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 June 30, 2017 and 2016 and the results of operations for the three and six months ended June 30, 2017 and 2016
and the cash flows for the six months ended June 30, 2017 and 2016. The results of operations for the three and six months ended
June 30, 2017 and cash flows for the six months ended June 30, 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 and six months ended June 30, 2017 and 2016 were July 1, 2017 and July 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) issued by Financial Accounting Standards Board (FASB). 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 full retrospective
or modified retrospective transition method. We will adopt the requirements of the new standard effective January 1, 2018 and expect
to use the modified retrospective transition method with the cumulative effect to the opening balance of retained earnings recognized
as of the date of initial adoption. We believe we are following an appropriate timeline to allow for proper recognition, presentation
and disclosure upon adoption, including the related impacts to internal controls.
The Company’s evaluation
of the new standard is substantially complete and the Company has prepared an initial assessment of the impacts of adoption on
its Consolidated Financial Statements and disclosures. The FASB has issued, and may issue in the future, interpretive guidance
which may cause our evaluation to change. We will continue to evaluate the adoption impact of the new standard, including as it
relates to new contracts that will be recognized following adoption. Based on the evaluation of our current contracts and revenue
streams, recognition will be mostly consistent under both the current and new standard. 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 record the expense as
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share
amounts)
incurred. Any customer funding received
for such efforts is recognized when earned as a reduction of cost of sales. Following adoption of the new standard, the customer
funding will generally be classified as revenue and not as a reduction of cost of sales. Such revenue will be recognized as products
are delivered to the customers. Additionally, under the new guidance, expenses incurred, up to the customer agreed funded amount,
will be deferred as an asset and recognized as cost of sales also when products are delivered to the customer. Hence, the new guidance
will result in an increase in deferred costs (asset) and deferred revenue (liability) on our Consolidated Balance Sheet, however,
we expect this to result in no net impact to income before taxes.
In addition, we expect
revenues for our mechanical service programs at our Aerospace business to be impacted. Our current policy is to recognize revenue
over time as costs are incurred (input method). Following adoption, we will continue to recognize revenue over time, but recognition
will reflect a series of distinct services using the output method. This change will result in certain unbilled receivables or
deferred revenue being eliminated through retained earnings, but we do not expect a material impact.
We do not currently expect
the new standard to have a material impact on our consolidated financial position or results of operations. We expect the new standard
will have no cash impact and, as such, does not affect the economics of our underlying customer contracts. We expect that disclosure
in our notes to Consolidated Financial Statements related to revenue recognition will be significantly expanded under the new standard,
specifically around the quantitative and qualitative information about performance obligations, changes in contract assets and
liabilities, and disaggregation of revenue.
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 that will be effective for interim and annual periods beginning after December 15, 2018, with
early adoption permitted. We expect to adopt the requirements of the new standard effective January 1, 2019. The guidance requires
the use of a modified retrospective approach. We are currently evaluating the impact of the guidance on our consolidated financial
position, results of operations, and related notes to financial statements.
In October 2016, the
FASB issued an accounting standard update which requires an entity to recognize the income tax consequences of an intra-entity
transfer of an asset, other than inventory, at the time the entity transfer occurs rather than when the asset is ultimately transferred
to a third party, as required under current U.S. GAAP. The guidance is intended to reduce diversity in practice, particularly for
transfers involving intellectual property. The guidance is effective for interim and annual periods beginning after December 15,
2017 with early adoption permitted. We expect to adopt the accounting standard update as of January 1, 2018. The guidance requires
application on a modified retrospective basis. The impact upon adoption will result in an increase to deferred tax assets and liabilities,
with the corresponding offset recorded as a cumulative-effect adjustment to retained earnings as of the beginning of the adoption
period. We are currently in the process of evaluating the impact of this accounting standard update by determining the population
of historical intra-entity transfers. We intend to complete our analysis during the third quarter of 2017.
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 cost component of net benefit cost. The employer will be required
to report the service cost component in the same line item or items in the statement of operations as other compensation costs
arising from services rendered by the pertinent employees during the period. The other components of net benefit cost will be required
to be presented in the statement of operations 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 the service cost component 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
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Severance
|
|
$
|
82
|
|
|
$
|
70
|
|
|
$
|
102
|
|
|
$
|
98
|
|
Asset impairments
|
|
|
33
|
|
|
|
24
|
|
|
|
35
|
|
|
|
31
|
|
Exit costs
|
|
|
8
|
|
|
|
3
|
|
|
|
9
|
|
|
|
5
|
|
Reserve adjustments
|
|
|
(6
|
)
|
|
|
(44
|
)
|
|
|
-
|
|
|
|
(61
|
)
|
Total net repositioning charge
|
|
|
117
|
|
|
|
53
|
|
|
|
146
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asbestos related litigation charges, net of insurance
|
|
|
52
|
|
|
|
56
|
|
|
|
102
|
|
|
|
109
|
|
Probable and reasonably estimable environmental liabilities
|
|
|
55
|
|
|
|
31
|
|
|
|
105
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net repositioning and other charges
|
|
$
|
224
|
|
|
$
|
140
|
|
|
$
|
353
|
|
|
$
|
265
|
|
The following table summarizes the pretax
distribution of total net repositioning and other charges by income statement classification:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Cost of products and services sold
|
|
$
|
174
|
|
|
$
|
79
|
|
|
$
|
310
|
|
|
$
|
184
|
|
Selling, general and administrative expenses
|
|
|
24
|
|
|
|
37
|
|
|
|
17
|
|
|
|
57
|
|
Other
|
|
|
26
|
|
|
|
24
|
|
|
|
26
|
|
|
|
24
|
|
|
|
$
|
224
|
|
|
$
|
140
|
|
|
$
|
353
|
|
|
$
|
265
|
|
The following table summarizes the pretax
impact of total net repositioning and other charges by segment:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Aerospace
|
|
$
|
84
|
|
|
$
|
72
|
|
|
$
|
157
|
|
|
$
|
121
|
|
Home and Building Technologies
|
|
|
43
|
|
|
|
(5
|
)
|
|
|
42
|
|
|
|
12
|
|
Performance Materials and Technologies
|
|
|
(1
|
)
|
|
|
27
|
|
|
|
2
|
|
|
|
36
|
|
Safety and Productivity Solutions
|
|
|
4
|
|
|
|
4
|
|
|
|
-
|
|
|
|
(6
|
)
|
Corporate
|
|
|
94
|
|
|
|
42
|
|
|
|
152
|
|
|
|
102
|
|
|
|
$
|
224
|
|
|
$
|
140
|
|
|
$
|
353
|
|
|
$
|
265
|
|
In the quarter ended
June 30, 2017, we recognized repositioning charges totaling $123 million including severance costs of $82 million related to workforce
reductions of 1,902 manufacturing and administrative positions mainly in Home and Building Technologies and Aerospace. The workforce
reductions were primarily related to cost savings actions taken in connection with our productivity and ongoing functional transformation
initiatives and with site transitions, mainly in Aerospace, to more cost-effective locations. The repositioning
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share
amounts)
charges included asset impairments of $33
million primarily related to the write-down of property in our Corporate segment in connection with a planned sale of such property.
In the quarter ended
June 30, 2016, we recognized repositioning charges totaling $97 million including severance costs of $70 million related to workforce
reductions of 2,578 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. The repositioning
charge included asset impairments of $24 million primarily related to the write-off of certain intangible assets in connection
with the now completed sale of a Performance Materials and Technologies business. Also, $44 million of previously established accruals
for severance mainly in Home and Building Technologies, Safety and Productivity Solutions and Aerospace were returned to income
as a result of higher attrition than anticipated in prior severance programs resulting in lower required severance payments, lower
than expected severance costs in certain repositioning actions, and changes in the scope of previously announced repositioning
actions.
In the six months ended
June 30, 2017, we recognized repositioning charges totaling $146 million including severance costs of $102 million related to workforce
reductions of 2,524 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 site
transitions, mainly in Aerospace, to more cost-effective locations. The repositioning charges included asset impairments of $35
million primarily related to the write-down of property in our Corporate segment in connection with a planned sale of such property.
In the six months ended
June 30, 2016, we recognized repositioning charges totaling $134 million including severance costs of $98 million related to workforce
reductions of 2,871 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, achieving
acquisition-related synergies and outsourcing of certain packaging operations. The repositioning charge included asset impairments
of $31 million primarily related to the write-off of certain intangible assets in connection with the now completed sale of a Performance
Materials and Technologies business. Also, $61 million of previously established accruals, primarily for severance, in Home and
Building Technologies, Safety and Productivity Solutions, Aerospace and Performance Materials and Technologies were returned to
income as a result of higher attrition than anticipated in prior severance programs resulting in lower required severance payments,
lower than expected severance costs in certain repositioning actions, and changes in the scope of previously announced repositioning
actions.
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
|
|
|
102
|
|
|
|
35
|
|
|
|
9
|
|
|
|
146
|
|
Usage - cash
|
|
|
(88
|
)
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
(94
|
)
|
Usage - noncash
|
|
|
-
|
|
|
|
(35
|
)
|
|
|
-
|
|
|
|
(35
|
)
|
Foreign currency translation
|
|
|
10
|
|
|
|
-
|
|
|
|
1
|
|
|
|
11
|
|
Adjustments and reclassifications
|
|
|
1
|
|
|
|
-
|
|
|
|
(9
|
)
|
|
|
(8
|
)
|
June 30, 2017
|
|
$
|
323
|
|
|
$
|
-
|
|
|
$
|
28
|
|
|
$
|
351
|
|
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.
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share
amounts)
Note 4. Earnings Per Share
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
Basic
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Honeywell
|
|
$
|
1,392
|
|
|
$
|
1,319
|
|
|
$
|
2,718
|
|
|
$
|
2,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
764.2
|
|
|
|
763.3
|
|
|
|
763.6
|
|
|
|
765.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share of common stock
|
|
$
|
1.82
|
|
|
$
|
1.73
|
|
|
$
|
3.56
|
|
|
$
|
3.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
Assuming Dilution
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Honeywell
|
|
$
|
1,392
|
|
|
$
|
1,319
|
|
|
$
|
2,718
|
|
|
$
|
2,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
764.2
|
|
|
|
763.3
|
|
|
|
763.6
|
|
|
|
765.5
|
|
Dilutive securities issuable - stock plans
|
|
|
9.8
|
|
|
|
11.6
|
|
|
|
10.4
|
|
|
|
11.7
|
|
Total weighted average shares outstanding
|
|
|
774.0
|
|
|
|
774.9
|
|
|
|
774.0
|
|
|
|
777.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share of common stock
|
|
$
|
1.80
|
|
|
$
|
1.70
|
|
|
$
|
3.51
|
|
|
$
|
3.26
|
|
The diluted earnings
per share calculations exclude the effect of stock options when the options’ assumed proceeds exceed the average market price
of the common shares during the period. For the three and six months ended June 30, 2017, the weighted average number of stock
options excluded from the computations were 5.0 million and 3.5 million. For the three and six months ended June 30, 2016, the
weighted average number of stock options excluded from the computations were 6.7 million and 7.6 million. These stock options were
outstanding at the end of each period.
Note 5. Accounts Receivable
|
|
June 30,
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Trade
|
|
$
|
8,641
|
|
|
$
|
8,449
|
|
Less - Allowance for doubtful accounts
|
|
|
(199
|
)
|
|
|
(272
|
)
|
|
|
$
|
8,442
|
|
|
$
|
8,177
|
|
Trade receivables include
$1,728 million and $1,626 million of unbilled balances under long-term contracts as of June 30, 2017 and December 31, 2016. These
amounts are billed in accordance with the terms of the customer contracts to which they relate.
Note 6. Inventories
|
|
June 30,
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
1,187
|
|
|
$
|
1,104
|
|
Work in process
|
|
|
795
|
|
|
|
775
|
|
Finished products
|
|
|
2,707
|
|
|
|
2,552
|
|
|
|
|
4,689
|
|
|
|
4,431
|
|
Reduction to LIFO cost basis
|
|
|
(38
|
)
|
|
|
(65
|
)
|
|
|
$
|
4,651
|
|
|
$
|
4,366
|
|
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share
amounts)
Note 7. Long-term Debt and Credit Agreements
|
|
June 30,
|
|
December 31,
|
|
|
2017
|
|
2016
|
Floating rate Euro notes due 2018
|
|
$
|
1,140
|
|
|
$
|
1,054
|
|
1.40% notes due 2019
|
|
|
1,250
|
|
|
|
1,250
|
|
Floating rate notes due 2019
|
|
|
250
|
|
|
|
250
|
|
0.65% Euro notes due 2020
|
|
|
1,140
|
|
|
|
1,054
|
|
4.25% notes due 2021
|
|
|
800
|
|
|
|
800
|
|
1.85% notes due 2021
|
|
|
1,500
|
|
|
|
1,500
|
|
1.30% Euro notes due 2023
|
|
|
1,426
|
|
|
|
1,317
|
|
3.35% notes due 2023
|
|
|
300
|
|
|
|
300
|
|
2.50% notes due 2026
|
|
|
1,500
|
|
|
|
1,500
|
|
2.25% Euro notes due 2028
|
|
|
855
|
|
|
|
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), 0.3% weighted average maturing at various dates through 2023
|
|
|
499
|
|
|
|
547
|
|
|
|
|
12,707
|
|
|
|
12,409
|
|
Less: current portion
|
|
|
(1,378
|
)
|
|
|
(227
|
)
|
|
|
$
|
11,329
|
|
|
$
|
12,182
|
|
On April 28, 2017, the
Company entered into Amendment No. 3 (Amendment) to the Amended and Restated $4 billion Credit Agreement dated as of July 10, 2015,
as amended by Amendment No. 1 dated as of September 30, 2015 and Amendment No. 2 dated as of April 29, 2016 (as so amended, the
“Credit Agreement”), with a syndicate of banks. The Credit Agreement is maintained for general corporate purposes.
Commitments under the Credit Agreement can be increased pursuant to the terms of the Credit Agreement to an aggregate amount not
to exceed $4.5 billion. The Amendment, among other things, extends the Credit Agreement’s termination date from July 10,
2021 to April 28, 2022.
On April 28, 2017, the
Company entered into a $1.5 billion 364-Day Credit Agreement (364-Day Credit Agreement) with a syndicate of banks. The 364-Day
Credit Agreement is maintained for general corporate purposes.
A full description of
the Amendment and 364-Day Credit Agreement can be found in the Company’s Current Report on Form 8-K, dated April 28, 2017.
There have been no borrowings
under any of the credit agreements previously described.
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:
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share
amounts)
|
|
June 30,
|
|
December 31,
|
|
|
2017
|
|
2016
|
Assets:
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
$
|
54
|
|
|
$
|
152
|
|
Available for sale investments
|
|
|
2,072
|
|
|
|
1,670
|
|
Interest rate swap agreements
|
|
|
63
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
$
|
40
|
|
|
$
|
2
|
|
Interest rate swap agreements
|
|
|
44
|
|
|
|
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 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:
|
|
June 30, 2017
|
|
December 31, 2016
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
Value
|
|
Value
|
|
Value
|
|
Value
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term receivables
|
|
$
|
249
|
|
|
$
|
238
|
|
|
$
|
280
|
|
|
$
|
273
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and related current maturities
|
|
$
|
12,707
|
|
|
$
|
13,403
|
|
|
$
|
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 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 and six months ended June 30, 2017,
we recognized $9 million of gains and $2 million of losses in earnings on interest rate swap agreements. For the three and six
months ended June 30, 2016, we recognized $8 million and $37 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 primarily 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 $84 million and $118 million of expense in Other (income) expense for
the three and six months ended June 30, 2017. We recognized $122 million and $90 million of income in Other (income) expense for
the three and six months ended June 30, 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
|
|
|
|
Pension
|
|
Changes in
|
|
|
|
|
Foreign
|
|
and Other
|
|
Fair Value
|
|
|
|
|
Exchange
|
|
Postretirement
|
|
of Effective
|
|
|
|
|
Translation
|
|
Benefits
|
|
Cash Flow
|
|
|
|
|
Adjustment
|
|
Adjustments
|
|
Hedges
|
|
Total
|
Balance at December 31, 2016
|
|
$
|
(1,944
|
)
|
|
$
|
(879
|
)
|
|
$
|
109
|
|
|
$
|
(2,714
|
)
|
Other
comprehensive income (loss) before reclassifications
|
|
|
56
|
|
|
|
(46
|
)
|
|
|
(62
|
)
|
|
|
(52
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
-
|
|
|
|
(27
|
)
|
|
|
(44
|
)
|
|
|
(71
|
)
|
Net current period other comprehensive income (loss)
|
|
|
56
|
|
|
|
(73
|
)
|
|
|
(106
|
)
|
|
|
(123
|
)
|
Balance at June 30, 2017
|
|
$
|
(1,888
|
)
|
|
$
|
(952
|
)
|
|
$
|
3
|
|
|
$
|
(2,837
|
)
|
|
|
|
|
Pension
|
|
Changes in
|
|
|
|
|
Foreign
|
|
and Other
|
|
Fair Value
|
|
|
|
|
Exchange
|
|
Postretirement
|
|
of Effective
|
|
|
|
|
Translation
|
|
Benefits
|
|
Cash Flow
|
|
|
|
|
Adjustment
|
|
Adjustments
|
|
Hedges
|
|
Total
|
Balance at December 31, 2015
|
|
$
|
(1,892
|
)
|
|
$
|
(644
|
)
|
|
$
|
1
|
|
|
$
|
(2,535
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
48
|
|
|
|
-
|
|
|
|
6
|
|
|
|
54
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
-
|
|
|
|
(31
|
)
|
|
|
13
|
|
|
|
(18
|
)
|
Net current period other comprehensive income (loss)
|
|
|
48
|
|
|
|
(31
|
)
|
|
|
19
|
|
|
|
36
|
|
Balance at June 30, 2016
|
|
$
|
(1,844
|
)
|
|
$
|
(675
|
)
|
|
$
|
20
|
|
|
$
|
(2,499
|
)
|
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
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
2,545
|
|
|
$
|
2,556
|
|
|
$
|
4,941
|
|
|
$
|
5,046
|
|
Services
|
|
|
1,129
|
|
|
|
1,223
|
|
|
|
2,279
|
|
|
|
2,438
|
|
Total
|
|
|
3,674
|
|
|
|
3,779
|
|
|
|
7,220
|
|
|
|
7,484
|
|
Home and Building Technologies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
2,379
|
|
|
|
2,375
|
|
|
|
4,596
|
|
|
|
4,572
|
|
Services
|
|
|
357
|
|
|
|
301
|
|
|
|
693
|
|
|
|
581
|
|
Total
|
|
|
2,736
|
|
|
|
2,676
|
|
|
|
5,289
|
|
|
|
5,153
|
|
Performance Materials and Technologies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
1,800
|
|
|
|
2,013
|
|
|
|
3,474
|
|
|
|
3,897
|
|
Services
|
|
|
439
|
|
|
|
421
|
|
|
|
834
|
|
|
|
818
|
|
Total
|
|
|
2,239
|
|
|
|
2,434
|
|
|
|
4,308
|
|
|
|
4,715
|
|
Safety and Productivity Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
1,355
|
|
|
|
1,091
|
|
|
|
2,608
|
|
|
|
2,139
|
|
Services
|
|
|
74
|
|
|
|
11
|
|
|
|
145
|
|
|
|
22
|
|
Total
|
|
|
1,429
|
|
|
|
1,102
|
|
|
|
2,753
|
|
|
|
2,161
|
|
|
|
$
|
10,078
|
|
|
$
|
9,991
|
|
|
$
|
19,570
|
|
|
$
|
19,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
$
|
819
|
|
|
$
|
791
|
|
|
$
|
1,615
|
|
|
$
|
1,589
|
|
Home and Building Technologies
|
|
|
420
|
|
|
|
412
|
|
|
|
809
|
|
|
|
772
|
|
Performance Materials and Technologies
|
|
|
524
|
|
|
|
520
|
|
|
|
995
|
|
|
|
981
|
|
Safety and Productivity Solutions
|
|
|
214
|
|
|
|
173
|
|
|
|
408
|
|
|
|
323
|
|
Corporate
|
|
|
(67
|
)
|
|
|
(49
|
)
|
|
|
(128
|
)
|
|
|
(98
|
)
|
Total segment profit
|
|
|
1,910
|
|
|
|
1,847
|
|
|
|
3,699
|
|
|
|
3,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
(a)
|
|
|
(1
|
)
|
|
|
(7
|
)
|
|
|
5
|
|
|
|
5
|
|
Interest and other financial charges
|
|
|
(79
|
)
|
|
|
(85
|
)
|
|
|
(154
|
)
|
|
|
(170
|
)
|
Stock compensation expense
(b)
|
|
|
(44
|
)
|
|
|
(43
|
)
|
|
|
(94
|
)
|
|
|
(96
|
)
|
Pension ongoing income
(b)
|
|
|
184
|
|
|
|
151
|
|
|
|
363
|
|
|
|
301
|
|
Other postretirement income (expense)
(b)
|
|
|
6
|
|
|
|
8
|
|
|
|
10
|
|
|
|
17
|
|
Repositioning and other charges
(b)
|
|
|
(198
|
)
|
|
|
(116
|
)
|
|
|
(327
|
)
|
|
|
(241
|
)
|
Income before taxes
|
|
$
|
1,778
|
|
|
$
|
1,755
|
|
|
$
|
3,502
|
|
|
$
|
3,383
|
|
(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:
|
|
U.S. Plans
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
43
|
|
|
$
|
47
|
|
|
$
|
86
|
|
|
$
|
95
|
|
Interest cost
|
|
|
146
|
|
|
|
150
|
|
|
|
293
|
|
|
|
300
|
|
Expected return on plan assets
|
|
|
(315
|
)
|
|
|
(306
|
)
|
|
|
(630
|
)
|
|
|
(612
|
)
|
Amortization of prior service (credit)
|
|
|
(11
|
)
|
|
|
(11
|
)
|
|
|
(22
|
)
|
|
|
(22
|
)
|
|
|
$
|
(137
|
)
|
|
$
|
(120
|
)
|
|
$
|
(273
|
)
|
|
$
|
(239
|
)
|
|
|
Non-U.S. Plans
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
10
|
|
|
$
|
13
|
|
|
$
|
19
|
|
|
$
|
25
|
|
Interest cost
|
|
|
37
|
|
|
|
47
|
|
|
|
72
|
|
|
|
94
|
|
Expected return on plan assets
|
|
|
(102
|
)
|
|
|
(100
|
)
|
|
|
(201
|
)
|
|
|
(199
|
)
|
Amortization of prior service (credit)
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
$
|
(55
|
)
|
|
$
|
(41
|
)
|
|
$
|
(110
|
)
|
|
$
|
(82
|
)
|
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
|
|
|
105
|
|
|
|
|
|
Environmental liability payments
|
|
|
(70
|
)
|
|
|
|
|
Other
|
|
|
8
|
|
|
|
|
|
June 30, 2017
|
|
$
|
554
|
|
|
|
|
|
Environmental liabilities are included in the following balance sheet accounts:
|
|
June 30,
|
|
December 31,
|
|
|
2017
|
|
2016
|
Accrued liabilities
|
|
$
|
252
|
|
|
$
|
252
|
|
Other liabilities
|
|
|
302
|
|
|
|
259
|
|
|
|
$
|
554
|
|
|
$
|
511
|
|
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share
amounts)
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.
Honeywell has entered
into a cooperative agreement with potential natural resource trustees to assess alleged natural resource damages relating to these
sites. 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
|
|
|
95
|
|
|
|
14
|
|
|
|
109
|
|
Asbestos related liability payments
|
|
|
(104
|
)
|
|
|
(20
|
)
|
|
|
(124
|
)
|
June 30, 2017
|
|
$
|
632
|
|
|
$
|
913
|
|
|
$
|
1,545
|
|
Insurance Recoveries for Asbestos Related Liabilities
|
|
Bendix
|
|
NARCO
|
|
Total
|
December 31, 2016
|
|
$
|
121
|
|
|
$
|
319
|
|
|
$
|
440
|
|
Probable insurance recoveries
related to estimated liability
|
|
|
8
|
|
|
|
-
|
|
|
|
8
|
|
Insurance receipts for asbestos related liabilities
|
|
|
(20
|
)
|
|
|
(4
|
)
|
|
|
(24
|
)
|
June 30, 2017
|
|
$
|
109
|
|
|
$
|
315
|
|
|
$
|
424
|
|
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share
amounts)
NARCO and Bendix asbestos related balances are included in the following balance sheet accounts:
|
|
June 30,
|
|
December 31,
|
|
|
2017
|
|
2016
|
Other current assets
|
|
$
|
23
|
|
|
$
|
23
|
|
Insurance recoveries for asbestos related liabilities
|
|
|
401
|
|
|
|
417
|
|
|
|
$
|
424
|
|
|
$
|
440
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
547
|
|
|
$
|
546
|
|
Asbestos related liabilities
|
|
|
998
|
|
|
|
1,014
|
|
|
|
$
|
1,545
|
|
|
$
|
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 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 June 30, 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 ($25 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
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share
amounts)
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.
Bendix Products
—The
following tables present information regarding Bendix related asbestos claims activity:
|
|
Six Months Ended
|
|
Years Ended
|
|
|
June 30,
|
|
December 31,
|
Claims Activity
|
|
2017
|
|
2016
|
|
2015
|
Claims Unresolved at the beginning of period
|
|
|
7,724
|
|
|
|
7,779
|
|
|
|
9,267
|
|
Claims Filed
|
|
|
1,300
|
|
|
|
2,830
|
|
|
|
2,862
|
|
Claims Resolved
|
|
|
(2,266
|
)
|
|
|
(2,885
|
)
|
|
|
(4,350
|
)
|
Claims Unresolved at the end of period
|
|
|
6,758
|
|
|
|
7,724
|
|
|
|
7,779
|
|
|
|
June 30,
|
|
December 31,
|
Disease Distribution of Unresolved Claims
|
|
2017
|
|
2016
|
|
2015
|
Mesothelioma and Other Cancer Claims
|
|
|
3,103
|
|
|
|
3,490
|
|
|
|
3,772
|
|
Nonmalignant Claims
|
|
|
3,655
|
|
|
|
4,234
|
|
|
|
4,007
|
|
Total Claims
|
|
|
6,758
|
|
|
|
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
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
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
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 September 2011, the UAW and certain Honeywell retirees filed a suit in the Eastern District
of Michigan alleging that the Master Collective Bargaining Agreements (MCBAs) between Honeywell and the UAW do not provide for
limitations on Honeywell’s obligation to contribute toward healthcare coverage for former employees who retired under the
MCBAs (CAPS). Honeywell subsequently answered the UAW’s complaint and asserted counterclaims.
Honeywell began enforcing
the CAPS against former employees who retired after the initial inclusion of the CAPS in the 2003 MCBA (the post-2003 retirees)
on January 1, 2014. The UAW and certain of the plaintiffs filed a motion for partial summary judgment with respect to the post-2003
retirees, seeking a ruling that the 2003 MCBA did not limit Honeywell’s obligation to contribute to healthcare coverage for
those retirees. That motion remains pending. Honeywell is confident that the District Court will find that the 2003 MCBA does,
in fact, limit Honeywell’s retiree healthcare obligation for the 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.
In
the second quarter of 2014, the parties agreed to stay the proceedings with respect to former employees who retired before the
initial inclusion of the CAPS in the 2003 MCBA (the pre-2003 retirees) until the Supreme Court decided
M&G Polymers USA,
LLC v. Tackett
.
The Supreme Court decided the case on January 26, 2015 and, based on the ruling, Honeywell
began enforcing the CAPS against the pre-2003 retirees as of May 1, 2015. Honeywell is confident that the CAPS will be upheld by
the District Court 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 the pre-2003 retirees would increase by approximately $129 million, reflecting the estimated
value of these CAPS.
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
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. In May 2017, Honeywell received a
declination letter from the Department of Justice stating that it would not pursue any criminal prosecution of the Company or its
employees. This matter is now fully resolved.
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.