Honeywell International Inc.
N
otes 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 March 31, 2009 and the
results of operations for the three months ended March 31, 2009 and 2008 and
cash flows for the three months ended March 31, 2009 and 2008. The results of
operations for the three month period ended March 31, 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
will provide appropriate disclosures. Our actual closing dates for the three
month periods ended March 31, 2009 and 2008 were April 4, 2009 and March 29,
2008, respectively.
We
estimate that our sales in the first quarter of 2009 compared to the first
quarter of 2008 include an approximate 4 percent benefit from additional
reporting days in the current year period resulting from our normal quarterly
closing procedures described above.
The
financial information as of March 31, 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.
6
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.
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 will 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 10 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
7
reclassified
$82 million of noncontrolling interest from other liabilities to noncontrolling
interest as a separate component of shareholders equity and $4 million of
noncontrolling interest expense to net income attributable to noncontrolling
interest in our consolidated balance sheet as of December 31, 2008 and
statement of operations for the quarter ended March 31, 2008, respectively. See
Note 11, Other Comprehensive Income/(Loss), 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 10 Financial Instruments, 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 132(R)-1, “Employers’ Disclosures about
Postretirement Benefit Plan Assets” (FSP 132(R)-1). FSP 132(R)-1 provides
guidance on an employer’s disclosures about plan assets of a defined benefit
pension or other postretirement plan. FSP 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 will 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 will not have a material impact on
our consolidated financial position and results of operations.
8
NOTE 3.
Repositioning and Other Charges
A
summary of repositioning and other charges follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
62
|
|
$
|
88
|
|
|
Asset impairments
|
|
|
2
|
|
|
11
|
|
|
Exit costs
|
|
|
1
|
|
|
4
|
|
|
Adjustments
|
|
|
(21
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total net repositioning charge
|
|
|
44
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asbestos related litigation charges, net of
insurance
|
|
|
36
|
|
|
28
|
|
|
Probable and reasonably estimable
environmental liabilities
|
|
|
31
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net repositioning and other charges
|
|
$
|
111
|
|
$
|
197
|
|
|
|
|
|
|
|
|
|
|
The
following table summarizes the pretax distribution of total net repositioning
and other charges by income statement classification:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Cost of products and services sold
|
|
$
|
94
|
|
$
|
171
|
|
|
Selling, general and administrative expenses
|
|
|
17
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
111
|
|
$
|
197
|
|
|
|
|
|
|
|
|
|
|
The
following table summarizes the pretax impact of total net repositioning and
other charges by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
$
|
(2
|
)
|
$
|
38
|
|
|
Automation
and Control Solutions
|
|
|
23
|
|
|
35
|
|
|
Specialty
Materials
|
|
|
4
|
|
|
—
|
|
|
Transportation
Systems
|
|
|
51
|
|
|
56
|
|
|
Corporate
|
|
|
35
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
111
|
|
$
|
197
|
|
|
|
|
|
|
|
|
|
|
In
the first quarter of 2009, we recognized repositioning charges totaling $65
million primarily for severance costs related to workforce reductions of 1,309
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 as well as cost savings
actions taken in connection with our ongoing functional transformation
initiative. Also, $21 million of previously established accruals for severance,
mainly at our Aerospace, Automation and Control Solutions and Transportation
Systems segments, were returned to income in the first quarter of 2009 due to
fewer employee separations than originally planned associated with prior
severance programs and changes in the scope of previously announced
repositioning actions.
In
the first quarter of 2008, we recognized a net repositioning charge of $103
million primarily for severance costs related to workforce reductions of 2,076
manufacturing and administrative positions principally in our Aerospace,
9
Automation and
Control Solutions and Transportation Systems segments. The more significant
actions comprising the repositioning charge included the transitioning of
manufacturing work to more cost-effective locations, plant closures,
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
|
|
|
62
|
|
|
2
|
|
|
1
|
|
|
65
|
|
|
2009 usage
|
|
|
(57
|
)
|
|
(2
|
)
|
|
(2
|
)
|
|
(61
|
)
|
|
Adjustments
|
|
|
(21
|
)
|
|
—
|
|
|
—
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
March 31, 2009
|
|
$
|
349
|
|
$
|
—
|
|
$
|
35
|
|
$
|
384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain
of our 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 quarter 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
|
|
$
|
120
|
|
$
|
27
|
|
$
|
12
|
|
$
|
159
|
|
|
Costs incurred year ended December 31, 2008
|
|
|
(12
|
)
|
|
—
|
|
|
(1
|
)
|
|
(13
|
)
|
|
Costs incurred three months ended March 31, 2009
|
|
|
(6
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining exit and disposal costs at March 31, 2009
|
|
$
|
102
|
|
$
|
26
|
|
$
|
10
|
|
$
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
the first quarter of 2009, we recognized a charge of $31 million for
environmental liabilities deemed probable and reasonably estimable in the
quarter. We also recognized a charge of $36 million primarily representing an
update to our estimated liability for the resolution of Bendix related asbestos
claims as of March 31, 2009, net of probable insurance recoveries. Environmental
and Asbestos matters are discussed in detail in Note 14, Commitments and
Contingencies.
In
the first quarter of 2008, we recognized a charge of $66 million for
environmental liabilities deemed probable and reasonably estimable in the
quarter. We also recognized a charge of $28 million representing an update to
our estimated liability for the resolution of Bendix related asbestos claims as
of March 31, 2008, net of probable insurance recoveries.
10
NOTE 4. Other
(income) expense.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Equity (income)/loss of affiliated companies
|
|
$
|
(6
|
)
|
$
|
(16
|
)
|
|
Interest income
|
|
|
(12
|
)
|
|
(25
|
)
|
|
Foreign exchange
|
|
|
22
|
|
|
11
|
|
|
Other (net)
|
|
|
(2
|
)
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2
|
|
$
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
NOTE 5.
Earnings Per Share
The
details of the earnings per share calculations for the three months ended March
31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
Assuming
Dilution
|
|
Basic
|
|
Assuming
Dilution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Honeywell
|
|
$
|
397
|
|
$
|
397
|
|
$
|
643
|
|
$
|
643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding
|
|
|
737.7
|
|
|
737.7
|
|
|
743.4
|
|
|
743.4
|
|
|
Dilutive securities issuable in connection with stock plans
|
|
|
—
|
|
|
1.6
|
|
|
—
|
|
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average shares outstanding
|
|
|
737.7
|
|
|
739.3
|
|
|
743.4
|
|
|
752.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Honeywell
|
|
$
|
0.54
|
|
$
|
0.54
|
|
$
|
0.87
|
|
$
|
0.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 March 31, 2009 and
2008, the number of stock options excluded from the computations were 41.2 and
7.4 million, respectively. These stock options were outstanding at the end of
each of the respective periods.
NOTE 6.
Accounts, Notes and Other Receivables
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2009
|
|
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
|
|
$
|
5,429
|
|
$
|
5,893
|
|
|
Other
|
|
|
439
|
|
|
422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,868
|
|
|
6,315
|
|
|
Less - Allowance for doubtful accounts
|
|
|
(201
|
)
|
|
(186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,667
|
|
$
|
6,129
|
|
|
|
|
|
|
|
|
|
|
11
NOTE 7.
Inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2009
|
|
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
1,421
|
|
$
|
1,644
|
|
|
|
Work in
process
|
|
|
903
|
|
|
952
|
|
|
|
Finished
products
|
|
|
1,648
|
|
|
1,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,972
|
|
|
4,011
|
|
|
|
Less –
Progress payments
|
|
|
(2
|
)
|
|
(3
|
)
|
|
|
– Reduction to LIFO cost basis
|
|
|
(173
|
)
|
|
(160
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,797
|
|
$
|
3,848
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 8.
Goodwill and Other Intangible Assets - Net
The
change in the carrying amount of goodwill for the three months ended March 31,
2009 by segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec.
31, 2008
|
|
Acquisitions
|
|
Divestitures
|
|
Currency
Translation
Adjustment
|
|
Mar,
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
$
|
1,882
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(12
|
)
|
$
|
1,870
|
|
|
Automation and Control Solutions
|
|
|
6,638
|
|
|
—
|
|
|
—
|
|
|
(18
|
)
|
|
6,620
|
|
|
Specialty Materials
|
|
|
1,151
|
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
|
1,144
|
|
|
Transportation Systems
|
|
|
514
|
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
|
507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,185
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(44
|
)
|
$
|
10,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
intangible assets are comprised of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 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
|
|
$
|
1,023
|
|
$
|
(514
|
)
|
$
|
509
|
|
$
|
1,030
|
|
$
|
(494
|
)
|
$
|
536
|
|
|
Customer relationships
|
|
|
1,236
|
|
|
(198
|
)
|
|
1,038
|
|
|
1,250
|
|
|
(175
|
)
|
|
1,075
|
|
|
Trademarks
|
|
|
158
|
|
|
(53
|
)
|
|
105
|
|
|
164
|
|
|
(50
|
)
|
|
114
|
|
|
Other
|
|
|
500
|
|
|
(372
|
)
|
|
128
|
|
|
501
|
|
|
(362
|
)
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,917
|
|
|
(1,137
|
)
|
|
1,780
|
|
|
2,945
|
|
|
(1,081
|
)
|
|
1,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks with indefinite lives
|
|
|
403
|
|
|
—
|
|
|
403
|
|
|
403
|
|
|
—
|
|
|
403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,320
|
|
$
|
(1,137
|
)
|
$
|
2,183
|
|
$
|
3,348
|
|
$
|
(1,081
|
)
|
$
|
2,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
expense related to intangible assets for the three months ended March 31, 2009
and 2008 was $61 and $47 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.
12
NOTE 9.
Long-term Debt and Credit Agreements
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
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%-13.31% maturing at various dates through 2017
|
|
|
119
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,896
|
|
|
6,888
|
|
|
Less current portion
|
|
|
(1,630
|
)
|
|
(1,023
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,266
|
|
$
|
5,865
|
|
|
|
|
|
|
|
|
|
|
The schedule
of principal payments on long term debt is as follows:
|
|
|
|
|
|
|
|
|
At March 31, 2009
|
|
|
|
|
|
|
|
2009
|
|
$
|
629
|
|
|
2010
|
|
|
1,022
|
|
|
2011
|
|
|
522
|
|
|
2012
|
|
|
401
|
|
|
2013
|
|
|
605
|
|
|
Thereafter
|
|
|
4,717
|
|
|
|
|
|
|
|
|
|
|
|
7,896
|
|
|
Less-current
portion
|
|
|
(1,630
|
)
|
|
|
|
|
|
|
|
|
|
$
|
6,266
|
|
|
|
|
|
|
|
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.
13
We
sell interests in designated pools of trade accounts receivables to third
parties. As of March 31, 2009, $500 million of receivables in the designated
pools had been sold 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, prospectively from the date of the amendment, program
receivables will be reflected as Accounts, notes and other receivables with a
corresponding amount recorded as Short-term borrowings in the Consolidated
Balance Sheet. 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.
14
NOTE
10. 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 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. When a functional currency strengthens against
nonfunctional currencies, the decline in value of forecasted non-functional
currency cash inflows (sales) or increase in outflows (purchases) is partially
offset by the recognition of gains (sales) and losses (purchases),
respectively, in the value of the forward contracts designated as hedges.
Conversely, when a functional currency weakens against non-functional
currencies, the increase in value of forecasted nonfunctional currency cash
inflows (sales) or decrease in outflows (purchases) is partially offset by the
recognition of losses (sales) and gains (purchases), respectively, in the value
of the 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 March 31, 2009, we had contracts
with notional amounts of $3,947 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
15
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 March 31, 2009, we
had contracts with notional amounts of $16 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 March 31, 2009, we had no interest rate swap agreements.
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:
|
|
|
|
|
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 March 31, 2009:
|
|
|
|
|
|
|
|
|
March
31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
|
$ 15
|
|
|
Available for sale investments
|
|
|
$ 29
|
|
|
Forward commodity contracts
|
|
|
$ —
|
|
|
Liabilities:
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
|
$ 41
|
|
|
Forward commodity contracts
|
|
|
$ 3
|
|
As
a result of our global operating and financing activities, the Company is
exposed to market risks from changes in interest and foreign currency exchange
rates and commodity prices, which may adversely affect our operating results
and financial position. When deemed appropriate, we minimize our risks from
interest and foreign currency exchange rate and commodity price fluctuations
through the use of derivative financial instruments. Derivative financial
instruments are used to manage risk and are not used for trading or other
speculative purposes and we do not use leveraged derivative financial
instruments. The foreign currency
16
exchange
contracts 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.
As
of March 31, 2009 the Company had $2 million of nonfinancial assets,
specifically property, plant and equipment, that were accounted for at fair
value on a nonrecurring basis as part of repositioning occurring in the first
quarter of 2009 (see Note 3, Repositioning and Other Charges). This property,
plant and equipment was determined to have a zero fair value resulting in a
loss of $2 million, which was included in earnings for the period. The Company
has determined that our nonfinancial assets and nonfinancial liabilities are
level 3 in the fair value hierarchy.
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 Company holds
investments in marketable equity securities that are designated as cost method
investments and available for sale securities, as appropriate. Such investments
are susceptible to market volatility and as a result are in unrealized loss
positions as of March 31, 2009. The Company evaluated the near-term prospects
of the investees in relation to the severity and duration of the impairments.
Despite the unrealized loss position of certain investments of approximately
$90 million the Company concluded, as of March 31, 2009, that these investments
were not other than temporarily impaired given the short duration of the
unrealized loss position, the stable liquidity positions and financial
condition 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.
The
Company has the following derivative instruments located on the consolidated
balance sheet and statement of operations, utilized for risk management
purposes detailed above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Derivative Instruments
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
|
|
|
|
|
|
|
Derivative Instruments
Designated as Hedging
Instruments under SFAS
No. 133
|
|
Balance Sheet
Location
|
|
Fair Value
|
|
Balance Sheet
Location
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
|
|
Accounts,
notes, and
|
|
|
|
Accrued
|
|
|
|
|
exchange contracts
|
|
other
receivables
|
|
$14
|
|
liabilities
|
|
$38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Accounts,
notes, and other receivables
|
|
$—
|
|
Accrued
liabilities
|
|
$ 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments
Not Designated as
Hedging Instruments
under SFAS No. 133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
|
|
Accounts,
notes, and
|
|
|
|
Accrued
|
|
|
|
|
exchange contracts
|
|
other
receivables
|
|
$—
|
|
liabilities
|
|
$ 3
|
|
17
|
|
|
|
|
|
|
|
|
Derivatives in SFAS No. 133
Cash Flow Hedge Relationships
|
|
Gain or (Loss)
Recognized in OCI on
Derivative
(Effective Portion)
|
|
Location of Gain or (Loss)
Reclassified from AOCI into
Income (Effective Portion)
on Derivative
|
|
Gain or (Loss)
Reclassified from
AOCI into Income
on Derivative
|
|
|
|
|
|
|
|
|
Foreign currency exchange
contracts
|
|
($24)
|
|
Product
sales
|
|
($2)
|
|
|
|
|
|
Cost
of products sold
|
|
($2)
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
($3)
|
|
Cost
of products sold
|
|
($1)
|
Ineffective
portions of commodity derivative instruments designated in SFAS No. 133 cash
flow hedge relationships are $0.2 million and are located in cost of products
sold. Foreign currency exchange contracts in SFAS No. 133 cash flow hedge
relationships qualify as critical matched terms hedge relationships and as a
result have no associated ineffectiveness.
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 March 31, 2009:
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency exchange contracts
|
|
Other (income)
expense
|
|
($39)
|
NOTE 11.
Comprehensive Income/(Loss)
Comprehensive
income/(loss) consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
397
|
|
$
|
647
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation adjustments
|
|
|
(250
|
)
|
|
244
|
|
|
Pension and postretirement benefit adjustments
|
|
|
26
|
|
|
13
|
|
|
Change in fair value of effective cash flow hedges
|
|
|
(22
|
)
|
|
2
|
|
|
Change in fair value of available for sale investments
|
|
|
6
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157
|
|
|
906
|
|
|
Comprehensive Income attributable to noncontrolling interest(1)
|
|
|
(2
|
)
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income/(Loss) attributable to Honeywell
|
|
$
|
155
|
|
$
|
902
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
(1)
|
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
|
|
|
2
|
|
|
Capital contribution by noncontrolling shareholders
|
|
|
2
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
$
|
86
|
|
|
|
|
|
|
|
In the first
quarter of 2009 there were no increases or decreases to Honeywell additional
paid in capital for purchases or sales of existing noncontrolling interests.
19
NOTE 12.
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
March 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
Aerospace
|
|
$
|
2,759
|
|
$
|
3,030
|
|
|
Automation and Control
Solutions
|
|
|
3,001
|
|
|
3,180
|
|
|
Specialty Materials
|
|
|
1,054
|
|
|
1,409
|
|
|
Transportation Systems
|
|
|
756
|
|
|
1,276
|
|
|
Corporate
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,570
|
|
$
|
8,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Profit
|
|
|
|
|
|
|
|
|
Aerospace
|
|
$
|
488
|
|
$
|
563
|
|
|
Automation and Control
Solutions
|
|
|
311
|
|
|
328
|
|
|
Specialty Materials
|
|
|
125
|
|
|
265
|
|
|
Transportation Systems
|
|
|
(3
|
)
|
|
149
|
|
|
Corporate
|
|
|
(45
|
)
|
|
(56
|
)
|
|
|
|
|
|
|
|
|
|
|
Total Segment Profit
|
|
|
876
|
|
|
1,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) (A)
|
|
|
(8
|
)
|
|
10
|
|
|
Interest and other
financial charges
|
|
|
(117
|
)
|
|
(115
|
)
|
|
Stock compensation expense
(B)
|
|
|
(42
|
)
|
|
(41
|
)
|
|
Pension and other
postretirement expense (B)
|
|
|
(55
|
)
|
|
(27
|
)
|
|
Repositioning and other
charges (B)
|
|
|
(111
|
)
|
|
(197
|
)
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
$
|
543
|
|
$
|
879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
20
NOTE 13.
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
March 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Pension
Benefits
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
57
|
|
$
|
67
|
|
|
Interest
cost
|
|
|
242
|
|
|
262
|
|
|
Expected
return on plan assets
|
|
|
(321
|
)
|
|
(363
|
)
|
|
Amortization
of prior service cost
|
|
|
7
|
|
|
7
|
|
|
Recognition
of actuarial losses
|
|
|
36
|
|
|
12
|
|
|
Settlements
and curtailments
|
|
|
—
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21
|
|
$
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Other
Postretirement Benefits
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
3
|
|
$
|
3
|
|
|
Interest
cost
|
|
|
29
|
|
|
33
|
|
|
Amortization
of prior service (credit)
|
|
|
(10
|
)
|
|
(10
|
)
|
|
Recognition
of actuarial losses
|
|
|
8
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30
|
|
$
|
35
|
|
|
|
|
|
|
|
|
|
|
During
the first quarter of 2009, we made a $200 million voluntary contribution of
Honeywell common stock to our U.S. pension plans to improve the funded status
of our plans.
NOTE 14.
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 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
21
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:
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2009
|
|
|
|
|
|
|
|
Beginning of
period
|
|
$
|
946
|
|
|
Accruals for
environmental matters deemed probable and reasonably estimable
|
|
|
34
|
|
|
Environmental
liability payments
|
|
|
(60
|
)
|
|
|
|
|
|
|
|
End of
period
|
|
$
|
920
|
|
|
|
|
|
|
|
Environmental
liabilities are included in the following balance sheet accounts:
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
Accrued
liabilities
|
|
$
|
344
|
|
$
|
343
|
|
|
Other
liabilities
|
|
|
576
|
|
|
603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
920
|
|
$
|
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 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
22
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 chromium 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 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.
23
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.
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
24
appeal to the
Third Circuit Court of Appeals. Oral arguments are scheduled for May 21, 2009.
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 March 31, 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 March 31, 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 March 31, 2009, a significant portion of this coverage is
with 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
March 31, 2009. Honeywell believes it is entitled to the coverage at issue and
has filed counterclaims in the Superior Court of New Jersey seeking, among
other things, declaratory relief with respect to this coverage. In the third
quarter of 2007, Honeywell prevailed in the New York action on a critical
choice of law issue
25
concerning the
appropriate method of allocating NARCO-related asbestos liabilities to
triggered policies. The trial court’s ruling has been appealed and oral
arguments are scheduled for May 14, 2009. Honeywell expects to prevail in this
matter based upon (i) our understanding of relevant facts and applicable law,
(ii) the terms of insurance policies at issue, (iii) our experience on matters
of this nature, and (iv) the advice of counsel, and thus we believe that the
amount due from Travelers and other insurance carriers ($340 million at March
31, 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 March 31, 2009, we have resolved approximately 118,000 Bendix
related asbestos claims. We had 127 trials resulting in favorable verdicts and
13 trials resulting in adverse verdicts. Two of these adverse verdicts were
reversed on appeal, three claims were settled and the remaining have been or
will be appealed. The following tables present information regarding Bendix
related asbestos claims activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 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
|
|
|
670
|
|
|
4,003
|
|
|
2,771
|
|
|
Claims Resolved during the
period
|
|
|
(830
|
)
|
|
(3,710
|
)
|
|
(8,221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims Unresolved at the
end of period
|
|
|
51,791
|
|
|
51,951
|
|
|
51,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disease Distribution of
Unresolved Claims
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Mesothelioma and Other
Cancer Claims
|
|
|
5,736
|
|
|
5,575
|
|
|
5,011
|
|
|
Other Claims
|
|
|
46,055
|
|
|
46,376
|
|
|
46,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Claims
|
|
|
51,791
|
|
|
51,951
|
|
|
51,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximately
45 percent of the approximately 52,000 pending claims at March 31, 2009 are on
the inactive, deferred, or similar dockets established in some jurisdictions
for claimants who allege minimal or no impairment. The approximately 52,000
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.
26
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 $588 and $578 million
at March 31, 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 $165 and $156 million are reflected as receivables in our consolidated
balance sheet at March 31, 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
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
27
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2009
|
|
|
|
|
|
|
|
|
|
Bendix
|
|
NARCO
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
$
|
578
|
|
$
|
1,131
|
|
$
|
1,709
|
|
|
Accrual for update to estimated liability
|
|
|
43
|
|
|
2
|
|
|
45
|
|
|
Asbestos related liability payments
|
|
|
(33
|
)
|
|
—
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
588
|
|
$
|
1,133
|
|
$
|
1,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Recoveries for
Asbestos Related Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2009
|
|
|
|
|
|
|
|
|
|
Bendix
|
|
NARCO
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
$
|
156
|
|
$
|
877
|
|
$
|
1,033
|
|
|
Probable insurance recoveries related to estimated liability
|
|
|
9
|
|
|
—
|
|
|
9
|
|
|
Insurance receipts for asbestos related liabilities
|
|
|
—
|
|
|
(4
|
)
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
165
|
|
$
|
873
|
|
$
|
1,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NARCO
and Bendix asbestos related balances are included in the following balance
sheet accounts:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2009
|
|
December 31,
2008
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
$
|
4
|
|
$
|
4
|
|
|
Insurance recoveries for asbestos related
liabilities
|
|
|
1,034
|
|
|
1,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,038
|
|
$
|
1,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
171
|
|
$
|
171
|
|
|
Asbestos related liabilities
|
|
|
1,550
|
|
|
1,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,721
|
|
$
|
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,
28
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
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.
29
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 March 31, 2009, and the related consolidated
statement of operations for each of the three-month periods ended March 31,
2009 and 2008 and the consolidated statement of cash flows for the three-month
periods ended March 31, 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
|
|
April 23,
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.
30
