Honeywell 2012 Annual Report Download

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A N N U A L R E P O R T
2012

Table of contents

  • Page 1
    2 0 1 2 A N N U A L R E P O R T

  • Page 2
    ... per share*(1) by 11% to $4.48, and segment profit margin rate(2) 90 basis points to 15.6%, while also generating $3.7 billion in free cash flow for a 103% conversion rate(3) on net income. That was accomplished while still doing a considerable amount of seed planting in new products and services...

  • Page 3
    ... with words and compliance with intent. The manuals for new product introduction, customer service and management resource reviews probably look pretty much the same from company to company. It's more a matter of how well you do it. Our One Honeywell culture has evolved rapidly from a base ten years...

  • Page 4
    ... important for margin rate growth. It starts with conservative sales planning and resourcing areas of the world where growth is stronger (our High Growth Regions focus) and extends to basic cost management like reducing material costs, using less indirect material, and being conservative in our...

  • Page 5
    ... processes will yield better service at much lower cost. Our continued evolution in these three key Business Processes will support continued growth in sales, margin rate, income, and cash. I'm frequently asked what "inning" we're in for this transformation of Honeywell. We've been working on it for...

  • Page 6
    ...Profit and Operating Income Margin Excluding Pension Mark-to-Market Adjustment ($M) 2009 2011 2012 Segment Profit ...Stock Based Compensation (a) ...Repositioning and Other (a, b) ...Pension Ongoing Expense (a) ...Pension...(a) Included in cost of products and services sold and selling, general and ...

  • Page 7
    ... property, plant and equipment. Free cash flow conversion is defined as free cash flow over net income attributable to Honeywell. ($M) 2012 Cash Provided by Operating Activities...Expenditures for Property, Plant and Equipment ...Free Cash Flow...Cash Pension Contributions ...Free Cash Flow, prior...

  • Page 8
    ... New Jersey (Address of principal executive offices) Registrant's telephone number, including area code (973) 455-2000 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Common Stock, par value $1 per share* 91⁄2% Debentures due June 1, 2016 22-2640650 (I.R.S. Employer...

  • Page 9
    ... Statements and Supplementary Data ...9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...9A. Controls and Procedures...9B. Other Information ... Part III. 10. Directors and Executive Officers of the Registrant...11. Executive Compensation ...12. Security...

  • Page 10
    ... statement for the 2013 Annual Meeting of Stockholders, which we expect to file with the SEC on or about March 7, 2013, and which will also be available free of charge on our website. Information relating to corporate governance at Honeywell, including Honeywell's Code of Business Conduct, Corporate...

  • Page 11
    ... Major Products/Services Major Customers/Uses Key Competitors Auxiliary power units (APUs) Airborne auxiliary power units Jet fuel starters Secondary power systems Ground power units Repair, overhaul and spare parts Air management systems: Air conditioning Bleed air Cabin pressure control Air...

  • Page 12
    ... air quality products including zoning, air cleaners, humidification, heat and energy recovery ventilators Controls plus integrated electronic systems for burners, boilers and furnaces Original equipment manufacturers (OEMs) Distributors Contractors Retailers System integrators Commercial customers...

  • Page 13
    ... controls and closed circuit television Home health monitoring and nurse call systems Gas detection products and systems Emergency lighting Distribution Personal protection equipment operations Appliance manufacturers Transportation companies Aviation companies Food and beverage processors Medical...

  • Page 14
    Product/Service Classes Major Products/Services Major Customers/Uses Key Competitors systems for Industrial Control equipment and systems Consulting, networking engineering and installation Terminal automation solutions Process control instrumentation Field instrumentation Analytical ...

  • Page 15
    ... specialties Petroleum, refining, petrochemical industry, gas processing industry and home, automotive, steel, and medical manufacturing industries Process technology and equipment Technology licensing and engineering design of process units and systems Engineered products Proprietary equipment...

  • Page 16
    ... Systems Our Transportation Systems segment is one of the leading manufacturers of engine boosting systems for passenger cars and commercial vehicles, as well as a leading provider of braking products. Product/Service Classes Major Products/Services Major Customers/Uses Key Competitors Charge-air...

  • Page 17
    ...sales in 2012, 2011 and 2010, respectively. Approximately 20 percent of total 2012 sales of Aerospace-related products and services were exports of U.S. manufactured products and systems and performance of services such as aircraft repair and overhaul. Exports were principally made to Europe, Canada...

  • Page 18
    ...Asia and Australia. The Company and its subsidiaries have a current policy not to conduct business with Iran. Pursuant to Section 13(r) of the Securities Exchange Act of 1934, we note the following. In 2009, Honeywell acquired RMG Group ("RMG"), a German company that had a pre-existing contract with...

  • Page 19
    ... and gas applications in our Transportation Systems segment and new product development in our Automation and Control Solutions segment. R&D as a percentage of sales was 4.9, 4.9 and 4.5 percent in 2012, 2011 and 2010, respectively. Customer-sponsored (principally the U.S. Government) R&D activities...

  • Page 20
    ... in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in Note 22 Commitments and Contingencies of Notes to Financial Statements in "Item 8. Financial Statements and Supplementary Data," and in "Item 1A. Risk Factors." Employees We have approximately 132...

  • Page 21
    ... actions or pandemic health issues could dramatically reduce both the demand for air travel and our Aerospace aftermarket sales and margins. The operating results of our Automation and Control Solutions (ACS) segment, which generated 42 percent of our consolidated revenues in 2012, are impacted by...

  • Page 22
    ... changing market conditions, our manufacturing capacity for certain products may at times exceed or fall short of our production requirements, which could adversely impact our operating costs, profitability and customer and supplier relationships. Our facilities, distribution systems and information...

  • Page 23
    ... have been material to the Company. Although we employ comprehensive measures to prevent, detect, address and mitigate these threats (including access controls, data encryption, vulnerability assessments, continuous monitoring of our IT networks and systems and maintenance of backup and protective...

  • Page 24
    ... controls regarding global cash management to guard against cash or investment loss and to ensure our ability to fund our operations and commitments, a material disruption to the financial institutions with whom we transact business could expose Honeywell to financial loss. Sales and purchases...

  • Page 25
    ...debt and equity markets. A change in the level of U.S. Government defense and space funding or the mix of programs to which such funding is allocated could adversely impact Aerospace's defense and space sales and results of operations. Sales of our defense and space-related products and services are...

  • Page 26
    ... and government procurement practices can impact Aerospace sales, research and development expenditures, operating costs and profitability. The demand for and cost of providing Automation and Control Solutions products, services and solutions can be impacted by fire, security, safety, health care...

  • Page 27
    ... used to calculate retiree health benefit expenses, may adversely affect our financial position and results of operations. Risks related to our defined benefit pension plans may adversely impact our results of operations and cash flow. Significant changes in actual investment return on pension...

  • Page 28
    ..., New Jersey. Our plants are generally located to serve large marketing areas and to provide accessibility to raw materials and labor pools. Our properties are generally maintained in good operating condition. Utilization of these plants may vary with sales to customers and other business conditions...

  • Page 29
    ..., IL (leased) Golden Valley, MN York, PA (leased) Pleasant Prairie, WI (leased) Shenzhen, China (leased) Suzhou, China Tianjin, China (leased) Brno, Czech Republic (leased) Mosbach, Germany Neuss, Germany Schonaich, Germany (leased) Pune, India (partially leased) Chihuahua, Mexico (partially leased...

  • Page 30
    ... 2009. Vice President Aerospace Engineering and Technology and Chief Technology Officer from March 2007 to August 2009. President of Air Transport and Regional from July 2005 to March 2007. Senior Vice President Engineering and Operations since April 2010 and President Honeywell Technology Solutions...

  • Page 31
    ... investing activities. The following table summarizes Honeywell's purchase of its common stock, par value $1 per share, for the three months ended December 31, 2012: Issuer Purchases of Equity Securities (a) (b) (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs...

  • Page 32
    ... range of nonaerospace businesses conducted by Honeywell. The annual changes for the five-year period shown in the graph are based on the assumption that $100 had been invested in Honeywell stock and each index on December 31, 2007 and that all dividends were reinvested. COMPARISON OF CUMULATIVE...

  • Page 33
    ... Financial Statements and related Notes included elsewhere in this Annual Report as well as the section of this Annual Report titled Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 6. Selected Financial Data Years Ended December 31, 2012 2011 2010...

  • Page 34
    .... All references to Notes related to Notes to the Financial Statements in "Item 8-Financial Statements and Supplementary Data". The Consumer Products Group (CPG) automotive aftermarket business had historically been part of the Transportation Systems reportable segment. In accordance with generally...

  • Page 35
    ..., fund the acquisitions discussed above, make $1,039 million in pension contributions, and provide an 11 percent increase in dividends paid (vs. 2011) and repurchase 5 million shares of common stock. CONSOLIDATED RESULTS OF OPERATIONS Net Sales 2012 2011 2010 Net sales ...% change compared...

  • Page 36
    ... related to the divestiture of the automotive on-board sensors products business within our Automation and Control Solutions segment in the first quarter of 2011, partially offset by a loss of $29 million resulting from early redemption of debt in 2011 included within "Other, net" and the reduction...

  • Page 37
    ... of the automotive on-board sensors products business within our Automation and Control Solutions segment and the reduction of approximately $12 million of acquisition related costs compared to 2010 included within "Other, net". Interest and Other Financial Charges 2012 2011 2010 Interest and other...

  • Page 38
    ... per share of common stock-assuming dilution increased by $1.08 per share in 2012 compared with 2011 primarily due to lower pension expense (mainly due to a decrease in the pension mark-to-market adjustment), increased segment profit in our Aerospace, Automation and Control Solutions and Performance...

  • Page 39
    ... productivity and enhance the flexibility of the business as it works to proactively respond to changes in end market demand; • Proactively managing raw material costs through formula and long-term supply agreements and hedging activities, where feasible and prudent; • Driving strong cash flow...

  • Page 40
    Review of Business Segments Net Sales Aerospace Product ...Service ...Total...Automation and Control Solutions Product ...Service ...Total...Performance Materials and Technologies Product ...Service ...Total...Transportation Systems Product ...Service ...Total...Corporate Product ...Service ...Total...

  • Page 41
    ...2011 Aerospace Sales Commercial: Original Equipment Air transport and regional ...Business and general aviation ...Aftermarket Air transport and regional ...Business and general aviation ...Defense and Space ...Total Aerospace Sales ...Automation and Control Solutions Sales Energy Safety & Security...

  • Page 42
    ...: % of Aerospace Sales Customer End-Markets 2012 2011 2010 % Increase (Decrease) in Sales 2011 2012 Versus Versus 2010 2011 Commercial original equipment Air transport and regional ...Business and general aviation ...Commercial original equipment ...Commercial aftermarket Air transport and regional...

  • Page 43
    ...in sales by customer end-markets are as follows: Commercial OE sales increased by 15 percent (11 percent organic) in 2011 compared with 2010. • Air transport and regional OE sales increased by 6 percent in 2011 primarily driven by higher sales to our OE customers, consistent with higher production...

  • Page 44
    ..., lighting and home automation; advanced software applications for home/building control and optimization; sensors, switches, control systems and instruments for measuring pressure, air flow, temperature and electrical current; security, fire and gas detection; personal protection equipment; access...

  • Page 45
    ... and • Changes to energy, fire, security, health care, safety and environmental concerns and regulations. Automation and Control Solutions 2012 2011 Change 2010 Change Net sales ...Cost of products and services sold ...Selling, general and administrative expenses ...Other...Segment profit ... $15...

  • Page 46
    ... positive impact of foreign exchange. The increase in operational segment profit is comprised of an approximate 5 percent positive impact from price and productivity, net of inflation and investment for growth and a 4 percent positive impact from higher sales volumes. Cost of products and services...

  • Page 47
    ... and refrigeration, additives, and enhanced nylon resin. Performance Materials and Technologies 2012 2011 Change 2010 Change Net sales ...Cost of products and services sold ...Selling, general and administrative expenses ...Other ...Segment profit ... $6,184 4,543 439 48 $1,154 $5,659 4,151 420 46...

  • Page 48
    ... exchange. The increase in operational segment profit is primarily due to higher licensing, catalyst and equipment revenues in UOP and productivity (net of continued investment in growth initiatives) partially offset by unfavorable pricing in Fluorine Products and Resins and Chemicals reflecting...

  • Page 49
    ... sector; • Investing to increase plant capacity and reliability to service backlog and improve productivity and quality through operational excellence; • Driving sales and marketing excellence and expanding local presence in high growth regions; • Managing exposure to raw material price and...

  • Page 50
    ... business), net of inflation. Cost of products and services sold totaled $2.9 billion in 2012, a decrease of $235 million which is primarily a result of foreign exchange, decreased volume and increased productivity. 2011 compared with 2010 Transportation Systems sales increased by 21 percent in 2011...

  • Page 51
    ...to the Financial Statements for a discussion of repositioning and other charges incurred in 2012, 2011, and 2010. Our repositioning actions are expected to generate incremental pretax savings of approximately $150 million in 2013 compared with 2012 principally from planned workforce reductions. Cash...

  • Page 52
    ... Group business and the automotive on-board sensor products business within our Automation and Control Solutions segment in 2011), (ii) a net $117 million increase in investments (primarily short-term marketable securities), and (iii) an increase in expenditures for property, plant and equipment...

  • Page 53
    ...We also have a current shelf registration statement filed with the Securities and Exchange Commission under which we may issue additional debt securities, common stock and preferred stock that may be offered in one or more offerings on terms to be determined at the time of the offering. Net proceeds...

  • Page 54
    ... of Honeywell common stock. During 2012, the Company repurchased $317 million of outstanding shares to offset the dilutive impact of employee stock based compensation plans, including future option exercises, restricted unit vesting and matching contributions under our savings plans (see Part II...

  • Page 55
    ... $1.3 billion in dividends on our common stock in 2013, reflecting the 10 percent increase in the dividend rate effective with the fourth quarter 2012 dividend. • Asbestos claims-we expect our cash spending for asbestos claims and our cash receipts for related insurance recoveries to be...

  • Page 56
    ... to the Financial Statements for additional information. (5) These amounts represent our insurance recoveries that are deemed probable for asbestos related liabilities as of December 31, 2012. The timing of insurance recoveries are impacted by the terms of insurance settlement agreements, as well...

  • Page 57
    ... cost of retiree medical benefits under our plans. We expect our OPEB payments to approximate $149 million in 2013 net of the benefit of approximately $11 million from the Medicare prescription subsidy. See Note 23 to the financial statements for further discussion of our pension and OPEB plans. The...

  • Page 58
    ... in excess of our recorded liabilities. We expect to fund expenditures for these matters from operating cash flow. The timing of cash expenditures depends on a number of factors, including the timing of litigation and settlements of remediation liability, personal injury and property damage claims...

  • Page 59
    ...local currency exchange rates across all maturities, and the potential change in fair value of contracts hedging commodity purchases based on a 20 percent decrease in the price of the underlying commodity across all maturities at December 31, 2012 and 2011. Face or Notional Amount Estimated Increase...

  • Page 60
    ... business operations or those of previously owned entities, including matters relating to commercial transactions, government contracts, product liability (including asbestos), prior acquisitions and divestitures, employee benefit plans, intellectual property, and environmental, health and safety...

  • Page 61
    ...to the Financial Statements. The key assumptions used in developing our 2012, 2011 and 2010 net periodic pension expense for our U.S. plans included the following: 2012 2011 2010 Discount rate ...Assets: Expected rate of return...Actual rate of return...Actual 10 year average annual compounded rate...

  • Page 62
    ... events and circumstances beyond the control of the Company such as changes in interest rates and the performance of the financial markets. In 2012, 2011 and 2010, we were not required to make contributions to satisfy minimum statutory funding requirements in our U.S. pension plans. However, we made...

  • Page 63
    ...more detail in Note 16 to the financial statements, we have recorded impairment charges related to long-lived assets of $22 million and $127 million in 2012 and 2011, respectively, principally related to manufacturing plant and equipment in facilities scheduled to close or be downsized. Goodwill and...

  • Page 64
    ... anticipated labor agreements. Revenue and cost estimates are regularly monitored and revised based on changes in circumstances. Anticipated losses on long-term contracts are recognized when such losses become evident. We maintain financial controls over the customer qualification, contract pricing...

  • Page 65
    ... See Note 1 to the financial statements for a discussion of recent accounting pronouncements. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Information relating to market risk is included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of...

  • Page 66
    ... 8. Financial Statements and Supplementary Data HONEYWELL INTERNATIONAL INC. CONSOLIDATED STATEMENT OF OPERATIONS Years Ended December 31, 2012 2011 2010 (Dollars in millions, except per share amounts) Product sales ...Service sales ...Net sales ...Costs, expenses and other Cost of products sold...

  • Page 67
    ... during year ...Settlements and curtailments ...Foreign exchange translation and other ...Pensions and other postretirement benefit adjustments...Unrealized gains (losses) for the period ...Changes in fair value of available for sale investments...Effective portion of cash flow hedges recognized in...

  • Page 68
    ... and other current assets...Total current assets ...Investments and long-term receivables ...Property, plant and equipment-net ...Goodwill ...Other intangible assets-net ...Insurance recoveries for asbestos related liabilities ...Deferred income taxes...Other assets ...Total assets ...LIABILITIES...

  • Page 69
    ...debt...Payments of long-term debt ...Excess tax benefits from share based payment arrangements ...Repurchases of common stock ...Cash dividends paid...Net cash used for financing activities ...Effect of foreign exchange rate changes on cash and cash equivalents ...Net increase/(decrease) in cash and...

  • Page 70
    ... STATEMENT OF SHAREOWNERS' EQUITY Years Ended December 31, 2012 2011 2010 Shares $ Shares $ Shares $ (in millions) Common stock, par value ...Additional paid-in capital Beginning balance ...Issued for employee savings and option plans...Contributed to pension plans ...Stock-based compensation...

  • Page 71
    ... the cost method. All intercompany transactions and balances are eliminated in consolidation. The Consumer Products Group (CPG) automotive aftermarket business had historically been part of the Transportation Systems reportable segment. In accordance with generally accepted accounting principles...

  • Page 72
    ... exists, product delivery has occurred or services have been rendered, pricing is fixed or determinable, and collection is reasonably assured. Service sales, principally representing repair, maintenance and engineering activities in our Aerospace and Automation and Control Solutions segments...

  • Page 73
    ... of any settlements with our insurers. 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 and auxiliary power units, for installation...

  • Page 74
    ... U.S. and non-U.S. defined benefit pension plans covering the majority of our employees and retirees. We recognize net actuarial gains or losses in excess of 10 percent of the greater of the market-related value of plan assets or the plans' projected benefit obligation (the corridor) annually in the...

  • Page 75
    ... earnings per share is based on the weighted average number of common shares outstanding and all dilutive potential common shares outstanding. Use of Estimates-The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make...

  • Page 76
    ... code, label and receipt printers manufacturing environments for $10 entered into a definitive agreement to acquire Intermec, Inc. computing, radio frequency identification solutions (RFID) and for use in warehousing, supply chain, field service and per share in cash, or an aggregate purchase price...

  • Page 77
    ...NOTES TO FINANCIAL STATEMENTS-(Continued) (Dollars in millions, except per share amounts) approximately $600 million, net of cash acquired. Intermec is a U.S. public company which operates globally and had reported 2011 revenues of approximately $850 million. The transaction is expected to close by...

  • Page 78
    ... financial statements. In August 2011, the Company acquired 100 percent of the issued and outstanding shares of EMS Technologies, Inc. (EMS), a leading provider of connectivity solutions for mobile networking, rugged mobile computers and satellite communications. EMS had reported 2010 revenues...

  • Page 79
    ... 2012, 2011 and 2010, assuming these acquisitions had been made at the beginning of the comparable prior year, would not be materially different from consolidated reported results. Divestitures-In July 2011, the Company sold its Consumer Products Group business (CPG) to Rank Group Limited. The sale...

  • Page 80
    HONEYWELL INTERNATIONAL INC. NOTES TO FINANCIAL STATEMENTS-(Continued) (Dollars in millions, except per share amounts) The key components of income from discontinued operations related to CPG were as follows: Years Ended December 31, 2011 2010 Net sales...Costs, expenses and other...Selling, ...

  • Page 81
    ...severance programs. In 2010, we recognized repositioning charges totaling $179 million including severance costs of $144 million related to workforce reductions of 2,781 manufacturing and administrative positions primarily in our Automation and Control Solutions, Aerospace and Transportation Systems...

  • Page 82
    HONEYWELL INTERNATIONAL INC. NOTES TO FINANCIAL STATEMENTS-(Continued) (Dollars in millions, except per share amounts) Transportation Systems and Aerospace segments, were returned to income in 2010 due to fewer employee separations than originally planned associated with prior severance programs. ...

  • Page 83
    ...related to the divestiture of the automotive on-board sensor products business within our Automation and Control Solutions segment. Other, net in 2011 includes a loss of $29 million resulting from early redemption of debt in the first quarter of 2011. See Note 14 Long-term Debt and Credit Agreements...

  • Page 84
    ... statements. Note 5-Interest and Other Financial Charges Years Ended December 31, 2012 2011 2010 Total interest and other financial charges ...Less-capitalized interest ... $369 (18) $351 $389 (13) $376 $402 (16) $386 The weighted average interest rate on short-term borrowings and commercial...

  • Page 85
    ... in 2011 compared to 2010 primarily due to a change in the mix of earnings between U.S. and foreign sources related to higher U.S. pension expense (primarily driven by an approximate 7.6 percentage point impact which resulted from the increase in pension mark-to-market expense), an increased benefit...

  • Page 86
    ...carryforwards which give rise to future income tax benefits and payables are as follows: December 31, 2012 2011 Property, plant and equipment basis differences...Postretirement benefits other than pensions and post employment benefits ...Investment and other asset basis differences ...Other accrued...

  • Page 87
    ..., and settlements with tax authorities. The following table summarizes the activity related to our unrecognized tax benefits: 2012 2011 2010 Change in unrecognized tax benefits: Balance at beginning of year ...Gross increases related to current period tax positions ...Gross increases related to...

  • Page 88
    ...to Honeywell ... 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. In 2012, 2011, and 2010 the weighted number of stock options excluded from the computations were...

  • Page 89
    ... under long-term contracts as of December 31, 2012 and December 31, 2011, respectively. These amounts are billed in accordance with the terms of customer contracts to which they relate. Note 9-Inventories December 31, 2012 2011 Raw materials ...Work in process ...Finished products ...Reduction to...

  • Page 90
    ...years ended December 31, 2012 and 2011 by segment is as follows: December 31, 2011 Currency Translation Adjustment December 31, 2012 Acquisitions Divestitures Aerospace ...Automation and Control Solutions Performance Materials and Technologies ...Transportation Systems ... $ 2,095 8,260 1,306 197...

  • Page 91
    ... in 2016, and $142 million in 2017. Note 13-Accrued Liabilities December 31, 2012 2011 Compensation, benefit and other employee related ...Customer advances and deferred income ...Asbestos related liabilities ...Repositioning ...Product warranties and performance guarantees...Environmental costs...

  • Page 92
    HONEYWELL INTERNATIONAL INC. NOTES TO FINANCIAL STATEMENTS-(Continued) (Dollars in millions, except per share amounts) Note 14-Long-term Debt and Credit Agreements December 31, 2012 2011 4.25% notes due 2013 ...3.875% notes due 2014 ...5.40% notes due 2016 ...5.30% notes due 2017 ...5.30% notes ...

  • Page 93
    HONEYWELL INTERNATIONAL INC. NOTES TO FINANCIAL STATEMENTS-(Continued) (Dollars in millions, except per share amounts) Additionally, each of the banks has the right to terminate its commitment to lend additional funds or issue letters of credit under the agreement if any person or group acquires ...

  • Page 94
    ... currency exchange rates and commodity prices and restrict the use of derivative financial instruments to hedging activities. We continually monitor the creditworthiness of our customers to which we grant credit terms in the normal course of business. The terms and conditions of our credit sales are...

  • Page 95
    ... Management-Our exposure to market risk for commodity prices can result in changes in our cost of production. We primarily mitigate our exposure to commodity price risk through the use of long-term, fixed-price contracts with our suppliers and formula price agreements with suppliers and customers...

  • Page 96
    HONEYWELL INTERNATIONAL INC. NOTES TO FINANCIAL STATEMENTS-(Continued) (Dollars in millions, except per share amounts) December 31, 2012 2011 Assets: Foreign currency exchange contracts ...Available for sale investments...Interest rate swap agreements ...Forward commodity contracts ...Liabilities: ...

  • Page 97
    ...: Years Ended December 31, 2012 2011 Designated Cash Flow Hedge Income Statement Location Foreign currency exchange contracts ... Forward commodity contracts ... Product sales...Cost of products sold ...Sales & general administrative ...Cost of products sold ... $ (7) 23 (12) $(17) $ 29 (34...

  • Page 98
    ... of $3.0 billion of Honeywell common stock, which amount includes $1.6 billion that remained available under the Company's previously reported share repurchase program. We purchased a total of approximately 5 million and 20.3 million shares of our common stock in 2012 and 2011, for $317 and $1,085...

  • Page 99
    ... Plan) there were 186,933 shares of Honeywell common stock available for future grant as of December 31, 2012. Stock Options-The exercise price, term and other conditions applicable to each option granted under our stock plans are generally determined by the Management Development and Compensation...

  • Page 100
    ... information, including related weighted-average assumptions, used to determine compensation cost: Years Ended December 31, 2012 2011 2010 Weighted average fair value per share of options granted during the year(1) ...Assumptions: Expected annual dividend yield...Expected volatility ...Risk-free...

  • Page 101
    HONEYWELL INTERNATIONAL INC. NOTES TO FINANCIAL STATEMENTS-(Continued) (Dollars in millions, except per share amounts) The following table summarizes information about stock option activity for the three years ended December 31, 2012: Number of Options Weighted Average Exercise Price Outstanding ...

  • Page 102
    ... the fifth anniversary of continuous Board service. In 2011, each non-employee director received an annual grant to purchase 5,000 shares of common stock at the fair market value on the date of grant. In 2012, the annual equity grant changed from a fixed number of shares to a target value of $75,000...

  • Page 103
    ..., personal injury and property damage claims, regulatory approval of cleanup projects, remedial techniques to be utilized and agreements with other parties. The following table summarizes information concerning our recorded liabilities for environmental costs: Years Ended December 31, 2012 2011 2010...

  • Page 104
    ...produced refractory products (bricks and cement used in high temperature applications). We sold the NARCO business in 1986 and agreed to indemnify NARCO with respect to personal injury claims for products that had been discontinued prior to the sale (as defined in the sale agreement). NARCO retained...

  • Page 105
    ... who performed brake replacements. The following tables summarize information concerning NARCO and Bendix asbestos related balances: Asbestos Related Liabilities Year Ended December 31, 2012 Bendix NARCO Total Year Ended December 31, 2011 Bendix NARCO Total Year Ended December 31, 2010 Bendix NARCO...

  • Page 106
    ... claims to the NARCO Trust subject to qualification under the terms of the settlement agreements and Trust Distribution Procedures criteria, which amounts are estimated at $150 million and are expected to be paid during the first two years of trust operations. Our consolidated financial statements...

  • Page 107
    ... obligations for NARCO asbestos claims under high excess insurance coverage issued by them. Since then, the Company has entered into settlement agreements resolving all NARCO-related asbestos coverage issues with almost all of these insurance carriers, including Travelers. Honeywell believes it is...

  • Page 108
    ...INC. NOTES TO FINANCIAL STATEMENTS-(Continued) (Dollars in millions, except per share amounts) Friction Products-The following tables present information regarding Bendix related asbestos claims activity: Claims Activity Years Ended December 31, 2012 2011 Claims Claims Claims Claims Unresolved at...

  • Page 109
    ... 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...

  • Page 110
    ...as to all plaintiffs. As previously reported, the Antitrust Division of the Department of Justice notified Honeywell in January 2010 that it had officially closed its investigation into possible collusion in the replacement auto filters industry. The class action in Canada is still pending but we do...

  • Page 111
    ... on contract terms and historical experience at the time of sale. Adjustments to initial obligations for warranties and guarantees are made as changes in the obligations become reasonably estimable. The following table summarizes information concerning our recorded obligations for product warranties...

  • Page 112
    ... health care cost increases. The retiree medical and life insurance plans are not funded. Claims and expenses are paid from our operating cash flow. In 2011, in connection with new collective bargaining agreements reached with several of its union groups, Honeywell amended its U.S. retiree medical...

  • Page 113
    HONEYWELL INTERNATIONAL INC. NOTES TO FINANCIAL STATEMENTS-(Continued) (Dollars in millions, except per share amounts) Pension Benefits U.S. Plans Non-U.S. Plans 2012 2011 2012 2011 Change in benefit obligation: Benefit obligation at beginning of year...Service cost ...Interest cost ...Plan ...

  • Page 114
    ...TO FINANCIAL STATEMENTS-(Continued) (Dollars in millions, except per share amounts) Other Postretirement Benefits 2012 2011 Change in benefit obligation: Benefit obligation at beginning of year...Service cost ...Interest cost ...Plan amendments ...Actuarial losses ...Benefits paid...Settlements and...

  • Page 115
    ... TO FINANCIAL STATEMENTS-(Continued) (Dollars in millions, except per share amounts) The components of net periodic benefit cost and other amounts recognized in other comprehensive (income) loss for our significant plans for the years ended December 31, 2012, 2011, and 2010 include the following...

  • Page 116
    ... benefit plans are presented in the following table. U.S. Plans 2011 Pension Benefits Non-U.S. Plans 2010 2012 2011 2010 2012 Actuarial assumptions used to determine benefit obligations as of December 31: Discount rate ...Expected annual rate of compensation increase ...Actuarial assumptions used...

  • Page 117
    ...U.S. pension plans focuses on maintaining a diversified portfolio using various asset classes in order to achieve our long-term investment objectives on a risk adjusted basis. Our actual invested positions in various securities change over time based on short and longer-term investment opportunities...

  • Page 118
    ...: Honeywell common stock ...U.S. large cap stocks...U.S. mid cap stocks ...U.S. small cap stocks ...International stocks ...Real estate investment trusts ...Fixed income investments: Short term investments ...Government securities ...Corporate bonds ...Mortgage/Asset-backed securities ...Insurance...

  • Page 119
    ...-U.S. Plans December 31, 2012 Level 1 Level 2 Total Level 3 Common stock/preferred stock: U.S. companies ...Non-U.S. companies ...Fixed income investments: Short-term investments ...Government securities ...Corporate bonds...Mortgage/Asset-backed securities ...Insurance contracts ...Investments...

  • Page 120
    ... contracts. The Company enters into futures contracts to gain exposure to certain markets. Common stocks, preferred stocks, real estate investment trusts, and short-term investments are valued at the closing price reported in the active market in which the individual securities are traded. Corporate...

  • Page 121
    ... for our U.S. defined benefit pension plans in 2013. Benefit payments, including amounts to be paid from Company assets, and reflecting expected future service, as appropriate, are expected to be paid as follows: U.S. Plans Non-U.S. Plans 2013...2014...2015...2016...2017...2018-2022 ...Other...

  • Page 122
    ..., lighting and home automation; advanced software applications for home/building control and optimization; sensors, switches, control systems and instruments for measuring pressure, air flow, temperature and electrical current; security, fire and gas detection; personal protection equipment; access...

  • Page 123
    ... financial charges, pension and other postretirement benefits (expense), stock compensation expense, repositioning and other charges and accounting changes. Years Ended December 31, 2012 2011 2010 Net Sales Aerospace Product ...Service ...Total ...Automation and Control Solutions Product ...Service...

  • Page 124
    HONEYWELL INTERNATIONAL INC. NOTES TO FINANCIAL STATEMENTS-(Continued) (Dollars in millions, except per share amounts) December 31, 2011 2012 2010 Total Assets Aerospace ...Automation and Control Solutions ...Performance Materials and Technologies ...Transportation Systems ...Corporate... $ 8,977...

  • Page 125
    ... ...Income taxes paid, net of refunds...Non-cash investing and financing activities: Common stock contributed to savings plans...Common stock contributed to U.S. pension plans ...Marketable securities contributed to non-U.S. pension plans...Note 27-Unaudited Quarterly Financial Information Mar. 31...

  • Page 126
    ...FINANCIAL STATEMENTS-(Continued) (Dollars in millions, except per share amounts) 2011 Sept. 30 Mar. 31 June 30 Dec. 31 Year Net Sales ...Gross Profit ...Amounts attributable to Honeywell... (loss) attributable to Honeywell . . Dividends paid per share ...Market Price per share High ...Low ... $ 8,...

  • Page 127
    ...reporting as of December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and the financial statement schedule...

  • Page 128
    ... Disclosure Not Applicable. Item 9A. Controls and Procedures Honeywell management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on...

  • Page 129
    ... that term is defined in applicable SEC Rules and NYSE listing standards. Honeywell's Code of Business Conduct is available, free of charge, on our website under the heading "Investor Relations" (see "Corporate Governance"), or by writing to Honeywell, 101 Columbia Road, Morris Township, New Jersey...

  • Page 130
    ...outstanding awards assumed under any equity compensation plan of an entity acquired by Honeywell. No securities are available for future issuance under the 2006 Stock Incentive Plan, the 2003 Stock Incentive Plan, the 1993 Stock Plan, or the 1994 Non-Employee Director Plan. The number of shares that...

  • Page 131
    ...Company matching shares awarded to participants in 2009 vested in November 2012, and an additional 17,506 shares were credited to participants' accounts as a result of dividend reinvestment. Another sub-plan of the Honeywell Global Stock Plan, the UK Sharebuilder Plan, allows an eligible UK employee...

  • Page 132
    ... plan has expired. All notional investments in shares of Common Stock are converted to cash when payments are made under the directors' plan. The amount of securities available for future issuance under the Supplemental Non-Qualified Savings Plan for Highly Compensated Employees of Honeywell...

  • Page 133
    .... HONEYWELL INTERNATIONAL INC. Date: February 15, 2013 By: /s/ Adam M. Matteo Adam M. Matteo Vice President and Controller (on behalf of the Registrant and as the Registrant's Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has...

  • Page 134
    ...amended and restated (incorporated by reference to Honeywell's Proxy Statement, dated March 10, 2011, filed pursuant to Rule 14a-6 of the Securities Exchange Act of 1934) Supplemental Non-Qualified Savings Plan for Highly Compensated Employees of Honeywell International Inc. and its Subsidiaries, as...

  • Page 135
    ...31, 2008 Honeywell International Inc. Severance Plan for Corporate Staff Employees (Involuntary Termination Following a Change in Control), as amended and restated (incorporated by reference to Exhibit 10.16 to Honeywell's Form 10-K for the year ended December 31, 2008) Employment Agreement dated as...

  • Page 136
    ...to Exhibit 10.4 to Honeywell's Form 10-Q for the quarter ended March 31, 2012) 2007 Honeywell Global Employee Stock Plan (incorporated by reference to Honeywell's Proxy Statement, dated March 12, 2007, filed pursuant to Rule 14a6 of the Securities Exchange Act of 1934) Letter Agreement dated July 20...

  • Page 137
    ... International Inc. and Honeywell Holding France SAS (incorporated by reference to Exhibit 10.1 to Honeywell's Form 10-Q for the quarter ended June 30, 2010) Stock and Asset Purchase Agreement dated January 27, 2011 by and among Honeywell International Inc., Rank Group Limited and Autoparts Holdings...

  • Page 138
    ... Extension Calculation Linkbase (filed herewith) Definition Linkbase (filed herewith) Label Linkbase (filed herewith) Presentation Linkbase (filed herewith) The Exhibits identified above with an asterisk (*) are management contracts or compensatory plans or arrangements. 129

  • Page 139
    HONEYWELL INTERNATIONAL INC. SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS Three Years Ended December 31, 2012 (Dollars in millions) Allowance for Doubtful Accounts: Balance December 31, 2009 ...Provision charged to income ...Deductions from reserves...Acquisitions ...Balance December 31, 2010 ......

  • Page 140
    ... and Chief Executive Officer Transportation Systems MARK R. JAMES Senior Vice President Global Government Relations MICHAEL E. LANG Honeywell's Dividend Reinvestment and Share Purchase Plan provides for automatic reinvestment of common stock dividends at market price. Participants also may...

  • Page 141
    Aerospace • Automation and Control Solutions • Transportation Systems • Performance Materials and Technologies Honeywell International Inc. 101 Columbia Road P.O. Box 2245 Morristown, NJ 07962-2245 USA For more information about Honeywell, visit www.honeywell.com.