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, 2018 and December 31, 2017, the results of cash flows for the six months ended June
30, 2018 and 2017 and the results of operations for the three and six months ended June 30, 2018 and 2017. The results of operations
for the three and six months ended June 30, 2018 and cash flows for the six months ended June 30, 2018 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, 2018 and 2017 were June 30, 2018 and July 1, 2017.
Note 2. Summary of Significant Accounting Policies
The accounting policies of the Company are
set forth in Note 1 to Consolidated Financial Statements contained in the Company’s 2017 Annual Report on Form
10-K. We include herein certain updates to those policies.
Reclassifications
–
Certain prior year amounts have been reclassified to conform to the current year presentation.
Sales Recognition
—Product
and service sales are recognized when or as we transfer control of the promised products or services to our customer. Revenue
is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Service
sales, principally representing repair, maintenance and engineering activities are recognized over the contractual period or as
services are rendered. Sales under long-term contracts with performance obligations satisfied over time are recognized using either
an input or output method. We recognize revenue over time as we perform on these contracts because of the continuous transfer
of control to the customer. With control transferring over time, revenue is recognized based on the extent of progress towards
completion of the performance obligation. We generally use the cost-to-cost input method of progress for our contracts because
it best depicts the transfer of control to the customer that occurs as we incur costs. Under the cost-to-cost method, the extent
of progress towards completion is measured based on the proportion of costs incurred to date to the total estimated costs at completion
of the performance obligation. Provisions for anticipated losses on long-term contracts are recorded in full when such losses
become evident, to the extent required.
The customer funding
for costs incurred for nonrecurring engineering and development activities of our products under agreements with commercial customers
is deferred and subsequently recognized as revenue as products are delivered to the customers. Additionally, expenses incurred,
up to the customer agreed funded amount, are deferred as an asset and recognized as cost of sales when products are delivered
to the customer. The deferred customer funding and costs result in recognition of deferred costs (asset) and deferred revenue
(liability) on our Consolidated Balance Sheet.
Revenues for our mechanical
service programs are recognized as performance obligations are satisfied over time, with recognition reflecting a series of distinct
services using the output method.
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share
amounts)
The terms of a contract
or the historical business practice can give rise to variable consideration due to, but not limited to, cash-based incentives,
rebates, performance awards, or credits. We estimate variable consideration at the most likely amount we will receive from customers.
We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue
recognized for such transaction will not occur, or when the uncertainty associated with the variable consideration is resolved.
Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are
based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is
reasonably available to us.
Aerospace Sales Incentives
—
We provide sales incentives to commercial aircraft manufacturers and airlines in connection with their selection of our aircraft
equipment, predominately wheel and braking system hardware, avionics, and auxiliary power units, for installation on commercial
aircraft. These incentives consist of free or deeply discounted products, credits for future purchases of product or upfront cash
payments. These costs are generally recognized in the period incurred as cost of products sold or as a reduction to relevant sales,
as appropriate.
Pension Benefits
—On
January 1, 2018, we retrospectively adopted the new accounting guidance on presentation of net periodic pension costs. That guidance
requires that we disaggregate the service cost component of net benefit costs and report those costs in the same line item or
items in the Consolidated Statement of Operations as other compensation costs arising from services rendered by the pertinent
employees during the period. The other non-service components of net benefit costs are required to be presented separately from
the service cost component.
Following the adoption of this guidance,
we continue to record the service cost component of Pension ongoing (income) expense in Costs of products and services sold and
Selling, general and administrative expenses. The remaining components of net benefit costs within Pension ongoing (income) expense,
primarily interest costs and assumed return on plan assets, are now recorded in Other (income) expense. We will continue to recognize
net actuarial gains or losses in excess of 10% of the greater of the fair value of plan assets or the plans’ projected benefit
obligation (the corridor) annually in the fourth quarter each year (MTM Adjustment). The MTM Adjustment will also be reported
in Other (income) expense.
Recent Accounting
Pronouncements
We consider the applicability
and impact of all Accounting Standards Updates (ASUs) issued by the 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 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 our lease portfolio to assess the impact to the Consolidated
Financial Statements. We are in the process of implementing processes and information technology tools to assist in our ongoing
lease data collection and analysis, and evaluating our accounting policies and internal controls that would be impacted by the
new guidance, to ensure readiness for adoption in the first quarter of 2019.
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share
amounts)
In August 2017, the
FASB issued amendments to hedge accounting guidance. These amendments are intended to better align a company’s risk management
strategies and financial reporting for hedging relationships. Under the new guidance, more hedging strategies will be eligible
for hedge accounting and the application of hedge accounting is simplified. In addition, the new guidance amends presentation
and disclosure requirements. The guidance is effective for fiscal years beginning after December 15, 2018 with early adoption
permitted, including for interim periods within those years. The Company does not expect the adoption of this ASU to have a material
impact on its Consolidated Financial Statements.
In February 2018, the
FASB issued guidance that allows for an entity to elect to reclassify the income tax effects on items within accumulated other
comprehensive income resulting from U.S. tax reform to retained earnings. The guidance is effective for fiscal years beginning
after December 15, 2018 with early adoption permitted, including interim periods within those years. We are currently evaluating
the impact of this standard on our Consolidated Financial Statements and whether we will make the allowed election.
Note 3. Repositioning and Other Charges
A summary of repositioning and other charges
follows:
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Severance
|
|
$
|
30
|
|
|
$
|
82
|
|
|
$
|
61
|
|
|
$
|
102
|
|
Asset impairments
|
|
|
1
|
|
|
|
33
|
|
|
|
48
|
|
|
|
35
|
|
Exit costs
|
|
|
32
|
|
|
|
8
|
|
|
|
40
|
|
|
|
9
|
|
Reserve adjustments
|
|
|
(2
|
)
|
|
|
(6
|
)
|
|
|
(3
|
)
|
|
|
-
|
|
Total net repositioning charge
|
|
|
61
|
|
|
|
117
|
|
|
|
146
|
|
|
|
146
|
|
Asbestos related litigation charges, net of insurance
|
|
|
48
|
|
|
|
52
|
|
|
|
99
|
|
|
|
102
|
|
Probable and reasonably estimable environmental liabilities
|
|
|
127
|
|
|
|
55
|
|
|
|
184
|
|
|
|
105
|
|
Other
|
|
|
29
|
|
|
|
-
|
|
|
|
29
|
|
|
|
-
|
|
Total net repositioning and other charges
|
|
$
|
265
|
|
|
$
|
224
|
|
|
$
|
458
|
|
|
$
|
353
|
|
The following table summarizes the pretax
distribution of total net repositioning and other charges by income statement classification:
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Cost of products and services sold
|
|
$
|
215
|
|
|
$
|
174
|
|
|
$
|
345
|
|
|
$
|
310
|
|
Selling, general and administrative expenses
|
|
|
50
|
|
|
|
24
|
|
|
|
72
|
|
|
|
17
|
|
Other (income) expense
|
|
|
-
|
|
|
|
26
|
|
|
|
41
|
|
|
|
26
|
|
|
|
$
|
265
|
|
|
$
|
224
|
|
|
$
|
458
|
|
|
$
|
353
|
|
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share
amounts)
The following table summarizes the pretax
impact of total net repositioning and other charges by segment:
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Aerospace
|
|
$
|
34
|
|
|
$
|
84
|
|
|
$
|
104
|
|
|
$
|
157
|
|
Home and Building Technologies
|
|
|
9
|
|
|
|
43
|
|
|
|
13
|
|
|
|
42
|
|
Performance Materials and Technologies
|
|
|
69
|
|
|
|
(1
|
)
|
|
|
73
|
|
|
|
2
|
|
Safety and Productivity Solutions
|
|
|
6
|
|
|
|
4
|
|
|
|
13
|
|
|
|
-
|
|
Corporate
|
|
|
147
|
|
|
|
94
|
|
|
|
255
|
|
|
|
152
|
|
|
|
$
|
265
|
|
|
$
|
224
|
|
|
$
|
458
|
|
|
$
|
353
|
|
In the quarter
ended June 30, 2018, we recognized gross repositioning charges totaling $63 million including severance costs of $30 million
related to workforce reductions of 731 manufacturing and administrative positions across our segments, except Aerospace. The
workforce reductions were primarily related to cost savings actions taken in connection with our productivity and ongoing
functional transformation initiatives. The repositioning charges included exit costs of $32 million primarily related to a
termination fee associated with the early cancellation of a supply agreement for certain raw materials in Performance
Materials and Technologies.
In the quarter ended
June 30, 2017, we recognized gross 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
charges included asset impairments of $33 million primarily related to the write-down of a legacy property in our Corporate segment
in connection with its planned disposition.
In the six months ended
June 30, 2018, we recognized gross repositioning charges totaling $149 million including severance costs of $61 million related to workforce
reductions of 1,884 manufacturing and administrative positions across our segments. The workforce reductions were primarily related
to site transitions, mainly in Aerospace and Safety and Productivity Solutions, to more cost-effective locations and to cost savings
actions taken in connection with our productivity and ongoing functional transformation initiatives. The repositioning charges
included asset impairments of $48 million primarily related to the write-down of a legacy property in our Corporate segment in
connection with its planned disposition. The repositioning charges included exit costs of $40 million primarily related to a termination
fee associated with the early cancellation of a supply agreement for certain raw materials in Performance Materials and Technologies.
In the six months ended
June 30, 2017, we recognized gross 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 a legacy property in our Corporate segment in connection with its planned
disposition.
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share
amounts)
The following table
summarizes the status of our total repositioning reserves:
|
|
Severance
Costs
|
|
Asset
Impairments
|
|
Exit
Costs
|
|
Total
|
December 31, 2017
|
|
$
|
442
|
|
|
$
|
-
|
|
|
$
|
71
|
|
|
$
|
513
|
|
Charges
|
|
|
61
|
|
|
|
48
|
|
|
|
40
|
|
|
|
149
|
|
Usage - cash
|
|
|
(123
|
)
|
|
|
-
|
|
|
|
(43
|
)
|
|
|
(166
|
)
|
Usage - noncash
|
|
|
-
|
|
|
|
(49
|
)
|
|
|
-
|
|
|
|
(49
|
)
|
Foreign currency translation
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(4
|
)
|
Adjustments
|
|
|
(4
|
)
|
|
|
1
|
|
|
|
-
|
|
|
|
(3
|
)
|
June 30, 2018
|
|
$
|
372
|
|
|
$
|
-
|
|
|
$
|
68
|
|
|
$
|
440
|
|
Certain repositioning projects in 2018 and 2017 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.
In both the quarter and six months ended June 30, 2018, the other charge of $29 million relates to reserves taken due to the required wind-down of our activities in Iran.
Note 4. Other (Income) Expense
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
(49
|
)
|
|
$
|
(36
|
)
|
|
$
|
(99
|
)
|
|
$
|
(67
|
)
|
Pension ongoing income – non-service
|
|
|
(301
|
)
|
|
|
(243
|
)
|
|
|
(605
|
)
|
|
|
(485
|
)
|
Other postretirement income – non-service
|
|
|
(6
|
)
|
|
|
(6
|
)
|
|
|
(12
|
)
|
|
|
(10
|
)
|
Equity income of affiliated companies
|
|
|
(13
|
)
|
|
|
(11
|
)
|
|
|
(24
|
)
|
|
|
(17
|
)
|
Foreign exchange
|
|
|
(11
|
)
|
|
|
4
|
|
|
|
(12
|
)
|
|
|
24
|
|
Separation costs
|
|
|
63
|
|
|
|
-
|
|
|
|
118
|
|
|
|
-
|
|
Other (net)
|
|
|
1
|
|
|
|
33
|
|
|
|
50
|
|
|
|
38
|
|
|
|
$
|
(316
|
)
|
|
$
|
(259
|
)
|
|
$
|
(584
|
)
|
|
$
|
(517
|
)
|
Separation costs are
associated with our previously announced spin-offs of our Homes and Global Distribution business and Transportation Systems business,
and are primarily associated with third party services.
For the six months
ended June 30, 2018 and three and six months ended June 30, 2017, Other (net) includes asset impairments in our Corporate segment
related to the write-down of a legacy property in connection with its planned disposition. Refer to Note 3
Repositioning and
Other Charges
for further details.
Note 5. Income Taxes
The effective tax rate
increased for the quarter primarily driven by $291 million of tax costs associated with the internal restructuring of the transportation
systems business in advance of its anticipated spin-off and decreased tax benefits from employee share-based payments, partially offset by tax benefits from U.S. Tax Reform.
The effective tax rate
increased for the six months primarily driven by $291 million of tax costs associated with the internal restructuring of the transportation
systems business in advance of its anticipated spin-off and decreased tax benefits from employee share-based payments, partially
offset by tax benefits from U.S. Tax Reform and decreased tax expense for reserves.
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share
amounts)
The effective tax rate
for the quarter and six months ended June 30, 2018 was higher than the U.S. federal statutory rate of 21% primarily from tax costs
associated with the internal restructuring of the transportation systems business in advance of its anticipated spin-off, state
income taxes and U.S tax reform’s expansion of the anti-deferral rules that impose U.S. taxes on foreign earnings.
On December 22, 2017,
the U.S. government enacted tax legislation that included changes to the taxation of foreign earnings by implementing a dividend
exemption system, expansion of the current anti-deferral rules, a minimum tax on low-taxed foreign earnings and new measures to
deter base erosion. The tax legislation also included a permanent reduction in the corporate tax rate to 21%, repeal of the corporate
alternative minimum tax, expensing of capital investment, and limitation of the deduction for interest expense. Furthermore, as
part of the transition to the new tax system, a one-time transition tax was imposed on a U.S. shareholder’s historical undistributed
earnings of foreign affiliates.
As described in Note
5
Income Taxes
in our 2017 Annual Report on Form 10-K, we were able to reasonably estimate certain effects of the tax legislation
and, therefore, recorded provisional amounts, including the deemed repatriation transition tax. The Company has not finalized
the accounting for the tax effects of the tax legislation and for the six months ended June 30, 2018, we have not made any material
measurement period adjustments related to the provisional amounts. However, we continue to gather additional information and expect
to complete our accounting within the prescribed measurement period.
Note 6. Earnings Per Share
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
Basic
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net income attributable to Honeywell
|
|
$
|
1,267
|
|
|
$
|
1,392
|
|
|
$
|
2,705
|
|
|
$
|
2,718
|
|
Weighted average shares outstanding
|
|
|
745.5
|
|
|
|
764.2
|
|
|
|
748.0
|
|
|
|
763.6
|
|
Earnings per share of common stock
|
|
$
|
1.70
|
|
|
$
|
1.82
|
|
|
$
|
3.62
|
|
|
$
|
3.56
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
Assuming Dilution
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net income attributable to Honeywell
|
|
$
|
1,267
|
|
|
$
|
1,392
|
|
|
$
|
2,705
|
|
|
$
|
2,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
745.5
|
|
|
|
764.2
|
|
|
|
748.0
|
|
|
|
763.6
|
|
Dilutive securities issuable - stock plans
|
|
|
9.5
|
|
|
|
9.8
|
|
|
|
10.0
|
|
|
|
10.4
|
|
Total weighted average shares outstanding
|
|
|
755.0
|
|
|
|
774.0
|
|
|
|
758.0
|
|
|
|
774.0
|
|
Earnings per share of common stock
|
|
$
|
1.68
|
|
|
$
|
1.80
|
|
|
$
|
3.57
|
|
|
$
|
3.51
|
|
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, 2018, the weighted average number of
stock options excluded from the computations were 3.1 million and 2.1 million. 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. These stock options
were outstanding at the end of each period.
As of June 30, 2018
and 2017, total shares outstanding were 742.6 million and 760.6 million and as of June 30, 2018 and 2017, total shares issued
were 957.6 million.
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share
amounts)
Note 7. Revenue Recognition and Contracts with Customers
Adoption
On January 1, 2018,
the Company adopted new guidance on revenue from contracts with customers using the modified retrospective method applied to contracts
that were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under
the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with previous guidance.
We recorded a net decrease
to opening retained earnings of $75 million as of January 1, 2018, for the cumulative impact of adopting the new guidance. The
impact primarily related to the change in accounting for mechanical service programs (change from input to output method, resulting
in unbilled receivables (within Accounts receivable – net) and deferred revenue (within Accrued liabilities) being eliminated
through Retained earnings) and for customer funding and the related costs incurred for nonrecurring engineering and development
activities (deferral of revenues and related incurred costs until products are delivered to customers, resulting in increases
in both deferred costs (assets) and deferred revenue (liability) by approximately $1.1 billion at adoption).
|
|
Balance at
December 31,
2017
|
|
New
Revenue
Standard
Adjustment
|
|
Balance at
January 1,
2018
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable - net
|
|
$
|
8,866
|
|
|
$
|
(149
|
)
|
|
$
|
8,717
|
|
Inventories
|
|
|
4,613
|
|
|
|
(10
|
)
|
|
|
4,603
|
|
Deferred income taxes
|
|
|
236
|
|
|
|
40
|
|
|
|
276
|
|
Other assets
|
|
|
3,372
|
|
|
|
1,082
|
|
|
|
4,454
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
|
6,584
|
|
|
|
(48
|
)
|
|
|
6,536
|
|
Deferred income taxes
|
|
|
2,894
|
|
|
|
1
|
|
|
|
2,895
|
|
Other liabilities
|
|
|
5,930
|
|
|
|
1,084
|
|
|
|
7,014
|
|
SHAREOWNERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
28,255
|
|
|
|
(75
|
)
|
|
|
28,180
|
|
Noncontrolling interest
|
|
$
|
163
|
|
|
$
|
1
|
|
|
$
|
164
|
|
Under the modified
retrospective method of adoption, we are required to disclose the impact to revenues had we continued to follow our accounting
policies under the previous revenue recognition guidance. We estimate that the impact to revenues for the quarter and six months
ended June 30, 2018 would have been a decrease of approximately $75 million and $195 million, which is primarily due to the net
impact of the classification change and deferral impact of nonrecurring engineering and development activities, and the net impact
from service programs with certain amounts being recognized that would have previously been deferred, and certain amount being
deferred that would have previously been recognized.
Refer to Note 2
Summary
of Significant Accounting Policies
for a summary of our significant policies for revenue recognition.
Disaggregated Revenue
Honeywell has a comprehensive
offering of products and services, including software and technologies, that are sold to a variety of customers in multiple end
markets. See the following table and related discussions by operating segment for details.
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share
amounts)
|
|
Three Months Ended
June 30,
2018
|
|
Six Months Ended
June 30,
2018
|
Aerospace
|
|
|
|
|
|
|
|
|
Commercial Aviation Original Equipment
|
|
$
|
712
|
|
|
$
|
1,407
|
|
Commercial Aviation Aftermarket
|
|
|
1,326
|
|
|
|
2,594
|
|
Defense Services
|
|
|
1,128
|
|
|
|
2,214
|
|
Transportation Systems
|
|
|
892
|
|
|
|
1,820
|
|
|
|
|
4,058
|
|
|
|
8,035
|
|
Home and Building Technologies
|
|
|
|
|
|
|
|
|
Products and Software
|
|
|
514
|
|
|
|
1,033
|
|
Distribution (ADI)
|
|
|
676
|
|
|
|
1,314
|
|
Connected Buildings
|
|
|
222
|
|
|
|
431
|
|
Building Solutions
|
|
|
602
|
|
|
|
1,164
|
|
Building Products
|
|
|
532
|
|
|
|
1,037
|
|
|
|
|
2,546
|
|
|
|
4,979
|
|
Performance Materials and Technologies
|
|
|
|
|
|
|
|
|
UOP
|
|
|
678
|
|
|
|
1,290
|
|
Process Solutions
|
|
|
957
|
|
|
|
1,851
|
|
Smart Energy
|
|
|
316
|
|
|
|
636
|
|
Specialty Products
|
|
|
291
|
|
|
|
568
|
|
Fluorine Products
|
|
|
456
|
|
|
|
887
|
|
|
|
|
2,698
|
|
|
|
5,232
|
|
Safety and Productivity Solutions
|
|
|
|
|
|
|
|
|
Safety and Retail
|
|
|
565
|
|
|
|
1,116
|
|
Productivity Products
|
|
|
359
|
|
|
|
688
|
|
Warehouse and Workflow Solutions
|
|
|
469
|
|
|
|
836
|
|
Sensing & Internet-of-Things (IoT)
|
|
|
224
|
|
|
|
425
|
|
|
|
|
1,617
|
|
|
|
3,065
|
|
Net sales
|
|
$
|
10,919
|
|
|
$
|
21,311
|
|
Aerospace – A
global supplier of products, software and services for aircraft and vehicles. Products include aircraft propulsion engines, auxiliary
power units, environmental control systems, integrated avionics, electric power systems, hardware for engine controls, flight
safety, communications, and navigation, satellite and space components, aircraft wheels and brakes, turbochargers and thermal
systems. Software includes engine controls, flight safety, communications, navigation, radar and surveillance systems, internet
connectivity and aircraft instrumentation. Services are provided to customers for the repair, overhaul, retrofit and modification
of propulsion engines, auxiliary power units, avionics and mechanical systems and aircraft wheels and brakes.
Home and Building Technologies
– A global provider of products, software, solutions and technologies. Products include controls and displays for heating,
cooling, indoor air quality, ventilation, humidification, combustion, lighting and home automation; sensors, switches, control
systems and instruments for measuring pressure, air flow, temperature and electrical current; access control; video surveillance;
fire detection; remote patient monitoring systems; and installation, maintenance and upgrades of systems that keep buildings safe,
comfortable and productive. Software includes monitoring and managing heating, cooling, indoor air quality, ventilation, humidification,
combustion, lighting and home automation; advanced applications for home/building control and optimization; video surveillance;
and to support remote patient monitoring systems. Installation, maintenance and upgrade services of products used in commercial
building applications for heating, cooling, maintaining indoor air quality, ventilation, humidification, combustion, lighting,
video surveillance and fire safety.
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share
amounts)
Performance Materials
and Technologies – A global provider of products, software, solutions and technologies. Products include catalysts, absorbents,
equipment and high-performance materials, devices for measurement, regulation, control and metering of gases and electricity,
and metering and communications systems for water utilities and industries. Software is provided to support process technologies
supporting automation and to monitor a variety of industrial processes used in industries such as oil and gas, chemicals, petrochemicals,
metals, minerals and mining industries. Services are provided for installation and maintenance of products.
Safety and Productivity
Solutions – A global provider of products, software and solutions. Products include personal protection equipment and footwear,
gas detection devices, mobile computing, data collection and thermal printing devices, automation equipment for supply chain and
warehouse automation and custom-engineered sensors, switches and controls. Software and solutions are provided to customers for
supply chain and warehouse automation, to manage data and assets to drive productivity and for computing, data collection and
thermal printing.
For a summary by disaggregated
product and services sales for each segment, refer to Note 13
Segment Financial Data
.
We recognize revenue arising from performance
obligations outlined in contracts with our customers that are satisfied at a point in time and over time. The disaggregation of
our revenue based off timing of recognition is as follows:
|
|
Three
Months Ended
June 30,
2018
|
|
Six Months Ended
June 30,
2018
|
Products, transferred point in time
|
|
|
69
|
%
|
|
|
69
|
%
|
Products, transferred over time
|
|
|
11
|
|
|
|
11
|
|
Net product sales
|
|
|
80
|
|
|
|
80
|
|
Services, transferred point in time
|
|
|
6
|
|
|
|
6
|
|
Services, transferred over time
|
|
|
14
|
|
|
|
14
|
|
Net service sales
|
|
|
20
|
|
|
|
20
|
|
Net sales
|
|
|
100
|
%
|
|
|
100
|
%
|
Contract Balances
Progress on satisfying
performance obligations under contracts with customers and the related billings and cash collections are recorded on the Consolidated
Balance Sheet in Accounts receivable - net and Other assets (the current and noncurrent portions, respectively, of unbilled receivables
(contract assets) and billed receivables) and Accrued liabilities and Other liabilities (the current and noncurrent portions,
respectively, of customer advances and deposits (contract liabilities)). Unbilled receivables (contract assets) arise when the
timing of cash collected from customers differs from the timing of revenue recognition, such as when contract provisions require
specific milestones to be met before a customer can be billed. Those assets are recognized when the revenue associated with the
contract is recognized prior to billing and derecognized when billed in accordance with the terms of the contract. Contract liabilities
are recorded when customers remit contractual cash payments in advance of us satisfying performance obligations under contractual
arrangements, including those with performance obligations to be satisfied over a period of time. Contract liabilities are derecognized
when revenue is recorded, either when a milestone is met triggering the contractual right to bill or when the performance obligation
is satisfied.
Contract balances are classified as assets
or liabilities on a contract-by-contract basis at the end of each reporting period.
The following table
summarizes our contract assets and liabilities balances:
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share
amounts)
|
|
2018
|
Contract assets - January 1
|
|
$
|
1,721
|
|
Contract assets - June 30
|
|
|
1,650
|
|
Change in contract assets - increase (decrease)
|
|
$
|
(71
|
)
|
|
|
|
|
|
Contract liabilities - January 1
|
|
$
|
(2,973
|
)
|
Contract liabilities - June 30
|
|
|
(3,109
|
)
|
Change in contract liabilities - (increase) decrease
|
|
$
|
(136
|
)
|
|
|
|
|
|
Net change
|
|
$
|
(207
|
)
|
The net change was
primarily driven by the receipt of advance payments from customers exceeding reductions from recognition of revenue as performance
obligations were satisfied and related billings. For the three and six months ended June 30, 2018, we recognized revenue of $320
million and $901 million that was previously included in the beginning balance of contract liabilities.
When contracts are
modified to account for changes in contract specifications and requirements, we consider whether the modification either creates
new or changes the existing enforceable rights and obligations. Contract modifications that are for goods or services that are
not distinct from the existing contract, due to the significant integration with the original good or service provided, are accounted
for as if they were part of that existing contract. The effect of a contract modification on the transaction price and our measure
of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase
in or a reduction of revenue) on a cumulative catch-up basis. When the modifications include additional performance obligations
that are distinct and at relative stand-alone selling price, they are accounted for as a new contract and performance obligation,
which are recognized prospectively.
Performance Obligations
A performance obligation
is a promise in a contract to transfer a distinct good or service to the customer, and is defined as the unit of account. A contract’s
transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance
obligation is satisfied. When our contracts with customers require highly complex integration or manufacturing services that are
not separately identifiable from other promises in the contracts and, therefore, not distinct, then the entire contract is accounted
for as a single performance obligation. In situations when our contract includes distinct goods or services that are substantially
the same and have the same pattern of transfer to the customer over time, they are recognized as a series of distinct goods or
services. For any contracts with multiple performance obligations, we allocate the contract’s transaction price to each
performance obligation based on the estimated relative standalone selling price of each distinct good or service in the contract.
For product sales, each product sold to a customer typically represents a distinct performance obligation. In such cases, the
observable standalone sales are used to determine the stand alone selling price.
Performance obligations
are satisfied as of a point in time or over time. Performance obligations are supported by contracts with customers, providing
a framework for the nature of the distinct goods, services or bundle of goods and services. The timing of satisfying the performance
obligation is typically indicated by the terms of the contract. The following table outlines our performance obligations disaggregated
by segment.
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share
amounts)
|
|
June 30,
2018
|
Aerospace
|
|
$
|
8,989
|
|
Home and Building Technologies
|
|
|
6,058
|
|
Performance Materials and Technologies
|
|
|
6,105
|
|
Safety and Productivity Solutions
|
|
|
1,858
|
|
|
|
$
|
23,010
|
|
Performance obligations
recognized as of June 30, 2018 will be satisfied over the course of future periods. Our disclosure of the timing for satisfying
the performance obligation is based on the requirements of contracts with customers. However, from time to time, these contracts
may be subject to modifications, impacting the timing of satisfying the performance obligations. Performance obligations expected
to be satisfied within one year and greater than one year are 56% and 44%.
The timing of satisfaction
of our performance obligations does not significantly vary from the typical timing of payment. Typical payment terms of our fixed-price
over time contracts include progress payments based on specified events or milestones, or based on project progress. For some
contracts we may be entitled to receive an advance payment.
We have applied the
practical expedient for certain revenue streams to exclude the value of remaining performance obligations for (i) contracts with
an original expected term of one year or less or (ii) contracts for which we recognize revenue in proportion to the amount we
have the right to invoice for services performed.
Note 8. Accounts Receivable - Net
|
|
June 30,
2018
|
|
December 31,
2017
|
Trade
|
|
$
|
8,801
|
|
|
$
|
9,068
|
|
Less - Allowance for doubtful accounts
|
|
|
(201
|
)
|
|
|
(202
|
)
|
|
|
$
|
8,600
|
|
|
$
|
8,866
|
|
Trade receivables include
$1,645 million and $1,853 million of unbilled balances under long-term contracts as of June 30, 2018 and December 31, 2017. These
amounts are billed in accordance with the terms of the customer contracts to which they relate.
Note 9. Inventories
|
|
June 30,
2018
|
|
December 31,
2017
|
Raw materials
|
|
$
|
1,238
|
|
|
$
|
1,193
|
|
Work in process
|
|
|
801
|
|
|
|
790
|
|
Finished products
|
|
|
2,790
|
|
|
|
2,669
|
|
|
|
|
4,829
|
|
|
|
4,652
|
|
Reduction to LIFO cost basis
|
|
|
(37
|
)
|
|
|
(39
|
)
|
|
|
$
|
4,792
|
|
|
$
|
4,613
|
|
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share
amounts)
Note 10. Long-term Debt and Credit Agreements
|
|
June 30,
2018
|
|
December 31,
2017
|
Two year floating rate Euro notes due 2018
|
|
$
|
-
|
|
|
$
|
1,199
|
|
1.40% notes due 2019
|
|
|
1,250
|
|
|
|
1,250
|
|
Three year floating rate notes due 2019
|
|
|
250
|
|
|
|
250
|
|
Two year floating rate notes due 2019
|
|
|
450
|
|
|
|
450
|
|
1.80% notes due 2019
|
|
|
750
|
|
|
|
750
|
|
0.65% Euro notes due 2020
|
|
|
1,165
|
|
|
|
1,199
|
|
4.25% notes due 2021
|
|
|
800
|
|
|
|
800
|
|
1.85% notes due 2021
|
|
|
1,500
|
|
|
|
1,500
|
|
1.30% Euro notes due 2023
|
|
|
1,456
|
|
|
|
1,499
|
|
3.35% notes due 2023
|
|
|
300
|
|
|
|
300
|
|
2.50% notes due 2026
|
|
|
1,500
|
|
|
|
1,500
|
|
2.25% Euro notes due 2028
|
|
|
873
|
|
|
|
900
|
|
5.70% notes due 2036
|
|
|
441
|
|
|
|
441
|
|
5.70% notes due 2037
|
|
|
462
|
|
|
|
462
|
|
5.375% notes due 2041
|
|
|
417
|
|
|
|
417
|
|
3.812% notes due 2047
|
|
|
445
|
|
|
|
445
|
|
Industrial development bond obligations, floating rate maturing at various dates through 2037
|
|
|
22
|
|
|
|
22
|
|
6.625% debentures due 2028
|
|
|
201
|
|
|
|
201
|
|
9.065% debentures due 2033
|
|
|
51
|
|
|
|
51
|
|
Other (including capitalized leases
and debt issuance costs), 5.5% weighted average maturing at various dates through 2025
|
|
|
304
|
|
|
|
288
|
|
|
|
|
12,637
|
|
|
|
13,924
|
|
Less: current portion
|
|
|
(133
|
)
|
|
|
(1,351
|
)
|
|
|
$
|
12,504
|
|
|
$
|
12,573
|
|
On January 29, 2018,
the Company completed an exchange offer for any and all of its outstanding 3.812% Notes due 2047, which had not been registered
(“Unregistered Notes”) under the Securities Act of 1933, as amended (“Securities Act”) for an equal principal
amount of new 3.812% Notes due 2047 which had been registered under the Securities Act (“Registered Notes”). 99.4%
of the Unregistered Notes were exchanged for Registered Notes, representing 99.4% of the principal amount of the Company’s
outstanding 3.812% Notes due 2047.
On February 22, 2018,
the Company paid its Two year floating rate Euro notes.
On February 16, 2018,
the Company entered into a $1.5 billion 364-Day Credit Agreement with a syndicate of banks. This 364-Day Credit Agreement is maintained
for general corporate purposes.
On April 27, 2018,
the Company entered into a $4 billion Amended and Restated Five Year Credit Agreement (the “5-Year Credit Agreement”),
with a syndicate of banks. The 5-Year Credit Agreement is maintained for general corporate purposes. Commitments under the 5-Year
Credit Agreement can be increased pursuant to the terms of the 5-Year Credit Agreement to an aggregate amount not to exceed $4.5
billion. The 5-Year Credit Agreement amends and restates the previously reported $4 billion five year credit agreement dated as
of July 10, 2015 (the “Prior Agreement”). The 5-Year Credit Agreement has substantially the same material terms and
conditions as the Prior Agreement.
On April 27, 2018,
the Company entered into an additional $1.5 billion 364-Day Credit Agreement with a syndicate of banks. This 364-Day Credit Agreement
is maintained for general corporate purposes.
As of June 30, 2018,
there are no outstanding borrowings under any of our credit agreements.
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share
amounts)
Note 11. 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 2017 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,
2018
|
|
December 31,
2017
|
Assets:
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
$
|
4
|
|
|
$
|
17
|
|
Available for sale investments
|
|
|
2,054
|
|
|
|
3,916
|
|
Interest rate swap agreements
|
|
|
17
|
|
|
|
44
|
|
Cross currency swap agreements
|
|
|
10
|
|
|
|
-
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
|
30
|
|
|
|
70
|
|
Interest rate swap agreements
|
|
$
|
88
|
|
|
$
|
52
|
|
The foreign currency
exchange contracts, interest rate swap agreements, and cross currency swap agreements are valued using broker quotations, or market
transactions in either the listed or over-the-counter markets. As such, these derivative instruments are classified within level
2. The Company also holds investments in commercial paper, certificates of deposits, and time deposits that are designated as
available for sale and are valued using published prices based off observable market data. As such, 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, 2018
|
|
December 31, 2017
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
Value
|
|
Value
|
|
Value
|
|
Value
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term receivables
|
|
$
|
354
|
|
|
$
|
339
|
|
|
$
|
296
|
|
|
$
|
289
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and related current maturities
|
|
$
|
12,637
|
|
|
$
|
13,201
|
|
|
$
|
13,924
|
|
|
$
|
14,695
|
|
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, 2018, we recognized $17 million and $63 million of losses in earnings on interest rate swap agreements. For the three and
six months ended June 30, 2017, we recognized $9 million of losses and $2 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.
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
We 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 $344 million and $215 million of income in Other (income) expense for the three
and six months ended June 30, 2018 on these contracts. We recognized $84 million and $118 million of income in Other (income) expense
for the three and six months ended June 30, 2017.
Note 12. Accumulated Other Comprehensive
Income (Loss)
Changes in Accumulated Other Comprehensive
Income (Loss) 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, 2017
|
|
$
|
(1,981
|
)
|
|
$
|
(202
|
)
|
|
$
|
(52
|
)
|
|
$
|
(2,235
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
12
|
|
|
|
-
|
|
|
|
2
|
|
|
|
14
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
-
|
|
|
|
(32
|
)
|
|
|
31
|
|
|
|
(1
|
)
|
Net current period other comprehensive income (loss)
|
|
|
12
|
|
|
|
(32
|
)
|
|
|
33
|
|
|
|
13
|
|
Balance at June 30, 2018
|
|
$
|
(1,969
|
)
|
|
$
|
(234
|
)
|
|
$
|
(19
|
)
|
|
$
|
(2,222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
Note 13. 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. Each segment’s profit is measured as segment income (loss)
before taxes excluding general corporate unallocated expense, interest and other financial charges, stock compensation expense,
pension and other postretirement income (expense), repositioning and other charges, and other items within Other (income) expense.
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
2,800
|
|
|
$
|
2,545
|
|
|
$
|
5,528
|
|
|
$
|
4,941
|
|
Services
|
|
|
1,258
|
|
|
|
1,129
|
|
|
|
2,507
|
|
|
|
2,279
|
|
Total
|
|
|
4,058
|
|
|
|
3,674
|
|
|
|
8,035
|
|
|
|
7,220
|
|
Home and Building Technologies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
2,183
|
|
|
|
2,078
|
|
|
|
4,266
|
|
|
|
4,029
|
|
Services
|
|
|
363
|
|
|
|
336
|
|
|
|
713
|
|
|
|
654
|
|
Total
|
|
|
2,546
|
|
|
|
2,414
|
|
|
|
4,979
|
|
|
|
4,683
|
|
Performance Materials and Technologies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
2,194
|
|
|
|
2,101
|
|
|
|
4,257
|
|
|
|
4,041
|
|
Services
|
|
|
504
|
|
|
|
460
|
|
|
|
975
|
|
|
|
873
|
|
Total
|
|
|
2,698
|
|
|
|
2,561
|
|
|
|
5,232
|
|
|
|
4,914
|
|
Safety and Productivity Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
1,526
|
|
|
|
1,355
|
|
|
|
2,886
|
|
|
|
2,608
|
|
Services
|
|
|
91
|
|
|
|
74
|
|
|
|
179
|
|
|
|
145
|
|
Total
|
|
|
1,617
|
|
|
|
1,429
|
|
|
|
3,065
|
|
|
|
2,753
|
|
|
|
$
|
10,919
|
|
|
$
|
10,078
|
|
|
$
|
21,311
|
|
|
$
|
19,570
|
|
Segment profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
$
|
918
|
|
|
$
|
819
|
|
|
$
|
1,811
|
|
|
$
|
1,615
|
|
Home and Building Technologies
|
|
|
427
|
|
|
|
391
|
|
|
|
843
|
|
|
|
768
|
|
Performance Materials and Technologies
|
|
|
597
|
|
|
|
553
|
|
|
|
1,116
|
|
|
|
1,036
|
|
Safety and Productivity Solutions
|
|
|
267
|
|
|
|
214
|
|
|
|
498
|
|
|
|
408
|
|
Corporate
|
|
|
(64
|
)
|
|
|
(67
|
)
|
|
|
(128
|
)
|
|
|
(128
|
)
|
Total segment profit
|
|
|
2,145
|
|
|
|
1,910
|
|
|
|
4,140
|
|
|
|
3,699
|
|
Interest and other financial charges
|
|
|
(95
|
)
|
|
|
(79
|
)
|
|
|
(178
|
)
|
|
|
(154
|
)
|
Stock compensation expense
(a)
|
|
|
(38
|
)
|
|
|
(44
|
)
|
|
|
(90
|
)
|
|
|
(94
|
)
|
Pension ongoing income
(b)
|
|
|
250
|
|
|
|
184
|
|
|
|
498
|
|
|
|
363
|
|
Other postretirement income
(b)
|
|
|
6
|
|
|
|
6
|
|
|
|
12
|
|
|
|
10
|
|
Repositioning and other charges
(c)
|
|
|
(265
|
)
|
|
|
(224
|
)
|
|
|
(458
|
)
|
|
|
(353
|
)
|
Other
(d)
|
|
|
(4
|
)
|
|
|
25
|
|
|
|
(16
|
)
|
|
|
31
|
|
Income before taxes
|
|
$
|
1,999
|
|
|
$
|
1,778
|
|
|
$
|
3,908
|
|
|
$
|
3,502
|
|
(a) Amounts included in Selling, general and administrative expenses.
(b) Amounts included in Cost of products and services sold and
Selling, general and administrative expenses (service costs) and Other income/expense (non-service cost components).
(c) Amounts included in Cost of products and services sold, Selling,
general and administrative expenses, and Other income/expense.
(d) Amounts include the other components of Other income/expense
not included within other categories in this reconciliation. Equity income/loss of affiliated companies is included in segment
profit.
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Note 14. Pension Benefits
Net periodic pension
benefit costs for our significant defined benefit plans include the following components:
|
|
U.S. Plans
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Service cost
|
|
$
|
35
|
|
|
$
|
43
|
|
|
$
|
70
|
|
|
$
|
86
|
|
Interest cost
|
|
|
144
|
|
|
|
146
|
|
|
|
287
|
|
|
|
293
|
|
Expected return on plan assets
|
|
|
(357
|
)
|
|
|
(315
|
)
|
|
|
(714
|
)
|
|
|
(630
|
)
|
Amortization of prior service (credit)
|
|
|
(11
|
)
|
|
|
(11
|
)
|
|
|
(22
|
)
|
|
|
(22
|
)
|
|
|
$
|
(189
|
)
|
|
$
|
(137
|
)
|
|
$
|
(379
|
)
|
|
$
|
(273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
Plans
|
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
June
30,
|
|
June
30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Service cost
|
|
$
|
7
|
|
|
$
|
10
|
|
|
$
|
14
|
|
|
$
|
19
|
|
Interest cost
|
|
|
36
|
|
|
|
37
|
|
|
|
73
|
|
|
|
72
|
|
Expected return on plan assets
|
|
|
(114
|
)
|
|
|
(102
|
)
|
|
|
(228
|
)
|
|
|
(201
|
)
|
Amortization of prior service (credit)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
$
|
(71
|
)
|
|
$
|
(55
|
)
|
|
$
|
(142
|
)
|
|
$
|
(110
|
)
|
In
the first quarter of 2018, the asset mix of our U.S. Qualified Pension Plan (the “Plan”) was changed. Fixed income
assets were increased to approximately 50% of the Plan’s total assets and matched with the liability profile of the Plan.
The Plan’s remaining assets are comprised of return-seeking assets including, equity securities, private equity investments
and real estate investments.
We review our asset allocations on a
regular basis in order to achieve our long-term investment objectives on a risk adjusted basis.
Note 15. Commitments and Contingencies
Environmental Matters
Our environmental matters
are described in Note 19
Commitments and Contingencies
of Notes to Consolidated Financial Statements in our 2017 Annual
Report on Form 10-K.
The following table summarizes information
concerning our recorded liabilities for environmental costs:
December 31, 2017
|
|
$
|
595
|
|
Accruals for environmental matters deemed probable and reasonably estimable
|
|
|
184
|
|
Environmental liability payments
|
|
|
(70
|
)
|
Other
|
|
|
(6
|
)
|
June 30, 2018
|
|
$
|
703
|
|
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Environmental liabilities are included in
the following balance sheet accounts:
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
|
|
|
|
2018
|
|
2017
|
Accrued liabilities
|
|
|
|
|
|
$
|
226
|
|
|
$
|
226
|
|
Other liabilities
|
|
|
|
|
|
|
477
|
|
|
|
369
|
|
|
|
|
|
|
|
$
|
703
|
|
|
$
|
595
|
|
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.
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, 2017
|
|
$
|
616
|
|
|
$
|
907
|
|
|
$
|
1,523
|
|
Accrual for update to estimated liability
|
|
|
92
|
|
|
|
19
|
|
|
|
111
|
|
Asbestos related liability payments
|
|
|
(98
|
)
|
|
|
(8
|
)
|
|
|
(106
|
)
|
June 30, 2018
|
|
$
|
610
|
|
|
$
|
918
|
|
|
$
|
1,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Recoveries for Asbestos Related
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bendix
|
|
NARCO
|
|
Total
|
December 31, 2017
|
|
$
|
123
|
|
|
$
|
312
|
|
|
$
|
435
|
|
Probable insurance recoveries related to estimated
liability
|
|
|
12
|
|
|
|
-
|
|
|
|
12
|
|
Insurance receipts for asbestos related liabilities
|
|
|
(13
|
)
|
|
|
(1
|
)
|
|
|
(14
|
)
|
June 30, 2018
|
|
$
|
122
|
|
|
$
|
311
|
|
|
$
|
433
|
|
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,
|
|
|
2018
|
|
2017
|
Other current assets
|
|
$
|
24
|
|
|
$
|
24
|
|
Insurance recoveries for asbestos related liabilities
|
|
|
409
|
|
|
|
411
|
|
|
|
$
|
433
|
|
|
$
|
435
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
350
|
|
|
$
|
350
|
|
Asbestos related liabilities
|
|
|
1,178
|
|
|
|
1,173
|
|
|
|
$
|
1,528
|
|
|
$
|
1,523
|
|
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 processor’s 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 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 continued during this period as the parties attempted to resolve disputed issues. The Standstill Agreement expired on
October 12, 2017. Notwithstanding its expiration, claims processing continues, and Honeywell continues to negotiate and attempt
to resolve remaining disputed issues (that is instances where Honeywell believes the Trust is not processing claims in accordance
with established Trust Distribution Procedures). Honeywell reserves its right to seek judicial intervention should negotiations
fail or prove futile. As of June 30, 2018, 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), as well as unsettled claims pending
as of the time NARCO filed for bankruptcy protection and operating and legal costs related to the Trust (collectively $30 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 was prepared in 2002, in the same year NARCO filed for bankruptcy protection, using NARCO tort
system litigation experience based on a commonly accepted methodology used by numerous bankruptcy courts addressing 524(g) trusts.
Accordingly, the estimated value of future NARCO asbestos claims was prepared before there was data on claims filings and payment
rates in the NARCO Trust under the Trust Distribution Procedures and also prepared when the stay of all NARCO asbestos claims was
in effect (which remained in effect until NARCO emerged from Bankruptcy protection). Some critical assumptions underlying this
commonly accepted methodology included claims filing rates, disease criteria and payment values contained in the Trust Distribution
Procedures, estimated
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
approval rates of claims submitted to the
NARCO Trust and epidemiological studies estimating disease instances. The estimated value of the future NARCO liability reflects
claims expected to be asserted against NARCO over a fifteen year period. This projection resulted in a range of estimated liability
of $743 million to $961 million. We believe that no amount within this range is a better estimate than any other amount and accordingly,
we have recorded the minimum amount in the range. Given the Trust’s lack of sufficient claims processing experience since
NARCO emerged from bankruptcy protection, it is not yet possible to reliably estimate future claim costs based on actual Trust
experience.
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
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Claims unresolved at the beginning of period
|
|
|
|
|
|
6,280
|
|
|
|
7,724
|
|
|
|
7,779
|
|
Claims filed
|
|
|
|
|
|
|
|
|
|
|
1,210
|
|
|
|
2,645
|
|
|
|
2,830
|
|
Claims resolved
|
|
|
|
|
|
|
|
|
|
|
(1,377
|
)
|
|
|
(4,089
|
)
|
|
|
(2,885
|
)
|
Claims unresolved at the end of period
|
|
|
|
|
|
|
|
|
|
|
6,113
|
|
|
|
6,280
|
|
|
|
7,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
Disease Distribution of Unresolved
Claims
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Mesothelioma and other cancer claims
|
|
|
|
|
|
|
|
|
|
|
2,876
|
|
|
|
3,062
|
|
|
|
3,490
|
|
Nonmalignant claims
|
|
|
|
|
|
|
|
|
|
|
3,237
|
|
|
|
3,218
|
|
|
|
4,234
|
|
Total claims
|
|
|
|
|
|
|
|
|
|
|
6,113
|
|
|
|
6,280
|
|
|
|
7,724
|
|
|
|
|
Honeywell has experienced average resolution values per claim excluding legal costs as follows:
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
|
(in
whole dollars)
|
Malignant claims
|
|
$
|
56,000
|
|
|
$
|
44,000
|
|
|
$
|
44,000
|
|
|
$
|
53,500
|
|
|
$
|
51,000
|
|
Nonmalignant claims
|
|
$
|
2,800
|
|
|
$
|
4,485
|
|
|
$
|
100
|
|
|
$
|
120
|
|
|
$
|
850
|
|
It is not possible to
predict whether resolution values for Bendix-related asbestos claims will increase, decrease or stabilize in the future.
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Our consolidated financial
statements reflect an estimated liability for resolution of pending (claims actually filed as of the financial statement date)
and future Bendix-related asbestos claims. We have valued Bendix pending and future claims using average resolution values for
the previous five years. We update the resolution values used to estimate the cost of Bendix pending and future claims during the
fourth quarter each year.
The liability for future
claims represents the estimated value of future asbestos related bodily injury claims expected to be asserted against Bendix over
the next five years. Such estimated cost of future Bendix-related asbestos claims is based on historic claims filing experience
and dismissal rates, disease classifications, and resolution values in the tort system for the previous five years. In light of
the uncertainties inherent in making long-term projections, as well as certain factors unique to friction product asbestos claims,
we do not believe that we have a reasonable basis for estimating asbestos claims beyond the next five years. The methodology used
to estimate the liability for future claims is similar to that used to estimate the liability for future NARCO-related asbestos
claims.
Our insurance receivable
corresponding to the liability for settlement of pending and future Bendix asbestos claims reflects coverage which is provided
by a large number of insurance policies written by dozens of insurance companies in both the domestic insurance market and the
London excess market. Based on our ongoing analysis of the probable insurance recovery, insurance receivables are recorded in the
financial statements simultaneous with the recording of the estimated liability for the underlying asbestos claims. This determination
is based on our analysis of the underlying insurance policies, our historical experience with our insurers, our ongoing review
of the solvency of our insurers, judicial determinations relevant to our insurance programs, and our consideration of the impacts
of any settlements reached with our insurers.
Honeywell
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 September 2011, the UAW and certain Honeywell retirees (Plaintiffs) filed a suit in
the Eastern District of Michigan (the District Court) alleging that a series of Master Collective Bargaining Agreements (MCBAs)
between Honeywell and the UAW provided the retirees with rights to lifetime, vested healthcare benefits that could never be changed
or reduced. Plaintiffs alleged that Honeywell had violated those vested rights by implementing express limitations (CAPS) on the
amount Honeywell contributed toward healthcare coverage for the retirees. Honeywell subsequently answered the UAW’s complaint
and asserted counterclaims, including for breach of implied warranty.
Between 2014 and 2015,
Honeywell began enforcing the CAPS against former employees. In response, the UAW and certain of the Plaintiffs filed a motion
seeking a ruling that the MCBAs do not limit Honeywell’s obligation to contribute to healthcare coverage for those retirees.
Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
On March 29, 2018, the
District Court issued its opinion resolving all pending summary judgment motions, except for Honeywell’s counterclaim for
breach of implied warranty which remains outstanding.
In the opinion,
the District Court held that the MCBAs do not promise retirees vested, lifetime benefits that survive expiration of the
MCBAs. Based on this ruling, Honeywell has informed the UAW and the retirees that it intends to terminate their healthcare
coverage benefits altogether as of July 31, 2018. However, the UAW has filed a motion to enjoin Honeywell from completely
terminating coverage as of July 31, 2018, arguing that the CAPS themselves are vested and that Honeywell must continue to
provide retiree medical benefits at the capped level. That issue has been fully briefed and is currently pending with the
District Court. Honeywell’s post retirement benefit obligation will continue to reflect the UAW retiree medical benefits
at the capped level until the resolution of this matter.
In the March 2018 opinion,
the District Court also held that Honeywell is obligated under the MCBAs to pay the “full premium” for retiree healthcare
rather than the capped amount. Based on this ruling, Honeywell would be required to pay monetary damages to retirees for any past
years in which Honeywell paid less than the “full premium” of their healthcare coverage. Such damages would be limited,
depending on the retiree group, to a two to three-year period ending when the 2016 MCBA expired, and Honeywell would have no ongoing
obligation to continue funding healthcare coverage for subsequent periods. Honeywell has appealed the District Court’s ruling
on this “full premium” damages issue, and it is confident that the Sixth Circuit Court of Appeals will reverse the
District Court on that issue. In the event the Sixth Circuit were to sustain the District Court’s ruling on this issue, Honeywell
would be liable for damages of at least $12 million.
Given the uncertainty
inherent in litigation and investigations (including the specific matter 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.