Honeywell 2003 Annual Report Download - page 350

In 2002, we recognized a repositioning charge of $453 million for workforce
reductions across all of our reportable segments and our UOP process technology
joint venture. The charge also related to costs for the planned shutdown and
consolidation of manufacturing plants in our Specialty Materials and Automation
and Control Solutions reportable segments. Severance costs related to announced
workforce reductions of approximately 8,100 manufacturing and administrative
positions, which are substantially complete. Asset impairments principally
related to manufacturing plant and equipment held for sale and capable of being
taken out of service and actively marketed in the period of impairment. Exit
costs related principally to incremental costs to exit facilities, including
lease termination losses negotiated or subject to reasonable estimation related
mainly to closed facilities in our Automation and Control Solutions and
Specialty Materials reportable segments. Also, $76 million of previously
established severance accruals were returned to income in 2002, due to fewer
employee separations than originally anticipated and higher than expected
voluntary employee attrition resulting in reduced severance liabilities in our
Aerospace, Automation and Control Solutions and Specialty Materials reportable
segments.
In 2001, we recognized a repositioning charge of $1,016 million for the cost of
actions designed to reduce our cost structure and improve our future
profitability. These actions consisted of announced global workforce reductions
of approximately 20,000 manufacturing and administrative positions across all of
our reportable segments, which are complete. The repositioning charge also
included asset impairments and other exit costs related to plant closures and
the rationalization of manufacturing capacity and infrastructure, principally in
our Specialty Materials, Engines, Systems and Services and Transportation
Systems businesses, including the shutdown of our Turbogenerator product line.
Other exit costs consisted of contract cancellations and penalties, including
lease terminations, negotiated or subject to reasonable estimation. Also, $119
million of previously established accruals, mainly for severance, were returned
to income in 2001 due principally to higher than expected voluntary employee
attrition resulting in reduced severance liabilities, principally in our
Aerospace and Automation and Control Solutions reportable segments.
Our 2003 repositioning actions are expected to generate incremental pretax
savings of approximately $70 million in 2004 compared with 2003 principally from
planned workforce reductions. Cash expenditures for severance and other exit
costs necessary to execute our repositioning actions were $200, $447 and $422
million in 2003, 2002 and 2001, respectively. Such expenditures for severance
and other exit costs have been funded principally through operating cash flows.
Cash expenditures for severance and other exit costs necessary to execute the
remaining actions will approximate $200 million in 2004 and will be funded
principally through operating cash flows.
In 2003, we recognized other charges for probable and reasonably estimable legal
and environmental liabilities of $261 million. This includes $235 million for
environmental liabilities mainly related to the matter entitled Interfaith
Community Organization, et al. v. Honeywell International Inc., et al. and for
environmental conditions in and around Onondaga Lake in Syracuse, New York, both
as discussed in Note 21 of Notes to Financial Statements. We also recognized a
charge of $4 million in our Specialty Materials reportable segment including a
loss on sale of an investment owned by an equity investee.
In 2002, we recognized business impairment charges of $877 million related to
businesses in our Specialty Materials and Automation and Control Solutions
reportable segments, as well as our Friction Materials business. Based on
current operating losses and deteriorating economic conditions in certain
chemical and telecommunications end-markets, we performed impairment tests and
recognized impairment charges of $785 million in 2002 principally related to the
write-down of property, plant and equipment held and used in our Nylon System,
Performance Fibers and Metglas Specialty Materials businesses, as well as an
Automation and Control Solutions communication business. We also recognized
impairment charges of $92 million related principally to the write-down of
property, plant and equipment of our Friction Materials business, which was
classified as assets held for disposal in Other Current Assets as of December
31, 2002 (a plan of disposal of Friction Materials was adopted in 2001; in
January 2003, we entered into a letter of intent to sell this business to
Federal-Mogul Corp. We formally ended negotiations to sell our Friction
Materials business to Federal-Mogul Corp. and reclassified the business from
held for sale to held and used as of December 31, 2003--see Note 21 of Notes to
Financial Statements for further discussion). In 2002, we recognized asbestos
related litigation charges of $1,548 million principally related to costs
associated with the potential resolution of asbestos claims of NARCO (see Note
21 of Notes to Financial Statements for further discussion). In 2002, we also
recognized other charges consisting of customer claims and settlements of
contract liabilities of $152 million and write-offs of receivables, inventories
and other assets of $60 million. These other charges related mainly to our
Advanced Circuits business, bankruptcy of a customer in our Aerospace reportable
segment, and customer claims in our Aerospace and Automation and Control
Solutions reportable segments. Additionally, we recognized other charges
consisting of other probable and reasonably estimable environmental liabilities
of $30 million and write-offs related to an other than temporary decline in the