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P> Total Contracts $291,254,000

http://www.alliedsignal.com/

After 16 consecutive quarters of double-digit earnings growth, why isn't tough-minded AlliedSignal CEO Larry Bossidy satisfied? Customer ratings of AlliedSignal slipped, and in a competitive market driven by return and referral business, Bossidy sees the warning signs of a potential blemish on the successful track record he has built since he took over in mid-1991.

Every "defect eliminated, every dollar saved, every product developed, every extra step taken to achieve total quality," enabled AlliedSignal to post record annual earnings in 1995 for the fourth consecutive year, according to Bossidy.

Revenues of $14.3 billion, a 12 percent increase, earned AlliedSignal $875 million, a 15 percent increase. Both increases met the company's long-term target of 3 percent to 17 percent annual growth. But productivity increased 5.2 percent, just short of Bossidy's 6 percent goal.

"Operational Excellence," a program launched last year to improve quality, achieved a 60 percent reduction in defects on some 2,600 projects, realized $300 million in annual cost savings and reduced engineering product support costs by $10 million.

AlliedSignal ended 1995 with a solid fourth quarter. Earnings were up 14 percent over the same period last year, and sales increased 7 percent. The company's strong finances fueled a 15 percent increase in its quarterly dividend to 22.5 cents per share, the fourth double-digit dividend increase in four years. At the end of 1995, AlliedSignal's debt was 33.7 percent, its lowest debt ratio in a decade.

Sales increases were posted in the aerospace division, where engines, avionics and equipment systems generated the increases. Military and commercial aftermarket sales were strong for regional and business aircraft engines, commercial engine repair and overhaul services. Forward-looking wind shear detection systems, traffic alert and collision avoidance systems and ground proximity warning systems all netted sales increases.

AlliedSignal won a $200 million contract to be the sole supplier of the navigation system for Northrop Grumman's anti-armor submunition program. The U.S. Air Force awarded a $200 million contract to provide maintenance, engineering services and modifications to the Air Force Satellite Control network, and McDonnell Douglas signed a $50 million contract for AlliedSignal avionics for the new Explorer helicopter.

Sales of traffic alert and collision avoidance systems were particularly strong as U.S. operators of 10- to 30-seat aircraft complied with the Federal Aviation Administration's mandate to install such systems by the end of last year. The aerospace business also doubled sales of panel-mounted global positioning systems for piston aircraft, featuring AlliedSignal's exclusive moving-map display system. But sales of government electronic systems were lower in the fourth quarter of 1995 than the previous year.

The company said aerospace net income gains resulted from sales growth, an increased percentage of sales from the higher-margin aftermarket and cost reduction measures.

AlliedSignal's Technical Services Corp., a unit of the aerospace group, has provided tracking, communications, data acquisition, information processing, and command and control services to NASA since 1958. The company operates and maintains three of the Goddard Space Flight Center networks in Maryland, runs NASA's Deep Space Network in Pasadena and Goldstone, Calif., and has supported the Pioneer 6 through 9 solar orbiters for more than 20 years at the Ames Research Center.

Like all other major high-tech conglomerates, AlliedSignal grew partly by acquisition. It purchased a Ford Motor Co. spark plug plant in the United Kingdom, Bridgestone/ Firestone's industrial fiber manufacturing facility in Virginia, Hoechst's interest in Riedel-de-Haen in Germany, Northrop Grumman's Precision Products Business in Massachusetts, and the assets operated by Polymers and Filament Rudolstadt in Germany. Acquisitions completed during 1995 will grow the company's sales by about $700 million this year and expand the company's capacity and presence in the global market.

AlliedSignal Financial Highlights

($ in millions except per share amounts)

19951994hange

Net sales$14,346 $12,817 12

Income from operations $1,260$1,1529

Percent of sales8.89.0(0.2)

Net income$875$75915

Earnings per share$3.09$2.6815