The financial statements
and related footnotes as of June 30, 2016 should be read in conjunction with the financial statements for the year ended December
31, 2015 contained in our 2015 Annual Report on Form 10-K.
ITEM 1.
FINANCIAL STATEMENTS
Honeywell International Inc.
Consolidated Statement of Operations
(Unaudited)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
(Dollars in millions, except per share amounts)
|
|
|
|
|
|
Product sales
|
|
$
|
8,035
|
|
|
$
|
7,798
|
|
|
$
|
15,654
|
|
|
$
|
15,162
|
|
Service sales
|
|
|
1,956
|
|
|
|
1,977
|
|
|
|
3,859
|
|
|
|
3,826
|
|
Net sales
|
|
|
9,991
|
|
|
|
9,775
|
|
|
|
19,513
|
|
|
|
18,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs, expenses and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
5,602
|
|
|
|
5,541
|
|
|
|
10,951
|
|
|
|
10,754
|
|
Cost of services sold
|
|
|
1,219
|
|
|
|
1,273
|
|
|
|
2,417
|
|
|
|
2,422
|
|
|
|
|
6,821
|
|
|
|
6,814
|
|
|
|
13,368
|
|
|
|
13,176
|
|
Selling, general and administrative expenses
|
|
|
1,329
|
|
|
|
1,242
|
|
|
|
2,609
|
|
|
|
2,472
|
|
Other (income) expense
|
|
|
1
|
|
|
|
(20
|
)
|
|
|
(17
|
)
|
|
|
(40
|
)
|
Interest and other financial charges
|
|
|
85
|
|
|
|
77
|
|
|
|
170
|
|
|
|
154
|
|
|
|
|
8,236
|
|
|
|
8,113
|
|
|
|
16,130
|
|
|
|
15,762
|
|
Income before taxes
|
|
|
1,755
|
|
|
|
1,662
|
|
|
|
3,383
|
|
|
|
3,226
|
|
Tax expense
|
|
|
465
|
|
|
|
440
|
|
|
|
897
|
|
|
|
858
|
|
Net income
|
|
|
1,290
|
|
|
|
1,222
|
|
|
|
2,486
|
|
|
|
2,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to the noncontrolling interest
|
|
|
8
|
|
|
|
28
|
|
|
|
18
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Honeywell
|
|
$
|
1,282
|
|
|
$
|
1,194
|
|
|
$
|
2,468
|
|
|
$
|
2,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share of common stock - basic
|
|
$
|
1.68
|
|
|
$
|
1.52
|
|
|
$
|
3.22
|
|
|
$
|
2.95
|
|
Earnings per share of common stock - assuming dilution
|
|
$
|
1.66
|
|
|
$
|
1.51
|
|
|
$
|
3.19
|
|
|
$
|
2.91
|
|
Cash dividends per share of common stock
|
|
$
|
0.5950
|
|
|
$
|
0.5175
|
|
|
$
|
1.1900
|
|
|
$
|
1.0350
|
|
The Notes to Financial Statements are an integral part of this statement.
Honeywell International Inc.
Consolidated Statement of Comprehensive Income
(Unaudited)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
Net income
|
|
$
|
1,290
|
|
|
$
|
1,222
|
|
|
$
|
2,486
|
|
|
$
|
2,368
|
|
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation adjustment
|
|
|
(74
|
)
|
|
|
211
|
|
|
|
48
|
|
|
|
(510
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial losses
|
|
|
-
|
|
|
|
(17
|
)
|
|
|
-
|
|
|
|
(17
|
)
|
Actuarial losses recognized
|
|
|
4
|
|
|
|
5
|
|
|
|
7
|
|
|
|
10
|
|
Prior service credits recognized
|
|
|
(19
|
)
|
|
|
(1
|
)
|
|
|
(38
|
)
|
|
|
(3
|
)
|
Pension and other postretirement benefits adjustments
|
|
|
(15
|
)
|
|
|
(13
|
)
|
|
|
(31
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective portion of cash flow hedges recognized in other comprehensive income (loss)
|
|
|
38
|
|
|
|
(37
|
)
|
|
|
6
|
|
|
|
68
|
|
Less: Reclassification adjustment for gains (losses) included in net income
|
|
|
(7
|
)
|
|
|
31
|
|
|
|
(13
|
)
|
|
|
58
|
|
Changes in fair value of effective cash flow hedges
|
|
|
45
|
|
|
|
(68
|
)
|
|
|
19
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax
|
|
|
(44
|
)
|
|
|
130
|
|
|
|
36
|
|
|
|
(510
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
1,246
|
|
|
|
1,352
|
|
|
|
2,522
|
|
|
|
1,858
|
|
Less: Comprehensive income attributable to the noncontrolling interest
|
|
|
5
|
|
|
|
28
|
|
|
|
15
|
|
|
|
58
|
|
Comprehensive income attributable to Honeywell
|
|
$
|
1,241
|
|
|
$
|
1,324
|
|
|
$
|
2,507
|
|
|
$
|
1,800
|
|
The Notes to Financial Statements are an integral part of this statement.
Honeywell International Inc.
Consolidated Balance Sheet
(Unaudited)
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,045
|
|
|
$
|
5,455
|
|
Accounts, notes and other receivables
|
|
|
8,730
|
|
|
|
8,075
|
|
Inventories
|
|
|
4,678
|
|
|
|
4,420
|
|
Investments and other current assets
|
|
|
1,927
|
|
|
|
2,103
|
|
Total current assets
|
|
|
20,380
|
|
|
|
20,053
|
|
|
|
|
|
|
|
|
|
|
Investments and long-term receivables
|
|
|
561
|
|
|
|
517
|
|
Property, plant and equipment - net
|
|
|
6,086
|
|
|
|
5,789
|
|
Goodwill
|
|
|
16,688
|
|
|
|
15,895
|
|
Other intangible assets - net
|
|
|
4,557
|
|
|
|
4,577
|
|
Insurance recoveries for asbestos related liabilities
|
|
|
428
|
|
|
|
426
|
|
Deferred income taxes
|
|
|
328
|
|
|
|
283
|
|
Other assets
|
|
|
2,153
|
|
|
|
1,776
|
|
Total assets
|
|
$
|
51,181
|
|
|
$
|
49,316
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,598
|
|
|
$
|
5,580
|
|
Commercial paper and other short-term borrowings
|
|
|
3,788
|
|
|
|
5,937
|
|
Current maturities of long-term debt
|
|
|
618
|
|
|
|
577
|
|
Accrued liabilities
|
|
|
5,907
|
|
|
|
6,277
|
|
Total current liabilities
|
|
|
15,911
|
|
|
|
18,371
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
9,607
|
|
|
|
5,554
|
|
Deferred income taxes
|
|
|
767
|
|
|
|
558
|
|
Postretirement benefit obligations other than pensions
|
|
|
489
|
|
|
|
526
|
|
Asbestos related liabilities
|
|
|
1,259
|
|
|
|
1,251
|
|
Other liabilities
|
|
|
4,203
|
|
|
|
4,348
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest
|
|
|
3
|
|
|
|
290
|
|
|
|
|
|
|
|
|
|
|
SHAREOWNERS’ EQUITY
|
|
|
|
|
|
|
|
|
Capital - common stock issued
|
|
|
958
|
|
|
|
958
|
|
- additional paid-in capital
|
|
|
5,681
|
|
|
|
5,377
|
|
Common stock held in treasury, at cost
|
|
|
(13,071
|
)
|
|
|
(11,664
|
)
|
Accumulated other comprehensive loss
|
|
|
(2,499
|
)
|
|
|
(2,535
|
)
|
Retained earnings
|
|
|
27,702
|
|
|
|
26,147
|
|
Total Honeywell shareowners’ equity
|
|
|
18,771
|
|
|
|
18,283
|
|
Noncontrolling interest
|
|
|
171
|
|
|
|
135
|
|
Total shareowners’ equity
|
|
|
18,942
|
|
|
|
18,418
|
|
Total liabilities, redeemable noncontrolling interest and shareowners’ equity
|
|
$
|
51,181
|
|
|
$
|
49,316
|
|
The Notes to Financial Statements are an
integral part of this statement.
Honeywell International Inc.
Consolidated Statement of Cash Flows
(Unaudited)
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,486
|
|
|
$
|
2,368
|
|
Less: Net income attributable to the noncontrolling interest
|
|
|
18
|
|
|
|
58
|
|
Net income attributable to Honeywell
|
|
|
2,468
|
|
|
|
2,310
|
|
Adjustments to reconcile net income attributable to
Honeywell to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
364
|
|
|
|
335
|
|
Amortization
|
|
|
149
|
|
|
|
107
|
|
Repositioning and other charges
|
|
|
265
|
|
|
|
260
|
|
Net payments for repositioning and other charges
|
|
|
(266
|
)
|
|
|
(215
|
)
|
Pension and other postretirement income
|
|
|
(318
|
)
|
|
|
(183
|
)
|
Pension and other postretirement benefit payments
|
|
|
(81
|
)
|
|
|
(48
|
)
|
Stock compensation expense
|
|
|
96
|
|
|
|
91
|
|
Deferred income taxes
|
|
|
182
|
|
|
|
126
|
|
Excess tax benefits from share based payment arrangements
|
|
|
(68
|
)
|
|
|
(56
|
)
|
Other
|
|
|
9
|
|
|
|
103
|
|
Changes in assets and liabilities, net of the effects of acquisitions and divestitures:
|
|
|
|
|
|
|
|
|
Accounts, notes and other receivables
|
|
|
(513
|
)
|
|
|
(250
|
)
|
Inventories
|
|
|
(212
|
)
|
|
|
(25
|
)
|
Other current assets
|
|
|
18
|
|
|
|
(38
|
)
|
Accounts payable
|
|
|
-
|
|
|
|
(24
|
)
|
Accrued liabilities
|
|
|
(292
|
)
|
|
|
(664
|
)
|
Net cash provided by operating activities
|
|
|
1,801
|
|
|
|
1,829
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Expenditures for property, plant and equipment
|
|
|
(475
|
)
|
|
|
(408
|
)
|
Proceeds from disposals of property, plant and equipment
|
|
|
1
|
|
|
|
3
|
|
Increase in investments
|
|
|
(1,821
|
)
|
|
|
(3,866
|
)
|
Decrease in investments
|
|
|
1,785
|
|
|
|
2,059
|
|
Cash paid for acquisitions, net of cash acquired
|
|
|
(1,084
|
)
|
|
|
(185
|
)
|
Proceeds from sales of businesses, net of fees paid
|
|
|
-
|
|
|
|
2
|
|
Other
|
|
|
52
|
|
|
|
(150
|
)
|
Net cash used for investing activities
|
|
|
(1,542
|
)
|
|
|
(2,545
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Net (decrease) increase in commercial paper and other short-term borrowings
|
|
|
(2,224
|
)
|
|
|
1,129
|
|
Proceeds from issuance of common stock
|
|
|
243
|
|
|
|
125
|
|
Proceeds from issuance of long-term debt
|
|
|
4,473
|
|
|
|
14
|
|
Payments of long-term debt
|
|
|
(470
|
)
|
|
|
(57
|
)
|
Excess tax benefits from share based payment arrangements
|
|
|
68
|
|
|
|
56
|
|
Repurchases of common stock
|
|
|
(1,633
|
)
|
|
|
(486
|
)
|
Cash dividends paid
|
|
|
(957
|
)
|
|
|
(851
|
)
|
Payments to purchase the noncontrolling interest
|
|
|
(238
|
)
|
|
|
-
|
|
Other
|
|
|
18
|
|
|
|
-
|
|
Net cash used for financing activities
|
|
|
(720
|
)
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash and cash equivalents
|
|
|
51
|
|
|
|
(219
|
)
|
Net decrease in cash and cash equivalents
|
|
|
(410
|
)
|
|
|
(1,005
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
5,455
|
|
|
|
6,959
|
|
Cash and cash equivalents at end of period
|
|
$
|
5,045
|
|
|
$
|
5,954
|
|
The Notes to Financial Statements are an
integral part of this statement.
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Note 1. Basis of Presentation
In the opinion of management,
the accompanying unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of Honeywell International Inc. and its consolidated subsidiaries (Honeywell
or the Company) at June 30, 2016, the results of operations for the quarter and six months ended June 30, 2016 and 2015 and the
cash flows for the six months ended June 30, 2016 and 2015. The results of operations for the three and six months ended June 30,
2016 should not necessarily be taken as indicative of the results of operations expected for 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, 2016 and 2015 were July 2, 2016 and June 27, 2015.
Note 2. Recent Accounting Pronouncements
Accounting pronouncements
not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated
financial position or results of operations.
In May 2014, and in
subsequent related updates and amendments, the Financial Accounting Standards Board (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 the 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 was deferred for one year to the interim and annual
periods beginning on or after December 15, 2017. Early adoption is permitted as of the original effective date –
interim and annual periods beginning on or after December 15, 2016. The guidance permits the use of either a retrospective or
cumulative effect transition method. We have not yet selected a transition method and are currently evaluating the impact of
the amended guidance on our consolidated financial position, results of operations and related disclosures.
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 March 2016, the FASB
issued amended guidance related to employee share-based payment accounting. The guidance requires all income tax effects
of awards to be recognized in the income statement on a prospective basis.
The guidance also requires presentation of excess tax benefits as an operating activity on the statement of cash flows rather than
as a financing activity, and can be applied retrospectively or prospectively. The guidance increases the amount companies can withhold
to pay income taxes on awards without triggering liability classification for shares used to satisfy statutory income tax withholding
obligations and requires application of a modified retrospective transition method. The amended guidance will be effective for
interim and annual periods beginning after December 15, 2016; early adoption is permitted if all provisions are adopted in the
same period. We are evaluating the impact of the amended guidance on our consolidated financial position, results of operations
and related disclosures.
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Note 3. Acquisitions and Divestitures
During the six months
ended June 30, 2016, we acquired businesses for an aggregate cost (net of cash acquired and debt assumed) of $1,053 million.
In July 2016, the Company
entered into a definitive agreement to acquire Intelligrated, a leading provider of supply chain and warehouse automation technologies,
for approximately $1.5 billion. The transaction is expected to close in the third quarter of 2016, pending regulatory approval.
Intelligrated will be integrated into the Safety and Productivity Solutions segment. See Note 14 Subsequent Event of Notes to Financial
Statements for further discussion of the Automation and Control Solutions (ACS) realignment announced in July 2016.
In December 2015, the
Company acquired the Elster Division of Melrose Industries plc (Elster) for an aggregate value, net of cash acquired, of approximately
$4,899 million. Elster is part of ACS and Performance Materials and Technologies (PMT). The following table summarizes the updated
fair value estimates of the Elster assets and liabilities acquired as of the acquisition date:
Current assets
|
|
$
|
525
|
|
Intangible assets
|
|
|
2,255
|
|
Other noncurrent assets
|
|
|
207
|
|
Current liabilities
|
|
|
(437
|
)
|
Noncurrent liabilities
|
|
|
(988
|
)
|
Net assets acquired
|
|
|
1,562
|
|
Noncontrolling interest
|
|
|
(3
|
)
|
Goodwill
|
|
|
3,340
|
|
Purchase Price
|
|
$
|
4,899
|
|
The purchase accounting
for Elster is subject to final adjustment, primarily for the valuation of intangible assets, amounts allocated to goodwill, tax
balances and certain pre-acquisition contingencies.
In May 2016, the Company
announced its intention to spin off its Resins and Chemicals business into a standalone, publicly-traded company (to be named AdvanSix)
to Honeywell shareowners. The transaction is expected to be completed by the end of 2016 and is subject to certain customary conditions,
including, among others, assurance that the spin-off will be tax-free to Honeywell shareowners, the effectiveness of appropriate
filings with the U.S. Securities and Exchange Commission, and final approval by Honeywell’s Board of Directors. The Resins
and Chemicals business is part of PMT.
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Note 4. Repositioning and Other Charges
A summary of repositioning
and other charges follows:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Severance
|
|
$
|
70
|
|
|
$
|
38
|
|
|
$
|
98
|
|
|
$
|
75
|
|
Asset impairments
|
|
|
24
|
|
|
|
-
|
|
|
|
31
|
|
|
|
8
|
|
Exit costs
|
|
|
3
|
|
|
|
1
|
|
|
|
5
|
|
|
|
2
|
|
Reserve adjustments
|
|
|
(44
|
)
|
|
|
(5
|
)
|
|
|
(61
|
)
|
|
|
(12
|
)
|
Total net repositioning charge
|
|
|
53
|
|
|
|
34
|
|
|
|
73
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asbestos related litigation charges, net of
insurance
|
|
|
56
|
|
|
|
46
|
|
|
|
109
|
|
|
|
92
|
|
Probable and
reasonably estimable environmental liabilities
|
|
|
31
|
|
|
|
49
|
|
|
|
83
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net repositioning and other charges
|
|
$
|
140
|
|
|
$
|
129
|
|
|
$
|
265
|
|
|
$
|
260
|
|
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,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Cost of products and services sold
|
|
$
|
79
|
|
|
$
|
112
|
|
|
$
|
184
|
|
|
$
|
234
|
|
Selling, general and administrative expenses
|
|
|
37
|
|
|
|
17
|
|
|
|
57
|
|
|
|
26
|
|
Other (income) expense
|
|
|
24
|
|
|
|
-
|
|
|
|
24
|
|
|
|
-
|
|
|
|
$
|
140
|
|
|
$
|
129
|
|
|
$
|
265
|
|
|
$
|
260
|
|
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,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Aerospace
|
|
$
|
72
|
|
|
$
|
48
|
|
|
$
|
121
|
|
|
$
|
96
|
|
Automation and Control Solutions
|
|
|
(1
|
)
|
|
|
15
|
|
|
|
6
|
|
|
|
39
|
|
Performance Materials and Technologies
|
|
|
27
|
|
|
|
14
|
|
|
|
36
|
|
|
|
21
|
|
Corporate
|
|
|
42
|
|
|
|
52
|
|
|
|
102
|
|
|
|
104
|
|
|
|
$
|
140
|
|
|
$
|
129
|
|
|
$
|
265
|
|
|
$
|
260
|
|
In the quarter
ended June 30, 2016, we recognized a repositioning charge totaling $97 million including severance costs of $70 million
related to workforce reductions of 2,578 manufacturing and administrative positions in ACS, Aerospace and PMT. 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 principally related to the
write-off of certain intangible assets in connection with the planned sale of a PMT business. Also, $44 million of previously
established accruals for severance in ACS, Aerospace and PMT were returned to income as a result of higher attrition than
anticipated in
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
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 quarter
ended June 30, 2015, we recognized a repositioning charge totaling $39 million primarily for severance costs related to
workforce reductions of 940 manufacturing and administrative positions primarily in ACS and PMT. The workforce reductions
were primarily related to cost savings actions taken in connection with our productivity and ongoing functional
transformation initiatives.
In the six months
ended June 30, 2016, we recognized a repositioning charge totaling $134 million including severance costs of $98 million
related to workforce reductions of 2,871 manufacturing and administrative positions in ACS, Aerospace and PMT. 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 principally related to the write-off of certain intangible
assets in connection with the planned sale of a PMT business. Also, $61 million of previously established accruals, primarily
for severance, in ACS, Aerospace and PMT, 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, 2015, we recognized a repositioning charge totaling $85 million including severance costs of $75 million
related to workforce reductions of 3,980 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 outsourcing of certain component manufacturing in ACS. Also, $12 million of previously
established accruals, primarily for severance, mainly in ACS, were returned to income 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, 2015
|
|
$
|
329
|
|
|
$
|
-
|
|
|
$
|
21
|
|
|
$
|
350
|
|
Charges
|
|
|
98
|
|
|
|
31
|
|
|
|
5
|
|
|
|
134
|
|
Usage - cash
|
|
|
(96
|
)
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
(99
|
)
|
Usage - noncash
|
|
|
-
|
|
|
|
(31
|
)
|
|
|
-
|
|
|
|
(31
|
)
|
Foreign currency translation
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
Adjustments
|
|
|
(60
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
(61
|
)
|
June 30, 2016
|
|
$
|
276
|
|
|
$
|
-
|
|
|
$
|
22
|
|
|
$
|
298
|
|
Certain
repositioning projects in 2016 and 2015 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 5. Earnings Per Share
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
Basic
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Honeywell
|
|
$
|
1,282
|
|
|
$
|
1,194
|
|
|
$
|
2,468
|
|
|
$
|
2,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
763.3
|
|
|
|
783.3
|
|
|
|
765.5
|
|
|
|
783.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share of common stock
|
|
$
|
1.68
|
|
|
$
|
1.52
|
|
|
$
|
3.22
|
|
|
$
|
2.95
|
|
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
Assuming Dilution
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Honeywell
|
|
$
|
1,282
|
|
|
$
|
1,194
|
|
|
$
|
2,468
|
|
|
$
|
2,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
763.3
|
|
|
|
783.3
|
|
|
|
765.5
|
|
|
|
783.5
|
|
Dilutive securities issuable - stock plans
|
|
|
9.1
|
|
|
|
9.6
|
|
|
|
9.1
|
|
|
|
9.9
|
|
Total weighted average shares outstanding
|
|
|
772.4
|
|
|
|
792.9
|
|
|
|
774.6
|
|
|
|
793.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share of common stock
|
|
$
|
1.66
|
|
|
$
|
1.51
|
|
|
$
|
3.19
|
|
|
$
|
2.91
|
|
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, 2016, the weighted average number of stock
options excluded from the computations were 6.7 million and 7.6 million. For the three and six months ended June 30, 2015, the
weighted average number of stock options excluded from the computations were 7.0 million and 7.4 million. These stock options were
outstanding at the end of each period.
Note 6. Accounts, Notes and Other Receivables
|
|
June 30,
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
Trade
|
|
$
|
8,338
|
|
|
$
|
7,901
|
|
Other
|
|
|
667
|
|
|
|
436
|
|
|
|
|
9,005
|
|
|
|
8,337
|
|
Less: Allowance for doubtful accounts
|
|
|
(275
|
)
|
|
|
(262
|
)
|
|
|
$
|
8,730
|
|
|
$
|
8,075
|
|
Trade receivables include
$1,648 and $1,590 million of unbilled balances under long-term contracts as of June 30, 2016 and December 31, 2015. These amounts
are billed in accordance with the terms of customer contracts to which they relate.
Note 7. Inventories
|
|
June 30,
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
1,179
|
|
|
$
|
1,120
|
|
Work in process
|
|
|
854
|
|
|
|
826
|
|
Finished products
|
|
|
2,736
|
|
|
|
2,590
|
|
|
|
|
4,769
|
|
|
|
4,536
|
|
Reduction to LIFO cost basis
|
|
|
(91
|
)
|
|
|
(116
|
)
|
|
|
$
|
4,678
|
|
|
$
|
4,420
|
|
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Note 8. Long-term Debt and Credit Agreements
|
|
June 30,
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
5.40% notes due 2016
|
|
$
|
-
|
|
|
$
|
400
|
|
5.30% notes due 2017
|
|
|
400
|
|
|
|
400
|
|
Floating rate Euro notes due 2018
|
|
|
1,112
|
|
|
|
-
|
|
5.30% notes due 2018
|
|
|
900
|
|
|
|
900
|
|
5.00% notes due 2019
|
|
|
900
|
|
|
|
900
|
|
0.65% Euro notes due 2020
|
|
|
1,112
|
|
|
|
-
|
|
4.25% notes due 2021
|
|
|
800
|
|
|
|
800
|
|
1.30% Euro notes due 2023
|
|
|
1,389
|
|
|
|
-
|
|
3.35% notes due 2023
|
|
|
300
|
|
|
|
300
|
|
2.25% Euro notes due 2028
|
|
|
834
|
|
|
|
-
|
|
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), 0.6%-9.5% maturing at various dates through 2023
|
|
|
431
|
|
|
|
384
|
|
|
|
|
10,225
|
|
|
|
6,131
|
|
Less: current portion
|
|
|
(618
|
)
|
|
|
(577
|
)
|
|
|
$
|
9,607
|
|
|
$
|
5,554
|
|
In February 2016, the
Company issued €1,000 million Floating Rate Senior Notes due 2018, €1,000 million 0.65% Senior Notes due 2020, €1,250
million 1.30% Senior Notes due 2023 and €750 million 2.25% Senior Notes due 2028 (collectively, the “Euro Notes”).
The Euro Notes are senior unsecured and unsubordinated obligations of Honeywell and rank equally with all of Honeywell’s
existing and future senior unsecured debt and senior to all of Honeywell’s subordinated debt. The offering resulted in gross
proceeds of $4,438 million, offset by $17 million in discount and closing costs related to the offering.
On April 29, 2016, the
Company entered into Amendment No. 2 (Amendment) to the Amended and Restated $4 billion Credit Agreement dated as of July 10, 2015,
as amended by the certain Amendment No. 1 dated as of September 30, 2015 (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, 2020 to July 10, 2021.
On April 29, 2016, 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.
On April 29, 2016, the
Company terminated all commitments under the $3 billion credit agreement dated as of September 30, 2015, among the Company, the
lenders party thereto and Citibank, N.A., as administrative agent.
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
A full description of the
Credit Agreement and the 364-day Credit Agreement can be found in the Company’s Current Report on Form 8-K, dated April 29,
2016.
There have been no borrowings
under any of the credit agreements previously described.
Note 9. 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 Financial Statements in our 2015 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:
|
|
June 30,
|
|
December 31,
|
|
|
2016
|
|
2015
|
Assets:
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
$
|
152
|
|
|
$
|
28
|
|
Available for sale investments
|
|
|
1,432
|
|
|
|
1,501
|
|
Interest rate swap agreements
|
|
|
129
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
$
|
49
|
|
|
$
|
17
|
|
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, trade accounts and notes receivables, payables, commercial paper and short-term borrowings contained in the
Consolidated Balance Sheet approximates fair value. The following table sets forth the Company’s financial assets and liabilities
that were not carried at fair value:
|
|
June 30, 2016
|
|
December 31, 2015
|
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term receivables
|
|
$
|
275
|
|
|
$
|
273
|
|
|
$
|
292
|
|
|
$
|
283
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and related current maturities
|
|
$
|
10,225
|
|
|
$
|
11,359
|
|
|
$
|
6,131
|
|
|
$
|
6,721
|
|
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. 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. The fair
value of the long-term debt and related current maturities is also considered level 2.
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, 2016,
we recognized $8 million and $37 million of
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
gains in earnings on interest rate
swap agreements. For the three and six months ended June 30, 2015, we recognized $29 million and $13 million of losses 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 $122 million and $90 million of income in Other (Income) Expense for
the three and six months ended June 30, 2016. We recognized $24 million of income and $138 million of expense in Other (Income)
Expense for the three and six months ended June 30, 2015.
Note 10. 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, 2015
|
|
$
|
(1,892
|
)
|
|
$
|
(644
|
)
|
|
$
|
1
|
|
|
$
|
(2,535
|
)
|
Other
comprehensive income (loss) before reclassifications
|
|
|
48
|
|
|
|
-
|
|
|
|
6
|
|
|
|
54
|
|
Amounts
reclassified from accumulated other comprehensive income (loss)
|
|
|
-
|
|
|
|
(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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
Changes in
|
|
|
|
|
Foreign
|
|
and Other
|
|
Fair Value
|
|
|
|
|
Exchange
|
|
Postretirement
|
|
of Effective
|
|
|
|
|
Translation
|
|
Benefits
|
|
Cash Flow
|
|
|
|
|
Adjustment
|
|
Adjustments
|
|
Hedges
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
$
|
(740
|
)
|
|
$
|
(728
|
)
|
|
$
|
9
|
|
|
$
|
(1,459
|
)
|
Other
comprehensive income (loss) before reclassifications
|
|
|
(510
|
)
|
|
|
(17
|
)
|
|
|
68
|
|
|
|
(459
|
)
|
Amounts
reclassified from accumulated other comprehensive income (loss)
|
|
|
-
|
|
|
|
7
|
|
|
|
(58
|
)
|
|
|
(51
|
)
|
Net
current period other comprehensive income (loss)
|
|
|
(510
|
)
|
|
|
(10
|
)
|
|
|
10
|
|
|
|
(510
|
)
|
Balance at June 30, 2015
|
|
$
|
(1,250
|
)
|
|
$
|
(738
|
)
|
|
$
|
19
|
|
|
$
|
(1,969
|
)
|
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Note 11. Segment Financial Data
We globally manage
our business operations through three 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 business unit income (loss)
before taxes excluding general corporate unallocated expense, other income (expense), interest and other financial charges, pension
and other postretirement income (expense), stock compensation expense, repositioning and other charges.
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
2,556
|
|
|
$
|
2,623
|
|
|
$
|
5,046
|
|
|
$
|
5,086
|
|
Services
|
|
|
1,223
|
|
|
|
1,204
|
|
|
|
2,438
|
|
|
|
2,348
|
|
Total
|
|
|
3,779
|
|
|
|
3,827
|
|
|
|
7,484
|
|
|
|
7,434
|
|
Automation and Control Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
3,574
|
|
|
|
3,243
|
|
|
|
6,960
|
|
|
|
6,222
|
|
Services
|
|
|
312
|
|
|
|
310
|
|
|
|
603
|
|
|
|
595
|
|
Total
|
|
|
3,886
|
|
|
|
3,553
|
|
|
|
7,563
|
|
|
|
6,817
|
|
Performance Materials and Technologies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
1,905
|
|
|
|
1,932
|
|
|
|
3,648
|
|
|
|
3,854
|
|
Services
|
|
|
421
|
|
|
|
463
|
|
|
|
818
|
|
|
|
883
|
|
Total
|
|
|
2,326
|
|
|
|
2,395
|
|
|
|
4,466
|
|
|
|
4,737
|
|
|
|
$
|
9,991
|
|
|
$
|
9,775
|
|
|
$
|
19,513
|
|
|
$
|
18,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
$
|
791
|
|
|
$
|
777
|
|
|
$
|
1,589
|
|
|
$
|
1,529
|
|
Automation and Control Solutions
|
|
|
615
|
|
|
|
567
|
|
|
|
1,145
|
|
|
|
1,083
|
|
Performance Materials and Technologies
|
|
|
490
|
|
|
|
509
|
|
|
|
931
|
|
|
|
1,012
|
|
Corporate
|
|
|
(49
|
)
|
|
|
(50
|
)
|
|
|
(98
|
)
|
|
|
(100
|
)
|
Total segment profit
|
|
|
1,847
|
|
|
|
1,803
|
|
|
|
3,567
|
|
|
|
3,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
(a)
|
|
|
(7
|
)
|
|
|
12
|
|
|
|
5
|
|
|
|
24
|
|
Interest and other financial charges
|
|
|
(85
|
)
|
|
|
(77
|
)
|
|
|
(170
|
)
|
|
|
(154
|
)
|
Stock compensation expense
(b)
|
|
|
(43
|
)
|
|
|
(39
|
)
|
|
|
(96
|
)
|
|
|
(91
|
)
|
Pension ongoing income
(b)
|
|
|
151
|
|
|
|
103
|
|
|
|
301
|
|
|
|
203
|
|
Other postretirement income (expense)
(b)
|
|
|
8
|
|
|
|
(11
|
)
|
|
|
17
|
|
|
|
(20
|
)
|
Repositioning and other charges
(b)
|
|
|
(116
|
)
|
|
|
(129
|
)
|
|
|
(241
|
)
|
|
|
(260
|
)
|
Income before taxes
|
|
$
|
1,755
|
|
|
$
|
1,662
|
|
|
$
|
3,383
|
|
|
$
|
3,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Note 12. 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,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
47
|
|
|
$
|
57
|
|
|
$
|
95
|
|
|
$
|
114
|
|
Interest cost
|
|
|
150
|
|
|
|
178
|
|
|
|
300
|
|
|
|
356
|
|
Expected return on plan assets
|
|
|
(306
|
)
|
|
|
(321
|
)
|
|
|
(612
|
)
|
|
|
(641
|
)
|
Amortization of prior service (credit) cost
|
|
|
(11
|
)
|
|
|
6
|
|
|
|
(22
|
)
|
|
|
12
|
|
|
|
$
|
(120
|
)
|
|
$
|
(80
|
)
|
|
$
|
(239
|
)
|
|
$
|
(159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. Plans
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
13
|
|
|
$
|
13
|
|
|
$
|
25
|
|
|
$
|
26
|
|
Interest cost
|
|
|
47
|
|
|
|
45
|
|
|
|
94
|
|
|
|
89
|
|
Expected return on plan assets
|
|
|
(100
|
)
|
|
|
(89
|
)
|
|
|
(199
|
)
|
|
|
(179
|
)
|
Amortization of prior service (credit)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
$
|
(41
|
)
|
|
$
|
(32
|
)
|
|
$
|
(82
|
)
|
|
$
|
(65
|
)
|
Note 13. Commitments and Contingencies
Environmental Matters
Our environmental matters
are described in Note 19 Commitments and Contingencies of Notes to Financial Statements in our 2015 Annual Report on Form 10-K.
The following table summarizes
information concerning our recorded liabilities for environmental costs:
December 31, 2015
|
|
$
|
518
|
|
|
|
|
|
Accruals for environmental matters deemed probable and reasonably estimable
|
|
|
83
|
|
|
|
|
|
Environmental liability payments
|
|
|
(77
|
)
|
|
|
|
|
Other
|
|
|
(1
|
)
|
|
|
|
|
June 30, 2016
|
|
$
|
523
|
|
|
|
|
|
Environmental liabilities are included in the following balance sheet
accounts:
|
|
June 30,
|
|
December 31,
|
|
|
2016
|
|
2015
|
Accrued liabilities
|
|
$
|
252
|
|
|
$
|
253
|
|
Other liabilities
|
|
|
271
|
|
|
|
265
|
|
|
|
$
|
523
|
|
|
$
|
518
|
|
Honeywell International Inc.
Notes to 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
—We are implementing a combined dredging/capping remedy of Onondaga Lake pursuant to a consent decree
approved by the United States District Court for the Northern District of New York in January 2007. We have accrued for our estimated
cost of remediating Onondaga Lake based on currently available information and analysis performed by our engineering consultants.
Honeywell is also conducting remedial investigations and activities at other sites in Syracuse. We have recorded reserves for these
investigations and activities where appropriate, consistent with the accounting policy described above.
Honeywell has entered
into a cooperative agreement with potential natural resource trustees to assess alleged natural resource damages relating to this
site. It is not possible to predict the outcome or duration of this assessment, or the amounts of, or responsibility for, any damages.
Asbestos Matters
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, 2015
|
|
$
|
622
|
|
|
$
|
921
|
|
|
$
|
1,543
|
|
Accrual for update to estimated liability
|
|
|
102
|
|
|
|
5
|
|
|
|
107
|
|
Asbestos related liability payments
|
|
|
(96
|
)
|
|
|
(3
|
)
|
|
|
(99
|
)
|
June 30, 2016
|
|
$
|
628
|
|
|
$
|
923
|
|
|
$
|
1,551
|
|
Insurance Recoveries for Asbestos Related
Liabilities
|
|
|
|
|
|
|
|
|
Bendix
|
|
NARCO
|
|
Total
|
December 31, 2015
|
|
$
|
124
|
|
|
$
|
325
|
|
|
$
|
449
|
|
Probable
insurance recoveries related to estimated liability
|
|
|
10
|
|
|
|
-
|
|
|
|
10
|
|
Insurance receivables settlements
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
Insurance receipts for asbestos related liabilities
|
|
|
(6
|
)
|
|
|
(3
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
$
|
129
|
|
|
$
|
322
|
|
|
$
|
451
|
|
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
NARCO and Bendix asbestos related balances are included in the following
balance sheet accounts:
|
|
June 30,
|
|
December 31,
|
|
|
2016
|
|
2015
|
Other current assets
|
|
$
|
23
|
|
|
$
|
23
|
|
Insurance recoveries for asbestos related liabilities
|
|
|
428
|
|
|
|
426
|
|
|
|
$
|
451
|
|
|
$
|
449
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
292
|
|
|
$
|
292
|
|
Asbestos related liabilities
|
|
|
1,259
|
|
|
|
1,251
|
|
|
|
$
|
1,551
|
|
|
$
|
1,543
|
|
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 2016 through 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. Claims processing will continue during this period subject to a defined dispute resolution process. As of June 30, 2016,
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 ($35 million) and for the estimated value of future NARCO asbestos claims expected
to be asserted against the NARCO Trust through 2018 ($743 million). In the absence of actual trust experience on which to base
the estimate, Honeywell projected the probable value of asbestos related future liabilities, including trust claim handling costs,
based on a commonly accepted methodology used by numerous bankruptcy courts addressing 524(g) trusts. Some critical assumptions
underlying this 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.
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. In light of
the uncertainties inherent in making long-term projections and in connection with the recent implementation of the Trust Distribution
Procedures by the NARCO Trust, as well as the stay of all NARCO asbestos claims which remained in place throughout NARCO’s
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Chapter 11 case, we do not believe that
we have a reasonable basis for estimating NARCO asbestos claims beyond 2018.
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.
Friction Products
—the
following tables present information regarding Bendix related asbestos claims activity:
|
|
Six Months Ended
|
|
Years Ended
|
|
|
June 30,
|
|
December 31,
|
Claims Activity
|
|
2016
|
|
2015
|
|
2014
|
Claims Unresolved at the beginning of period
|
|
|
7,779
|
|
|
|
9,267
|
|
|
|
12,302
|
|
Claims Filed
|
|
|
1,421
|
|
|
|
2,862
|
|
|
|
3,694
|
|
Claims Resolved
(1)
|
|
|
(1,183
|
)
|
|
|
(4,350
|
)
|
|
|
(6,729
|
)
|
Claims Unresolved at the end of period
|
|
|
8,017
|
|
|
|
7,779
|
|
|
|
9,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Claims resolved in 2014 include 2,110 cancer claims which were
determined to have no value. Also, claims resolved in 2015 and 2014 include significantly aged (i.e., pending for more than six
years) claims totaling 153 and 1,266.
Disease Distribution of Unresolved Claims
|
|
June 30,
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Mesothelioma and Other Cancer Claims
|
|
|
3,791
|
|
|
|
3,772
|
|
|
|
3,933
|
|
Nonmalignant Claims
|
|
|
4,226
|
|
|
|
4,007
|
|
|
|
5,334
|
|
Total Claims
|
|
|
8,017
|
|
|
|
7,779
|
|
|
|
9,267
|
|
Honeywell has experienced average resolution values per claim excluding
legal costs as follows:
|
|
Years Ended December 31,
|
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
2011
|
|
|
(in whole dollars)
|
Malignant claims
|
|
$
|
44,000
|
|
|
$
|
53,500
|
|
|
$
|
51,000
|
|
|
$
|
49,000
|
|
|
$
|
48,000
|
|
Nonmalignant claims
|
|
$
|
100
|
|
|
$
|
120
|
|
|
$
|
850
|
|
|
$
|
1,400
|
|
|
$
|
1,000
|
|
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.
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
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
believes it has sufficient insurance coverage and reserves to cover all pending Bendix-related asbestos claims and Bendix-related
asbestos claims estimated to be filed within the next five years. Although it is impossible to predict the outcome of either pending
or future Bendix-related asbestos claims, we do not believe that such claims would have a material adverse effect on our consolidated
financial position in light of our insurance coverage and our prior experience in resolving such claims. If the rate and types
of claims filed, the average resolution value of such claims and the period of time over which claim settlements are paid (collectively,
the Variable Claims Factors) do not substantially change, Honeywell would not expect future Bendix-related asbestos claims to have
a material adverse effect on our results of operations or operating cash flows in any fiscal year. No assurances can be given,
however, that the Variable Claims Factors will not change
.
Other Matters
We are subject to a
number of other lawsuits, investigations and disputes (some of which involve substantial amounts claimed) arising out of the conduct
of our business, including matters relating to commercial transactions, government contracts, product liability, prior acquisitions
and divestitures, employee benefit plans, intellectual property, and environmental, health and safety matters. We recognize a liability
for any contingency that is probable of occurrence and reasonably estimable. We continually assess the likelihood of adverse judgments
of outcomes in these matters, as well as potential ranges of possible losses (taking into consideration any insurance recoveries),
based on a careful analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts. Included
in these other matters are the following:
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
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
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 $176 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
$110 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 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.
Note 14.
Subsequent Event
In
July 2016, the Company announced that it is realigning the business units comprising
its
Automation and Control Solutions business segment by forming two new business segments: Home and Building Technologies (HBT) and
Safety and Productivity Solutions (SPS).
HBT will include Environmental & Energy Solutions, Security and Fire,
and Building Solutions and Distribution.
Additionally, the Industrial Combustion/Thermal
business, previously part of Environmental & Energy Solutions in ACS, will become part of Performance Materials and Technologies.
SPS
will include Sensing & Productivity Solutions and Industrial Safety, as well
as the Intelligrated acquisition after it closes.
Under the realigned segment reporting structure,
the Company will have four business segments: Aerospace, Performance Materials and Technologies, HBT, and SPS.
The
Company intends to report its financial performance based on this realignment effective with the reporting of third quarter 2016
results.
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
|
|
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
|
|
(Dollars in millions, except per share amounts)
|
The following MD&A is intended
to help the reader understand the results of operations and financial condition of Honeywell International Inc. and its consolidated
subsidiaries (Honeywell or the Company) for the three and six months ended June 30, 2016. The financial information as of June
30, 2016 should be read in conjunction with the financial statements for the year ended December 31, 2015 contained in our 2015
Annual Report on Form 10-K.
In July 2016, the Company
announced that it is
realigning the business units comprising its Automation and Control
Solutions (ACS) business segment by forming two new business segments: Home and Building Technologies (HBT) and Safety and Productivity
Solutions (SPS). HBT will include Environmental & Energy Solutions, Security and Fire, and Building Solutions
and Distribution. Additionally, the Industrial Combustion/Thermal business, previously
part of Environmental & Energy Solutions in ACS, will become part of Performance Materials and Technologies (PMT). SPS
will include Sensing & Productivity Solutions and Industrial Safety, as well as the Intelligrated acquisition after
it closes. Under the realigned segment reporting structure, the Company will have four business
segments: Aerospace, PMT, HBT, and SPS. The Company intends to report its financial performance based on this realignment
effective with the reporting of results for the third quarter 2016.
A.
|
Results of Operations – three and six months ended June 30, 2016 compared with the three and six months ended June
30, 2015
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net sales
|
|
$
|
9,991
|
|
|
$
|
9,775
|
|
|
$
|
19,513
|
|
|
$
|
18,988
|
|
% change compared with prior period
|
|
|
2
|
%
|
|
|
|
|
|
|
3
|
%
|
|
|
|
|
The change in net sales compared to the prior year period is attributable
to the following:
|
|
Three Months
|
|
Year to Date
|
Volume
|
|
|
(2
|
)%
|
|
|
(1
|
)%
|
Foreign Currency Translation
|
|
|
(1
|
)%
|
|
|
(1
|
)%
|
Acquisitions/Divestitures
|
|
|
5
|
%
|
|
|
5
|
%
|
|
|
|
2
|
%
|
|
|
3
|
%
|
A discussion of net sales by segment
can be found in the Review of Business Segments section of this MD&A. The foreign currency translation impact for the quarter
ended June 30, 2016 is principally driven by the weakening of the British Pound, Chinese Renminbi and Canadian Dollar, partially
offset by the strengthening of the Euro against the U.S. Dollar. The foreign currency translation impact for the six months ended
June 30, 2016 is principally driven by the weakening of the Canadian Dollar, British Pound and Chinese Renminbi against the U.S.
Dollar.
Cost of Products and Services Sold
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Cost of products and services sold
|
|
$
|
6,821
|
|
|
$
|
6,814
|
|
|
$
|
13,368
|
|
|
$
|
13,176
|
|
% change compared with prior period
|
|
|
-
|
|
|
|
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin percentage
|
|
|
31.7
|
%
|
|
|
30.3
|
%
|
|
|
31.5
|
%
|
|
|
30.6
|
%
|
Cost of products and services sold
were flat in the quarter ended June 30, 2016 principally due to an increase in direct material and labor costs of approximately
$90 million (driven primarily by acquisitions, partially offset by the favorable impact from productivity, net of inflation, lower
sales volumes and foreign currency), offset by increased pension and other postretirement benefits income of approximately $55
million and lower repositioning and other charges of approximately $35 million.
Cost of products and services
sold increased in the six months ended June 30, 2016 principally due to an increase in direct material and labor costs of
approximately $310 million (driven primarily by acquisitions, partially offset by the favorable impact from productivity, net
of inflation, foreign currency and lower sales volumes), partially offset by increased pension and other postretirement
benefits income of approximately $110 million and lower repositioning and other charges of approximately $50 million.
Gross margin percentage increased
in the quarter and six months ended June 30, 2016 primarily due to higher segment gross margin in Aerospace and PMT (approximately 0.6 and 0.5 percentage point impact for the quarter and six month periods), increased pension
and other postretirement benefits income (approximately 0.6 percentage point impact for the quarter and six month periods) and
lower repositioning and other charges (approximately 0.3 percentage point impact for the quarter and six month periods), partially
offset by lower segment gross margin in ACS (approximately 0.2 and 0.5 percentage point impact
for the quarter and six month periods), principally attributed to acquisitions.
Selling, General and Administrative Expenses
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Selling, general and administrative expense
|
|
$
|
1,329
|
|
|
$
|
1,242
|
|
|
$
|
2,609
|
|
|
$
|
2,472
|
|
Percent of sales
|
|
|
13.3
|
%
|
|
|
12.7
|
%
|
|
|
13.4
|
%
|
|
|
13.0
|
%
|
Selling, general and administrative
expenses (SG&A) increased in the quarter ended June 30, 2016 primarily due to an increase in labor costs, principally attributed
to acquisitions.
SG&A increased in the six months
ended June 30, 2016 primarily due to an increase in labor costs (principally attributed to acquisitions and merit increases, partially
offset by a reduction in incentive compensation), partially offset by the favorable impact from foreign currency translation.
Tax Expense
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense
|
|
$
|
465
|
|
|
$
|
440
|
|
|
$
|
897
|
|
|
$
|
858
|
|
Effective tax rate
|
|
|
26.5
|
%
|
|
|
26.5
|
%
|
|
|
26.5
|
%
|
|
|
26.6
|
%
|
The effective tax rates for the quarter
and six months ended June 30, 2016 were lower than the U.S. federal statutory rate of 35% due, in part, to non-U.S. earnings taxed
at lower rates, the vast majority of which we intend to permanently reinvest outside the United States, and benefits from manufacturing
incentives.
The Company currently expects the
effective tax rate for 2016 to be approximately 26.5%. The effective tax rate can vary from quarter to quarter due to unusual or
infrequently occurring items, the resolution of income tax audits, changes in tax laws or other items such as pension mark-to-market
adjustments.
Net Income Attributable to Honeywell
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Honeywell
|
|
$
|
1,282
|
|
|
$
|
1,194
|
|
|
$
|
2,468
|
|
|
$
|
2,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share of common stock – assuming dilution
|
|
$
|
1.66
|
|
|
$
|
1.51
|
|
|
$
|
3.19
|
|
|
$
|
2.91
|
|
Earnings per share of common stock
– assuming dilution increased in the quarter and six months ended June 30, 2016 primarily driven by higher pension and other
postretirement income, increased segment profit in Aerospace and ACS, partially offset by decreased segment profit in PMT, and
a decrease in the weighted average shares outstanding.
Review of Business Segments
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
%
|
|
|
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Aviation Original Equipment
|
|
$
|
676
|
|
|
$
|
741
|
|
|
|
(9)%
|
|
|
$
|
1,377
|
|
|
$
|
1,424
|
|
|
|
(3)%
|
|
Commercial Aviation Aftermarket
|
|
|
1,207
|
|
|
|
1,143
|
|
|
|
6%
|
|
|
|
2,355
|
|
|
|
2,225
|
|
|
|
6%
|
|
Defense and Space
|
|
|
1,096
|
|
|
|
1,178
|
|
|
|
(7)%
|
|
|
|
2,165
|
|
|
|
2,253
|
|
|
|
(4)%
|
|
Transportation Systems
|
|
|
800
|
|
|
|
765
|
|
|
|
5%
|
|
|
|
1,587
|
|
|
|
1,532
|
|
|
|
4%
|
|
Total Aerospace Sales
|
|
|
3,779
|
|
|
|
3,827
|
|
|
|
|
|
|
|
7,484
|
|
|
|
7,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automation and Control Solutions Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Safety & Security
|
|
|
2,709
|
|
|
|
2,389
|
|
|
|
13%
|
|
|
|
5,307
|
|
|
|
4,623
|
|
|
|
15%
|
|
Building Solutions & Distribution
|
|
|
1,177
|
|
|
|
1,164
|
|
|
|
1%
|
|
|
|
2,256
|
|
|
|
2,194
|
|
|
|
3%
|
|
Total Automation and Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solutions Sales
|
|
|
3,886
|
|
|
|
3,553
|
|
|
|
|
|
|
|
7,563
|
|
|
|
6,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Materials and Technologies Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UOP
|
|
|
614
|
|
|
|
745
|
|
|
|
(18)%
|
|
|
|
1,182
|
|
|
|
1,659
|
|
|
|
(29)%
|
|
Process Solutions
|
|
|
778
|
|
|
|
687
|
|
|
|
13%
|
|
|
|
1,474
|
|
|
|
1,319
|
|
|
|
12%
|
|
Advanced Materials
|
|
|
934
|
|
|
|
963
|
|
|
|
(3)%
|
|
|
|
1,810
|
|
|
|
1,759
|
|
|
|
3%
|
|
Total Performance Materials and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technologies Sales
|
|
|
2,326
|
|
|
|
2,395
|
|
|
|
|
|
|
|
4,466
|
|
|
|
4,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
9,991
|
|
|
$
|
9,775
|
|
|
|
|
|
|
$
|
19,513
|
|
|
$
|
18,988
|
|
|
|
|
|
Aerospace
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
2016
|
|
2015
|
|
%
Change
|
|
2016
|
|
2015
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
3,779
|
|
|
$
|
3,827
|
|
|
|
(1)%
|
|
|
$
|
7,484
|
|
|
$
|
7,434
|
|
|
|
1%
|
|
Cost of products and services sold
|
|
|
2,757
|
|
|
|
2,818
|
|
|
|
|
|
|
|
5,439
|
|
|
|
5,437
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
153
|
|
|
|
156
|
|
|
|
|
|
|
|
298
|
|
|
|
317
|
|
|
|
|
|
Other
|
|
|
78
|
|
|
|
76
|
|
|
|
|
|
|
|
158
|
|
|
|
151
|
|
|
|
|
|
Segment profit
|
|
$
|
791
|
|
|
$
|
777
|
|
|
|
2%
|
|
|
$
|
1,589
|
|
|
$
|
1,529
|
|
|
|
4%
|
|
|
|
2016 vs. 2015
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
Factors Contributing to Year-Over-Year Change
|
|
|
Sales
|
|
|
Segment
Profit
|
|
|
Sales
|
|
|
Segment
Profit
|
Organic growth/ Operational segment profit
|
|
|
(2
|
)%
|
|
|
1
|
%
|
|
|
-
|
|
|
|
5
|
%
|
Foreign currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)%
|
Acquisitions and divestitures, net
|
|
|
1
|
%
|
|
|
1
|
%
|
|
|
1
|
%
|
|
|
-
|
|
Total % Change
|
|
|
(1
|
)%
|
|
|
2
|
%
|
|
|
1
|
%
|
|
|
4
|
%
|
Aerospace sales decreased in the
quarter ended June 30, 2016 primarily due to a decrease in organic sales volumes, partially offset by growth from acquisitions,
net of divestitures.
Aerospace sales increased in the
six months ended June 30, 2016 primarily driven by growth from acquisitions, net of divestitures.
|
·
|
Commercial Original Equipment sales decreased 9% (decreased
8% organic) in the quarter ended June 30, 2016 and decreased 3% (decreased 2% organic) in the six months ended June 30, 2016 primarily
due to lower shipments to business and general aviation original equipment manufacturers (OEMs) and higher incentives to air transport
and regional OEMs (OEM incentives), partially offset by higher shipments to air transport and regional OEMs. Consistent with broader
aerospace industry trends, we expect the continuation of lower business and general aviation OEM sales volumes, similar to our
experience during the quarter and six months ended June 30, 2016.
|
|
·
|
Commercial Aftermarket sales increased 6% (increased
6% organic) in the quarter ended June 30, 2016 and increased 6% (increased 6% organic) in the six months ended June 30, 2016 primarily
driven by higher repair and overhaul activities and increased spares shipments.
|
|
·
|
Defense and Space sales decreased 7% (decreased 10%
organic) in the quarter ended June 30, 2016 and decreased 4% (decreased 6% organic) in the six months ended June 30, 2016 primarily
due to declines in international programs and lower U.S. government services revenue, partially offset by sales from the COM DEV
acquisition.
|
|
·
|
Transportation Systems sales increased 5% (increased
3% organic) in the quarter ended June 30, 2016 and increased 4% (increased 5% organic) in the six months ended June 30, 2016 primarily
driven by new platform launches and higher global turbo penetration.
|
Aerospace segment profit increased
in the quarter ended June 30, 2016 primarily driven by higher operational segment profit and acquisitions, net of divestitures.
The increase in operational segment profit is primarily driven by productivity, net of inflation, and favorable pricing, partially
offset by continued investments for growth and higher OEM incentives. Cost of products and services sold decreased in the quarter
ended June 30, 2016 primarily driven by productivity, net of inflation and lower organic sales volumes, partially offset by continued
investments for growth and acquisitions, net of divestitures.
Aerospace segment profit increased
in the six months ended June 30, 2016 primarily driven by an increase in operational segment profit, partially offset by the unfavorable
impact of foreign currency translation. The increase in operational segment profit is primarily driven by productivity, net of
inflation, and favorable pricing, partially offset by continued investments for growth and higher OEM incentives. Cost of products
and services sold was approximately flat in the six months ended June 30, 2016.
Automation and Control Solutions
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
2016
|
|
2015
|
|
% Change
|
|
2016
|
|
2015
|
|
% Change
|
Net sales
|
|
$
|
3,886
|
|
|
$
|
3,553
|
|
|
|
9%
|
|
|
$
|
7,563
|
|
|
$
|
6,817
|
|
|
|
11%
|
|
Cost of products and services sold
|
|
|
2,551
|
|
|
|
2,314
|
|
|
|
|
|
|
|
4,996
|
|
|
|
4,403
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
640
|
|
|
|
599
|
|
|
|
|
|
|
|
1,263
|
|
|
|
1,186
|
|
|
|
|
|
Other
|
|
|
80
|
|
|
|
73
|
|
|
|
|
|
|
|
159
|
|
|
|
145
|
|
|
|
|
|
Segment profit
|
|
$
|
615
|
|
|
$
|
567
|
|
|
|
8%
|
|
|
$
|
1,145
|
|
|
$
|
1,083
|
|
|
|
6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 vs. 2015
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
Factors Contributing to Year-Over-Year Change
|
|
Sales
|
|
Segment
Profit
|
|
Sales
|
|
Segment
Profit
|
Organic growth/ Operational segment profit
|
|
(1
|
)%
|
|
3
|
%
|
|
2
|
%
|
|
4
|
%
|
Foreign currency translation
|
|
|
(1
|
)%
|
|
|
(2
|
)%
|
|
|
(2
|
)%
|
|
|
(2
|
)%
|
Acquisitions and divestitures, net
|
|
|
11
|
%
|
|
|
7
|
%
|
|
|
11
|
%
|
|
|
4
|
%
|
Total % Change
|
|
|
9
|
%
|
|
|
8
|
%
|
|
|
11
|
%
|
|
|
6
|
%
|
ACS sales increased in the quarter
and six months ended June 30, 2016 primarily due to growth from acquisitions partially offset by the unfavorable impact of foreign
currency translation.
|
·
|
Sales in Energy, Safety & Security increased 13%
(decreased 2% organic) in the quarter ended June 30, 2016 and increased 15% (flat organic) in the six months ended June 30, 2016
principally due to acquisitions partially offset by the unfavorable impact of foreign currency translation and decreased sales
volume in Sensing & Productivity Solutions.
|
|
·
|
Sales in Building Solutions & Distribution increased
1% (increased 3% organic) in the quarter ended June 30, 2016 and increased 3% (increased 5% organic) in the six months ended June
30, 2016 principally due to organic sales growth partially offset by the unfavorable impact of foreign currency translation. Organic
sales growth was primarily due to increased sales volume in the Americas Distribution business and growth in the project installation
and services businesses partially offset by the unfavorable impact of foreign currency translation.
|
ACS segment profit increased in the
quarter and six months ended June 30, 2016 due to acquisitions and higher operational segment profit, partially offset by the unfavorable
impact of foreign currency translation. The increase in operational segment profit is primarily due to the positive impact of price
and productivity, net of inflation, partially offset by continued investments for growth. Cost of products and services sold increased
in the quarter and six months ended June 30, 2016 primarily due to acquisitions and higher organic sales volumes partially offset
by the favorable impact of foreign currency translation and productivity, net of inflation.
Performance Materials and Technologies
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
2016
|
|
2015
|
|
%
Change
|
|
2016
|
|
2015
|
|
%
Change
|
Net sales
|
|
$
|
2,326
|
|
|
$
|
2,395
|
|
|
|
(3)%
|
|
|
$
|
4,466
|
|
|
$
|
4,737
|
|
|
|
(6)%
|
|
Cost of products and services sold
|
|
|
1,554
|
|
|
|
1,636
|
|
|
|
|
|
|
|
2,984
|
|
|
|
3,218
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
244
|
|
|
|
218
|
|
|
|
|
|
|
|
476
|
|
|
|
440
|
|
|
|
|
|
Other
|
|
|
38
|
|
|
|
32
|
|
|
|
|
|
|
|
75
|
|
|
|
67
|
|
|
|
|
|
Segment profit
|
|
$
|
490
|
|
|
$
|
509
|
|
|
|
(4)%
|
|
|
$
|
931
|
|
|
$
|
1,012
|
|
|
|
(8)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 vs. 2015
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30, 2016
|
|
June 30, 2016
|
Factors Contributing to Year-Over-Year Change
|
|
|
Sales
|
|
|
Segment
Profit
|
|
|
Sales
|
|
|
Segment
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic growth/ Operational segment profit
|
|
|
(5
|
)%
|
|
|
(6
|
)%
|
|
|
(7
|
)%
|
|
|
(9
|
)%
|
Foreign currency translation
|
|
|
(1
|
)%
|
|
|
(1
|
)%
|
|
|
(2
|
)%
|
|
|
(2
|
)%
|
Acquisitions and divestitures, net
|
|
|
3
|
%
|
|
|
3
|
%
|
|
|
3
|
%
|
|
|
3
|
%
|
Total % Change
|
|
|
(3
|
%)
|
|
|
(4
|
)%
|
|
|
(6
|
%)
|
|
|
(8
|
%)
|
PMT sales decreased in the quarter
and six months ended June 30, 2016 due to a decrease in organic sales volumes and the unfavorable impact of foreign currency translation,
partially offset by growth from acquisitions.
|
·
|
UOP sales decreased 18% (decreased 17% organic) in
the quarter ended June 30, 2016 and decreased 29% (decreased 28% organic) in the six months ended June 30, 2016 primarily driven
by lower gas processing revenues due to a significant slowdown in customer projects, which is expected to continue, decreased equipment
sales, decreased licensing sales in the second quarter, and decreased catalyst volumes. Catalyst volumes are expected to increase
in the second half of 2016.
|
|
·
|
Process Solutions sales increased 13% (increased 8%
organic) in the quarter ended June 30, 2016 and increased 12% (increased 9% organic) in the six months ended June 30, 2016 primarily
driven by higher revenues in projects, increased volumes in field products driven by the Elster acquisition, and increased software
and services revenues.
|
|
·
|
Advanced Materials sales decreased 3% (decreased 5%
organic) in the quarter ended June 30, 2016 primarily driven by lower market pricing as well as lower raw material pass-through
pricing in Resins and Chemicals, partially offset by increased volumes in Specialty Products and Fluorine Products.
|
Advanced Materials sales increased 3% (flat
organic) in the six months ended June 30, 2016 primarily driven by increased volumes in Fluorine Products and Specialty Products,
partially offset by lower market pricing as well as lower raw material pass-through pricing in Resins and Chemicals.
PMT segment profit decreased in the
quarter and six months ended June 30, 2016 due to a decrease in operational segment profit and the unfavorable impact of foreign
currency translation, partially offset by acquisitions. The decrease in operational segment profit is primarily due to lower organic
sales volume, particularly in UOP as described above. Cost of products and services sold decreased in the quarter and six months
ended June 30, 2016 primarily due to lower organic sales volumes, favorable foreign currency translation, and productivity, net
of inflation, partially offset by acquisitions.
Repositioning and Other Charges
Our repositioning actions
are expected to generate incremental pretax savings of $175 million to $200 million in 2016 compared with 2015 principally from
planned workforce reductions. Cash spending related to our repositioning actions was $99 million in the six months ended June 30,
2016 and was funded through operating cash flows. We expect cash spending for repositioning actions to be approximately $175 million
in 2016 and to be funded through operating cash flows.
B.
|
Liquidity and Capital Resources
|
Cash Flow Summary
|
|
Six Months Ended
|
|
|
June 30,
|
|
|
2016
|
|
2015
|
Cash provided by (used for):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
1,801
|
|
|
$
|
1,829
|
|
Investing activities
|
|
|
(1,542
|
)
|
|
|
(2,545
|
)
|
Financing activities
|
|
|
(720
|
)
|
|
|
(70
|
)
|
Effect of exchange rate changes on cash
|
|
|
51
|
|
|
|
(219
|
)
|
Net decrease in cash and cash equivalents
|
|
$
|
(410
|
)
|
|
$
|
(1,005
|
)
|
Cash provided by operating
activities decreased by $28 million primarily due to an unfavorable impact from working capital of $426 million, partially offset
by a favorable impact from accrued liabilities of $372 million (primarily driven by a $223 million decrease in customer advances
and deferred income and the absence of $151 million in OEM incentive payments, both from 2015).
Cash used for investing
activities decreased by $1,003 million primarily due to a net $1,771 million decrease in investments, primarily short term marketable
securities, and a decrease of $202 million in settlement payments of foreign currency exchange contracts used as economic hedges
on certain non-functional currency denominated monetary assets and liabilities. Decreases were partially offset by an increase
in cash paid for acquisitions of $899 million, most significantly Xtralis International Holdings Limited and COM DEV International.
Cash used for financing
activities increased by $650 million primarily due to (i) an increase in net repurchases of common stock of $1,029 million, (ii)
the acquisition of the remaining 30% noncontrolling interest of UOP Russell LLC for $238 million and (iii) an increase in cash
dividends paid of $106 million including amounts paid to former UOP Russell LLC noncontrolling shareholder, partially offset by
an increase in the net proceeds from debt issuances of $693 million.
Liquidity
The Company continues
to manage its businesses to maximize operating cash flows as the primary source of liquidity. In addition to our available cash
and operating cash flows, additional sources of liquidity include committed credit lines, short-term debt from the commercial paper
market, long-term borrowings, as well as access to the public debt and equity markets. We continue to balance our cash and financing
uses through investment in our existing core businesses, debt reduction, acquisition activity, share repurchases and dividends.
We continuously assess
the relative strength of each business in our portfolio as to strategic fit, market position, profit and cash flow contribution
in order to upgrade our combined portfolio and identify business units that will most benefit from increased investment. We identify
acquisition candidates that will further our strategic plan and strengthen our existing core businesses. We also identify business
units that do not fit into our long-term strategic plan based on their market position, relative profitability or growth potential.
These businesses are considered for potential divestiture, restructuring or other repositioning actions subject to regulatory constraints.
In 2016, we are not
required to make contributions to our U.S. pension plans. We plan to make contributions of cash and/or marketable securities of
approximately $160 million ($106 million of marketable securities were contributed in January 2016) to our non-U.S. plans to satisfy
regulatory funding requirements. The
timing and amount of contributions to both
our U.S. and non-U.S. plans may be impacted by a number of factors, including the funded status of the plans.
In the three months
ended June 30, 2016, the Company repurchased $477 million of outstanding shares. Under the Company’s previously approved
$5 billion share repurchase program, $4.5 billion remained available as of June 30, 2016 for additional share repurchases. Honeywell
presently expects to repurchase outstanding shares from time to time to generally offset the dilutive impact over the long-term
of employee stock-based compensation plans, including future option exercises, restricted unit vesting and matching contributions
under our savings plans. The amount and timing of future repurchases may vary depending on market conditions and the level of operating,
financing and other investing activities.
See Note 3 Acquisitions
and Divestitures and Note 8 Long-term Debt and Credit Agreements of Notes to Financial Statements for additional discussion of
items impacting our liquidity.
C. Other Matters
Litigation
We are subject to a
number of lawsuits, investigations and claims (some of which involve substantial amounts) arising out of the conduct of our business.
See Note 13 Commitments and Contingencies of Notes to Financial Statements for further discussion of environmental, asbestos and
other litigation matters.
Critical Accounting Policies
The financial information
as of June 30, 2016 should be read in conjunction with the financial statements for the year ended December 31, 2015 contained
in our 2015 Annual Report on Form 10-K.
For a discussion of
the Company’s critical accounting policies, see Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations in our 2015 Annual Report on Form 10-K.
Recent Accounting Pronouncements
See Note 2 Recent Accounting
Pronouncements of Notes to Financial Statements for a discussion of recent accounting pronouncements.