United States

Securities and Exchange Commission

Washington, D.C. 20549

 

 

 

Form 10-Q

 

 

 

 


 

 

 

 

x     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2009

 

OR

 

o     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______ to________

 

Commission file number 1-8974

 

Honeywell International Inc.


(Exact name of registrant as specified in its charter)


 

 

 

Delaware

 

22-2640650


 


(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

101 Columbia Road

 

 

Morris Township, New Jersey

 

07962


 


(Address of principal executive offices)

 

(Zip Code)

 

(973) 455-2000


(Registrant’s telephone number, including area code)

 

Not Applicable


(Former name, former address and former fiscal year,

if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x             Accelerated filer o            Non-Accelerated filer o            Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

There were 752,054,121 shares of Common Stock outstanding at June 30, 2009.


Honeywell International Inc.
Index

 

 

 

 

 

 

Part I.

-

Financial Information

 

Page No.

 

 

 

 

 

 

 

Item 1.

Financial Statements:

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statement of Operations (unaudited) – Three and Six Months Ended June 30, 2009 and 2008

 

3

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheet (unaudited) – June 30, 2009 and December 31, 2008

 

4

 

 

 

 

 

 

 

 

 

Consolidated Statement of Cash Flows (unaudited) – Six Months Ended June 30, 2009 and 2008

 

5

 

 

 

 

 

 

 

 

 

Notes to Financial Statements (unaudited)

 

6

 

 

 

 

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

33

 

 

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

34

 

 

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

43

 

 

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

43

 

 

 

 

 

 

 

Part II.

-

Other Information

 

 

 

 

 

 

 

44

 

 

Item 1.

Legal Proceedings

 

 

 

 

 

 

 

44

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

 

 

 

 

 

 

 

45

 

 

Item 6.

Exhibits

 

 

 

 

 

 

 

46

 

Signatures

 

 

 

 

Cautionary Statement about Forward-Looking Statements

This report contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are those that address activities, events or developments that we or our management intends, expects, projects, believes or anticipates will or may occur in the future. They are based on management’s assumptions and assessments in the light of past experience and trends, current economic and industry conditions, expected future developments and other relevant factors. They are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by our forward-looking statements. Our forward-looking statements are also subject to risks and uncertainties, which can affect our performance in both the near- and long-term. These forward-looking statements should be considered in the light of the information included in this report and our other filings with the Securities and Exchange Commission, including, without limitation, the Risk Factors, as well as the description of trends and other factors in Management’s Discussion and Analysis of Financial Condition and Results of Operations, set forth in our Form 10-K for the year ended December 31, 2008.

2


PART I. FINANCIAL INFORMATION

The financial information as of June 30, 2009 should be read in conjunction with the financial statements for the year ended December 31, 2008 contained in our Form 10-K filed on February 13, 2009.

ITEM 1. FINANCIAL STATEMENTS

Honeywell International Inc.
Consolidated Statement of Operations
(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 


 


 

 

 

2009

 

2008

 

2009

 

2008

 

 

 


 


 


 


 

 

 

(Dollars in millions, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

$

5,804

 

$

7,832

 

$

11,622

 

$

14,988

 

Service sales

 

 

1,762

 

 

1,842

 

 

3,514

 

 

3,581

 

 

 



 



 



 



 

Net sales

 

 

7,566

 

 

9,674

 

 

15,136

 

 

18,569

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs, expenses and other

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of products sold

 

 

4,516

 

 

6,089

 

 

9,124

 

 

11,596

 

Cost of services sold

 

 

1,166

 

 

1,234

 

 

2,314

 

 

2,399

 

 

 



 



 



 



 

 

 

 

5,682

 

 

7,323

 

 

11,438

 

 

13,995

 

Selling, general and administrative expenses

 

 

1,084

 

 

1,290

 

 

2,236

 

 

2,545

 

Other (income) expense

 

 

51

 

 

(43

)

 

53

 

 

(69

)

Interest and other financial charges charges

 

 

123

 

 

115

 

 

240

 

 

230

 

 

 



 



 



 



 

 

 

 

6,940

 

 

8,685

 

 

13,967

 

 

16,701

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

 

626

 

 

989

 

 

1,169

 

 

1,868

 

Tax expense

 

 

166

 

 

261

 

 

310

 

 

493

 

 

 



 



 



 



 

Net income

 

 

460

 

 

728

 

 

859

 

 

1,375

 

Less: Net Income attributable to the noncontrolling interest

 

 

10

 

 

5

 

 

12

 

 

9

 

 

 



 



 



 



 

Net income attributable to Honeywell

 

$

450

 

$

723

 

$

847

 

$

1,366

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share of common stock-basic:

 

$

0.60

 

$

0.97

 

$

1.14

 

$

1.84

 

 

 



 



 



 



 

Earnings per share of common stock-assuming dilution:

 

$

0.60

 

$

0.96

 

$

1.14

 

$

1.81

 

 

 



 



 



 



 

Cash dividends per share of common stock

 

$

0.3025

 

$

0.275

 

$

0.6050

 

$

0.550

 

 

 



 



 



 



 

The Notes to Financial Statements are an integral part of this statement.

3


Honeywell International Inc.
Consolidated Balance Sheet
(Unaudited)

 

 

 

 

 

 

 

 

 

 

June 30,
2009

 

December 31,
2008

 

 

 


 


 

 

 

(Dollars in millions)

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,606

 

$

2,065

 

Accounts, notes and other receivables

 

 

6,285

 

 

6,129

 

Inventories

 

 

3,593

 

 

3,848

 

Deferred income taxes

 

 

945

 

 

922

 

Other current assets

 

 

289

 

 

299

 

 

 



 



 

Total current assets

 

 

13,718

 

 

13,263

 

 

 

 

 

 

 

 

 

Investments and long-term receivables

 

 

463

 

 

670

 

Property, plant and equipment - net

 

 

4,795

 

 

4,934

 

Goodwill

 

 

10,236

 

 

10,185

 

Other intangible assets - net

 

 

2,141

 

 

2,267

 

Insurance recoveries for asbestos related liabilities

 

 

1,036

 

 

1,029

 

Deferred income taxes

 

 

1,715

 

 

2,135

 

Prepaid pension benefit cost

 

 

109

 

 

62

 

Other assets

 

 

924

 

 

945

 

 

 



 



 

Total assets

 

$

35,137

 

$

35,490

 

 

 



 



 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

3,132

 

$

3,773

 

Short-term borrowings

 

 

370

 

 

56

 

Commercial paper

 

 

398

 

 

1,431

 

Current maturities of long-term debt

 

 

1,627

 

 

1,023

 

Accrued liabilities

 

 

5,468

 

 

6,006

 

 

 



 



 

Total current liabilities

 

 

10,995

 

 

12,289

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

6,251

 

 

5,865

 

Deferred income taxes

 

 

691

 

 

698

 

Postretirement benefit obligations other than pensions

 

 

1,571

 

 

1,799

 

Asbestos related liabilities

 

 

1,557

 

 

1,538

 

Other liabilities

 

 

5,511

 

 

6,032

 

 

 

 

 

 

 

 

 

SHAREOWNERS’ EQUITY

 

 

 

 

 

 

 

Capital - common stock issued

 

 

958

 

 

958

 

- additional paid-in capital

 

 

3,822

 

 

3,994

 

Common stock held in treasury, at cost

 

 

(9,447

)

 

(10,206

)

Accumulated other comprehensive income (loss)

 

 

(3,512

)

 

(3,809

)

Retained earnings

 

 

16,646

 

 

16,250

 

 

 



 



 

Total Honeywell shareowners’ equity

 

 

8,467

 

 

7,187

 

Noncontrolling interest

 

 

94

 

 

82

 

 

 



 



 

Total shareowners’ equity

 

 

8,561

 

 

7,269

 

 

 



 



 

Total liabilities and shareowners’ equity

 

$

35,137

 

$

35,490

 

 

 



 



 

The Notes to Financial Statements are an integral part of this statement.

4


Honeywell International Inc.
Consolidated Statement of Cash Flows
(Unaudited)

 

 

 

 

 

 

 

 

 

 

Six Months Ended
June 30,

 

 

 


 

 

 

2009

 

2008

 

 

 


 


 

 

 

(Dollars in millions)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income attributable to Honeywell

 

$

847

 

$

1,366

 

Adjustments to reconcile net income attributable to Honeywell to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

469

 

 

446

 

Repositioning and other charges

 

 

255

 

 

347

 

Net payments for repositioning and other charges

 

 

(294

)

 

(140

)

Pension and other postretirement (income)/expense

 

 

(3

)

 

53

 

Pension and other postretirement payments

 

 

(96

)

 

(103

)

Stock compensation expense

 

 

77

 

 

76

 

Deferred income taxes

 

 

345

 

 

243

 

Excess tax benefits from share based payment arrangements

 

 

 

 

(19

)

Other

 

 

286

 

 

77

 

Changes in assets and liabilities, net of the effects of acquisitions and divestitures:

 

 

 

 

 

 

 

Accounts, notes and other receivables

 

 

342

 

 

(620

)

Inventories

 

 

254

 

 

(344

)

Other current assets

 

 

8

 

 

(20

)

Accounts payable

 

 

(641

)

 

286

 

Accrued liabilities

 

 

(382

)

 

115

 

 

 



 



 

Net cash provided by operating activities

 

 

1,467

 

 

1,763

 

 

 



 



 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Expenditures for property, plant and equipment

 

 

(226

)

 

(339

)

Proceeds from disposals of property, plant and equipment

 

 

17

 

 

50

 

Decrease in investments

 

 

1

 

 

14

 

Cash paid for acquisitions, net of cash acquired

 

 

(28

)

 

(1,308

)

Other

 

 

(48

)

 

7

 

 

 



 



 

Net cash used for investing activities

 

 

(284

)

 

(1,576

)

 

 



 



 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Net decrease in commercial paper

 

 

(1,033

)

 

(230

)

Net (decrease)/increase in short-term borrowings

 

 

(193

)

 

21

 

Proceeds from issuance of common stock

 

 

9

 

 

126

 

Proceeds from issuance of long-term debt

 

 

1,488

 

 

1,487

 

Payments of long-term debt

 

 

(493

)

 

(425

)

Excess tax benefits from share based payment arrangements

 

 

 

 

19

 

Repurchases of common stock

 

 

 

 

(441

)

Cash dividends on common stock

 

 

(452

)

 

(409

)

 

 



 



 

Net cash (used for)/provided by financing activities

 

 

(674

)

 

148

 

 

 



 



 

 

 

 

 

 

 

 

 

Effect of foreign exchange rate changes on cash and cash equivalents

 

 

32

 

 

40

 

 

 



 



 

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

541

 

 

375

 

Cash and cash equivalents at beginning of period

 

 

2,065

 

 

1,829

 

 

 



 



 

Cash and cash equivalents at end of period

 

$

2,606

 

$

2,204

 

 

 



 



 

The Notes to Financial Statements are an integral part of this statement.

5


Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)

NOTE 1. Basis of Presentation

          In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of Honeywell International Inc. and its consolidated subsidiaries at June 30, 2009 and the results of operations for the three and six months ended June 30, 2009 and 2008 and cash flows for the six months ended June 30, 2009 and 2008. The results of operations for the three and six month periods ended June 30, 2009 should not necessarily be taken as indicative of the results of operations that may be expected for the entire year.

          We report our quarterly financial information using a calendar convention; that is, the first, second and third quarters are consistently reported as ending on March 31, June 30 and September 30, respectively. It has been our practice to establish actual quarterly closing dates using a predetermined “fiscal” calendar, which requires our businesses to close their books on a Saturday in order to minimize the potentially disruptive effects of quarterly closing on our business processes. The effects of this practice are generally not significant to reported results for any quarter and only exist within a reporting year. In the event that differences in actual closing dates are material to year-over-year comparisons of quarterly or year-to-date results, we provide appropriate disclosures. Our actual closing dates for the three and six month periods ended June 30, 2009 and 2008 were July 4, 2009 and June 28, 2008, respectively.

          The financial information as of June 30, 2009 should be read in conjunction with the financial statements for the year ended December 31, 2008 contained in our Form 10-K filed on February 13, 2009.

          Certain prior year amounts have been reclassified to conform to current year presentation.

NOTE 2. Recent Accounting Pronouncements

          Recent Accounting Pronouncements – In September 2006, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements” (SFAS No. 157). SFAS No. 157 establishes a common definition for fair value to be applied to U.S. GAAP requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. SFAS No. 157 is effective for financial assets and financial liabilities for fiscal years beginning after November 15, 2007. Issued in February 2008, FSP 157-1 “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” removed leasing transactions accounted for under Statement 13 and related guidance from the scope of SFAS No. 157. FSP 157-2 “Partial Deferral of the Effective Date of Statement 157” (FSP 157-2), deferred the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008.

          In October 2008, the FASB issued FSP 157-3 “Determining Fair Value of a Financial Asset in a Market That is Not Active” (FSP 157-3). FSP 157-3 clarified the application of SFAS No. 157 in an inactive market. It demonstrated how the fair value of a financial asset is determined when the market for that financial asset is inactive. FSP 157-3 was effective upon issuance, including prior periods for which financial statements had not been issued.

6


          In April 2009, the FASB issued FSP FAS 157-4, “Determining Whether a Market Is Not Active and a Transaction Is Not Distressed” (FSP 157-4). FSP 157-4 provides additional guidance on factors to consider in estimating fair value when there has been a significant decrease in market activity for a financial asset. FSP 157-4 is effective for interim and annual periods ending after June 15, 2009. The implementation of this standard did not have a material impact on our consolidated financial position and results of operations.

          The implementation of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, effective January 1, 2009, did not have a material impact on our consolidated financial position and results of operations. See Note 11 for additional SFAS No. 157 information and disclosure for financial and nonfinancial assets and liabilities.

          In December 2007, the FASB issued SFAS No. 141(revised 2007), “Business Combinations” (SFAS No. 141R). SFAS No. 141R provides revised guidance on how acquirors recognize and measure the consideration transferred, identifiable assets acquired, liabilities assumed, noncontrolling interests, and goodwill acquired in a business combination. SFAS No. 141R also expands required disclosures surrounding the nature and financial effects of business combinations. SFAS No. 141R is effective, on a prospective basis, for fiscal years beginning after December 15, 2008. Upon adoption, this standard did not have a material impact on our consolidated financial position and results of operations. However, if the Company enters into any business combinations after the adoption of SFAS No. 141R, a transaction may significantly impact the Company’s consolidated financial position and results of operations as compared to the Company’s recent acquisitions, accounted for under prior GAAP requirements, due to the changes described above.

          In April 2009, the FASB issued FSP 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (FSP 141R-1). FSP 141R-1 amends and clarifies SFAS No. 141R to address application issues associated with initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. FSP 141R-1 is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The implementation of this standard will not have a material impact on our consolidated financial position and results of operations.

          In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (SFAS No. 160). SFAS No. 160 establishes requirements for ownership interests in subsidiaries held by parties other than the Company (sometimes called “minority interests”) be clearly identified, presented, and disclosed in the consolidated statement of financial position within equity, but separate from the parent’s equity. All changes in the parent’s ownership interests are required to be accounted for consistently as equity transactions and any noncontrolling equity investments in unconsolidated subsidiaries must be measured initially at fair value. SFAS No. 160 is effective, on a prospective basis, for fiscal years beginning after December 15, 2008. However, presentation and disclosure requirements must be retrospectively applied to comparative financial statements. Upon adoption of SFAS No. 160 the Company reclassified $82 million of noncontrolling interest from other liabilities to noncontrolling interest as a separate component of shareholders equity in our consolidated balance sheet as of December 31, 2008 and $5 million and $9 million of noncontrolling interest expense to net income attributable to noncontrolling interest in our statement of operations for the second quarter and six months ended June 30, 2008, respectively. See Note 12, Other Comprehensive Income/(Loss),

7


for additional SFAS No. 160 disclosures regarding noncontrolling interest components of other comprehensive income. The implementation of this standard did not have a material impact on our consolidated financial position and results of operations.

          In March 2008, the FASB issued SFAS No. 161, “Disclosures About Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133” (SFAS No. 161). SFAS No. 161 expands quarterly disclosure requirements in SFAS No. 133 about an entity’s derivative instruments and hedging activities. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. All derivatives are recorded on the balance sheet as assets or liabilities and measured at fair value. For derivatives designated as hedges of the fair value of assets or liabilities, the changes in fair values of both the derivatives and the hedged items are recorded in current earnings. For derivatives designated as cash flow hedges, the effective portion of the changes in fair value of the derivatives are recorded in Accumulated Other Comprehensive Income (Loss) and subsequently recognized in earnings when the hedged items impact earnings. Cash flows of such derivative financial instruments are classified consistent with the underlying hedged item. The implementation of this standard did not have a material impact on our consolidated financial position and results of operations. See Note 11 for additional SFAS No. 161 information and disclosures.

          In November 2008, the FASB ratified EITF Issue No. 08-07, “Accounting for Defensive Intangible Assets” (EITF 08-7). EITF 08-7 provides guidance for accounting for defensive intangible assets subsequent to their acquisition in accordance with SFAS No. 141R and SFAS No. 157 including the estimated useful life that should be assigned to such assets. EITF 08-7 is effective for intangible assets acquired on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The implementation of this standard did not have a material impact on our consolidated financial position and results of operations.

          In December 2008, the FASB issued FSP FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (FSP FAS 132(R)-1). FSP FAS 132(R)-1 provides guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. FSP FAS 132(R)-1 is effective for fiscal years ending after December 15, 2009. The implementation of this standard will not have a material impact on our consolidated financial position and results of operations.

          In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (FSP FAS 115-2 and FAS 124-2). FSP FAS 115-2 and FAS 124-2 changes the method for determining whether an other-than-temporary impairment exists for debt securities and the amount of the impairment to be recorded in earnings. FSP FAS 115-2 and FAS 124-2 is effective for interim and annual periods ending after June 15, 2009. The implementation of this standard did not have a material impact on our consolidated financial position and results of operations.

          In April 2009, the FASB issued FSP FAS 107-1, APB 28-1, “Interim Disclosures About Fair Value of Financial Instruments” (FSP FAS 107-1, APB 28-1). FSP FAS 107-1, APB 28-1 requires fair value disclosures in both interim as well as annual financial statements in order to provide more timely information about the effects of current market conditions on financial instruments. FSP FAS 107-1, APB 28-1 is effective for interim and annual periods ending after June 15, 2009. The implementation of this standard did not have a material impact on our consolidated financial position and results of operations.

          In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (SFAS No. 165). SFAS No. 165 provides guidance on management’s assessment of subsequent events and incorporates this guidance into accounting literature. SFAS No. 165 is

8


effective prospectively for interim and annual periods ending after June 15, 2009. The implementation of this standard did not have a material impact on our consolidated financial position and results of operations. The Company has evaluated subsequent events through July 27, 2009, the date of issuance of our consolidated financial position and results of operations.

          In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets” (SFAS No. 166). SFAS No. 166 amends the derecognition guidance in SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS No. 140). SFAS No. 166 is effective for fiscal years beginning after November 15, 2009. The Company is currently assessing the impact of SFAS No. 166 on its consolidated financial position and results of operations.

          In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (SFAS No. 167). SFAS No. 167 amends the consolidation guidance applicable to variable interest entities and affects the overall consolidation analysis under FASB Interpretation No. 46(R). SFAS No. 167 is effective for fiscal years beginning after November 15, 2009. The Company is currently assessing the impact of SFAS No. 167 on its consolidated financial position and results of operations.

          In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162” (SFAS No. 168). SFAS No. 168 stipulates the FASB Accounting Standards Codification is the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. SFAS No. 168 is effective for financials statements issued for interim and annual periods ending after September 15, 2009. The implementation of this standard will not have a material impact on our consolidated financial position and results of operations.

Note 3. Acquisitions

          In June 2009, the Company entered into a definitive agreement to acquire the RMG Group (RMG Regel + Messtechnik GmbH), a natural gas measuring and control products, services and integrated solutions company, for approximately $400 million. Completion of this acquisition is subject to regulatory approval. The RMG Group will be integrated into our Automation and Control Solutions segment.

NOTE 4. Repositioning and Other Charges

          A summary of repositioning and other charges follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 


 


 

 

 

2009

 

2008

 

2009

 

2008

 

 

 


 


 


 


 

Severance

 

$

80

 

$

25

 

$

142

 

$

113

 

Asset impairments

 

 

2

 

 

21

 

 

4

 

 

32

 

Exit costs

 

 

2

 

 

16

 

 

3

 

 

20

 

Adjustments

 

 

(18

)

 

 

 

(39

)

 

 

 

 



 



 



 



 

Total net repositioning charge

 

 

66

 

 

62

 

 

110

 

 

165

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asbestos related litigation charges, net of insurance

 

 

37

 

 

34

 

 

73

 

 

62

 

Probable and reasonably estimable environmental liabilities

 

 

36

 

 

51

 

 

67

 

 

117

 

Other

 

 

5

 

 

3

 

 

5

 

 

3

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net repositioning and other charges

 

$

144

 

$

150

 

$

255

 

$

347

 

 

 



 



 



 



 

9


          The following table summarizes the pretax distribution of total net repositioning and other charges by income statement classification:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 


 


 

 

 

2009

 

2008

 

2009

 

2008

 

 

 


 


 


 


 

Cost of products and services sold

 

$

114

 

$

135

 

$

208

 

$

306

 

Selling, general and administrative expenses

 

 

30

 

 

15

 

 

47

 

 

41

 

 

 



 



 



 



 

 

 

$

144

 

$

150

 

$

255

 

$

347

 

 

 



 



 



 



 

          The following table summarizes the pretax impact of total net repositioning and other charges by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 


 


 

 

 

2009

 

2008

 

2009

 

2008

 

 

 


 


 


 


 

Aerospace

 

$

34

 

$

6

 

$

32

 

$

44

 

Automation and Control Solutions

 

 

4

 

 

3

 

 

27

 

 

38

 

Specialty Materials

 

 

1

 

 

2

 

 

5

 

 

2

 

Transportation Systems

 

 

62

 

 

69

 

 

113

 

 

125

 

Corporate

 

 

43

 

 

70

 

 

78

 

 

138

 

 

 



 



 



 



 

 

 

$

144

 

$

150

 

$

255

 

$

347

 

 

 



 



 



 



 

          In the second quarter of 2009, we recognized repositioning charges totaling $84 million primarily for severance costs related to workforce reductions of 1,811 manufacturing and administrative positions principally in our Aerospace, Automation and Control Solutions and Transportation Systems segments. The workforce reductions were related to organizational realignments of portions of our Aerospace and Transportation Systems segments, adverse market conditions currently being experienced by many of our businesses and a factory transition in our Transportation Systems segment to a more cost-effective location. Also, $18 million of previously established accruals, primarily for severance at our Automation and Control Solutions and Aerospace segments, were returned to income in the second quarter of 2009 due principally to fewer employee separations than originally planned associated with prior severance programs.

          In the second quarter of 2008, we recognized a repositioning charge of $62 million including severance costs of $25 million related to workforce reductions of 607 manufacturing and administrative positions across all of our business segments. The repositioning charge included asset impairments of $21 million related to plant closures in our Transportation Systems segment and the shutdown of certain administrative facilities in our Corporate segment. The repositioning charge also included exit costs of $16 million primarily for environmental remediation and monitoring costs related to the closure and sale of a plant in our Transportation Systems segment.

          In the first six months of 2009, we recognized repositioning charges totaling $149 million primarily for severance costs related to workforce reductions of 3,120 manufacturing and administrative positions across all of our segments. The workforce reductions were primarily related to the adverse market conditions currently being experienced by many of our businesses, cost savings actions taken in connection with our ongoing functional transformation initiative, and organizational realignments of portions of our Aerospace and Transportation Systems segments. Also, $39 million of previously established accruals, primarily for severance at our Aerospace, Automation and Control Solutions and Transportation Systems segments, were returned to income in the first six months of 2009 due to fewer employee separations than originally planned associated with

10


prior severance programs and changes in the scope of previously announced repositioning actions.

          In the first six months of 2008, we recognized a repositioning charge of $165 million primarily for severance costs related to workforce reductions of 2,683 manufacturing and administrative positions across all of our segments. The more significant actions comprising the repositioning charge included the transitioning of manufacturing work to more cost-effective locations, the closure of plants and certain administrative facilities, outsourcing of non-core components, and our functional transformation initiative.

          The following table summarizes the status of our total repositioning reserves:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Severance
Costs

 

Asset
Impairments

 

Exit
Costs

 

Total

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2008

 

$

365

 

$

 

$

36

 

$

401

 

2009 charges

 

 

142

 

 

4

 

 

3

 

 

149

 

2009 usage

 

 

(98

)

 

(4

)

 

(2

)

 

(104

)

Adjustments

 

 

(38

)

 

 

 

(1

)

 

(39

)

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2009

 

$

371

 

$

 

$

36

 

$

407

 

 

 



 



 



 



 

          Certain repositioning projects in our Aerospace, Automation and Control Solutions and Transportation Systems segments included exit or disposal activities, the costs related to which, will be recognized in future periods when the actual liability is incurred. The nature of these exit or disposal costs principally includes product recertification and requalification and employee training and travel. The following table summarizes by segment, expected, incurred and remaining exit and disposal costs related to 2008 repositioning actions which we were not able to recognize at the time the actions were initiated. The exit and disposal costs related to the repositioning actions in the first six months of 2009 which we were not able to recognize at the time the actions were initiated were not significant.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aerospace

 

Automation
and Control
Solutions

 

Transpor-
tation
Systems

 

Total

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expected exit and disposal costs

 

$

113

 

$

27

 

$

11

 

$

151

 

Costs incurred year ended December 31, 2008

 

 

(12

)

 

 

 

(1

)

 

(13

)

Costs incurred six months ended June 30, 2009

 

 

(17

)

 

(1

)

 

(1

)

 

(19

)

 

 



 



 



 



 

Remaining exit and disposal costs at June 30, 2009

 

$

84

 

$

26

 

$

9

 

$

119

 

 

 



 



 



 



 

          In the second quarter of 2009, we recognized a charge of $36 million for environmental liabilities deemed probable and reasonably estimable in the quarter. We also recognized a charge of $37 million primarily representing an update to our estimated liability for the resolution of Bendix related asbestos claims as of June 30, 2009, net of probable insurance recoveries. Environmental and Asbestos matters are discussed in detail in Note 15, Commitments and Contingencies.

          In the second quarter of 2008, we recognized a charge of $51 million for environmental liabilities deemed probable and reasonably estimable in the quarter. We also recognized a charge of $34 million representing an update to our estimated liability for the resolution of Bendix related asbestos claims as of June 30, 2008, net of probable insurance recoveries.

11


          In the first six months of 2009, we recognized a charge of $67 million for environmental liabilities deemed probable and reasonably estimable in the period. We also recognized a charge of $73 million primarily representing an update to our estimated liability for the resolution of Bendix related asbestos claims as of June 30, 2009, net of probable insurance recoveries.

          In the first six months of 2008, we recognized a charge of $117 million for environmental liabilities deemed probable and reasonably estimable in the period. We also recognized a charge of $62 million representing an update to our estimated liability for the resolution of Bendix related asbestos claims as of June 30, 2008, net of probable insurance recoveries.

NOTE 5. Other (income) expense.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 


 


 

 

 

2009

 

2008

 

2009

 

2008

 

 

 


 


 


 


 

Equity (income)/loss of affiliated companies

 

$

(9

)

$

(6

)

$

(15

)

$

(22

)

Gain on sale of non-strategic Businesses and assets

 

 

 

 

(12

)

 

 

 

(12

)

Interest income

 

 

(6

)

 

(29

)

 

(18

)

 

(54

)

Foreign exchange

 

 

5

 

 

3

 

 

27

 

 

14

 

Other (net)

 

 

61

 

 

1

 

 

59

 

 

5

 

 

 



 



 



 



 

 

 

$

51

 

$

(43

)

$

53

 

$

(69

)

 

 



 



 



 



 

          Other (net) includes an other-than-temporary impairment charge of $62 million recognized in the second quarter of 2009. See Note 11 for further details.

12


NOTE 6. Earnings Per Share

          The details of the earnings per share calculations for the three months and six months ended June 30, 2009 and 2008 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

 

 


 

 

 

2009

 

2008

 

 

 


 


 

 

 

Basic

 

Assuming
Dilution

 

Basic

 

Assuming
Dilution

 

 

 


 


 


 


 

Income

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Honeywell

 

$

450

 

$

450

 

$

723

 

$

723

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average shares

 

 

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding

 

 

747.7

 

 

747.7

 

 

743.9

 

 

743.9

 

Dilutive securities issuable in connection with stock plans

 

 

 

 

2.4

 

 

 

 

9.5

 

 

 



 



 



 



 

Total average shares outstanding

 

 

747.7

 

 

750.1

 

 

743.9

 

 

753.4

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Honeywell

 

$

0.60

 

$

0.60

 

$

0.97

 

$

0.96

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 


 

 

 

2009

 

2008

 

 

 


 


 

 

 

Basic

 

Assuming
Dilution

 

Basic

 

Assuming
Dilution

 

 

 


 


 


 


 

Income

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Honeywell

 

$

847

 

$

847

 

$

1,366

 

$

1,366

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average shares

 

 

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding

 

 

742.7

 

 

742.7

 

 

743.7

 

 

743.7

 

Dilutive securities issuable in connection with stock plans

 

 

 

 

2.0

 

 

 

 

9.4

 

 

 



 



 



 



 

Total average shares outstanding

 

 

742.7

 

 

744.7

 

 

743.7

 

 

753.1

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Honeywell

 

$

1.14

 

$

1.14

 

$

1.84

 

$

1.81

 

 

 



 



 



 



 

          The diluted earnings per share calculations exclude the effect of stock options when the options’ assumed proceeds exceed the average market price of the common shares during the period. For the three months ended June 30, 2009 and 2008, the number of stock options excluded from the computations were 45.6 and 10.3 million, respectively. For the six months ended June 30, 2009 and 2008, the number of stock options excluded from the computations were 43.4 and 8.9 million, respectively. These stock options were outstanding at the end of each of the respective periods.

13


NOTE 7. Accounts, Notes and Other Receivables

 

 

 

 

 

 

 

 

 

 

June 30,
2009

 

December 31,
2008

 

 

 


 


 

 

 

 

 

 

 

Trade

 

$

6,049

 

$

5,893

 

Other

 

 

454

 

 

422

 

 

 



 



 

 

 

 

6,503

 

 

6,315

 

Less - Allowance for doubtful accounts

 

 

(218

)

 

(186

)

 

 



 



 

 

 

$

6,285

 

$

6,129

 

 

 



 



 

NOTE 8. Inventories

 

 

 

 

 

 

 

 

 

 

June 30,
2009

 

December 31,
2008

 

 

 


 


 

 

 

 

 

 

 

Raw materials

 

$

1,383

 

$

1,644

 

Work in process

 

 

811

 

 

952

 

Finished products

 

 

1,568

 

 

1,415

 

 

 



 



 

 

 

 

3,762

 

 

4,011

 

Less – Progress payments

 

 

(2

)

 

(3

)

        – Reduction to LIFO cost basis

 

 

(167

)

 

(160

)

 

 



 



 

 

 

$

3,593

 

$

3,848

 

 

 



 



 

          During the three and six months ended June 30, 2009, the quantity of inventory valued using the last-in, first-out (LIFO) method in our Specialty Materials segment declined. This reduction resulted in a liquidation of LIFO inventory quantities carried at lower of costs prevailing in prior years as compared with the cost of 2009 purchases, the effect of which decreased cost of products sold by $4 million during the second quarter of 2009.

NOTE 9. Goodwill and Other Intangible Assets - Net

          The change in the carrying amount of goodwill for the six months ended June 30, 2009 by segment is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dec. 31, 2008

 

Acquisitions

 

Divestitures

 

Currency
Translation
Adjustment

 

June, 30, 2009

 

 

 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aerospace

 

$

1,882

 

$

 

$

 

$

11

 

$

1,893

 

Automation and Control Solutions

 

 

6,638

 

 

24

 

 

 

 

7

 

 

6,669

 

Specialty Materials

 

 

1,151

 

 

 

 

 

 

 

 

1,151

 

Transportation Systems

 

 

514

 

 

 

 

 

 

9

 

 

523

 

 

 



 



 



 



 



 

 

 

$

10,185

 

$

24

 

$

 

$

27

 

$

10,236

 

 

 



 



 



 



 



 

14


Other intangible assets are comprised of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2009

 

December 31, 2008

 

 

 


 


 

 

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net
Carrying
Amount

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net
Carrying
Amount

 

 

 


 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible assets with determinable lives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Patents and technology

 

$

1,030

 

$

(542

)

$

488

 

$

1,030

 

$

(494

)

$

536

 

Customer relationships

 

 

1,260

 

 

(231

)

 

1,029

 

 

1,250

 

 

(175

)

 

1,075

 

Trademarks

 

 

167

 

 

(60

)

 

107

 

 

164

 

 

(50

)

 

114

 

Other

 

 

501

 

 

(380

)

 

121

 

 

501

 

 

(362

)

 

139

 

 

 



 



 



 



 



 



 

 

 

 

2,958

 

 

(1,213

)

 

1,745

 

 

2,945

 

 

(1,081

)

 

1,864

 

 

 



 



 



 



 



 



 

Trademarks with indefinite lives

 

 

396

 

 

 

 

396

 

 

403

 

 

 

 

403

 

 

 



 



 



 



 



 



 

 

 

$

3,354

 

$

(1,213

)

$

2,141

 

$

3,348

 

$

(1,081

)

$

2,267

 

 

 



 



 



 



 



 



 

          Amortization expense related to intangible assets for the six months ended June 30, 2009 and 2008 was $125 and $103 million, respectively.

          We completed our annual impairment testing of goodwill and indefinite-lived intangibles as of March 31, 2009 and determined that there was no impairment as of that date.

NOTE 10. Long-term Debt and Credit Agreements

 

 

 

 

 

 

 

 

 

 

June 30,
2009

 

December 31,
2008

 

 

 


 


 

 

 

 

 

 

 

 

 

Floating rate notes due 2009

 

$

 

$

300

 

Floating rate notes due 2009

 

 

500

 

 

500

 

Zero coupon bonds and money multiplier notes 13.0%-14.26%, due 2009

 

 

100

 

 

100

 

Floating rate notes due 2009-2011

 

 

 

 

193

 

7.50% notes due 2010

 

 

1,000

 

 

1,000

 

6-1/8% notes due 2011

 

 

500

 

 

500

 

5.625% notes due 2012

 

 

400

 

 

400

 

4.25% notes due 2013

 

 

600

 

 

600

 

3.875% notes due 2014

 

 

600

 

 

 

5.40% notes due 2016

 

 

400

 

 

400

 

5.30% notes due 2017

 

 

400

 

 

400

 

5.30% notes due 2018

 

 

900

 

 

900

 

5.00% notes due 2019

 

 

900

 

 

 

Industrial development bond obligations, floating rate maturing at various dates through 2037

 

 

60

 

 

60

 

6-5/8% debentures due 2028

 

 

216

 

 

216

 

9.065% debentures due 2033

 

 

51

 

 

51

 

5.70% notes due 2036

 

 

550

 

 

550

 

5.70% notes due 2037

 

 

600

 

 

600

 

Other (including capitalized leases), 1.54%-11.00% maturing at various dates through 2017

 

 

101

 

 

118

 

 

 



 



 

 

 

 

7,878

 

 

6,888

 

Less current portion

 

 

(1,627

)

 

(1,023

)

 

 



 



 

 

 

$

6,251

 

$

5,865

 

 

 



 



 

15


The schedule of principal payments on long term debt is as follows:

 

 

 

 

 

 

 

At June 30, 2009

 

 

 


 

2009

 

$

622

 

2010

 

 

1,018

 

2011

 

 

519

 

2012

 

 

401

 

2013

 

 

605

 

Thereafter

 

 

4,713

 

 

 



 

 

 

 

7,878

 

Less-current portion

 

 

(1,627

)

 

 



 

 

 

$

6,251

 

 

 



 

          In February 2009, the Company issued $600 million 3.875% Senior Notes due 2014 and $900 million 5.00% Senior Notes due 2019 (collectively, the “2009 Senior Notes”). The 2009 Senior Notes are senior unsecured and unsubordinated obligations of Honeywell and rank equally with all of Honeywell’s existing and future senior unsecured debt and senior to all of Honeywell’s subordinated debt. The offering resulted in gross proceeds of $1.5 billion, offset by $12 million in discount and issuance costs.

          We sell interests in designated pools of trade accounts receivables to third parties. In April 2009, we modified the terms of the trade accounts receivable program to permit the repurchase of receivables from the third parties at our discretion. This modification will provide additional flexibility in the management of the receivable portfolio and will also require the receivables in the program remain on the Company balance sheet. As a result, $500 million of program receivables were reflected as Accounts, notes and other receivables with a corresponding amount recorded as Short-term borrowings in the Consolidated Balance Sheet. As of June 30, 2009, these short-term borrowings were $300 million. This modification also results in the program costs being recognized as Interest and other financial charges in the Consolidated Statement of Operations on a prospective basis.

NOTE 11. Financial Instruments and Fair Value Measures

          Credit and Market Risk—Financial instruments, including derivatives, expose us to counterparty credit risk for nonperformance and to market risk related to changes in interest and currency exchange rates and commodity prices. We manage our exposure to counterparty credit risk through specific minimum credit standards, diversification of counterparties, and procedures to monitor concentrations of credit risk. Our counterparties in derivative transactions are substantial investment and commercial banks with significant experience using such derivative instruments. We monitor the impact of market risk on the fair value and cash flows of our derivative and other financial instruments considering reasonably possible changes in interest rates, currency exchange rates and commodity prices and restrict the use of derivative financial instruments to hedging activities.

          We continually monitor the creditworthiness of our customers to which we grant credit terms in the normal course of business. The terms and conditions of our credit sales are designed to mitigate or eliminate concentrations of credit risk with any single customer. Our sales are not materially dependent on a single customer or a small group of customers.

          Foreign Currency Risk Management—We conduct our business on a multinational basis in a wide variety of foreign currencies. Our exposure to market risk for changes in foreign currency exchange rates arises from international financing activities between subsidiaries, foreign currency denominated monetary assets and liabilities and transactions arising from international trade. Our objective is to

16


preserve the economic value of non-functional currency denominated cash flows. We attempt to hedge transaction exposures with natural offsets to the fullest extent possible and, once these opportunities have been exhausted, through foreign currency exchange forward and option contracts with third parties.

          We hedge monetary assets and liabilities denominated in non-functional currencies. Prior to conversion into U.S. dollars, these assets and liabilities are remeasured at spot exchange rates in effect on the balance sheet date. The effects of changes in spot rates are recognized in earnings and included in Other (Income) Expense.

          We partially hedge forecasted sales and purchases, which predominantly occur in the next twelve months and are denominated in non-functional currencies, with currency forward contracts. Changes in the forecasted non-functional currency cash flows due to movements in exchange rates are substantially offset by changes in the fair value of the currency forward contracts designated as hedges. Market value gains and losses on these contracts are recognized in earnings when the hedged transaction is recognized. Open foreign currency exchange forward contracts mature predominantly in the next twelve months. At June 30, 2009, we had contracts with notional amounts of $3,622 million to exchange foreign currencies, principally the US dollar, Euro, British pound, Canadian dollar, Hong Kong dollar, Mexican peso, Swiss franc, Czech koruna, Chinese renminbi, Indian rupee and Japanese yen.

          Commodity Price Risk Management—Our exposure to market risk for commodity prices can result in changes in our cost of production. We primarily mitigate our exposure to commodity price risk through the use of long-term, fixed-price contracts with our suppliers and formula price agreements with suppliers and customers. We also enter into forward commodity contracts with third parties designated as hedges of anticipated purchases of several commodities. Forward commodity contracts are marked-to-market, with the resulting gains and losses recognized in earnings when the hedged transaction is recognized. At June 30, 2009, we had contracts with notional amounts of $20 million related to forward commodity agreements, principally base metals and natural gas.

          Interest Rate Risk Management—We use a combination of financial instruments, including long-term, medium-term and short-term financing, variable-rate commercial paper, and interest rate swaps to manage the interest rate mix of our total debt portfolio and related overall cost of borrowing. At June 30, 2009, interest rate swap agreements designated as fair value hedges effectively changed $600 million of fixed rate debt at a rate of 3.875 percent to LIBOR based floating debt. Our interest rate swaps mature in 2014.

          Fair Value of Financial Instruments— SFAS No. 157, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). SFAS No. 157 classifies the inputs used to measure fair value into the following hierarchy:

17


 

 

Level 1

Unadjusted quoted prices in active markets for
identical assets or liabilities

 

 

Level 2

Unadjusted quoted prices in active markets for similar
assets or liabilities, or

 

 

 

Unadjusted quoted prices for identical or similar
assets or liabilities in markets that are not active,
or

 

 

 

Inputs other than quoted prices that are observable for
the asset or liability

 

 

Level 3

Unobservable inputs for the asset or liability

          The Company endeavors to utilize the best available information in measuring fair value. Nonfinancial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company has determined that our financial assets and liabilities are level 2 in the fair value hierarchy. The following table sets forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2009:

 

 

 

 

 

 

 

 

 

 

June 30,
2009

 

December 31,
2008

 

 

 


 


 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

Foreign currency exchange contracts

 

$

45

 

$

7

 

Available for sale investments

 

 

43

 

 

23

 

Interest rate swap agreements

 

 

1

 

 

 

Forward commodity contracts

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Foreign currency exchange contracts

 

$

35

 

$

34

 

Interest rate swap agreements

 

 

3

 

 

 

Forward commodity contracts

 

 

1

 

 

4

 

          The foreign currency exchange contracts, interest rate swap agreements, and forward commodity contracts are valued using broker quotations, or market transactions in either the listed or over-the-counter markets. As such, these derivative instruments are classified within level 2. The Company also holds investments in marketable equity securities that are designated as available for sale and are valued using market transactions in over-the-counter markets. As such, these investments are classified within level 2.

          The carrying value of cash and cash equivalents, trade accounts and notes receivables, payables, commercial paper and short-term borrowings contained in the Consolidated Balance Sheet approximates fair value. The following table sets forth the Company’s financial assets and liabilities that were not carried at fair value:

18


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2009

 

December 31, 2008

 

 

 


 


 

 

 

Carrying
Value

 

Fair
Value

 

Carrying
Value

 

Fair
Value

 

 

 


 


 


 


 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term receivables

 

$

318

 

$

292

 

$

517

 

$

471

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt and related current maturities

 

$

7,878

 

$

8,228

 

$

6,888

 

$

7,082

 

          In the second quarter and first six months June 30, 2009, the Company had assets with a net book value of $27 million and $29 million, respectively, specifically property, plant and equipment and intangible assets, which were accounted for at fair value on a nonrecurring basis. These assets were tested for impairment and based on the fair value of these assets the Company recognized losses of $7 million and $9 million, respectively, in the second quarter and first six months. The Company has determined that the fair value measurements of these nonfinancial assets are level 3 in the fair value hierarchy.

          The Company holds investments in marketable equity securities that are designated as cost method investments and available for sale securities, as appropriate. The Company considers duration of the unrealized loss position, stability of the liquidity positions and financial conditions of the investees, and the Company’s intent and ability to hold these investments for a reasonable period of time sufficient for a forecasted recovery of fair value, in determining other than temporary impairments. As a result of the other-than-temporary decline in fair value of these investments, the Company recognized an impairment charge of $62 million in the second quarter of 2009 that is included in Other (Income) Expense.

          The derivatives utilized for risk management purposes as detailed above are included on the Consolidated Balance Sheet and impacted the Statement of Operations as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset Derivatives

 

 

 


 

Designated as Hedging Instruments

 

Balance Sheet Location

 

June 30, 2009
Fair Value

 

December 31, 2008
Fair Value

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency exchange
contracts

 

Accounts, notes, and
other receivables

 

 

$

44

 

 

 

$

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements

 

Other assets

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Accounts, notes, and
other receivables

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Not Designated as Hedging
Instruments

 

Balance Sheet Location

 

June 30, 2009
Fair Value

 

December 31, 2008
Fair Value

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency exchange
contracts

 

Accounts, notes, and
other receivables

 

 

$

1

 

 

 

$

5

 

 

19


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability Derivatives

 

 

 


 

Designated as Hedging Instruments

 

Balance Sheet Location

 

June 30, 2009
Fair Value

 

December 31, 2008
Fair Value

 


 


 


 


 

 

 

 

 

 

 

 

 

Foreign currency exchange
contracts

 

Accrued liabilities

 

 

$

32

 

 

 

$

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements

 

Accrued liabilities

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Accrued liabilities

 

 

 

1

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Not Designated as Hedging
Instruments

 

Balance Sheet Location

 

June 30, 2009
Fair Value

 

December 31, 2008
Fair Value

 


 


 


 


 

Foreign currency exchange
contracts

 

Accrued liabilities

 

 

$

3

 

 

 

$

14

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Location of Gain
or (Loss)
Reclassified
from AOCI into
Income (Effective Portion)

 

 

 

 

 

 

 

Gain or (Loss) Recognized in
OCI (Effective Portion)

 

 

Gain or (Loss) Reclassified
from AOCI into Income

 

 

 

 

 

 

Derivatives in Cash Flow Hedge
Relationships

 


 

 


 

 

Three Months
Ended
June 30, 2009

 

Six Months
Ended
June 30, 2009

 

 

Three Months
Ended
June 30, 2009

 

Six Months
Ended
June 30, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 


 





 



 


 





 






 

 

 

 

 

 

 

 

 

 

Product sales

 

 

$

12

 

 

 

$

10

 

 

Foreign currency exchange contracts

 

 

 

 

 

 

 

 

 

Cost of products
sold

 

 

 

(10

)

 

 

 

(12

)

 

 

 

$

33

 

 

$9

 

Sales & General
Administrative
Expenses

 

 

 

(2

)

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

 

$

8

 

 

$5

 

Cost of products
sold

 

 

($

3

)

 

 

($

4

)

 

          Ineffective portions of commodity derivative instruments designated in cash flow hedge relationships were ($0.2) million and ($0.4) million, respectively, in the second quarter and first six months of 2009 and are located in cost of products sold. Foreign currency exchange contracts in cash flow hedge relationships qualify as critical matched terms hedge relationships and as a result have no ineffectiveness.

          Interest rate swap agreements are designated in SFAS No. 133 as hedge relationships with gains or (losses) on the derivative recognized in Interest and other financial charges offsetting the gains and losses on the underlying debt being hedged. Gains on interest rate swap agreements recognized in earnings were $1 million in both the second quarter and six months ended June 30, 2009. These gains were fully off-set by losses on the underlying debt being hedged.

          We also economically hedge our exposure to changes in foreign exchange rates principally with forward contracts. Forward contracts are marked-to-market with the resulting gains and losses similarly recognized in earnings offsetting the gains and losses on the non-functional currency denominated monetary assets and liabilities being hedged. The Company had the following derivatives utilized as economic hedges for foreign currency risk management purposes described above as of June 30, 2009:

20


 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Instruments Not
Designated as Hedging
Instruments under SFAS No. 133

 

Location of Gain or
(Loss) Recognized in
Income on Derivative

 

Gain or (Loss) Recognized in Income
on Derivative


 


 


 

 

 

 

Three Months Ended
June 30, 2009

 

Six Months Ended
June 30, 2009

 

 

 

 


 


Foreign currency exchange
contracts

 

Other(income) expense

 

 

$

(29

)

 

 

$

(68

)

NOTE 12. Comprehensive Income/(Loss)

Comprehensive income/(loss) consists of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 


 


 

 

 

2009

 

2008

 

2009

 

2008

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

460

 

$

728

 

$

859

 

$

1,375

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange translation adjustments

 

 

389

 

 

(67

)

 

139

 

 

177

 

Pension and postretirement benefit adjustments

 

 

57

 

 

12

 

 

83

 

 

25

 

Change in fair value of effective cash flow hedges

 

 

46

 

 

(4

)

 

24

 

 

(2

)

Change in unrealized losses on available for sale investments(1)

 

 

45

 

 

 

 

51

 

 

 

 

 



 



 



 



 

 

 

 

997

 

 

669

 

 

1,156

 

 

1,575

 

Comprehensive Income attributable to noncontrolling interest(2)

 

 

(9

)

 

(5

)

 

(11

)

 

(9

)

 

 



 



 



 



 

Comprehensive Income/(Loss) attributable to Honeywell

 

$

988

 

$

664

 

$

1,145

 

$

1,566

 

 

 



 



 



 



 


 

 

 

 

(1)

Includes reclassification adjustment for losses included in net income.

 

(2)

Comprehensive Income/(Loss) attributable to noncontrolling interest consisted predominately of net income.

Changes in Noncontrolling interest consist of the following:

 

 

 

 

 

December 31, 2008

 

$

82

 

 

 

 

 

 

Comprehensive Income/(Loss)attributable to noncontrolling interest

 

 

11

 

Capital contribution by noncontrolling shareholders

 

 

4

 

Dividends paid

 

 

(3

)

 

 



 

June 30, 2009

 

$

94

 

 

 



 

In the first six months of 2009 there were no increases or decreases to Honeywell additional paid in capital for purchases or sales of existing noncontrolling interests.

21


NOTE 13. Segment Financial Data

          Honeywell’s senior management evaluates segment performance based on segment profit. Segment profit is measured as business unit income (loss) before taxes excluding general corporate unallocated expense, other income (expense), interest and other financial charges, pension and other postretirement benefits (expense), stock compensation expense, repositioning and other charges and accounting changes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 


 


 

 

 

2009

 

2008

 

2009

 

2008

 

 

 


 


 


 


 

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

Aerospace

 

$

2,719

 

$

3,281

 

$

5,478

 

$

6,311

 

Automation and Control Solutions

 

 

3,013

 

 

3,616

 

 

6,014

 

 

6,796

 

Specialty Materials

 

 

1,048

 

 

1,450

 

 

2,102

 

 

2,859

 

Transportation Systems

 

 

786

 

 

1,327

 

 

1,542

 

 

2,603

 

Corporate

 

 

 

 

 

 

 

 

 

 

 



 



 



 



 

 

 

$

7,566

 

$

9,674

 

$

15,136

 

$

18,569

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment Profit

 

 

 

 

 

 

 

 

 

 

 

 

 

Aerospace

 

$

454

 

$

602

 

$

942

 

$

1,165

 

Automation and Control Solutions

 

 

346

 

 

390

 

 

657

 

 

718

 

Specialty Materials

 

 

150

 

 

186

 

 

275

 

 

451

 

Transportation Systems

 

 

25

 

 

149

 

 

22

 

 

298

 

Corporate

 

 

(45

)

 

(49

)

 

(90

)

 

(105

)

 

 



 



 



 



 

Total Segment Profit

 

 

930

 

 

1,278

 

 

1,806

 

 

2,527

 

 

 



 



 



 



 

Other income (expense) (A)

 

 

(60

)

 

37

 

 

(68

)

 

47

 

Interest and other financial charges

 

 

(123

)

 

(115

)

 

(240

)

 

(230

)

Stock compensation expense (B)

 

 

(35

)

 

(35

)

 

(77

)

 

(76

)

Pension and other postretirement expense (B)

 

 

58

 

 

(26

)

 

3

 

 

(53

)

Repositioning and other charges (B)

 

 

(144

)

 

(150

)

 

(255

)

 

(347

)

 

 



 



 



 



 

Income before taxes

 

$

626

 

$

989

 

$

1,169

 

$

1,868

 

 

 



 



 



 



 


 

 

(A)

Equity income/(loss) of affiliated companies is included in Segment Profit.

 

 

(B)

Amounts included in cost of products and services sold and selling, general and administrative expenses.

22


NOTE 14. Pension and Other Postretirement Benefits

          Net periodic pension and other postretirement benefits costs for our significant defined benefit plans include the following components:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 


 


 

 

 

2009

 

2008

 

2009

 

2008

 

 

 


 


 


 


 

Pension Benefits

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

54

 

$

67

 

$

111

 

$

134

 

Interest cost

 

 

250

 

 

262

 

 

492

 

 

524

 

Expected return on plan assets

 

 

(333

)

 

(364

)

 

(654

)

 

(727

)

Amortization of prior service cost

 

 

5

 

 

7

 

 

12

 

 

14

 

Recognition of actuarial losses

 

 

45

 

 

12

 

 

81

 

 

24

 

Settlements and curtailments

 

 

 

 

 

 

 

 

2

 

 

 



 



 



 



 

 

 

$

21

 

$

(16

)

$

42

 

$

(29

)

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 


 


 

 

 

2009

 

2008

 

2009

 

2008

 

 

 


 


 


 


 

Other Postretirement Benefits

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

 

$

4

 

$

3

 

$

7

 

Interest cost

 

 

23

 

 

33

 

 

52

 

 

66

 

Amortization of prior service (credit)

 

 

(12

)

 

(10

)

 

(22

)

 

(20

)

Recognition of actuarial losses

 

 

(1

)

 

8

 

 

7

 

 

17

 

Settlements and curtailments

 

 

(98

)

 

 

 

(98

)

 

 

 

 



 



 



 



 

 

 

$

(88

)

$

35

 

$

(58

)

$

70

 

 

 



 



 



 



 

          In both March 2009 and June 2009 we made $200 million voluntary contributions of Honeywell common stock to our U.S. pension plans to improve the funded status of our plans.

          On May 1, 2009, Honeywell amended the U.S. retiree medical plan eliminating the subsidy for non-union employees who retire after September 1, 2009. Employees already retired or who retire on or before September 1, 2009 will not be affected by this change. This plan amendment reduced the accumulated postretirement benefit obligation by $180 million representing the elimination of benefits attributable to years of service already rendered by active non-union employees who are not eligible to retire and those eligible non-union employees who are assumed not to retire prior to September 1, 2009. This reduction in the accumulated postretirement benefit obligation will be recognized as part of net periodic postretirement benefit cost over the average future service period to full eligibility of the remaining active union employees still eligible for a retiree medical subsidy. This plan amendment also resulted in a curtailment gain of $98 million which was included as part of net periodic postretirement benefit cost in the three and six months ended June 30, 2009. The curtailment gain represents the recognition of previously unrecognized negative prior service costs attributable to the future years of service of the employee group for which future accrual of benefits has been eliminated.

NOTE 15. Commitments and Contingencies

Environmental Matters

          We are subject to various federal, state, local and foreign government requirements relating to the protection of the environment. We believe that, as a general matter, our policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage and personal injury and that our handling, manufacture, use and disposal of hazardous substances are in accordance

23


with environmental and safety laws and regulations. However, mainly because of past operations and operations of predecessor companies, we, like other companies engaged in similar businesses, have incurred remedial response and voluntary cleanup costs for site contamination and are a party to lawsuits and claims associated with environmental and safety matters, including past production of products containing hazardous substances. Additional lawsuits, claims and costs involving environmental matters are likely to continue to arise in the future.

          With respect to environmental matters involving site contamination, we continually conduct studies, individually or jointly with other potentially responsible parties, to determine the feasibility of various remedial techniques. It is our policy to record appropriate liabilities for environmental matters when remedial efforts or damage claim payments are probable and the costs can be reasonably estimated. Such liabilities are based on our best estimate of the undiscounted future costs required to complete the remedial work. The recorded liabilities are adjusted periodically as remediation efforts progress or as additional technical, regulatory or legal information becomes available. Given the uncertainties regarding the status of laws, regulations, enforcement policies, the impact of other potentially responsible parties, technology and information related to individual sites, we do not believe it is possible to develop an estimate of the range of reasonably possible environmental loss in excess of our recorded liabilities. We expect to fund expenditures for these matters from operating cash flow. The timing of cash expenditures depends on a number of factors, including the timing of remedial investigations and feasibility studies, the timing of litigation and settlements of remediation liability, personal injury and property damage claims, regulatory approval of cleanup projects, remedial techniques to be utilized and agreements with other parties. The following table summarizes information concerning our recorded liabilities for environmental costs:

 

 

 

 

 

 

 

Six Months Ended
June 30, 2009

 

 

 


 

Beginning of period

 

$

946

 

Accruals for environmental matters deemed probable and reasonably estimable

 

 

71

 

Environmental liability payments

 

 

(133

)

 

 



 

End of period

 

$

884

 

 

 



 

          Environmental liabilities are included in the following balance sheet accounts:

 

 

 

 

 

 

 

 

 

 

June 30, 2009

 

December 31, 2008

 

 

 


 


 

Accrued liabilities

 

$

314

 

$

343

 

Other liabilities

 

 

570

 

 

603

 

 

 



 



 

 

 

$

884

 

$

946

 

 

 



 



 

          Although we do not currently possess sufficient information to reasonably estimate the amounts of liabilities to be recorded upon future completion of studies, litigation or settlements, and neither the timing nor the amount of the ultimate costs associated with environmental matters can be determined, they could be material to our consolidated results of operations or operating cash flows in the periods recognized or paid. However, considering our past experience and existing reserves, we do not expect that these environmental matters will have a material adverse effect on our consolidated financial position.

          New Jersey Chrome Sites — Provisions have been made in our financial statements for the estimated costs of the court-ordered excavation and transport for offsite disposal of approximately one million tons of chromium residue present at a predecessor Honeywell site located in Jersey City, New Jersey, known as Study Area 7. These expenditures have been and are expected to continue to be incurred evenly through the remedy’s expected completion date in 2010. We do not expect

24


implementation of this remedy to have a material adverse effect on our future consolidated results of operations, operating cash flows or financial position. Provision also has been made in our financial statements for the estimated costs of implementing related groundwater remedial plans approved by the Court, as well as sediment remedial plans, which also have been approved by the Court and are presently under review by the U.S. Environmental Protection Agency.

          The above-referenced site is the most significant of the twenty-one sites located in Hudson County, New Jersey that are the subject of an Administrative Consent Order (ACO) entered into with the New Jersey Department of Environmental Protection (NJDEP) in 1993 (the “Honeywell ACO Sites”). Remedial investigations and activities consistent with the ACO have also been conducted and are underway at the other Honeywell ACO Sites. We have recorded reserves for the Honeywell ACO Sites where appropriate under the accounting policy described above.

          On May 3, 2005, NJDEP filed a lawsuit in New Jersey Superior Court against Honeywell and two other companies seeking declaratory and injunctive relief, unspecified damages, and the reimbursement of unspecified total costs relating to sites in New Jersey allegedly contaminated with chrome ore processing residue. The claims against Honeywell relate to the activities of a predecessor company which ceased its New Jersey manufacturing operations in the mid-1950’s. Honeywell and the two other companies have agreed to settle this litigation with NJDEP, subject to Court approval. Under the settlement, Honeywell would pay $5 million of NJDEP’s past costs, as well as accept sole responsibility to remediate 24 of the 53 “Publicly Funded Sites” (i.e., those sites for which none of the three companies had previously accepted responsibility). Honeywell would also bear 50% of the costs at another 10 Publicly Funded Sites. We have recorded reserves for the Publicly Funded Sites where appropriate under the accounting policy described above.

          Lawsuits were previously filed in federal court against Honeywell and other landowners by Jersey City and two of its municipal utility authorities, and separately by a citizens group seeking, the cleanup of chrome residue at several of the Honeywell ACO Sites under the federal Resource Conservation and Recovery Act (RCRA). Honeywell, Jersey City, the municipal utility authorities and the citizens group have agreed to settle claims relating to a group of properties known as Study Area 6 North, which settlement has been approved by the Court. These sites and other related sites have been classified by Jersey City as an area in need of redevelopment and Jersey City has approved a redevelopment plan and agreement regarding these sites. As part of this settlement, Honeywell has also agreed to release claims it may have had against Jersey City and its municipal utility authorities for contamination of river sediments and for the remediation of chrome residue at the Publicly Funded Sites that are sewer lines. Honeywell and the plaintiffs have reached a settlement for one group of properties known as Study Area 6 South, and that settlement has been approved by the Court. The remedial actions regarding the settlements discussed above, which have also been approved by NJDEP, are consistent with our recorded reserves. Settlement negotiations are ongoing for the remaining sites (portions of what is known as Study Area 5) in the litigation.

          Dundalk Marine Terminal, Baltimore — Chrome residue from legacy chrome plant operations in Baltimore was deposited as fill at the Dundalk Marine Terminal (“DMT”), which is owned and operated by the Maryland Port Administration (“MPA”). Honeywell and the MPA have been sharing costs to investigate and mitigate related environmental issues, and have entered into a cost sharing agreement under which Honeywell will bear 77 percent of the costs of developing and implementing permanent remedies for the DMT facility. The investigative phase is ongoing, after which the appropriate remedies will be identified and chosen. We have negotiated a Consent Decree with the MPA and Maryland Department of the Environment (“MDE”) with respect to the investigation and remediation of the DMT facility. The Consent Decree is being challenged in federal court by BUILD, a Baltimore community group, together with a local church and two individuals (collectively “BUILD”). In October 2007, the Court dismissed with prejudice BUILD’s state law claims and

25


dismissed without prejudice BUILD’s RCRA claims regarding neighborhoods near the DMT facility. In August 2008, the Court held a hearing on the Company’s motion to dismiss BUILD’s remaining claims on the grounds that MDE is diligently prosecuting the investigation and remediation of the DMT. We are awaiting the Court’s decision. We do not believe that this matter will have a material adverse impact on our consolidated financial position or operating cash flows. Given the scope and complexity of this project, it is possible that the cost of remediation, when determinable, could have a material adverse impact on our results of operations in the periods recognized.

          Onondaga Lake, Syracuse, NY — A predecessor company to Honeywell operated a chemical plant which is alleged to have contributed mercury and other contaminants to the Lake. In July 2005, the New York State Department of Environmental Conservation (the DEC) issued its Record of Decision (ROD) with respect to remediation of industrial contamination in the Lake. In January 2007, a Consent Decree was approved by the United States District Court for the Northern District of New York for the implementation of the combined dredging/capping remedy set forth in the ROD. We have accrued for our estimated cost of implementing the remedy set forth in the ROD based on current available information and analysis performed by our engineering consultants.

          In December 2006, the United States Fish and Wildlife Service published notice of its intent to pursue natural resource damages related to the site. It is not possible to predict the outcome or timing of its assessments, which are typically lengthy processes lasting several years, or the amounts of or responsibility for these damages.

          Honeywell is also conducting remedial investigations and activities at other sites in Syracuse, New York. We have recorded reserves for these investigations and activities where appropriate under the accounting policy described above.

Asbestos Matters

          Like many other industrial companies, Honeywell is a defendant in personal injury actions related to asbestos. We did not mine or produce asbestos, nor did we make or sell insulation products or other construction materials that have been identified as the primary cause of asbestos related disease in the vast majority of claimants. Products containing asbestos previously manufactured by Honeywell or by previously owned subsidiaries primarily fall into two general categories: refractory products and friction products.

          Refractory Products — Honeywell owned North American Refractories Company (NARCO) from 1979 to 1986. NARCO produced refractory products (high temperature bricks and cement) that were sold largely to the steel industry in the East and Midwest. Less than 2 percent of NARCO’s products contained asbestos.

          When we sold the NARCO business in 1986, we agreed to indemnify NARCO with respect to personal injury claims for products that had been discontinued prior to the sale (as defined in the sale agreement). NARCO retained all liability for all other claims. On January 4, 2002, NARCO filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code.

          As a result of the NARCO bankruptcy filing, all of the claims pending against NARCO are automatically stayed pending the reorganization of NARCO. In addition, the bankruptcy court enjoined both the filing and prosecution of NARCO-related asbestos claims against Honeywell. The stay has remained in effect continuously since January 4, 2002. In connection with NARCO’s bankruptcy filing, we paid NARCO’s parent company $40 million and agreed to provide NARCO with up to $20 million in financing. We also agreed to pay $20 million to NARCO’s parent company upon the filing of a plan of reorganization for NARCO acceptable to Honeywell (which amount was paid in December 2005 following the filing of NARCO’s Third Amended Plan of Reorganization), and to pay NARCO’s parent company $40 million, and to forgive any outstanding NARCO indebtedness to Honeywell, upon the effective date of the plan of reorganization.

26


          We believe that, as part of the NARCO plan of reorganization, a trust will be established for the benefit of all asbestos claimants, current and future, pursuant to Trust Distribution Procedures negotiated with the NARCO Asbestos Claimants Committee and the Court-appointed legal representative for future asbestos claimants. If the trust is put in place and approved by the Court as fair and equitable, Honeywell as well as NARCO will be entitled to a permanent channeling injunction barring all present and future individual actions in state or federal courts and requiring all asbestos related claims based on exposure to NARCO products to be made against the federally-supervised trust. Honeywell has reached agreement with the representative for future NARCO claimants and the Asbestos Claimants Committee to cap its annual contributions to the trust with respect to future claims at a level that would not have a material impact on Honeywell’s operating cash flows.

          In November 2007, the Bankruptcy Court entered an amended order confirming the NARCO Plan without modification and approving the 524(g) trust and channeling injunction in favor of NARCO and Honeywell. In December 2007, certain insurers filed an appeal of the Bankruptcy Court Order in the United States District Court for the Western District of Pennsylvania. The District Court affirmed the Bankruptcy Court Order in July 2008. In August 2008, insurers filed a notice of appeal to the Third Circuit Court of Appeals. The appeal is fully briefed, oral argument took place on May 21, 2009, and the matter has been submitted for decision. No assurances can be given as to the time frame or outcome of this appeal. We expect that the stay enjoining litigation against NARCO and Honeywell will remain in effect during the pendency of these proceedings.

          Our consolidated financial statements reflect an estimated liability for settlement of pending and future NARCO-related asbestos claims as of June 30, 2009 and December 31, 2008 of $1.1 billion. The estimated liability for pending claims is based on terms and conditions, including evidentiary requirements, in definitive agreements with approximately 260,000 current claimants, and an estimate of the unsettled claims pending as of the time NARCO filed for bankruptcy protection. Substantially all settlement payments with respect to current claims have been made. Approximately $100 million of payments due pursuant to these settlements is due only upon establishment of the NARCO trust.

          The estimated liability for future claims represents the estimated value of future asbestos related bodily injury claims expected to be asserted against NARCO through 2018 and the aforementioned obligations to NARCO’s parent. In light of the uncertainties inherent in making long-term projections we do not believe that we have a reasonable basis for estimating asbestos claims beyond 2018 under SFAS No. 5, “Accounting for Contingencies”. The estimate is based upon the disease criteria and payment values contained in the NARCO Trust Distribution Procedures negotiated with the NARCO Asbestos Claimants Committee and the NARCO future claimants’ representative. Honeywell projected the probable number and value, including trust claim handling costs, of asbestos related future liabilities based upon experience of asbestos claims filing rates in the tort system and in certain operating asbestos trusts, and the claims experience in those forums. The valuation methodology also includes an analysis of the population likely to have been exposed to asbestos containing products, epidemiological studies to estimate the number of people likely to develop asbestos related diseases, NARCO claims filing history, the pending inventory of NARCO asbestos related claims and payment rates expected to be established by the NARCO trust. This methodology used to estimate the liability for future claims has been commonly accepted by numerous courts.

          As of June 30, 2009 and December 31, 2008, our consolidated financial statements reflect an insurance receivable corresponding to the liability for settlement of pending and future NARCO-related asbestos claims of $873 and $877 million, respectively. This coverage reimburses Honeywell for portions of the costs incurred to settle NARCO related claims and court judgments as well as defense costs and is provided by a large number of insurance policies written by dozens of insurance companies in both the domestic insurance market and the London excess market. At June 30, 2009, a significant portion of this coverage is with

27


insurance companies with whom we have agreements to pay full policy limits based on corresponding Honeywell claims costs. We conduct analyses to determine the amount of insurance that we estimate is probable of recovery in relation to payment of current and estimated future claims. While the substantial majority of our insurance carriers are solvent, some of our individual carriers are insolvent, which has been considered in our analysis of probable recoveries. We made judgments concerning insurance coverage that we believe are reasonable and consistent with our historical dealings with our insurers, our knowledge of any pertinent solvency issues surrounding insurers and various judicial determinations relevant to our insurance programs.

          In the second quarter of 2006, Travelers Casualty and Insurance Company (“Travelers”) filed a lawsuit against Honeywell and other insurance carriers in the Supreme Court of New York, County of New York, disputing obligations for NARCO-related asbestos claims under high excess insurance coverage issued by Travelers and other insurance carriers. Approximately $340 million of coverage under these policies is included in our NARCO-related insurance receivable at June 30, 2009. Honeywell believes it is entitled to the coverage at issue and expects to prevail in this matter. In the third quarter of 2007, Honeywell prevailed on a critical choice of law issue concerning the appropriate method of allocating NARCO-related asbestos liabilities to triggered policies. The plaintiffs appealed and the trial court’s ruling was upheld by the appellate court in the second quarter of 2009. A related New Jersey action brought by Honeywell has been dismissed, but all coverage claims against plaintiffs have been preserved in the New York action. Based upon (i) our understanding of relevant facts and applicable law, (ii) the terms of the insurance policies at issue, (iii) our experience on matters of this nature, and (iv) the advice of counsel, we believe that the amount due from Travelers and other insurance carriers ($340 million at June 30, 2009) is probable of recovery. While Honeywell expects to prevail in this matter, an adverse outcome could have a material impact on our results of operations in the period recognized but would not be material to our consolidated financial position or operating cash flows.

          Projecting future events is subject to many uncertainties that could cause the NARCO related asbestos liabilities or assets to be higher or lower than those projected and recorded. There is no assurance that the plan of reorganization will become final, that insurance recoveries will be timely or whether there will be any NARCO related asbestos claims beyond 2018. Given the inherent uncertainty in predicting future events, we review our estimates periodically, and update them based on our experience and other relevant factors. Similarly we will reevaluate our projections concerning our probable insurance recoveries in light of any changes to the projected liability or other developments that may impact insurance recoveries.

          Friction Products — Honeywell’s Bendix friction materials (Bendix) business manufactured automotive brake parts that contained chrysotile asbestos in an encapsulated form. Existing and potential claimants consist largely of individuals who allege exposure to asbestos from brakes from either performing or being in the vicinity of individuals who performed brake replacements.

          From 1981 through June 30, 2009, we have resolved approximately 119,000 Bendix related asbestos claims. We had 129 trials resulting in favorable verdicts and 15 trials resulting in adverse verdicts. Two of these adverse verdicts were reversed on appeal, three verdicts were vacated on post-trial motions, three claims were settled and the remaining have been or will be appealed. The following tables present information regarding Bendix related asbestos claims activity:

28


 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended
June 30, 2009

 

Year Ended
December 31,

 

 

 


 


 

 

 

 

 

2008

 

2007

 

 

 

 

 


 


 

Claims Activity

 

 

 

 

 

 

 

 

 

 

Claims Unresolved at the beginning of period

 

 

51,951

 

 

51,658

 

 

57,108

 

Claims Filed during the period

 

 

1,353

 

 

4,003

 

 

2,771

 

Claims Resolved during the period

 

 

(2,194

)

 

(3,710

)

 

(8,221

)

 

 



 



 



 

Claims Unresolved at the end of period

 

 

51,110

 

 

51,951

 

 

51,658

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

Disease Distribution of Unresolved Claims

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 


 

 

 

June 30, 2009

 

2008

 

2007

 

 

 


 


 


 

Mesothelioma and Other Cancer Claims

 

 

5,787

 

 

5,575

 

 

5,011

 

Other Claims

 

 

45,323

 

 

46,376

 

 

46,647

 

 

 



 



 



 

Total Claims

 

 

51,110

 

 

51,951

 

 

51,658

 

 

 



 



 



 

          Approximately 45 percent of the approximately 51,000 pending claims at June 30, 2009 are on the inactive, deferred, or similar dockets established in some jurisdictions for claimants who allege minimal or no impairment. The approximately 51,000 pending claims also include claims filed in jurisdictions such as Texas, Virginia, and Mississippi that historically allowed for consolidated filings. In these jurisdictions, plaintiffs were permitted to file complaints against a pre-determined master list of defendants, regardless of whether they have claims against each individual defendant. Many of these plaintiffs may not actually intend to assert claims against Honeywell. Based on state rules and prior experience in these jurisdictions, we anticipate that many of these claims will ultimately be dismissed.

          Honeywell has experienced average resolution values per claim excluding legal costs as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31,

 

 

 


 

 

 

2008

 

2007

 

2006

 

 

 


 


 


 

 

 

(in whole dollars)

 

Malignant claims

 

$

65,000

 

$

33,000

 

$

33,000

 

Nonmalignant claims

 

$

1,500

 

$

500

 

$

250

 

          It is not possible to predict whether resolution values for Bendix related asbestos claims will increase, decrease or stabilize in the future.

          Our consolidated financial statements reflect an estimated liability for resolution of pending and future Bendix related asbestos claims of $596 and $578 million at June 30, 2009 and December 31, 2008, respectively. The estimated liability for future claims represents the estimated value of future asbestos related bodily injury claims expected to be asserted against Bendix over the next five years. In light of the uncertainties inherent in making long-term projections, as well as certain factors unique to friction product asbestos claims, we do not believe that we have a reasonable basis for estimating asbestos claims beyond the next five years under SFAS No. 5, “Accounting for Contingencies”. The estimate is based upon Bendix historical experience in the tort system for the three years ended December 31, 2008 with respect to claims filing and resolution values. The methodology used to estimate the liability for future claims has been commonly accepted by numerous courts. It is similar to that used to estimate the future NARCO related asbestos claims liability.

          Honeywell currently has approximately $1.9 billion of insurance coverage remaining with respect to pending and potential future Bendix related asbestos claims, of which $167 and $156 million are reflected as receivables in our consolidated balance sheet at June 30, 2009 and December 31, 2008, respectively. This coverage is provided by a large number of insurance policies written by dozens of insurance companies in both the domestic insurance market and the London excess market. Insurance receivables are recorded in the financial statements

29


simultaneous with the recording of the liability for the estimated value of the underlying asbestos claims. The amount of the insurance receivable recorded is based on our ongoing analysis of the insurance that we estimate is probable of recovery. This determination is based on our analysis of the underlying insurance policies, our historical experience with our insurers, our ongoing review of the solvency of our insurers, our interpretation of judicial determinations relevant to our insurance programs, and our consideration of the impacts of any settlements reached with our insurers. Insurance receivables are also recorded when structured insurance settlements provide for future fixed payment streams that are not contingent upon future claims or other events. Such amounts are recorded at the net present value of the fixed payment stream.

          On a cumulative historical basis, Honeywell has recorded insurance receivables equal to approximately 50 percent of the value of the underlying asbestos claims recorded. However, because there are gaps in our coverage due to insurance company insolvencies, certain uninsured periods, and insurance settlements, this rate is expected to decline for any future Bendix related asbestos liabilities that may be recorded. Future recoverability rates may also be impacted by numerous other factors, such as future insurance settlements, insolvencies and judicial determinations relevant to our coverage program, which are difficult to predict. Assuming continued defense and indemnity spending at current levels, we estimate that the cumulative recoverability rate could decline over the next five years to approximately 40 percent.

          Honeywell believes it has sufficient insurance coverage and reserves to cover all pending Bendix related asbestos claims and Bendix related asbestos claims estimated to be filed within the next five years. Although it is impossible to predict the outcome of either pending or future Bendix related asbestos claims, we do not believe that such claims would have a material adverse effect on our consolidated financial position in light of our insurance coverage and our prior experience in resolving such claims. If the rate and types of claims filed, the average resolution value of such claims and the period of time over which claim settlements are paid (collectively, the “Variable Claims Factors”) do not substantially change, Honeywell would not expect future Bendix related asbestos claims to have a material adverse effect on our results of operations or operating cash flows in any fiscal year. No assurances can be given, however, that the Variable Claims Factors will not change.

          The following tables summarize information concerning NARCO and Bendix asbestos related balances:

Asbestos Related Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended
June 30, 2009

 

 

 


 

 

 

Bendix

 

NARCO

 

Total

 

 

 


 


 


 

Beginning of period

 

$

578

 

$

1,131

 

$

1,709

 

Accrual for update to estimated liability

 

 

83

 

 

2

 

 

85

 

Asbestos related liability payments

 

 

(65

)

 

(1

)

 

(66

)

 

 



 



 



 

End of period

 

$

596

 

$

1,132

 

$

1,728

 

 

 



 



 



 

Insurance Recoveries for Asbestos Related Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended
June 30, 2009

 

 

 


 

 

 

Bendix

 

NARCO

 

Total

 

 

 


 


 


 

Beginning of period

 

$

156

 

$

877

 

$

1,033

 

Probable insurance recoveries related to estimated liability

 

 

12

 

 

 

 

12

 

Insurance receipts for asbestos related liabilities

 

 

(1

)

 

(4

)

 

(5

)

 

 



 



 



 

End of period

 

$

167

 

$

873

 

$

1,040

 

 

 



 



 



 

30


          NARCO and Bendix asbestos related balances are included in the following balance sheet accounts:

 

 

 

 

 

 

 

 

 

 

June 30,
2009

 

December 31,
2008

 

 

 


 


 

Other current assets

 

$

4

 

$

4

 

Insurance recoveries for asbestos related liabilities

 

 

1,036

 

 

1,029

 

 

 



 



 

 

 

$

1,040

 

$

1,033

 

 

 



 



 

 

 

 

 

 

 

 

 

Accrued liabilities

 

$

171

 

$

171

 

Asbestos related liabilities

 

 

1,557

 

 

1,538

 

 

 



 



 

 

 

$

1,728

 

$

1,709

 

 

 



 



 

Other Matters

          We are subject to a number of other lawsuits, investigations and disputes (some of which involve substantial amounts claimed) arising out of the conduct of our business, including matters relating to commercial transactions, government contracts, product liability, prior acquisitions and divestitures, employee benefit plans, intellectual property, and health and safety matters. We recognize a liability for any contingency that is probable of occurrence and reasonably estimable. We continually assess the likelihood of adverse judgments of outcomes in these matters, as well as potential ranges of possible losses (taking into consideration any insurance recoveries), based on a careful analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts. Included in these other matters are the following:

          Allen, et al. v. Honeywell Retirement Earnings Plan — Pursuant to a settlement approved by the U.S. District Court for the District of Arizona in February 2008, 18 of 21 claims alleged by plaintiffs in this class action lawsuit were dismissed with prejudice in exchange for approximately $35 million and the maximum aggregate liability for the remaining three claims (alleging that Honeywell impermissibly reduced the pension benefits of certain employees of a predecessor entity when the plan was amended in 1983 and failed to calculate benefits in accordance with the terms of the plan) was capped at $500 million. Any amounts payable, including the settlement amount, have or will be paid from the Company’s pension plan. We continue to expect to prevail on the remaining claims in light of applicable law and our substantial affirmative defenses, which have not yet been considered by the Court. Accordingly, we do not believe that a liability is probable of occurrence and reasonably estimable with respect to these claims and we have not recorded a provision for the remaining claims in our financial statements.

          Quick Lube — On March 31, 2008, S&E Quick Lube, a filter distributor, filed suit in U.S. District Court for the District of Connecticut alleging that twelve filter manufacturers, including Honeywell, engaged in a conspiracy to fix prices, rig bids and allocate U.S. customers for aftermarket automotive filters. This suit is a purported class action on behalf of direct purchasers of filters from the defendants. Parallel purported class actions, including on behalf of indirect purchasers of filters, have been filed by other plaintiffs in a variety of jurisdictions in the United States and Canada. The U.S cases have been consolidated into a single multi-district litigation in the Northern District of Illinois. We intend to vigorously defend the claims raised in these actions. The Antitrust Division of the Department of Justice (DOJ) is also investigating the allegations raised in these suits. We are fully cooperating with the DOJ investigation.

          Given the uncertainty inherent in litigation and investigations (including the specific matters referenced above), we do not believe it is possible to develop estimates of reasonably possible loss in excess of current accruals for these matters. Considering our past experience and existing accruals, we do not

31


expect the outcome of these matters, either individually or in the aggregate, to have a material adverse effect on our consolidated financial position. Because most contingencies are resolved over long periods of time, potential liabilities are subject to change due to new developments, changes in settlement strategy or the impact of evidentiary requirements, which could cause us to pay damage awards or settlements (or become subject to equitable remedies) that could have a material adverse effect on our results of operations or operating cash flows in the periods recognized or paid.

32


Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareowners
of Honeywell International Inc.:

We have reviewed the accompanying consolidated balance sheet of Honeywell International Inc. and its subsidiaries as of June 30, 2009, and the related consolidated statement of operations for each of the three-month and six-month periods ended June 30, 2009 and 2008 and the consolidated statement of cash flows for the six-month periods ended June 30, 2009 and 2008. These interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2008, and the related consolidated statements of operations, of shareowners’ equity and of cash flows for the year then ended (not presented herein), and in our report dated February 12, 2009, we expressed an unqualified opinion on those consolidated financial statements. As discussed in Note 2 to the accompanying consolidated financial statements, the Company adopted FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements. The accompanying December 31, 2008 consolidated balance sheet reflects this change.

 

/s/ PricewaterhouseCoopers LLP

Florham Park, New Jersey

July 24, 2009


The “Report of Independent Registered Public Accounting Firm” included above is not a “report” or “part of a Registration Statement” prepared or certified by an independent accountant within the meanings of Sections 7 and 11 of the Securities Act of 1933, and the accountants’ Section 11 liability does not extend to such report.

33


 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

 

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)

 

(Dollars in millions, except per share amounts)

The following MD&A is intended to help the reader understand the results of operations and financial condition of Honeywell International Inc. (“Honeywell”) for the second quarter and six months ended June 30, 2009. The financial information as of June 30, 2009 should be read in conjunction with the financial statements for the year ended December 31, 2008 contained in our Form 10-K filed on February 13, 2009.

 

 

A.

RESULTS OF OPERATIONS – THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2009 COMPARED WITH THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2008

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 


 


 

 

 

2009

 

2008

 

2009

 

2008

 

 

 


 


 


 


 

Net sales

 

$

7,566

 

$

9,674

 

$

15,136

 

$

18,569

 

% change compared with prior period

 

 

(22

)%

 

 

 

 

(18

)%

 

 

 

          The decrease in net sales in the second quarter and six months of 2009 compared with the second quarter and six months of 2008 is attributable to the following:

 

 

 

 

 

 

 

 

 

 

 

 

Three Months

 

Six Months

 

 

 


 


 

Volume

 

 

(17

)%

 

 

(14

)%

 

Price

 

 

(1

)

 

 

 

 

Foreign Exchange

 

 

(4

)

 

 

(4

)

 

Acquisitions/Divestitures

 

 

 

 

 

 

 

 

 

 


 

 

 


 

 

 

 

 

(22

)%

 

 

(18

)%

 

 

 

 


 

 

 


 

 

          A discussion of net sales by segment can be found in the Review of Business Segments section of this MD&A.

Cost of Products and Services Sold

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 


 


 

 

 

2009

 

2008

 

2009

 

2008

 

 

 


 


 


 


 

Cost of products and services sold

 

$

5,682

 

$

7,323

 

$

11,438

 

$

13,995

 

% change compared with prior period

 

 

(22

)%

 

 

 

 

(18

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Margin percentage

 

 

24.9

%

 

24.3

%

 

24.4

%

 

24.6

%

          Cost of products and services sold decreased by $1,641 million or 22 percent in the second quarter of 2009 compared with the second quarter of 2008 and by $2,557 million or 18 percent in the first six months of 2009 compared with the first six months of 2008. These decreases are principally due to i) lower sales as a result of the factors discussed above and in the Review of Business Segments section of this MD&A and ii) the positive impact of cost savings initiatives across each of our Business Segments, benefits from prior repositioning actions, and reduced incentive compensation expense.

          Gross margin percentage increased by 0.6 percentage points in the second quarter of 2009 compared with the second quarter of 2008 primarily due to higher margins in our Specialty Materials and Automation and Control Solutions segments and lower other postretirement benefits expense (primarily related to a curtailment gain, see Note 14 of Notes to Financial Statements). These items were

34


partially offset by lower margins in our Transportation Systems and Aerospace segments.

          Gross margin percentage decreased by 0.2 percentage points in the first six months of 2009 compared with the first six months of 2008 primarily due to lower margins in our Transportation Systems, Aerospace and Specialty Materials segments and higher pension expense, partially offset by higher margins in our Automation and Control Solutions segment, lower other postretirement benefits expense (primarily related to a curtailment gain, see Note 14 of Notes to Financial Statements) and lower repositioning charges.

          For further discussion of segment results see “Review of Business Segments”.

Selling, General and Administrative Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 


 


 

 

 

2009

 

2008

 

2009

 

2008

 

 

 


 


 


 


 

Selling, general and administrative expenses

 

$

1,084

 

$

1,290

 

$

2,236

 

$

2,545

 

Percent of sales

 

 

14.3

%

 

13.3

%

 

14.8

%

 

13.7

%

          Selling, general and administrative expenses as a percentage of sales increased by 1.0 percentage points in the second quarter of 2009 compared with the second quarter of 2008 and by 1.1 percentage points in the first six months of 2009 compared with the first six months of 2008. These increases are primarily due to lower sales volumes, partially offset by the positive impact of cost savings initiatives in each of our Business Segments resulting in decreased selling and general and administrative expense of $206 million in the second quarter of 2009 and $309 million in the first six months of 2009.

Other (Income) Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 


 


 

 

 

2009

 

2008

 

2009

 

2008

 

 

 


 


 


 


 

Equity (income)/loss of affiliated companies

 

$

(9

)

$

(6

)

$

(15

)

$

(22

)

Gain on sale of non-strategic businesses and assets

 

 

 

 

(12

)

 

 

 

(12

)

Interest income

 

 

(6

)

 

(29

)

 

(18

)

 

(54

)

Foreign exchange

 

 

5

 

 

3

 

 

27

 

 

14

 

Other (net)

 

 

61

 

 

1

 

 

59

 

 

5

 

 

 



 



 



 



 

 

 

$

51

 

$

(43

)

$

53

 

$

(69

)

 

 



 



 



 



 

          Other expense of $51 million and $53 million in the second quarter and first six months of 2009 compared with Other income of $43 million and $69 million in the second quarter and first six months of 2008 are primarily due to an other-than-temporary impairment charge of $62 million in the second quarter of 2009, lower interest income (primarily due to lower interest rates) and higher foreign exchange losses.

35


Interest and Other Financial Charges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 


 


 

 

 

2009

 

2008

 

2009

 

2008

 

 

 


 


 


 


 

Interest and other financial charges

 

$

123

 

$

115

 

$

240

 

$

230

 

% change compared with prior period

 

 

7

%

 

 

 

 

4

%

 

 

 

          Interest and other financial charges increased by $8 million in the second quarter of 2009 compared with the second quarter of 2008 and by $10 million in the first sixth months of 2009 compared with the first six months of 2008 primarily due to higher debt balances, partially offset by lower borrowing costs.

Tax Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 


 


 

 

 

2009

 

2008

 

2009

 

2008

 

 

 


 


 


 


 

Tax expense

 

$

166

 

$

261

 

$

310

 

$

493

 

Effective tax rate

 

 

26.5

%

 

26.4

%

 

26.5

%

 

26.4

%

          The effective tax rate increased by 0.1 percent in the second quarter of 2009 compared with the second quarter of 2008 and the first six months of 2009 compared with the first six months of 2008 primarily due to a decreased benefit from the settlement of tax audits, partially offset by a reduction in the valuation allowance for tax losses and the benefit of U.S. research and development credits in 2009.

          The effective tax rate in both periods was lower than the statutory rate of 35 percent due, in part, to foreign earnings taxed at lower tax rates and benefits from the domestic manufacturing deduction and research & development tax credits.

Net Income Attributable to Honeywell

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 


 


 

 

 

2009

 

2008

 

2009

 

2008

 

 

 


 


 


 


 

Net income Attributable to Honeywell

 

$

450

 

$

723

 

$

847

 

$

1,366

 

Earnings per share of common stock – assuming dilution

 

$

0.60

 

$

0.96

 

$

1.14

 

$

1.81

 

          Earnings per share of common stock – assuming dilution decreased by $0.36 per share in the second quarter of 2009 compared with the second quarter of 2008 and by $0.67 per share in the first six months of 2009 compared with the first six months of 2008. The decrease in both periods is primarily due to decreased segment profit in each of our Business Segments and increased Other (Income) Expense, as discussed above, partially offset by lower other postretirement benefits expense and lower repositioning charges.

36


Review of Business Segments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 


 


 

 

 

2009

 

2008

 

2009

 

2008

 

 

 


 


 


 


 

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

Aerospace

 

$

2,719

 

$

3,281

 

$

5,478

 

$

6,311

 

Automation and Control Solutions

 

 

3,013

 

 

3,616

 

 

6,014

 

 

6,796

 

Specialty Materials

 

 

1,048

 

 

1,450

 

 

2,102

 

 

2,859

 

Transportation Systems

 

 

786

 

 

1,327

 

 

1,542

 

 

2,603

 

Corporate

 

 

 

 

 

 

 

 

 

 

 



 



 



 



 

 

 

$

7,566

 

$

9,674

 

$

15,136

 

$

18,569

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment Profit

 

 

 

 

 

 

 

 

 

 

 

 

 

Aerospace

 

$

454

 

$

602

 

$

942

 

$

1,165

 

Automation and Control Solutions

 

 

346

 

 

390

 

 

657

 

 

718

 

Specialty Materials

 

 

150

 

 

186

 

 

275

 

 

451

 

Transportation Systems

 

 

25

 

 

149

 

 

22

 

 

298

 

Corporate

 

 

(45

)

 

(49

)

 

(90

)

 

(105

)

 

 



 



 



 



 

Total Segment Profit

 

 

930

 

 

1,278

 

 

1,806

 

 

2,527

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense) (A)

 

 

(60

)

 

37

 

 

(68

)

 

47

 

Interest and other financial charges

 

 

(123

)

 

(115

)

 

(240

)

 

(230

)

Stock compensation expense (B)

 

 

(35

)

 

(35

)

 

(77

)

 

(76

)

Pension and other postretirement expense (B)

 

 

58

 

 

(26

)

 

3

 

 

(53

)

Repositioning and other charges (B)

 

 

(144

)

 

(150

)

 

(255

)

 

(347

)

 

 



 



 



 



 

Income before taxes

 

$

626

 

$

989

 

$

1,169

 

$

1,868

 

 

 



 



 



 



 


 

 

(A)

Equity income/(loss) of affiliated companies is included in Segment Profit.

 

 

(B)

Amounts included in cost of products and services sold and selling, general and administrative expenses.

37


Aerospace

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 


 


 

 

 

2009

 

2008

 

2009

 

2008

 

 

 


 


 


 


 

Net sales

 

$

2,719

 

$

3,281

 

$

5,478

 

$

6,311

 

% change compared with prior period

 

 

(17

)%

 

 

 

 

(13

)%

 

 

 

Segment profit

 

$

454

 

$

602

 

$

942

 

$

1,165

 

% change compared with prior period

 

 

(25

)%

 

 

 

 

(19

)%

 

 

 

          Aerospace sales by major customer end-markets for the second quarter and six months ended June 30, 2009 and 2008 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 


 


 

 

 

% of
Aerospace
Sales

 

% Changes
in Sales

 

% of
Aerospace
Sales

 

% Changes
in Sales

 

 

 


 


 


 


 

Customer End-Markets

 

2009

 

2008

 

2009
Versus
2008

 

2009

 

2008

 

2009
Versus
2008

 


 


 


 


 


 


 


 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Air transport and regional original equipment

 

 

12

%

 

16

%

 

(38

%)

 

13

%

 

17

%

 

(31

%)

Air transport and regional aftermarket

 

 

23

 

 

22

 

 

(14

)

 

22

 

 

22

 

 

(12

)

Business and general aviation original equipment

 

 

7

 

 

11

 

 

(42

)

 

9

 

 

11

 

 

(29

)

Business and general aviation aftermarket

 

 

8

 

 

10

 

 

(31

)

 

8

 

 

10

 

 

(28

)

Defense and Space

 

 

50

 

 

41

 

 

(1

)

 

48

 

 

40

 

 

1

 

 

 



 



 

 

 

 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

100

%

 

100

%

 

(17

%)

 

100

%

 

100

%

 

(13

%)

 

 



 



 

 

 

 



 



 

 

 

 

          Aerospace sales decreased by 17 percent in the second quarter of 2009 compared with the second quarter of 2008 and by 13 percent in the first six months of 2009 compared with the first six months of 2008. Details regarding the decrease in sales by customer end-markets are as follows:

 

 

 

 

Air transport and regional original equipment (OE) sales decreased by 38 percent in the second quarter and 31 percent in the first six months driven primarily by lower sales to our OE customers, consistent with production rates and platform mix, and the impact of divesting our Consumables Solutions business.

 

 

 

 

Air transport and regional aftermarket sales decreased by 14 percent in the second quarter and 12 percent in the first six months primarily as a result of decreased sales of spare parts and lower maintenance activity driven by the impact of higher parked aircraft part utilization, customer inventory reduction initiatives and decreased flying hours of approximately 4% in the second quarter and in the first six months.

 

 

 

 

Business and general aviation OE sales decreased by 42 percent in the second quarter and 29 percent in the first six months due to the expected decrease in new business jet deliveries reflecting rescheduling and cancellation of deliveries by OE customers which we expect to continue to adversely impact sales over the remainder of 2009.

 

 

 

 

Business and general aviation aftermarket sales decreased by 31 percent in the second quarter and 28 percent in the first six months primarily due to decreased sales of spare parts and lower revenue associated with maintenance service agreements, consistent with the expected decrease in business jet utilization.

38


 

 

 

 

Defense and space sales decreased by 1 percent in the second quarter and increased by 1 in the first six months, with higher sales of logistics services in both periods, offset in the second quarter by reduced sales of missiles and helicopter systems.

          Aerospace segment profit decreased by 25 percent in the second quarter of 2009 compared with the second quarter of 2008 and by 19 percent in the first six months of 2009 compared to the first six months of 2008 due primarily to lower sales as a result of the factors discussed above and inflation, partially offset by productivity driven by cost savings initiatives and benefits from prior repositioning actions, reduced incentive compensation expense, and increased prices.

Automation and Control Solutions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 


 


 

 

 

2009

 

2008

 

2009

 

2008

 

 

 


 


 


 


 

Net sales

 

$

3,013

 

$

3,616

 

$

6,014

 

$

6,796

 

% change compared with prior period

 

 

(17

)%

 

 

 

 

(12

)%

 

 

 

Segment profit

 

$

346

 

$

390

 

$

657

 

$

718

 

% change compared with prior period

 

 

(11

)%

 

 

 

 

(8

)%

 

 

 

          Automation and Control Solutions (“ACS”) sales decreased by 17 percent in the second quarter of 2009 compared with the second quarter of 2008, including decreased sales volume (reflecting slower global economic growth) and an unfavorable impact of foreign exchange of 7 percent, partially offset by a 3 percent growth from acquisitions.

          ACS sales decreased by 12 percent in the first six months of 2009 compared with the first six months of 2008, including decreased sales volume (reflecting slower global economic growth) and an unfavorable impact of foreign exchange of 8 percent, partially offset by a 5 percent growth from acquisitions.

 

 

 

 

Sales in our Products businesses decreased by 18 percent in the second quarter and 12 percent in the first six months, principally due to (i) lower volume of sales in each or our businesses (excluding the impact of acquisitions) and (ii) the unfavorable impact of foreign exchange. Softness in residential and industrial end-markets was partially offset by the positive impact of acquisitions, most significantly Metrologic Instruments and Norcross Safety Products.

 

 

 

 

Sales in our Solutions businesses decreased by 15 percent in the second quarter and 11 percent in the first six months driven by the unfavorable impact of foreign exchange and volume decreases largely due to softening demand as a result of customer deferral of capital and operating expenditures. Orders and backlog decreased in the second quarter and first six months compared to the corresponding periods in 2008 primarily due to the unfavorable impact of foreign exchange, softening demand (as noted above) and order timing and delays.

          ACS segment profit decreased by 11 percent in the second quarter of 2009 compared with the second quarter of 2008 and by 8 percent in the first six months of 2009 compared with the first six months of 2008. These decreases are due principally to lower sales as a result of the factors discussed above and inflation, partially offset by price and productivity driven by cost savings initiatives and benefits from prior repositioning actions.

39


Specialty Materials

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 


 


 

 

 

2009

 

2008

 

2009

 

2008

 

 

 


 


 


 


 

Net sales

 

$

1,048

 

$

1,450

 

$

2,102

 

$

2,859

 

% change compared with prior period

 

 

(28

)%

 

 

 

 

(26

)%

 

 

 

Segment profit

 

$

150

 

$

186

 

$

275

 

$

451

 

% change compared with prior period

 

 

(19

)%

 

 

 

 

(39

)%

 

 

 

          Specialty Materials sales decreased by 28 percent in the second quarter of 2009 compared with the second quarter of 2008 and by 26 percent in the first six months of 2009 compared with the first six months of 2008 driven by (i) a 24 percent second quarter and a 25 percent first six months decrease in UOP sales due to lower catalyst sales and licensing revenue and customer deferrals of projects as a result of reduced demand for additional capacity and catalyst reloads in the refining and petrochemical industries, (ii) a 41 percent second quarter and 38 percent first six months decrease in Resins and Chemicals sales due to substantial price declines arising from pass through of lower raw material cost partially offset by increased export volumes, (iii) a 30 percent second quarter and 27 percent first six months decrease in Specialty Products sales most significantly due to continued demand softness across key customer end-markets and (iv) a 15 percent second quarter and 13 percent first six months decrease in our Fluorine Products business due to lower volume sales of refrigerants and insulating materials principally driven by customer inventory reduction initiatives, partially offset by pricing increases. We expect these industry conditions to continue during the third quarter of 2009.

          Specialty Materials segment profit decreased by 19 percent in the second quarter of 2009 compared with the second quarter of 2008 and by 39 percent in the first six months of 2009 compared with the first six months of 2008. This decrease is due principally to lower sales as a result of the factors discussed above, partially offset by lower raw material costs and the positive impact of cost savings initiatives.

Transportation Systems

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 


 


 

 

 

2009

 

2008

 

2009

 

2008

 

 

 


 


 


 


 

Net sales

 

$

786

 

$

1,327

 

$

1,542

 

$

2,603

 

% change compared with prior period

 

 

(41

)%

 

 

 

 

(41

)%

 

 

 

Segment profit

 

$

25

 

$

149

 

$

22

 

$

298

 

% change compared with prior period

 

 

(83

)%

 

 

 

 

(93

)%

 

 

 

          Transportation Systems sales decreased by 41 percent in both the second quarter of 2009 compared with the second quarter of 2008 and in the first six months of 2009 compared with the first six months of 2008, primarily due to lower volumes (driven by the ongoing challenging global automotive industry conditions) and the negative impact of foreign exchange.

 

 

 

 

Turbo Technologies sales decreased 51 percent in the second quarter and 52 percent in the first six months primarily due to lower sales volumes to both our commercial and light vehicle engine manufacturing customers and the negative impact of foreign exchange. We continue to see a decline in diesel penetration rates in Western Europe and a shift in consumer preference towards lower displacement engines. We expect production rates of commercial and light vehicles to begin to increase in the fourth quarter of 2009.

40


 

 

 

 

Consumer Products Group (“CPG”) sales decreased 11 percent in the second quarter, primarily due to lower prices (primarily pass through of ethylene glycol cost decreases), lower volumes and the negative impact of foreign exchange.

 

 

 

 

 

CPG sales decreased by 7 percent in the first six months, primarily due to lower prices (primarily pass through of ethylene glycol cost decreases) and the unfavorable impact of foreign exchange partially offset by higher volumes.

 

 

 

 

Friction Materials sales decreased 39 percent in the second quarter and 37 percent in the first six months primarily due to continued declines in sales volumes and the unfavorable impact of foreign exchange.

          Transportation Systems segment profit decreased by 83 percent in the second quarter of 2009 compared with the second quarter of 2008 and 93 percent in the first six months of 2009 compared with the first six months of 2008. These decreases were due principally to lower sales volume as a result of the factors discussed above partially offset by increased productivity driven by cost savings initiatives and benefits from prior repositioning actions.

Repositioning and Other Charges

          See Note 4 of Notes to Financial Statements for a discussion of repositioning and other charges incurred in the second quarter and six months ended June 30, 2009 and 2008. Our repositioning actions are expected to generate incremental pretax savings of approximately $225 million in 2009 compared with 2008 principally from planned workforce reductions. Cash expenditures for severance and other exit costs necessary to execute these actions were $100 million in the first six months of 2009 and were funded through operating cash flows. Cash expenditures for severance and other costs necessary to execute the remaining actions will approximate a total of $250 million in 2009 and will be funded through operating cash flows.

 

 

B.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow Summary

          Our cash flows from operating, investing and financing activities, as reflected in the Consolidated Statement of Cash Flows for the six months ended June 30, 2009 and 2008, are summarized as follows:

 

 

 

 

 

 

 

 

 

 

2009

 

2008

 

 

 


 


 

Cash provided by (used for):

 

 

 

 

 

 

 

Operating activities

 

$

1,467

 

$

1,763

 

 

 

 

 

 

 

 

 

Investing activities

 

 

(284

)

 

(1,576

)

 

 

 

 

 

 

 

 

Financing activities

 

 

(674

)

 

148

 

Effect of exchange rate changes on cash

 

 

32

 

 

40

 

 

 



 



 

Net increase in cash and cash equivalents

 

$

541

 

$

375

 

 

 



 



 

          Cash provided by operating activities decreased by $296 million during the first six months of 2009 compared with the first six months of 2008 primarily due to decreased earnings, decreased accrued expenses of $497 million (primarily accrued income taxes, compensation, benefit and other employee related accruals), receipts from the sale of insurance receivables of $82 million in the first quarter of 2008 and higher repositioning payments of $49 million partially offset by an decrease in working capital of $633 million (lower accounts and other

41


receivables, lower inventory, partially offset by lower accounts payable), receipt of $138 million from the sale of long-term receivables in the second quarter in 2009 and lower cash taxes of $127 million.

          Cash used for investing activities decreased by $1,292 million during the first six months of 2009 compared with the first six months of 2008 due primarily to a $1,280 million decrease in cash paid for acquisitions (most significantly the acquisition of Norcross in the second quarter of 2008) and decreased expenditures for property, plant, and equipment of $113 million.

          Financing activities utilized $674 million of cash during the first six months of 2009, compared to providing $148 million of cash in the first six months of 2008. The change of $822 million is primarily due to a net repayment of debt (including commercial paper) in the first six months of 2009 of $231 million compared to net proceeds (including commercial paper) of $853 million in the first six months of 2008 and decreased proceeds from the issuance of common stock primarily related to stock option exercises of $117 million partially offset by a decrease in repurchases of common stock of $441 million.

Liquidity

          The Company continues to manage its businesses to maximize operating cash flows as the primary source of liquidity. In addition to our available cash and operating cash flows, sources of liquidity include committed credit lines, short-term debt from the commercial paper market, long-term borrowings, access to the public debt and equity markets as well as the ability to sell trade accounts receivables. We continue to balance our cash and financing uses through investment in our existing core businesses, debt reduction, acquisition activity, share repurchases and dividends.

          We continuously assess the relative strength of each business in our portfolio as to strategic fit, market position, profit and cash flow contribution in order to upgrade our combined portfolio and identify business units that will most benefit from increased investment. We identify acquisition candidates that will further our strategic plan and strengthen our existing core businesses. We also identify business units that do not fit into our long-term strategic plan based on their market position, relative profitability or growth potential. These business units are considered for potential divestiture, restructuring or other repositioning actions subject to regulatory constraints.

          We plan to make voluntary contributions of Honeywell common stock to our U.S. pension plans in 2009, totaling approximately $800 million, to improve the funded status of our plans, of which $400 million has been contributed in the first six months.

          In February 2009, the Company issued $600 million 3.875% Senior Notes due 2014 and $900 million 5.00% Senior Notes due 2019 (collectively, the “2009 Senior Notes”). The 2009 Senior Notes are senior unsecured and unsubordinated obligations of Honeywell and rank equally with all of Honeywell’s existing and future senior unsecured debt and senior to all of Honeywell’s subordinated debt. The offering resulted in gross proceeds of $1.5 billion, offset by $12 million in discount and issuance costs. Proceeds from the Senior Notes were used to repay outstanding commercial paper.

          In June 2009, the Company entered into a definitive agreement to acquire the RMG Group (RMG Regel + Messtechnik GmbH), a natural gas measuring and control products, services and integrated solutions company, for approximately $400 million. Completion of this acquisition is subject to regulatory approval. We anticipate funding the purchase price with available cash.

42


          Current global economic conditions or the current tightening of credit could adversely affect our customers’ or suppliers’ ability to obtain financing, particularly in our long-cycle businesses and airline and automotive end markets. Customer or supplier bankruptcies, delays in their ability to obtain financing, or the unavailability of financing could adversely affect our cash flow or results of operations. To date we have not experienced material impacts from customer or supplier bankruptcy or liquidity issues. We continue to monitor and take measures to limit our exposure.

 

 

C.

OTHER MATTERS

Litigation

          We are subject to a number of lawsuits, investigations and claims (some of which involve substantial amounts) arising out of the conduct of our business. See a discussion of environmental, asbestos and other litigation matters in Note 15 of Notes to Financial Statements.

Critical Accounting Policies

          The financial information as of June 30, 2009 should be read in conjunction with the financial statements for the year ended December 31, 2008 contained in our Form 10-K filed on February 13, 2009.

          For a discussion of the Company’s critical accounting policies, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K filed on February 13, 2009.

Recent Accounting Pronouncements

          See Note 2 of Notes to Financial Statements for a discussion of recent accounting pronouncements.

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          See our 2008 Annual Report on Form 10-K (Item 7A). As of June 30, 2009, there has been no material change in this information.

 

 

ITEM 4.

CONTROLS AND PROCEDURES

          Honeywell management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that such disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on From 10-Q to ensure information required to be disclosed in the reports that Honeywell files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms and that it is accumulated and communicated to our management, including our CEO, our CFO, and our Controller, as appropriate, to allow timely decisions regarding required disclosure. There have been no changes that have materially affected, or are reasonably likely to materially affect, Honeywell’s internal control over financial reporting that have occurred during the period covered by this Quarterly Report on Form 10-Q.

43


PART II. OTHER INFORMATION

 

 

ITEM 1.

LEGAL PROCEEDINGS

          General Legal Matters

          We are subject to a number of lawsuits, investigations and claims (some of which involve substantial amounts) arising out of the conduct of our business. See a discussion of environmental, asbestos and other litigation matters in Note 15 of Notes to Financial Statements.

          Environmental Matters Involving Potential Monetary Sanctions in Excess of $100,000

          As previously reported, three incidents occurred during 2003 at Honeywell’s Baton Rouge, Louisiana chemical plant, including a release of chlorine, a release of antimony pentachloride (which resulted in an employee fatality), and an employee exposure to hydrofluoric acid. Also as previously reported, criminal allegations in these matters were resolved in a misdemeanor plea agreement with the United States Department of Justice and civil matters have been resolved with the Louisiana Department of Environmental Quality. The United States Department of Justice has now determined to seek civil penalties for these matters. Negotiations are underway to resolve these claims.

 

 

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the Annual Meeting of Shareowners of Honeywell held on April 27, 2009, the following matters set forth in our Proxy Statement dated March 12, 2009, which was filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, were voted upon with the results indicated below.

 

 

1.

The nominees listed below were elected directors with the respective votes set forth opposite their names:


 

 

 

 

 

 

 

FOR

 

AGAINST

 

 


 


Gordon M. Bethune

 

484,235,634

 

170,316,764

Jaime Chico Pardo

 

569,952,847

 

84,607,728

David M. Cote

 

625,761,264

 

28,799,311

D. Scott Davis

 

618,190,382

 

36,370,193

Linnet F. Deily

 

630,745,962

 

23,814,612

Clive R. Hollick

 

484,254,769

 

170,297,943

George Paz

 

630,263,354

 

24,297,221

Bradley T. Sheares

 

486,031,215

 

168,521,498

John R. Stafford

 

459,229,329

 

195,323,808

Michael W. Wright

 

614,598,799

 

39,961,525


 

 

2.

A proposal seeking approval of the appointment of PricewaterhouseCoopers LLP as independent accountants for 2009: 632,988,211 votes cast FOR, 17,133,128 votes cast AGAINST, 4,483,598 abstentions;

 

 

3.

A shareowner proposal regarding Cumulative Voting: 190,284,853 votes cast FOR, 372,789,722 votes cast AGAINST, 6,425,760 abstentions and 85,104,602 broker non-votes;

 

 

4.

A shareowner proposal regarding Principles for Health Care Reform: 47,879,856 votes cast FOR, 386,669,521 votes cast AGAINST, 134,962,572 abstentions and 85,092,988 broker non-votes;

44


 

 

5.

A shareowner proposal regarding Executive Compensation Advisory Vote: 287,900,837 votes cast FOR, 241,582,108 votes cast AGAINST, 40,020,382 abstentions and 85,101,610 broker non-votes;

 

 

6.

A shareowner proposal regarding Tax Gross-Up Payments: 279,980,753 votes cast FOR, 248,360,872 votes cast AGAINST, 41,161,527 abstentions and 85,101,785 broker non-votes; and

 

 

7.

A shareowner proposal regarding Special Shareowner Meetings: 282,717,783 votes cast FOR, 279,189,645 votes cast AGAINST, 7,594,133 abstentions and 85,103,376 broker non-votes.


 

 

 

ITEM 6.

EXHIBITS

 

 

 

 

(a)

Exhibits. See the Exhibit Index on page 47 of this Quarterly Report on Form 10-Q.

45


SIGNATURES

          Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

 

Honeywell International Inc.

 

 

 

 

Date:     July 27, 2009

 

By:  

/s/ Kathleen A. Winters

 

 

 


 

 

 

Kathleen A. Winters

 

 

 

Vice President and Controller

 

 

 

(on behalf of the Registrant

 

 

 

and as the Registrant’s

 

 

 

Principal Accounting Officer)

46


EXHIBIT INDEX

 

 

 

 

Exhibit Number

 

Description

 

 

 

 

 

2

 

Omitted (Inapplicable)

 

 

 

 

 

3

 

Omitted (Inapplicable)

 

 

 

 

 

4

 

Omitted (Inapplicable)

 

 

 

 

 

10

 

Omitted (Inapplicable)

 

 

 

 

 

11

 

Computation of Per Share Earnings (1)

 

 

 

 

 

12

 

Computation of Ratio of Earnings to Fixed Charges (filed herewith)

 

 

 

 

 

15

 

Independent Accountants’ Acknowledgment Letter as to the incorporation of their report relating to unaudited interim financial statements (filed herewith)

 

 

 

 

 

18

 

Omitted (Inapplicable)

 

 

 

 

 

19

 

Omitted (Inapplicable)

 

 

 

 

 

22

 

Omitted (Inapplicable)

 

 

 

 

 

23

 

Omitted (Inapplicable)

 

 

 

 

 

24

 

Omitted (Inapplicable)

 

 

 

 

 

31.1

 

Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

 

 

 

 

 

31.2

 

Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

 

 

 

 

 

32.1

 

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

 

 

 

 

 

32.2

 

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

 

 

 

 

 

99

 

Omitted (Inapplicable)


 

 


 

 

(1)

Data required by Statement of Financial Accounting Standards No. 128, “Earnings per Share”, is provided in Note 6 to the consolidated financial statements in this report.

47