STRATEGIES
Industry consolidation and introduction of new standards for open systems
generate opportunities for new products and applications, as customers look to a
single control partner to improve productivity and meet safety and environmental
regulations. Industrial Control growth and value creation strategies complement
these trends. Industrial Automation and Control will grow by providing the best
value integrated solutions for process industries, expanding the measurement and
control product business, broadening our service portfolio and focusing on
fast-growing global markets such as Asia, Middle East, Eastern Europe and Latin
America.
Sensing and Control's strategies include broadening offerings in the rapidly
growing smart sensor market, integrating factory floor solutions with
intelligent sensors and focusing on fast-growing customer segments such as
information technology and on-board automotive sensors.
16
SPACE AND AVIATION CONTROL
As a leading supplier of avionics systems and products for the commercial,
military and space markets, our Space and Aviation Control business serves
customers that range from aircraft manufacturers and business aircraft operators
to prime space contractors and the U.S. government. Our systems are on board
virtually every commercial aircraft produced in the Western world, and we have
also been aboard every manned space flight launched in the U.S.
THREE-YEAR SALES OVERVIEW
In 1996, Space and Aviation Control sales were $1.640 billion, compared with
$1.527 billion in 1995 and $1.432 billion in 1994. The sales growth results from
increased commercial aviation OEM business and our strategies to expand our
GPS-based guidance products and systems, pursue retrofit opportunities and bring
our Boeing 777 technology to all market segments worldwide.
Space and Aviation Control orders were up overall in 1996, with strong
growth in the commercial aviation business. Major wins include the cockpit
retrofits of Federal Express DC-10s, several orders for our enhanced airborne
collision avoidance system -- TCAS 2000, and the selection of the next
generation Primus Epic advanced integrated avionics system for Raytheon's new
Hawker Horizon business jet. Space Systems orders showed excellent growth, with
a key initial contract from NASA for an Integrated Global Positioning
System/Inertial Navigation System and major awards with Lockheed Martin and
Aerojet for work on a space-based infrared surveillance system
Sales in 1995 increased moderately, driven by the recovery in the business
jet and commuter aircraft market, strength in the retrofit and repair business,
and increased sales from the International Space Station program. Sales in 1994
experienced an anticipated decline because of lower commercial aircraft
production rates and reduced government spending.
THREE-YEAR OPERATING PROFIT OVERVIEW
Space and Aviation Control 1996 operating profit was $163 million compared
to $128 million in 1995 and $81 million in 1994. In 1996, operating profits
increased 28 percent, driven by improvements in the commercial markets,
continued productivity improvements and reductions in overhead expenses.
Operating profit in 1995 increased due to improved margins in commercial
aviation systems, lower development expenses and productivity improvements.
Operating profits in 1994 included special charges of $20 million to consolidate
facilities.
BUSINESS STRATEGIES
The commercial aircraft industry is poised for strong growth in 1997 and
beyond. Government spending for electronic components is stabilizing,
international opportunities for military avionics retrofits and space systems
are increasing, and commercial space programs are growing at a fast pace. Space
and Aviation Control strategies are positioned to take advantage of these trends
with a strong portfolio of products and solutions.
Growth strategies include expanding our global positioning-based guidance
products and systems; enhancing our offerings in growth markets such as aircraft
service and airport control; broadening our role in international military and
space programs; pursuing retrofit opportunities; and continuing to optimize our
investment in 777 technology application.
FINANCIAL POSITION
FINANCIAL CONDITION
At year-end 1996, Honeywell's capital structure comprised $253 million of
short-term debt, $715 million of long-term debt and $2.205 billion of
stockholders' equity. The ratio of debt-to-total capital was 31 percent,
compared with 28 percent at year-end 1995.
17
Total debt increased $175 million during 1996 to $968 million. The increase
was used to fund acquisitions.
Stockholders' equity increased $165 million in 1996 to $2.205 billion. The
increase was primarily due to an increase in retained earnings of $403 million
from net income, a $96 million increase from stock option exercises and employee
stock plans, and a $15 million increase in the pension liability adjustment,
offset by a $52 million decrease in accumulated foreign currency translation,
dividends of $134 million, and $163 million of treasury stock purchases.
CASH GENERATION AND DEPLOYMENT
In 1996, $494 million of cash was generated from operating activities,
compared with $573 million in 1995 and $470 million in 1994. The decrease in
1996 was largely due to increased working capital. In 1996, cash generated from
investing and financing activities included $171 million from the issuance of
debt, $90 million of proceeds from the sale of assets and $57 million of
proceeds from employee stock plans and the exercise of Honeywell Foundation
stock options. These funds were used to support $376 million in acquisitions net
of cash acquired, $296 million of capital expenditures, $134 million of dividend
payments and $163 million of payments for share repurchases. Cash balances
decreased $165 million in 1996.
CONTROLLED WORKING CAPITAL
Cash used for increases in "controlled working capital" consisting of trade
and long-term receivables and inventories, offset by accounts payable and
customer advances, was $195 million in 1996. Average working capital as a
percentage of sales was 24.6 percent, an improvement of 60 basis points from
1995, in a continuing effort to reduce "controlled working capital" as a percent
of sales. The increase in receivable and payable balances in 1996 was consistent
with the increase in fourth-quarter sales.
CAPITAL EXPENDITURES AND ACQUISITIONS
Capital expenditures for property, plant and equipment were $296 million in
1996, compared with $238 million in 1995 and $262 million in 1994. The 1996
depreciation charges were $236 million. Honeywell continues to invest at levels
believed to be necessary to maintain its technological leadership position.
During 1996, Honeywell invested $411 million in complementary business
acquisitions.
SHARE REPURCHASE PROGRAMS
In December 1994, the Board of Directors authorized a program to purchase up
to 2 million Honeywell shares. This program was completed in the third quarter
of 1995. In July 1995, the Board of Directors authorized an open-ended program
to repurchase $250 million of Honeywell shares, of which $49 million was used in
the second half of 1995, and $163 million during 1996. The purpose of the
repurchase plan is to offset the shares issued as part of the 1993 Honeywell
Stock and Incentive Plan and other issuances (see Note 15 on page 35.) Honeywell
repurchased $129 million of shares in 1995, and $168 million of shares in 1994.
At year-end 1996, Honeywell had 188 million shares issued, 126 million
shares outstanding and 31,734 stockholders of record. At year-end 1995,
Honeywell had 188 million shares issued, 127 million shares outstanding and
32,569 stockholders of record.
DIVIDENDS
Honeywell has paid a quarterly dividend since 1932 and has increased the
annual payout per share in each of the last 21 years. In November 1995, the
Board of Directors approved a four percent increase in the regular annual
dividend to $1.04 per share, from $1.00 per share, effective in the fourth
quarter 1995. In July 1996, the Board of Directors approved an additional four
percent increase in the regular annual dividend to $1.08 per share effective in
the third quarter 1996. Honeywell paid $1.06 per share in dividends in 1996,
compared with $1.01 in 1995 and $0.97 in 1994.
18
EMPLOYEE STOCK PROGRAM
In 1996, Honeywell contributed 395,000 shares of Honeywell common stock to
employees under its U.S. employee stock match savings plan. The number of shares
contributed under this program depends on employee savings levels and company
performance.
PENSION CONTRIBUTIONS
Cash contributions to Honeywell's pension and retirement plans amounted to
$201 million in 1996, $172 million in 1995 and $141 in 1994.
TAXES
In 1996, taxes paid were $113 million. Accrued income taxes and related
interest increased $42 million during 1996.
LIQUIDITY
Short-term debt at year-end 1996 was $253 million, consisting of $87 million
of commercial paper, $67 million of notes payable and $99 million of current
maturities of long-term debt. Short-term debt at year-end 1995 totaled $312
million, consisting of $65 million of commercial paper, $63 million of notes
payable and $184 million of current maturities of long-term debt.
Through its banks, Honeywell has access to various credit facilities,
including committed credit lines for which Honeywell pays commitment fees and
uncommitted lines provided by banks on a non-committed, best-efforts basis.
Available general-purpose lines of credit at year-end 1996 totaled $1.128
billion. This consisted of $725 million of committed credit lines to meet
Honeywell's financing requirements, including support of commercial paper and
bank note borrowings, and $403 million of uncommitted credit lines available to
certain foreign subsidiaries. This compared with $1.089 billion of available
credit lines at year-end 1995, consisting of $725 million of committed credit
lines for general financing requirements and $364 million of uncommitted credit
lines available to certain foreign subsidiaries. On January 30, 1997, Honeywell
increased its committed credit lines from $725 million to $1,375 billion.
Honeywell also has access to the public debt markets as evidenced by its
$500 million medium-term note program initiated in May 1996. The medium-term
note program allows note issuances with maturities beyond nine months. At
December 31, 1996, no notes had been issued under this program. Long-term debt
maturities consist of $99 million in 1997, $105 million in 1998, and $108
million in 1999.
In addition, Honeywell has agreements with two major financial institutions
whereby it may convert designated pools of trade accounts receivable to cash up
to approximately $85 million on an on-going basis (See Note 6 on page 30).
Cash and short-term investments totaled $136 million at year-end 1996 and
$301 million at year-end 1995. Honeywell believes its available cash, committed
credit lines, receivable programs, and access to the public debt markets,
through its medium-term note and commercial paper programs, provide adequate
short-term and long-term liquidity.
DERIVATIVE FINANCIAL INSTRUMENTS
Honeywell is exposed to market risk from changes in interest rates and
foreign currency exchange rates, which may adversely affect its results of
operations and financial condition. In seeking to minimize this risk, Honeywell
manages exposure to changes in interest rates and foreign currency rates through
its regular operating and financing activities and, when deemed appropriate,
through the use of derivative financial instruments. Honeywell policy prohibits
the use of derivative financial instruments for trading or other speculative
purposes and Honeywell is not a party to leveraged financial instruments.
19
Honeywell has entered into various foreign currency exchange contracts
designed to manage its net exposure to exchange rate fluctuations on foreign
currency transactions (see Notes 4, 12 and 13 to Financial Statements on pages,
28, 33 and 33 respectively). Foreign exchange contracts reduce Honeywell's
overall exposure to exchange rate movements, since the gains and losses on these
contracts offset losses and gains on the assets, liabilities and transactions
being hedged. Transactions that are hedged include foreign currency denominated
receivables and payables on the balance sheet, firm purchase orders and firm
sales commitments. At year-end 1996, the notional amount of outstanding foreign
exchange contracts was $1.111 billion.
It is Honeywell's practice to manage the relative proportions of its fixed
and floating rate debt in the context of the interest rate environment. The
objective is to manage the cost of Honeywell's debt financing over an extended
period of time. To manage this mix in a cost efficient manner, Honeywell enters
into interest rate swap agreements, in which it agrees to exchange, at specified
intervals, the difference between fixed and variable interest amounts calculated
by reference to an agreed-upon notional principal amount (see Notes 12 and 13 to
Financial Statements on page 33). At year-end 1996, the notional amount of
outstanding interest rate swaps was $390 million.
LITIGATION
On March 13, 1990, Litton Systems, Inc. filed suit against Honeywell in U.S.
District Court, Central District of California, alleging Honeywell patent
infringement relating to the process used by Honeywell to coat mirrors
incorporated in its ring laser gyroscopes; intentional interference by Honeywell
with Litton's prospective advantage with customers and with its contractual
relationships with Ojai Research, Inc.; and attempted monopolization and
predatory pricing by Honeywell in certain alleged markets for products
containing ring laser gyroscopes. Honeywell generally denied Litton's patent,
tort and antitrust allegations; contested both the validity and infringement of
the patent; and alleged that the patent had been obtained by Litton's
inequitable conduct before the United States Patent and Trademark Office.
Separate trials were held on the patent and antitrust claims, and at the
conclusion of both trials, juries awarded Litton significant monetary damages.
However, the damage awards were set aside by the trial court judge and a new
trial ordered on the issue of damages for both claims. The parties have also
appealed various legal issues related to these cases. For a more detailed
discussion of this litigation, see Note 20 to the financial statements, which
appears on page 43 of this report.
CREDIT RATINGS
Honeywell's credit ratings by Standard and Poor's Corporation and Duff and
Phelps Corporation are at A/A-1 and A/Duff1, respectively for short-term and
long-term debt. Honeywell's credit rating by Moody's Investors Service, Inc.
improved to A2/P1 in 1996.
On January 27, 1997, Honeywell announced a definitive agreement to acquire
Measurex Corporation for approximately $600 million in cash (see Note 22 on page
46). The acquisition will be financed with debt. After careful review of
Honeywell's capital structure and financial position given the debt increase,
the major credit rating agencies confirmed Honeywell's current credit ratings.
STOCK PERFORMANCE
The market price of Honeywell stock ranged from $69 7/8 to $44 3/8 in 1996,
and was $65 3/4 at year end. Book value per common share at year end was $17.44
in 1996 and $16.09 in 1995.
20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Stockholders of Honeywell Inc.:
We have audited the statement of financial position of Honeywell Inc. and
subsidiaries as of December 31, 1996 and 1995, and the related statements of
income and cash flows for each of the three years in the period ended December
31, 1996. Our audits also included the financial statement schedule listed at
Part IV, Item 14(a)(2). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Honeywell Inc. and subsidiaries at December
31, 1996 and 1995, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Deloitte & Touche LLP
Minneapolis, Minnesota
February 12, 1997
21
INCOME STATEMENT
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS AND SHARES IN MILLIONS
EXCEPT PER SHARE AMOUNTS)
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31
---------------------------------
1996 1995 1994
--------- ---------- ----------
Sales......................................................................... $ 7,311.6 $ 6,731.3 $ 6,057.0
Costs and Expenses
Cost of sales............................................................... 4,975.4 4,584.2 4,082.1
Research and development.................................................... 353.3 323.2 319.0
Selling, general and administrative......................................... 1,313.1 1,263.1 1,173.8
Special charges............................................................. 62.7
--------- ---------- ----------
6,641.8 6,170.5 5,637.6
--------- ---------- ----------
Interest
Interest expense............................................................ 81.4 83.3 75.5
Interest income............................................................. 8.5 14.4 15.3
--------- ---------- ----------
72.9 68.9 60.2
--------- ---------- ----------
Equity Income................................................................. 13.3 13.6 10.5
--------- ---------- ----------
Income before Income Taxes.................................................... 610.2 505.5 369.7
Provision for Income Taxes.................................................... 207.5 171.9 90.8
--------- ---------- ----------
Net Income.................................................................... $ 402.7 $ 333.6 $ 278.9
--------- ---------- ----------
--------- ---------- ----------
Earnings Per Common Share..................................................... $ 3.18 $ 2.62 $ 2.15
--------- ---------- ----------
--------- ---------- ----------
Average Number of Common Shares Outstanding................................... 126.6 127.1 129.4
See accompanying Notes to Financial Statements.
22
STATEMENT OF FINANCIAL POSITION
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS)
ASSETS
[Enlarge/Download Table]
1996 1995
---------- ----------
Current Assets
Cash and cash equivalents.............................................................. $ 127.1 $ 291.6
Short-term investments................................................................. 8.6 9.0
Receivables............................................................................ 1,714.7 1,477.3
Inventories............................................................................ 937.6 794.4
Deferred income taxes.................................................................. 193.2 194.6
---------- ----------
2,981.2 2,766.9
Investments and Advances................................................................. 247.6 244.8
Property, Plant and Equipment
Property, plant and equipment.......................................................... 2,973.6 2,857.1
Less accumulated depreciation.......................................................... 1,839.4 1,758.2
---------- ----------
1,134.2 1,098.9
Other Assets
Long-term receivables.................................................................. 25.7 46.8
Goodwill............................................................................... 507.7 240.7
Patents, licenses and trademarks....................................................... 34.1 43.4
Software and other intangibles......................................................... 149.1 340.1
Deferred income taxes.................................................................. 33.0 71.8
Other.................................................................................. 380.7 206.8
---------- ----------
Total Assets......................................................................... $ 5,493.3 $ 5,060.2
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt........................................................................ $ 252.4 $ 312.4
Accounts payable....................................................................... 584.8 491.5
Customer advances...................................................................... 202.0 158.2
Accrued compensation and benefit costs................................................. 287.8 374.3
Accrued income taxes................................................................... 316.9 274.8
Deferred income taxes.................................................................. 21.9 20.4
Other accrued liabilities.............................................................. 401.1 390.9
---------- ----------
2,066.9 2,022.5
Long-Term Debt........................................................................... 715.3 481.0
Other Liabilities
Accrued benefit costs.................................................................. 382.0 416.3
Deferred income taxes.................................................................. 46.0 39.2
Other.................................................................................. 78.2 61.1
---------- ----------
3,288.4 3,020.1
Stockholders' Equity
Common stock -- $1.50 par value
Authorized -- 250,000,000 shares
Issued -- 1996 -- 187,809,512 shares................................................... 281.7
1995 -- 188,126,704 shares.................................................... 282.2
Additional paid-in capital............................................................. 528.8 481.3
Retained earnings...................................................................... 3,074.7 2,805.8
Treasury stock -- 1996 -- 61,360,813 shares............................................ (1,763.5)
1995 -- 61,306,251 shares............................................. (1,650.2)
Accumulated foreign currency translation............................................... 88.2 140.9
Pension liability adjustment........................................................... (5.0) (19.9)
---------- ----------
2,204.9 2,040.1
---------- ----------
Total Liabilities and Stockholders' Equity........................................... $ 5,493.3 $ 5,060.2
---------- ----------
---------- ----------
See accompanying Notes to Financial Statements.
23
STATEMENT OF CASH FLOWS
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS)
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31
-------------------------------
1996 1995 1994
--------- --------- ---------
Cash Flows from Operating Activities
Net income..................................................................... $ 402.7 $ 333.6 $ 278.9
Adjustments to reconcile net income to net cash flows from operating
activities:
Depreciation................................................................. 236.1 236.1 235.3
Amortization of intangibles.................................................. 51.4 56.8 52.1
Deferred income taxes........................................................ 38.5 67.2 14.0
Equity income, net of dividends received..................................... (10.8) (11.0) (7.6)
(Gain) Loss on sale of assets................................................ (12.0) 7.2 1.0
Contributions to employee stock plans........................................ 38.2 27.4 26.5
Increase in receivables...................................................... (203.0) (38.4) (83.8)
(Increase) decrease in inventories........................................... (89.9) (27.6) 20.9
Increase in accounts payable................................................. 51.8 50.1 27.7
Increase (decrease) in accrued income taxes and interest..................... 57.4 (35.4) (4.6)
Other changes in working capital, excluding short term investments and
short-term debt............................................................. (81.4) (99.1) (93.9)
Other noncurrent items -- net................................................ (148.0) 5.6 3.0
--------- --------- ---------
Net cash flows from operating activities......................................... 493.8 572.5 469.5
--------- --------- ---------
Cash Flows from Investing Activities
Proceeds from sale of assets................................................... 90.3 18.7 22.6
Capital expenditures........................................................... (296.5) (238.1) (262.4)
Investment in acquisitions..................................................... (376.2) (37.7) (104.6)
(Increase) decrease in short-term investments.................................. (0.2) (1.4) 6.7
Other -- net................................................................... 0.4 (5.2) 10.5
--------- --------- ---------
Net cash flows from investing activities......................................... (582.2) (263.7) (327.2)
--------- --------- ---------
Cash Flows from Financing Activities
Net increase (decrease) in short-term debt..................................... 18.8 (101.0) 35.7
Proceeds from issuance of long-term debt....................................... 340.4 167.5 126.5
Repayment of long-term debt.................................................... (188.8) (156.4) (1.8)
Purchase of treasury stock..................................................... (163.2) (137.3) (162.5)
Proceeds from exercise of stock options........................................ 57.3 60.4 5.9
Dividends paid................................................................. (133.5) (127.5) (125.6)
--------- --------- ---------
Net cash flows from financing activities......................................... (69.0) (294.3) (121.8)
--------- --------- ---------
Effect of exchange rate changes on cash.......................................... (7.1) 9.7 4.6
--------- --------- ---------
Increase (decrease) in cash and cash equivalents................................. (164.5) 24.2 25.1
Cash and cash equivalents at beginning of year................................... 291.6 267.4 242.3
--------- --------- ---------
Cash and cash equivalents at end of year......................................... $ 127.1 $ 291.6 $ 267.4
--------- --------- ---------
--------- --------- ---------
See accompanying Notes to Financial Statements.
24
NOTES TO FINANCIAL STATEMENTS
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 1 -- ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements and accompanying data comprise
Honeywell Inc. and subsidiaries. All material intercompany transactions are
eliminated.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires Honeywell to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results can differ from estimates.
SALES
Product sales are recorded when title is passed to the customer, which
usually occurs at the time of delivery or acceptance. Sales under long-term
contracts are recorded on the percentage-of-completion method measured on the
cost-to-cost basis for engineering-type contracts and the units-of-delivery
basis for production-type contracts. Provisions for anticipated losses on
long-term contracts are recorded in full when such losses become evident.
EARNINGS PER COMMON SHARE
Earnings per common share are based on the average number of common shares
outstanding during the year.
STATEMENT OF CASH FLOWS
Cash equivalents are all highly liquid, temporary cash investments with an
original maturity of three months or less.
Cash flows from purchases and maturities of held-to-maturity securities are
classified as cash flows from investing activities. Cash flows from contracts
used to hedge cash dividend payments from subsidiaries are classified as part of
the effect of exchange rate changes on cash.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
using the weighted-average method. Market is based on net realizable value.
Payments received from customers relating to the uncompleted portion of
contracts are deducted from applicable inventories.
INVESTMENTS
Investments in companies owned 20 to 50 percent are accounted for using the
equity method.
PROPERTY
Property is carried at cost and depreciated primarily using the
straight-line method over estimated useful lives of 10 to 40 years for buildings
and improvements, and three to 15 years for machinery and equipment.
INTANGIBLES
Intangibles are carried at cost and amortized using the straight-line method
over their estimated useful lives of not more than 40 years for goodwill (15-25
years for recent acquisitions), four to 17
25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)
years for patents, licenses and trademarks, and three to 24 years for software
and other intangibles. Intangibles also include the asset resulting from
recognition of the defined benefit pension plan minimum liability, which is
amortized as part of net periodic pension cost.
DERIVATIVES
Derivative financial instruments are used by Honeywell to manage interest
rate and foreign exchange risks. These financial exposures are managed in
accordance with Corporate polices and procedures. Honeywell does not hold or
issue derivative financial instruments for trading purposes.
Foreign exchange contracts are accounted for as hedges to the extent they
are designated as, and are effective as, hedges of firm foreign currency
commitments. Other such foreign exchange contracts are marked-to-market on a
current basis and are included in selling, general and administrative expenses
on the income statement and were not material in any year.
Interest rate contracts designated and effective as a hedge of underlying
debt obligations are not marked-to-market, but cash flow from such contracts
results in adjustments to interest expense recognized over the life of the
underlying debt agreement. Gains and losses from terminated contracts are
deferred and amortized over the remaining period of the original contract. Open
interest rate contracts are reviewed regularly to ensure that they remain
effective as hedges of interest rate exposure.
FOREIGN CURRENCY
Foreign currency assets and liabilities are generally translated into U. S.
dollars using the exchange rates in effect at the statement of financial
position date. Results of operations are generally translated using the average
exchange rates throughout the period. The effects of exchange rate fluctuations
on translation of assets, liabilities and hedges of cash dividend payments from
subsidiaries are reported as accumulated foreign currency translation and
increased/(reduced) stockholders' equity: $(52.7) in 1996, $33.5 in 1995, and
$54.5 in 1994.
LONG-LIVED ASSETS
In 1996, Honeywell adopted Statement of Financial Accounting Standards No.
121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of". In accordance with SFAS 121, Honeywell
evaluates the carrying value of long-lived assets when events and circumstances
warrant such a review. The adoption of SFAS 121 did not have a material effect
on the results of operations or financial position in 1996.
STOCK BASED COMPENSATION
In 1996, Honeywell adopted Statement of Financial Accounting Standards No.
123 (SFAS 123), "Accounting for Stock-Based Compensation". As permitted under
this standard, Honeywell will continue to apply the recognition and measurement
principles of Accounting Principles Board (APB) No. 25 to its stock options and
other stock-based employee compensation awards. The disclosure of the pro forma
net income and pro forma earnings per share as if the fair value method of SFAS
123 had been applied can be found in Note 15 to the financial statements on page
35.
BASIS OF PRESENTATION
Certain prior year amounts have been reclassified to conform with the
current year presentation.
26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 2 -- ACQUISITIONS AND SALE OF ASSETS
Honeywell acquired 17 companies in 1996, nine companies in 1995, and 15
companies in 1994 for $411.2 (including cash acquired of $35.0 and $290.6 for
Duracraft Corp.), $37.7, and $104.6 in cash, respectively. These acquisitions
were accounted for as purchases, and accordingly, the assets and liabilities of
the acquired entities have been recorded at their estimated fair values at the
dates of acquisition. The excess of purchase price over the estimated fair
values of the net assets acquired, in the amount of $294.7 in 1996, $32.4 in
1995, and $87.4 in 1994, has been recorded as goodwill and is amortized over
estimated useful lives. The pro forma results for 1996, 1995 and 1994, assuming
these acquisitions had been made at the beginning of the year, would not be
significantly different from reported results.
Proceeds from the sale of assets, including facilities located in St. Louis
Park, Minnesota; Arlington Heights, Illinois; Durham, North Carolina; and
Shoenaich, Germany and the collection of notes receivable from asset sales made
in previous years, amounted to $90.3 in 1996. Proceeds from asset sales in 1995
and 1994 were $18.7 and $22.6, respectively. Gains and losses from asset sales
were not material in any year and are included in selling, general and
administrative expenses on the income statement.
NOTE 3 -- INCOME TAXES
The components of income before income taxes consist of the following:
[Enlarge/Download Table]
1996 1995 1994
--------- --------- ---------
Domestic.................................................................. $ 349.4 $ 285.4 $ 208.4
Foreign................................................................... 260.8 220.1 161.3
--------- --------- ---------
$ 610.2 $ 505.5 $ 369.7
The provision for income taxes on that income is as follows:
[Enlarge/Download Table]
1996 1995 1994
--------- --------- ---------
Current tax expense
United States............................................................ $ 60.8 $ 39.8 $ 33.8
Foreign.................................................................. 84.7 59.9 40.6
State and local.......................................................... 27.2 8.9 2.9
--------- --------- ---------
Total current............................................................ 172.7 108.6 77.3
--------- --------- ---------
Deferred tax expense
United States............................................................ 27.4 41.7 13.0
Foreign.................................................................. 4.0 17.5 (0.8)
State and local.......................................................... 3.4 4.1 1.3
--------- --------- ---------
Total deferred........................................................... 34.8 63.3 13.5
--------- --------- ---------
Provision for income taxes................................................. $ 207.5 $ 171.9 $ 90.8
A favorable tax settlement reduced the 1994 provision for income taxes by
$37.6 ($0.29 per share).
27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 3 -- INCOME TAXES (CONTINUED)
A reconciliation of the provision for income taxes to the amount computed
using U.S. federal statutory rates is as follows:
[Enlarge/Download Table]
1996 1995 1994
--------- --------- ---------
Taxes on income at U.S. federal statutory rates........................... $ 213.6 $ 176.9 $ 129.4
Tax effects of foreign income............................................. (15.9) (11.7) (15.5)
State taxes............................................................... 21.1 9.9 4.2
Tax effect of settlement.................................................. (37.6)
Adjustments to effective tax rates used in recording tax assets
andliabilities........................................................... 2.7
Other..................................................................... (11.3) (3.2) 7.6
--------- --------- ---------
Provision for income taxes................................................ $ 207.5 $ 171.9 $ 90.8
Interest costs related to prior years' tax issues are included in the
provision for income taxes. Taxes paid were $113.1 in 1996, $128.3 in 1995 and
$79.4 in 1994.
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of Honeywell's assets and
liabilities. Temporary differences comprising the net deferred taxes shown in
the statement of financial position are:
[Enlarge/Download Table]
1996 1995
--------- ---------
Employee benefits................................................................... $ 64.9 $ 101.6
Miscellaneous accruals.............................................................. 85.1 76.4
Excess of tax over book depreciation/amortization................................... (2.4) (8.4)
Asset valuation reserves............................................................ 36.3 37.6
Long-term contracts................................................................. 14.0 16.0
State taxes......................................................................... 20.9 24.3
Pension liability adjustment........................................................ 3.4 12.7
Other............................................................................... (63.9) (53.4)
--------- ---------
158.3 $ 206.8
The components of net deferred taxes shown in the statement of financial
position are:
[Enlarge/Download Table]
1996 1995
--------- ---------
Deferred tax assets................................................................. $ 458.8 $ 463.7
Deferred tax liabilities............................................................ 300.5 256.9
Provision has not been made for U.S. or additional foreign taxes on $669.1
of undistributed earnings of international subsidiaries, as those earnings are
considered to be permanently reinvested in the operations of those subsidiaries.
It is not practicable to estimate the amount of tax that might be payable on the
eventual remittance of such earnings.
At December 31, 1996, foreign subsidiaries had tax operating loss
carryforwards of $14.7.
NOTE 4 -- FOREIGN CURRENCY
Honeywell has entered into various foreign currency exchange contracts
(primarily Belgian francs, Deutsche marks and Canadian dollars) designed to
manage its exposure to exchange rate fluctuations on foreign currency
transactions. Foreign exchange contracts reduce Honeywell's overall
28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 4 -- FOREIGN CURRENCY (CONTINUED)
exposure to exchange rate movements, since the gains and losses on these
contracts offset losses and gains on the assets, liabilities, and transactions
being hedged. Honeywell hedges a significant portion of all known foreign
exchange exposures, including non-functional currency receivables and payables
and foreign currency imports and exports. The notional amount of Honeywell's
outstanding foreign currency contracts, consisting of forwards, purchased
options and swaps, was approximately $1,111.2 and $1,262.2 at December 31, 1996,
and 1995, respectively. These contracts generally have a term of less than one
year.
NOTE 5 -- INVESTMENTS IN DEBT AND EQUITY SECURITIES
Honeywell's investments in held-to-maturity securities are reported at
amortized cost in the statement of financial position as follows:
[Enlarge/Download Table]
1996 1995
--------- ---------
Cash equivalents..................................................................... $ 42.9 $ 161.6
Short-term investments............................................................... 8.6 9.0
Investments and advances............................................................. 5.5 6.9
--------- ---------
$ 57.0 $ 177.5
Held-to-maturity securities generally mature within one year and include the
following:
[Enlarge/Download Table]
1996 1995
--------- ---------
Time deposits with financial institutions............................................ $ 40.5 $ 53.4
Commercial paper..................................................................... 0.0 109.3
Other................................................................................ 16.5 14.8
--------- ---------
$ 57.0 $ 177.5
Honeywell's purchases of held-to-maturity securities, consisting primarily
of commercial paper, amounted to $4,128.0 and $3,528.0 in 1996 and 1995,
respectively. Proceeds from maturities of held-to-maturity securities amounted
to $4,248.5 in 1996 and $3,494.3 in 1995. Honeywell has no investments in
trading securities, and available-for-sale securities are not material. The
estimated aggregate fair value of these securities approximates their carrying
amounts in the statement of financial position. Gross unrealized holding gains
and losses were not material in any year.
NOTE 6 -- RECEIVABLES
Receivables have been reduced by an allowance for doubtful accounts as
follows:
[Enlarge/Download Table]
1996 1995
--------- ---------
Receivables, current.................................................................. $ 33.5 $ 34.5
Long-term receivables................................................................. 0.7 0.7
Receivables include approximately $19.8 in 1996 and $20.1 in 1995 billed to
customers but not paid pursuant to contract retainage provisions. These balances
are due upon completion of the contracts, generally within one year.
Unbilled receivables related to long-term contracts amount to $360.5 and
$314.0 at December 31, 1996, and 1995, respectively, and are generally billable
and collectible within one year.
Long-term, interest-bearing notes receivable from the sale of assets have
been reduced by valuation reserves of $1.7 in 1996 and $1.8 in 1995 to an amount
that approximates realizable value.
29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 6 -- RECEIVABLES (CONTINUED)
Honeywell maintains an agreement with a large international banking
institution whereby it can sell an undivided interest in a designated pool of
trade accounts receivable up to a maximum of $50.0 on an ongoing basis and
without recourse. As collections reduce accounts receivable sold, Honeywell may
sell an additional undivided interest in new receivables to bring the amount
sold up to the $50.0 maximum. Proceeds received from the sale of receivables
amounted to $238.8 in 1996, $22.4 in 1995 and $34.4 in 1994. The uncollected
balance of receivables sold amounted to $7.0 and $1.5 at December 31, 1996, and
1995, respectively, and averaged $23.2 and $2.7 during those respective years.
Honeywell, as agent for the purchaser, retains collection and administrative
responsibilities for the participating interests sold.
In 1996, Honeywell entered into an asset securitization program with a large
financial institution to sell, with recourse, up to a maximum of $50.0 Canadian
dollars (approximately $36.5 US Dollars at December 31, 1996) of certain
eligible trade receivables to a trust. As receivables transferred to the trust
are collected, Honeywell may transfer additional receivables up to the
predetermined facility limits. Gross receivables transferred to the trust
amounted to $31.5 in 1996. Honeywell retains the right to repurchase transferred
receivables under the program and included at year-end are $31.5 of uncollected
receivables held in trust.
NOTE 7 -- INVENTORIES
[Enlarge/Download Table]
1996 1995
--------- ---------
Finished goods............................................................ $ 386.5 $ 356.6
Inventories related to long-term contracts................................ 122.7 73.6
Work in process........................................................... 185.8 159.5
Raw materials and supplies................................................ 242.6 204.7
--------- ---------
$ 937.6 $ 794.4
Inventories related to long-term contracts are net of payments received from
customers relating to the uncompleted portions of such contracts in the amounts
of $60.7 and $56.4 at December 31, 1996, and 1995, respectively.
NOTE 8 -- GROSS PROPERTY, PLANT AND EQUIPMENT
[Enlarge/Download Table]
1996 1995
--------- ----------
Land.................................................................. $ 71.6 $ 77.7
Buildings and improvements............................................ 600.7 585.8
Machinery and equipment............................................... 2,208.7 2,100.3
Construction in progress.............................................. 92.6 93.3
--------- ----------
$ 2,973.6 $ 2,857.1
30
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 9 -- FOREIGN SUBSIDIARIES
The following is a summary of financial data pertaining to foreign
subsidiaries:
[Enlarge/Download Table]
1996 1995 1994
--------- ---------- ----------
Net income................................................ $ 172.9 $ 142.9 $ 121.5
Assets.................................................... $ 1,847.8 $ 1,849.4 $ 1,742.3
Liabilities............................................... 838.5 802.8 726.4
--------- ---------- ----------
Net assets................................................ $ 1,009.3 $ 1,046.6 $ 1,015.9
Insofar as can be reasonably determined, there are no foreign-exchange
restrictions that materially affect the financial position or the operating
results of Honeywell and its subsidiaries.
NOTE 10 -- INVESTMENTS IN OTHER COMPANIES
Following is a summary of financial data pertaining to companies 20 to 50
percent owned. The principal company included is Yamatake-Honeywell Co., Ltd.,
of which Honeywell owns 23.3 percent of the outstanding common stock. This
investment had a market value of $329.8 and $316.3 at December 31, 1996, and
1995, respectively.
[Enlarge/Download Table]
1996 1995 1994
--------- ---------- ----------
Sales..................................................... $ 1,949.2 $ 2,065.1 $ 1,877.0
Gross profit.............................................. 688.8 743.5 680.7
Net income................................................ 51.8 54.2 48.4
Equity in net income...................................... 13.3 13.6 10.5
Current assets............................................ $ 1,576.9 $ 1,400.6 $ 1,371.4
Noncurrent assets......................................... 421.1 598.8 616.8
--------- ---------- ----------
1,998.0 1,999.4 1,988.2
--------- ---------- ----------
Current liabilities....................................... 853.5 742.6 841.6
Noncurrent liabilities.................................... 181.4 327.8 225.8
--------- ---------- ----------
1,034.9 1,070.4 1,067.4
--------- ---------- ----------
Net assets................................................ $ 963.1 $ 929.0 $ 920.8
Equity in net assets...................................... $ 241.0 $ 236.8 $ 225.5
NOTE 11 -- INTANGIBLE ASSETS
Intangible assets have been reduced by accumulated amortization as follows:
[Enlarge/Download Table]
1996 1995
--------- ---------
Goodwill.................................................................. $ 74.9 $ 49.2
Patents, licenses and trademarks.......................................... 83.4 75.8
Software and other intangibles............................................ 189.1 168.1
NOTE 12 -- DEBT
SHORT-TERM DEBT
Honeywell had general purpose lines of credit available totaling $1,127.9 at
December 31, 1996. Committed revolving credit lines with 21 banks total $725.0,
which management believes is adequate to meet its financing requirements,
including support of commercial paper and bank note borrowings. These lines have
commitment fee requirements. There were no borrowings on these lines at December
31, 1996. The remaining credit facilities of $402.9 have been arranged by
non-U.S. subsidiaries in
31
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 12 -- DEBT (CONTINUED)
accordance with customary lending practices in their respective countries of
operation. Borrowings against these lines amounted to $53.5 at December 31,
1996. The weighted-average interest rate on short-term borrowings outstanding at
December 31, 1996, and 1995, respectively, was as follows: commercial paper, 4.2
percent and 6.0 percent; and notes payable, 3.9 percent and 6.5 percent.
Short-term debt consists of the following:
[Enlarge/Download Table]
1996 1995
--------- ---------
Commercial paper.......................................................... $ 86.5 $ 65.0
Notes payable............................................................. 67.2 62.8
Current maturities of long-term debt.................................. 98.7 184.6
--------- ---------
$ 252.4 $ 312.4
LONG-TERM DEBT
[Enlarge/Download Table]
1996 1995
--------- ---------
Honeywell Inc.
7 7/8% due 1996......................................................... $ 100.0
6 1/4% Deutsche mark bonds due 1997..................................... $ 96.6 104.7
7.15% to 7.71% medium-term notes due 1998............................... 50.0 50.0
7.36% to 7.46% medium-term notes due 1999............................... 70.5 70.5
7.35% medium-term notes due 2000........................................ 75.0 75.0
6.60% due 2001.......................................................... 100.0
8 5/8% due 2006......................................................... 100.0 100.0
7 1/8% due 2008......................................................... 200.0
7.45 % to 10 1/2% due 2001 to 2010...................................... 27.1 28.0
Subsidiaries
9.6% Canadian dollar notes due 1996..................................... 84.4
3.02% to 10.0% due 1997 to 2008, various currencies..................... 94.8 53.0
--------- ---------
814.0 665.6
Less amount included in short-term debt................................... 98.7 184.6
--------- ---------
$ 715.3 $ 481.0
The 7 7/8 percent notes matured in May, 1996. The 9.6 percent Canadian
dollar notes matured in December, 1996 and were refinanced with a receivables
securitization agreement, as discussed in Note 6, and a commercial paper
program. Included in Notes Payable are $31.5 of liabilities related to the asset
securitization program. In 1993, Honeywell entered into interest rate swap
agreements effectively converting the 9.6 percent Canadian dollar notes to
floating-rate debt based on three-month Canadian bankers acceptance rates. The
swap agreements for the 9.6 percent Canadian dollar notes also expired in
December 1996.
The 6 1/4 percent Deutsche mark bonds due 1997 are linked to a currency
exchange agreement that converts principal and interest payments into fixed U.S.
dollar obligations with an interest cost of 8.17 percent.
In August 1994, Honeywell initiated a $500.0 medium-term note program
whereby it may issue notes with maturities of nine months to 30 years
denominated in U.S. dollars or foreign currencies
32
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 12 -- DEBT (CONTINUED)
with fixed or variable interest rates. Honeywell issued $121.0 and $100.5 of
U.S. dollar fixed-rate medium-term notes in 1995 and 1994, respectively. This
facility was fully utilized in the first half of 1996 with the issuance of
$100.0 of 6.6 percent debt due in 2001 and $200.0 of 7 1/8 percent debt due in
2008.
In May 1996, Honeywell established a $500.0 medium term note program whereby
it may issue notes with maturities beyond nine months in U.S. dollars or foreign
currencies with fixed or variable interest rates. At December 31, 1996, no notes
have been issued against this facility.
Honeywell uses interest rate swaps to manage its interest rate exposures and
its mix of fixed and floating interest rates. In 1994, Honeywell entered into
interest rate swap agreements effectively converting $50.0 of the $70.5 of
medium-term notes due in 1999 to floating rate debt based on three-month LIBOR
rates. In 1995, interest rate swap agreements were initiated to effectively
convert $40.0 of medium-term notes back to fixed-rate debt. In 1996, Honeywell
entered into interest rate swap agreements converting the $100.0 of bonds due in
2001 and $200.0 of bonds due in 2008 to floating rate debt based on six months
LIBOR rates. The swap agreements outstanding at December 31, 1996 expire as
follows: $20.0 in July 1997, $20.0 in May 1998, $50.0 in August 1999, $100.0 in
April 2001, and $200.0 in April 2008.
Annual sinking-fund and maturity requirements for the next five years on
long-term debt outstanding at December 31, 1996, are as follows:
[Download Table]
1997................................................... $ 98.7
1998................................................... 104.6
1999................................................... 107.7
2000................................................... 75.2
2001................................................... 116.2
Interest paid amounted to $77.3, $86.0, and $69.1 in 1996, 1995, and 1994,
respectively.
NOTE 13 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
All financial instruments are held for purposes other than trading. The
estimated fair values of all nonderivative financial instruments approximate
their carrying amounts in the statement of financial position with the exception
of long-term debt. The estimated fair value of long-term debt is based on quoted
market prices for the same or similar issues or on current rates available to
Honeywell for debt of the same remaining maturities. The carrying amount of
long-term debt was $814.0 and $665.6 at December 31, 1996, and 1995,
respectively; and the fair value was $833.4 and $702.6 at December 31, 1996, and
1995, respectively.
The estimated fair value of interest rate swaps, foreign currency contracts,
and option contracts, which is the net unrealized market gain or loss, is based
primarily on quotes obtained from various
33
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 13 -- FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
financial institutions that deal in these types of instruments. The following
table summarizes the notional value, carrying value and fair value of
Honeywell's derivative financial instruments on and off the balance sheet.
[Enlarge/Download Table]
AT DECEMBER 31, 1996 At December 31, 1995
--------------------------------- ----------------------------------
NOTIONAL CARRYING FAIR Notional Carrying Fair
VALUE VALUE VALUE Value Value Value
--------- ----------- --------- ---------- ----------- ---------
Interest rate swaps........... $ 390.0 $ 0.0 $ 7.2 $ 225.0 $ 0.0 $ (4.7)
Currency contracts............ $ 1,111.2 17.6 $ 22.9 1,262.2 25.7 4.7
--------- ----- --------- ---------- ----- ---------
Total......................... $ 1,501.2 $ 17.6 $ 30.1 $ 1,487.2 $ 25.7 $ 0.0
--------- ----- --------- ---------- ----- ---------
--------- ----- --------- ---------- ----- ---------
Honeywell is exposed to credit risk to the extent of nonperformance by the
counterparties to the foreign currency contracts and the interest rate swaps
shown above. However, the credit ratings of the counterparties, which consist of
a diversified group of financial institutions, are regularly monitored and risk
of default is considered remote.
NOTE 14 -- LEASING ARRANGEMENTS
As lessee, Honeywell has minimum annual lease commitments outstanding at
December 31, 1996, with the majority of the leases having initial periods
ranging from one to 10 years. Following is a summary of operating lease
information.
[Enlarge/Download Table]
OPERATING
LEASES
-----------
1997..................................................................... $ 103.0
1998..................................................................... 79.7
1999..................................................................... 60.0
2000..................................................................... 44.7
2001..................................................................... 31.4
2002 and beyond.......................................................... 84.0
-----------
$ 402.8
Rent expense for operating leases was $153.7 in 1996, $143.4 in 1995, and
$136.9 in 1994.
Substantially all leases are for plant, warehouse, office space and
automobiles. A number of the leases contain renewal options ranging from one to
10 years.
34
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 15 -- CAPITAL STOCK
[Enlarge/Download Table]
ADDITIONAL
COMMON PAID-IN TREASURY
STOCK CAPITAL STOCK
----------- ----------- -----------
Balance January 1, 1994................................... $ 282.5 $ 431.5 $ (1,428.4)
Purchase of treasury stock --
5,223,800 shares........................................ (168.0)
Issued for employee stock plans --
962,242 treasury shares 15.4 19.9
42,570 shares canceled.................................. (0.1)
----------- ----------- -----------
Balance December 31, 1994................................. 282.4 446.9 (1,576.5)
Purchase of treasury stock --
3,090,400 shares........................................ (129.3)
Issued for Honeywell Foundation Pledge --
1,000,000 treasury shares............................... 13.4 21.7
Issued for employee stock plans --
1,814,714 treasury shares 21.0 33.9
159,296 shares canceled................................. (0.2)
----------- ----------- -----------
Balance December 31, 1995................................. 282.2 481.3 (1,650.2)
Purchase of treasury stock --
2,904,000 shares........................................ (163.2)
Issued for Honeywell Foundation Pledge --
450,000 treasury shares................................. 8.3 9.2
Issued for employee stock plans --
2,399,438 treasury shares............................... 39.2 40.7
317,192 shares canceled................................. (0.5)
----------- ----------- -----------
Balance December 31, 1996................................. $ 281.7 $ 528.8 $ (1,763.5)
STOCK-BASED COMPENSATION PLANS FOR KEY EMPLOYEES
In 1993, the Board of Directors adopted, and the shareholders approved, the
1993 Honeywell Stock and Incentive Plan. The plan, which terminates December 31,
1998, provides for the award of up to 7,500,000 shares of common stock. The
purpose of the plan is to align the personal interests of key employees, through
the ownership of shares of common stock and other incentives, to those of
Honeywell shareholders and provide flexibility to Honeywell in its ability to
motivate, attract and retain the services of such key employees who have the
ability to enhance the value of Honeywell and its subsidiaries. Awards made
under the plan may be in the form of stock options, restricted stock or other
stock-based awards. The plan replaced similar plans, and awards currently
outstanding under those plans, were not affected. At December 31, 1996 there
were 6,843,074 shares reserved for all key employee plans.
In 1996, Honeywell adopted Statement of Financial Accounting Standard No.
123 (SFAS 123), "Accounting for Stock-Based Compensation". As permitted by SFAS
123, Honeywell has elected to continue following the guidance of APB 25 for
measurement and recognition of stock-based transactions with employees (See Note
1 on page 26). The compensation cost that has been charged against income, for
the restricted stock and other stock-based awards, was $12.2, $3.2 and $5.6 in
1996, 1995 and 1994, respectively. No compensation cost has been recognized for
the awards made in the form of
35
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 15 -- CAPITAL STOCK (CONTINUED)
stock options. If compensation cost for Honeywell's stock-based compensation
plans had been determined based on the fair value at the grant dates for awards
under those plans, consistent with the method provided in FAS 123, Honeywell's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below:
[Download Table]
1996 1995
--------- ---------
Net Income................................ As reported $ 402.7 $ 333.6
Pro forma $ 392.6 $ 329.7
Earnings Per Share........................ As reported $ 3.18 $ 2.62
Pro forma $ 3.10 $ 2.59
FIXED STOCK OPTIONS
All stock option grants are reviewed and approved by the Personnel Committee
of the Board of Directors. Stock options are granted periodically at the fair
market value of Honeywell common stock on the date of the grant and exercisable
one year from the date of the grant. In 1995, the Committee extended the vesting
period for certain newly granted stock options to eighteen months.
A summary of the status of the fixed stock options as of December 31, 1996,
1995 and 1994 and changes during the years ending on those dates is presented
below:
[Enlarge/Download Table]
1996 1995 1994
-------------------------- ---------------------------- ----------------------------
SHARES WEIGHTED AVG Shares Weighted Avg Shares Weighted Avg
(000) EXERCISE PRICE (000) Exercise Price (000) Exercise Price
--------- --------------- --------- ----------------- --------- -----------------
Fixed Options
Outstanding at beginning of year.... 5,963 $ 35 5,346 $ 30 4,740 $ 29
Granted............................. 423 54 1,891 43 1,001 33
Exercised........................... 1,821 31 1,248 28 320 22
Forfeited........................... 58 42 26 39 75 33
Outstanding at end of year.......... 4,507 39 5,963 35 5,346 30
Options exercisable at year end..... 4,088 37 4,087 31 4,390 30
Weighted average fair value of
options granted during the year.... $ 14.19 $ 10.43
The weighted average fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model and represents the
difference between the fair market value on the date of grant and the estimated
market value on the exercise date. The following weighted-average assumptions
are used in the Black Scholes model for grants in 1996 and 1995, respectively:
dividend yield of two percent for all years; expected volatility of 27 and 24
percent, risk-free interest rates of 6.3 and 6.0 percent, and expected lives of
four for all years.
36
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 15 -- CAPITAL STOCK (CONTINUED)
The following table summarizes information about fixed stock options
outstanding at December 31, 1996. The fixed options outstanding include options
issued under the 1993 Honeywell Stock and Incentive Plan and the previous plans
which the 1993 plan replaced.
[Enlarge/Download Table]
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------------
SHARES REMAINING SHARES
RANGE OF OUTSTANDING AT CONTRACTUAL WEIGHTED AVERAGE EXERCISABLE AT WEIGHTED AVERAGE
EXERCISE PRICES 12/31/96 (000) LIFE EXERCISE PRICE 12/31/96 (000) EXERCISE PRICE
------------------- --------------- ----------- ----------------- --------------- -----------------
$16-$24 195 2.2 yrs $ 20 195 $ 20
$25-$36 1,609 5.9 yrs 32 1,609 32
$37-$54 2,616 8.2 yrs 44 2,284 42
$55-$69 87 9.8 yrs 62 0 0
RESTRICTED STOCK AWARDS
Restricted shares of common stock are issued to certain key employees as
compensation and as incentives tied to Honeywell performance. Restricted shares
issued as compensation are awarded with a fixed restriction period ranging from
three to six years. In 1993, shares were issued and tied to performance goals
which restricted the shares until the earlier to occur of: (i) the achievement
of performance goals within a specified measurement period, not more than three
years, or (ii) nine years. The vesting of performance shares awarded in 1996 to
senior executives was established at not more than two years. Owners of
restricted shares have the rights of shareholders, including the right to
receive cash dividends and the right to vote. Restricted shares forfeited revert
to Honeywell at no cost. Restricted shares issued totaled 371,917 in 1996,
212,781 in 1995, and 141,376 in 1994. At December 31, restricted shares
outstanding under key employee plans totaled 835,443 in 1996, 665,005 in 1995,
and 705,030 in 1994 with a weighted average grant-date fair value of $46 and $37
in 1996 and 1995, respectively.
EMPLOYEE STOCK MATCH PLANS
In 1990, Honeywell adopted Stock Match and Performance Stock Match plans
under which Honeywell matches, in the form of Honeywell common stock, certain
eligible U.S. employee savings plan contributions. Employees are vested in the
shares after three years of employment. Shares issued under the stock match
plans totaled 394,534 in 1996, 571,905 shares in 1995, and 634,561 shares in
1994 at a cost of $23.4, $24.2 and $20.7, respectively. There were 747,295
shares reserved for employee stock match plans at December 31, 1996.
STOCK PLEDGE
In 1993, Honeywell pledged to the Honeywell Foundation a five-year option to
purchase 2,000,000 shares of common stock at $33 per share. This option is
transferable to charitable organizations and exercisable in whole or in part,
subject to certain conditions, from time to time during its term. Shares
purchased under the option totaled 450,000 in 1996 and 1,000,000 in 1995.
PREFERENCE STOCK
Twenty-five million preference shares with a par value of $1 have been
authorized. None have been issued at December 31, 1996.
37
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 16 -- RETAINED EARNINGS
[Enlarge/Download Table]
1996 1995 1994
--------- ---------- ----------
Balance January 1......................................... $ 2,805.8 $ 2,600.4 $ 2,447.3
Net income................................................ 402.7 333.6 278.9
Dividends
1996-$1.06 PER SHARE.................................... (133.8)
1995-$1.01 per share.................................... (128.2)
1994-$0.97 per share.................................... (125.8)
--------- ---------- ----------
Balance December 31....................................... $ 3074.7 $ 2,805.8 $ 2,600.4
Included in retained earnings are undistributed earnings of companies 20 to
50 percent owned, amounting to $155.2 at December 31, 1996.
NOTE 17 -- SEGMENT INFORMATION
Honeywell is a global controls company focused on creating value through
control technology. Honeywell serves customers worldwide through operations
engaged in the design, development, manufacture, marketing and service of
control solutions in three industry segments -- Home and Building Control,
Industrial Control and Space and Aviation Control. Honeywell's broad range of
products, systems, and services provide solutions worldwide as our customers
look to improve productivity, energy efficiency and environmental protection,
increase safety, and enhance comfort.
Home and Building Control provides products and services to create
efficient, safe, comfortable environments by offering controls for heating,
ventilation, humidification and air-conditioning equipment; security and fire
alarm systems; home automation systems; energy-efficient lighting controls;
building management systems and services; and home comfort consumer products.
Customers include building managers and owners; distributors and wholesalers;
heating, ventilation and air conditioning manufacturers; home builders; home
owners; and original equipment manufacturers.
Industrial Control produces systems for the automation and control of
process operations in industries such as oil refining, oil and gas drilling,
pulp and paper manufacturing, food processing, chemical manufacturing and power
generation; solid-state sensors for position, pressure, air flow, temperature
and current; precision electromechanical switches; manual controls; advanced
vision-based sensors; fiber-optic components; and solenoid valves used in fluid
control and processing industries. Customers include appliance manufacturers;
automotive companies; food processing companies; oil and gas producers; refining
and petrochemical companies; pharmaceutical companies; paper companies; and
utilities.
Space and Aviation Control is a full-line avionics supplier and systems
integrator for commercial, military and space applications, providing automatic
flight control systems, electronic cockpit displays, flight management systems,
navigation, surveillance and warning systems, severe weather avoidance systems
and flight reference sensors. Customers include airframe manufacturers;
international, national and regional airlines; NASA; prime U.S. defense
contractors; and the U.S. Department of Defense.
In addition to the three industry segments, Honeywell has two research and
development operations that promote technology and products to both external
customers and operating units. The results of these research operations comprise
primarily the "other" category.
38
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 17 -- SEGMENT INFORMATION (CONTINUED)
Information concerning Honeywell's sales, operating profit and identifiable
assets by industry segment can be found on page 11. This information for 1996,
1995 and 1994 is an integral part of these financial statements. Sales include
external sales only. Intersegment sales are not significant. Corporate and other
assets include the assets of the entities in the "other" category and cash,
short-term investments, investments, property and deferred taxes held by
corporate.
Following is additional financial information relating to industry segments:
[Enlarge/Download Table]
1996 1995 1994
--------- --------- ---------
Capital expenditures
Home and Building Control..................................... $ 106.8 $ 87.2 $ 95.6
Industrial Control............................................ 74.8 73.0 73.6
Space and Aviation Control.................................... 55.8 42.9 54.9
Corporate and other........................................... 59.1 35.0 38.3
--------- --------- ---------
$ 296.5 $ 238.1 $ 262.4
Depreciation and amortization
Home and Building Control..................................... $ 98.4 $ 87.4 $ 71.8
Industrial Control............................................ 72.3 69.3 67.1
Space and Aviation Control.................................... 84.0 109.7 120.0
Corporate and other........................................... 32.8 26.5 28.5
--------- --------- ---------
$ 287.5 $ 292.9 $ 287.4
Honeywell is a global company and as such engages in material operations in
countries worldwide. Geographic areas of operation include Europe, Canada,
Mexico, Asia, Australia, and South America.
Following is financial information relating to geographic areas:
[Enlarge/Download Table]
1996 1995 1994
--------- ---------- ----------
External sales
United States........................................... $ 4,477.9 $ 4,087.5 $ 3,824.7
Europe.................................................. 1,981.7 1,858.9 1,528.5
Other areas............................................. 852.0 784.9 703.8
--------- ---------- ----------
$ 7,311.6 $ 6,731.3 $ 6,057.0
Transfers between geographic areas
United States........................................... $ 364.4 $ 318.6 $ 293.3
Europe.................................................. 73.2 67.1 46.3
Other areas............................................. 77.5 61.5 54.3
--------- ---------- ----------
$ 515.1 $ 447.2 $ 393.9
Total sales
United States........................................... $ 4,842.3 $ 4,406.1 $ 4,118.0
Europe.................................................. 2,054.9 1,926.0 1,574.8
Other areas............................................. 929.5 846.4 758.1
Eliminations............................................ (515.1) (447.2) (393.9)
--------- ---------- ----------
$ 7,311.6 $ 6,731.3 $ 6,057.0
39
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 17 -- SEGMENT INFORMATION (CONTINUED)
[Enlarge/Download Table]
1996 1995 1994
--------- ---------- ----------
Operating profit
United States........................................... $ 484.2 $ 425.4 $ 343.7
Europe.................................................. 203.0 191.7 139.1
Other areas............................................. 83.0 55.7 41.2
--------- ---------- ----------
Operating profit........................................ 770.2 672.8 524.0
Interest expense........................................ (81.4) (83.3) (75.5)
Equity income........................................... 13.3 13.6 10.5
General corporate expense............................... (91.9) (97.6) (89.3)
--------- ---------- ----------
Income before income taxes.............................. $ 610.2 $ 505.5 $ 369.7
Identifiable Assets
United States........................................... $ 2,828.3 $ 2,331.1 $ 2,356.2
Europe.................................................. 1,479.9 1,375.0 1,303.1
Other areas............................................. 444.9 461.4 434.9
Corporate............................................... 740.2 892.7 791.7
--------- ---------- ----------
$ 5,493.3 $ 5,060.2 $ 4,885.9
Honeywell transfers products from one geographic region for resale in
another. These transfers are priced to provide both areas with an equitable
share of the overall profit.
In December 1994, Honeywell committed itself to a plan of action and
recorded special charges of $62.7 to consolidate manufacturing capacity and
reduce the overhead structure. At December 31, 1996, the accruals made in
December 1994 had been paid and were funded by cash flows from operations.
Operating profit is net of provisions for special charges amounting to $62.7 in
1994 as follows: United States, $23.2; Europe, $29.6; other areas, $9.9.
NOTE 18 -- PENSION PLANS
Honeywell and its subsidiaries have noncontributory defined benefit pension
plans that cover substantially all of their U.S. employees. The plan covering
non-union employees provides pension benefits based on employee average earnings
during the highest paid 60 consecutive calendar months of employment during the
10 years prior to retirement. The plan covering union employees provides pension
benefits of stated amounts for each year of credited service. Funding for these
plans is provided solely through contributions from Honeywell determined by the
Board of Directors after consideration of recommendations from the plans'
independent actuary. Such recommendations are based on actuarial valuations of
benefits payable under the plans.
The components of net periodic pension cost for U.S. defined benefit pension
plans are as follows:
[Enlarge/Download Table]
1996 1995 1994
--------- --------- ---------
Service cost of benefits earned during the period............. $ 55.6 $ 50.5 $ 53.8
Interest cost of projected benefit obligation................. 226.3 222.8 201.5
Actual return on assets....................................... (339.1) (400.8) (73.3)
Net amortization and deferral................................. 130.6 228.9 (92.6)
--------- --------- ---------
$ 73.4 $ 101.4 $ 89.4
40
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 18 -- PENSION PLANS (CONTINUED)
Following is a summary of assumptions used in the accounting for the U.S.
defined benefit plans.
[Enlarge/Download Table]
1996 1995 1994
--------- --------- ---------
Discount rate used in determining present values..................... 7.8% 7.5% 8.5%
Annual increase in future compensation levels........................ 4.7% 4.4% 5.4%
Expected long-term rate of return on assets.......................... 9.5% 8.5% 8.5%
Employees in foreign countries who are not U.S. citizens are covered by
various retirement benefit arrangements, some of which are considered to be
defined benefit pension plans for accounting purposes. The net cost of all
foreign pension plans amounted to $10.9 in 1996, $(3.6) in 1995 and $1.2 in
1994.
The components of net periodic pension cost for foreign defined benefit
pension plans are as follows:
[Enlarge/Download Table]
1996 1995 1994
--------- --------- ---------
Service cost of benefits earned during the period............... $ 33.6 $ 31.2 $ 30.3
Interest cost of projected benefit obligation................... 58.3 55.7 47.6
Actual return on assets......................................... (102.8) (90.6) (43.2)
Net amortization and deferral................................... 19.6 (3.2) (37.1)
--------- --------- ---------
$ 8.7 $ (6.9) $ (2.4)
Assumptions used in the accounting for foreign defined benefit plans were:
[Enlarge/Download Table]
1996 1995 1994
---------- ------------ ----------
Discount rate used in determining present values........ 4.5-9.0% 4.5-9.5% 4.5-9.0%
Annual increase in future compensation levels........... 2.0-7.0% 2.0-7.25% 2.0-8.0%
Expected long-term rate of return on assets............. 5.5-9.0% 5.5-9.0% 5.5-9.5%
41
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 18 -- PENSION PLANS (CONTINUED)
The plans' funded status as of September 30, adjusted for fourth quarter
contributions, and amounts recognized in Honeywell's statement of financial
position for its pension plans are summarized below.
[Enlarge/Download Table]
Plans Whose Plans Whose
Assets Exceed Accumulated
Accumulated Benefits
1996 (U.S. and Foreign) Benefits Exceed Assets
------------------------------------------------------------------------------------ ------------- -------------
Actuarial present value of benefit obligations:
Vested benefit obligation......................................................... $ (3,193.1) $ (163.0)
Accumulated benefit obligation.................................................... $ (3,462.2) $ (192.5)
Projected benefit obligation...................................................... $ (3,798.9) $ (211.3)
Plan assets at fair value........................................................... 3,845.0 118.9
------------- -------------
Projected benefit obligation (in excess of) less than plan assets................... 46.1 (92.4)
Remaining unrecognized net transition obligation (asset)............................ (81.1) 41.4
Unrecognized prior service cost..................................................... 233.2 9.0
Unrecognized net loss............................................................... 40.5 25.0
Other............................................................................... 0.1 (1.3)
Fourth-quarter 1996 contributions to plans.......................................... 20.3 0.6
Adjustment to recognize minimum liability........................................... (17.8)
------------- -------------
Overfunded (unfunded) pension asset (liability) recognized in the statement of
financial position................................................................. $ 259.1 $ (35.5)
[Enlarge/Download Table]
Plans Whose Plans Whose
Assets Exceed Accumulated
Accumulated Benefits
1995 (U.S. and Foreign) Benefits Exceed Assets
------------------------------------------------------------------------------------ ------------- -------------
Actuarial present value of benefit obligations:
Vested benefit obligation......................................................... $ (503.3) $ (2,778.7)
Accumulated benefit obligation.................................................... $ (506.5) $ (2,988.4)
Projected benefit obligation...................................................... $ (631.4) $ (3,236.0)
Plan assets at fair value........................................................... 809.2 2,740.5
------------- -------------
Projected benefit obligation (in excess of) less than plan assets................... 177.8 (495.5)
Remaining unrecognized net transition obligation (asset)............................ (68.6) 11.1
Unrecognized prior service cost..................................................... 3.8 205.9
Unrecognized net (gain) loss........................................................ (34.6) 259.8
Fourth-quarter 1995 contributions to plans.......................................... 36.1
Adjustment to recognize minimum liability........................................... (220.2)
------------- -------------
Overfunded (unfunded) pension asset (liability) recognized in the statement of
financial position................................................................. $ 78.4 $ (202.8)
Adjustments recorded to recognize the minimum liability required for defined
benefit pension plans whose accumulated benefits exceed assets amounted to $17.8
in 1996 and $220.2 in 1995. A corresponding amount was recognized as an
intangible asset to the extent of unrecognized prior service cost and
unrecognized transition obligation. At December 31, 1996, $8.0 of excess minimum
42
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 18 -- PENSION PLANS (CONTINUED)
liability resulted in a reduction in shareholders' equity, net of income taxes,
of $4.9. At December 31, 1995, $32.6 of excess minimum liability resulted in a
reduction in shareholders' equity, net of income taxes, of $19.9.
Plan assets are held by trust funds devoted to servicing pension benefits
and are not available to Honeywell until all covered benefits are satisfied
after a plan is terminated. The assets held by the trust funds consist of a
diversified portfolio of fixed-income investments and equity securities.
NOTE 19 -- POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Substantially all of Honeywell's domestic and Canadian employees who retire
from Honeywell between the ages of 55 and 65 with 10 or more years of service
are eligible to receive health-care benefits, until age 65, identical to those
available to active employees. Honeywell funds postretirement benefits on a
pay-as-you-go basis.
The components of net periodic postretirement benefit cost are as follows:
[Enlarge/Download Table]
1996 1995 1994
--------- --------- ---------
Service cost of benefits earned during the period................... $ 13.0 $ 11.5 $ 10.4
Interest cost on accumulated postretirement benefit obligation...... 22.4 23.1 18.0
Net amortization.................................................... 0.9 1.1 0.5
--------- --------- ---------
$ 36.3 $ 35.7 $ 28.9
The amounts recognized in Honeywell's statement of financial position are as
follows:
[Enlarge/Download Table]
1996 1995
--------- ---------
Accumulated postretirement benefit obligation:
Retirees................................................................ $ 78.9 $ 90.4
Fully eligible active plan participants................................. 60.2 63.8
Other active plan participants.......................................... 148.3 175.5
Unrecognized prior service cost......................................... (6.0) (6.9)
Unrecognized net gain (loss)............................................ 41.0 (14.8)
--------- ---------
Accrued postretirement benefit cost....................................... $ 322.4 $ 308.0
The discount rate used in determining the APBO was 7.5 percent in 1996 and
7.0 percent in 1995. The assumed health-care cost trend rate used in measuring
the APBO was 5.7 percent. The health-care cost trend rate assumption has a
significant effect on the amounts reported. For example, a one percent increase
in the health-care trend rate would increase the APBO by 11.0 percent at
December 31, 1996, and the net periodic postretirement benefit cost by 14.4
percent for 1996.
NOTE 20 -- CONTINGENCIES
LITTON LITIGATION
On March 13, 1990, Litton Systems, Inc. filed suit against Honeywell in U.S.
District Court, Central District of California, alleging patent infringement
relating to a process used by Honeywell to coat mirrors incorporated in its ring
laser gyroscopes; intentional interference by Honeywell with Litton's
prospective advantage with customers and with its contractual relationships with
Ojai Research, Inc.; and attempted monopolization and predatory pricing by
Honeywell in certain alleged
43
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 20 -- CONTINGENCIES (CONTINUED)
markets for products containing ring laser gyroscopes. Honeywell denied Litton's
allegations; contested both the validity and infringement of the patent; and
alleged that the patent had been obtained by Litton's inequitable conduct before
the United States Patent and Trademark Office.
U.S. District Judge Mariana Pfaelzer presided over the trial of the patent
and two state tort claims and on August 31, 1993, a jury returned a verdict in
favor of Litton and awarded damages against Honeywell in the amount of $1.2
billion for these claims. On January 9, 1995, the trial court set aside the jury
verdict and damage award, ruling, among other things, that the Litton patent was
unenforceable and invalid. The trial court also ruled that if its rulings were
vacated or reversed on appeal, Honeywell would be granted a new trial on the
issue of damages because the jury's award was inconsistent with the clear weight
of the evidence.
Litton appealed to the United States Court of Appeals for the Federal
Circuit, and on July 3, 1996, a three judge panel overruled the trial court's
rulings of patent invalidity, unenforceability and non-infringement, and also
found Honeywell liable under Litton's state tort claims. However, the panel
upheld the trial court's ruling that Honeywell is entitled to a new trial for
damages on all claims, as well as its granting to Honeywell of certain
intervening patent rights. Honeywell requested a rehearing by the full Court of
Appeals, which was denied on September 11, 1996. On November 26, 1996, Honeywell
petitioned the U.S. Supreme Court for review of the panel's decision, which
petition is still pending. In the interim, Litton filed a motion with the trial
court seeking injunctive relief which was denied on December 23, 1996.
The patent and tort damages retrial is scheduled to begin May 6, 1997. On
February 7, 1997, Litton submitted damage studies seeking damages as high as
$1.9 billion. Honeywell believes that Litton's damage studies are flawed and
speculative for a number of reasons. Although it is not possible to predict the
verdict of the jury in the upcoming trial, and such verdict could result in an
award which is material, Honeywell believes that any award should be based on a
royalty which reasonably reflects the value of the mirror coating process, and
that such an award would not be material to Honeywell's financial position or
results of operations.
The jury trial for the antitrust case began November 20, 1995, also before
Judge Pfaelzer. The trial court dismissed, for failure of proof, Litton's
contentions that Honeywell engaged in below-cost predatory pricing, illegal
tying and bundling, and an illegal acquisition of Sperry Avionics in 1986. On
February 2, 1996, the case was submitted to the jury on two claims,
monopolization and attempt to monopolize. These claims were based on allegations
that Honeywell entered into certain long-term exclusive dealing and penalty
arrangements with aircraft manufacturers and airlines to exclude Litton from the
commercial aircraft market, and that Honeywell failed to provide Litton with
access to certain proprietary software. On February 29, 1996, the jury returned
a $234 million single damages verdict against Honeywell for the monopolization
claim, which would have been automatically trebled. On March 1, 1996, the jury
indicated that it was unable to reach a verdict on damages for the attempted
monopolization claim, and a mistrial was declared on that claim. Following the
verdict, Honeywell filed a Motion for Judgment as a Matter of Law and a Motion
for a New Trial, contending that the jury's partial verdict should be overturned
because Litton (i) failed to prove essential elements of liability and (ii)
failed to submit competent evidence to support its claim for damages by offering
only a speculative, all-or-nothing $298.5 million damage study. Litton filed a
Motion for Injunctive Relief and a Motion for Entry of Judgment.
44
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 20 -- CONTINGENCIES (CONTINUED)
On July 24, 1996, the trial court denied Honeywell's Motion for Judgment as
a Matter of Law but concluded, that Litton's damage study was seriously flawed,
and granted Honeywell a retrial on damages only. The court also denied Litton's
Motion for Injunctive Relief and Litton's Motion for Entry of Judgment. No date
has been set for the retrial on damages. Honeywell believes there are questions
concerning what conduct the original jury found anti-competitive that may give
rise to damages in a retrial, and consequently a damages retrial should also
require a retrial of liability issues in some respects. Following the damages
retrial, Honeywell will have the right to appeal both the liability and damages
verdicts. Therefore, no provision has been made in the financial statements with
respect to this contingent liability.
In the fall of 1996, Litton and Honeywell commenced court ordered mediation
of the patent, tort and antitrust claims. No resolution of the claims has
occurred and the mediation is currently in recess.
ENVIRONMENTAL MATTERS
Honeywell's manufacturing sites generate both hazardous and nonhazardous
wastes, the treatment, storage, transportation and disposal of which are subject
to various local, state and federal laws relating to protection of the
environment. Honeywell is in varying stages of investigation or remediation of
potential, alleged or acknowledged contamination at currently or previously
owned or operated sites and at off-site locations where its wastes were taken
for treatment or disposal. In connection with the cleanup of various off-site
locations, Honeywell, along with a large number of other entities, has been
designated a potentially responsible party (PRP) by the U.S. Environmental
Protection Agency under the Comprehensive Environmental Response, Compensation
and Liability Act or by state agencies under similar state laws (Superfund),
which potentially subject PRPs to joint and several liability for the costs of
such cleanup. In addition, Honeywell is incurring costs relating to
environmental remediation pursuant to the federal Resource Conservation and
Recovery Act. Based on Honeywell's assessment of the costs associated with its
environmental responsibilities, compliance with federal, state and local laws
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, has not had and, in the opinion
of Honeywell management, will not have a material effect on Honeywell's
financial position, net income, capital expenditures or competitive position.
Honeywell's opinion with regard to Superfund matters is based on its assessment
of the predicted investigation, remediation and associated costs, its expected
share of those costs, and the availability of legal defenses. Honeywell's policy
is to record environmental liabilities when loss amounts are probable and
reasonably estimable.
OTHER MATTERS
Honeywell is a party to a large number of other legal proceedings, some of
which are for substantial amounts. It is the opinion of management that any
losses in connection with these matters will not have a material effect on
Honeywell's net income, financial position or liquidity.
Honeywell has entered into letter of credit agreements with various
financial institutions to support certain financing instruments and insurance
policies aggregating approximately $185.2 at December 31, 1996.
45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 21 -- QUARTERLY DATA (UNAUDITED)
[Enlarge/Download Table]
1996 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
-------------------------------------------- ---------- ---------- ---------- ----------
Sales....................................... $ 1,619.5 $ 1,771.6 $ 1,803.1 $ 2,117.4
Cost of sales............................... 1,109.0 1,222.6 1,221.7 1,422.1
Net income.................................. 65.1 83.3 101.1 153.2
Per share................................. 0.51 0.66 0.80 1.21
1995 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------------------------------------------- ---------- ---------- ---------- ----------
Sales....................................... $ 1,478.7 $ 1,655.6 $ 1,680.3 $ 1,916.7
Cost of sales............................... 1,013.2 1,137.8 1,148.1 1,285.1
Net income.................................. 54.7 68.9 84.2 125.8
Per share................................. 0.43 0.54 0.66 0.99
[Enlarge/Download Table]
Common Stock Price
(New York Stock
Exchange Composite)
Dividends Per --------------------
Share High Low
------------- --------- ---------
1996 FIRST QUARTER........................................... $ .26 $ 57 1/2 $ 44 3/8
SECOND QUARTER.......................................... .26 56 5/8 49 3/8
THIRD QUARTER........................................... .27 65 7/8 48 1/4
FOURTH QUARTER.......................................... .27 69 7/8 59 7/8
1995 First Quarter........................................... $ .25 $ 38 1/2 $ 30 3/4
Second Quarter.......................................... .25 44 3/4 36 3/4
Third Quarter........................................... .25 46 1/2 40 5/8
Fourth Quarter.......................................... .26 49 1/2 39 1/4
Shareholders of record on January 31, 1997, totaled 31,658.
NOTE 22 -- SUBSEQUENT EVENT
On January 27, 1997, Honeywell announced that it had entered into a
definitive agreement to acquire Measurex Corporation for approximately $600.0 in
cash. Under the terms of the agreement, which was approved by the Boards of
Directors of both companies, a Honeywell subsidiary has commenced an all cash
tender offer for all the shares of Measurex. The offer is conditioned upon,
among other things, there having been validly tendered, and not withdrawn prior
to the expiration of the tender offer, a number of Measurex shares which equal a
majority of the shares outstanding on a fully diluted basis and the expiration
of governmental waiting periods relating to acquisitions and satisfactory
completion of certain environmental tests. On January 30, 1997, Honeywell
increased the amounts available under its committed credit lines, under which it
may borrow to finance the acquisition, from $725 million to $1.375 billion. It
is anticipated that borrowings, if any, in connection with the acquisition will
be repaid for internally generated funds of Honeywell and Measurex and/or
refinanced in the private or public markets. Measurex Corporation is a supplier
of computer-integrated measurement, control and information systems and
services. For the year ended December 1, 1996, Measurex reported sales of $416.0
and net income of $37.0. The acquisition will be accounted for as a purchase and
will be included in the Industrial Automation and Control business unit.
46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No report on Form 8-K reporting a change in Honeywell's certifying
independent accountants has been filed within the 24 months prior to the date of
the most recent financial statements.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pages 6 through 11 of the Honeywell Notice of 1997 Annual Meeting and Proxy
Statement are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Pages 17 through 26 of the Honeywell Notice of 1997 Annual Meeting and Proxy
Statement are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Page 16 of the Honeywell Notice of 1997 Annual Meeting and Proxy Statement
are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS A PART OF THIS REPORT
1. FINANCIAL STATEMENTS
The financial statements required to be filed as part of this Annual Report
on Form 10-K are listed below with their location in this report.
[Enlarge/Download Table]
PAGE
---------
Honeywell Inc. and Subsidiaries:
Independent Auditors' Report....................................................... 21
Income Statement................................................................... 22
Statement of Financial Position.................................................... 23
Statement of Cash Flows............................................................ 24
Notes to Financial Statements...................................................... 25
2. FINANCIAL STATEMENT SCHEDULES
The schedules required to be filed as part of this Annual Report on Form
10-K are listed below with their location in this report.
PAGE
----
Honeywell Inc. and Subsidiaries:
Independent Auditors' Report...................................... 21
Schedules for the Years Ended December 31, 1996, 1995 and 1994:
II -- Valuation Reserves................................ 51
All schedules, other than indicated above, are omitted because of the
absence of the conditions under which they are required or because the
information required is shown in the financial statements or notes thereto.
47
3. EXHIBITS
Documents Incorporated by Reference:
[Enlarge/Download Table]
(3)(i) Restated Certificate of Incorporation of Honeywell Inc. dated June 18, 1991
is incorporated by reference to Exhibit 3(a) to Honeywell Annual Report on
Form 10-K for the fiscal year ended December 31, 1992, Commission file
number 1-971.
(4)(i) Rights Agreement between Honeywell Inc. and Chemical Mellon Shareholder
Services L.L.C., as Rights Agent, dated as of January 16, 1996 is
incorporated by reference to Exhibit 4 to Honeywell's Current Report on
Form 8-K dated January 31, 1996.
(4)(ii)(a) Indenture, dated as of August 1, 1994, between Honeywell Inc. and The Chase
Manhattan Bank (National Association), as Trustee for Honeywell Inc.
Medium-Term Notes, Series A is incorporated by reference to Exhibit (4)(b)
to Honeywell's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
(4)(ii)(b) Indenture, dated as of July 15, 1996, between Honeywell Inc., as Guarantor,
Honeywell Canada Limited, Honeywell N.V. and The Chase Manhattan Bank
(National Association), as Trustee for Honeywell Inc., Honeywell Canada
Limited, Honeywell N.V. is incorporated by reference to Exhibit 4.2 to
Honeywell's Current Report on Form 8-K dated July 18, 1996.
(10)(i)(a) Form of Revolving Credit dated as of October 1, 1995 betweeen Honeywell
Inc., Honeywell Finance Inc., and each of the 21 banks a party thereto,
providing for loans of up to $725 million in the aggregate is incorporated
by reference to Exhibit 99.B.1 to Schedule 14D-1 Tender Offer Statement
filed by Honeywell Acquisition Corp. and Honeywell Inc. dated January 31,
1997.
(10)(i)(b) Revolving Credit Agreement dated as of January 30, 1997 among Honeywell
Inc., The Chase Manhattan Bank and Morgan Guaranty Trust Company of New
York, The Chase Manhattan Bank, as Administrative Agent and Morgan Guaranty
Trust Company of New York, as Documentation Agent is incorporated by
reference to Exhibit 99.B.1 to Schedule 14D-1 Tender Offer Statement filed
by Honeywell Acquisition Corp. and Honeywell Inc. dated January 31, 1997.
(10)(iii)(a) Honeywell Key Employee Severance Plan, as amended is incorporated by
reference to Exhibit (10)(iii)(a) to Honeywell's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.*
(10)(iii)(b) Honeywell Supplementary Executive Retirement Plan for Mid-Career Hires, as
amended is incorporated by reference to Exhibit (10)(iii)(b) to Honeywell's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994.*
(10)(iii)(c) Honeywell-Norwest Rabbi Trust Agreement, as amended is incorporated by
reference to Exhibit (10)(iii)(c) to Honeywell's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.*
(10)(iii)(d) 1993 Honeywell Stock and Incentive Plan, as amended is incorporated by
reference to Exhibit (10)(iii)(d) to Honeywell's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.*
(10)(iii)(e) 1988 Honeywell Stock and Incentive Plan, as amended is incorporated by
reference to Exhibit (10)(iii)(e) to Honeywell's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.*
48
3. EXHIBITS (CONTINUED)
[Enlarge/Download Table]
(10)(iii)(g) Honeywell Corporate Executive Compensation Plan, as amended is incorporated
by reference to Exhibit (10)(iii)(g) to Honeywell's Annual Report on Form
10-K for the fiscal year ended December 31, 1996.*
(10)(iii)(h) Honeywell Supplementary Executive Retirement Plan for Compensation in
Excess of $200,000, as amended is incorporated by reference to Exhibit
(10)(iii)(h) to Honeywell's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.*
(10)(iii)(i) Honeywell Supplementary Executive Retirement Plan for CECP Participants, as
amended is incorporated by reference to Exhibit (10)(iii)(i) to Honeywell's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994.*
(10)(iii)(j) Honeywell Supplementary Retirement Plan, as amended is incorporated by
reference to Exhibit (10)(iii)(j) to Honeywell's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.*
(10)(iii)(k) Honeywell Supplementary Executive Retirement Plan for Benefits in Excess of
Limits Under Tax Reform Act of 1986, as amended is incorporated by
reference to Exhibit (10)(iii)(k) to Honeywell's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.*
(10)(iii)(l) Honeywell Executive Life Insurance Agreement, is incorporated by reference
to Exhibit 10(iii)(m) to Honeywell's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.*
(10)(iii)(m) Form of Executive Termination Contract is incorporated by reference to
Exhibit (10)(iii)(m) to Honeywell's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.*
(10)(iii)(n) Honeywell Senior Management Performance Incentive Plan is incorporated by
reference to Exhibit (10)(iii)(o) to Honeywell's Annual Report on Form 10-K
for the fiscal year ended 1996.*
(99)(ii) Honeywell Notice of 1997 Annual Meeting and Proxy Statement.**
Exhibits submitted herewith:
(3)(ii) By-laws of Honeywell Inc., as amended through February 18, 1997.
(10)(iii)(f) Honeywell Non-Employee Directors Fee and Stock Unit Plan.*
(11) Computation of Earnings Per Share.
(12) Computation of Ratios of Earnings to Fixed Charges.
(21) Subsidiaries of Honeywell.
(23) Consent of Independent Auditors.
(24) Powers of Attorney.
(27) Financial Data Schedule.
(99)(i) Cautionary Statements for Purposes of the Safe Harbor Provisions of The
Private Securities Litigation Reform Act of 1995.
(B) REPORTS ON FORM 8-K
None
------------------------
*Management contract or compensatory plan or arrangement.
**Only the portions of Exhibit (99)(ii) specifically incorporated by reference
are deemed filed with the Commission.
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
HONEYWELL INC.
By: /s/ SIGURD UELAND, JR.
-----------------------------------------
Sigurd Ueland, Jr., VICE PRESIDENT
Dated: February 25, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
[Enlarge/Download Table]
SIGNATURE TITLE
----------------------------- ----------------------------------------------------------------------------
M. R. BONSIGNORE Chairman of the Board and Chief Executive Officer and Director
L.W. STRANGHOENER Vice President and Chief Financial Officer
P. M. PALAZZARI Vice President and Controller, and Principal Accounting Officer
A. J. BACIOCCO, JR. Director
E. E. BAILEY Director
E. H. CLARK, JR. Director
W. H. DONALDSON Director
R. D. FULLERTON Director
J. J. HOWARD Director
B. E. KARATZ Director
D. L. MOORE Director
A. B. RAND Director
S. G. ROTHMEIER Director
M. W. WRIGHT Director
By: /s/ SIGURD UELAND, JR.
-------------------------
Sigurd Ueland, Jr.,
ATTORNEY-IN-FACT
February 25, 1997
50
SCHEDULE II
HONEYWELL INC. AND SUBSIDIARIES
VALUATION RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN MILLIONS)
[Enlarge/Download Table]
BALANCE AT ADDITIONS DEDUCTIONS BALANCE
BEGINNING CHARGED TO FROM AT CLOSE
OF YEAR INCOME RESERVES OF YEAR
----------- ----------- ------------ ---------
Reserves deducted from assets to which they apply -- allowance
for doubtful accounts:
RECEIVABLES -- CURRENT
Year ended December 31, 1996.................................... $ 34.5 $ 10.5 (1) $ 11.5 (2) 33.5
Year ended December 31, 1995.................................... 31.1 10.4 (1) 7.0 (2) 34.5
Year ended December 31, 1994.................................... 24.3 12.5 (1) 5.7 (2) 31.1
LONG-TERM RECEIVABLES
Year ended December 31, 1996.................................... 0.7 -- -- 0.7
Year ended December 31, 1995.................................... 0.7 -- -- 0.7
Year ended December 31, 1994.................................... 0.5 -- (0.2)(2) 0.7
Reserves deducted from assets to which they apply -- valuation
reserve:
LONG-TERM RECEIVABLES
Year ended December 31, 1996.................................... 1.8 (0.1)(1) -- 1.7
Year ended December 31, 1995.................................... 1.9 (0.1)(1) -- 1.8
Year ended December 31, 1994.................................... 3.6 (1.7)(1) -- 1.9
Reserves deducted from assets to which they apply -- allowance
for amortization of intangibles:
GOODWILL
Year ended December 31, 1996.................................... 49.2 21.5 (3) (4.2)(4) 74.9
Year ended December 31, 1995.................................... 42.3 12.6 (3) 5.7 (4) 49.2
Year ended December 31, 1994.................................... 34.3 8.6 (3) 0.6 (4) 42.3
PATENTS, LICENSES AND TRADEMARKS
Year ended December 31, 1996.................................... 75.8 9.8 (3) 2.2 (4) 83.4
Year ended December 31, 1995.................................... 175.4 24.0 (3) 123.6 (4) 75.8
Year ended December 31, 1994.................................... 170.0 24.2 (3) 18.8 (4) 175.4
SOFTWARE AND OTHER INTANGIBLES
Year ended December 31, 1996.................................... 168.1 20.1 (3) (0.9)(4) 189.1
Year ended December 31, 1995.................................... 152.4 20.2 (3) 4.5 (4) 168.1
Year ended December 31, 1994.................................... 135.4 19.3 (3) 2.3 (4) 152.4
------------------------
Notes:
(1) Represents amounts included in selling, general and administrative expense.
(2) Represents uncollectible accounts written off, less recoveries and
translation adjustments.
(3) Represents amounts included in cost of sales.
(4) Represents removal of fully amortized amounts and translation adjustments.
51
Dates Referenced Herein and Documents Incorporated by Reference
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