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Form 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year endedDecember 31, 2011
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number1-8974
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Delaware |
| 22-2640650 |
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(State or other jurisdiction of |
| (I.R.S. Employer |
incorporation or organization) |
| Identification No.) |
101 Columbia Road |
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Morris Township, New Jersey |
| 07962 |
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(Address of principal executive offices) |
| (Zip Code) |
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Title of Each Class |
| Name of Each Exchange |
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Common Stock, par value $1 per share* |
| New York Stock Exchange |
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| Chicago Stock Exchange |
9½% Debentures due June 1, 2016 |
| New York Stock Exchange |
* The common stock is also listed on the London Stock Exchange. |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yesx Noo
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yeso Nox
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx Noo
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesx Noo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.x
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
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Large accelerated filerx | Accelerated filero | Non-accelerated filero | Smaller reporting companyo |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yeso Nox
The aggregate market value of the voting stock held by nonaffiliates of the Registrant was approximately $29.8$47.1 billion at June 30, 2010.2011.
There were 784,122,288775,363,731 shares of Common Stock outstanding at January 31, 2011.2012.
Documents Incorporated by Reference
Part III: Proxy Statement for Annual Meeting of Shareowners to be held April 25, 2011.23, 2012.
TABLE OF CONTENTS
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| 52 | 7A |
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| Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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| Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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Part III. |
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| 112 | 10 |
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| 112 | 11 |
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| Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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| Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Part IV. |
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Business |
Honeywell International Inc. (Honeywell) is a diversified technology and manufacturing company, serving customers worldwide with aerospace products and services, control, sensing and security technologies for buildings, homes and industry, turbochargers, automotive products, specialty chemicals, electronic and advanced materials, process technology for refining and petrochemicals, and energy efficient products and solutions for homes, business and transportation. Honeywell was incorporated in Delaware in 1985.
We maintain an internet website at http://www.honeywell.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports, are available free of charge on our website under the heading “Investor Relations” (see “SEC Filings & Reports”) immediately after they are filed with, or furnished to, the Securities and Exchange Commission (SEC). In addition, in this Form 10-K, the Company incorporates by reference certain information from parts of its proxy statement for the 20112012 Annual Meeting of Stockholders, which we expect to file with the SEC on or about March 10, 2011,8, 2012, and which will also be available free of charge on our website.
Information relating to corporate governance at Honeywell, including Honeywell’s Code of Business Conduct, Corporate Governance Guidelines and Charters of the Committees of the Board of Directors are also available, free of charge, on our website under the heading “Investor Relations” (see “Corporate Governance”), or by writing to Honeywell, 101 Columbia Road, Morris Township, New Jersey 07962, c/o Vice President and Corporate Secretary. Honeywell’s Code of Business Conduct applies to all Honeywell directors, officers (including the Chief Executive Officer, Chief Financial Officer and Controller) and employees.
Major Businesses
We globally manage our business operations through four businesses that are reported as operating segments: Aerospace, Automation and Control Solutions, Performance Materials and Technologies (formerly Specialty MaterialsMaterials), and Transportation Systems. Financial information related to our operating segments is included in Note 23 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data.”
The major products/services, customers/uses and key competitors of each of our operating segments follows:
Aerospace
Our Aerospace segment is a leading global provider of integrated avionics, engines, systems and service solutions for aircraft manufacturers, airlines, business and general aviation, military, space and airport operations.
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Product/Service Classes | Major Products/Services | Major Customers/Uses | Key Competitors | |||
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Turbine propulsion engines |
| TFE731 turbofan TFE1042 turbofan ATF3 turbofan F125 turbofan F124 turbofan ALF502 turbofan LF507 turbofan CFE738 turbofan HTF 7000 turbofan T53 turboshaft T55 turboshaft CTS800 turboshaft HTS900 turboshaft LT101 turboshaft TPE 331 turboprop AGT1500 turboshaft Repair, overhaul and spare parts |
| Business, regional, and general aviation Commercial helicopters Military vehicles Military helicopters Military trainer | Rolls Royce/Allison Turbomeca United Technologies Williams |
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Product/Service Classes | Major Products/Services | Major Customers/Uses | Key Competitors | |||
Auxiliary power units (APU’S) | Airborne auxiliary power units Jet fuel starters Secondary power systems Ground power units Repair, overhaul and spare parts | Commercial, regional, business and military aircraft Ground power | United Technologies | |||
Environmental control systems | Air management systems: Air conditioning Bleed air Cabin pressure control Air purification and treatment Gas Processing Heat Exchangers Repair, overhaul and spare parts | Commercial, regional and general aviation aircraft Military aircraft Ground vehicles Spacecraft | Auxilec Barber Colman Dukes Eaton-Vickers General Electric Goodrich Liebherr Pacific Scientific Parker Hannifin TAT United Technologies | |||
Electric power systems | Generators Power distribution & control Power conditioning Repair, overhaul and spare parts | Commercial, regional, business and military aircraft Commercial and military helicopters Military vehicles | General Electric Goodrich Safran United Technologies | |||
Engine systems accessories | Electronic and hydromechanical fuel controls Engine start systems Electronic engine controls Sensors Valves Electric and pneumatic power generation systems Thrust reverser actuation, pneumatic and electric | Commercial, regional and general aviation aircraft Military aircraft | BAE Controls Goodrich Parker Hannifin United Technologies | |||
Avionics systems | Flight safety systems: Enhanced Ground Proximity Warning Systems (EGPWS) Traffic Alert and Collision Avoidance Systems (TCAS) Windshear detection systems Flight data and cockpit voice recorders Weather radar Communication, navigation and surveillance systems: Navigation and guidance | Commercial, business and general aviation aircraft Government aviation Military aircraft | BAE Boeing/Jeppesen Garmin General Electric Goodrich Kaiser L3 Lockheed Martin Northrop Grumman Rockwell Collins Thales Trimble/Terra |
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systems Global positioning systems Satellite systems Integrated avionics systems Flight management systems Cockpit display systems Data management and aircraft performance monitoring systems Aircraft information systems Network file servers Wireless network transceivers Weather information network Navigation database information Cabin management systems Vibration detection and monitoring Mission management systems Tactical data management systems Maintenance and health monitoring systems | Universal Avionics Universal Weather | |||||
Aircraft lighting | Interior and exterior aircraft lighting | Commercial, regional, business, helicopter and military aviation aircraft (operators, OEMs, parts distributors and MRO service providers) | Hella/Goodrich LSI Luminator Whelen | |||
Inertial sensor | Inertial sensor systems for guidance, stabilization, navigation and control Gyroscopes, accelerometers, inertial measurement units and thermal switches Attitude and heading reference systems | Military and commercial vehicles Commercial spacecraft and launch vehicles Transportation Powered, guided munitions Munitions | Astronautics Kearfott BAE GEC General Electric Goodrich L3 Com KVH Northrop Grumman Rockwell | |||
Control products | Radar altimeters Pressure products Air data products Thermal switches Magnetic sensors | Military aircraft Powered, guided munitions, UAVs Commercial applications Commercial, regional, business aircraft | BAE Goodrich Northrop Grumman Rockwell Collins Rosemount |
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subsystems |
Guidance subsystems Control subsystems Processing subsystems Radiation hardened electronics and integrated circuits GPS-based range safety systems Gyroscopes | Commercial |
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BAE Ithaco L3 Northrop Grumman Raytheon | |||
Management and technical services | Maintenance/operation and provision of space systems, services and facilities Systems engineering and integration Information technology services Logistics and sustainment | U.S. government space (NASA) DoD (logistics and information services) FAA DoE Local governments Commercial space ground segment systems and services | Bechtel Boeing Computer Sciences Dyncorp Exelis Lockheed Martin Raytheon SAIC The Washington Group United Space Alliance | |||
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Landing systems |
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Wheels and brakes Wheel and brake repair and overhaul services | ||||||
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Automation and Control Solutions | ||||||||||||
Our Automation and Control Solutions segment is a leading global provider of environmental and combustion controls, sensing controls, security and life safety products and services, scanning and mobility devices and process automation and building solutions and services for homes, buildings and industrial facilities. | ||||||||||||
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Environmental and combustion controls; sensing controls | Heating, ventilating and air |
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energy recovery ventilators Controls plus integrated electronic systems for burners, boilers and furnaces Consumer household products including humidifiers and thermostats Electrical devices and switches Water controls Sensors, measurement, control and industrial components Energy demand/response management products and services | Original equipment manufacturers (OEMs) Distributors Contractors Retailers System integrators Commercial customers and |
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Bosch Cherry Danfoss Eaton Emerson Endress & Hauser Freescale Semiconductor GE Holmes Invensys Johnson Controls Omron Schneider Siemens United Technologies Yamatake Measurement Specialties | |||||||||
Security and life safety products and services | Security products and systems |
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Access controls and closed |
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Home health monitoring and nurse call systems Gas detection products and systems Emergency lighting Distribution Personal protection equipment | OEMs Retailers Distributors Commercial customers and homeowners served by the |
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Industrial, fire service, utility |
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Government | Bosch Draeger GE Hubbell Inc Mine Safety Appliances Pelco Phillips Riken Keiki Siemens Tyco United Technologies 3M | |||||||||||
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Scanning and mobility | Hand held and hands free |
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Mobile and wireless computers | OEMs Retailers Distributors Commercial customers served by the transportation and | |||||||||||
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Product/Service Classes | Major Products/Services | Major Customers/Uses | Key Competitors | |||
Satellite tracking hardware, airtime services and applications Search & Rescue ground stations and system software LXE Hand Held and Vehicle Mounts | channels Security, logistics, maritime customers for: the tracking of vehicles, containers, ships, and personnel in remote environments National organizations that monitor distress signals from aircraft, ships and individuals, typically Military branches and Coast Guards Warehousing and Ports | Tsi | ||||
Process automation products and solutions | Advanced control software and |
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operations Production management software Communications systems for Industrial Control equipment and systems Consulting, networking engineering and installation Terminal automation solutions Process control instrumentation Field instrumentation Analytical instrumentation Recorders and controllers Critical environment control solutions and services Aftermarket maintenance, repair and upgrade Gas control, measurement and analyzing equipment | Refining and petrochemical companies Chemical manufacturers Oil and gas producers |
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ABB AspenTech Emerson Invensys Siemens Yokogawa | |||
Building solutions and services | HVAC and building control solutions and services Energy management solutions and services, including demand response and automation Security and asset management solutions and services Enterprise building integration solutions Building information services Airport lighting and systems, visual docking guidance systems | Building managers and owners |
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| Public housing agencies Airports | Ameresco Chevron GroupMac Ingersoll Rand Invensys Johnson Controls Local contractors and utilities Safegate Schneider Siemens Trane Thorn United Technologies | ||||
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Product/Service Classes | Major Products/Services | Major Customers/Uses | Key Competitors | |||
Resins & chemicals | Nylon 6 polymer Caprolactam Ammonium sulfate Phenol Acetone Cyclohexanone MEKO | Nylon for carpet fibers, Engineered resins and flexible packaging Fertilizer ingredients Resins - Phenolic, Epoxy, Polycarbonate Sovents Chemical intermediates Paints, Coatins, Laquers | BASF DSM Sinopec UBE INEOS Mitsui Shell Polimeri | |||
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Hydrofluoric acid (HF) | Anhydrous and aqueous hydrofluoric acid | Fluorocarbons Metals processing Oil refining Chemical intermediates Semiconductors Photovoltaics | Mexichem Solvay | |||
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Oxyfume sterilant gases |
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Ennovate 3000 blowing agent |
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Nuclear services | UF6 conversion services | Nuclear fuel Electric utilities | Cameco Comurhex Rosatom | |||
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Research and fine chemicals | Oxime-based fine chemicals Fluoroaromatics High-purity solvents | Agrichemicals Biotech | Avecia Degussa DSM E. Merck Thermo Fisher Scientific Lonza Sigma-Aldrich | |||
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Performance chemicals Imaging chemicals Chemical processing sealants | HF derivatives Fluoroaromatics Catalysts Oxime-silanes | Diverse by product type | Atotech BASF DSM | |||
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Major Products/Services | Major Customers/Uses | Key Competitors | |||
composites | fiber and shield composites Aramid shield composites | and other armor applications Cut-resistant gloves Rope & cordage | DSM Teijin | |||
Healthcare and packaging | Cast nylon film Bi-axially oriented nylon film Fluoropolymer film | Food and pharmaceutical packaging | American Biaxis CFP Daikin Kolon Unitika | |||
Specialty additives | Polyethylene waxes Paraffin waxes and blends PVC lubricant systems Processing aids Luminescent pigments Adhesives | Coatings and inks PVC pipe, siding & profiles Plastics Reflective coatings Safety & security applications | BASF Clariant Westlake | |||
Electronic chemicals | Ultra high-purity HF Inorganic acids Hi-purity solvents | Semiconductors Photovoltaics | KMG BASF | |||
Semiconductor materials and services | Interconnect-dielectrics Interconnect-metals Semiconductor packaging materials Advanced polymers Anti-reflective coatings Thermo-couples | Semiconductors Microelectronics Telecommunications LED Photovoltaics | BASF Brewer Dow Nikko Praxair Shinko Tosoh | |||
Catalysts, adsorbents and specialties | Catalysts Molecular sieves Adsorbents Customer catalyst manufacturing | Petroleum, refining, petrochemical, gas processing, and manufacturing industries | Axens BASF WR Grace Haldor Shell/Criterion | |||
Process technology and equipment | Technology licensing and engineering design of process units and systems Engineered products Proprietary equipment Training and development of technical personnel Gas processing technology | Petroleum refining, petrochemical and gas processing | Axens BP/Amoco Exxon-Mobil Chevron Lummus Global Chicago Bridge & Iron Koch Glitsch Linde AG Natco Shaw Group Shell/SGS | |||
Renewable fuels and chemicals | Technology licensing of Process, catalysts, absorbents, Refining equipment and services for producing renewable-based fuels and chemicals | Military, refining, fuel oil, power production | Neste Oy Lurgi Kior Syntroleum Dynamotive | |||
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Brake hard parts and other friction materials | Disc brake pads and shoes Drum brake linings Brake blocks Disc and drum brake components Brake hydraulic components Brake fluid Aircraft brake linings Railway linings | Automotive and heavy vehicle |
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Aerospace Sales
Our sales to aerospace customers were 32, 3531, 33, and 3536 percent of our total sales in 2011, 2010 2009 and 2008,2009, respectively. Our sales to commercial aerospace original equipment manufacturers were 6, 76 and 97 percent of our total sales in 2011, 2010 2009 and 2008,2009, respectively. In addition, our sales to commercial aftermarket customers of aerospace products and services were 10, 11 and 11 percent of our total sales in each of 2011, 2010 2009 and 2008, respectively.2009. Our Aerospace results of operations can be impacted by various industry and economic conditions. See “Item 1A. Risk Factors.”
U.S. Government Sales
Sales to the U.S. Government (principally by our Aerospace segment), acting through its various departments and agencies and through prime contractors, amounted to $4,276, $4,354 $4,288 and $4,240$4,288 million in 2011, 2010 2009 and 2008,2009, respectively, which included sales to the U.S. Department of Defense, as a prime contractor and subcontractor, of $3,374, $3,500 $3,455 and $3,412$3,455 million in 2011, 2010 and 2009, and 2008, respectively. Base U.S. defense spending increased(excludes Overseas Contingent Operations) was essentially flat in 2011 compared to 2010. Although we expect a slight decline in our defense and space revenue in 20112012 (see Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations), we do not expect our overall operating results to be significantly affected by any proposed changes in 20112012 federal defense spending due principally to the varied mix of the government programs which impact us (OEM production, engineering development programs, aftermarket spares and repairs and overhaul programs). as well as our diversified commercial businesses. Our contracts with the U.S. Government are subject to audits, investigations, and termination by the government. See “Item 1A. Risk Factors.”
Backlog
Our total backlog at December 31, 2011 and 2010 was $16,160 and 2009 was $14,616 and $13,182 million, respectively. We anticipate that approximately $10,609$12,018 million of the 20102011 backlog will be filled in 2011.2012. We believe that backlog is not necessarily a reliable indicator of our future sales because a substantial portion of the orders constituting this backlog may be canceled at the customer’s option.
Competition
We are subject to active competition in substantially all product and service areas. Competition is expected to continue in all geographic regions. Competitive conditions vary widely among the thousands of products and services provided by us, and vary by country. Depending on the particular customer or market involved, ourOur businesses compete on a variety of factors, such as price, quality, reliability, delivery, customer service, performance, applied technology, product innovation and product recognition. Brand identity, service to customers and quality are generally important competitive factors for our products and services, and there is considerable price competition. Other competitive factors for certain products include breadth of product line, research and development efforts and technical and managerial capability. While our competitive position varies among our products and services, we believe we are a significant competitor in each of our major product and service classes. However, aA number of our products and services are sold in competition with those of a large number of other companies, some of which have substantial financial resources and significant technological capabilities. In addition, some of our products compete with the captive component divisions of original equipment manufacturers. See Item 1A “Risk Factors” for further discussion.
International Operations
We are engaged in manufacturing, sales, service and research and development mainly in the United States, Europe, Asia, Canada, Middle East and Latin America.globally. U.S. exports and foreign manufactured products are significant to our operations. U.S. exports comprised 12, 11 12 and 1012 percent of our total sales in 2011, 2010 2009 and 2008,2009, respectively. Foreign manufactured products and services, mainly in Europe and Asia, were 41, 3943, 42 and 3940 percent of our total sales in 2011, 2010 2009 and 2008,2009, respectively.
Approximately 1718 percent of total 20102011 sales of Aerospace-related products and services were exports of U.S. manufactured products and systems and performance of services such as aircraft repair and overhaul. Exports were principally made to Europe, Asia, Canada, Asia and Latin America. Foreign manufactured products and systems and performance of services comprised approximately 15 percent of total 20102011 Aerospace sales. The principal manufacturing facilities outside the U.S. are in Europe, with less significant operations in Canada and Asia.
Approximately 23 percent of total 20102011 sales of Automation and Control Solutions products and services were exports of U.S. manufactured products. Foreign manufactured products and performance of services accounted for 58 percent of total 20102011 Automation and Control Solutions sales. The principal manufacturing facilities outside the U.S. are in Europe and Asia, with less significant operations in AsiaCanada and Canada.Australia.
Approximately 3034 percent of total 20102011 sales of SpecialtyPerformance Materials and Technologies products and services were exports of U.S. manufactured products. Exports were principally made to Asia and Latin America. Foreign manufactured products and performance of services comprised 2725 percent of total 2010 Specialty2011 Performance Materials and Technologies sales. The principal manufacturing facilities outside the U.S. are in Europe, with less significant operations in Asia and Canada.Asia.
Approximately 3 percent of total 20102011 sales of Transportation Systems products were exports of U.S. manufactured products. Foreign manufactured products accounted for 7085 percent of total 20102011 sales of Transportation Systems. The principal manufacturing facilities outside the U.S. are in Europe, with less significant operations in Asia and Latin America.
Financial information including net sales and long-lived assets related to geographic areas is included in Note 24 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data”. Information regarding the economic, political, regulatory and other risks associated with international operations is included in “Item 1A. Risk Factors.”
Raw Materials
The principal raw materials used in our operations are generally readily available. WeAlthough we occasionally experience disruption in raw materials supply, we experienced no significant problems in the purchase of key raw materials and commodities in 2010.2011. We are not dependent on any one supplier for a material
amount of our raw materials, except related to phenol,R240 (a key component in foam blowing agents), a raw material used in our SpecialtyPerformance Materials and Technologies segment. We purchase phenol under a supply agreement with one supplier.
The costs of certain key raw materials, including cumene, fluorspar, perchloroethylene, R240, natural gas, benzene (the key component in phenol),sulfur and ethylene fluorspar and sulfur in our SpecialtyPerformance Materials and Technologies business, nickel, steel nickel,and other metals and ethylene glycol in our Transportation Systems business, and nickel, titanium and other metals in our Aerospace business, are expected to remain volatile. In addition, in 2010 certain large long-term fixed supplier price agreements expired, primarily relating to components used by our Aerospace business, which in the aggregate, subjected us to higher volatility in certain component costs. We will continue to attempt to offset raw material cost increases with formula or long-term supply agreements, price increases and hedging activities where feasible. We do not presently anticipate that a shortage of raw materials will cause any material adverse impacts during 2011.2012. See “Item 1A. Risk Factors” for further discussion.
We are highly dependent on our suppliers and subcontractors in order to meet commitments to our customers. In addition, many major components and product equipment items are procured or subcontracted on a single-source basis with a number of domestic and foreign companies. We maintain a qualification and performance surveillance process to control risk associated with such reliance on third parties. While we believe that sources of supply for raw materials and components are generally adequate, it is difficult to predict what effects shortages or price increases may have in the future. Furthermore, the inability of these suppliers to meet their quality and/or delivery commitments to us, due to bankruptcy, natural disasters or any other reason, may result in significant costs and delay, including those in connection with the required recertification of parts from new suppliers with our customers or regulatory agencies.
Patents, Trademarks, Licenses and Distribution Rights
Our segments are not dependent upon any single patent or related group of patents, or any licenses or distribution rights. We own, or are licensed under, a large number of patents, patent applications and trademarks acquired over a period of many years, which relate to many of our products or improvements to those products and which are of importance to our business. From time to time, new patents and trademarks are obtained, and patent and trademark licenses and rights are acquired from others. We also have distribution rights of varying terms for a number of products and services produced by other companies. In our judgment, those rights are adequate for the conduct of our business. We believe that, in the aggregate, the rights under our patents, trademarks and licenses are generally important to our operations, but we do not consider any patent, trademark or related group of patents, or any licensing or distribution rights related to a specific process or product, to be of material importance in relation to our total business. See “Item 1A. Risk Factors” for further discussion.
We have registered trademarks for a number of our products and services, including Honeywell, Aclar, Ademco, Autolite, Bendix, BW, Callidus, Enovate, Esser, Fire-Lite, FRAM, Garrett, Hand Held, Holts,Genetron, Gent, Howard Leight, Jurid, Metrologic,Matrikon, Maxon, MK, North, Notifier, Novar, Prestone, Redex, RMG, Simoniz,Silent Knight, Spectra, System Sensor, Trend, Tridium and UOP.
Research and Development
Our research activities are directed toward the discovery and development of new products, technologies and processes, and the development of new uses for existing products.products and software applications. The Company’s principal research and development activities are in the U.S., India, Europe India and China.
Research and development (R&D) expense totaled $1,466, $1,330$1,799, $1,450 and $1,543$1,321 million in 2011, 2010 2009 and 2008,2009, respectively. The increase in R&D expense of 24 percent in 2011 compared to 2010 was mainly due to increased expenditures on the development of new technologies to support existing and new aircraft platforms in our Aerospace segment, the development of turbocharging systems for new diesel and gas applications in our Transportation Systems segment and new product development in our Automation and Control Solutions segment. The increase in R&D expense of 10 percent in 2010 compared to 2009 was mainly due to
additional product design and development costs in Automation and Control Solutions and increased expenditures on the development of products for new aircraft platforms. The decrease in R&D expense in 2009 compared to 2008 of 14 percent was consistent with our 15 percent decrease in net sales. R&D as a percentage of sales was 4.9, 4.5 and 4.4 4.3percent in2011, 2010 and 4.2 percent in 2010, 2009, and 2008, respectively. Customer-sponsored (principally the U.S. Government) R&D activities amounted to an additional $867, $874 and $852 million in2011, 2010 and $903 million in 2010, 2009, and 2008, respectively.
Environment
We are subject to various federal, state, local and foreign government requirements regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. It is our policy to comply with these requirements, and we believe that, as a general matter, our policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage, and of resulting financial liability, in connection with our business. Some risk of environmental damage is, however, inherent in some of our operations and products, as it is with other companies engaged in similar businesses.
We are and have been engaged in the handling, manufacture, use and disposal of many substances classified as hazardous by one or more regulatory agencies. 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 these substances are in accord with environmental and safety laws and regulations. It is possible, however, that future knowledge or other developments, such as improved capability to detect substances in the environment or increasingly strict
environmental laws and standards and enforcement policies, could bring into question our current or past handling, manufacture, use or disposal of these substances.
Among other environmental requirements, we are subject to the federal superfund and similar state and foreign laws and regulations, under which we have been designated as a potentially responsible party that may be liable for cleanup costs associated with current and former operating sites and various hazardous waste sites, some of which are on the U.S. Environmental Protection Agency’s Superfund priority list. Although, under some court interpretations of these laws, there is a possibility that a responsible party might have to bear more than its proportional share of the cleanup costs if it is unable to obtain appropriate contribution from other responsible parties, we have not had to bear significantly more than our proportional share in multi-party situations taken as a whole.
We do not believe that existing or pending climate change legislation, regulation, or international treaties or accords are reasonably likely to have a material effect in the foreseeable future on the Company’s business or markets that it serves, nor on its results of operations, capital expenditures or financial position. We will continue to monitor emerging developments in this area.
Further information, including the current status of significant environmental matters and the financial impact incurred for remediation of such environmental matters, if any, is included in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in Note 21 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data,” and in “Item 1A. Risk Factors.”
Employees
We have approximately 130,000132,000 employees at December 31, 2010,2011, of which approximately 53,000 were located in the United States.
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Cautionary Statement about Forward-Looking Statements
We have described many of the trends and other factors that drive our business and future results in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”, including the overview of the Company and each of our segments and the discussion of their respective economic and other factors and areas of focus for 2011. These sections and other parts of this report (including this Item 1A) contain “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements are those that address activities, events or developments that management intends, expects, projects, believes or anticipates will or may occur in the future. They are based on management’s assumptions and assessments in light of past experience and trends, current economic and industry conditions, expected future developments and other relevant factors. They are not guarantees of future performance, and actual results, developments and business decisions may differ significantly from those envisaged by our forward-looking statements. We do not undertake to update or revise any of our forward-looking statements. Our forward-looking statements are also subject to risks and uncertainties that can affect our performance in both the near-and long-term. These forward-looking statements should be considered in light of the information included in this Form 10-K, including, in particular, the factors discussed below.
Risk Factors
Our business, operating results, cash flows and financial condition are subject to the risks and uncertainties set forth below, any one of which could cause our actual results to vary materially from recent results or from our anticipated future results.
Industry and economic conditions may adversely affect the market and operating conditions of our customers, which in turn can affect demand for our products and services and our results of operations.
The operating results of our segments are impacted by general global industry and economic conditions that can cause changes in spending and capital investment patterns, demand for our products and services and the level of our manufacturing and shipping costs. The operating results of our Aerospace segment, which generated 32 percent of our consolidated revenues in 2010, are directly tied to cyclical industry and economic conditions, including global demand for air travel as reflected in new aircraft production, the deferral or cancellation of orders for new aircraft, delays in launch schedules for new aircraft platforms, the retirement of aircraft, global flying hours, and business and general aviation aircraft utilization rates, as well as changes in customer buying patterns with respect to aftermarket parts, supplier consolidation, factory transitions, capacity constraints, and the level and mix of U.S. Government appropriations for defense and space programs (as further discussed in other risk factors below). The challenging operating environment faced by the commercial airline industry may be influenced by a wide variety of factors including global flying hours, aircraft fuel prices, labor issues, airline consolidation, airline insolvencies, terrorism and safety concerns as well as changes in regulations. Future terrorist actions or pandemic health issues could dramatically reduce both the demand for air travel and our Aerospace aftermarket sales and margins. The operating results of our Automation and Control Solutions (ACS) segment, which generated 41 percent of our consolidated revenues in 2010, are impacted by the level of global residential and commercial construction (including retrofits and upgrades), capital spending and operating expenditures on building and process automation, industrial plant capacity utilization and expansion, inventory levels in distribution channels, and global economic growth rates. Specialty Materials’ operating results, which generated 14 percent of our consolidated revenues in 2010, are impacted by global economic growth rates, capacity utilization for chemical, industrial, refining, petrochemical and semiconductor plants, our customers’ availability of capital for refinery construction and expansion, and commodity demand volatility. Transportation Systems’ operating results, which generated 13 percent of our consolidated revenues in 2010, are impacted by global production and demand for automobiles and trucks equipped with turbochargers, and regulatory changes regarding automobile and truck emissions and fuel economy, delays in launch schedules for new automotive platforms, and consumer demand and spending for automotive aftermarket and car care products. Demand of global automotive and truck manufacturers will continue to be influenced by a wide variety of factors, including ability of consumers to obtain financing, ability to reduce operating costs and overall consumer and business confidence. Each of the segments is impacted by volatility in raw material prices (as further described below) and non-material inflation.
Raw material price fluctuations, the ability of key suppliers to meet quality and delivery requirements, or catastrophic events can increase the cost of our products and services, impact our ability to meet commitments to customers, and cause us to incur significant liabilities.
The cost of raw materials is a key element in the cost of our products, particularly in our Specialty Materials (benzene (the key component in phenol), natural gas, ethylene, fluorspar and sulfur), Transportation Systems (nickel, steel, other metals and ethylene glycol) and Aerospace (nickel, titanium and other metals) segments. Our inability to offset material price inflation through increased prices to customers, formula or long-term fixed price contracts with suppliers, productivity actions or through commodity hedges could adversely affect our results of operations.
Our manufacturing operations are also highly dependent upon the delivery of materials (including raw materials) by outside suppliers and their assembly of major components and subsystems used in our products in a timely manner and in full compliance with purchase order terms and conditions, quality standards, and applicable laws and regulations. In addition, many major components and product equipment items are procured or subcontracted on a single-source basis; in some circumstances these suppliers are the sole source of the component or equipment. Our ability to manage inventory and meet delivery requirements may be constrained by our suppliers’ ability to adjust delivery of long-lead time products during times of volatile demand. Our suppliers may fail to perform according to specifications as and when required and we may be unable to identify alternate suppliers or to otherwise mitigate the consequences of their non-performance. The supply chains for our businesses could also be disrupted by suppliers’ decisions to exit certain businesses and by external events such as natural disasters, extreme weather events, pandemic health issues, terrorist actions, labor disputes, governmental actions and legislative or regulatory changes (e.g., product certification or stewardship requirements, sourcing restrictions, climate change or greenhouse gas emission standards, etc.). Our inability to fill our supply needs would jeopardize our ability to fulfill obligations under commercial and government contracts, which could, in turn, result in reduced sales and profits, contract penalties or terminations, and damage to customer relationships. Transitions to new suppliers may result in significant costs and delays, including those related to the required recertification of parts obtained from new suppliers with our customers and/or regulatory agencies. In addition, because our businesses cannot always immediately adapt their cost structure to changing market conditions, our manufacturing capacity for certain products may at times exceed or fall short of our production requirements, which could adversely impact our operating costs, profitability and customer and supplier relationships.
Our facilities, distribution systems and information technology systems are subject to catastrophic loss due to, among other things fire, flood, terrorism or other natural or man-made disasters. If any of these facilities or systems were to experience a catastrophic loss, it could disrupt our operations, result in personal injury or property damage, damage relationships with our customers and result in large expenses to repair or replace the facilities or systems, as well as result in other liabilities and adverse impacts. The same risk can also arise from the failure of critical systems supplied by Honeywell to large industrial, refining and petrochemical customers.
Our future growth is largely dependent upon our ability to develop new technologies that achieve market acceptance with acceptable margins.
Our businesses operate in global markets that are characterized by rapidly changing technologies and evolving industry standards. Accordingly, our future growth rate depends upon a number of factors, including our ability to (i) identify emerging technological trends in our target end-markets, (ii) develop and maintain competitive products, (iii) enhance our products by adding innovative features that differentiate our products from those of our competitors and prevent commoditization of our products, (iv) develop, manufacture and bring products to market quickly and cost-effectively, and (v) develop and retain individuals with the requisite expertise.
Our ability to develop new products based on technological innovation can affect our competitive position and requires the investment of significant resources. These development efforts divert resources from other potential investments in our businesses, and they may not lead to the development of new technologies or products on a timely basis or that meet the needs of our customers as fully as competitive offerings. In addition, the markets for our products may not develop or grow as we currently anticipate. The failure of our technologies or products to gain market acceptance due to more attractive offerings by our competitors could significantly reduce our revenues and adversely affect our competitive standing and prospects.
Protecting our intellectual property is critical to our innovation efforts.
We own or are licensed under a large number of U.S. and non-U.S. patents and patent applications, trademarks and copyrights. Our intellectual property rights may expire or be challenged, invalidated or infringed upon by third parties or we may be unable to maintain, renew or enter into new licenses of third party proprietary intellectual property on commercially reasonable terms. In some non-U.S. countries, laws affecting intellectual property are uncertain in their application, which can affect the scope or enforceability of our patents and other
intellectual property rights. Any of these events or factors could diminish or cause us to lose the competitive advantages associated with our intellectual property, subject us to judgments, penalties and significant litigation costs, and/or temporarily or permanently disrupt our sales and marketing of the affected products or services.
Our systems are subject to risks from unlawful attempts by others to gain unauthorized access to our information technology systems through the Internet. The theft and/or unauthorized use or production of our trade secrets and other confidential business information could reduce the value of our investment in R&D and product development and could subject us to claims by third parties relating to loss of their confidential or proprietary information.
An increasing percentage of our sales and operations is in non-U.S. jurisdictions and is subject to the economic, political, regulatory and other risks of international operations.
Our international operations, including U.S. exports, comprise a growing proportion of our operating results. Our strategy calls for increasing sales to and operations in overseas markets, including developing markets such as Mexico, Brazil, China, India, Malaysia, the Middle East and Eastern Europe.
In 2010, 52 percent of our total sales (including products manufactured in the U.S. and in international locations) were outside of the U.S. including 28 percent in Europe and 11 percent in Asia. Risks related to international operations include exchange control regulations, wage and price controls, employment regulations, foreign investment laws, import, export and other trade restrictions (such as embargoes), changes in regulations regarding transactions with state-owned enterprises, nationalization of private enterprises, government instability, and our ability to hire and maintain qualified staff and maintain the safety of our employees in these regions. We are also subject to U.S. laws prohibiting companies from doing business in certain countries, or restricting the type of business that may be conducted in these countries. The cost of compliance with increasingly complex and often conflicting regulations worldwide can also impair our flexibility in modifying product, marketing, pricing or other strategies for growing our businesses, as well as our ability to improve productivity and maintain acceptable operating margins.
As we continue to grow our businesses internationally, our operating results could be increasingly affected by the relative strength of the European and Asian economies and the impact of exchange rate fluctuations. We do have a policy to reduce the risk of volatility through hedging activities, but such activities bear a financial cost and may not always be available to us and may not be successful in eliminating
Cautionary Statement about Forward-Looking Statements
We have described many of the trends and other factors that drive our business and future results in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”, including the overview of the Company and each of our segments and the discussion of their respective economic and other factors and areas of focus for 2012. These sections and other parts of this report (including this Item 1A) contain “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements are those that address activities, events or developments that management intends, expects, projects, believes or anticipates will or may occur in the future. They are based on management’s assumptions and assessments in light of past experience and trends, current economic and industry conditions, expected future developments and other relevant factors. They are not guarantees of future performance, and actual results, developments and business decisions may differ significantly from those envisaged by our forward-looking statements. We do not undertake to update or revise any of our forward-looking statements. Our forward-looking statements are also subject to risks and uncertainties that can affect our performance in both the near-and long-term. These forward-looking statements should be considered in light of the information included in this Form 10-K, including, in particular, the factors discussed below.
Risk Factors
Our business, operating results, cash flows and financial condition are subject to the risks and uncertainties set forth below, any one of which could cause our actual results to vary materially from recent results or from our anticipated future results.
Industry and economic conditions may adversely affect the market and operating conditions of our customers, which in turn can affect demand for our products and services and our results of operations.
The operating results of our segments are impacted by general global industry and economic conditions that can cause changes in spending and capital investment patterns, demand for our products and services and the level of our manufacturing and shipping costs. The operating results of our Aerospace segment, which generated 31 percent of our consolidated revenues in 2011, are directly tied to cyclical industry and economic conditions, including global demand for air travel as reflected in new aircraft production, the deferral or cancellation of orders for new aircraft, delays in launch schedules for new aircraft platforms, the retirement of aircraft, global flying hours, and business and general aviation aircraft utilization rates, as well as changes in customer buying patterns with respect to aftermarket parts, supplier consolidation, factory transitions, capacity constraints, and the level and mix of U.S. Government appropriations for defense and space programs (as further discussed in other risk factors below). The challenging operating environment faced by the commercial airline industry may be influenced by a wide variety of factors including global flying hours, aircraft fuel prices, labor issues, airline consolidation, airline insolvencies, terrorism and safety concerns as well as changes in regulations. Future terrorist actions or pandemic health issues could dramatically reduce both the demand for air travel and our Aerospace aftermarket sales and margins. The operating results of our Automation and Control Solutions (ACS) segment, which generated 43 percent of our consolidated revenues in 2011, are impacted by the level of global residential and commercial construction (including retrofits and upgrades), capital spending and operating expenditures on building and process automation, industrial plant capacity utilization and expansion, inventory levels in distribution channels, and global economic growth rates. Performance Materials and Technologies’ operating results, which generated 15 percent of our consolidated revenues in 2011, are impacted by global economic growth rates, capacity utilization for chemical, industrial, refining, petrochemical and semiconductor plants, our customers’ availability of capital for refinery construction and expansion, and raw material demand and supply volatility. Transportation Systems’ operating results, which generated 11 percent of our consolidated revenues in 2011, are impacted by global production and demand for automobiles and trucks equipped with turbochargers, and regulatory changes regarding automobile and truck emissions and fuel economy, delays in launch schedules for new automotive platforms, and consumer demand and spending for automotive aftermarket products. Demand of global automotive and truck manufacturers will continue to be influenced by a wide variety of factors, including ability of consumers to obtain financing, ability to reduce operating costs and overall consumer and business confidence. Each of the segments is impacted by volatility in raw material prices (as further described below) and non-material inflation.
Raw material price fluctuations, the ability of key suppliers to meet quality and delivery requirements, or catastrophic events can increase the cost of our products and services, impact our ability to meet commitments to customers, and cause us to incur significant liabilities.
The cost of raw materials is a key element in the cost of our products, particularly in our Performance Materials and Technologies (cumene, fluorspar, perchloroethylene, R240, natural gas, sulfur and ethylene), Transportation Systems (nickel, steel and other metals) and Aerospace (nickel, titanium and other metals) segments. Our inability to offset material price inflation through increased prices to customers, formula or long-term fixed price contracts with suppliers, productivity actions or through commodity hedges could adversely affect our results of operations.
Our manufacturing operations are also highly dependent upon the delivery of materials (including raw materials) by outside suppliers and their assembly of major components, and subsystems used in our products in a timely manner and in full compliance with purchase order terms and conditions, quality standards, and applicable laws and regulations. In addition, many major components, product equipment items and raw materials are procured or subcontracted on a single-source basis with a number of domestic and foreign companies; in some circumstances these suppliers are the sole source of the component or equipment. Although we maintain a qualification and performance surveillance process to control risk associated with such reliance on third parties and we believe that sources of supply for raw materials and components are generally adequate, it is difficult to predict what effects shortages or price increases may have in the future. Our ability to manage inventory and meet delivery requirements may be constrained by our suppliers’ inability to scale production and adjust delivery of long-lead time products during times of volatile demand. Our suppliers may fail to perform according to specifications as and when required and we may be unable to identify alternate suppliers or to otherwise mitigate the consequences of their non-performance. The supply chains for our businesses could also be disrupted by suppliers’ decisions to exit certain businesses, bankruptcy and by external events such as natural disasters, extreme weather events, pandemic health issues, terrorist actions, labor disputes, governmental actions and legislative or regulatory changes (e.g., product certification or stewardship requirements, sourcing restrictions, product authenticity, climate change or greenhouse gas emission standards, etc.). Our inability to fill our supply needs would jeopardize our ability to fulfill obligations under commercial and government contracts, which could, in turn, result in reduced sales and profits, contract penalties or terminations, and damage to customer relationships. Transitions to new suppliers may result in significant costs and delays, including those related to the required recertification of parts obtained from new suppliers with our customers and/or regulatory agencies. In addition, because our businesses cannot always immediately adapt their cost structure to changing market conditions, our manufacturing capacity for certain products may at times exceed or fall short of our production requirements, which could adversely impact our operating costs, profitability and customer and supplier relationships.
Our facilities, distribution systems and information technology systems are subject to catastrophic loss due to, among other things, fire, flood, terrorism or other natural or man-made disasters. If any of these facilities or systems were to experience a catastrophic loss, it could disrupt our operations, result in personal injury or property damage, damage relationships with our customers and result in large expenses to repair or replace the facilities or systems, as well as result in other liabilities and adverse impacts. The same risk can also arise from the failure of critical systems supplied by Honeywell to large industrial, refining and petrochemical customers.
Our future growth is largely dependent upon our ability to develop new technologies that achieve market acceptance with acceptable margins.
Our businesses operate in global markets that are characterized by rapidly changing technologies and evolving industry standards. Accordingly, our future growth rate depends upon a number of factors, including our ability to (i) identify emerging technological trends in our target end-markets, (ii) develop and maintain competitive products, (iii) enhance our products by adding innovative features that differentiate our products from those of our competitors and prevent commoditization of our products, (iv) develop, manufacture and bring products to market quickly and cost-effectively, and (v) develop and retain individuals with the requisite expertise.
Our ability to develop new products based on technological innovation can affect our competitive position and requires the investment of significant resources. These development efforts divert resources from other potential investments in our businesses, and they may not lead to the development of new technologies or products on a timely basis or that meet the needs of our customers as fully as competitive offerings. In addition, the markets for our products may not develop or grow as we currently anticipate. The failure of our technologies or products to gain market acceptance due to more attractive offerings by our competitors could significantly reduce our revenues and adversely affect our competitive standing and prospects.
Protecting our intellectual property is critical to our innovation efforts.
We own or are licensed under a large number of U.S. and non-U.S. patents and patent applications, trademarks and copyrights. Our intellectual property rights may expire or be challenged, invalidated or infringed
upon by third parties or we may be unable to maintain, renew or enter into new licenses of third party proprietary intellectual property on commercially reasonable terms. In some non-U.S. countries, laws affecting intellectual property are uncertain in their application, which can affect the scope or enforceability of our patents and other intellectual property rights. Any of these events or factors could diminish or cause us to lose the competitive advantages associated with our intellectual property, subject us to judgments, penalties and significant litigation costs, and/or temporarily or permanently disrupt our sales and marketing of the affected products or services.
Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations.
Global cybersecurity threats can range from uncoordinated individual attempts to gain unauthorized access to our information technology (IT) systems to sophisticated and targeted measures known as advanced persistent threats. While we employ comprehensive measures to prevent, detect, address and mitigate these threats (including access controls, data encryption, vulnerability assessments, continuous monitoring of our IT networks and systems and maintenance of backup and protective systems), cybersecurity incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of business operations. The potential consequences of a material cybersecurity incident include reputational damage, litigation with third parties, diminution in the value of our investment in research, development and engineering, and increased cybersecurity protection and remediation costs, which in turn could adversely affect our competitiveness and results of operations.
An increasing percentage of our sales and operations is in non-U.S. jurisdictions and is subject to the economic, political, regulatory and other risks of international operations.
Our international operations, including U.S. exports, comprise a growing proportion of our operating results. Our strategy calls for increasing sales to and operations in overseas markets, including developing markets such as China, India, the Middle East and other high growth regions.
In 2011, approximately 55 percent of our total sales (including products manufactured in the U.S. and sold outside the U.S. as well as products manufactured in international locations) were outside of the U.S. including approximately 30 percent in Europe and approximately 12 percent in Asia. Risks related to international operations include exchange control regulations, wage and price controls, employment regulations, foreign investment laws, import, export and other trade restrictions (such as embargoes), changes in regulations regarding transactions with state-owned enterprises, nationalization of private enterprises, government instability, and our ability to hire and maintain qualified staff and maintain the safety of our employees in these regions. We are also subject to U.S. laws prohibiting companies from doing business in certain countries, or restricting the type of business that may be conducted in these countries. The cost of compliance with increasingly complex and often conflicting regulations worldwide can also impair our flexibility in modifying product, marketing, pricing or other strategies for growing our businesses, as well as our ability to improve productivity and maintain acceptable operating margins.
Uncertain global economic conditions arising from circumstances such as sovereign debt issues and credit rating downgrades in certain European countries or speculation regarding changes to the composition or viability of the Euro zone could result in reduced customer confidence resulting in decreased demand for our products and services, disruption in payment patterns and higher default rates, a tightening of credit markets (see risk factor below regarding volatility of credit markets for further discussion), increased risk regarding supplier performance, increased counterparty risk with respect to the financial institutions with which we do business, and exchange rate fluctuations. While we employ comprehensive controls regarding global cash management to guard against cash or investment loss and to ensure our ability to fund our operations and commitments, a material disruption to the financial institutions with whom we transact business could expose Honeywell to financial loss.
Sales and purchases in currencies other than the US dollar expose us to fluctuations in foreign currencies relative to the US dollar and may adversely affect our results of operations. Currency fluctuations may affect product demand and prices we pay for materials, as a result, our operating margins may be negatively impacted. Fluctuations in exchange rates may give rise to translation gains or losses when financial statements of our non-U.S. businesses are translated into U.S. dollars. While we monitor our exchange rate exposures and seek to reduce the risk of volatility through hedging activities, such activities bear a financial cost and may not always be available to us or successful in significantly mitigating such volatility.
We may be required to recognize impairment charges for our long-lived assets or available for sale investments.
At December 31, 2010, the net carrying value of long-lived assets (property, plant and equipment, goodwill and other intangible assets) and available for sale securities totaled approximately $19.0 billion and $0.3 billion, respectively. In accordance with generally accepted accounting principles, we periodically assess these assets to determine if they are impaired. Significant negative industry or economic trends, disruptions to our business, unexpected significant changes or planned changes in use of the assets, divestitures and market capitalization declines may result in impairments to goodwill and other long-lived assets. An other than temporary decline in the market value of our available for sale securities may also result in an impairment charge. Future impairment charges could significantly affect our results of operations in the periods recognized. Impairment charges would also reduce our consolidated shareowners’ equity and increase our debt-to-total-capitalization ratio, which could negatively impact our credit rating and access to the public debt and equity markets.
A change in the level of U.S. Government defense and space funding or the mix of programs to which such funding is allocated could adversely impact Aerospace’s defense and space sales and results of operations.
Sales of our defense and space-related products and services are largely dependent upon government budgets, particularly the U.S. defense budget. Sales as a prime contractor and subcontractor to the U.S. Department of Defense comprised approximately 33 and 10 percent of Aerospace and total sales, respectively, for the year ended December 31, 2010. We cannot predict the extent to which total funding and/or funding for individual programs will be included, increased or reduced as part of the 2011 and subsequent budgets ultimately approved by Congress, or be included in the scope of separate supplemental appropriations. We also cannot predict the impact of potential changes in priorities due to military transformation and planning and/or the nature of war-related activity on existing, follow-on or replacement programs. A shift in defense or space spending to programs in which we do not participate and/or reductions in funding for or termination of existing programs could adversely impact our results of operations.
As a supplier of military and other equipment to the U.S. Government, we are subject to unusual risks, such as the right of the U.S. Government to terminate contracts for convenience and to conduct audits and investigations of our operations and performance.
In addition to normal business risks, companies like Honeywell that supply military and other equipment to the U.S. Government are subject to unusual risks, including dependence on Congressional appropriations and administrative allotment of funds, changes in governmental procurement legislation and regulations and other policies that reflect military and political developments, significant changes in contract scheduling, complexity of designs and the rapidity with which they become obsolete, necessity for constant design improvements, intense competition for U.S. Government business necessitating increases in time and investment for design and development, difficulty of forecasting costs and schedules when bidding on developmental and highly sophisticated technical work, and other factors characteristic of the industry, such as contract award protests and delays in the timing of contract approvals. Changes are customary over the life of U.S. Government contracts, particularly development contracts, and generally result in adjustments of contract prices.
Our contracts with the U.S. Government are subject to audits. Like many other government contractors, we have received audit reports that recommend downward price adjustments to certain contracts or changes to certain accounting systems or controls to comply with various government regulations. We have made adjustments and paid voluntary refunds in appropriate cases and may do so in the future.
U.S. Government contracts are subject to termination by the government, either for the convenience of the government or for our failure to perform under the applicable contract. In the case of a termination for convenience, we are typically entitled to reimbursement for our allowable costs incurred, plus termination costs and a reasonable profit. If a contract is terminated by the government for our failure to perform we could be liable for additional costs incurred by the government in acquiring undelivered goods or services from any other source and any other damages suffered by the government.
We are also subject to government investigations of business practices and compliance with government procurement regulations. If Honeywell or one of its businesses were charged with wrongdoing as a result of any such investigation or other government investigations (including violations of certain environmental or export laws), it could be suspended from bidding on or receiving awards of new government contracts, suspended from contract performance pending the completion of legal proceedings and/or have its export privileges suspended. The U.S. Government also reserves the right to debar a contractor from receiving new government contracts for fraudulent, criminal or other egregious misconduct. Debarment generally does not exceed three years.
Our reputation and ability to do business may be impacted by the improper conduct of employees, agents or business partners.
We cannot ensure that our extensive compliance controls, policies and procedures will in all instances protect us from reckless or criminal acts committed by our employees, agents or business partners that would violate the laws of the jurisdictions in which the Company operates, including laws governing payments to government officials, competition and data privacy. Any improper actions could subject us to civil or criminal investigations, monetary and non-monetary penalties and could adversely impact our ability to conduct business, results of operations and reputation.
Changes in legislation or government regulations or policies can have a significant impact on our results of operations.
The sales and margins of each of our segments are directly impacted by government regulations. Safety and performance regulations (including mandates of the Federal Aviation Administration and other similar international regulatory bodies requiring the installation of equipment on aircraft), product certification requirements and government procurement practices can impact Aerospace sales, research and development expenditures, operating costs and profitability. The demand for and cost of providing Automation and Control Solutions products, services and solutions can be impacted by fire, security, safety, health care, environmental and energy efficiency standards and regulations. Specialty Materials’ results of operations can be affected by environmental (e.g. government regulation of fluorocarbons), safety and energy efficiency standards and regulations, while emissions and energy efficiency standards and regulations can impact the demand for turbochargers in our Transportation Systems segment. Legislation or regulations regarding areas such as labor and employment, employee benefit plans, tax, health, safety and environmental matters, import, export and trade, intellectual property, product certification, and product liability may impact the results of each of our operating segments and our consolidated results.
Completed acquisitions may not perform as anticipated or be integrated as planned, and divestitures may not occur as planned.
We regularly review our portfolio of businesses and pursue growth through acquisitions and seek to divest non-core businesses. We may not be able to complete transactions on favorable terms, on a timely basis or at all. In addition, our results of operations and cash flows may be adversely impacted by (i) the failure of acquired businesses to meet or exceed expected returns, (ii) the discovery of unanticipated issues or liabilities, (iii) the failure to integrate acquired businesses into Honeywell on schedule and/or to achieve synergies in the planned amount or within the expected timeframe, (iv) the inability to dispose of non-core assets and businesses on satisfactory terms and conditions and within the expected timeframe, and (v) the degree of protection provided by indemnities from sellers of acquired companies and the obligations under indemnities provided to purchasers of our divested businesses.
We cannot predict with certainty the outcome of litigation matters, government proceedings and other contingencies and uncertainties.
We are subject to a number of 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 (including asbestos), prior acquisitions and divestitures, employment, employee benefits plans, intellectual property, import and export matters and environmental, health and safety matters. Resolution of these matters can be prolonged and costly, and the ultimate results or judgments are uncertain due to the inherent uncertainty in litigation and other proceedings. Moreover, our potential liabilities are subject to change over time due to new developments, changes in settlement strategy or the impact of evidentiary requirements, and we may become subject to or be required to pay damage awards or settlements that could have a material adverse effect on our results of operations, cash flows and financial condition. While we maintain insurance for certain risks, the amount of our insurance coverage may not be adequate to cover the total amount of all insured claims and liabilities. It also is not possible to obtain insurance to protect against all our operational risks and liabilities. The incurrence of significant liabilities for which there is no or insufficient insurance coverage could adversely affect our results of operations, cash flows, liquidity and financial condition.
Our operations and the prior operations of predecessor companies expose us to the risk of material environmental liabilities.
Mainly because of past operations and operations of predecessor companies, we are subject to potentially material liabilities related to the remediation of environmental hazards and to claims of personal injuries or property damages that may be caused by hazardous substance releases and exposures. We have incurred remedial response and voluntary clean-up 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. We are subject to various federal, state, local and foreign government requirements regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. These laws and regulations can impose substantial fines and criminal sanctions for violations, and require installation of costly equipment or operational changes to limit emissions and/or decrease the likelihood of accidental hazardous substance releases. We incur, and expect to continue to incur capital and operating costs to comply with these laws and regulations. In addition, changes in laws, regulations and enforcement of policies, the discovery of previously unknown contamination or new technology or information related to individual sites, the establishment of stricter state or federal toxicity standards with respect to certain contaminants, or the imposition of new clean-up requirements or remedial techniques could require us to incur costs in the future that would have a negative effect on our financial condition or results of operations.
Our expenses include significant costs related to employee and retiree health benefits.
With approximately 130,000 employees, including approximately 53,000 in the U.S., our expenses relating to employee health and retiree health benefits are significant. In recent years, we have experienced significant increases in certain of these costs, largely as a result of economic factors beyond our control, in particular, ongoing increases in health care costs well in excess of the rate of inflation. Continued increasing health-care costs, legislative or regulatory changes, and volatility in discount rates, as well as changes in other assumptions used to calculate retiree health benefit expenses, may adversely affect our financial position and results of operations.
Risks related to our defined benefit pension plans may adversely impact our results of operations and cash flow.
Significant changes in actual investment return on pension assets, discount rates, and other factors could adversely affect our results of operations and pension contributions in future periods. U.S. generally accepted accounting principles require that we calculate income or expense for the plans using actuarial valuations. These valuations reflect assumptions about financial markets and interest rates, which may change based on economic conditions. Funding requirements for our U.S. pension plans may become more significant. However, the ultimate amounts to be contributed are dependent upon, among other things, interest rates, underlying asset returns and the impact of legislative or regulatory changes related to pension funding obligations. For a discussion regarding the significant assumptions used to estimate pension expense, including discount rate and the expected long-term rate of return on plan assets, and how our financial statements can be affected by pension plan accounting policies, see “Critical Accounting Policies” included in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Additional tax expense or additional tax exposures could affect our future profitability.
We are subject to income taxes in both the United States and various non-U.S. jurisdictions, and our domestic and international tax liabilities are dependent upon the distribution of income among these different jurisdictions. In 2010, our tax expense represented 28.4 percent of our income before tax, and includes estimates of additional tax which may be incurred for tax exposures and reflects various estimates and assumptions, including assessments of future earnings of the Company that could effect the valuation of our deferred tax assets. Our future results could be adversely affected by changes in the effective tax rate as a result of a change in the mix of earnings in countries with differing statutory tax rates, changes in the overall profitability of the Company, changes in tax legislation, changes in the valuation of deferred tax assets and liabilities, the results of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures.
Volatility of credit markets or macro-economic factors could adversely affect our business.
Changes in U.S. and global financial and equity markets, including market disruptions, limited liquidity, and interest rate volatility, may increase the cost of financing as well as the risks of refinancing maturing debt. In addition, our borrowing costs can be affected by short and long-term ratings assigned by independent rating agencies. A decrease in these ratings could increase our cost of borrowing.
Delays in our customers’ ability to obtain financing, or the unavailability of financing to our customers, could adversely affect our results of operations and cash flow. The inability of our suppliers to obtain financing could result in the need to transition to alternate suppliers, which could result in significant incremental cost and delay, as discussed above. Lastly, disruptions in the U.S. and global financial markets could impact the financial institutions with which we do business.
We may be required to recognize impairment charges for our long-lived assets or available for sale investments.
At December 31, 2011, the net carrying value of long-lived assets (property, plant and equipment, goodwill and other intangible assets) and available for sale securities totaled approximately $19.1 billion and $0.4 billion, respectively. In accordance with generally accepted accounting principles, we periodically assess these assets to determine if they are impaired. Significant negative industry or economic trends, disruptions to our business, unexpected significant changes or planned changes in use of the assets, divestitures and market capitalization declines may result in impairments to goodwill and other long-lived assets. An other than temporary decline in the market value of our available for sale securities may also result in an impairment charge. Future impairment charges could significantly affect our results of operations in the periods recognized. Impairment charges would also reduce our consolidated shareowners’ equity and increase our debt-to-total-capitalization ratio, which could negatively impact our credit rating and access to the public debt and equity markets.
A change in the level of U.S. Government defense and space funding or the mix of programs to which such funding is allocated could adversely impact Aerospace’s defense and space sales and results of operations.
Sales of our defense and space-related products and services are largely dependent upon government budgets, particularly the U.S. defense budget. Sales as a prime contractor and subcontractor to the U.S. Department of Defense comprised approximately 29 and 9 percent of Aerospace and total sales, respectively, for the year ended December 31, 2011.We cannot predict the extent to which total funding and/or funding for individual programs will be included, increased or reduced as part of the 2012 and subsequent budgets ultimately approved by Congress, or be included in the scope of separate supplemental appropriations. We also cannot predict the impact of potential changes in priorities due to military transformation and planning and/or the nature of war-related activity on existing, follow-on or replacement programs. A shift in defense or space spending to programs in which we do not participate and/or reductions in funding for or termination of existing programs could adversely impact our results of operations.
As a supplier of military and other equipment to the U.S. Government, we are subject to unusual risks, such as the right of the U.S. Government to terminate contracts for convenience and to conduct audits and investigations of our operations and performance.
In addition to normal business risks, companies like Honeywell that supply military and other equipment to the U.S. Government are subject to unusual risks, including dependence on Congressional appropriations and administrative allotment of funds, changes in governmental procurement legislation and regulations and other policies that reflect military and political developments, significant changes in contract requirements, complexity of designs and the rapidity with which they become obsolete, necessity for frequent design improvements, intense competition for U.S. Government business necessitating increases in time and investment for design and development, difficulty of forecasting costs and schedules when bidding on developmental and highly sophisticated technical work, and other factors characteristic of the industry, such as contract award protests and delays in the timing of contract approvals. Changes are customary over the life of U.S. Government contracts, particularly development contracts, and generally result in adjustments to contract prices and schedules.
Our contracts with the U.S. Government are also subject to various government audits. Like many other government contractors, we have received audit reports that recommend downward price adjustments to certain contracts or changes to certain accounting systems or controls to comply with various government regulations. When appropriate and prudent, we have made adjustments and paid voluntary refunds in the past and may do so in the future.
U.S. Government contracts are subject to termination by the government, either for the convenience of the government or for our failure to perform consistent with the terms of the applicable contract. In the case of a termination for convenience, we are typically entitled to reimbursement for our allowable costs incurred, plus
termination costs and a reasonable profit. If a contract is terminated by the government for our failure to perform we could be liable for reprocurement costs incurred by the government in acquiring undelivered goods or services from another source and for other damages suffered by the government as permitted under the contract.
We are also subject to government investigations of business practices and compliance with government procurement regulations. If, as a result of any such investigation or other government investigations (including violations of certain environmental or export laws), Honeywell or one of its businesses were found to have violated applicable law, it could be suspended from bidding on or receiving awards of new government contracts, suspended from contract performance pending the completion of legal proceedings and/or have its export privileges suspended. The U.S. Government also reserves the right to debar a contractor from receiving new government contracts for fraudulent, criminal or other egregious misconduct. Debarment generally does not exceed three years.
Our reputation and ability to do business may be impacted by the improper conduct of employees, agents or business partners.
We cannot ensure that our extensive compliance controls, policies and procedures will, in all instances, protect us from reckless or criminal acts committed by our employees, agents or business partners that would violate the laws of the jurisdictions in which the Company operates, including laws governing payments to government officials, competition and data privacy. Any improper actions could subject us to civil or criminal investigations, monetary and non-monetary penalties and could adversely impact our ability to conduct business, results of operations and reputation.
Changes in legislation or government regulations or policies can have a significant impact on our results of operations.
The sales and margins of each of our segments are directly impacted by government regulations. Safety and performance regulations (including mandates of the Federal Aviation Administration and other similar international regulatory bodies requiring the installation of equipment on aircraft), product certification requirements and government procurement practices can impact Aerospace sales, research and development expenditures, operating costs and profitability. The demand for and cost of providing Automation and Control Solutions products, services and solutions can be impacted by fire, security, safety, health care, environmental and energy efficiency standards and regulations. Performance Materials and Technologies’ results of operations can be affected by environmental (e.g. government regulation of fluorocarbons), safety and energy efficiency standards and regulations, while emissions and energy efficiency standards and regulations can impact the demand for turbochargers in our Transportation Systems segment. Legislation or regulations regarding areas such as labor and employment, employee benefit plans, tax, health, safety and environmental matters, import, export and trade, intellectual property, product certification, and product liability may impact the results of each of our operating segments and our consolidated results.
Completed acquisitions may not perform as anticipated or be integrated as planned, and divestitures may not occur as planned.
We regularly review our portfolio of businesses and pursue growth through acquisitions and seek to divest non-core businesses. We may not be able to complete transactions on favorable terms, on a timely basis or at all. In addition, our results of operations and cash flows may be adversely impacted by (i) the failure of acquired businesses to meet or exceed expected returns, (ii) the discovery of unanticipated issues or liabilities, (iii) the failure to integrate acquired businesses into Honeywell on schedule and/or to achieve synergies in the planned amount or within the expected timeframe, (iv) the inability to dispose of non-core assets and businesses on satisfactory terms and conditions and within the expected timeframe, and (v) the degree of protection provided by indemnities from sellers of acquired companies and the obligations under indemnities provided to purchasers of our divested businesses.
We cannot predict with certainty the outcome of litigation matters, government proceedings and other contingencies and uncertainties.
We are subject to a number of 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 (including asbestos), prior acquisitions and divestitures, employment, employee benefits plans, intellectual property, import and export matters and environmental, health and safety matters. Resolution of these matters can be prolonged and costly, and the ultimate results or judgments are uncertain due to the inherent uncertainty in litigation and other proceedings. Moreover, our potential liabilities are subject to change over time due to new developments, changes in settlement strategy or the impact of evidentiary requirements, and we may become subject to or be required to pay damage awards or
settlements that could have a material adverse effect on our results of operations, cash flows and financial condition. While we maintain insurance for certain risks, the amount of our insurance coverage may not be adequate to cover the total amount of all insured claims and liabilities. It also is not possible to obtain insurance to protect against all our operational risks and liabilities. The incurrence of significant liabilities for which there is no or insufficient insurance coverage could adversely affect our results of operations, cash flows, liquidity and financial condition.
Our operations and the prior operations of predecessor companies expose us to the risk of material environmental liabilities.
Mainly because of past operations and operations of predecessor companies, we are subject to potentially material liabilities related to the remediation of environmental hazards and to claims of personal injuries or property damages that may be caused by hazardous substance releases and exposures. We have incurred remedial response and voluntary clean-up 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. We are subject to various federal, state, local and foreign government requirements regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. These laws and regulations can impose substantial fines and criminal sanctions for violations, and require installation of costly equipment or operational changes to limit emissions and/or decrease the likelihood of accidental hazardous substance releases. We incur, and expect to continue to incur capital and operating costs to comply with these laws and regulations. In addition, changes in laws, regulations and enforcement of policies, the discovery of previously unknown contamination or new technology or information related to individual sites, the establishment of stricter state or federal toxicity standards with respect to certain contaminants, or the imposition of new clean-up requirements or remedial techniques could require us to incur costs in the future that would have a negative effect on our financial condition or results of operations.
Our expenses include significant costs related to employee and retiree health benefits.
With approximately 132,000 employees, including approximately 53,000 in the U.S., our expenses relating to employee health and retiree health benefits are significant. In recent years, we have experienced significant increases in certain of these costs, largely as a result of economic factors beyond our control, in particular, ongoing increases in health care costs well in excess of the rate of inflation. Continued increasing health-care costs, legislative or regulatory changes, and volatility in discount rates, as well as changes in other assumptions used to calculate retiree health benefit expenses, may adversely affect our financial position and results of operations.
Risks related to our defined benefit pension plans may adversely impact our results of operations and cash flow.
Significant changes in actual investment return on pension assets, discount rates, and other factors could adversely affect our results of operations and pension contributions in future periods. U.S. generally accepted accounting principles require that we calculate income or expense for the plans using actuarial valuations. These valuations reflect assumptions about financial markets and interest rates, which may change based on economic conditions. Funding requirements for our U.S. pension plans may become more significant. However, the ultimate amounts to be contributed are dependent upon, among other things, interest rates, underlying asset returns and the impact of legislative or regulatory changes related to pension funding obligations. For a discussion regarding the significant assumptions used to estimate pension expense, including discount rate and the expected long-term rate of return on plan assets, and how our financial statements can be affected by pension plan accounting policies, see “Critical Accounting Policies” included in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Additional tax expense or additional tax exposures could affect our future profitability.
We are subject to income taxes in both the United States and various non-U.S. jurisdictions, and our domestic and international tax liabilities are dependent upon the distribution of income among these different jurisdictions. In 2011, our tax expense represented 18.3 percent of our income before tax, and includes estimates of additional tax which may be incurred for tax exposures and reflects various estimates and assumptions, including assessments of future earnings of the Company that could impact the valuation of our deferred tax assets. Our future results of operations could be adversely affected by changes in the effective tax rate as a result of a change in the mix of earnings in countries with differing statutory tax rates, changes in the overall profitability of the Company, changes in tax legislation and rates, changes in generally accepted accounting principles, changes in the valuation of deferred tax assets and liabilities, changes in the amount of earnings permanently
reinvested offshore, the results of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures.
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Not Applicable
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Properties |
We have approximately 1,300 locations consisting of plants, research laboratories, sales offices and other facilities. Our headquarters and administrative complex is located in Morris Township, New Jersey. Our plants are generally located to serve large marketing areas and to provide accessibility to raw materials and labor pools. Our properties are generally maintained in good operating condition. Utilization of these plants may vary with sales to customers and other business conditions; however, no major operating facility is significantly idle. We own or lease warehouses, railroad cars, barges, automobiles, trucks, airplanes and materials handling and data processing equipment. We also lease space for administrative and sales staffs. Our properties and equipment are in good operating condition and are adequate for our present needs. We do not anticipate difficulty in renewing existing leases as they expire or in finding alternative facilities.
Our principal plants, which are owned in fee unless otherwise indicated, are as follows:
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Anniston, AL (leased) | Olathe, KS | Toronto, Canada | ||
Glendale, AZ (leased) | Minneapolis, MN(partially leased) | Olomouc, Czech Republic (leased) | ||
Phoenix, AZ | Plymouth, MN | Raunheim, Germany | ||
Tempe, AZ | Rocky Mount, NC | Penang, Malaysia | ||
Tucson, AZ | Albuquerque, NM | Chihuahua, Mexico | ||
Torrance, CA | Urbana, OH | Singapore (leased) | ||
Clearwater, FL | Greer, SC | Yeovil, UK (leased) | ||
South Bend, IN | ||||
Automation and Control Solutions | ||||
San Diego, CA (leased) | Pleasant Prairie, WI (leased) | Schonaich, Germany (leased) | ||
Northford, CT | Shenzhen, China (leased) | Pune, India (leased) | ||
Freeport, IL | Suzhou, China | Chihuahua, Mexico | ||
St. Charles, IL (leased) | Tianjin, China (leased) | Juarez, Mexico (partially leased) | ||
Golden Valley, MN | Brno, Czech Republic (leased) | Tijuana, Mexico (leased) | ||
York, PA (leased) | Mosbach, Germany | Emmen, Netherlands | ||
Neuss, Germany | Newhouse, Scotland | |||
Performance Materials and Technologies | ||||
Mobile, AL | Shreveport, LA | Colonial Heights, VA | ||
Des Plaines, IL | Frankford, PA | Hopewell, VA | ||
Metropolis, IL | Pottsville, PA | Spokane, WA | ||
Baton Rouge, LA | Orange, TX | Seelze, Germany | ||
Geismar, LA | Chesterfield, VA | |||
Transportation Systems |
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Shanghai, China |
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Glinde, Germany | Kodama, Japan | Bucharest, Romania | ||
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We are subject to a number of lawsuits, investigations and claims (some of which involve substantial amounts) arising out of the conduct of our business. See a discussion of environmental, asbestos and other litigation matters in Note 21 of Notes to Financial Statements.
Environmental Matters Involving Potential Monetary Sanctions in Excess of $100,000
Although the outcome of the matters discussed below cannot be predicted with certainty, we do not believe that any of them, individually or in the aggregate, will have a material adverse effect on our consolidated financial position, consolidated results of operations or operating cash flows.
The United States Environmental Protection Agency and the United States Department of Justice (“federal authorities”) are investigating whether the storage of certain sludges generated during uranium hexafluoride production at our Metropolis, Illinois facility has been in compliance with the requirements of the Resource Conservation and Recovery Act. The federal authorities have convened a grand jury in this matter. The Company has cooperated fully in the investigation and has been engaged in discussions with the federal authorities regarding a resolution of this matter, which the Company expects to finalize in the first quarter of 2011. The storage issue at the Metropolis site was also previously voluntarily disclosed to the Illinois Environmental Protection Agency, with whom Honeywell has been working to resolve related civil environmental claims.
In November 2010 Honeywell reached a final settlement agreement with the New York State Department of Environmental Conservation to settle allegations that Honeywell failed to properly close out waste storage areas associated with legacy operations in Syracuse, New York, which areas are known as the Solvay Settling Basins. Under the terms of the settlement, Honeywell will pay a fine of $100,000 and implement certain environmental projects in the area.
The United States Environmental Protection Agency and the United States Department of Justice are investigating whether the Company’s manufacturing facility in Hopewell, Virginia is in compliance with the requirements of the Clean Air Act and the facility’s air operating permit. Based on these investigations, the federal authorities have issued notices of violation with respect to the facility’s benzene waste operations, leak detection and repair program, emissions of nitrogen oxides and emissions of particulate matter. The Company has entered into negotiations with federal authorities to resolve the alleged violations.
Legal Proceedings
We are subject to a number of lawsuits, investigations and claims (some of which involve substantial amounts) arising out of the conduct of our business. See a discussion of environmental, asbestos and other litigation matters in Note 21 of Notes to Financial Statements.
Environmental Matters Involving Potential Monetary Sanctions in Excess of $100,000
Although the outcome of the matter discussed below cannot be predicted with certainty, we do not believe that it will have a material adverse effect on our consolidated financial position, consolidated results of operations or operating cash flows.
The United States Environmental Protection Agency and the United States Department of Justice are investigating whether the Company’s manufacturing facility in Hopewell, Virginia is in compliance with the requirements of the Clean Air Act and the facility’s air operating permit. Based on these investigations, the federal authorities have issued notices of violation with respect to the facility’s benzene waste operations, leak detection and repair program, emissions of nitrogen oxides and emissions of particulate matter. The Company has entered into negotiations with federal authorities to resolve the alleged violations.
Executive Officers of the Registrant
The executive officers of Honeywell, listed as follows, are elected annually by the Board of Directors. There are no family relationships among them.
Name, Age, | Business Experience | |
David M. Cote, 59 | Chairman of the | |
Alexandre Ismail, 46 | President and Chief Executive Officer Transportation Systems since April 2009. President Turbo Technologies from November 2008 to April 2009. President Global Passengers Vehicles from August 2006 to November 2008. | |
Roger Fradin, 58 | President and Chief Executive Officer Automation and Control Solutions since January 2004. | |
Timothy O. Mahoney, 55 | President and Chief Executive Officer Aerospace since September 2009. Vice President Aerospace Engineering and Technology and Chief Technology Officer from March 2007 to August 2009. President of Air Transport and Regional from July 2005 to March 2007. | |
Andreas C. Kramvis, 59 | President and Chief Executive Officer Performance Materials and Technologies since March 2008. President of Environmental and Combustion Controls from September 2002 to February 2008. | |
David J. Anderson, 62 | Senior Vice President and Chief Financial Officer since June 2003. | |
Krishna Mikkilineni, 52 | Senior Vice President Engineering and Operations since April 2010 and President Honeywell Technology Solutions since January 2009. Vice President Honeywell Technology Solutions from July 2002 to January 2009. | |
Katherine L. Adams, 47 | Senior Vice President and General Counsel since April 2009. Vice President and General Counsel from September 2008 to April 2009. Vice President and General Counsel for Performance Materials and Technologies from February 2005 to September 2008. | |
Mark R. James, 50 | Senior Vice President Human Resources and Communications since November 2007. Vice President of Human Resources and Communications for Aerospace from October 2004 to November 2007. |
(a) Also a Director. |
Part II.
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Market and dividend information for Honeywell’s common stock is included in Note 26 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data.”
|
Market and dividend information for Honeywell’s common stock is included in Note 26 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data.”
The number of record holders of our common stock at December 31, 2010 was 61,830.
Honeywell did not purchase any of its common stock, par value $1 per share, for the year ending December 31, 2010. The Board of Directors has authorized the repurchase of up to a total of $3 billion of Honeywell common stock, which amount includes $1.3 billion that remained available under the Company’s previously reported share repurchase program. Honeywell presently expects to repurchase outstanding shares from time to time during 2011 was 58,965.
Honeywell purchased 1,450,000 shares of its common stock, par value $1 per share, in the quarter ending December 31, 2011. Honeywell purchased a total of 20,250,000 shares of its common stock in 2011. Under the Company’s previously reported $3 billion share repurchase program, $1.9 billion remained available as of December 31, 2011 for additional share repurchases. Honeywell presently expects to repurchase outstanding shares from time to time during 2012 to offset the dilutive impact of employee stock based compensation plans, including future option exercises, restricted unit vesting and matching contributions under our savings plans. The amount and timing of future repurchases may vary depending on market conditions and the level of operating, financing and other investing activities.
The following table summarizes Honeywell’s purchase of its common stock, par value $1 per share, for the three months ended December 31, 2011:
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Issuer Purchases of Equity Securities |
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Period |
| Total |
| Average |
| Total Number |
| Approximate Dollar |
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November 2011 |
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| 1,250,000 |
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| $ 52.67 |
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| 1,250,000 |
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| $ 1,925 |
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December 2011 |
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| 200,000 |
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| $ 50.09 |
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| 200,000 |
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| $ 1,915 |
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Performance Graph
The following graph compares the five-year cumulative total return on our Common Stock to the total returns on the Standard & Poor’s 500 Stock Index and a composite of Standard & Poor’s Industrial Conglomerates and Aerospace and Defense indices, on a 60%/40% weighted basis, respectively (the “Composite Index”). The weighting of the components of the Composite Index are based on our segments’ relative contribution to total segment profit. In prior years, these components had been equally weighted. The change in weighting reflects the growth, both organic and through acquisitions, in the Company’s non-Aerospace businesses. The selection of the Industrial Conglomerates component of the Composite Index reflects the diverse and distinct range of non-aerospace businesses conducted by Honeywell. Per SEC rules, we are including the Composite Index on an equally weighted basis in the graph below with respect to 2005-2009. The annual changes for the five-year period shown in the graph are based on the assumption that $100 had been invested in Honeywell stock and each index on December 31, 20052006 and that all dividends were reinvested.
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| Dec 2010 |
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Honeywell |
| 100 |
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| 124.17 |
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| 172.15 |
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| 94.08 |
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| 116.49 |
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| 162.52 |
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S&P 500® |
| 100 |
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| 115.79 |
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| 122.16 |
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| 76.96 |
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| 97.33 |
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| 111.99 |
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Composite Index (60/40) |
| 100 |
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| 115.23 |
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| 127.14 |
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| 69.27 |
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| 80.32 |
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| 94.19 |
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Composite Index (50/50) |
| 100 |
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| 116.89 |
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| 130.72 |
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| 73.18 |
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| 85.91 |
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| Dec 2006 |
| Dec 2007 |
| Dec 2008 |
| Dec 2009 |
| Dec 2010 |
| Dec 2011 |
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Honeywell |
| 100 |
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| 138.64 |
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| 75.77 |
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| 93.82 |
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| 130.89 |
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| 137.22 |
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S&P 500 Index® |
| 100 |
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| 105.49 |
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| 66.46 |
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| 84.05 |
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| 96.71 |
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| 98.76 |
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Composite Index |
| 100 |
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| 110.34 |
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| 60.12 |
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| 69.70 |
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| 81.74 |
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| 83.81 |
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HONEYWELL INTERNATIONAL INC.
InformationThe Consumer Products Group (CPG) automotive aftermarket business had historically been part of the Transportation Systems reportable segment. In accordance with generally accepted accounting principles, CPG is presented as discontinued operations in Items 6, 7, 8 and Exhibit 12 for the years ended December 31, 2009, 2008, 2007 and 2006 have been revised, as applicable, for the retrospective application of our change in accounting policy for recognizing pension expense.all periods presented. See Note 1 of the Notes to the2 Acquisitions and Divestitures for further details. This selected financial data should be read in conjunction with Honeywell’s Consolidated Financial Statements for a discussionand related Notes included elsewhere in this Annual Report as well as the section of the changethis Annual Report titled Item 7. Management’s Discussion and the impacts for the years ended December 31, 2009Analysis of Financial Condition and 2008.Results of Operations.
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Selected Financial Data |
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| Years Ended December 31, |
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| Years Ended December 31, |
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| 2010 |
| 2009 (1) |
| 2008 (1) |
| 2007 (1)(2) |
| 2006 (1)(3) |
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| 2011 |
| 2010 |
| 2009 |
| 2008 |
| 2007 |
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| (Dollars in millions, except per share amounts) |
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Results of Operations |
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Net sales |
| $ | 33,370 |
| $ | 30,908 |
| $ | 36,556 |
| $ | 34,589 |
| $ | 31,367 |
|
| $ | 36,529 |
| $ | 32,350 |
| $ | 29,951 |
| $ | 35,520 |
| $ | 33,462 |
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Net income attributable to Honeywell(4) |
| 2,022 |
| 1,548 |
| 806 |
| 2,594 |
| 2,284 |
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Per Common Share |
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Earnings from continuing operations: |
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| |||||||||||||||||||||||||||||||
Basic |
| 2.61 |
| 2.06 |
| 1.09 |
| 3.39 |
| 2.78 |
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Assuming dilution |
| 2.59 |
| 2.05 |
| 1.08 |
| 3.35 |
| 2.76 |
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Amounts attributable to Honeywell: |
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Income from continuing operations less net income attributable to the noncontrolling interest |
| 1,858 |
| 1,944 |
| 1,492 |
| 789 |
| 2,535 |
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Income from discontinued operations(1) |
| 209 |
| 78 |
| 56 |
| 17 |
| 59 |
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Dividends |
| 1.21 |
| 1.21 |
| 1.10 |
| 1.00 |
| 0.9075 |
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Net income attributable to Honeywell(2) |
| 2,067 |
| 2,022 |
| 1,548 |
| 806 |
| 2,594 |
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Earnings Per Common Share |
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Basic: |
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Income from continuing operations |
| 2.38 |
| 2.51 |
| 1.99 |
| 1.07 |
| 3.31 |
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Income from discontinued operations |
| 0.27 |
| 0.10 |
| 0.07 |
| 0.02 |
| 0.08 |
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Net income attributable to Honeywell |
| 2.65 |
| 2.61 |
| 2.06 |
| 1.09 |
| 3.39 |
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Assuming dilution: |
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Income from continuing operations |
| 2.35 |
| 2.49 |
| 1.98 |
| 1.06 |
| 3.27 |
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Income from discontinued operations |
| 0.26 |
| 0.10 |
| 0.07 |
| 0.02 |
| 0.08 |
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Net income attributable to Honeywell |
| 2.61 |
| 2.59 |
| 2.05 |
| 1.08 |
| 3.35 |
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Dividends per share |
| 1.37 |
| 1.21 |
| 1.21 |
| 1.10 |
| 1.00 |
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Financial Position at Year-End |
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Property, plant and equipment—net |
| 4,840 |
| 4,847 |
| 4,934 |
| 4,985 |
| 4,797 |
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| 4,804 |
| 4,724 |
| 4,847 |
| 4,934 |
| 4,985 |
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Total assets |
| 37,834 |
| 35,993 |
| 35,570 |
| 33,805 |
| 30,941 |
|
| 39,808 |
| 37,834 |
| 35,993 |
| 35,570 |
| 33,805 |
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Short-term debt |
| 889 |
| 1,361 |
| 2,510 |
| 2,238 |
| 1,154 |
|
| 674 |
| 889 |
| 1,361 |
| 2,510 |
| 2,238 |
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Long-term debt |
| 5,755 |
| 6,246 |
| 5,865 |
| 5,419 |
| 3,909 |
|
| 6,881 |
| 5,755 |
| 6,246 |
| 5,865 |
| 5,419 |
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Total debt |
| 6,644 |
| 7,607 |
| 8,375 |
| 7,657 |
| 5,063 |
|
| 7,555 |
| 6,644 |
| 7,607 |
| 8,375 |
| 7,657 |
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Shareowners’ equity(5)(6) |
| 10,787 |
| 8,971 |
| 7,140 |
| 9,293 |
| 9,777 |
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Shareowners’ equity |
| 10,902 |
| 10,787 |
| 8,971 |
| 7,140 |
| 9,293 |
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(1) |
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(2) |
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| For the year ended December 31, 2008, Net income attributable to Honeywell includes a $417 million, net of tax gain, resulting from the sale of our Consumables Solutions business as well as a charge of $465 million for environmental liabilities deemed probable and reasonably estimable during | |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
(Dollars in millions, except per share amounts)
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Honeywell International Inc. (“Honeywell”) for the three years ended December 31, 2010.2011. All references to Notes related to Notes to the Financial Statements in “Item 8-Financial Statements and Supplementary Data”.
The Consumer Products Group (CPG) automotive aftermarket business had historically been part of the Transportation Systems reportable segment. In accordance with generally accepted accounting principles, CPG results are excluded from continuing operations and are presented as discontinued operations in all periods presented. See Note 2 Acquisitions and Divestitures for further details.
CONSOLIDATED RESULTS OF OPERATIONS
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Net Sales |
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| 2010 |
| 2009 |
| 2008 |
| |||
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Net sales |
| $ | 33,370 |
| $ | 30,908 |
| $ | 36,556 |
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% change compared with prior period |
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| 8 | % |
| (15 | )% |
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Net Sales
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| 2011 |
| 2010 |
| 2009 |
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Net sales |
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| $ | 36,529 |
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| $ | 32,350 |
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| $ | 29,951 |
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% change compared with prior period |
|
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| 13 | % |
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| 8 | % |
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The change in net sales compared to the prior year period is attributable to the following:
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| 2010 |
| 2009 |
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| 2011 |
| 2010 |
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Volume |
| 5 | % |
| (14 | )% |
| 6 | % |
| 5 | % |
| |
Price |
| 2 | % |
| 0 | % |
| 2 | % |
| 2 | % |
| |
Acquisitions/Divestitures |
| 1 | % |
| 1 | % |
| 3 | % |
| 1 | % |
| |
Foreign Exchange |
| 0 | % |
| (2 | )% |
| 2 | % |
| 0 | % |
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| 8 | % |
| (15 | )% |
| 13 | % |
| 8 | % |
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A discussion of net sales by segment can be found in the Review of Business Segments section of this MD&A.
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Cost of Products and Services Sold |
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| 2010 |
| 2009 |
| 2008 |
| |||
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| ||||||
Cost of products and services sold |
| $ | 25,519 |
| $ | 24,012 |
| $ | 31,118 |
|
% change compared with prior period |
|
| 6 | % |
| (23 | )% |
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Gross Margin percentage |
|
| 23.5 | % |
| 22.3 | % |
| 14.9 | % |
Cost of Products and Services Sold
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| 2011 |
| 2010 |
| 2009 |
| |||||||||
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| ||||||||||||
Cost of products and services sold |
|
| $ | 28,556 |
|
|
| $ | 24,721 |
|
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| $ | 23,260 |
|
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% change compared with prior period |
|
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| 16 | % |
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| 6 | % |
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Gross Margin percentage |
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| 21.8 | % |
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| 23.6 | % |
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| 22.3 | % |
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Cost of products and services sold increased by $1,507$3,835 million or 16 percent in 2011 compared with 2010 principally due to an estimated increase in direct material costs, labor costs and indirect costs of approximately $2 billion, $520 million, and $280 million, respectively, driven substantially by a 13 percent increase in sales as a result of the factors (excluding price) discussed above and in the Review of Business Segments section of this MD&A, an increase in pension and other postretirement expense of approximately $880 million (primarily driven by the increase in the pension mark-to-market adjustment allocated to cost of goods sold of $1.1 billion) and an increase in repositioning and other charges of approximately $90 million.
Gross margin percentage decreased by 1.8 percentage points in 2011 compared with 2010 primarily due to higher pension and other postretirement expense (approximate 2.8 percentage point impact primarily driven by an unfavorable 3.3 percentage point impact resulting from the increase in the pension mark-to-market adjustment allocated to cost of goods sold) and repositioning and other charges (approximate 0.2 percentage point impact),
partially offset by higher sales volume driven by each of our business segments (approximate 1.2 percentage point impact).
Cost of products and services sold increased by $1,461 million or 6 percent in 2010 compared with 2009, principally due to an estimated increase in direct material costs and indirect costs of approximately $1,300$1,250 million and $300 million, respectively, driven substantially by an 8 percent increase in sales as a result of the factors discussed above and in the Review of Business Segments section of this MD&A and an $150approximately $130 million increase in Repositioningrepositioning and Other Chargesother charges (see Note 3 of Notes to Financial Statements), partially offset by a $300 million decrease in pension expense.
Gross margin percentage increased by 1.21.3 percentage points in 2010 compared with 2009, primarily due to lower pension expense (approximate 1 percentage point impact) and higher sales volume driven by our Automation and Control Solutions segment, SpecialtyPerformance Materials and Technologies segment and Transportation Systems segment (approximate 0.7 percentage point impact), partially offset by higher repositioning and other charges (approximate 0.40.5 percentage point impact).
CostSelling, General and Administrative Expenses
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| 2011 |
| 2010 |
| 2009 |
| |||||||||
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| ||||||||||||
Selling, general and administrative expense |
|
| $ | 5,399 |
|
|
| $ | 4,618 |
|
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| $ | 4,323 |
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| ||||||||||||||||
Percent of sales |
|
|
| 14.8 | % |
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| 14.3 | % |
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| 14.4 | % |
|
Selling, general and administrative expenses (SG&A) increased as a percentage of products and services sold decreasedsales by $7,106 million or 230.5 percent in 2011 compared to 2010 driven by an estimated $430 million increase in labor costs resulting from acquisitions, investment for growth, and merit increases, an estimated increase of $240 million in pension and other postretirement expense (driven primarily by the 2009 compared with 2008. The decrease is primarily due to lowerallocated portion of the pension expense, lowermark-to-market charge increase of approximately $270 million) and an estimated increase of $60 million in repositioning actions, partially offset by the impact of higher sales volume as a result of the factors discussed withinin the Review of Business Segments section of this MD&A, lower material costs, reduced labor costs (reflecting reduced census, work scheduled reductions, benefits from prior repositioning actions and lower incentive compensation), the positive impact of indirect cost savings initiatives across each of our Business Segments, and lower repositioning charges.&A.
Gross margin percentage increased by 7.4 percentage points in 2009 compared with 2008, primarily due to lower pension expense, increases of 2.9 and 0.6 percent, respectively, in our Specialty Materials and Automation & Controls Solutions segments, as a result of the cost savings initiatives discussed above, and lower repositioning charges, partially offset by lower margins in our Transportation Systems and Aerospace Solutions segments of 3.2 and 0.7 percent, respectively, due to lower sales partially offset by the impact of cost savings initiatives.
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Selling, General and Administrative Expenses |
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| 2010 |
| 2009 |
| 2008 |
| |||
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|
| ||||||
Selling, general and administrative expense |
| $ | 4,717 |
| $ | 4,443 |
| $ | 5,130 |
|
Percent of sales |
|
| 14.1 | % |
| 14.4 | % |
| 14.0 | % |
Selling, general and administrative expenses (SG&A) decreased as a percentage of sales by 0.30.1 percent in 2010 compared to the 2009 driven by the impact of higher sales volume, discussed above, and lower pension expense, partially offset by an estimated $500 million increase in labor costs (reflecting the absence of prior period labor cost actions).
SG&A as a percentage of sales increased by 0.4 of a percentage point in 2009 compared with 2008. The increase as a percentage of sales was driven by lower sales volumes, substantially offset by the positive impact of i) lower pension expense, (ii) indirect cost savings initiatives across each of our Business Segments, iii) reduced labor costs (reflecting reduced census, work schedule reductions, benefits from prior repositioning actions and lower incentive compensation) and iv) lower repositioning charges.
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| |||
Other (Income) Expense |
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| ||||||||||||
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| |||||||||||||||||||
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| 2010 |
| 2009 |
| 2008 |
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| 2011 |
| 2010 |
| 2009 |
| ||||||||||||
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| ||||||||||||||||||
Equity (income)/loss of affiliated companies |
| $ | (29 | ) | $ | (26 | ) | $ | (63 | ) |
| $ | (51 | ) |
| $ | (28 | ) |
| $ | (26 | ) |
| |||
Gain on sale of non-strategic businesses and assets |
| — |
| (87 | ) |
| (635 | ) |
| (61 | ) |
| — |
| (87 | ) |
| |||||||||
Interest income |
| (40 | ) |
| (33 | ) |
| (102 | ) |
| (58 | ) |
| (39 | ) |
| (33 | ) |
| |||||||
Foreign exchange |
| 13 |
| 45 |
| 52 |
|
| 50 |
| 12 |
| 45 |
| ||||||||||||
Other, net |
| (39 | ) |
| 46 |
| — |
|
| 36 |
| (42 | ) |
| 47 |
| ||||||||||
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| ||||||||||||||||||
|
| $ | (95 | ) | $ | (55 | ) | $ | (748 | ) |
| $ | (84 | ) |
| $ | (97 | ) |
| $ | (54 | ) |
| |||
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Other income increaseddecreased by $40$13 million in 20102011 compared to 20092010 due primarily to i)a $29 million loss resulting from early redemption of debt in the first quarter of 2011, included within “Other, net”, and the absence of a $62 million pre-tax gain related to the consolidation of a joint venture within our SpecialtyPerformance Materials and Technologies segment in the third quarter of 2010, included within “Other, net”, (see Note 4 of Notes to Financial statements)Statements for further details, ii) details), partially offset by a $61 million increase in gain on sale of non-strategic businesses and assets due primarily to a $50 million pre-tax gain related to the divestiture of the automotive on-board sensors products business within our Automation and Control Solutions segment and the reduction of approximately $12 million of acquisition related costs compared to 2010 included within “Other, net”.
Other income increased by $43 million in 2010 compared to 2009 primarily due to the consolidation of a joint venture resulting in a $62 million pre-tax gain within our Performance Materials and Technologies segment in the third quarter of 2010, included in “Other, net” (see Note 4 of Notes to Financial Statements for further details),
the absence of an other-than-temporary impairment charge of $62of$62 million in the second quarter of 2009, included within “Other, net”, partially offset by the absence of a $50 million deconsolidation gain related to a subsidiary within our Automation and Control Solutions segment in 2009, included within “Gain on sale of non-strategic businesses and assets”, and $22 million of acquisition related costs in 2010.2010, included within “Other, net”.
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Interest and Other Financial Charges |
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| 2011 |
| 2010 |
| 2009 |
| |||||||||
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| ||||||||||||
Interest and other financial charges |
|
| $ | 376 |
|
|
| $ | 386 |
|
|
| $ | 458 |
|
|
% change compared with prior period |
|
|
| (3 | )% |
|
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| (16 | )% |
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|
Other income decreased by $693 million in 2009 compared to 2008 primarily due to i) a lower gain on sale of non-strategic businesses and assets due to the gain on the sale of our Consumables Solutions business in 2008 partially offset by a gain related to the deconsolidation of a subsidiary within our Automation and Control Solutions segment in 2009 (See Note 4 to the financial statements) and ii) lower interest income primarily due to lower interest rates on cash balances.
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Interest and Other Financial Charges |
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| 2010 |
| 2009 |
| 2008 |
| |||
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| ||||||
Interest and other financial charges |
| $ | 386 |
| $ | 459 |
| $ | 456 |
|
% change compared with prior period |
|
| (16 | )% |
| 1 | % |
|
|
|
Interest and other financial charges decreased by 163% percent in 2011 compared with 2010 primarily due to lower borrowing costs, partially offset by higher debt balances.
Interest and other financial charges decreased by 16% percent in 2010 compared with 2009 primarily due to lower debt balances and lower borrowing costs.
Tax Expense
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| 2011 |
| 2010 |
| 2009 |
| |||||||||
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| ||||||||||||
Tax expense |
|
| $ | 417 |
|
|
| $ | 765 |
|
|
| $ | 436 |
|
|
Effective tax rate |
|
|
| 18.3 | % |
|
|
| 28.1 | % |
|
|
| 22.2 | % |
|
Interest and other financial charges increasedThe effective tax rate decreased by 1 percent9.8 percentage points in 20092011 compared with 20082010 primarily due to a change in the mix of earnings between U.S. and foreign related to higher U.S. pension expense (primarily driven by an approixmate 7.6 percentage point impact which resulted from the increase in pension mark-to-market expense), an increased benefit from manufacturing incentives, an increased benefit from the favorable settlement of tax audits and an increased benefit from a lower debt balancesforeign effective tax rate. The foreign effective tax rate was 21.1 percent, a decrease of approximately 4.9 percentage points which primarily consisted of (i) a 5.1 percent impact from decreased valuation allowances on net operating losses primarily due to an increase in German earnings available to be offset by higher borrowing costs on term debt.net operating loss carry forwards, (ii) a 2.4 percent impact from tax benefits related to foreign exchange and investment losses, iii) a 1.2 percent impact from an increased benefit in tax credits and lower statutory tax rates, and (iv) a 4.1 percent impact related to an increase in tax reserves. The effective tax rate was lower than the U.S. statutory rate of 35 percent primarily due to earnings taxed at lower foreign rates.
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Tax Expense |
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| 2010 |
| 2009 |
| 2008 |
| |||
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| ||||||
Tax expense |
| $ | 808 |
| $ | 465 |
| $ | (226 | ) |
Effective tax rate |
|
| 28.4 | % |
| 22.7 | % |
| (37.7 | )% |
The effective tax rate increased by 5.75.9 percentage points in 2010 compared with 2009 primarily due to a change in the mix of earnings related to lower U.S. pension expense, the impact of an enacted change in the tax treatment of the Medicare Part D program, the absence of manufacturing incentives, a decreased impact from the settlement of audits and an increase in the foreign effective tax rate. The foreign effective tax rate increased by approximately 7 percentage points which primarily consisted of i) a 6 percentage point impact from the absence of tax benefits related to foreign exchange and investment losses and ii) a 0.5(0.1) percentage points impact from increased valuation allowances on net operating loss. The effective tax rate was lower than the U.S. statutory rate of 35 percent primarily due to earnings taxed at lower foreign rates.
The effective tax rate increased by 60.4 percentage points in 2009 compared to 2008 primarily due to a change in the mix of earnings related to lower U.S. pension expense and to a lesser extent, a decreased impact from the settlement of audits.losses. The effective tax rate was lower than the U.S. statutory rate of 35 percent primarily due to earnings taxed at lower foreign rates.
In 2011,2012, the effective tax rate could change based upon the Company’s operating results, mix of earnings and the outcome of tax positions taken regarding previously filed tax returns currently under audit by various Federal, State and foreign tax authorities, several of which may be finalized in the foreseeable future. The Company believes that it has adequate reserves for these matters, the outcome of which could materially impact the results of operations and operating cash flows in the period they are resolved.
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Net Income Attributable to Honeywell |
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| |||||||||
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| 2011 |
| 2010 |
| 2009 |
| |||||||||
|
| 2010 |
| 2009 |
| 2008 |
|
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| ||||||||||||
Amounts attributable to Honeywell |
|
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| ||||||||||||||||
Income from continuing operations |
| $ | 1,858 |
| $ | 1,944 |
| $ | 1,492 |
| |||||||||||||
Income from discontinued operations |
| 209 |
| 78 |
| 56 |
| ||||||||||||||||
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| |||||||||||||||
Net income attributable to Honeywell |
| $ | 2,022 |
| $ | 1,548 |
| $ | 806 |
|
| $ | 2,067 |
| $ | 2,022 |
| $ | 1,548 |
| |||
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| ||||||||||||||||
Earnings per share of common stock – assuming dilution |
| $ | 2.59 |
| $ | 2.05 |
| $ | 1.08 |
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| ||||||
Income from continuing operations |
| $ | 2.35 |
| $ | 2.49 |
| $ | 1.98 |
| |||||||||||||
Income from discontinued operations |
| 0.26 |
| 0.10 |
| 0.07 |
| ||||||||||||||||
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|
|
| |||||||||||||||||||
Net income attributable to Honeywell |
| $ | 2.61 |
| $ | 2.59 |
| $ | 2.05 |
| |||||||||||||
|
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|
|
Earnings per share of common stock – assuming dilution increased by $0.02 per share in 2011 compared with 2010 primarily due to an increase in segment profit in each of our business segments, lower tax expense, the gain on disposal of discontinued operations, and lower other postretirement expense, partially offset by higher pension expense (primarily due to an increase in the pension mark-to-market adjustment) and higher repositioning and other charges.
Earnings per share of common stock – assuming dilution increased by $0.54 per share in 2010 compared with 2009 primarily due to increased segment profit in our Automation and Control Solutions, SpecialtyPerformance Materials and Technologies and Transportation Systems segments and lower pension expense, partially offset by higher tax expense and higher repositioning and other charges.
Earnings per share of common stock – assuming dilution increased by $0.97 per share in 2009 compared with 2008 primarily relates to lower pension expense and lower repositioning charges, partially offset by a decrease in segment profit in each of our business segments, decreased Other (Income) Expense, as discussed above, and an increase in the number of shares outstanding.
For further discussion of segment results, see “Review of Business Segments”.
BUSINESS OVERVIEW
This Business Overview provides a summary of Honeywell and its four reportable operating segments (Aerospace, Automation and Control Solutions, SpecialtyPerformance Materials and Technologies and Transportation Systems), including their respective areas of focus for 20112012 and the relevant economic and other factors impacting their results, and a discussion of each segment’s results for the three years ended December 31, 2010.2011. Each of these segments is comprised of various product and service classes that serve multiple end markets. See Note 23 to the financial statements for further information on our reportable segments and our definition of segment profit.
Economic and Other Factors
In addition to the factors listed below with respect to each of our operating segments, our consolidated operating results are principally driven by:
|
|
|
| • | Impact of change in global economic growth rates (U.S., Europe and emerging regions) and industry conditions on demand in our key end markets; |
|
|
|
| • | Overall sales mix, in particular the mix of Aerospace original equipment and aftermarket sales and the mix of Automation and Control Solutions (ACS) products, distribution and services sales; |
|
|
|
| • | The extent to which cost savings from productivity actions are able to offset or exceed the impact of material and non-material inflation; |
|
|
|
| • | The impact of the pension discount rate and asset returns on pension expense, including mark-to-market adjustments, and funding requirements; and |
|
|
|
| • | The impact of |
Areas of Focus for 2011
The areas of focus for 2011,
Areas of Focus for 2012
The areas of focus for 2012, which are generally applicable to each of our operating segments, include:
|
|
|
| • | Driving profitable growth and margin expansion by building innovative products that address customer needs; |
|
|
|
| • | Achieving sales growth, technological excellence and manufacturing capability and capacity through global expansion, especially focused on emerging regions in China, India, |
|
|
|
| • | Proactively managing raw material costs through formula and long term supply agreements, price increases and hedging activities, where feasible; |
|
|
|
| • | Driving cash flow conversion through effective working capital management and capital investment in our businesses, thereby enhancing liquidity, repayment of debt, strategic acquisitions, and the ability to return value to shareholders; |
|
|
|
| • |
|
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|
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| • | Aligning and prioritizing investments in long-term growth considering short-term demand volatility; |
|
|
|
| • | Driving productivity savings through execution of repositioning actions; |
|
|
|
| • | Controlling discretionary spending levels with focus on non-customer related costs; |
|
|
|
| • |
|
| Utilizing our enablers Honeywell Operating System (HOS), Functional Transformation and Velocity Product Development (VPD) to | |
|
|
|
| • | Monitoring both suppliers and customers for signs of liquidity constraints, limiting exposure to any resulting inability to meet delivery commitments or pay amounts due, and identifying alternate sources of supply as necessary; and |
|
|
|
| • | Controlling Corporate costs, including costs incurred for asbestos and environmental matters, pension and other post-retirement expenses and tax expense. |
Review of Business Segments
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| 2010 |
| 2009 |
| 2008 |
|
| 2011 |
| 2010 |
| 2009 | |||||||||
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|
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|
|
| |||||||||||||||
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Aerospace |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Product |
| $ | 5,868 |
| $ | 5,930 |
| $ | 7,676 |
|
| $ | 6,494 |
| $ | 5,868 |
| $ | 5,930 |
| ||
Service |
| 4,815 |
| 4,833 |
| 4,974 |
|
| 4,981 |
| 4,815 |
| 4,833 |
| ||||||||
|
|
|
|
|
|
|
| |||||||||||||||
Total |
| 10,683 |
| 10,763 |
| 12,650 |
|
| 11,475 |
| 10,683 |
| 10,763 |
| ||||||||
Automation and Control Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Product |
| 11,733 |
| 10,699 |
| 11,953 |
|
| 13,328 |
| 11,733 |
| 10,699 |
| ||||||||
Service |
| 2,016 |
| 1,912 |
| 2,065 |
|
| 2,207 |
| 2,016 |
| 1,912 |
| ||||||||
|
|
|
|
|
|
|
| |||||||||||||||
Total |
| 13,749 |
| 12,611 |
| 14,018 |
|
| 15,535 |
| 13,749 |
| 12,611 |
| ||||||||
Specialty Materials |
|
|
|
|
|
|
| |||||||||||||||
Performance Materials and Technologies |
|
|
|
|
|
|
| |||||||||||||||
Product |
| 4,449 |
| 3,895 |
| 4,961 |
|
| 5,064 |
| 4,449 |
| 3,895 |
| ||||||||
Service |
| 277 |
| 249 |
| 305 |
|
| 595 |
| 277 |
| 249 |
| ||||||||
|
|
|
|
|
|
|
| |||||||||||||||
Total |
| 4,726 |
| 4,144 |
| 5,266 |
|
| 5,659 |
| 4,726 |
| 4,144 |
| ||||||||
Transportation Systems |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Product |
| 4,212 |
| 3,389 |
| 4,622 |
|
| 3,859 |
| 3,192 |
| 2,432 |
| ||||||||
Service |
| — |
| — |
| — |
|
| — |
| — |
| — |
| ||||||||
|
|
|
|
|
|
|
| |||||||||||||||
Total |
| 4,212 |
| 3,389 |
| 4,622 |
|
| 3,859 |
| 3,192 |
| 2,432 |
| ||||||||
Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Product |
| — |
| — |
| — |
|
| — |
| — |
| — |
| ||||||||
Service |
| — |
| 1 |
| — |
|
| 1 |
| — |
| 1 |
| ||||||||
|
|
|
|
|
|
|
| |||||||||||||||
Total |
| — |
| 1 |
| — |
|
| 1 |
| — |
| 1 |
| ||||||||
|
|
|
|
|
|
|
| |||||||||||||||
|
| $ | 33,370 |
| $ | 30,908 |
| $ | 36,556 |
|
| $ | 36,529 |
| $ | 32,350 |
| $ | 29,951 |
| ||
|
|
|
|
|
|
|
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Segment Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Aerospace |
| $ | 1,835 |
| $ | 1,893 |
| $ | 2,300 |
|
| $ | 2,023 |
| $ | 1,835 |
| $ | 1,893 |
| ||
Automation and Control Solutions |
| 1,770 |
| 1,588 |
| 1,622 |
|
| 2,083 |
| 1,770 |
| 1,588 |
| ||||||||
Specialty Materials |
| 749 |
| 605 |
| 721 |
| |||||||||||||||
Performance Materials and Technologies |
| 1,042 |
| 749 |
| 605 |
| |||||||||||||||
Transportation Systems |
| 473 |
| 156 |
| 406 |
|
| 485 |
| 353 |
| 61 |
| ||||||||
Corporate |
| (211 | ) |
| (145 | ) |
| (204 | ) |
| (276 | ) |
| (222 | ) |
| (156 | ) | ||||
|
|
|
|
|
|
|
| |||||||||||||||
|
| $ | 4,616 |
| $ | 4,097 |
| $ | 4,845 |
|
| $ | 5,357 |
| $ | 4,485 |
| $ | 3,991 |
| ||
|
|
|
|
|
|
|
|
A reconciliation of segment profit to consolidated income from continuing operations before taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, | ||||||||||
|
| Years Ended December 31, |
|
| ||||||||||||||||||
|
|
|
| 2011 |
| 2010 |
| 2009 | ||||||||||||||
|
| 2010 |
| 2009 |
| 2008 |
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Segment Profit |
| $ | 4,616 |
| $ | 4,097 |
| $ | 4,845 |
|
| $ | 5,357 |
| $ | 4,485 |
| $ | 3,991 |
| ||
Other income/ (expense)(1) |
| 66 |
| 29 |
| 685 |
|
| 33 |
| 69 |
| 28 |
| ||||||||
Interest and other financial charges |
| (386 | ) |
| (459 | ) |
| (456 | ) |
| (376 | ) |
| (386 | ) |
| (458 | ) | ||||
Stock compensation expense(2) |
| (164 | ) |
| (118 | ) |
| (128 | ) |
| (168 | ) |
| (163 | ) |
| (117 | ) | ||||
Pension expense- ongoing(2)(3) |
| (189 | ) |
| (296 | ) |
| 91 |
| |||||||||||||
Pension mark to market adjustment(2)(3) |
| (471 | ) |
| (741 | ) |
| (3,290 | ) | |||||||||||||
Pension expense-ongoing(2) |
| (105 | ) |
| (185 | ) |
| (287 | ) | |||||||||||||
Pension mark-to-market adjustment(2) |
| (1,802 | ) |
| (471 | ) |
| (741 | ) | |||||||||||||
Other postretirement income/(expense)(2) |
| (29 | ) |
| 15 |
| (135 | ) |
| 86 |
| (29 | ) |
| 15 |
| ||||||
Repositioning and other charges(2) |
| (600 | ) |
| (478 | ) |
| (1,012 | ) |
| (743 | ) |
| (598 | ) |
| (467 | ) | ||||
|
|
|
|
|
|
|
| |||||||||||||||
Income before taxes(3) |
| $ | 2,843 |
| $ | 2,049 |
| $ | 600 |
| ||||||||||||
Income from continuing operations before taxes |
| $ | 2,282 |
| $ | 2,722 |
| $ | 1,964 |
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| |
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(1) | Equity income/(loss) of affiliated companies is included in Segment Profit. | |
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| |
(2) | Amounts included in cost of products and services sold and selling, general and administrative expenses. | |
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| % Change |
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| % Change |
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| 2010 |
| 2009 |
| 2008 |
| 2010 |
| 2009 |
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| 2011 |
| 2010 |
| 2009 |
| 2011 |
| 2010 |
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Aerospace Sales |
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Commercial: |
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Air transport and regional |
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| |||||||||||||
Original equipment |
| $ | 1,362 |
| $ | 1,396 |
| $ | 1,766 |
| (2 | )% |
| (21 | )% |
|
| $ | 1,439 |
| $ | 1,362 |
| $ | 1,396 |
| 6 | % |
| (2 | )% |
| |||
Aftermarket |
| 2,437 |
| 2,419 |
| 2,866 |
| 1 | % |
| (16 | )% |
|
| 2,828 |
| 2,437 |
| 2,419 |
| 16 | % |
| 1 | % |
| |||||||||
Business and general aviation |
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| |||||||||||||
Original equipment |
| 513 |
| 709 |
| 1,459 |
| (28 | )% |
| (51 | )% |
|
| 723 |
| 513 |
| 709 |
| 41 | % |
| (28 | )% |
| |||||||||
Aftermarket |
| 976 |
| 902 |
| 1,227 |
| 8 | % |
| (26 | )% |
|
| 1,207 |
| 976 |
| 902 |
| 24 | % |
| 8 | % |
| |||||||||
Defense and Space Sales |
| 5,395 |
| 5,337 |
| 5,332 |
| 1 | % |
| 0 | % |
|
| 5,278 |
| 5,395 |
| 5,337 |
| (2 | )% |
| 1 | % |
| |||||||||
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| |||||||||||||||||||
Total Aerospace Sales |
| 10,683 |
| 10,763 |
| 12,650 |
|
|
|
|
|
| 11,475 |
| 10,683 |
| 10,763 |
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Automation and Control Solutions Sales |
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Products |
| 8,467 |
| 7,627 |
| 8,562 |
| 11 | % |
| (11 | )% |
| ||||||||||||||||||||||
Solutions |
| 5,282 |
| 4,984 |
| 5,456 |
| 6 | % |
| (9 | )% |
| ||||||||||||||||||||||
Energy Safety & Security |
| 7,977 |
| 6,789 |
| 5,932 |
| 17 | % |
| 14 | % |
| ||||||||||||||||||||||
Process Solutions |
| 3,010 |
| 2,678 |
| 2,507 |
| 12 | % |
| 7 | % |
| ||||||||||||||||||||||
Building Solutions & Distribution |
| 4,548 |
| 4,282 |
| 4,172 |
| 6 | % |
| 3 | % |
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| |||||||||||||||||||
Total Automation and Control Solutions Sales |
| 13,749 |
| 12,611 |
| 14,018 |
|
|
|
|
|
| 15,535 |
| 13,749 |
| 12,611 |
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Specialty Materials Sales |
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| ||||||||||||||||||||||||
Performance Materials and Technologies Sales |
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| ||||||||||||||||||||||||
UOP |
| 1,556 |
| 1,574 |
| 1,953 |
| (1 | )% |
| (19 | )% |
|
| 1,931 |
| 1,556 |
| 1,574 |
| 24 | % |
| (1 | )% |
| |||||||||
Advanced Materials |
| 3,170 |
| 2,570 |
| 3,313 |
| 23 | % |
| (22 | )% |
|
| 3,728 |
| 3,170 |
| 2,570 |
| 18 | % |
| 23 | % |
| |||||||||
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| |||||||||||||||||||
Total Specialty Materials Sales |
| 4,726 |
| 4,144 |
| 5,266 |
|
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| ||||||||||||||||||||||||
Total Performance Materials and Technologies Sales |
| 5,659 |
| 4,726 |
| 4,144 |
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Transportation Systems Sales |
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Turbo Technologies |
| 3,192 |
| 2,432 |
| 3,582 |
| 31 | % |
| (32 | )% |
|
| 3,859 |
| 3,192 |
| 2,432 |
| 21 | % |
| 31 | % |
| |||||||||
Consumer Products Group |
| 1,020 |
| 957 |
| 1,040 |
| 7 | % |
| (8 | )% |
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| |||||||||||||||||||
Total Transportation Systems Sales |
| 4,212 |
| 3,389 |
| 4,622 |
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|
|
| 3,859 |
| 3,192 |
| 2,432 |
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Corporate |
| — |
| 1 |
| — |
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| 1 |
| — |
| 1 |
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| |||||||||||||
Net Sales |
| $ | 33,370 |
| $ | 30,908 |
| $ | 36,556 |
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|
|
|
| $ | 36,529 |
| 32,350 |
| 29,951 |
|
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Aerospace
Overview
Aerospace is a leading global supplier of aircraft engines, avionics, and related products and services for aircraft manufacturers, airlines, aircraft operators, military services, and defense and space contractors. Our Aerospace products and services include auxiliary power units, propulsion engines, environmental control systems, electric power systems, engine controls, flight safety, communications, navigation, radar and surveillance systems, aircraft lighting, management and technical services, logistics services, advanced systems and instruments, aircraft wheels and brakes and repair and overhaul services. Aerospace sells its products to original equipment (OE) manufacturers in the air transport, regional, business and general aviation aircraft segments, and provides spare parts and repair and maintenance services for the aftermarket (principally to aircraft operators). The United States Government is also a major customer for our defense and space products.
Economic and Other Factors
Aerospace operating results are principally driven by:
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| • | New aircraft production rates and delivery schedules set by commercial air transport, regional jet, business and general aviation OE manufacturers, as well as airline profitability, platform mix and retirement of aircraft from service; |
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| • | Global demand for commercial air travel as reflected in global flying hours and utilization rates for corporate and general aviation aircraft, as well as the demand for spare parts and maintenance and repair services for aircraft currently in use; |
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| • | Level and mix of U.S. Government appropriations for defense and space programs and military activity; |
• | Changes in customer platform development schedules, requirements and demands for new technologies; and | |
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| • | Availability and price volatility of raw materials such as titanium and other metals. |
Aerospace
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| 2010 |
| 2009 |
| Change |
| 2008 |
| Change |
| |||||
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| ||||||||||
Net sales |
| $ | 10,683 |
| $ | 10,763 |
|
| (1 | )% | $ | 12,650 |
|
| (15 | )% |
|
|
|
|
|
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|
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|
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|
|
Cost of products and services sold |
|
| 8,099 |
|
| 8,099 |
|
|
|
|
| 9,426 |
|
|
|
|
Selling, general and administrative expenses |
| �� | 553 |
|
| 570 |
|
|
|
|
| 721 |
|
|
|
|
Other |
|
| 196 |
|
| 201 |
|
|
|
|
| 203 |
|
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| ||||||
Segment profit |
| $ | 1,835 |
| $ | 1,893 |
|
| (3 | )% | $ | 2,300 |
|
| (18 | )% |
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|
Factors Contributing to Year-Over-Year Change |
| 2010 vs. 2009 |
| 2009 vs. 2008 |
| ||||||||
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| ||||||||||
|
| Sales |
| Segment |
| Sales |
| Segment |
| ||||
|
|
|
|
|
| ||||||||
Organic growth/ Operational segment profit |
|
| 0 | % |
| 0 | % |
| (13 | )% |
| (18 | )% |
Acquisitions and divestitures, net |
|
| 0 | % |
| 0 | % |
| (2 | )% |
| (2 | )% |
Other |
|
| (1 | )% |
| (3 | )% |
| — |
|
| 2 | % |
|
|
|
|
|
| ||||||||
Total % Change |
|
| (1 | )% |
| (3 | )% |
| (15 | )% |
| (18 | )% |
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Aerospace |
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| 2011 |
| 2010 |
| Change |
| 2009 |
| Change |
| ||||||||
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| |||||||||||||
Net sales |
| $ | 11,475 |
|
| $ | 10,683 |
|
| 7 | % |
| $ | 10,763 |
|
| (1 | )% |
|
|
|
|
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|
|
|
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|
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|
|
Cost of products and services sold |
|
| 8,665 |
|
|
| 8,099 |
|
|
|
|
|
| 8,099 |
|
|
|
|
|
Selling, general and administrative expenses |
|
| 591 |
|
|
| 553 |
|
|
|
|
|
| 570 |
|
|
|
|
|
Other |
|
| 196 |
|
|
| 196 |
|
|
|
|
|
| 201 |
|
|
|
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|
|
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|
|
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|
|
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| |||||||||
Segment profit |
| $ | 2,023 |
|
| $ | 1,835 |
|
| 10 | % |
| $ | 1,893 |
|
| (3 | )% |
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|
| 2011 vs. 2010 |
| 2010 vs. 2009 |
| |||||||||
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| |||||||||||
| ||||||||||||||
Factors Contributing to Year-Over-Year Change |
|
| Sales |
| Segment |
| Sales |
| Segment |
| ||||
|
|
|
|
| ||||||||||
Organic growth/ Operational segment profit |
| 7 | % |
| 9 | % |
| 0 | % |
| 0 | % |
| |
Acquisitions and divestitures, net |
| 0 | % |
| 0 | % |
| 0 | % |
| 0 | % |
| |
Other |
| 0 | % |
| 1 | % |
| (1 | )% |
| (3 | )% |
| |
|
|
|
|
|
| |||||||||
Total % Change |
| 7 | % |
| 10 | % |
| (1 | )% |
| (3 | )% |
| |
|
|
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|
|
|
Aerospace sales by major customer end-markets were as follows:
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| |||||
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| % of Aerospace |
| % Change in |
|
| % of Aerospace |
| % Change in |
| |||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Customer End-Markets |
| 2010 |
| 2009 |
| 2008 |
| 2010 |
| 2009 |
| Customer End-Markets |
| 2011 |
| 2010 |
| 2009 |
| 2011 |
| 2010 |
| ||||||||||
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| ||||||||||||||||||||||
Commercial: |
| Commercial: |
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| ||||||||||||||||||||
Air transport and regional |
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| Air transport and regional |
|
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| ||||||||||
Original equipment |
| 13 | % |
| 13 | % |
| 14 | % |
| (2 | )% |
| (21 | )% | Original equipment |
| 13 | % |
| 13 | % |
| 13 | % |
| 6 | % |
| (2 | )% |
| |
Aftermarket |
| 23 | % |
| 22 | % |
| 23 | % |
| 1 | % |
| (16 | )% | Aftermarket |
| 25 | % |
| 23 | % |
| 22 | % |
| 16 | % |
| 1 | % |
| |
Business and general aviation |
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| Business and general aviation |
|
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| ||||||||||
Original equipment |
| 5 | % |
| 7 | % |
| 11 | % |
| (27 | )% |
| (51 | )% | Original equipment |
| 6 | % |
| 5 | % |
| 7 | % |
| 41 | % |
| (27 | )% |
| |
Aftermarket |
| 9 | % |
| 8 | % |
| 10 | % |
| 8 | % |
| (27 | )% | Aftermarket |
| 11 | % |
| 9 | % |
| 8 | % |
| 24 | % |
| 8 | % |
| |
Defense and Space |
| 50 | % |
| 50 | % |
| 42 | % |
| 1 | % |
| 0 | % | Defense and Space |
| 45 | % |
| 50 | % |
| 50 | % |
| (2 | )% |
| 1 | % |
| |
|
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| ||||||||||||||||||||
Total |
| 100 | % |
| 100 | % |
| 100 | % |
| (1 | )% |
| (15 | )% | Total |
| 100 | % |
| 100 | % |
| 100 | % |
| 7 | % |
| (1 | )% |
| |
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|
2011 compared with 2010
Aerospace sales increased by 7 percent in 2011 compared with 2010 primarily due to an increase in organic growth of 7 percent primarily due to increased commercial sales volume.
Details regarding the changes in sales by customer end-markets are as follows: | ||
• | Air transport and regional original equipment (OE) sales increased by 6 percent in 2011 primarily driven by higher sales to our OE customers, consistent with higher production rates, platform mix and a higher win rate on selectables (components selected by purchasers of new aircraft). | |
• | Air transport and regional aftermarket sales increased by 16 percent for 2011 primarily due to (i) increased maintenance activity and spare parts sales driven by an approximately 6 percent increase in global flying hours, (ii) increased sales of avionics upgrades, and (iii) changes in customer buying patterns relating to spare parts and maintenance activity. | |
• | Business and general aviation OE sales increased by 41 percent in 2011 due to a rebound from near trough levels in 2010 and strong demand in the business jet end market, favorable platform mix, growth from acquisitions and lower OEM Payments (as defined below) during 2011. | |
• | Business and general aviation aftermarket sales increased by 24 percent in 2011 primarily due to increased sales of spare parts and revenue associated with maintenance service agreements. | |
• | Defense and space sales decreased by 2 percent in 2011 primarily due to anticipated program ramp downs, partially offset by higher domestic and international aftermarket sales, increased unmanned aerial vehicle (UAV) shipments and the EMS acquisition (refer to Note 2). |
Aerospace segment profit increased by 10 percent in 2011 compared with 2010 primarily due to an increase in operational segment profit of 9 percent and an increase of 1 percent due to lower OEM Payments made during 2011. The increase in operational segment profit is comprised of the positive impact from higher commercial aftermarket demand, price and productivity, net of inflation, partially offset by research, development and engineering investments. Cost of goods sold totaled $8.7 billion in 2011, an increase of approximately $566 million from 2010 which is primarily a result of the factors discussed above.
2010 compared with 2009
Aerospace sales decreased by 1 percent in 2010 compared with 2009 primarily due to a 1 percent reduction of revenue related to amounts recognized for payments to business and general aviation original equipment manufacturers (OEM Payments) to partially offset their pre-production costs associated with new aircraft platforms.platforms (OEM Payments).
Details regarding the changesdecrease in sales by customer end-markets are as follows:
|
|
|
| • | Air transport and regional original equipment (OE) sales decreased by 2 percent in 2010 primarily due to lower sales to our air transport OE customers. |
|
|
|
| • | Air transport and regional aftermarket sales increased by 1 percent |
|
|
|
| • | Business and general aviation OE sales decreased by 27 percent in 2010 due to decreases in new business jet deliveries reflecting rescheduling and cancellations of deliveries by OE customers in the first six months and the impact of the OEM Payments discussed above. |
|
|
|
| • | Business and general aviation aftermarket sales increased by 8 percent in 2010 primarily due to increased sales of spare parts due to higher engine utilization, partially offset by lower revenue associated with licensing and maintenance service agreements. |
|
|
|
| • | Defense and space sales increased by 1 percent in 2010 primarily due to higher sales of logistics services partially offset by program wind-downs and completions and lower sales related to commercial helicopters. |
Aerospace segment profit decreased by 3 percent in 2010 compared withto 2009 primarily due to a negative 3 percent impact from the OEM payments, discussed above. Operational segment profit was flat in 2010 with the approximate positive 4 percent impact from price and productivity, net of inflation (including the absence of prior period labor cost actions offset by the benefits from prior repositioning actions) offset by an approximate negative 4 percent impact from lower sales volume. Cost of goods sold totaled $8.1 billion in 2010, unchanged from 2009.
2009 compared with 20082012 Areas of Focus
Aerospace sales decreased by 15 percent in 2009. Details regarding the decrease in sales by customer end-markets are as follows:Aerospace’s primary areas of focus for 2012 include:
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|
| • |
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|
| • |
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| |
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| |
|
|
Aerospace segment profit decreased by 18 percent in 2009 compared to 2008 due primarily to lower sales as a result of the factors discussed above and inflation, partially offset by volume related material cost reductions and reduced labor costs (reflecting reduced census, work schedule reductions, benefits from prior repositioning actions and lower incentive compensation), the positive impact of cost savings initiatives and increased prices.
2011 Areas of Focus
Aerospace’s primary areas of focus for 2011 include:
| Aligning | |
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|
|
| • | Expanding sales and operations in international locations; |
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|
| • | Global pursuit of new defense and space programs; |
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| • |
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|
| • | Continuing to design equipment that enhances the safety, performance and durability of aerospace and defense equipment, while reducing weight and operating costs; |
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| |
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|
|
| • | Continued deployment and optimization of our common enterprise resource planning (ERP) system. |
Automation and Control Solutions (ACS)
Overview
ACS provides innovative products and solutions that make homes, buildings, industrial sites and infrastructure more efficient, safe and comfortable. Our ACS products and services include controls for heating, cooling, indoor air quality, ventilation, humidification, lighting and home automation; advanced software applications for home/building control and optimization; sensors, switches, control systems and instruments for measuring pressure, air flow, temperature and electrical current; security, fire and gas detection; personal protection equipment; access control; video surveillance; remote patient monitoring systems; products for automatic identification and data collection, installation, maintenance and upgrades of systems that keep buildings safe, comfortable and productive; and automation and control solutions for industrial plants, including advanced software and automation systems that integrate, control and monitor complex processes in many types of industrial settings as well as equipment that controls, measures and analyzes natural gas production and transportation.
In 2011, we changed our presentation of ACS’s segment sales to better represent the key markets served (Energy, Safety & Security; Process Solutions; Building Solutions & Distribution). Prior period disclosure below has been conformed to this presentation format.
Economic and Other Factors
ACS’s operating results are principally driven by:
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| • | Global commercial construction (including retrofits and upgrades); |
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| • | Demand for residential security and environmental control retrofits and upgrades; |
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| • | Demand for energy efficient products and solutions; |
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| • | Industrial production; |
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| • | Government and public sector spending; |
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| • | Economic conditions and growth rates in developed (U.S. and Europe) and emerging markets; |
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| • | The strength of global capital and operating spending on process (including petrochemical and refining) and building automation; |
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| • | Inventory levels in distribution channels; and |
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| • | Changes to energy, fire, security, health care, safety and environmental concerns and regulations. |
Automation and Control Solutions
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| 2010 |
| 2009 |
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| 2008 |
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Net sales |
| $ | 13,749 |
| $ | 12,611 |
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| 9 | % | $ | 14,018 |
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| (10 | )% |
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Cost of products and services sold |
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| 9,312 |
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| 8,561 |
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| 9,594 |
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Selling, general and administrative expenses |
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| 2,480 |
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| 2,256 |
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| 2,709 |
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Other |
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| 187 |
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| 206 |
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| 93 |
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Segment profit |
| $ | 1,770 |
| $ | 1,588 |
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| 11 | % | $ | 1,622 |
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| (2 | )% |
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Factors Contributing to Year-Over-Year Change |
| 2010 vs. 2009 |
| 2009 vs. 2008 |
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| Sales |
| Segment |
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Organic growth/ Operational segment profit |
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| 6 | % |
| 9 | % |
| (9 | )% |
| 0 | % |
Foreign exchange |
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| 0 | % |
| 0 | % |
| (4 | )% |
| (2 | )% |
Acquisitions and divestitures, net |
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| 3 | % |
| 2 | % |
| 3 | % |
| 2 | % |
Other |
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| 0 | % |
| 0 | % |
| 0 | % |
| (2 | )% |
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Total % Change |
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| 9 | % |
| 11 | % |
| (10 | )% |
| (2 | )% |
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Automation and Control Solutions |
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Net sales |
| $ | 15,535 |
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| $ | 13,749 |
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| 13 | % |
| $ | 12,611 |
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| 9 | % |
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Cost of products and services sold |
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| 10,448 |
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| 9,312 |
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| 8,561 |
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Selling, general and administrative expenses |
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| 2,819 |
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| 2,480 |
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| 2,256 |
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Other |
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| 185 |
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| 187 |
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| 206 |
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Segment profit |
| $ | 2,083 |
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| $ | 1,770 |
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| 18 | % |
| $ | 1,588 |
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| 11 | % |
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| 2011 vs. 2010 |
| 2010 vs. 2009 |
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Factors Contributing to Year-Over-Year Change |
| Sales |
| Segment |
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Organic growth/ Operational segment profit |
| 5 | % |
| 9 | % |
| 6 | % |
| 9 | % |
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Foreign exchange |
| 2 | % |
| 3 | % |
| 0 | % |
| 0 | % |
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Acquisitions and divestitures, net |
| 6 | % |
| 6 | % |
| 3 | % |
| 2 | % |
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Total % Change |
| 13 | % |
| 18 | % |
| 9 | % |
| 11 | % |
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20102011 compared with 20092010
Automation and Control Solutions (“ACS”) sales increased by 13 percent in 2011 compared with 2010, primarily due to a 6 percent growth from acquisitions, net of divestitures, 5 percent increase in organic revenue driven by increased sales volume and higher prices and 2 percent favorable impact of foreign exchange through the first nine months partially offset by the negative impact of foreign exchange in the fourth quarter. We expect sales growth to continue to moderate in the first quarter of 2012 due to European economic conditions and the anticipated negative impact of foreign exchange.
• | Sales in our Energy, Safety & Security businesses increased by 17 percent (6 percent organically) in 2011 principally due to (i) the positive impact of acquisitions (most significantly Sperian and EMS), net of divestitures (ii) higher sales volume due to general industrial recovery and new product introductions and (iii) the favorable impact of foreign exchange. | |
• | Sales in our Process Solutions increased 12 percent (6 percent organically) in 2011 principally due to (i) increased volume reflecting conversion to sales from backlog (ii) the favorable impact of foreign exchange and (iii) the impact of acquisitions. Orders increased in 2011 compared to 2010 primarily driven by continued favorable macro trends in oil and gas infrastructure projects, growth in emerging regions and the positive impact of foreign exchange. | |
• | Sales in our Building Solutions & Distribution increased by 6 percent (4 percent organically) in 2011 driven principally due to (i) volume growth in our Building Solutions business reflecting conversion to sales from order backlog and increased sales volume in our Distribution business (ii) the favorable impact of foreign exchange and (iii) the impact of acquisitions, net of divestitures. |
ACS segment profit increased by 18 percent in 2011 compared with 2010 due to a 9 percent increase in operational segment profit, 6 percent increase from acquisitions, net of divestitures and 3 percent positive impact of foreign exchange. The increase in operational segment profit is comprised of an approximate 5 percent positive impact from price and productivity, net of inflation and investment for growth and a 4 percent positive impact from higher sales volumes. Cost of goods sold totaled $10.4 billion in 2011, an increase of approximately $1.1 billion which is primarily due to acquisitions, net of divestitures, higher sales volume, foreign exchange and inflation partially offset by positive impact from productivity.
2010 compared with 2009
ACS sales increased by 9 percent in 2010 compared with 2009, primarily due to a 6 percent increase in organic revenue driven by increased sales volume and 3 percent growth from acquisitions.
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| • | Sales in our |
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• | Sales in Building Solutions & Distribution increased by 3 percent in 2010 |
ACS segment profit increased by 11 percent in 2010 compared with 2009 due to a 9 percent increase in operational segment profit and 2 percent increase from acquisitions. The increase in operational segment profit is comprised of an approximate 18 percent positive impact from higher sales volume, partially offset by an approximate 9 percent negative impact from inflation, net of price and productivity (including the absence of prior period labor cost actions, partially offset by the benefits of prior repositioning). Cost of goods sold totaled $9.3 billion in 2010, an increase of approximately $750 million which is primarily as a result of the factors discussed above.
2009 compared with 2008
ACS sales decreased by 10 percent in 2009 compared with 2008, primarily due to decreased sales volume (reflecting slower global economic growth) and an unfavorable impact of foreign exchange of 4 percent, partially offset by a 3 percent growth from acquisitions.
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ACS segment profit decreased by 2 percent in 2009 compared with 2008 principally due to the negative impact of lower sales as a result of the factors discussed above and inflation, partially offset by lower material costs, reduced labor costs (reflecting reduced census, work schedule reductions, benefits from prior repositioning actions and lower incentive compensation) and the positive impact of indirect cost savings initiatives. In the fourth quarter of 2009 these factors more than offset the impact of lower sales described above resulting in a 5 percent increase in segment profit.
20112012 Areas of Focus
ACS’s primary areas of focus for 20112012 include:
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| • | Products and solutions for energy efficiency and asset management; |
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| • | Extending technology leadership: lowest total installed cost and integrated product solutions; |
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| • | Defending and extending our installed base through customer productivity and globalization; |
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| • | Sustaining strong brand recognition through our brand and channel management; |
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| • | Continued centralization and standardization of global software development capabilities; |
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| • | Continuing to identify, execute and integrate acquisitions in or adjacent to the markets which we serve; |
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| • | Continuing to establish and grow emerging markets presence and capability; |
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| • | Continuing to invest in new product development and introductions; |
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| • | Continued deployment and optimization of our common ERP |
• | Increased focus on commercial and R&D effectiveness. |
SpecialtyPerformance Materials and Technologies (PMT)
Overview
During the fourth quarter of 2011, the Specialty Materials segment was renamed to Performance Materials and Technologies (‘PMT’). PMT better reflects the businesses’ expanded set of technology and product offerings that reach far beyond the traditional scope associated with specialty materials.
Performance Materials and Technologies develops and manufactures high-purity, high-quality and high-performance chemicals and materials for applications in the refining, petrochemical, automotive, healthcare, agricultural, packaging, refrigeration, appliance, housing, semiconductor, wax and adhesives segments. SpecialtyPerformance Materials and Technologies also provides process technology, products and services for the petroleum refining, gas processing, petrochemical, renewable energy and other industries. Specialty Materials’Performance Materials and Technologies’ product portfolio includes fluorocarbons, hydrofluoroolefins, caprolactam, resins, ammonium sulfate for fertilizer, phenol, specialty films, waxes, additives, advanced fibers, customized research chemicals and intermediates, electronic materials and chemicals, catalysts, and adsorbents.
Economic and Other Factors
Specialty
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Performance Materials and Technologies operating results are principally driven by:
Performance Materials and Technologies 2011 2010 Change 2009 Change Net sales $ 5,659 $ 4,726 20 % $ 4,144 14 % Cost of products and services sold 4,151 3,554 3,127 Selling, general and administrative expenses 420 345 345 Other 46 78 67 Segment profit $ 1,042 $ 749 39 % $ 605 24 % 2011 vs. 2010 2010 vs. 2009 Factors Contributing to Year-Over-Year Change Sales Segment Sales Segment Organic growth/ Operational segment profit 16 % 38 % 14 % 25 % Foreign exchange 1 % 1 % 0 % (1 )% Acquisitions and divestitures, net 3 % 0 % 0 % 0 % Total % Change 20 % 39 % 14 % 24 %
Off-Balance Sheet Arrangements Following is a summary of our off-balance sheet arrangements: Guarantees—We have issued or are a party to the following direct and indirect guarantees at December 31,
We do not expect that these guarantees will have a material adverse effect on our consolidated results of operations, financial position or liquidity. In connection with the disposition of certain businesses and facilities we have indemnified the purchasers for the expected cost of remediation of environmental contamination, if any, existing on the date of disposition. Such expected costs are accrued when environmental assessments are made or remedial efforts are probable and the costs can be reasonably estimated. 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 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 litigation and settlements of remediation liability, personal injury and property damage claims, regulatory approval of cleanup projects, execution timeframe of projects, remedial techniques to be utilized and agreements with other parties.
Remedial response and voluntary cleanup costs charged against pretax earnings were $240, $225 Remedial response and voluntary cleanup payments were $270, $266 and $318 million in 2011, 2010 and 2009, respectively, and are currently estimated to be approximately $300 million in 2012. We expect to fund such expenditures from operating cash flow. 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 environmental matters will have a material adverse effect on our consolidated financial position. See Note 21 to the financial statements for a discussion of our commitments and contingencies, including those related to environmental matters and toxic tort litigation. Financial Instruments As a result of our global operating and financing activities, we are exposed to market risks from changes in interest and foreign currency exchange rates and commodity prices, which may adversely affect our operating results and financial position. We minimize our risks from interest and foreign currency exchange rate and commodity price fluctuations through our normal operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. We do not use derivative financial instruments for trading or other speculative purposes and do not use leveraged derivative financial instruments. A summary of our accounting policies for derivative financial instruments is included in Note 1 to the financial statements. We also hold investments in marketable equity securities, which exposes us to market volatility, as discussed in Note 16 to the financial statements. We conduct our business on a multinational basis in a wide variety of foreign currencies. Our exposure to market risk from changes in foreign currency exchange rates arises from international financing activities between subsidiaries, foreign currency denominated monetary assets and liabilities and anticipated transactions arising from international trade. Our objective is to preserve the economic value of non-functional currency 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 forward and option agreements with third parties. Our principal currency exposures relate to 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 Our exposure to market risk from changes in interest rates relates primarily to our net debt and pension obligations. As described in Notes 14 and 16 to the financial statements, we issue both fixed and variable rate debt and use interest rate swaps to manage our exposure to interest rate movements and reduce overall borrowing costs. Financial instruments, including derivatives, expose us to counterparty credit risk for nonperformance and to market risk related to changes in interest or currency exchange rates. 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 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 expected future cash flows of our derivative and other financial instruments considering reasonably possible changes in interest and currency exchange rates and restrict the use of derivative financial instruments to hedging activities. The following table illustrates the potential change in fair value for interest rate sensitive instruments based on a hypothetical immediate one-percentage-point increase in interest rates across all maturities, the potential change in fair value for foreign exchange rate sensitive instruments based on a 10 percent weakening of the U.S. dollar versus local currency exchange rates across all maturities, and the potential change in fair value of contracts hedging commodity purchases based on a 20 percent decrease in the price of the underlying commodity across all maturities at December 31,
The above discussion of our procedures to monitor market risk and the estimated changes in fair value resulting from our sensitivity analyses are forward-looking statements of market risk assuming certain adverse market conditions occur. Actual results in the future may differ materially from these estimated results due to actual developments in the global financial markets. The methods used by us to assess and mitigate risk discussed above should not be considered projections of future events. CRITICAL ACCOUNTING POLICIES The preparation of our consolidated financial statements in accordance with generally accepted accounting principles is based on the selection and application of accounting policies that require us to make significant estimates and assumptions about the effects of matters that are inherently uncertain. We consider the accounting policies discussed below to be critical to the understanding of our financial statements. Actual results could differ from our estimates and assumptions, and any such differences could be material to our consolidated financial statements. We have discussed the selection, application and disclosure of these critical accounting policies with the Audit Committee of our Board of Directors and our Independent Registered Public Accountants. New accounting standards effective in Contingent Liabilities—We are subject to a number of lawsuits, investigations and claims (some of which involve substantial dollar amounts) that arise out of the conduct of our global business operations or those of previously owned entities, including matters relating to commercial transactions, government contracts, product liability (including asbestos), 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 any adverse judgments or outcomes to our contingencies, as well as potential amounts or ranges of probable losses, and recognize a liability, if any, for these contingencies based on a careful analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts. Such analysis includes making judgments concerning matters such as the costs associated with environmental matters, the outcome of negotiations, the number and cost of pending and future asbestos claims, and the impact of evidentiary requirements. Because most contingencies are resolved over long periods of time, liabilities may change in the future due to new developments (including new discovery of facts, changes in legislation and outcomes of similar cases through the judicial system), changes in assumptions or changes in our settlement strategy. For a discussion of our contingencies related to environmental, asbestos and other matters, including management’s judgment applied in the recognition and measurement of specific liabilities, see Notes 1 and 21 to the financial statements. Asbestos Related Contingencies and Insurance Recoveries—We are a defendant in personal injury actions related to products containing asbestos (refractory and friction products). We recognize a liability for any asbestos related contingency that is probable of occurrence and reasonably estimable. Regarding North American Refractories Company (NARCO) asbestos related claims, we accrued for pending claims based on terms and conditions In connection with the recognition of liabilities for asbestos related matters, we record asbestos related insurance recoveries that are deemed probable. In assessing the probability of insurance recovery, we make judgments concerning insurance coverage that we believe are reasonable and consistent with our historical experience with our insurers, our knowledge of any pertinent solvency issues surrounding insurers, various judicial determinations relevant to our insurance programs and our consideration of the impacts of any settlements with our insurers. probable recoveries. Projecting future events is subject to various uncertainties that could cause the insurance recovery on asbestos related liabilities to be higher or lower than that projected and recorded. Given the inherent uncertainty in making future projections, we reevaluate our projections concerning our probable insurance recoveries in light of any changes to the projected liability, our recovery experience or other relevant factors that may impact future insurance recoveries. See Note 21 to the financial statements for a discussion of management’s judgments applied in the recognition and measurement of insurance recoveries for asbestos related liabilities. Defined Benefit Pension Plans—We sponsor both funded and unfunded U.S. and non-U.S. defined benefit pension plans covering the majority of our employees and retirees.
For financial reporting purposes, net periodic pension expense is calculated based upon a number of actuarial assumptions, including a discount rate for plan obligations and an expected long-term rate of return on plan assets. We determine the expected long-term rate of return on plan assets utilizing The key assumptions used in developing our 2011, 2010
The discount rate can be volatile from year to year because it is determined based upon prevailing interest rates as of the measurement date. We will use a In addition to the potential for MTM adjustments, changes in our expected rate of return on plan assets and discount rate resulting from economic events also affects future on-going pension expense. The following table highlights the sensitivity of our U.S. pension obligations and on-going expense to changes in these assumptions, assuming all other assumptions remain constant. These estimates exclude any potential MTM adjustment:
On-going pension expense for all of our pension plans is expected to be approximately In 2011, 2010 Long-Lived Assets (including Tangible and Definite-Lived Intangible Assets)—To conduct our global business operations and execute our business strategy, we acquire tangible and intangible assets, including property, plant and equipment and definite-lived intangible assets. At December 31,
Once it is determined that an impairment review is necessary, recoverability of assets is measured by comparing the carrying amount of the asset grouping to the estimated future undiscounted cash flows. If the carrying amount exceeds the estimated future undiscounted cash flows, the asset grouping is considered to be impaired. The impairment is then measured as the difference between the carrying amount of the asset grouping and its fair value. We endeavor to utilize the best information available to measure fair value, which is usually either market prices (if available), level 1 or level 2 in the fair value hierarchy or an estimate of the future discounted cash flow, level 3 of the fair value hierarchy. The key estimates in our discounted cash flow analysis include expected industry growth rates, our assumptions as to volume, selling prices and costs, and the discount rate selected. As described in more detail in Note 16 to the financial statements, we have recorded impairment charges related to long-lived assets of Goodwill Impairment Testing—Goodwill represents the excess of acquisition costs over the fair value of the net tangible assets and identifiable intangible assets acquired in a business combination. Goodwill is not amortized, but is subject to impairment testing. Our Goodwill balance, We completed our annual impairment test as of March 31, Income As of December 31, Our net deferred tax asset of Significant judgment is required in determining income tax provisions and in evaluating tax positions. We establish additional examination by the applicable taxing authority. In the normal course of business, the Company and its subsidiaries are examined by various Federal, State and foreign tax authorities. We regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of our provision for income taxes. We continually assess the likelihood and amount of potential adjustments and adjust the income tax provision, the current tax liability and deferred taxes in the period in which the facts that give rise to a revision become known. Sales Recognition on Long-Term Contracts—In OTHER MATTERS Litigation See Note 21 to the financial statements for a discussion of environmental, asbestos and other litigation Recent Accounting Pronouncements See Note 1 to the financial statements for a discussion of recent accounting pronouncements. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Information relating to market risk is included in Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations under the caption “Financial Instruments”. ITEM 8. Financial Statements and Supplementary Data Honeywell International Inc.
The Notes to Financial Statements are an integral part of this statement. Honeywell International Inc. December 31, 2010 2009 (Dollars in millions) ASSETS Current assets: Cash and cash equivalents $ 2,650 $ 2,801 Accounts, notes and other receivables 7,068 6,274 Inventories 3,958 3,446 Deferred income taxes 877 1,034 Investments and other current assets 458 381 Total current assets 15,011 13,936 Investments and long-term receivables 616 579 Property, plant and equipment - net 4,840 4,847 Goodwill 11,597 10,494 Other intangible assets - net 2,574 2,174 Insurance recoveries for asbestos related liabilities 825 941 Deferred income taxes 1,218 2,006 Other assets 1,153 1,016 Total assets $ 37,834 $ 35,993 LIABILITIES Current liabilities: Accounts payable $ 4,344 $ 3,633 Short-term borrowings 67 45 Commercial paper 299 298 Current maturities of long-term debt 523 1,018 Accrued liabilities 6,484 6,153 Total current liabilities 11,717 11,147 Long-term debt 5,755 6,246 Deferred income taxes 636 542 Postretirement benefit obligations other than pensions 1,477 1,594 Asbestos related liabilities 1,557 1,040 Other liabilities 5,905 6,453 SHAREOWNERS’ EQUITY Capital - common stock issued 958 958 - additional paid-in capital 3,977 3,823 Common stock held in treasury, at cost (8,299 ) (8,995 ) Accumulated other comprehensive income (loss) (1,067 ) (948 ) Retained earnings 15,097 14,023 Total Honeywell shareowners’ equity 10,666 8,861 Noncontrolling interest 121 110 Total shareowners’ equity 10,787 8,971 Total liabilities and shareowners’ equity $ 37,834 $ 35,993
The Notes to Financial Statements are an integral part of this statement. Honeywell International Inc. Years Ended December 31, 2010 2009 2008 (Dollars in millions) Cash flows from operating activities: Net income attributable to Honeywell $ 2,022 $ 1,548 $ 806 Adjustments to reconcile net income attributable to Honeywell to net cash provided by operating activities: Depreciation and amortization 987 957 903 Gain on sale of non-strategic businesses and assets — (87 ) (635 ) Repositioning and other charges 600 478 1,012 Net payments for repositioning and other charges (439 ) (658 ) (446 ) Pension and other postretirement expense 689 1,022 3,334 Pension and other postretirement benefit payments (787 ) (189 ) (214 ) Stock compensation expense 164 118 128 Deferred income taxes 878 47 (1,120 ) Excess tax benefits from share based payment arrangements (13 ) (1 ) (21 ) Other (24 ) 261 81 Changes in assets and liabilities, net of the effects of acquisitions and divestitures: Accounts, notes and other receivables (718 ) 344 392 Inventories (310 ) 479 (161 ) Other current assets 14 (31 ) 25 Accounts payable 625 (167 ) (152 ) Accrued liabilities 515 (175 ) (141 ) Net cash provided by operating activities 4,203 3,946 3,791 Cash flows from investing activities: Expenditures for property, plant and equipment (651 ) (609 ) (884 ) Proceeds from disposals of property, plant and equipment 14 31 53 Increase in investments (453 ) (24 ) (6 ) Decrease in investments 112 1 18 Cash paid for acquisitions, net of cash acquired (1,303 ) (468 ) (2,181 ) Proceeds from sales of businesses, net of fees paid 7 1 909 Other 5 (65 ) 68 Net cash used for investing activities (2,269 ) (1,133 ) (2,023 ) Cash flows from financing activities: Net increase/(decrease) in commercial paper 1 (1,133 ) (325 ) Net increase/(decrease) in short-term borrowings 20 (521 ) (1 ) Payment of debt assumed with acquisitions (326 ) — — Proceeds from issuance of common stock 195 37 146 Proceeds from issuance of long-term debt — 1,488 1,487 Payments of long-term debt (1,006 ) (1,106 ) (428 ) Excess tax benefits from share based payment arrangements 13 1 21 Repurchases of common stock — — (1,459 ) Cash dividends paid (944 ) (918 ) (811 ) Net cash used for financing activities (2,047 ) (2,152 ) (1,370 ) Effect of foreign exchange rate changes on cash and cash equivalents (38 ) 75 (162 ) Net (decrease)/increase in cash and cash equivalents (151 ) 736 236 Cash and cash equivalents at beginning of period 2,801 2,065 1,829 Cash and cash equivalents at end of period $ 2,650 $ 2,801 $ 2,065
The Notes to Financial Statements are an integral part of this statement. Honeywell International Inc. Years Ended December 31, 2010 2009 2008 Shares $ Shares $ Shares $ (in millions) Common stock, par value 957.6 958 957.6 958 957.6 �� 958 Additional paid-in capital Beginning balance 3,823 3,994 4,014 Issued for employee savings and option plans (35 ) (99 ) (56 ) Contributed to pension plans 32 (190 ) (90 ) Stock-based compensation expense 157 118 128 Other owner changes — — (2 ) Ending balance 3,977 3,823 3,994 Treasury stock Beginning balance (193.4 ) (8,995 ) (223.0 ) (10,206 ) (211.0 ) (9,479 ) Reacquired stock or repurchases of common stock — — — — (27.4 ) (1,459 ) Issued for employee savings and option plans 8.9 328 6.6 281 9.0 427 Contributed to pension plans 9.9 368 23.0 930 6.1 290 Other owner changes — — — — 0.3 15 Ending balance (174.6 ) (8,299 ) (193.4 ) (8,995 ) (223.0 ) (10,206 ) Retained earnings Beginning balance 14,023 13,391 13,400 Net income attributable to Honeywell 2,022 1,548 806 Dividends paid on common stock (948 ) (916 ) (815 ) Ending balance 15,097 14,023 13,391 Accumulated other comprehensive income (loss) Beginning balance (948 ) (1,078 ) 329 Foreign exchange translation adjustment (249 ) 259 (614 ) Pensions and other post retirement benefit adjustments 44 (271 ) (718 ) Changes in fair value of available for sale investments 90 112 (51 ) Changes in fair value of effective cash flow hedges (4 ) 30 (24 ) Ending balance (1,067 ) (948 ) (1,078 ) Non controlling interest Beginning balance 110 82 71 Acquisitions 2 5 4 Interest sold (bought) 4 — (3 ) Net income attributable to non controlling interest 13 36 20 Foreign exchange translation adjustment 2 (1 ) (2 ) Dividends paid (10 ) (9 ) (7 ) Other owner changes — (3 ) (1 ) Ending balance 121 110 82 Total shareowners equity 783.0 10,787 764.2 8,971 734.6 7,141 Comprehensive income Net income 2,035 1,584 826 Foreign exchange translation adjustment (249 ) 259 (614 ) Pensions and other post retirement benefit adjustments 44 (271 ) (718 ) Changes in fair value of available for sale investments 90 112 (51 ) Changes in fair value of effective cash flow hedges (4 ) 30 (24 ) Total comprehensive income 1,916 1,714 (581 ) Comprehensive income attributable to non controlling interest (15 ) (36 ) (20 ) Comprehensive income (loss) attributable to Honeywell 1,901 1,678 (601 )
The Notes to Financial Statements are integral part of this statement.
Note Accounting Principles—The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. The following is a description of Principles of Consolidation—The consolidated financial statements include the accounts of Honeywell International Inc. and all of its subsidiaries and entities in which a controlling interest is maintained. Our consolidation policy requires equity investments that we exercise significant influence over but do not control the investee and are not the primary beneficiary of the investee’s activities to be accounted for using the equity method. Investments through which we are not able to exercise significant influence over the investee and which we do not have readily determinable fair values are accounted for under the cost method. All intercompany transactions and balances are eliminated in consolidation. The Consumer Products Group (CPG) automotive aftermarket business had historically been part of the Transportation Systems reportable segment. In accordance with generally accepted accounting principles, CPG is presented as discontinued operations in all periods presented. See Note 2 Acquisitions and Divestitures for further details. Cash and Cash Equivalents—Cash and cash equivalents include cash on hand and on deposit and highly liquid, temporary cash investments with an original maturity of three months or less. Inventories—Inventories are valued at the lower of cost or market using the first-in, first-out or the average cost method and the last-in, first-out (LIFO) method for certain qualifying domestic inventories. Investments—Investments in affiliates over which we have a significant influence, but not a controlling interest, are accounted for using the equity method of accounting. Other investments are carried at market value, if readily determinable, or at cost. All equity investments are periodically reviewed to determine if declines in fair value below cost basis are other-than-temporary. Significant and sustained decreases in quoted market prices or a series of historic and projected operating losses by investees are strong indicators of other-than-temporary declines. If the decline in fair value is determined to be other-than-temporary, an impairment loss is recorded and the investment is written down to a new carrying value. Property, Plant and Equipment—Property, plant and equipment are recorded at cost, including any asset retirement obligations, less accumulated depreciation. For financial reporting, the straight-line method of depreciation is used over the estimated useful lives of 10 to 50 years for buildings and improvements and 2 to 16 years for machinery and equipment. Recognition of the fair value of obligations associated with the retirement of tangible long-lived assets is required when there is a legal obligation to incur such costs. Upon initial recognition of a liability, the cost is capitalized as part of the related long-lived asset and depreciated over the corresponding asset’s useful life. See Note 11 and Note 17 for additional details. Goodwill and Indefinite-Lived Intangible Assets—Goodwill represents the excess of acquisition costs over the fair value of tangible net assets and identifiable intangible assets of businesses acquired. Goodwill and certain other intangible assets deemed to have indefinite lives are not amortized. Intangible assets determined to have definite lives are amortized over their useful lives. Goodwill and indefinite lived intangible assets are subject to impairment testing annually as of March 31, or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. This testing compares carrying values to fair values and, when appropriate, the carrying value of these assets is reduced to fair value. We completed our annual goodwill impairment test as of March 31, Other Intangible Assets with Determinable Lives—Other intangible assets with determinable lives consist of customer lists, technology, patents and trademarks and other intangibles and are amortized over their estimated useful lives, ranging from 2 to 24 years. Long-Lived Assets—We periodically evaluate the recoverability of the carrying amount of long-lived assets (including property, plant and equipment and intangible assets with determinable lives) whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. We evaluate events or changes in circumstances based on a number of factors including operating results, business plans and forecasts, general and industry trends and, economic projections and anticipated cash flows. An impairment is assessed when the undiscounted expected future cash flows derived from an asset are less than its carrying amount. Impairment losses are measured as the amount by which the carrying value of an asset exceeds its fair value and are recognized in earnings. We also continually evaluate the estimated useful lives of all long-lived assets and periodically revise such estimates based on current events. Sales Recognition—Product and service sales are recognized when persuasive evidence of an arrangement exists, product delivery has occurred or services have been rendered, pricing is fixed or determinable, and collection is reasonably assured. Service sales, principally representing repair, maintenance and engineering activities in our Aerospace and Automation and Control Solutions segments, are recognized over
the contractual period or as services are rendered. Sales under long-term contracts in the Aerospace and Automation and Control Solutions segments are recorded on a percentage-of-completion method measured on the cost-to-cost basis for engineering-type contracts and the units-of-delivery basis for production-type contracts. Provisions for anticipated losses on long-term contracts are recorded in full when such losses become evident. Revenues from contracts with multiple element arrangements are recognized as each element is earned based on the relative fair value of each element provided the delivered elements have value to customers on a standalone basis. Amounts allocated to each element are based on its objectively determined fair value, such as the sales price for the product or service when it is sold separately or competitor prices for similar products or services. Allowance for Doubtful Accounts—We maintain allowances for doubtful accounts for estimated losses as a result of customer’s inability to make required payments. We estimate anticipated losses from doubtful accounts based on days past due, as measured from the contractual due date, historical collection history and incorporate changes in economic conditions that may not be reflected in historical trends for example, customers in bankruptcy, liquidation or reorganization. Receivables are written-off against the allowance for doubtful accounts when they are determined uncollectible. Such determination includes analysis and consideration of the particular conditions of the account, including time intervals since last collection, success of outside collection agencies activity, solvency of customer and any bankruptcy proceedings. Environmental Expenditures—Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and that do not provide future benefits, are expensed as incurred. Liabilities are recorded when environmental 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. Asbestos Related Contingencies and Insurance Recoveries—Honeywell is a defendant in personal injury actions related to products containing asbestos (refractory and friction products). We recognize a liability for any asbestos related contingency that is probable of occurrence and reasonably estimable. Regarding North American Refractories Company (NARCO) asbestos related claims, we In connection with the recognition of liabilities for asbestos related matters, we record asbestos related insurance recoveries that are deemed probable. In assessing the probability of insurance recovery, we make judgments concerning insurance coverage that we believe are reasonable and consistent with our historical experience with our insurers, our knowledge of any pertinent solvency issues surrounding insurers, various judicial determinations relevant to our insurance programs and our consideration of the impacts of any settlements with our insurers. Aerospace Sales Incentives—We provide sales incentives to commercial aircraft manufacturers and airlines in connection with their selection of our aircraft equipment, predominately wheel and braking system hardware and auxiliary power units, for installation on commercial aircraft. These incentives principally consist of free or deeply discounted products, but also include credits for future purchases of product and upfront cash payments. These costs are recognized in the period incurred as cost of products sold or as a reduction to sales,
as appropriate. For aircraft manufacturers, incentives are recorded when the products are delivered; for airlines, incentives are recorded when the associated aircraft are delivered by the aircraft manufacturer to the airline. Research and Development—Research and development costs for company-sponsored research and development projects are expensed as incurred. Such costs are principally included in Cost of Products Sold and were Stock-Based Compensation Plans—The principal awards issued under our stock-based compensation plans, which are described in Note 20, include non-qualified stock options and restricted stock units (RSUs). The cost for such awards is measured at the grant date based on the fair value of the award. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods (generally the vesting period of the equity award) and is included in selling, general and administrative expense in our Consolidated Statement of Operations. Forfeitures are required to be estimated at the time of grant in order to estimate the portion of the award that will ultimately vest. The estimate is based on our historical rates of forfeiture. Pension
Foreign Currency Translation—Assets and liabilities of subsidiaries operating outside the United States with a functional currency other than U.S. dollars are translated into U.S. dollars using year-end exchange rates. Sales, costs and expenses are translated at the average exchange rates in effect during the year. Foreign currency translation gains and losses are included as a component of Accumulated Other Comprehensive Income (Loss). For subsidiaries operating in highly inflationary environments, inventories and property, plant and equipment, including related expenses, are remeasured at the exchange rate in effect on the date the assets were acquired, while monetary assets and liabilities are remeasured at year-end exchange rates. Remeasurement adjustments for these subsidiaries are included in earnings. Derivative Financial Instruments—As a result of our global operating and financing activities, we are exposed to market risks from changes in interest and foreign currency exchange rates and commodity prices, which may adversely affect our operating results and financial position. We minimize our risks from interest and foreign currency exchange rate and commodity price fluctuations through our normal operating and financing activities and, when deemed appropriate through the use of derivative financial instruments. Derivative financial instruments are used to manage risk and are not used for trading or other speculative purposes and we do not use leveraged derivative financial instruments. Derivative financial instruments used for hedging purposes must be designated and effective as a hedge of the identified risk exposure at the inception of the contract.
Accordingly, changes in fair value of the derivative contract must be highly correlated with changes in fair value of the underlying hedged item at inception of the hedge and over the life of the hedge contract. All derivatives are recorded on the balance sheet as assets or liabilities and measured at fair value. For derivatives designated as hedges of the fair value of assets or liabilities, the changes in fair values of both the derivatives and the hedged items are recorded in current earnings. For derivatives designated as cash flow hedges, the effective portion of the changes in fair value of the derivatives are recorded in Accumulated Other Comprehensive Income (Loss) and subsequently recognized in earnings when the hedged items impact earnings. Cash flows of such derivative financial instruments are classified consistent with the underlying hedged item. Transfers of Financial Instruments—Sales, transfers and securitization of financial instruments are accounted for under authoritative guidance for the transfers and servicing of financial assets and extinguishments of liabilities. We sell interests in designated pools of trade accounts receivables to third parties. The terms of the trade accounts receivable program permit the repurchase of receivables from the third parties at our discretion. As a result, these program receivables are not accounted for as a sale and remain on the Consolidated Balance Sheet with a corresponding amount recorded as either Short-term borrowings or Long-term debt. At times we also transfer trade and other receivables that qualify as a sale and are thus are removed from the Consolidated Balance Sheet at the time they are sold. The value assigned to any subordinated interests and undivided interests retained in receivables sold is based on the relative fair values of the interests retained and sold. The carrying value of the retained interests approximates fair value due to the short-term nature of the collection period for the receivables. Income Taxes—Deferred tax liabilities or assets reflect temporary differences between amounts of assets and liabilities for financial and tax reporting. Such amounts are adjusted, as appropriate, to reflect changes in tax rates expected to be in effect when the temporary differences reverse. A valuation allowance is established to offset any deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The determination of the amount of a valuation allowance to be provided on recorded deferred tax assets involves estimates regarding (1) the timing and amount of the reversal of taxable temporary differences, (2) expected future taxable income, and (3) the impact of tax planning strategies. In assessing the need for a valuation allowance, we consider all available positive and negative evidence, including past operating results, projections of future taxable income and the feasibility of ongoing tax planning strategies. The projections of future taxable income include a number of estimates and assumptions regarding our volume, pricing and costs. Additionally, valuation allowances related to deferred tax assets can be impacted by changes to tax laws. Significant judgment is required in determining income tax provisions and in evaluating tax positions. We establish additional Earnings Per Share—Basic earnings per share is based on the weighted average number of common shares outstanding. Diluted earnings per share is based on the weighted average number of common shares outstanding and all dilutive potential common shares outstanding. Use of Estimates—The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the financial statements and related disclosures in the accompanying notes. Actual results could differ from those estimates. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Reclassifications—Certain prior year amounts have been reclassified to conform to the current year presentation.
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 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 In
Note Acquisitions –We acquired businesses for an aggregate cost of $973, $1,303, In December 2011, the Company acquired King’s Safetywear Limited (KSW), a leading international provider of branded safety footwear. The aggregate value, net of cash acquired, was approximately $331 million (including the assumption of debt of $33 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 $178 million to identifiable intangible assets, predominantly trademarks, technology, and customer relationships. The definite lived intangible assets are being amortized over their estimated lives, using straight-line and accelerated amortization methods. The value assigned to trademarks of approximately $91 million is classified as indefinite lived intangibles. The excess of the purchase price over the estimated fair values of net assets acquired (approximately $163 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 Automation and Control Solutions segment. Their 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 December 31, 2011 are included in the Automation and Control Solutions segment and were not material to the consolidated financial statements. As of December 31, 2011, the purchase accounting for KSW is subject to final adjustment primarily for the valuation of inventory, property, plant and equipment, useful lives of intangible assets, amounts allocated to intangible assets and goodwill, tax balances, and for certain pre-acquisition contingencies. 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 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 $119 million to identifiable intangible assets, of which approximately $89 million and approximately $30 million were recorded within the Aerospace and Automation and Control segments, respectively. The intangible assets are 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 $326 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 December 31, 2011 are included in the Aerospace and Automation and Control Solutions segments and were not material to the consolidated financial statements. As of December 31, 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. In October 2010, we completed the acquisition of the issued and outstanding shares of Sperian Protection (Sperian), a French company that operates globally in the personal protection equipment design and manufacturing industry. Sperian had reported 2009 revenues of approximately $900 million. The aggregate value, net of cash acquired, was approximately $1,475 million (including the assumption of approximately $326 million of outstanding debt) and was allocated to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The following
We have assigned In August 2009, the Company completed the acquisition of the RMG Group (RMG Regel + Messtechnik GmbH), a natural gas measuring and control products, services and integrated solutions company, for a purchase price of approximately $416 million, net of cash acquired. The purchase price for the acquisition was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The Company has assigned $174 million to identifiable intangible assets, predominantly customer relationships, existing technology and trademarks. These intangible assets are being amortized over their estimated lives which range from 1 to 15 years using straight-line and accelerated amortization methods. The excess of the purchase price over the estimated fair values of net assets acquired (approximating $225 million), was recorded as goodwill. This goodwill is non-deductible for tax purposes. In
The pro forma results for 2011, 2010 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 approximately $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 year ended December 31, 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:
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:
Note A summary of repositioning and other charges follows:
The following table summarizes the pretax distribution of total net repositioning and other charges by income statement classification:
The following table summarizes the pretax impact of total net repositioning and other charges by segment:
In 2011, we recognized repositioning charges totaling $380 million including severance costs of $246 million related to workforce reductions of 3,188 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 Performance Materials and Technologies 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 $48 million principally for costs to terminate contracts related to the exit of a market and product line and a factory transition as discussed above. Exit costs also included closure obligations associated with the planned shutdown of a manufacturing facility and exit of a product line also as discussed above. Also, $26 million of previously established accruals, primarily for severance at our Aerospace and Automation and Control Solutions segments, were returned to income in 2011 due principally to fewer employee separations than originally planned associated with prior severance programs. In 2010, we recognized repositioning charges totaling
In 2009, we recognized repositioning charges totaling The following table summarizes the status of our total repositioning reserves:
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 summarize by segment, expected, incurred and remaining exit and disposal costs related to
In In 2010, we recognized a charge of $212 million for environmental liabilities deemed probable and reasonably estimable during the year. We recognized asbestos related litigation charges, net of insurance, of $175 million. We also recognized other charges of $62 million in connection with the evaluation of potential resolution of certain legal matters. In 2009, we recognized a charge of $145 million for environmental liabilities deemed probable and reasonably estimable during the year. We recognized asbestos related litigation charges, net of insurance, of $155 million.
Note
Gain on sale of non-strategic businesses and assets for 2011 includes a $50 million pre-tax gain, $31 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 2011 includes a loss of $29 million resulting from early redemption of debt in the first quarter of 2011. See Note 14 Long-term Debt and Credit Agreements for further details. Other, net for 2010 includes a $62 million pre-tax gain, $39 million net of tax, related to the consolidation of a joint venture within our Gain on sale of non-strategic businesses and assets for 2009 includes a $50 million pre-tax gain, $42 million net of tax, related to the deconsolidation of a subsidiary within our Automation and Control Solutions segment. The subsidiary achieved contractual milestones at December 31, 2009 and as a result, we are no longer the primary beneficiary, resulting in deconsolidation. We continue to hold a non-controlling interest which was recorded at its estimated fair value of $67 million upon deconsolidation. The fair value was estimated using a combination of a market and income approaches utilizing observable market data for comparable businesses and discounted cash flow modeling. Our non-controlling interest, classified within Investments and long-term receivables on our Balance Sheet will be accounted for under the equity method on a prospective basis. Other, net for 2009 includes an other than-temporary impairment charge of $62 million. See Note 16 Financial Instruments and Fair Value Measures for further details.
The weighted average interest rate on short-term borrowings and commercial paper outstanding at December 31, 2011 and 2010 was 0.84 percent and
Note Income from continuing operations before taxes
(1) Net of changes in valuation allowance and tax reserves The effective tax rate decreased by 9.8 percentage points in 2011 compared with 2010 primarily due to a change in the mix of earnings related to higher U.S. pension expense (primarily driven by an approximate 7.6 percentage point impact which resulted from the increase in pension mark-to-market expense), an increased benefit from manufacturing incentives, an increased benefit from the favorable settlement of tax audits and an increased benefit from a lower foreign effective tax rate. The foreign effective tax rate was 21.1 percent, a decrease of approximately 4.9 percentage points which primarily consisted of (i) a 5.1 percent impact from decreased valuation allowances on net operating losses primarily due to an increase in German earnings available to be offset by net operating loss carry forwards; (ii) a 2.4 percent impact from tax benefits related to foreign exchange and investment losses; iii) a 1.2 percent impact from an increased benefit in tax credits and lower statutory tax rates and (iv) a 4.1 percent impact related to an increase in tax reserves. The effective tax rate was lower than the U.S. statutory rate of 35 percent primarily due to earnings taxed at lower foreign rates. The effective tax rate increased by
Deferred tax assets (liabilities) Deferred income taxes represent the future tax effects of transactions which are reported in different periods for tax and financial reporting purposes. The tax effects of temporary differences and tax carryforwards which give rise to future income tax benefits and payables are as follows:
There were We have U.S. federal tax credit carryforwards of The valuation allowance against deferred tax assets decreased by $45 million in 2011 and increased by $58 million and $133 million in 2010 and 2009,
Federal income taxes have not been provided on undistributed earnings of the majority of our international subsidiaries as it is our intention to reinvest these earnings into the respective subsidiaries. At December 31, We had $815 million, $757 million expense as of December 31,
Based on the outcome of these examinations, or as a result of the expiration of statute of limitations for specific jurisdictions, it is reasonably possible that the related unrecognized tax benefits for tax positions taken regarding previously filed tax returns will materially change from those recorded as liabilities for uncertain tax positions in our financial statements. In addition, the outcome of these examinations may impact the valuation of certain deferred tax assets (such as net operating losses) in future periods. Based on the number of tax years currently under audit by the relevant U.S federal, state and foreign tax authorities, the Company anticipates that several of these audits may be finalized in the foreseeable future. However, based on the status of these examinations, the protocol of finalizing audits by the relevant taxing authorities, and the possibility that the Company might challenge certain audit findings (which could include formal legal proceedings), at this time it is
not possible to estimate the impact of any amount of such changes, if any, to previously recorded uncertain tax positions. Unrecognized tax benefits for examinations in progress were $482 million, $274 million Note The details of the earnings per share calculations for the years ended December 31, 2011, 2010 and 2009 are as follows:
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. In 2011, 2010, Note
Trade Receivables includes
Note
Inventories valued at LIFO amounted to
Note
Long-Term Trade and Other Receivables include The following table summarizes long term trade, financing and other receivables by segment, including current portions and allowances for credit losses.
Allowance for credit losses for the above detailed long-term trade, financing and other receivables totaled
Note
Depreciation expense was Note The change in the carrying amount of goodwill for the years ended December 31,
Intangible assets amortization expense was $249, $263, Note 13. Accrued Liabilities
Note
The schedule of principal payments on long term debt is as follows:
In March 2011, the Company entered into a $2,800 million The Loans under the Interest on borrowings under the The facility fee, the applicable margin over the Eurocurrency rate and the letter of credit issuance fee, are subject to change, based upon a grid determined by our long term debt ratings. The In
In the first quarter of 2010, the Company repaid $1,000 million of its 7.50% notes. The repayment was funded with cash provided by operating activities. As a source of liquidity, we sell interests in designated pools of trade accounts receivables to third parties. As of December 31, Note Future minimum lease payments under operating leases having initial or remaining noncancellable lease terms in excess of one year are as follows:
We have entered into agreements to lease land, equipment and buildings. Principally all our operating leases have initial terms of up to 25 years, and some contain renewal options subject to customary conditions. At any time during the terms of some of our leases, we may at our option purchase the leased assets for amounts that approximate fair value. We do not expect that any of our commitments under the lease agreements will have a material adverse effect on our consolidated results of operations, financial position or liquidity. Rent expense was Note Credit and Market Risk—Financial instruments, including derivatives, expose us to counterparty credit risk for nonperformance and to market risk related to changes in interest and currency exchange rates and commodity prices. We manage our exposure to counterparty credit risk through specific minimum credit standards, diversification of counterparties, and procedures to monitor concentrations of credit risk. Our counterparties in derivative transactions are substantial investment and commercial banks with significant experience using such derivative instruments. We monitor the impact of market risk on the fair value and cash flows of our derivative and other financial instruments considering reasonably possible changes in interest rates, currency exchange rates and commodity prices and restrict the use of derivative financial instruments to hedging activities. We continually monitor the creditworthiness of our customers to which we grant credit terms in the normal course of business. The terms and conditions of our credit sales are designed to mitigate or eliminate concentrations of credit risk with any single customer. Our sales are not materially dependent on a single customer or a small group of customers. Foreign Currency Risk Management—We conduct our business on a multinational basis in a wide variety of foreign currencies. Our exposure to market risk for changes in foreign currency exchange rates arises from international financing activities between subsidiaries, foreign currency denominated monetary assets and liabilities and transactions arising from international trade. Our objective is to preserve the economic value of non-functional currency denominated cash flows. We attempt to hedge transaction exposures with natural offsets to the fullest extent possible and, once these opportunities have been exhausted, through foreign currency exchange forward and option contracts with third parties. We hedge monetary assets and liabilities denominated in non-functional currencies. Prior to conversion into U.S. dollars, these assets and liabilities are remeasured at spot exchange rates in effect on the balance sheet date. The effects of changes in spot rates are recognized in earnings and included in Other (Income) Expense. We partially hedge forecasted sales and purchases, which predominantly occur in the next twelve months and are denominated in non-functional currencies, with currency forward contracts. 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 December 31, 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 December 31, 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 December 31, 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:
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 December 31,
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
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:
In the years ended December 31, The Company holds investments in marketable equity securities that are designated as available for sale securities. Due to an other-than-temporary decline in fair value of these investments, the Company recognized an impairment charge of $62 million in the second quarter of 2009 that is included in Other (Income) Expense. The derivatives utilized for risk management purposes as detailed above are included on the Consolidated Balance Sheet and impacted the Statement of Operations as follows: Fair value of derivatives classified as assets consist of the following:
Gains (losses) recognized in OCI (effective portions) consist of the following: Year Ended Designated Cash Flow Hedge 2011 2010 Foreign currency exchange contracts $ (42 ) $ 12 Commodity contracts (12 ) (7 )
Ineffective portions of 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 or (losses) on interest rate swap agreements recognized in earnings were 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. We recognized
Note
A reconciliation of our liability for asset retirement obligations for the year ended December 31, 2011, is as follows:
Note We are authorized to issue up to 2,000,000,000 shares of common stock, with a par value of $1. Common shareowners are entitled to receive such dividends as may be declared by the Board, are entitled to one vote per share, and are entitled, in the event of liquidation, to share ratably in all the assets of Honeywell which are available for distribution to the common shareowners. Common shareowners do not have preemptive or conversion rights. Shares of common stock issued and outstanding or held in the treasury are not liable to further calls or assessments. There are no restrictions on us relative to dividends or the repurchase or redemption of common stock. The Board of Directors has authorized the repurchase of up to a total of $3.0 billion of Honeywell common stock, which amount includes We are authorized to issue up to 40,000,000 shares of preferred stock, without par value, and can determine the number of shares of each series, and the rights, preferences and limitations of each series. At December 31, Note Total accumulated other comprehensive income (loss) is included in the Consolidated Statement of Shareowners’ Equity. Comprehensive Income (Loss) attributable to non-controlling interest consisted predominantly of net income. The changes in Accumulated Other Comprehensive Income (Loss) are as follows:
Note We have stock-based compensation plans available to grant non-qualified stock options, incentive stock options, stock appreciation rights, restricted units and restricted stock to key employees. Stock Options—The exercise price, term and other conditions applicable to each option granted under our stock plans are generally determined by the Management Development and Compensation Committee of the Board. The exercise price of stock options is set on the grant date and may not be less than the fair market value per share of our stock on that date. The fair value is recognized as an expense over the employee’s requisite service period (generally the vesting period of the award). Options generally vest over a four-year period and expire after ten years. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. Expected volatility is based on implied volatilities from traded options on Honeywell common stock. We used a Monte Carlo simulation model to derive an expected term. Such model uses historical data to estimate option exercise activity and post-vest termination behavior. The expected term represents an estimate of the time options are expected to remain outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. treasury yield curve in effect at the time of grant. Compensation cost on a pre-tax basis related to stock options recognized in operating results (included in selling, general and administrative expenses) in 2011, 2010 and 2009 was $59, $55 and
The following table sets forth fair value per share information, including related weighted-average assumptions, used to determine compensation cost:
The following table summarizes information about stock option activity for the three years ended December 31,
The following table summarizes information about stock options outstanding and exercisable at December 31,
There were The total intrinsic value of options (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) exercised during 2011, 2010 and 2009 was $164, $54 and At December 31, Restricted Stock Units—Restricted stock unit (RSU) awards entitle the holder to receive one share of common stock for each unit when the units vest. RSUs are issued to certain key employees at fair market value at the date of grant as compensation. RSUs typically become fully vested over periods ranging from three to seven years and are payable in Honeywell common stock upon vesting. The following table summarizes information about RSU activity for the three years ended December 31,
As of December 31, Non-Employee Directors’ Plan—Under the Directors’ Plan each new non-employee director receives a one-time grant of 3,000 restricted stock units that will vest on the fifth anniversary of continuous Board service. Note 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:
Environmental liabilities are included in the following balance sheet accounts:
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 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 and other applicable settlement orders have 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
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.
NARCO and Bendix asbestos related balances are included in the following balance sheet accounts:
NARCO Products – On January 4, 2002, NARCO filed a petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. In connection with the filing of NARCO’s petition in 2002, the Bankruptcy Court issued an injunction staying the prosecution of NARCO-related asbestos claims against the Company, which stay has continuously remained in place. In November 2007, the U.S. Bankruptcy Court for the Western District of Pennsylvania confirmed NARCO’s Third Amended Plan of Reorganization (NARCO Plan of Reorganization). All challenges to the NARCO Plan of Reorganization were fully resolved in the third quarter of 2010. The NARCO Plan of Reorganization cannot become effective, however, until unrelated issues pertaining to certain NARCO affiliates which are pending in Bankruptcy Court are resolved. It is not possible to predict the timing or outcome of the Bankruptcy Court proceedings in the affiliates’ case or whether discussions between the parties will resolve the matter. 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. In connection with NARCO’s bankruptcy filing, we agreed to certain obligations which will be triggered upon the effective date of the NARCO Plan of Reorganization. Honeywell will provide NARCO with $20 million in financing and simultaneously forgive such indebtedness. We will also pay $40 million to NARCO’s former parent company and $16 million to certain asbestos claimants whose claims were resolved during the pendency of the NARCO bankruptcy proceedings. These amounts have been classified as Accrued Liabilities in the Consolidated Balance Sheet as of December 31, 2011. When the NARCO Plan of Reorganization becomes effective, in connection with its implementation, a federally authorized 524(g) trust (“NARCO Trust”) will be established for the evaluation and resolution of all existing and future NARCO asbestos claims. When the NARCO Trust is established, both Honeywell and 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 Trust. The NARCO Trust will review submitted claims and determine award amounts in accordance with established Trust Distribution Procedures approved by the Bankruptcy Court which set forth all criteria claimants must meet to qualify for compensation including, among other things, exposure and medical criteria that determine the award amount. Once the NARCO Trust is established and operational, Honeywell will be obligated to fund NARCO asbestos claims submitted to the trust which qualify for payment under the Trust Distribution Procedures, subject to annual caps up to $150 million in any year, provided, however, that the first $100 million of claims processed through the NARCO Trust (the “Initial Claims Amount”) will not count against the first year annual cap and any unused portion of the Initial Claims Amount will roll over to subsequent years until fully utilized. Once the NARCO Trust is established and operational, Honeywell will also be responsible for the following funding obligations which are not subject to the annual cap described above: a) previously approved payments due to claimants pursuant to settlement agreements reached during the pendency of the NARCO bankruptcy proceedings which provide that a portion of these settlements is to be paid by the NARCO Trust, which amounts are estimated at $130 million and are expected to be paid during the first year of trust operations and, b) payments due to claimants pursuant to settlement agreements reached during the pendency of the NARCO bankruptcy proceedings that provide for the right to submit claims to the NARCO Trust subject to qualification under the terms of the settlement agreements and Trust Distribution Procedures criteria, which amounts are estimated at $150 million and are expected to be paid during the first two years of trust operations. Our consolidated financial statements reflect an estimated liability for the amounts discussed above, unsettled claims pending as of the time NARCO filed for bankruptcy protection and for the estimated value of future NARCO asbestos claims expected to be asserted against the NARCO Trust through 2018. In light of the uncertainties inherent in making long-term projections and in connection with the initial operation of a 524(g) trust, as well as the stay of all NARCO asbestos claims since January 2002, we do not believe that we have a reasonable basis for estimating NARCO asbestos claims beyond 2018. In the absence of actual trust experience on which to base the estimate, Honeywell projected the probable value, including trust claim handling costs, of asbestos related future liabilities based on Company specific and general asbestos claims filing rates, expected rates of disease and anticipated claim values. Specifically, the valuation methodology included 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 asbestos claims filing history, general asbestos claims filing rates in the tort system and in certain operating asbestos trusts, and the claims experience in those forums, the pending inventory of NARCO asbestos claims, disease criteria and payment values contained in the Trust Distribution Procedures and an estimated approval rate of claims submitted to the NARCO Trust. This methodology used to estimate the liability for future claims has been commonly accepted by numerous bankruptcy courts addressing 524(g) trusts 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. Our insurance receivable corresponding to the liability for settlement of pending and future NARCO asbestos claims reflects coverage which 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 December 31, 2011, a significant portion of this coverage is with insurance companies with whom we have agreements to pay full policy limits. 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 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 obligations for NARCO 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 asbestos claims under high excess insurance coverage issued by them. Since then, the Company has entered into settlement agreements resolving all NARCO-related asbestos coverage issues with certain of these insurance carriers, including Travelers. Approximately $57 million of remaining unsettled coverage is included in our NARCO-related insurance receivable at December 31, 2011. Honeywell believes it is entitled to the coverage at issue and expects to prevail in this matter. In 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 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—The following tables present information regarding Bendix related asbestos claims activity:
(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 2011 includes approximately 351 claims previously classified as inactive (82% non-malignant and accrued liability of approximately $1.7 million) which were activated during 2011. 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.
Honeywell has experienced average resolution values per claim excluding legal costs as follows:
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 (claims actually filed as of the financial statement date) and future Bendix related asbestos claims. We have valued Bendix pending and future claims using average resolution values for the previous five years. We update the resolution values used to estimate the cost of Bendix pending and future claims during the fourth quarter each year. The 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. Such estimated cost of future Bendix related asbestos claims is based on historic claims filing experience and dismissal rates, disease classifications, and resolution values in the tort system for the previous 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 methodology used to estimate the liability for future claims is similar to that used to estimate the future NARCO related asbestos claims liability. Our insurance receivable corresponding to the liability for settlement of pending and future Bendix asbestos claims reflects coverage which 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 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 33 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. 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. A preliminary settlement order has been approved by the court and a fairness hearing on the settlement is scheduled for April 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 June 2011, plaintiff’s principal witness pled guilty to a felony count of having made false statements to federal investigators. In February 2012, Honeywell reached an agreement in principle to resolve the multi-district litigation class action as to all plaintiffs, subject to finalization of the agreement and approval by the court. 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. Honeywell v. United Auto Workers (“UAW”) et. al—In July 2011, Honeywell filed an action in federal court (District of New Jersey) against the UAW and all former employees who retired under a series of Master Collective Bargaining Agreements (“MCBAs”) between Honeywell and the UAW. The Company is seeking a declaratory judgment that certain express limitations on its obligation to contribute toward the healthcare coverage of such retirees (the “CAPS”) set forth in the MCBAs may be implemented, effective January 1, 2012. In September 2011, the UAW and certain retiree defendants filed a motion to dismiss the New Jersey action and filed suit in the Eastern District of Michigan alleging that the MCBAs do not provide for CAPS on the Company’s liability for healthcare coverage. The UAW and retiree plaintiffs subsequently filed a motion for class certification and a motion for partial summary judgment in the Michigan action, seeking a ruling that retirees who retired prior to the initial inclusion of the CAPS in the 2003 MCBA are not covered by the CAPS as a matter of law. In December 2011, the New Jersey action was dismissed on jurisdictional grounds. Honeywell has filed a motion for expedited review of the New Jersey court’s dismissal with the United States Court of Appeals for the Third Circuit and the parties are awaiting the court’s instructions with respect to how the Michigan action is to proceed. Honeywell is confident that the CAPS will be upheld and that its liability for healthcare coverage premiums with respect to the putative class will be limited as negotiated and expressly set forth in the applicable MCBAs. In the event of an adverse ruling, however, Honeywell’s other postretirement benefits for pre-2003 retirees would increase by approximately $150 million, reflecting the estimated value of these CAPS. 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. Warranties and Guarantees—We have issued or are a party to the following direct and indirect guarantees at December 31,
We do not expect that these guarantees will have a material adverse effect on our consolidated results of operations, financial position or liquidity. In connection with the disposition of certain businesses and facilities we have indemnified the purchasers for the expected cost of remediation of environmental contamination, if any, existing on the date of disposition. Such expected costs are accrued when environmental assessments are made or remedial efforts are probable and the costs can be reasonably estimated. In the normal course of business we issue product warranties and product performance guarantees. We accrue for the estimated cost of product warranties and performance guarantees based on contract terms and historical experience at the time of sale. Adjustments to initial obligations for warranties and guarantees are made as changes in the obligations become reasonably estimable. The following table summarizes information concerning our recorded obligations for product warranties and product performance guarantees:
Note 22. Pension and Other Postretirement Benefits We sponsor both funded and unfunded U.S. and non-U.S. defined benefit pension plans covering the majority of our employees and retirees. Pension benefits for substantially all U.S. employees are provided through non-contributory, qualified and non-qualified defined benefit pension plans. U.S. defined benefit pension plans comprise 77 percent of our projected benefit obligation. Non-U.S. employees, who are not U.S. citizens, are covered by various retirement benefit arrangements, some of which are considered to be defined benefit pension plans for accounting purposes. Non-U.S. defined benefit pension plans comprise 23 percent of our projected benefit obligation. We also sponsor postretirement benefit plans that provide health care benefits and life insurance coverage to eligible retirees. Our retiree medical plans mainly cover U.S. employees who retire with pension eligibility for hospital, professional and other medical services. In 2010, Honeywell amended its U.S. retiree medical plan to no longer offer certain post-age-65 retirees Honeywell group coverage and facilitate their purchase of an individual plan in the Medicare marketplace. This plan amendment reduced the accumulated postretirement benefit obligation by $137 million which will be recognized as part of net periodic postretirement benefit cost over the average future service period to full eligibility of the remaining active union employees still eligible for a retiree medical subsidy.
In
The following tables summarize the balance sheet impact, including the benefit obligations, assets and funded status associated with our significant pension and other postretirement benefit plans at December 31,
Amounts recognized in Accumulated Other Comprehensive (Income) Loss associated with our significant pension and other postretirement benefit plans at December 31,
The components of net periodic benefit cost and other amounts recognized in other comprehensive (income) loss for our significant plans for the years ended December 31, 2011, 2010, Pension Benefits U.S. Plans Non-U.S. Plans Net Periodic Benefit Cost 2011 2010 2009 2011 2010 2009 Service cost $ 232 $ 221 $ 183 $ 59 $ 51 $ 41 Interest cost 761 768 785 239 228 208 Expected return on plan assets (1,014 ) (902 ) (767 ) (284 ) (248 ) (221 ) Amortization of transition obligation — — — 2 1 1 Amortization of prior service cost (credit) 33 32 26 (2 ) (1 ) (1 ) Recognition of actuarial losses 1,568 182 447 234 289 308 Settlements and curtailments 24 — — 1 4 — Net periodic benefit cost $ 1,604 $ 301 $ 674 $ 249 $ 324 $ 336
The estimated prior service cost for pension benefits that will be amortized from accumulated other comprehensive (income) loss into net periodic benefit cost in Other Postretirement Benefits Net Periodic Benefit Cost 2011 2010 2009 Service cost $ 1 $ 2 $ 6 Interest cost 69 81 104 Amortization of prior service (credit) (34 ) (44 ) (44 ) Recognition of actuarial losses 38 34 13 Settlements and curtailments (167 ) (47 ) (98 ) Net periodic benefit (income) cost $ (93 ) $ 26 $ (19 )
The estimated net loss and prior service (credit) for other postretirement benefits that will be amortized from accumulated other comprehensive (income) loss into net periodic benefit cost in Major actuarial assumptions used in determining the benefit obligations and net periodic benefit cost for our significant benefit plans are presented in the following table.
The discount rate for our U.S. pension and other postretirement benefits plans reflects the current rate at which the associated liabilities could be settled at the measurement date of December 31. To determine discount rates for our U.S. pension and other postretirement benefit plans, we use a modeling process that involves matching the expected cash outflows of our benefit plans to a yield curve constructed from a portfolio of Our expected rate of return on U.S. plan assets of 8 percent is a long-term rate based on For non-U.S. benefit plans, none of which was individually material, assumptions reflect economic assumptions applicable to each country. Pension Benefits Included in the aggregate data in the tables above are the amounts applicable to our pension plans with accumulated benefit obligations exceeding the fair value of plan assets. Amounts related to such plans were as follows:
Our asset investment strategy for our U.S. pension plans focuses on maintaining a diversified portfolio using various asset classes in order to achieve our long-term investment objectives on a risk adjusted basis. Our actual invested positions in various securities change over time based on short and longer-term investment opportunities. To achieve our objectives, we have established long-term target allocations as follows: 60-70 percent equity securities, 10-20 percent fixed income securities and cash, 5-15 percent real estate investments, and 10-20 percent other types of investments. Equity securities include publicly-traded stock of companies located both inside and outside the United States. Fixed income securities include corporate bonds of companies from diversified industries, mortgage-backed securities, and U.S. Treasuries. Real estate investments include direct investments in commercial properties and investments in real estate funds. Other types of investments include investments in private equity and hedge funds that follow several different strategies. We review our assets on a regular basis to ensure that we are within the targeted asset allocation ranges and, if necessary, asset balances are adjusted back within target allocations. Our non-U.S. pension assets are typically managed by decentralized fiduciary committees with the Honeywell Corporate Investments group providing standard funding and investment guidance. Local regulations, local funding rules, and local financial and tax considerations are part of the funding and investment allocation process in each country. While our non-U.S. investment policies are different for each country, the long-term investment objectives are generally the same as those for the U.S. pension assets.
The fair values of both our U.S. and non-U.S. pension plans assets at December 31,
The following tables summarize changes in the fair value of Level 3 assets for the years ended December 31, U.S. Plans Private Direct Hedge Real Estate Real Estate Balance at December 31, 2009 $ 911 $ 149 $ 78 $ 132 $ 452 Actual return on plan assets: Relating to assets still held at year-end 42 (9 ) 11 36 45 Relating to assets sold during the year 29 — 1 1 10 Purchases, sales and settlements 71 27 (13 ) 45 (13 ) Balance at December 31, 2010 1,053 167 77 214 494 Actual return on plan assets: Relating to assets still held at year-end (9 ) 4 (7 ) 26 41 Relating to assets sold during the year — 8 4 — — Purchases, sales and settlements (5 ) (18 ) (14 ) 16 18 Balance at December 31, 2011 $ 1,039 $ 161 $ 60 $ 256 $ 553
Our U.S. pension assets at December 31, 2011 and 2010 include $976 and Common stocks, preferred stocks, real estate investment trusts, and short-term investments are valued at the closing price reported in the active market in which the individual securities are traded. Corporate bonds, mortgages, asset-backed securities, and government securities are valued either by using pricing models, bids provided by brokers or dealers, quoted prices of securities with similar characteristics or discounted cash flows and as such include adjustments for certain risks that may not be observable such as credit and liquidity risks. Certain securities are held in commingled funds which are valued using net asset values provided by the administrators of the funds. Investments in private equity, debt, real estate and hedge funds and direct private investments are valued at estimated fair value based on quarterly financial information received from the investment advisor and/or general partner. Investments in real estate properties are valued
Our general funding policy for qualified pension plans is to contribute amounts at least sufficient to satisfy regulatory funding standards. In 2011, 2010 Benefit payments, including amounts to be paid from Company assets, and reflecting expected future service, as appropriate, are expected to be paid as follows:
Other Postretirement Benefits The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) provides subsidies for employers that sponsor postretirement health care plans that provide prescription drug coverage that is at least actuarially equivalent to that offered by Medicare Part D. The March 2010 enactment of the Patient Protection and Affordable Care Act, including modifications made in the Health Care and Education Reconciliation Act of 2010 resulted in a one-time, non-cash charge of $13 million related to income taxes in the first quarter of 2010. The charge results from a change in the tax treatment of the Medicare Part D program.
The assumed health care cost trend rate has a significant effect on the amounts reported. A one-percentage-point change in the assumed health care cost trend rate would have the following effects:
Benefit payments reflecting expected future service, as appropriate, are expected to be paid as follows:
Employee Savings Plans We sponsor employee savings plans under which we match, in the form of our common stock, savings plan contributions for certain eligible employees. Shares issued under the stock match plans were 2.6, 2.4, Note 23. Segment Financial Data We globally manage our business operations through four reportable operating segments serving customers worldwide with aerospace products and services, control, sensing and security technologies for buildings, homes and industry, automotive products and chemicals. Segment information is consistent with how management reviews the businesses, makes investing and resource allocation decisions and assesses operating performance. Our four reportable segments are as follows:
The accounting policies of the segments are the same as those described in Note 1. 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.
A reconciliation of segment profit to consolidated income from continuing operations before taxes are as follows:
Note 24. Geographic Areas - Financial Data
Note 25. Supplemental Cash Flow Information
Note 26. Unaudited Quarterly Financial Information
Report of Independent Registered Public Accounting Firm
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Honeywell International Inc. and its subsidiaries at December 31,
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP Florham Park, New Jersey
Not Applicable
Honeywell management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that such disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K to ensure information required to be disclosed in the reports that Honeywell files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms and that it is accumulated and communicated to our management, including our Chief Executive Officer, our Chief Financial Officer and our Controller, as appropriate, to allow timely decisions regarding required disclosure. There have been no changes that have materially affected, or are reasonably likely to materially affect, Honeywell’s internal control over financial reporting that have occurred during the Management’s Report on Internal Control Over Financial Reporting Honeywell management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Honeywell’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Honeywell’s internal control over financial reporting includes those policies and procedures that:
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of Honeywell’s internal control over financial reporting as of December 31, Based on this assessment, management determined that Honeywell maintained effective internal control over financial reporting as of December 31, The effectiveness of Honeywell’s internal control over financial reporting as of December 31,
Not Applicable
Information relating to the Directors of Honeywell, as well as information relating to compliance with Section 16(a) of the Securities Exchange Act of 1934, will be contained in our definitive Proxy Statement involving the election of the Directors, which will be filed with the SEC pursuant to Regulation 14A not later than 120 days after December 31, The members of the Audit Committee of our Board of Directors are: Honeywell’s Code of Business Conduct is available, free of charge, on our website under the heading “Investor Relations” (see “Corporate Governance”), or by writing to Honeywell, 101 Columbia Road, Morris Township, New Jersey 07962, c/o Vice President and Corporate Secretary. Honeywell’s Code of Business Conduct applies to all Honeywell directors, officers (including the Chief Executive Officer, Chief Financial Officer and Controller) and employees. Amendments to or waivers of the Code of Business Conduct granted to any of Honeywell’s directors or executive officers will be published on our website within five business days of such amendment or
Information relating to executive compensation is contained in the Proxy Statement referred to above in “Item 10. Directors and Executive Officers of the Registrant,” and such information is incorporated herein by reference.
Information relating to security ownership of certain beneficial owners and management and related stockholder matters is contained in the Proxy Statement referred to above in “Item 10. Directors and Executive Officers of the Registrant,” and such information is incorporated herein by reference. EQUITY COMPENSATION PLANS As of December 31, 2011 information about our equity compensation plans is as follows:
Information relating to certain relationships and related transactions is contained in the Proxy Statement referred to above in “Item 10. Directors and Executive Officers of the Registrant,” and such information is incorporated herein by reference.
Information relating to fees paid to and services performed by PricewaterhouseCoopers LLP in
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated:
Honeywell International Inc.
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