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 September 30, 2011 and
the results of operations for the three and nine months ended September 30,
2011 and 2010 and cash flows for the nine months ended September 30, 2011 and
2010. The results of operations for the three and nine months ended September
30, 2011 should not necessarily be taken as indicative of the results of
operations that may be expected for the entire year. We have evaluated
subsequent events through the date of issuance of our consolidated financial
statements.
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
nine months ended September 30, 2011 and 2010 were October 1, 2011 and October
2, 2010, respectively.
The
financial information as of September 30, 2011 should be read in conjunction
with the financial statements for the year ended December 31, 2010 contained in
our Form 10-K filed on February 11, 2011.
Certain
prior year amounts have been reclassified to conform to current year presentation.
The
Company has reported its Consumer Products Group business (CPG) as a
discontinued operation as of June 30, 2011. Accordingly, the results of
operations for all periods presented have been reclassified to reflect the
business as a discontinued operation and the assets and liabilities of the
business have been reclassified as held for sale as of December 31, 2010. The
net income attributable to the non-controlling interest for the discontinued
operations is insignificant.
Note 2. Recent Accounting Pronouncements
Changes to
accounting principles generally accepted in the United States of America (U.S.
GAAP) are established by the Financial Accounting Standards Board (FASB) in the
form of accounting standards updates (ASU’s) to the FASB’s Accounting
Standards Codification.
The Company
considers the applicability and impact of all recent ASU’s. ASU’s not listed
below were assessed and determined to be either not applicable or are expected
to have minimal impact on our consolidated financial position and results of
operations.
In May 2011,
the FASB issued amendments to disclosure requirements for common fair value
measurement. These amendments, effective for the interim and annual periods
beginning on or after December 15, 2011 (early adoption is prohibited), result
in common definition of fair value and common requirements for measurement of
and disclosure requirements between U.S. GAAP and IFRS. Consequently, the
amendments change some fair value measurement principles and disclosure
requirements. The implementation of this amended accounting guidance is not
expected to have a material impact on our consolidated financial position and
results of operations.
In June
2011, the FASB issued amendments to disclosure requirements for presentation of
comprehensive income. This guidance, effective retrospectively for the interim
and annual periods beginning on or after December 15, 2011 (early adoption is
permitted), requires presentation of total
comprehensive income, the components of net income, and the components of other
comprehensive income either in a single continuous
6
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share
amounts)
statement of comprehensive income or in two separate but consecutive
statements. The implementation of this amended accounting guidance is not
expected to have a material impact on our consolidated financial position and
results of operations.
In September
2011, the FASB issued amendments to the goodwill impairment guidance which
provides an option for companies to use a qualitative approach to test goodwill
for impairment if certain conditions are met. The amendments are effective for
annual and interim goodwill impairment tests performed for fiscal years
beginning after December 15, 2011 (early adoption is permitted). The
implementation of amended accounting guidance is not expected to have a
material impact on our consolidated financial position and results of
operations.
Note 3. Acquisitions and Divestitures
Acquisitions
–In August 2011, the Company
acquired 100 percent of the issued and outstanding shares of EMS Technologies,
Inc. (EMS), a leading provider of connectivity solutions for mobile networking,
rugged mobile computers and satellite communications. EMS is a US public
company which operates globally and had reported 2010 revenues of approximately
$355 million.
The
aggregate value, net of cash acquired, was approximately $513 million and was
allocated to tangible and identifiable intangible assets acquired and
liabilities assumed based on their estimated fair values at the acquisition
date. On a preliminary basis, the Company has assigned approximately $134
million to identifiable intangible assets, of which approximately $93 million
and approximately $41 million were recorded within the Aerospace and Automation
and Control segments respectively, predominantly customer relationships,
existing technology and trademarks. These intangible assets are being amortized
over their estimated lives, using straight-line and accelerated amortization
methods. The excess of the purchase price over the estimated fair values of net
assets acquired (approximating $240 million), was recorded as goodwill. This
goodwill arises primarily from the avoidance of the time and costs which would
be required (and the associated risks that would be encountered) to enhance our
product offerings to key target markets and serve as entry into new and
profitable segments, and the expected cost synergies that will be realized
through the consolidation of the acquired business into our Aerospace and
Automation and Control Solutions segments. These cost synergies are expected to
be realized principally in the areas of selling, general and administrative
expenses, material sourcing and manufacturing. This goodwill is non-deductible
for tax purposes.
The
results from the acquisition date through September 30, 2011 are included in
the Aerospace and Automation and Control Solutions segments and were not
material to the consolidated financial statements. As of September 30, 2011,
the purchase accounting for EMS is subject to final adjustment primarily for
the valuation of inventory and property, plant and equipment, useful lives of
intangible assets, amounts allocated to intangible assets and goodwill, and for
certain pre-acquisition contingencies.
Divestitures
–In July 2011, the Company sold its
Consumer Products Group business (CPG) to Rank Group Limited.
The sale
was completed for approximately $955 million in cash proceeds, resulting in a
pre-tax gain of approximately $301 million and a
pproximately $178 million net of
tax. The gain was recorded
in net income from discontinued operations after taxes in the Company’s
Consolidated Statement of Operations for the quarter ended September 30, 2011.
The net income attributable to the non-controlling interest for the
discontinued operations is insignificant. The sale of CPG, which had been part
of the Transportation Systems segment, is consistent with the Company’s
strategic focus on its portfolio of differentiated global technologies.
The key
components of income from discontinued operations related to CPG were as
follows:
7
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
60
|
|
$
|
253
|
|
$
|
530
|
|
$
|
728
|
|
|
Costs, expenses and other
|
|
|
51
|
|
|
199
|
|
|
421
|
|
|
572
|
|
|
Selling, general and
administrative expense
|
|
|
14
|
|
|
23
|
|
|
63
|
|
|
71
|
|
|
Other (income) expense
|
|
|
(3
|
)
|
|
2
|
|
|
(2
|
)
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before taxes
|
|
|
(2
|
)
|
|
29
|
|
|
48
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on disposal of
discontinued operations
|
|
|
301
|
|
|
—
|
|
|
301
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from discontinued
operations before taxes
|
|
|
299
|
|
|
29
|
|
|
349
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense
|
|
|
122
|
|
|
10
|
|
|
140
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from discontinued
operations after taxes
|
|
$
|
177
|
|
$
|
19
|
|
$
|
209
|
|
$
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
components of assets and liabilities classified as discontinued operations and
included in other current assets and other current liabilities related to the
CPG business consisted of the following:
|
|
|
|
|
|
|
|
|
December 31,
2010
|
|
|
|
|
|
|
|
Accounts, notes and other receivables
|
|
$
|
227
|
|
|
Inventories
|
|
|
136
|
|
|
Property, plant and equipment - net
|
|
|
116
|
|
|
Goodwill and other intangibles - net
|
|
|
359
|
|
|
Other
|
|
|
3
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
841
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
145
|
|
|
Accrued and other liabilities
|
|
|
45
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
190
|
|
|
|
|
|
|
|
8
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Note 4. Repositioning and Other Charges
A
summary of repositioning and other charges follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
194
|
|
$
|
64
|
|
$
|
237
|
|
$
|
121
|
|
|
Asset impairments
|
|
|
76
|
|
|
12
|
|
|
86
|
|
|
21
|
|
|
Exit costs
|
|
|
35
|
|
|
5
|
|
|
47
|
|
|
9
|
|
|
Adjustments
|
|
|
(7
|
)
|
|
(9
|
)
|
|
(21
|
)
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net repositioning charge
|
|
|
298
|
|
|
72
|
|
|
349
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asbestos related litigation charges, net of insurance
|
|
|
38
|
|
|
48
|
|
|
116
|
|
|
135
|
|
|
Probable and reasonably estimable environmental liabilities
|
|
|
76
|
|
|
68
|
|
|
177
|
|
|
169
|
|
|
Other
|
|
|
(2
|
)
|
|
24
|
|
|
(5
|
)
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net repositioning and
other charges
|
|
$
|
410
|
|
$
|
212
|
|
$
|
637
|
|
$
|
480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table summarizes the pretax classification of total net repositioning
and other charges by income statement caption:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products and services sold
|
|
$
|
343
|
|
$
|
185
|
|
$
|
545
|
|
$
|
445
|
|
|
Selling, general and administrative expenses
|
|
|
67
|
|
|
27
|
|
|
92
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
410
|
|
$
|
212
|
|
$
|
637
|
|
$
|
480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table summarizes the pretax impact of total net repositioning and
other charges by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
$
|
38
|
|
$
|
27
|
|
$
|
32
|
|
$
|
33
|
|
|
Automation and Control Solutions
|
|
|
137
|
|
|
34
|
|
|
182
|
|
|
63
|
|
|
Specialty Materials
|
|
|
28
|
|
|
14
|
|
|
41
|
|
|
25
|
|
|
Transportation Systems
|
|
|
120
|
|
|
44
|
|
|
196
|
|
|
149
|
|
|
Corporate
|
|
|
87
|
|
|
93
|
|
|
186
|
|
|
210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
410
|
|
$
|
212
|
|
$
|
637
|
|
$
|
480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the
quarter ended September 30, 2011, we recognized repositioning charges totaling
$305 million including severance costs of $194 million related to workforce
reductions of 2,097 manufacturing and administrative positions across all of
our segments. The workforce reductions were primarily related to the planned
shutdown of a manufacturing facility in our Transportation Systems segment,
factory consolidations and/or rationalizations and an organizational
realignment of a business in our Automation and Control Solutions segment, factory transitions in connection with
acquisition-related synergies in our Automation and Control Solutions and
Aerospace segments, the consolidation of non-U.S. repair facilities in our
Aerospace segment, the exit of a product line in our Specialty Materials
segment, and cost savings actions taken in connection with our ongoing
functional transformation and productivity initiatives. The repositioning
charges included asset impairments of $76 million principally related to the
write-off of certain intangible assets in our Automation and
9
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Control Solutions
segment due to a change in branding strategy and manufacturing plant and
equipment associated with the planned shutdown of a manufacturing facility and
exit of a product line as discussed above. The repositioning charges also
included exit costs of $35 million principally for costs to terminate a
contract in connection with the exit from a product line in our Aerospace
segment and closure obligations associated with the planned shutdown of a
manufacturing facility and exit of a product line as discussed above.
In the
quarter ended September 30, 2010, we recognized repositioning charges totaling
$81 million including severance costs of $64 million related to workforce
reductions of 1,188 manufacturing and administrative positions in our
Automation and Control Solutions, Aerospace and Specialty Materials segments.
The workforce reductions were related to achieving acquisition-related
synergies in our Automation and Control Solutions segment, factory transitions
in our Automation and Control Solutions and Specialty Materials segments to
more cost-effective locations, the exit and/or rationalization of certain
product lines in our Specialty Materials segment, and the wind-down of certain
programs in the Defense and Space business of our Aerospace segment. The
repositioning charges also included asset impairments of $12 million
principally related to manufacturing plant and equipment associated with the
exit and/or rationalization of certain product lines in our Specialty Materials
segment.
In the nine
months ended September 30, 2011, we recognized repositioning charges totaling
$370 million including severance costs of $237 million related to workforce
reductions of 3,043 manufacturing and administrative positions across all of
our segments. The workforce reductions were primarily related to the planned
shutdown of a manufacturing facility in our Transportation Systems segment,
cost savings actions taken in connection with our ongoing functional
transformation and productivity initiatives, factory transitions in connection
with acquisition-related synergies in our Automation and Control Solutions and
Aerospace segments, the exit from and/or rationalization of certain product
lines and markets in our Specialty Materials and Automation and Control
Solutions segments, the consolidation of repair facilities in our Aerospace
segment, and factory consolidations and/or rationalizations and organizational
realignments of businesses in our Automation and Control Solutions segment. The
repositioning charges included asset impairments of $86 million principally
related to the write-off of certain intangible assets in our Automation and
Control Solutions segment due to a change in branding strategy and
manufacturing plant and equipment associated with the planned shutdown of a
manufacturing facility and the exit of a product line and a factory transition
as discussed above. The repositioning charges also included exit costs of $47
million principally for costs to terminate contracts related to the exit of a
market and product line and a factory transition and closure obligations
associated with the planned shutdown of a manufacturing facility and exit of a
product line as discussed above. Also, $21 million of previously established
accruals, primarily for severance at our Aerospace and Automation and Control
Solutions segments, were returned to income in the first nine months of 2011
due principally to fewer employee separations than originally planned
associated with prior severance programs.
In the nine
months ended September 30, 2010, we recognized repositioning charges totaling
$151 million including severance costs of $121 million related to workforce
reductions of 2,155 manufacturing and administrative positions across all of
our segments. The workforce reductions were primarily related to the planned
shutdown of certain manufacturing facilities in our Automation and Control
Solutions and Transportation Systems segments, cost savings actions taken in
connection with our ongoing functional transformation and productivity
initiatives, factory transitions in our Aerospace, Automation and Control Solutions
and Specialty Materials segments to more cost-effective locations, achieving
acquisition-related synergies in our Automation and Control Solutions segment,
and the exit and/or rationalization of certain product lines in our Specialty
Materials segment. The repositioning charges also included asset impairments of
$21 million principally related to manufacturing plant and equipment associated
with the exit and/or rationalization of certain product lines and in facilities
scheduled to close. Also, $17 million of previously established accruals,
primarily for severance at our Automation and Control Solutions, Transportation
Systems and Aerospace segments, were returned to income in the first nine
months of 2010 due primarily to fewer employee separations than originally
planned associated with prior severance programs.
10
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
The
following table summarizes the status of our total repositioning reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
Costs
|
|
Asset
Impairments
|
|
Exit
Costs
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2010
|
|
$
|
276
|
|
$
|
—
|
|
$
|
34
|
|
$
|
310
|
|
|
Charges
|
|
|
237
|
|
|
86
|
|
|
47
|
|
|
370
|
|
|
Usage - cash
|
|
|
(95
|
)
|
|
—
|
|
|
(17
|
)
|
|
(112
|
)
|
|
Usage - noncash
|
|
|
—
|
|
|
(86
|
)
|
|
—
|
|
|
(86
|
)
|
|
Foreign currency translation
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Adjustments
|
|
|
(21
|
)
|
|
—
|
|
|
—
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2011
|
|
$
|
397
|
|
$
|
—
|
|
$
|
64
|
|
$
|
461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 includes asset set-up
and moving, product recertification and requalification, and employee
retention, training and travel. The following tables summarize by segment,
expected, incurred and remaining exit and disposal costs related to 2011 and
2010 repositioning actions which we were not able to recognize at the time the
actions were initiated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
Repositioning Actions
|
|
Aerospace
|
|
Automation and
Control Solutions
|
|
Transportation
Systems
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected exit and disposal costs
|
|
$
|
15
|
|
$
|
15
|
|
$
|
7
|
|
$
|
37
|
|
|
Costs incurred during:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year-to-date
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining exit and disposal costs
|
|
$
|
15
|
|
$
|
15
|
|
$
|
7
|
|
$
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Repositioning
Actions
|
|
Aerospace
|
|
Automation and
Control Solutions
|
|
Transportation
Systems
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected exit and disposal costs
|
|
$
|
11
|
|
$
|
10
|
|
$
|
2
|
|
$
|
23
|
|
|
Costs incurred during:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2010
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Current year-to-date
|
|
|
(1
|
)
|
|
(3
|
)
|
|
—
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining exit and disposal costs
|
|
$
|
10
|
|
$
|
7
|
|
$
|
2
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
the quarter ended September 30, 2011, we recognized a charge of $76 million for
environmental liabilities deemed probable and reasonably estimable in the
quarter. We also recognized a charge of $38 million primarily representing an
update to our estimated liability for the resolution of Bendix related asbestos
claims as of September 30, 2011, net of probable insurance recoveries.
Environmental and Asbestos matters are discussed in detail in Note 15,
Commitments and Contingencies.
In
the quarter ended September 30, 2010, we recognized a charge of $68 million for
environmental liabilities deemed probable and reasonably estimable in the
quarter. We also recognized a charge of $48 million primarily representing an
update to our estimated liability for the resolution of Bendix related asbestos
claims as of September 30, 2010, net of probable insurance recoveries. We also
recognized other charges of $24 million in connection with the evaluation of
potential resolution of certain legal matters.
In
the nine months ended September 30, 2011, we recognized a charge of $177
million for environmental liabilities deemed probable and reasonably estimable
in the period. We also recognized a charge of $116 million
11
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
primarily representing an update
to our estimated liability for the resolution of Bendix related asbestos claims
as of September 30, 2011, net of probable insurance recoveries.
In
the nine months ended September 30, 2010, we recognized a charge of $169 million
for environmental liabilities deemed probable and reasonably estimable in the
period. We also recognized a charge of $135 million primarily representing an
update to our estimated liability for the resolution of Bendix related asbestos
claims as of September 30, 2010, net of probable insurance recoveries. We also
recognized other charges of $42 million in connection with the evaluation of
potential resolution of certain legal matters.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 5. Other
(income) expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity (income)/loss of affiliated companies
|
|
$
|
(13
|
)
|
$
|
(3
|
)
|
$
|
(36
|
)
|
$
|
(16
|
)
|
|
Gain on sale of non-strategic businesses and assets
|
|
|
(6
|
)
|
|
—
|
|
|
(52
|
)
|
|
—
|
|
|
Interest income
|
|
|
(15
|
)
|
|
(14
|
)
|
|
(42
|
)
|
|
(30
|
)
|
|
Foreign exchange
|
|
|
5
|
|
|
(3
|
)
|
|
23
|
|
|
5
|
|
|
Other, net
|
|
|
8
|
|
|
(58
|
)
|
|
35
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(21
|
)
|
$
|
(78
|
)
|
$
|
(72
|
)
|
$
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale
of non-strategic businesses and assets for the nine months ended September 30,
2011 includes a $41 million pre-tax gain, $25 million net of tax, related to
the divestiture of the automotive on-board sensor products business within our
Automation and Control Solutions segment.
Other, net
in the nine months ended September 30, 2011 includes a loss of $29 million
resulting from early redemption of debt in the first quarter of 2011. See Note
10 Long-term Debt and Credit Agreements for further details.
Other, net
in the three and nine months ended September 30, 2010 includes a $62 million
pre-tax gain, $39 million net of tax, related to the consolidation of a joint
venture within our Specialty Materials segment. The Company obtained control
and the ability to direct those activities most significant to the joint
venture’s economic performance in last year’s third quarter, resulting in
consolidation.
Note 6. Earnings Per Share
The details
of the earnings per share calculations for the three and nine months ended
September 30, 2011 and 2010 are as follows:
12
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
|
|
|
|
|
|
|
|
|
Basic
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations less net income attributable to the noncontrolling interest
|
|
$
|
685
|
|
$
|
579
|
|
$
|
2,168
|
|
$
|
1,600
|
|
|
Income from discontinued
operations
|
|
|
177
|
|
|
19
|
|
|
209
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
Honeywell
|
|
|
862
|
|
|
598
|
|
|
2,377
|
|
|
1,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding
|
|
|
778.2
|
|
|
776.5
|
|
|
782.9
|
|
|
770.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share of common
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations
|
|
|
0.88
|
|
|
0.75
|
|
|
2.77
|
|
|
2.08
|
|
|
Income from discontinued
operations
|
|
|
0.23
|
|
|
0.02
|
|
|
0.27
|
|
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
Honeywell
|
|
$
|
1.11
|
|
$
|
0.77
|
|
$
|
3.04
|
|
$
|
2.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
|
|
|
|
|
|
|
|
|
Assuming Dilution
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations less net income attributable to the noncontrolling interest
|
|
$
|
685
|
|
$
|
579
|
|
$
|
2,168
|
|
$
|
1,600
|
|
|
Income from discontinued
operations
|
|
|
177
|
|
|
19
|
|
|
209
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
Honeywell
|
|
|
862
|
|
|
598
|
|
|
2,377
|
|
|
1,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding
|
|
|
778.2
|
|
|
776.5
|
|
|
782.9
|
|
|
770.6
|
|
|
Dilutive securities issuable -
stock plans
|
|
|
8.7
|
|
|
6.3
|
|
|
11.1
|
|
|
6.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average shares
outstanding
|
|
|
786.9
|
|
|
782.8
|
|
|
794.0
|
|
|
777.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations
|
|
|
0.87
|
|
|
0.74
|
|
|
2.73
|
|
|
2.06
|
|
|
Income from discontinued
operations
|
|
|
0.23
|
|
|
0.02
|
|
|
0.26
|
|
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
Honeywell
|
|
$
|
1.10
|
|
$
|
0.76
|
|
$
|
2.99
|
|
$
|
2.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 and nine months ended September 30, 2011, the
weighted average number of stock options excluded from the computations were
11.6 and 8.9 million, respectively. For the three and nine months ended
September 30, 2010, the weighted average number of stock options excluded from
the computations were 21.7 and 18.3 million, respectively. These stock options
were outstanding at the end of each of the respective periods.
13
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Note 7. Accounts, Notes and Other Receivables
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2011
|
|
December 31,
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
|
|
$
|
7,101
|
|
$
|
6,471
|
|
|
Other
|
|
|
455
|
|
|
647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,556
|
|
|
7,118
|
|
|
Less - Allowance for doubtful accounts
|
|
|
(240
|
)
|
|
(277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,316
|
|
$
|
6,841
|
|
|
|
|
|
|
|
|
|
|
Trade
Receivables includes $1,495, and $1,307 million of unbilled balances under
long-term contracts as of September 30, 2011 and December 31, 2010, respectively.
These amounts are billed in accordance with the terms of customer contracts to
which they relate.
Note
8. Inventories
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2011
|
|
December 31,
2010
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
1,311
|
|
$
|
1,139
|
|
|
Work
in process
|
|
|
918
|
|
|
792
|
|
|
Finished
products
|
|
|
2,306
|
|
|
2,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,535
|
|
|
3,976
|
|
|
Reduction
to LIFO cost basis
|
|
|
(166
|
)
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,369
|
|
$
|
3,822
|
|
|
|
|
|
|
|
|
|
|
Note 9. Goodwill and Other
Intangible Assets - Net
The change
in the carrying amount of goodwill for the nine months ended September 30, 2011
by segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2010
|
|
Acquisitions
|
|
Divestitures
|
|
Currency
Translation
Adjustment
|
|
September 30,
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
$
|
1,883
|
|
$
|
153
|
|
$
|
—
|
|
$
|
2
|
|
$
|
2,038
|
|
|
Automation and Control
Solutions
|
|
|
7,907
|
|
|
144
|
|
|
(12
|
)
|
|
60
|
|
|
8,099
|
|
|
Specialty Materials
|
|
|
1,291
|
|
|
16
|
|
|
—
|
|
|
4
|
|
|
1,311
|
|
|
Transportation Systems
|
|
|
194
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,275
|
|
$
|
313
|
|
$
|
(12
|
)
|
$
|
69
|
|
$
|
11,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Determinable life intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and technology
|
|
$
|
1,176
|
|
$
|
(748
|
)
|
$
|
428
|
|
$
|
1,101
|
|
$
|
(676
|
)
|
$
|
425
|
|
|
Customer relationships
|
|
|
1,651
|
|
|
(473
|
)
|
|
1,178
|
|
|
1,688
|
|
|
(399
|
)
|
|
1,289
|
|
|
Trademarks
|
|
|
156
|
|
|
(91
|
)
|
|
65
|
|
|
186
|
|
|
(84
|
)
|
|
102
|
|
|
Other
|
|
|
207
|
|
|
(140
|
)
|
|
67
|
|
|
512
|
|
|
(404
|
)
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,190
|
|
|
(1,452
|
)
|
|
1,738
|
|
|
3,487
|
|
|
(1,563
|
)
|
|
1,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite life intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
638
|
|
|
—
|
|
|
638
|
|
|
613
|
|
|
—
|
|
|
613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,828
|
|
$
|
(1,452
|
)
|
$
|
2,376
|
|
$
|
4,100
|
|
$
|
(1,563
|
)
|
$
|
2,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
expense related to intangible assets for the nine months ended September 30,
2011 and 2010 was $184 and $183 million, respectively.
We completed
our annual impairment testing of goodwill and indefinite-lived intangibles as
of March 31, 2011 and determined that there was no impairment as of that date.
Note
10. Long-term Debt and Credit Agreements
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2011
|
|
December 31,
2010
|
|
|
|
|
|
|
|
|
|
6.125% notes due 2011
|
|
$
|
500
|
|
$
|
500
|
|
|
5.625% notes due 2012
|
|
|
—
|
|
|
400
|
|
|
4.25% notes due 2013
|
|
|
600
|
|
|
600
|
|
|
3.875% notes due 2014
|
|
|
600
|
|
|
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
|
|
|
900
|
|
|
4.25% notes due 2021
|
|
|
800
|
|
|
—
|
|
|
5.375% notes due 2041
|
|
|
600
|
|
|
—
|
|
|
Industrial development bond
obligations, floating rate maturing at various dates through 2037
|
|
|
37
|
|
|
46
|
|
|
6.625% 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), 0.6%-9.5% maturing at various dates through 2023
|
|
|
241
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,395
|
|
|
6,278
|
|
|
|
|
|
|
|
|
|
|
|
Less current portion
|
|
|
(515
|
)
|
|
(523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,880
|
|
$
|
5,755
|
|
|
|
|
|
|
|
|
|
|
15
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
|
|
|
|
|
|
|
The schedule of principal payments on long term debt is as follows:
|
|
|
|
|
|
September 30, 2011
|
|
|
|
|
|
|
|
2011
|
|
$
|
514
|
|
|
2012
|
|
|
17
|
|
|
2013
|
|
|
618
|
|
|
2014
|
|
|
607
|
|
|
2015
|
|
|
1
|
|
|
Thereafter
|
|
|
5,638
|
|
|
|
|
|
|
|
|
|
|
|
7,395
|
|
|
Less-current portion
|
|
|
(515
|
)
|
|
|
|
|
|
|
|
|
|
$
|
6,880
|
|
|
|
|
|
|
|
In February
2011, the Company issued $800 million 4.25 percent Senior Notes due 2021 and
$600 million 5.375 percent Senior Notes due 2041 (collectively, the “Notes”).
The 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 $1,400 million, offset by $19 million in discount and closing
costs related to the offering.
In the first
quarter of 2011, the Company repurchased the entire outstanding principal
amount of its $400 million 5.625 percent Notes due 2012 via a cash tender offer
and a subsequent optional redemption. The cost relating to the early redemption
of the Notes, including the “make-whole premium”, was $29 million.
In March
2011, the Company entered into a $2,800 million Five Year Credit Agreement
(“Credit Agreement”) with a syndicate of banks. Commitments under the Credit
Agreement can be increased pursuant to the terms of the Credit Agreement to an
aggregate amount not to exceed $3,500 million. The Credit Agreement is
maintained for general corporate purposes, including support for the issuance
of commercial paper, and replaces the previous $2,800 million five year credit
agreement dated May 14, 2007 (“Prior Agreement”). There have been no borrowings
under the Credit Agreement or the Prior Agreement. The Credit Agreement does
not restrict the Company’s ability to pay dividends, nor does it contain
financial covenants.
As a source
of liquidity, we may periodically sell interests in designated pools of trade
accounts receivables to third parties. As of September 30, 2011 and December
31, 2010 none of the receivables in the designated pools had been sold to third
parties. When we sell receivables, they are over-collateralized and we retain a
subordinated interest in the pool of receivables representing that
over-collateralization as well as an undivided interest in the balance of the
receivables pools. The terms of the trade accounts receivable program permit
the repurchase of receivables from the third parties at our discretion,
providing us with an additional source of revolving credit. As a result,
program receivables remain on the Company’s balance sheet with a corresponding
amount recorded as either Short-term borrowings or Long-term debt.
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.
16
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
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. 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 September 30, 2011 and December 31, 2010, we had contracts with notional
amounts of $4,631 million and $5,733 million respectively, to exchange foreign
currencies, principally the U.S. dollar, Euro, British pound, Canadian dollar,
Hong Kong dollar, Mexican peso, Swiss franc, Czech koruna, Chinese renminbi,
Indian rupee, Singapore dollar, Swedish krona, Korean won and Thai baht.
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 September 30, 2011 and December
31, 2010, we had contracts with notional amounts of $45 million and $23
million, respectively, 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 September
30, 2011 and December 31, 2010, interest rate swap agreements designated as
fair value hedges effectively changed $1,400 and $600 million, respectively, of
fixed rate debt at an average rate of 4.09 and 3.88 percent, respectively, to
LIBOR based floating rate debt. Our interest rate swaps mature at various dates
through 2021.
Fair
Value of Financial Instruments
— The FASB’s accounting
guidance 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). The FASB’s guidance
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
|
17
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
The Company
endeavors to utilize the best available information in measuring fair value.
Financial and 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 available for sale investments
in marketable equity securities are level 1 and our remaining 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 September 30, 2011 and December
31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2011
|
|
December 31,
2010
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
$
|
16
|
|
$
|
16
|
|
|
Available for sale
investments
|
|
|
332
|
|
|
322
|
|
|
Interest rate swap
agreements
|
|
|
135
|
|
|
22
|
|
|
Forward commodity contracts
|
|
|
1
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Foreign currency exchange
contracts
|
|
$
|
40
|
|
$
|
14
|
|
|
Forward commodity contracts
|
|
|
3
|
|
|
2
|
|
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 commercial paper, certificates of deposits, and time deposits 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term receivables
|
|
$
|
127
|
|
$
|
127
|
|
$
|
203
|
|
$
|
199
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and related
current maturities
|
|
$
|
7,395
|
|
$
|
8,395
|
|
$
|
6,278
|
|
$
|
6,835
|
|
In the three
and nine months ended September 30, 2011, the Company had nonfinancial assets,
specifically property, plant and equipment, with a net book value of $128
million and $143 million, respectively, 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 $74 million and
$85 million, respectively, in the three and nine months ended September 30,
2011. The Company has determined that the fair value measurements of these
nonfinancial assets are level 3 in the fair value hierarchy. In the three and
nine months ended September 30, 2010, the Company had nonfinancial assets,
specifically property, plant and equipment, software and intangible assets,
with a net book value of $13 million and $31 million, respectively, that were
accounted for at fair value on a nonrecurring basis. Based on the fair value of
these assets the Company recognized losses of $12 million and $29 million,
respectively, in the three and nine months ended September 30, 2010.
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:
18
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Fair value of derivatives classified as assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Designated
as a Hedge
|
|
Balance
Sheet Classification
|
|
September 30,
2011
|
|
December 31,
2010
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency exchange contracts
|
|
Accounts,
notes, and other receivables
|
|
$
|
15
|
|
$
|
10
|
|
|
Interest
rate swap agreements
|
|
Other
assets
|
|
|
135
|
|
|
22
|
|
|
Commodity
contracts
|
|
Accounts,
notes, and other receivables
|
|
|
1
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not
Designated as a Hedge
|
|
Balance
Sheet Classification
|
|
September 30,
2011
|
|
December 31,
2010
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency exchange contracts
|
|
Accounts,
notes, and other receivables
|
|
$
|
1
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of derivatives classified as liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Designated
as a Hedge
|
|
Balance
Sheet Classification
|
|
September 30,
2011
|
|
December 31,
2010
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency exchange contracts
|
|
Accrued
liabilities
|
|
$
|
36
|
|
$
|
9
|
|
|
Commodity
contracts
|
|
Accrued
liabilities
|
|
|
3
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not
Designated as a Hedge
|
|
Balance
Sheet Classification
|
|
September 30,
2011
|
|
December 31,
2010
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency exchange contracts
|
|
Accrued
liabilities
|
|
$
|
4
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) recognized in OCI (effective portions) consist of the
following:
|
|
|
|
|
|
Three Months Ended
September, 30
|
|
Nine Months Ended
September, 30
|
|
|
|
|
|
|
|
|
|
Designated
Cash Flow Hedge
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
$
|
(30
|
)
|
$
|
8
|
|
$
|
(14
|
)
|
$
|
16
|
|
|
Commodity contracts
|
|
|
(3
|
)
|
|
(3
|
)
|
|
(1
|
)
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) reclassified from AOCI to income consist of the
following:
|
|
|
|
Designated
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
Cash Flow
Hedge
|
|
Income
Statement Location
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
Product sales
|
|
$
|
10
|
|
$
|
(7
|
)
|
$
|
26
|
|
$
|
(13
|
)
|
|
|
Cost of products sold
|
|
|
(8
|
)
|
|
11
|
|
|
(24
|
)
|
|
20
|
|
|
|
Selling & general administrative
|
|
|
(2
|
)
|
|
1
|
|
|
4
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Cost of products sold
|
|
$
|
1
|
|
$
|
(1
|
)
|
$
|
1
|
|
$
|
(4
|
)
|
19
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Ineffective
portions of commodity derivative instruments designated in cash flow hedge
relationships were insignificant in the three and nine months ended September
30, 2011 and 2010 and are classified within 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 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 $80 and $113 million
in the three and nine months ended September 30, 2011. Gains on interest rate
swap agreements recognized in earnings were $10 million and $30 million in both
the three and nine months ended September 30, 2010. These gains were fully
offset by losses on the underlying debt being hedged.
We also
economically hedge our exposure to changes in foreign exchange rates
principally with forward contracts. These contracts are marked-to-market with
the resulting gains and losses recognized in earnings offsetting the gains and
losses on the non-functional currency denominated monetary assets and
liabilities being hedged. For the three and nine months ended September 30,
2011, we recognized $4 million of expense and $34 million of income,
respectively, in Other (Income) Expense. For the three and nine months ended
September 30, 2010, we recognized $18 million of income and $2 million of
expense, respectively, in Other (Income) Expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 12. Comprehensive Income/(Loss)
|
|
|
|
|
|
|
|
|
|
Comprehensive
income/(loss) consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
863
|
|
$
|
596
|
|
$
|
2,381
|
|
$
|
1,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange translation adjustments
|
|
|
(440
|
)
|
|
599
|
|
|
67
|
|
|
(106
|
)
|
|
Pension
and postretirement benefit adjustments
|
|
|
(77
|
)
|
|
32
|
|
|
(70
|
)
|
|
(96
|
)
|
|
Change
in fair value of effective cash flow hedges
|
|
|
(33
|
)
|
|
—
|
|
|
(24
|
)
|
|
1
|
|
|
Change in unrealized gains
on available for sale investments
(a)
|
|
|
(36
|
)
|
|
19
|
|
|
(28
|
)
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
277
|
|
|
1,246
|
|
|
2,326
|
|
|
1,512
|
|
|
Less: Comprehensive
Income/(Loss) attributable to noncontrolling interest
(b)
|
|
|
—
|
|
|
(1
|
)
|
|
3
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income/(Loss)
attributable to Honeywell
|
|
$
|
277
|
|
$
|
1,247
|
|
$
|
2,323
|
|
$
|
1,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Includes reclassification adjustment for losses included in net
income.
(b) Comprehensive Income/(Loss) attributable to noncontrolling interest
consisted predominately of net income.
20
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
Changes in Noncontrolling Interest for the nine months ended
September 30 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance beginning of period
|
|
|
121
|
|
|
110
|
|
|
Comprehensive Income/(Loss) attributable to noncontrolling interest
|
|
|
3
|
|
|
15
|
|
|
Acquisitions
|
|
|
—
|
|
|
18
|
|
|
Dividends paid
|
|
|
(14
|
)
|
|
(7
|
)
|
|
Other owner changes
|
|
|
(5
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Balance end of period, September 30
|
|
|
105
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
In the nine
months ended September 30, 2011 there was a $2 million decrease to Honeywell
additional paid in capital for purchases of existing noncontrolling interests.
In the nine
months ended September 30, 2010 there were no increases or decreases to
Honeywell additional paid in capital for purchases and sales of existing noncontrolling
interests.
21
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
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.
The Consumer
Products Group business had historically been part of the Transportation
Systems reportable segment. In accordance with the presentation of CPG as discontinued
operations, results for current periods presented as well as all future periods
include Turbo Technologies and Friction Materials only. See Note 3 Acquisitions
and Divestitures for further details.
22
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
1,660
|
|
$
|
1,460
|
|
$
|
4,685
|
|
$
|
4,241
|
|
|
Services
|
|
|
1,262
|
|
|
1,244
|
|
|
3,743
|
|
|
3,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,922
|
|
|
2,704
|
|
|
8,428
|
|
|
7,857
|
|
|
Automation
and Control Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
3,388
|
|
|
2,972
|
|
|
9,855
|
|
|
8,366
|
|
|
Services
|
|
|
560
|
|
|
502
|
|
|
1,629
|
|
|
1,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,948
|
|
|
3,474
|
|
|
11,484
|
|
|
9,835
|
|
|
Specialty
Materials
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
1,300
|
|
|
1,111
|
|
|
3,812
|
|
|
3,377
|
|
|
Services
|
|
|
168
|
|
|
64
|
|
|
417
|
|
|
196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,468
|
|
|
1,175
|
|
|
4,229
|
|
|
3,573
|
|
|
Transportation
Systems
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
960
|
|
|
786
|
|
|
2,915
|
|
|
2,336
|
|
|
Services
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
960
|
|
|
786
|
|
|
2,915
|
|
|
2,336
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Services
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,298
|
|
$
|
8,139
|
|
$
|
27,056
|
|
$
|
23,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
$
|
532
|
|
$
|
458
|
|
$
|
1,450
|
|
$
|
1,314
|
|
|
Automation
and Control Solutions
|
|
|
544
|
|
|
471
|
|
|
1,499
|
|
|
1,258
|
|
|
Specialty
Materials
|
|
|
254
|
|
|
194
|
|
|
819
|
|
|
578
|
|
|
Transportation
Systems
|
|
|
121
|
|
|
92
|
|
|
368
|
|
|
250
|
|
|
Corporate
|
|
|
(84
|
)
|
|
(56
|
)
|
|
(208
|
)
|
|
(156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Profit
|
|
|
1,367
|
|
|
1,159
|
|
|
3,928
|
|
|
3,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income/ (expense)
(a)
|
|
|
8
|
|
|
75
|
|
|
36
|
|
|
73
|
|
|
Interest
and other financial charges
|
|
|
(90
|
)
|
|
(96
|
)
|
|
(285
|
)
|
|
(294
|
)
|
|
Stock
compensation expense
(b)
|
|
|
(38
|
)
|
|
(36
|
)
|
|
(129
|
)
|
|
(122
|
)
|
|
Pension
expense
(b)
|
|
|
(26
|
)
|
|
(50
|
)
|
|
(83
|
)
|
|
(146
|
)
|
|
Other
postretirement income/(expense)
(b)
|
|
|
82
|
|
|
(18
|
)
|
|
109
|
|
|
(12
|
)
|
|
Repositioning
and other charges
(b)
|
|
|
(410
|
)
|
|
(212
|
)
|
|
(637
|
)
|
|
(480
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before taxes
|
|
$
|
893
|
|
$
|
822
|
|
$
|
2,939
|
|
$
|
2,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
23
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
58
|
|
$
|
55
|
|
$
|
174
|
|
$
|
166
|
|
|
Interest
cost
|
|
|
190
|
|
|
192
|
|
|
571
|
|
|
576
|
|
|
Expected
return on plan assets
|
|
|
(253
|
)
|
|
(225
|
)
|
|
(760
|
)
|
|
(676
|
)
|
|
Amortization
of prior service cost
|
|
|
8
|
|
|
8
|
|
|
25
|
|
|
24
|
|
|
Settlements
and curtailments
|
|
|
—
|
|
|
—
|
|
|
24
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3
|
|
$
|
30
|
|
$
|
34
|
|
$
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
Plans
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
14
|
|
$
|
12
|
|
$
|
44
|
|
$
|
38
|
|
|
Interest
cost
|
|
|
60
|
|
|
56
|
|
|
180
|
|
|
169
|
|
|
Expected
return on plan assets
|
|
|
(72
|
)
|
|
(59
|
)
|
|
(215
|
)
|
|
(177
|
)
|
|
Amortization
of transition obligation
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
Amortization
of prior service (credit)
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
Settlements
and curtailments
|
|
|
1
|
|
|
—
|
|
|
2
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3
|
|
$
|
9
|
|
$
|
11
|
|
$
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
—
|
|
$
|
1
|
|
$
|
1
|
|
$
|
2
|
|
|
Interest
cost
|
|
|
17
|
|
|
19
|
|
|
52
|
|
|
62
|
|
|
Amortization
of prior service (credit)
|
|
|
(3
|
)
|
|
(13
|
)
|
|
(25
|
)
|
|
(31
|
)
|
|
Recognition
of actuarial losses
|
|
|
10
|
|
|
9
|
|
|
28
|
|
|
23
|
|
|
Settlements
and curtailments
|
|
|
(106
|
)
|
|
—
|
|
|
(167
|
)
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(82
|
)
|
$
|
16
|
|
$
|
(111
|
)
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In January
and September 2011, Honeywell made voluntary cash contributions of $1 billion
and $400 million, respectively, to our U.S. pension plans to improve the funded
status of the plans. Given lower than expected year to date asset
returns and current discount rates, the Company is considering an additional
$250 million cash contribution to our pension plans in the fourth quarter of
2011 and additional voluntary contributions in 2012. The timing and amount of
contributions may be impacted by a number of factors, including changes in the
rate of return on plan assets and discount rates.
24
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
If
required, a mark to market adjustment will be recorded in the fourth quarter of
2011 in accordance with our pension accounting method as described in Note 1 to
our financial statements for the year ended December 31, 2010 contained in our
Form 10-K filed on February 11, 2011.
In
the nine months ended September 30, 2011, in connection with new collective
bargaining agreements reached with several of its union groups, Honeywell
amended its U.S. retiree medical plans eliminating the subsidy for those union
employees. These plan amendments resulted in curtailment gains of $61 and $106
million in the second quarter and third quarter of 2011, respectively, which
was included as part of net periodic postretirement benefit cost. The
curtailment gains represent the recognition of previously unrecognized prior
service credits attributable to the future years of service of the union groups
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 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:
|
|
|
|
|
|
|
December 31, 2010
|
|
$
|
753
|
|
|
Accruals for environmental
matters deemed probable and reasonably estimable
|
|
|
177
|
|
|
Environmental liability
payments
|
|
|
(156
|
)
|
|
Other
|
|
|
3
|
|
|
|
|
|
|
|
|
September 30, 2011
|
|
$
|
777
|
|
|
|
|
|
|
|
25
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Environmental liabilities are
included in the following balance sheet accounts:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2011
|
|
December 31,
2010
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
306
|
|
$
|
328
|
|
|
Other liabilities
|
|
|
471
|
|
|
425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
777
|
|
$
|
753
|
|
|
|
|
|
|
|
|
|
|
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
—The excavation and 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 was
completed in January 2010. We have also received approval of the United States
District Court for the District of New Jersey for the implementation of related
groundwater and sediment remedial actions, and are seeking the appropriate
permits from state and federal agencies. Provisions have been made in our financial
statements for the estimated cost of these remedies.
The
above-referenced site is the most significant of the 21 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.
We
have entered into court-approved settlements of litigation filed in federal
court against Honeywell and other landowners seeking the cleanup of chrome
residue at groups of properties known as Study Areas 5, 6 South and 6 North of
the Honeywell ACO Sites. The required remedial actions are consistent with our
recorded reserves.
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.
In September 2011, the court approved a settlement of the claims. Under the
settlement, Honeywell paid $5 million of NJDEP’s past costs, and accepted 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 remediation
responsibility). Honeywell will also bear 50 percent 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.
Dundalk Marine Terminal, Baltimore, MD
—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. In
January 2011, the MPA and Honeywell submitted to the Maryland Department of the
Environment (“MDE”) a Corrective Measures Alternatives Analysis (“CMAA”) of
certain potential remedies for DMT to assist MDE in selection of a final
remedy, which has not yet occurred. Provision has been made in our financial
statements for the CMAA consistent with the accounting policy described above.
We have negotiated a Consent Decree with the MPA and 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
26
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
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
—We are implementing a combined
dredging/capping remedy of Onondaga Lake pursuant to a consent decree approved
by the United States District Court for the Northern District of New York in
January 2007. We have accrued for our estimated cost of remediating Onondaga
Lake based on currently available information and analysis performed by our
engineering consultants. Honeywell is also conducting remedial investigations
and activities at other sites in Syracuse. We have recorded reserves for these
investigations and activities where appropriate under the accounting policy
described above.
Honeywell
has entered into a cooperative agreement with potential natural resource
trustees to assess alleged natural resource damages relating to this site. It
is not possible to predict the outcome or duration of this assessment, or the
amounts of, or responsibility for, any damages.
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 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
27
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
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.
Oral argument took place on May 21, 2009 and the matter was submitted for
decision. In connection with the settlement of an insurance coverage litigation
matter, the insurer appellants withdrew their appeal regarding the NARCO
Plan. On August 3, 2010 the Third Circuit Court of Appeals entered an order
formally dismissing the NARCO appeal. Although the result in the affiliates’ case
will not have a direct substantive impact on the NARCO case, the NARCO Plan
of Reorganization cannot become effective until resolution of an appeal of
the Chapter 11 proceedings of NARCO affiliates. The Third Circuit reheard
the affiliates’ appeal en banc on October 13, 2010 and, on May 4, 2011,
reversed the Bankruptcy Court’s confirmation order and remanded for
further proceedings. The affiliates’ case has been returned to the Bankruptcy
Court where the parties are working to resolve their disputes. The affiliates
also filed a petition for certiorari to the U.S. Supreme Court. It is not
possible to predict the timing or outcome of discussions between the parties,
or the Bankruptcy Court or Supreme Court proceedings, in the affiliates’ case.
We expect that the stay enjoining litigation against NARCO and Honeywell
will remain in effect until the effective date of the NARCO Plan of Reorganization.
Our
consolidated financial statements reflect an estimated liability for settlement
of pending and future NARCO-related asbestos claims of $1,124 million and
$1,125 million as of September 30, 2011 and December 31, 2010, respectively.
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. 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 and
resulted in a range of estimated liability for future claims of $743 to $961
million. We believe that no amount within this range is a better estimate than
any other amount and accordingly, we have recorded the minimum amount in the
range.
As
of September 30, 2011 and December 31, 2010, our consolidated financial
statements reflect an insurance receivable corresponding to the liability for
settlement of pending and future NARCO-related asbestos claims of $685 and $718
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 September 30, 2011, 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 declaratory judgment action in the Supreme Court of New
York, County of New York against Honeywell and other insurance carriers that
provide coverage for NARCO asbestos claims, seeking a declaration regarding
coverage
28
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
obligations for NARCO-related asbestos claims
under high excess insurance coverage issued by Travelers and the other
insurance carriers. The other insurance carriers asserted cross claims against
Honeywell seeking declarations regarding their coverage obligations for
NARCO-related asbestos claims under high excess insurance coverage issued by
them. Since then, the Company has entered into settlement agreements resolving
all asbestos coverage issues with certain of these insurance carriers.
Approximately $65 million of remaining unsettled coverage is included in our
NARCO-related insurance receivable at September 30, 2011. 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 intermediate appellate court in the second
quarter of 2009. Plaintiffs’ further appeal to the New York Court of Appeals,
the highest court in New York, was denied in October 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 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 the remaining insurance
carriers 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.
The
following tables present information regarding Bendix related asbestos claims
activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended
September 30,
|
|
Year Ended
December 31,
|
|
|
Claims Activity
|
|
2011
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Claims Unresolved at the
beginning of period
|
|
|
22,480
|
|
|
19,940
|
|
|
51,951
|
|
|
Claims Filed during the period
(a)
|
|
|
2,719
|
|
|
4,302
|
|
|
2,697
|
|
|
Claims Resolved during the
period
(b)
|
|
|
(2,399
|
)
|
|
(1,762
|
)
|
|
(34,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims Unresolved at the end
of period
|
|
|
22,800
|
|
|
22,480
|
|
|
19,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) The number of claims filed in 2010
includes approximately 1,541 non-malignant claims (with an accrued liability of
approximately $575 thousand in the aggregate), a majority of which had
previously been dismissed in Mississippi and re-filed in Arkansas.
(b) The number of claims resolved in 2010
includes approximately 1,300 claims previously classified as inactive (95%
non-malignant and accrued liability of approximately $2.0 million) which were
activated during 2010. The claims portfolio was reduced in 2009 due to
settlements, dismissals and the elimination of significantly aged (i.e.,
pending for more than six years), inactive (including claims for which the
required medical and exposure showings have not been made) and duplicate
claims.
29
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
Disease Distribution of Unresolved Claims
|
|
2011
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Mesothelioma and Other Cancer
Claims
|
|
|
4,919
|
|
|
4,856
|
|
|
4,727
|
|
|
Other Claims
|
|
|
17,881
|
|
|
17,624
|
|
|
15,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Claims
|
|
|
22,800
|
|
|
22,480
|
|
|
19,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Honeywell has experienced
average resolution values per claim excluding legal costs as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in whole
dollars)
|
|
|
Malignant claims
|
|
$
|
54,000
|
|
$
|
50,000
|
|
$
|
65,000
|
|
$
|
33,000
|
|
$
|
33,000
|
|
|
Nonmalignant claims
|
|
$
|
1,300
|
|
$
|
200
|
|
$
|
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 $613 and $594 million
at September 30, 2011 and December 31, 2010, respectively. Our liability for
the estimated cost of future Bendix related asbestos claims is based on
historic claims filing experience, disease classifications, expected resolution
values, and historic dismissal rates. We have valued Bendix pending and future
claims using average resolution values for the previous five years. Changes in
the tort system, which began in 2006, refocused asbestos litigation on
mesothelioma cases, making the five year period 2006 through 2010
representative for forecasting purposes. We update the expected resolution
values used to estimate the cost of pending and future Bendix claims during the
fourth quarter each year.
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. The estimate is based
upon Bendix historical experience in the tort system for the five years ended
December 31, 2010 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.
As
of September 30, 2011 and December 31, 2010, our consolidated financial
statements reflect an insurance receivable corresponding to the liability for
settlement of pending and future Bendix related asbestos claims of $160 and
$157 million, 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. Based on our ongoing
analysis of the probable insurance recovery, insurance receivables are recorded
in the financial statements simultaneous with the recording of the estimated
liability for the underlying asbestos claims. 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 40 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
30
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
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 35 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.
Refractory
and Friction Products
— The following tables summarize information
concerning NARCO and Bendix asbestos related balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
Asbestos Related Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bendix
|
|
NARCO
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
$
|
594
|
|
$
|
1,125
|
|
$
|
1,719
|
|
|
Accrual for update to
estimated liability
|
|
|
137
|
|
|
2
|
|
|
139
|
|
|
Asbestos related liability
payments
|
|
|
(118
|
)
|
|
(3
|
)
|
|
(121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011
|
|
$
|
613
|
|
$
|
1,124
|
|
$
|
1,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Recoveries for Asbestos Related
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bendix
|
|
NARCO
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
$
|
157
|
|
$
|
718
|
|
$
|
875
|
|
|
Probable insurance recoveries
related to estimated liability
|
|
|
18
|
|
|
—
|
|
|
18
|
|
|
Insurance receivable
settlement
|
|
|
6
|
|
|
—
|
|
|
6
|
|
|
Insurance receipts for
asbestos related liabilities
|
|
|
(21
|
)
|
|
(33
|
)
|
|
(54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011
|
|
$
|
160
|
|
$
|
685
|
|
$
|
845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
NARCO and Bendix asbestos
related balances are included in the following balance sheet accounts:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2011
|
|
December 31,
2010
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
$
|
97
|
|
$
|
50
|
|
|
Insurance recoveries for
asbestos related liabilities
|
|
|
748
|
|
|
825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
845
|
|
$
|
875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
163
|
|
$
|
162
|
|
|
Asbestos related liabilities
|
|
|
1,574
|
|
|
1,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,737
|
|
$
|
1,719
|
|
|
|
|
|
|
|
|
|
|
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 environmental, 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 (paid from the Company’s
pension plan) 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. In October 2009, the Court granted summary judgment in
favor of the Honeywell Retirement Earnings Plan with respect to the claim
regarding the calculation of benefits. In May 2011, the parties engaged in
mediation and reached an agreement in principle to settle the three remaining
claims for $23.8 million (also to be paid from the Company’s pension plan).
Settlement documents have been submitted to the court for classwide approval
and we anticipate a fairness hearing on the settlement in the fourth quarter of
2011 or the first quarter of 2012. Upon court approval of the settlement, all
claims in this matter will be fully resolved.
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. In April 2011, the multi-district litigation was stayed pending an
investigation by the U.S. Attorney for the Eastern District of Pennsylvania
relating to plaintiff’s principal witness for possible violations of federal
law. In June 2011, plaintiff’s principal witness pled guilty to a felony count
of having made false statements to federal investigators. We believe the claims
against Honeywell are without merit and we will vigorously defend against the
claims raised in these actions. As previously reported, the Antitrust Division
of the Department of Justice notified Honeywell in January 2010 that it had
officially closed its investigation into possible collusion in the replacement
auto filters industry.
32
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Solvay
v. Honeywell
—
On September 29, 2011, a jury in
the District of Delaware returned a unanimous verdict in favor of Honeywell in
this patent infringement suit, finding plaintiff Solvay’s asserted patent claim
invalid on three grounds and awarding no damages. Solvay had claimed that
Honeywell’s manufacture and sale of HFC-245fa infringed its patent and sought
damages of $61 million. Honeywell expects Solvay to make a motion requesting
the District Court to overturn the jury’s verdict and, in the event that motion
is denied, appeal the judgment to the Federal Circuit. Honeywell will continue
its vigorous defense and expects to prevail on Solvay’s motion and any appeal.
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.
33
R
eport 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 September 30, 2011 and the related consolidated
statement of operations for the three-month and nine-month periods ended
September 30, 2011 and 2010 and the consolidated statement of cash flows for
the nine-month periods ended September 30, 2011 and 2010. 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, 2010, 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 11, 2011, we expressed
an unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying consolidated balance
sheet as of December 31, 2010, is fairly stated in all material respects in
relation to the consolidated balance sheet from which it has been derived.
|
|
|
|
/s/
PricewaterhouseCoopers LLP
|
|
|
Florham
Park, New Jersey
|
|
|
October
21, 2011
|
|
|
|
|
|
|
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.
34
