The Notes to Consolidated Financial Statements
are an integral part of this statement.
The Notes to Consolidated Financial Statements
are an integral part of this statement.
The Notes to Consolidated Financial Statements are an integral part
of this statement.
The Notes to Consolidated
Financial Statements are an integral part of this statement.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Note 1. Basis of Presentation
In the opinion of management,
the accompanying unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of Honeywell International Inc. and its consolidated subsidiaries (Honeywell
or the Company) at March 31, 2017 and 2016 and the results of operations and cash flows for the three months ended March 31, 2017
and 2016. The results of operations and cash flows for the three months ended March 31, 2017 should not necessarily be taken as
indicative of the entire year.
We report our quarterly financial
information using a calendar convention; the first, second and third quarters are consistently reported as ending on March 31,
June 30 and September 30. It has been our practice to establish actual quarterly closing dates using a predetermined fiscal calendar,
which requires our businesses to close their books on a Saturday in order to minimize the potentially disruptive effects of quarterly
closing on our business processes. The effects of this practice are generally not significant to reported results for any quarter
and only exist within a reporting year. In the event that differences in actual closing dates are material to year-over-year comparisons
of quarterly or year-to-date results, we will provide appropriate disclosures. Our actual closing dates for the three months ended
March 31, 2017 and 2016 were April 1, 2017 and April 2, 2016.
Certain prior year amounts
have been reclassified to conform to current year presentation.
Note 2. Recent Accounting Pronouncements
We consider the applicability
and impact of all Accounting Standards Updates (ASUs). ASUs not listed below were assessed and determined to be either not applicable
or are expected to have minimal impact on our consolidated result of operations, financial position and cash flows (consolidated
financial statements).
In May 2014, and in
following related amendments, the FASB issued guidance on revenue from contracts with customers that will supersede most
current revenue recognition guidance, including industry-specific guidance. The underlying principle is that an entity will
recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be
entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine
when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of
time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before
contingencies are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding the nature,
amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The
effective date is for interim and annual periods beginning on or after December 15, 2017. The guidance permits the use of
either a retrospective or cumulative effect transition method. We have not yet selected a transition method. We expect that
our disclosures in our notes to consolidated financial statements related to revenue recognition will be significantly
expanded under the new standard. The FASB has issued, and may issue in the future, interpretive guidance which may cause our
evaluation to change. We believe we are following an appropriate timeline to allow for proper recognition, presentation and
disclosure upon adoption effective the beginning of fiscal year 2018.
We are still finalizing the
analysis to quantify the adoption impact of the new standard, but we do not currently expect it to have a material impact on our
consolidated financial position or results of operations. Based on the evaluation of our current contracts and revenue streams,
most will be recorded consistently under both the current and new standard. We expect the new standard will have no cash impact
and, as such, does not affect the economics of our underlying customer contracts. However, we expect the guidance in certain areas,
particularly in our Aerospace segment, to impact our current revenue recognition policies.
The current accounting policy
for costs incurred for nonrecurring engineering and development activities of our Aerospace products under agreements
with commercial customers is generally to expense as incurred. Any customer funding received for such efforts is recognized when earned as
a reduction of cost of sales. Under the new guidance, customer funding for such expenses incurred must be assessed to determine
whether the contract is within the scope of the new revenue standard, and if so, determine the appropriate timing of the recognition
of funding and related income statement classification. We are continuing to evaluate the impact for these activities.
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
In addition, we expect revenues
for our mechanical service programs at our Aerospace business to continue to be recognized over time and not point in time, but
under the new guidance the timing may change to reflect the impact of recognition as a series of distinct services using the output
method. With the adoption of the standard, certain unbilled receivables or deferred revenue will be eliminated through retained earnings,
but we do not expect a material impact.
In February 2016, the FASB
issued guidance on accounting for leases which requires lessees to recognize most leases on their balance sheets for the rights
and obligations created by those leases. The guidance requires enhanced disclosures regarding the amount, timing, and uncertainty
of cash flows arising from leases and will be effective for interim and annual periods beginning after December 15, 2018. Early
adoption is permitted. The guidance requires the use of a modified retrospective approach. We are evaluating the impact of the
guidance on our consolidated financial position, results of operations and related disclosures.
In January 2017, the FASB
issued guidance to simplify the subsequent measurement of goodwill impairment. The new guidance eliminates the two-step process
that required identification of potential impairment and a separate measure of the actual impairment. Goodwill impairment charges,
if any, would be determined by reducing the goodwill balance by the difference between the carrying value and the reporting unit’s
fair value (impairment loss is limited to the carrying value). This standard is effective for annual or any interim goodwill impairment
tests beginning after December 15, 2019. The adoption of this standard is not expected to have a material impact on our consolidated
financial statements.
In
March 2017, the FASB issued guidance on presentation of net periodic pension cost and net periodic postretirement benefit cost.
The new standard requires that an employer disaggregate the service costs components of net benefit cost. The employer is required
to report the service cost component in the same line item or items as other compensation costs arising from services rendered
by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income
statement separately from the service cost component, such as in other income and expense
.
The guidance is effective for fiscal years beginning after December
15, 2017. This guidance will impact the presentation of our consolidated financial statements. Our current presentation of service
cost components is consistent with the requirements of the new standard. Upon our adoption of the new standard, we expect to present
the other components within Other (income) expense (we currently present within Cost of products and services sold and Selling,
general, and administrative expenses). All components will continue to be excluded from Segment Profit (see Note 10 Segment Financial
Data).
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Note 3. Repositioning and Other Charges
A summary of repositioning
and other charges follows:
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
2016
|
|
Severance
|
|
$
|
20
|
|
|
$
|
28
|
|
|
Asset impairments
|
|
|
2
|
|
|
|
7
|
|
|
Exit costs
|
|
|
1
|
|
|
|
2
|
|
|
Reserve adjustments
|
|
|
6
|
|
|
|
(17
|
)
|
|
Total net repositioning charge
|
|
|
29
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
Asbestos related litigation
charges, net of insurance
|
|
|
50
|
|
|
|
53
|
|
|
Probable and reasonably estimable environmental liabilities
|
|
|
50
|
|
|
|
52
|
|
|
Total net repositioning and other charges
|
|
$
|
129
|
|
|
$
|
125
|
|
|
The following table summarizes the pretax
distribution of total net repositioning and other charges by income statement classification:
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
2016
|
|
Cost of products and services sold
|
|
$
|
136
|
|
|
$
|
105
|
|
|
Selling, general and administrative expenses
|
|
|
(7
|
)
|
|
|
20
|
|
|
|
|
$
|
129
|
|
|
$
|
125
|
|
|
The following table summarizes the pretax impact
of total net repositioning and other charges by segment:
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
2016
|
|
Aerospace
|
|
$
|
73
|
|
|
$
|
49
|
|
|
Home and Building Technologies
|
|
|
(1
|
)
|
|
|
17
|
|
|
Performance Materials and Technologies
|
|
|
3
|
|
|
|
9
|
|
|
Safety and Productivity Solutions
|
|
|
(4
|
)
|
|
|
(10
|
)
|
|
Corporate
|
|
|
58
|
|
|
|
60
|
|
|
|
|
$
|
129
|
|
|
$
|
125
|
|
|
In the quarter ended March
31, 2017, we recognized repositioning charges totaling $23 million including severance costs of $20 million related to workforce
reductions of 622 manufacturing and administrative positions across our segments. The workforce reductions were primarily related
to cost savings actions taken in connection with our productivity and ongoing functional transformation initiatives and with factory
transitions, mainly in Aerospace, to more cost-effective locations. Also, $6 million, net, of reserve adjustments increased the
previously established accruals, primarily for severance in Aerospace, due mainly to lower attrition than anticipated and higher
expected severance payments.
In the quarter ended March
31, 2016, we recognized repositioning charges totaling $37 million including severance costs of $28 million related to workforce reductions of 293 manufacturing and administrative
positions mainly in Home and Building Technologies and Performance Materials and Technologies. The workforce
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
reductions were primarily
related to achieving acquisition-related synergies and outsourcing of certain packaging operations. Also, $17 million of previously
established accruals, primarily for severance, in Home and Building Technologies, Safety and Productivity Solutions, and Performance
Materials and Technologies, were returned to income primarily as a result of higher attrition than anticipated in prior severance
programs resulting in lower required severance payments.
The following table summarizes the status of
our total repositioning reserves:
|
|
|
Severance
|
|
Asset
|
|
Exit
|
|
|
|
|
|
Costs
|
|
Impairments
|
|
Costs
|
|
Total
|
|
December 31, 2016
|
|
$
|
298
|
|
|
$
|
-
|
|
|
$
|
33
|
|
|
$
|
331
|
|
|
Charges
|
|
|
20
|
|
|
|
2
|
|
|
|
1
|
|
|
|
23
|
|
|
Usage - cash
|
|
|
(50
|
)
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
(54
|
)
|
|
Usage - noncash
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
(2
|
)
|
|
Foreign currency translation
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
Adjustments and reclassifications
|
|
|
6
|
|
|
|
-
|
|
|
|
(8
|
)
|
|
|
(2
|
)
|
|
March 31, 2017
|
|
$
|
279
|
|
|
$
|
-
|
|
|
$
|
22
|
|
|
$
|
301
|
|
Certain
repositioning projects in 2017 and 2016 included exit or disposal activities, the costs related to which will be recognized in
future periods when the actual liability is incurred. Such exit and disposal costs are not expected to be significant.
Note 4. Earnings Per Share
|
|
Three
Months Ended
March 31,
|
Basic
|
|
2017
|
|
2016
|
Net income attributable to Honeywell
|
|
$
|
1,326
|
|
|
$
|
1,216
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
763.1
|
|
|
|
767.9
|
|
|
|
|
|
|
|
|
|
|
Earnings per share of common stock
|
|
$
|
1.74
|
|
|
$
|
1.58
|
|
|
|
Three Months Ended
March 31,
|
Assuming Dilution
|
|
2017
|
|
2016
|
Net income attributable to Honeywell
|
|
$
|
1,326
|
|
|
$
|
1,216
|
|
|
|
|
|
|
|
|
|
|
Average Shares
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
763.1
|
|
|
|
767.9
|
|
Dilutive securities issuable - stock plans
|
|
|
10.8
|
|
|
|
11.7
|
|
Total weighted average shares outstanding
|
|
|
773.9
|
|
|
|
779.6
|
|
|
|
|
|
|
|
|
|
|
Earnings per share of common stock
|
|
$
|
1.71
|
|
|
$
|
1.56
|
|
The diluted earnings per
share calculations exclude the effect of stock options when the options’ assumed proceeds exceed the average market price
of the common shares during the period. For the three months ended March 31, 2017 and 2016, the weighted average number of stock
options excluded from the computations was 2.1 million and 8.4 million. These stock options were outstanding at the end of each
of the respective periods.
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Note 5. Accounts Receivable
|
|
March 31,
|
|
December 31,
|
|
|
2017
|
|
2016
|
Trade
|
|
$
|
8,367
|
|
|
$
|
8,449
|
|
Less - Allowance for doubtful accounts
|
|
|
(212
|
)
|
|
|
(272
|
)
|
|
|
$
|
8,155
|
|
|
$
|
8,177
|
|
Trade receivables
include $1,665 million and $1,626 million of unbilled balances under long-term contracts as of March 31, 2017 and December 31,
2016. These amounts are billed in accordance with the terms of customer contracts to which they relate.
Note 6. Inventories
|
|
March 31,
|
|
December 31,
|
|
|
2017
|
|
2016
|
Raw materials
|
|
$
|
1,193
|
|
|
$
|
1,104
|
|
Work in process
|
|
|
787
|
|
|
|
775
|
|
Finished products
|
|
|
2,710
|
|
|
|
2,552
|
|
|
|
|
4,690
|
|
|
|
4,431
|
|
Reduction to LIFO cost basis
|
|
|
(38
|
)
|
|
|
(65
|
)
|
|
|
$
|
4,652
|
|
|
$
|
4,366
|
|
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Note 7. Long-term Debt
|
|
|
March
31,
|
|
December
31,
|
|
|
|
2017
|
|
2016
|
|
Floating rate Euro notes due 2018
|
|
|
1,069
|
|
|
|
1,054
|
|
|
1.40% notes due 2019
|
|
|
1,250
|
|
|
|
1,250
|
|
|
Floating rate notes due 2019
|
|
|
250
|
|
|
|
250
|
|
|
0.65% Euro notes due 2020
|
|
|
1,069
|
|
|
|
1,054
|
|
|
4.25% notes due 2021
|
|
|
800
|
|
|
|
800
|
|
|
1.85% notes due 2021
|
|
|
1,500
|
|
|
|
1,500
|
|
|
1.30% Euro notes due 2023
|
|
|
1,335
|
|
|
|
1,317
|
|
|
3.35% notes due 2023
|
|
|
300
|
|
|
|
300
|
|
|
2.50% notes due 2026
|
|
|
1,500
|
|
|
|
1,500
|
|
|
2.25% Euro notes due 2028
|
|
|
801
|
|
|
|
790
|
|
|
5.70% notes due 2036
|
|
|
550
|
|
|
|
550
|
|
|
5.70% notes due 2037
|
|
|
600
|
|
|
|
600
|
|
|
5.375% notes due 2041
|
|
|
600
|
|
|
|
600
|
|
|
Industrial development bond obligations, floating rate maturing at various dates through 2037
|
|
|
30
|
|
|
|
30
|
|
|
6.625% debentures due 2028
|
|
|
216
|
|
|
|
216
|
|
|
9.065% debentures due 2033
|
|
|
51
|
|
|
|
51
|
|
|
Other (including capitalized leases and debt issuance
costs),
0.5% weighted average maturing at various dates through 2023
|
|
|
531
|
|
|
|
547
|
|
|
|
|
|
12,452
|
|
|
|
12,409
|
|
|
Less: current portion
|
|
|
(1,271
|
)
|
|
|
(227
|
)
|
|
|
|
$
|
11,181
|
|
|
$
|
12,182
|
|
Note 8. Financial Instruments and Fair Value
Measures
Our credit, market, foreign
currency and interest rate risk management policies are described in Note 14, Financial Instruments and Fair Value Measures, of
Notes to Consolidated Financial Statements in our 2016 Annual Report on Form 10-K.
The following table sets
forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis:
|
|
March 31,
|
|
December 31,
|
|
|
2017
|
|
2016
|
Assets:
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
$
|
104
|
|
|
$
|
152
|
|
Available for sale investments
|
|
|
2,015
|
|
|
|
1,670
|
|
Interest rate swap agreements
|
|
|
61
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
$
|
7
|
|
|
$
|
2
|
|
Interest rate swap agreements
|
|
|
52
|
|
|
|
48
|
|
The foreign currency exchange
contracts and interest rate swap agreements are valued using broker quotations or market transactions in either the listed or over-the-counter
markets. These derivative instruments are classified within level 2. The Company holds investments in certificates of deposits,
time deposits and commercial paper that are designated as available for sale and are valued using published prices based on
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
observable market data. These
investments are classified within level 2. The Company also holds available for sale investments in U.S. government and corporate
debt securities valued utilizing published prices based on quoted market pricing, which are classified within level 1.
The carrying value of cash
and cash equivalents, accounts receivable, 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:
|
March 31, 2017
|
|
December 31, 2016
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
Value
|
Value
|
Value
|
Value
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Long-term receivables
|
$
|
263
|
|
$
|
253
|
|
$
|
280
|
|
$
|
273
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and related current maturities
|
$
|
12,452
|
|
$
|
13,070
|
|
$
|
12,409
|
|
$
|
13,008
|
The Company determined
the fair value of the long-term receivables by discounting based upon the terms of the receivable and counterparty details including
credit quality. As such, the fair value of these receivables is considered level 2. The Company determined the fair value of the
long-term debt and related current maturities utilizing transactions in the listed markets for identical or similar liabilities.
As such, the fair value of the long-term debt and related current maturities is also considered level 2 as well.
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. For the three months ended March 31, 2017 and 2016,
we recognized $11 million of losses and $29 million of gains in earnings on interest rate swap agreements. Gains and losses are
fully offset by losses and gains on the underlying debt being hedged.
We also economically hedge
our exposure to changes in foreign exchange rates principally with forward contracts. These contracts are marked-to-market with
the resulting gains and losses recognized in earnings offsetting the gains and losses on the non-functional currency denominated
monetary assets and liabilities being hedged. We recognized $34 million and $32 million of expense in other (income) expense for
the three months ended March 31, 2017 and 2016.
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Note 9. Accumulated Other Comprehensive Income
(Loss)
Changes in Accumulated Other Comprehensive
Income by Component
|
|
Foreign
Exchange
Translation
Adjustment
|
|
Pension
and Other
Postretirement
Benefits
Adjustments
|
|
Changes in
Fair Value
of Effective
Cash Flow
Hedges
|
|
Total
|
Balance at December 31, 2016
|
|
$
|
(1,944
|
)
|
|
$
|
(879
|
)
|
|
$
|
109
|
|
|
$
|
(2,714
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
248
|
|
|
|
(46
|
)
|
|
|
(13
|
)
|
|
|
189
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
-
|
|
|
|
(14
|
)
|
|
|
(23
|
)
|
|
|
(37
|
)
|
Net current period other comprehensive income (loss)
|
|
|
248
|
|
|
|
(60
|
)
|
|
|
(36
|
)
|
|
|
152
|
|
Balance at March 31, 2017
|
|
$
|
(1,696
|
)
|
|
$
|
(939
|
)
|
|
$
|
73
|
|
|
$
|
(2,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Exchange
Translation
Adjustment
|
|
Pension
and Other
Postretirement
Benefits
Adjustments
|
|
Changes in
Fair Value
of Effective
Cash Flow
Hedges
|
|
Total
|
Balance at December 31, 2015
|
|
$
|
(1,892
|
)
|
|
$
|
(644
|
)
|
|
$
|
1
|
|
|
$
|
(2,535
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
122
|
|
|
|
-
|
|
|
|
(32
|
)
|
|
|
90
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
-
|
|
|
|
(16
|
)
|
|
|
6
|
|
|
|
(10
|
)
|
Net current period other comprehensive income (loss)
|
|
|
122
|
|
|
|
(16
|
)
|
|
|
(26
|
)
|
|
|
80
|
|
Balance at March 31, 2016
|
|
$
|
(1,770
|
)
|
|
$
|
(660
|
)
|
|
$
|
(25
|
)
|
|
$
|
(2,455
|
)
|
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Note 10. Segment Financial Data
We globally manage
our business operations through four reportable operating segments. Segment information is consistent with how management reviews
the businesses, makes investing and resource allocation decisions and assesses operating performance.
Honeywell’s
senior management evaluates segment performance based on segment profit. Segment profit is measured as segment income (loss) before
taxes excluding general corporate unallocated expense, other income (expense), interest and other financial charges, stock compensation
expense, pension and other postretirement income (expense), and repositioning and other charges.
|
|
|
Three Months Ended
March 31,
|
Net Sales
|
|
|
2017
|
|
|
|
2016
|
|
Aerospace
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
2,396
|
|
|
$
|
2,490
|
|
Services
|
|
|
1,150
|
|
|
|
1,215
|
|
Total
|
|
|
3,546
|
|
|
|
3,705
|
|
Home and Building Technologies
|
|
|
|
|
|
|
|
|
Products
|
|
|
2,217
|
|
|
|
2,197
|
|
Services
|
|
|
336
|
|
|
|
280
|
|
Total
|
|
|
2,553
|
|
|
|
2,477
|
|
Performance Materials and Technologies
|
|
|
|
|
|
|
|
|
Products
|
|
|
1,674
|
|
|
|
1,884
|
|
Services
|
|
|
395
|
|
|
|
397
|
|
Total
|
|
|
2,069
|
|
|
|
2,281
|
|
Safety and Productivity Solutions
|
|
|
|
|
|
|
|
|
Products
|
|
|
1,253
|
|
|
|
1,048
|
|
Services
|
|
|
71
|
|
|
|
11
|
|
Total
|
|
|
1,324
|
|
|
|
1,059
|
|
|
|
$
|
9,492
|
|
|
$
|
9,522
|
|
|
|
|
|
|
|
|
|
|
Segment Profit
|
|
|
|
|
|
|
|
|
Aerospace
|
|
$
|
796
|
|
|
$
|
798
|
|
Home and Building Technologies
|
|
|
389
|
|
|
|
360
|
|
Performance Materials and Technologies
|
|
|
471
|
|
|
|
461
|
|
Safety and Productivity Solutions
|
|
|
194
|
|
|
|
150
|
|
Corporate
|
|
|
(61
|
)
|
|
|
(49
|
)
|
Total segment profit
|
|
|
1,789
|
|
|
|
1,720
|
|
|
|
|
|
|
|
|
|
|
Other income
(a)
|
|
|
6
|
|
|
|
12
|
|
Interest and other financial charges
|
|
|
(75
|
)
|
|
|
(85
|
)
|
Stock compensation expense
(b)
|
|
|
(50
|
)
|
|
|
(53
|
)
|
Pension ongoing income
(b)
|
|
|
179
|
|
|
|
150
|
|
Other postretirement income
(b)
|
|
|
4
|
|
|
|
9
|
|
Repositioning and other charges
(b)
|
|
|
(129
|
)
|
|
|
(125
|
)
|
Income before taxes
|
|
$
|
1,724
|
|
|
$
|
1,628
|
|
(a)
|
Equity income (loss) of affiliated companies is included in segment profit.
|
|
|
(b)
|
Amounts included in cost of products and services sold and selling, general and administrative expenses
.
|
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Note 11. Pension Benefits
Net periodic pension benefit
income for our significant defined benefit plans include the following components:
|
|
|
Three Months Ended
|
|
|
|
U.S. Plans
March 31,
|
|
|
|
Non-U.S. Plans
March 31,
|
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
2017
|
|
|
|
2016
|
|
Service cost
|
|
$
|
43
|
|
|
$
|
48
|
|
|
$
|
9
|
|
|
$
|
12
|
|
Interest cost
|
|
|
147
|
|
|
|
150
|
|
|
|
35
|
|
|
|
47
|
|
Expected return on plan assets
|
|
|
(315
|
)
|
|
|
(306
|
)
|
|
|
(99
|
)
|
|
|
(99
|
)
|
Amortization of prior service (credit)
|
|
|
(11
|
)
|
|
|
(11
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
$
|
(136
|
)
|
|
$
|
(119
|
)
|
|
$
|
(55
|
)
|
|
$
|
(41
|
)
|
Note 12. Commitments and Contingencies
Environmental Matters
Our environmental matters
are described in Note 19, Commitments and Contingencies, of Notes to Consolidated Financial Statements in our 2016 Annual Report
on Form 10-K.
The following table summarizes
information concerning our recorded liabilities for environmental costs:
December 31, 2016
|
|
$
|
511
|
|
Accruals for environmental matters deemed probable and reasonably estimable
|
|
|
50
|
|
Environmental liability payments
|
|
|
(31
|
)
|
Other
|
|
|
8
|
|
March 31, 2017
|
|
$
|
538
|
|
Environmental liabilities are included in the following balance sheet
accounts:
|
|
|
March 31,
|
|
|
|
December 31,
|
|
|
|
|
2017
|
|
|
|
2016
|
|
Accrued liabilities
|
|
$
|
252
|
|
|
$
|
252
|
|
Other liabilities
|
|
|
286
|
|
|
|
259
|
|
|
|
$
|
538
|
|
|
$
|
511
|
|
We do not currently possess
sufficient information to reasonably estimate the amounts of environmental 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 although they could be material to our consolidated results of operations and 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.
Onondaga Lake, Syracuse,
NY
—In 2016, we largely completed a 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. Some additional long-term monitoring
and maintenance activities will continue, as required by the consent decree. Honeywell is also conducting remedial investigations
and activities at other sites in Syracuse. We have recorded reserves for these investigations and activities where appropriate,
consistent with the accounting policy described above.
Honeywell has entered into
a cooperative agreement with potential natural resource trustees to assess
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
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
Honeywell is a defendant
in asbestos related personal injury actions related to two predecessor companies:
|
·
|
North American Refractories Company (NARCO), which was sold in 1986, produced refractory products (bricks and cement used in high temperature applications). Claimants consist largely of individuals who allege exposure to NARCO asbestos-containing refractory products in an occupational setting.
|
|
|
|
|
·
|
Bendix Friction Materials (Bendix) business, which was sold in 2014, manufactured automotive brake parts that contained chrysotile asbestos in an encapsulated form. Claimants consist largely of individuals who allege exposure to asbestos from brakes from either performing or being in the vicinity of individuals who performed brake replacements.
|
The following tables summarize information concerning
NARCO and Bendix asbestos related balances:
Asbestos Related Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Bendix
|
|
|
|
NARCO
|
|
|
|
Total
|
|
December 31, 2016
|
|
$
|
641
|
|
|
$
|
919
|
|
|
$
|
1,560
|
|
Accrual for update to estimated liability
|
|
|
46
|
|
|
|
7
|
|
|
|
53
|
|
Asbestos related liability payments
|
|
|
(58
|
)
|
|
|
(7
|
)
|
|
|
(65
|
)
|
March 31, 2017
|
|
$
|
629
|
|
|
$
|
919
|
|
|
$
|
1,548
|
|
Insurance Recoveries for Asbestos Related Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Bendix
|
|
|
|
NARCO
|
|
|
|
Total
|
|
December 31, 2016
|
|
$
|
121
|
|
|
$
|
319
|
|
|
$
|
440
|
|
Probable insurance recoveries related to estimated liability
|
|
|
3
|
|
|
|
-
|
|
|
|
3
|
|
Insurance receipts for asbestos related liabilities
|
|
|
(12
|
)
|
|
|
(1
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
$
|
112
|
|
|
$
|
318
|
|
|
$
|
430
|
|
NARCO and Bendix asbestos related balances are included in the following
balance sheet accounts:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2017
|
|
|
|
2016
|
|
Other current assets
|
|
$
|
23
|
|
|
$
|
23
|
|
Insurance recoveries for asbestos related liabilities
|
|
|
407
|
|
|
|
417
|
|
|
|
$
|
430
|
|
|
$
|
440
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
546
|
|
|
$
|
546
|
|
Asbestos related liabilities
|
|
|
1,002
|
|
|
|
1,014
|
|
|
|
$
|
1,548
|
|
|
$
|
1,560
|
|
NARCO Products
–In connection with NARCO’s emergence from bankruptcy on April 30, 2013, a federally authorized 524(g) trust (NARCO
Trust) was established for the evaluation and resolution of all existing and future NARCO asbestos claims. Both Honeywell and NARCO
are protected by 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 asbestos-containing products to be made against the NARCO
Trust. The NARCO Trust reviews submitted claims and determines award amounts in accordance with established Trust Distribution
Procedures approved by the Bankruptcy Court which set forth the criteria claimants must meet to qualify for compensation including,
among other things, exposure and medical criteria that
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
determine the award amount. In addition, Honeywell
provided, and continues to provide, input to the design of control procedures for processing NARCO claims, and has on-going audit
rights to review and monitor the claims processors’ adherence to the established requirements of the Trust Distribution Procedures.
Honeywell is obligated to
fund NARCO asbestos claims submitted to the NARCO Trust which qualify for payment under the Trust Distribution Procedures (Annual
Contribution Claims), subject to annual caps of $140 million in the years 2017 and 2018 and $145 million for each year thereafter.
However, the initial $100 million of claims processed through the NARCO Trust (the Initial Claims Amount) will not count against
the annual cap and any unused portion of the Initial Claims Amount will roll over to subsequent years until fully utilized. In
2015, Honeywell filed suit against the NARCO Trust in Bankruptcy Court alleging breach of certain provisions of the Trust Agreement
and Trust Distribution Procedures. The parties agreed to dismiss the proceeding without prejudice pursuant to an 18 month Standstill
Agreement that expires in October 2017. Claims processing will continue during this period subject to a defined dispute resolution
process. As of March 31, 2017, Honeywell has not made any payments to the NARCO Trust for Annual Contribution Claims.
Honeywell is also responsible
for 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 (Pre-established Unliquidated Claims), which amounts are estimated at $150 million and
are expected to be paid during the initial years of trust operations ($5 million of which has been paid since the effective date
of the NARCO Trust). Such payments are not subject to the annual cap described above.
Our consolidated financial
statements reflect an estimated liability for pre-established unliquidated claims ($145 million), unsettled claims pending as of
the time NARCO filed for bankruptcy protection ($31 million) and for the estimated value of future NARCO asbestos claims expected
to be asserted against the NARCO Trust ($743 million). The estimate of future NARCO claims is based on a commonly accepted methodology
used by numerous bankruptcy courts addressing 524(g) trusts and also reflects disputes concerning implementation of the Trust Distribution
Procedures by the NARCO Trust, a lack of sufficient trust claims processing experience, as well as the stay of all NARCO asbestos
claims which remained in place throughout NARCO’s Chapter 11 case. Some critical assumptions underlying this commonly accepted
methodology include claims filing rates, disease criteria and payment values contained in the Trust Distribution Procedures, estimated
approval rates of claims submitted to the NARCO Trust and epidemiological studies estimating disease instances. The estimated value
of future NARCO claims was originally established at the time of the NARCO Chapter 11 filing reflecting claims expected to be asserted
against NARCO over a fifteen year period. This projection resulted in a range of estimated liability of $743 million 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 estimated liability for pending and future NARCO asbestos claims reflects coverage which reimburses Honeywell
for portions of NARCO-related indemnity and 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. We conduct analyses to estimate the
probable amount of insurance that is recoverable for asbestos 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 and our
knowledge of any pertinent solvency issues surrounding insurers.
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. Given the uncertainties, 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.
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Bendix Products
—The
following tables present information regarding Bendix related asbestos claims activity:
|
|
Three Months Ended
March 31,
|
|
|
Years Ended
December 31,
|
Claims Activity
|
|
|
2017
|
|
|
|
2016
|
|
|
|
2015
|
|
Claims Unresolved at the beginning of period
|
|
|
7,724
|
|
|
|
7,779
|
|
|
|
9,267
|
|
Claims Filed
|
|
|
709
|
|
|
|
2,830
|
|
|
|
2,862
|
|
Claims Resolved
|
|
|
(1,807
|
)
|
|
|
(2,885
|
)
|
|
|
(4,350
|
)
|
Claims Unresolved at the end of period
|
|
|
6,626
|
|
|
|
7,724
|
|
|
|
7,779
|
|
Disease Distribution of Unresolved Claims
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
2015
|
|
Mesothelioma and Other Cancer Claims
|
|
|
3,057
|
|
|
|
3,490
|
|
|
|
3,772
|
|
Nonmalignant Claims
|
|
|
3,569
|
|
|
|
4,234
|
|
|
|
4,007
|
|
Total Claims
|
|
|
6,626
|
|
|
|
7,724
|
|
|
|
7,779
|
|
Honeywell has experienced average resolution values per claim excluding
legal costs as follows:
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
2014
|
|
|
|
2013
|
|
|
|
2012
|
|
|
|
(in whole dollars)
|
Malignant claims
|
|
$
|
44,000
|
|
|
$
|
44,000
|
|
|
$
|
53,500
|
|
|
$
|
51,000
|
|
|
$
|
49,000
|
|
Nonmalignant claims
|
|
$
|
4,485
|
|
|
$
|
100
|
|
|
$
|
120
|
|
|
$
|
850
|
|
|
$
|
1,400
|
|
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 liability for future NARCO-related asbestos
claims.
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, judicial determinations relevant to our insurance programs, and our consideration of the impacts
of any settlements reached with our insurers.
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
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, employment, 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:
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 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. The UAW and
certain retiree defendants filed a mirror 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 New Jersey action was dismissed and Honeywell subsequently answered
the UAW’s complaint in Michigan and asserted counterclaims for fraudulent inducement, negligent misrepresentation and breach
of implied warranty. The UAW filed a motion to dismiss these counterclaims. The court dismissed Honeywell’s fraudulent inducement
and negligent misrepresentation claims, but let stand the claim for breach of implied warranty. In the second quarter of 2014,
the parties agreed to stay the proceedings with respect to those retirees who retired before the initial inclusions of the CAPS
in the 2003 MCBA until the Supreme Court decided the
M&G Polymers USA, LLC v. Tackett
case
.
In a ruling on January 26, 2015, the Supreme Court held that retiree health insurance benefits provided in collective bargaining
agreements do not carry an inference that they are vested or guaranteed to continue for life and that the “vesting”
issue must be decided pursuant to ordinary principles of contract law. The stay of the proceedings has been lifted and the case
is again proceeding. Based on the Supreme Court’s ruling, 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 $129 million, reflecting the estimated value of these CAPS.
In December 2013, the UAW
and certain of the plaintiffs filed a motion for partial summary judgment with respect to those retirees who retired after the
initial inclusion of the CAPS in the 2003 MCBA. The UAW sought a ruling that the 2003 MCBA did not limit Honeywell’s obligation
to contribute to healthcare coverage for the post-2003 retirees. That motion remains pending. Honeywell is confident that the Court
will find that the 2003 MCBA does, in fact, limit Honeywell’s retiree healthcare obligation for post-2003 retirees. In the
event of an adverse ruling, however, Honeywell’s other postretirement benefits for post-2003 retirees would increase by approximately
$95 million, reflecting the estimated value of these CAPS.
Joint Strike Fighter
Investigation -
In 2013 the Company received subpoenas from the Department of Justice requesting information relating primarily
to parts manufactured in the United Kingdom and China used in the F-35 fighter jet. The Company is cooperating fully with the investigation.
While we believe that Honeywell has complied with all relevant U.S. laws and regulations regarding the manufacture of these sensors,
it is not possible
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
to predict the outcome of
the investigation or what action, if any, may result from it.
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 (other than as specifically set forth above).
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.