Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Note 1. Basis of Presentation
In the opinion of management,
the accompanying unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of Honeywell International Inc. and its consolidated subsidiaries (Honeywell
or the Company) at September 30, 2016, the results of operations for the quarter and nine months ended September 30, 2016 and 2015
and the cash flows for the nine months ended September 30, 2016 and 2015. The results of operations for the three and nine months
ended September 30, 2016 should not necessarily be taken as indicative of the results of operations expected for the entire year.
We report our quarterly financial
information using a calendar convention; the first, second and third quarters are consistently reported as ending on March 31,
June 30 and September 30. It has been our practice to establish actual quarterly closing dates using a predetermined fiscal calendar,
which requires our businesses to close their books on a Saturday in order to minimize the potentially disruptive effects of quarterly
closing on our business processes. The effects of this practice are generally not significant to reported results for any quarter
and only exist within a reporting year. In the event that differences in actual closing dates are material to year-over-year comparisons
of quarterly or year-to-date results, we will provide appropriate disclosures. Our actual closing dates for the three and nine
months ended September 30, 2016 and 2015 were October 1, 2016 and September 26, 2015.
Note 2. Recent Accounting Pronouncements
Accounting pronouncements
not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated
financial position or results of operations.
In May 2014, and in subsequent
related updates and amendments, the Financial Accounting Standards Board (FASB) issued guidance on revenue from contracts with
customers that will supersede most current revenue recognition guidance, including industry-specific guidance. The underlying principle
is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity
expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to
determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration
of the time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies
are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and
uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The effective date was deferred
for one year to the interim and annual periods beginning on or after December 15, 2017. Early adoption is permitted as of the original
effective date – interim and annual periods beginning on or after December 15, 2016. The guidance permits the use of either
a retrospective or cumulative effect transition method. We have not yet selected a transition method and are currently evaluating
the impact of the amended guidance on our consolidated financial position, results of operations and related disclosures.
In February 2016, the FASB
issued guidance on accounting for leases which requires lessees to recognize most leases on their balance sheets for the rights
and obligations created by those leases. The guidance requires enhanced disclosures regarding the amount, timing, and uncertainty
of cash flows arising from leases and will be effective for interim and annual periods beginning after December 15, 2018. Early
adoption is permitted. The guidance requires the use of a modified retrospective approach. We are evaluating the impact of the
guidance on our consolidated financial position, results of operations and related disclosures.
In March 2016, the FASB
issued amended guidance related to employee share-based payment accounting. The guidance requires all income tax effects
of awards to be recognized in the income statement, which were previously presented as a component of Shareowners’ Equity,
on a prospective basis. The guidance also requires presentation of excess tax benefits as an operating activity on the statement
of cash flows rather than as a financing activity. We have elected to early adopt the standard in the quarter ended September
30,
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
2016, which requires adoption effective as of the beginning of the fiscal year. The primary impact of adoption was the
recognition of excess tax benefits as a reduction in the provision for income taxes and related diluted earnings per share impacts
of $30 million ($0.03 diluted earnings per share) for the quarter ended March 31, 2016, $38 million ($0.04 diluted earnings per
share) for the quarter ended June 30, 2016 and $57 million ($0.07 diluted earnings per share) for the quarter ended September 30,
2016. These excess tax benefits previously reported in financing activities in the Consolidated Statement of Cash Flows are now
reported as operating activities. Cash paid by the Company when directly withholding shares for tax-withholding purposes are classified
as a financing activity on a retrospective basis.
The guidance allows for an
accounting policy election to estimate the number of awards that are expected to vest or account for forfeitures when they occur.
We elected to maintain the current forfeitures policy and will continue to include an estimate of those forfeitures when recognizing
stock compensation expense. Classification of the excess tax benefits in the Consolidated Statement of Cash Flows are presented
on a prospective basis starting January 1, 2016.
In August 2016, the FASB
issued new guidance intended to reduce diversity in practice in how certain cash receipts and payments are classified in the statement
of cash flows, including debt prepayment or extinguishment costs, the settlement of contingent liabilities arising from a business
combination, proceeds from insurance settlements, and distributions from certain equity method investees. The guidance is effective
for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. The guidance requires application
using a retrospective transition method. The Company is currently evaluating the impact of adopting this guidance.
Note 3. Acquisitions and Divestitures
During the quarter and nine
months we acquired businesses for an aggregate cost (net of cash acquired and debt assumed) of $1,483 million and $2,532 million.
On August 29, 2016, the Company
acquired Intelligrated, a leading provider of supply chain and warehouse automation technologies, for an aggregate value, net of
cash acquired, of approximately $1,483 million. Intelligrated is part of Safety and Productivity Solutions. The preliminary determination
of the assets and liabilities acquired with Intelligrated have been included in the Consolidated Balance Sheet as of September
30, 2016, including $1,124 million allocated to goodwill, which is non-deductible for tax purposes.
In December 2015, the Company
acquired the Elster Division of Melrose Industries plc (Elster) for an aggregate value, net of cash acquired, of approximately
$4,899 million. Elster is part of Home and Building Technologies and Performance Materials and Technologies. The following table
summarizes the updated fair value estimates of the Elster assets and liabilities acquired as of the acquisition date:
Current assets
|
|
$
|
522
|
|
Intangible assets
|
|
|
2,160
|
|
Other noncurrent assets
|
|
|
194
|
|
Current liabilities
|
|
|
(456
|
)
|
Noncurrent liabilities
|
|
|
(919
|
)
|
Net assets acquired
|
|
|
1,501
|
|
Noncontrolling interest
|
|
|
(3
|
)
|
Goodwill
|
|
|
3,401
|
|
Purchase Price
|
|
$
|
4,899
|
|
The purchase accounting for
Elster and Intelligrated is subject to final adjustment, primarily for the valuation of intangible assets, amounts allocated to
goodwill, tax balances and certain pre-acquisition contingencies.
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
On October 1, 2016 the Company
completed the tax-free spin-off of its Resins and Chemicals business, part of Performance Materials and Technologies, into a standalone,
publicly-traded company (named AdvanSix) to Honeywell shareowners. Since the effective date of the spin-off falls within the fiscal
third quarter, the assets and liabilities associated with AdvanSix have been removed from the Company’s third quarter Consolidated
Balance Sheet. The results of operations for AdvanSix are included in the Consolidated Statement of Operations through the effective
date of the spin-off. See Note 1 Basis of Presentation of Notes to Financial Statements for further discussion of the Company’s
actual quarterly closing date convention.
Honeywell shareowners of
record as of the close of business on September 16, 2016 received one share of AdvanSix common stock for every 25 shares of Honeywell
common stock. Immediately prior to the effective date of the spin-off, AdvanSix incurred debt to make a cash distribution of $269
million to the Company. At the same time, AdvanSix also incurred $38 million of borrowings in order to fund its post spin-off working
capital.
The Company entered into
certain agreements with AdvanSix to effect our legal and structural separation including a transition services agreement with AdvanSix
to provide certain administrative and other services for a limited time.
On September 16, 2016 the
Company completed the sale of Honeywell Technology Solutions Inc. for a sale price of $300 million. The Company recognized a pre-tax
gain of $176 million. The Honeywell Technology Solutions business was part of Aerospace.
Note 4. Repositioning and Other Charges
A summary of repositioning and other charges follows:
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September
30,
|
|
September
30,
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
2016
|
|
|
2015
|
Severance
|
|
$
|
155
|
|
|
$
|
63
|
|
|
$
|
253
|
|
|
$
|
138
|
|
Asset impairments
|
|
|
11
|
|
|
|
1
|
|
|
|
42
|
|
|
|
9
|
|
Exit costs
|
|
|
36
|
|
|
|
1
|
|
|
|
41
|
|
|
|
3
|
|
Reserve adjustments
|
|
|
(31
|
)
|
|
|
(31
|
)
|
|
|
(92
|
)
|
|
|
(43
|
)
|
Total net repositioning charge
|
|
|
171
|
|
|
|
34
|
|
|
|
244
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asbestos related litigation charges, net of insurance
|
|
|
64
|
|
|
|
50
|
|
|
|
173
|
|
|
|
142
|
|
Probable and reasonably estimable environmental liabilities
|
|
|
49
|
|
|
|
49
|
|
|
|
132
|
|
|
|
144
|
|
Other
|
|
|
18
|
|
|
|
-
|
|
|
|
18
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net repositioning and other charges
|
|
$
|
302
|
|
|
$
|
133
|
|
|
$
|
567
|
|
|
$
|
393
|
|
The following table summarizes the pretax distribution
of total net repositioning and other charges by income statement classification:
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September
30,
|
|
September
30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Cost of products and services sold
|
|
$
|
226
|
|
|
$
|
129
|
|
|
$
|
410
|
|
|
$
|
363
|
|
Selling, general and administrative expenses
|
|
|
53
|
|
|
|
4
|
|
|
|
110
|
|
|
|
30
|
|
Other (income) expense
|
|
|
23
|
|
|
|
-
|
|
|
|
47
|
|
|
|
-
|
|
|
|
$
|
302
|
|
|
$
|
133
|
|
|
$
|
567
|
|
|
$
|
393
|
|
Honeywell International Inc.
Notes to 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
|
|
Nine Months Ended
|
|
|
September
30,
|
|
September
30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Aerospace
|
|
$
|
144
|
|
|
$
|
38
|
|
|
$
|
265
|
|
|
$
|
134
|
|
Home and Building Technologies
|
|
|
24
|
|
|
|
12
|
|
|
|
36
|
|
|
|
38
|
|
Performance Materials and Technologies
|
|
|
35
|
|
|
|
9
|
|
|
|
71
|
|
|
|
30
|
|
Safety and Productivity Solutions
|
|
|
10
|
|
|
|
16
|
|
|
|
4
|
|
|
|
29
|
|
Corporate
|
|
|
89
|
|
|
|
58
|
|
|
|
191
|
|
|
|
162
|
|
|
|
$
|
302
|
|
|
$
|
133
|
|
|
$
|
567
|
|
|
$
|
393
|
|
In the quarter ended September
30, 2016, we recognized a repositioning charge totaling $202 million including severance costs of $155 million related to workforce
reductions of 3,017 manufacturing and administrative positions across our segments. The workforce reductions were primarily related
to the separation of the former Automation and Control Solutions reporting segment into two new reporting segments (Home and Building
Technologies and Safety and Productivity Solutions); factory transitions in Aerospace, Home and Building Technologies, Safety and
Productivity Solutions and Performance Materials and Technologies to more cost-effective locations; and cost savings actions taken
in connection with our productivity and ongoing functional transformation initiatives. The repositioning charge included exit costs
of $36 million principally for expenses related to the spin-off of our AdvanSix business and closure obligations associated with
factory transitions. Also, $31 million of previously established accruals for severance were returned to income as a result of
higher attrition than anticipated in prior severance programs resulting in lower required severance payments, and changes in the
scope of previously announced repositioning actions.
In the quarter ended September
30, 2015, we recognized a repositioning charge totaling $65 million primarily for severance costs related to workforce reductions
of 902 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. Also, $31 million
of previously established accruals for severance were returned to income as a result of higher attrition than anticipated in prior
severance programs resulting in lower required severance payments, and changes in the scope of previously announced repositioning
actions.
In the nine months ended
September 30, 2016, we recognized a repositioning charge totaling $336 million including severance costs of $253 million related
to workforce reductions of 5,888 manufacturing and administrative positions across our segments. The workforce reductions were
primarily related to cost savings actions taken in connection with our productivity and ongoing functional transformation initiatives;
the separation of the former Automation and Control Solutions reporting segment into two new reporting segments; factory transitions
in Aerospace, Home and Building Technologies, Safety and Productivity Solutions and Performance Materials and Technologies to more
cost-effective locations; and achieving acquisition-related synergies. The repositioning charge included asset impairments of $42
million principally related to the write-off of certain intangible assets in connection with the sale of a Performance Materials
and Technologies business. The repositioning charge included exit costs of $41 million principally for expenses related to the
spin-off of our AdvanSix business and closure obligations associated with factory transitions. Also, $92 million of previously
established accruals, primarily for severance, were returned to income as a result of higher attrition than anticipated in prior
severance programs resulting in lower required severance payments, lower than expected severance costs in certain repositioning
actions, and changes in the scope of previously announced repositioning actions.
In the nine months ended
September 30, 2015, we recognized a repositioning charge totaling $150 million primarily for severance costs related to workforce
reductions of 4,882 manufacturing and administrative positions across our segments. The workforce reductions were primarily related
to cost savings actions taken in connection with our productivity and ongoing functional transformation initiatives and outsourcing
of certain component manufacturing in Home and Building Technologies. Also, $43 million of previously established
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
accruals, primarily for severance, were returned
to income as a result of higher attrition than anticipated in prior severance programs resulting in lower required severance payments,
and changes in the scope of previously announced repositioning actions.
The following table summarizes the status of our
total repositioning reserves:
|
|
Severance
|
|
Asset
|
|
Exit
|
|
|
|
|
Costs
|
|
Impairments
|
|
Costs
|
|
Total
|
December 31, 2015
|
|
$
|
329
|
|
|
$
|
-
|
|
|
$
|
21
|
|
|
$
|
350
|
|
Charges
|
|
|
253
|
|
|
|
42
|
|
|
|
41
|
|
|
|
336
|
|
Usage - cash
|
|
|
(135
|
)
|
|
|
-
|
|
|
|
(8
|
)
|
|
|
(143
|
)
|
Usage - noncash
|
|
|
(6
|
)
|
|
|
(42
|
)
|
|
|
-
|
|
|
|
(48
|
)
|
Foreign currency translation
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7
|
|
Adjustments
|
|
|
(91
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
(92
|
)
|
September 30, 2016
|
|
$
|
357
|
|
|
$
|
-
|
|
|
$
|
53
|
|
|
$
|
410
|
|
Certain
repositioning projects in 2016 and 2015 included exit or disposal activities, the costs related to which will be recognized in
future periods when the actual liability is incurred. Such exit and disposal costs are not expected to be significant.
Note 5. Earnings Per Share
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September
30,
|
|
September
30,
|
Basic
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net income attributable to Honeywell
|
|
$
|
1,240
|
|
|
$
|
1,264
|
|
|
$
|
3,775
|
|
|
$
|
3,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
763.7
|
|
|
|
780.4
|
|
|
|
765.0
|
|
|
|
782.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share of common stock
|
|
$
|
1.62
|
|
|
$
|
1.62
|
|
|
$
|
4.93
|
|
|
$
|
4.57
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
Assuming Dilution
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net income attributable to Honeywell
|
|
$
|
1,240
|
|
|
$
|
1,264
|
|
|
$
|
3,775
|
|
|
$
|
3,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
763.7
|
|
|
|
780.4
|
|
|
|
765.0
|
|
|
|
782.5
|
|
Dilutive securities issuable - stock plans
|
|
|
10.7
|
|
|
|
9.1
|
|
|
|
11.3
|
|
|
|
9.6
|
|
Total weighted average shares outstanding
|
|
|
774.4
|
|
|
|
789.5
|
|
|
|
776.3
|
|
|
|
792.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share of common stock
|
|
$
|
1.60
|
|
|
$
|
1.60
|
|
|
$
|
4.86
|
|
|
$
|
4.51
|
|
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 nine months ended September 30, 2016, the weighted average number of
stock options excluded from the computations were 5.5 million and 6.9 million. For the three and nine months ended September 30,
2015, the weighted average number of stock options excluded from the computations were 7.0 million and 7.3 million. These stock
options were outstanding at the end of each period.
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Note 6. Accounts, Notes and Other Receivables
|
|
September 30,
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
Trade
|
|
$
|
8,333
|
|
|
$
|
7,901
|
|
Other
|
|
|
583
|
|
|
|
436
|
|
|
|
|
8,916
|
|
|
|
8,337
|
|
Less: Allowance for doubtful accounts
|
|
|
(289
|
)
|
|
|
(262
|
)
|
|
|
$
|
8,627
|
|
|
$
|
8,075
|
|
Trade receivables include
$1,642 and $1,590 million of unbilled balances under long-term contracts as of September 30, 2016 and December 31, 2015. These
amounts are billed in accordance with the terms of customer contracts to which they relate.
Note 7. Inventories
|
|
September 30,
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
1,160
|
|
|
$
|
1,120
|
|
Work in process
|
|
|
799
|
|
|
|
826
|
|
Finished products
|
|
|
2,693
|
|
|
|
2,590
|
|
|
|
|
4,652
|
|
|
|
4,536
|
|
Reduction to LIFO cost basis
|
|
|
(65
|
)
|
|
|
(116
|
)
|
|
|
$
|
4,587
|
|
|
$
|
4,420
|
|
Note 8. Property, Plant and Equipment - Net
|
|
September 30,
|
|
December 31,
|
|
|
2016
|
|
2015
|
Land and improvements
|
|
$
|
380
|
|
|
$
|
367
|
|
Machinery and equipment
|
|
|
9,872
|
|
|
|
10,505
|
|
Buildings and improvements
|
|
|
3,391
|
|
|
|
3,188
|
|
Construction in progress
|
|
|
965
|
|
|
|
848
|
|
|
|
|
14,608
|
|
|
|
14,908
|
|
Less—Accumulated depreciation
|
|
|
(8,883
|
)
|
|
|
(9,119
|
)
|
|
|
$
|
5,725
|
|
|
$
|
5,789
|
|
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Note 9. Goodwill
The change in the carrying
amount of goodwill for the nine months ended September 30, 2016 by segment is as follows:
|
|
|
|
|
|
Currency
|
|
|
|
|
December 31,
|
|
Acquisitions/
|
|
Translation
|
|
September 30,
|
|
|
2015
|
|
Divestitures
|
|
Adjustment
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
$
|
2,296
|
|
|
$
|
184
|
|
|
$
|
(19
|
)
|
|
$
|
2,461
|
|
Home and Building Technologies
|
|
|
6,438
|
|
|
|
673
|
|
|
|
20
|
|
|
|
7,131
|
|
Performance Materials and Technologies
|
|
|
3,771
|
|
|
|
(136
|
)
|
|
|
41
|
|
|
|
3,676
|
|
Safety and Productivity Solutions
|
|
|
3,390
|
|
|
|
1,178
|
|
|
|
10
|
|
|
|
4,578
|
|
|
|
$
|
15,895
|
|
|
$
|
1,899
|
|
|
$
|
52
|
|
|
$
|
17,846
|
|
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Note 10. Long-term Debt and Credit Agreements
|
|
September 30,
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
5.40% notes due 2016
|
|
$
|
-
|
|
|
$
|
400
|
|
5.30% notes due 2017
|
|
|
400
|
|
|
|
400
|
|
Floating rate Euro notes due 2018
|
|
|
1,116
|
|
|
|
-
|
|
5.30% notes due 2018
|
|
|
900
|
|
|
|
900
|
|
5.00% notes due 2019
|
|
|
900
|
|
|
|
900
|
|
0.65% Euro notes due 2020
|
|
|
1,116
|
|
|
|
-
|
|
4.25% notes due 2021
|
|
|
800
|
|
|
|
800
|
|
1.30% Euro notes due 2023
|
|
|
1,395
|
|
|
|
-
|
|
3.35% notes due 2023
|
|
|
300
|
|
|
|
300
|
|
2.25% Euro notes due 2028
|
|
|
837
|
|
|
|
-
|
|
5.70% notes due 2036
|
|
|
550
|
|
|
|
550
|
|
5.70% notes due 2037
|
|
|
600
|
|
|
|
600
|
|
5.375% notes due 2041
|
|
|
600
|
|
|
|
600
|
|
Industrial development bond obligations, floating rate maturing at various dates through 2037
|
|
|
30
|
|
|
|
30
|
|
6.625% debentures due 2028
|
|
|
216
|
|
|
|
216
|
|
9.065% debentures due 2033
|
|
|
51
|
|
|
|
51
|
|
Other (including capitalized leases and debt issuance costs), 0.6%-9.5% maturing at various dates through 2023
|
|
|
446
|
|
|
|
384
|
|
|
|
|
10,257
|
|
|
|
6,131
|
|
Less: current portion
|
|
|
(649
|
)
|
|
|
(577
|
)
|
|
|
$
|
9,608
|
|
|
$
|
5,554
|
|
In February 2016, the Company
issued €1,000 million Floating Rate Senior Notes due 2018, €1,000 million 0.65% Senior Notes due 2020, €1,250
million 1.30% Senior Notes due 2023 and €750 million 2.25% Senior Notes due 2028 (collectively, the “Euro Notes”).
The Euro Notes are senior unsecured and unsubordinated obligations of Honeywell and rank equally with all of Honeywell’s
existing and future senior unsecured debt and senior to all of Honeywell’s subordinated debt. The offering resulted in gross
proceeds of $4,438 million, offset by $17 million in discount and closing costs related to the offering.
On April 29, 2016, the Company
entered into Amendment No. 2 (Amendment) to the Amended and Restated $4 billion Credit Agreement dated as of July 10, 2015, as
amended by the certain Amendment No. 1 dated as of September 30, 2015 (as so amended, the “Credit Agreement”), with
a syndicate of banks. The Credit Agreement is maintained for general corporate purposes. Commitments under the Credit Agreement
can be increased pursuant to the terms of the Credit Agreement to an aggregate amount not to exceed $4.5 billion. The Amendment,
among other things, extends the Credit Agreement’s termination date from July 10, 2020 to July 10, 2021.
On April 29, 2016, the Company
entered into a $1.5 billion 364-Day Credit Agreement (364-Day Credit Agreement) with a syndicate of banks. The 364-Day Credit Agreement
is maintained for general corporate purposes.
On April 29, 2016, the Company
terminated all commitments under the $3 billion credit agreement dated as of September 30, 2015, among the Company, the lenders
party thereto and Citibank, N.A., as administrative agent.
A full description of the
Credit Agreement and the 364-Day Credit Agreement can be found in the Company’s Current Report on Form 8-K, dated April 29,
2016.
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
On August 5, 2016, the
Company entered into a $1.5 billion 364-Day Credit Agreement (Second 364-Day Credit Agreement) with a syndicate of banks. The Second
364-Day Credit Agreement is maintained for general corporate purposes.
A full description of
the Second 364-day Credit Agreement can be found in the Company’s Current Report on Form 8-K, dated August 5, 2016.
There have been no borrowings
under any of the credit agreements previously described.
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 Financial Statements in our 2015 Annual Report on Form 10-K.
The following table sets
forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis:
|
|
September 30,
2016
|
|
December 31,
2015
|
Assets:
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
$
|
51
|
|
|
$
|
28
|
|
Available for sale investments
|
|
|
1,823
|
|
|
|
1,501
|
|
Interest rate swap agreements
|
|
|
115
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
$
|
30
|
|
|
$
|
17
|
|
The foreign currency
exchange contracts and interest rate swap agreements are valued using broker quotations or market transactions in either the listed
or over-the-counter markets. These derivative instruments are classified within level 2. The Company holds investments in certificates
of deposits, time deposits and commercial paper that are designated as available for sale and are valued using published prices
based on observable market data. These investments are classified within level 2. The Company also holds available for sale investments
in U.S. government and corporate debt securities valued utilizing published prices based on quoted market pricing, which are classified
within level 1.
The carrying value of
cash and cash equivalents, trade accounts and notes receivables, payables, commercial paper and short-term borrowings contained
in the Consolidated Balance Sheet approximates fair value. The following table sets forth the Company’s financial assets
and liabilities that were not carried at fair value:
|
|
September 30, 2016
|
|
December 31, 2015
|
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term receivables
|
|
$
|
281
|
|
|
$
|
272
|
|
|
$
|
292
|
|
|
$
|
283
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and related current maturities
|
|
$
|
10,257
|
|
|
$
|
11,357
|
|
|
$
|
6,131
|
|
|
$
|
6,721
|
|
The Company
determined the fair value of the long-term receivables by discounting based upon the terms of the receivable and counterparty details
including credit quality. The fair value of these receivables is considered level 2. The Company determined the fair value of the
long-term debt and related current maturities utilizing transactions in the listed markets for identical or similar liabilities.
The fair value of the long-term debt and related current maturities is also considered level 2.
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
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 nine months ended September 30,
2016, we recognized $14 million of losses and $23 million of gains in earnings on interest rate swap agreements. For the three
and nine months ended September 30, 2015, we recognized $24 million and $11 million of gains in earnings on interest rate swap
agreements. Gains and losses are fully offset by losses and gains on the underlying debt being hedged.
We also economically
hedge our exposure to changes in foreign exchange rates principally with forward contracts. These contracts are marked-to-market
with the resulting gains and losses recognized in earnings offsetting the gains and losses on the non-functional currency denominated
monetary assets and liabilities being hedged. We recognized $24 million and $114 million of income in Other (Income) Expense for
the three and nine months ended September 30, 2016. We recognized $72 million of income and $66 million of expense in Other (Income)
Expense for the three and nine months ended September 30, 2015.
Note 12. Accumulated Other Comprehensive
Income (Loss)
Changes in Accumulated Other Comprehensive
Income by Component
|
|
Foreign
Exchange
Translation
Adjustment
|
|
Pension
and Other
Postretirement
Benefits
Adjustments
|
|
Changes in
Fair Value
of Effective
Cash Flow
Hedges
|
|
Total
|
Balance at December 31, 2015
|
|
$
|
(1,892
|
)
|
|
$
|
(644
|
)
|
|
$
|
1
|
|
|
$
|
(2,535
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
83
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
82
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
-
|
|
|
|
(47
|
)
|
|
|
18
|
|
|
|
(29
|
)
|
Net current period other comprehensive income (loss)
|
|
|
83
|
|
|
|
(47
|
)
|
|
|
17
|
|
|
|
53
|
|
Balance at September 30, 2016
|
|
$
|
(1,809
|
)
|
|
$
|
(691
|
)
|
|
$
|
18
|
|
|
$
|
(2,482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Exchange
Translation
Adjustment
|
|
Pension
and Other
Postretiremen
t
Benefits
Adjustments
|
|
Changes in
Fair Value
of Effective
Cash Flow
Hedges
|
|
Total
|
Balance at December 31, 2014
|
|
$
|
(740
|
)
|
|
$
|
(728
|
)
|
|
$
|
9
|
|
|
$
|
(1,459
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
(893
|
)
|
|
|
(17
|
)
|
|
|
60
|
|
|
|
(850
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
-
|
|
|
|
13
|
|
|
|
(77
|
)
|
|
|
(64
|
)
|
Net current period other comprehensive income (loss)
|
|
|
(893
|
)
|
|
|
(4
|
)
|
|
|
(17
|
)
|
|
|
(914
|
)
|
Balance at September 30, 2015
|
|
$
|
(1,633
|
)
|
|
$
|
(732
|
)
|
|
$
|
(8
|
)
|
|
$
|
(2,373
|
)
|
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
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. Segment profit is measured as business unit income (loss)
before taxes excluding general corporate unallocated expense, other income (expense), interest and other financial charges, pension
and other postretirement income (expense), stock compensation expense, repositioning and other charges.
In July 2016, the Company
announced that it is
realigning the business units comprising its Automation and Control
Solutions reporting segment by forming two new reportable operating segments: Home and Building Technologies and Safety and Productivity
Solutions.
Home and Building Technologies includes Environmental & Energy Solutions, Security and Fire, and Building
Solutions and Distribution. Additionally, the Industrial Combustion/Thermal business, previously part of Environmental & Energy
Solutions in Automation and Control Solutions, became part of Performance Materials and Technologies.
Safety
and Productivity Solutions
includes Sensing & Productivity Solutions and Industrial Safety, as well as the Intelligrated
business.
Under the realigned segment reporting structure, the Company has four reportable
operating segments: Aerospace, Home and Building Technologies, Performance Materials and Technologies and Safety and Productivity
Solutions. Effective with the quarter ended September 30, 2016 t
he Company has reported its financial performance based
on this realignment.
These realignments have
no impact on the Company’s historical consolidated financial position, results of operations or cash flows. Prior period
amounts have been reclassified to conform to current period segment presentation.
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
2,358
|
|
|
$
|
2,557
|
|
|
$
|
7,404
|
|
|
$
|
7,643
|
|
Services
|
|
|
1,243
|
|
|
|
1,263
|
|
|
|
3,681
|
|
|
|
3,611
|
|
Total
|
|
|
3,601
|
|
|
|
3,820
|
|
|
|
11,085
|
|
|
|
11,254
|
|
Home and Building Technologies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
2,360
|
|
|
|
2,020
|
|
|
|
6,931
|
|
|
|
5,825
|
|
Services
|
|
|
341
|
|
|
|
293
|
|
|
|
923
|
|
|
|
861
|
|
Total
|
|
|
2,701
|
|
|
|
2,313
|
|
|
|
7,854
|
|
|
|
6,686
|
|
Performance Materials and Technologies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
1,924
|
|
|
|
1,810
|
|
|
|
5,822
|
|
|
|
5,784
|
|
Services
|
|
|
405
|
|
|
|
469
|
|
|
|
1,222
|
|
|
|
1,353
|
|
Total
|
|
|
2,329
|
|
|
|
2,279
|
|
|
|
7,044
|
|
|
|
7,137
|
|
Safety and Productivity Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
1,102
|
|
|
|
1,186
|
|
|
|
3,241
|
|
|
|
3,483
|
|
Services
|
|
|
71
|
|
|
|
13
|
|
|
|
93
|
|
|
|
39
|
|
Total
|
|
|
1,173
|
|
|
|
1,199
|
|
|
|
3,334
|
|
|
|
3,522
|
|
|
|
$
|
9,804
|
|
|
$
|
9,611
|
|
|
$
|
29,317
|
|
|
$
|
28,599
|
|
Segment Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
$
|
663
|
|
|
$
|
833
|
|
|
$
|
2,252
|
|
|
$
|
2,362
|
|
Home and Building Technologies
|
|
|
441
|
|
|
|
408
|
|
|
|
1,213
|
|
|
|
1,088
|
|
Performance Materials and Technologies
|
|
|
503
|
|
|
|
474
|
|
|
|
1,484
|
|
|
|
1,517
|
|
Safety and Productivity Solutions
|
|
|
172
|
|
|
|
193
|
|
|
|
495
|
|
|
|
565
|
|
Corporate
|
|
|
(59
|
)
|
|
|
(56
|
)
|
|
|
(157
|
)
|
|
|
(156
|
)
|
Total segment profit
|
|
|
1,720
|
|
|
|
1,852
|
|
|
|
5,287
|
|
|
|
5,376
|
|
Other income (expense)
(a)
|
|
|
169
|
|
|
|
15
|
|
|
|
174
|
|
|
|
39
|
|
Interest and other financial charges
|
|
|
(82
|
)
|
|
|
(72
|
)
|
|
|
(252
|
)
|
|
|
(226
|
)
|
Stock compensation expense
(b)
|
|
|
(49
|
)
|
|
|
(41
|
)
|
|
|
(145
|
)
|
|
|
(132
|
)
|
Pension ongoing income
(b)
|
|
|
146
|
|
|
|
96
|
|
|
|
447
|
|
|
|
299
|
|
Other postretirement income (expense)
(b)
|
|
|
7
|
|
|
|
(10
|
)
|
|
|
24
|
|
|
|
(30
|
)
|
Repositioning and other charges
(b)
|
|
|
(279
|
)
|
|
|
(133
|
)
|
|
|
(520
|
)
|
|
|
(393
|
)
|
Income before taxes
|
|
$
|
1,632
|
|
|
$
|
1,707
|
|
|
$
|
5,015
|
|
|
$
|
4,933
|
|
(a)
|
Equity income (loss) of affiliated companies is included in segment profit.
|
(b)
|
Amounts included in cost of products and services sold and selling, general and administrative expenses.
|
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Note 14. Pension Benefits
Net periodic pension
benefit income for our significant defined benefit plans include the following components:
|
|
U.S. Plans
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Service cost
|
|
$
|
48
|
|
|
$
|
58
|
|
|
$
|
143
|
|
|
$
|
172
|
|
Interest cost
|
|
|
150
|
|
|
|
179
|
|
|
|
450
|
|
|
|
535
|
|
Expected return on plan assets
|
|
|
(306
|
)
|
|
|
(321
|
)
|
|
|
(918
|
)
|
|
|
(962
|
)
|
Amortization of prior service (credit) cost
|
|
|
(11
|
)
|
|
|
5
|
|
|
|
(33
|
)
|
|
|
17
|
|
Settlements and curtailments
|
|
|
-
|
|
|
|
8
|
|
|
|
-
|
|
|
|
8
|
|
|
|
$
|
(119
|
)
|
|
$
|
(71
|
)
|
|
$
|
(358
|
)
|
|
$
|
(230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. Plans
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Service cost
|
|
$
|
11
|
|
|
$
|
13
|
|
|
$
|
36
|
|
|
$
|
39
|
|
Interest cost
|
|
|
43
|
|
|
|
44
|
|
|
|
137
|
|
|
|
133
|
|
Expected return on plan assets
|
|
|
(92
|
)
|
|
|
(91
|
)
|
|
|
(291
|
)
|
|
|
(270
|
)
|
Amortization of transition obligation
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
Amortization of prior service (credit)
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Settlements and curtailments
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
2
|
|
|
|
$
|
(38
|
)
|
|
$
|
(32
|
)
|
|
$
|
(120
|
)
|
|
$
|
(97
|
)
|
Note 15. Commitments and Contingencies
Environmental Matters
Our environmental matters
are described in Note 19 Commitments and Contingencies of Notes to Financial Statements in our 2015 Annual Report on Form 10-K.
The following table summarizes
information concerning our recorded liabilities for environmental costs:
December 31, 2015
|
|
$
|
518
|
|
Accruals for environmental matters deemed probable and reasonably estimable
|
|
|
132
|
|
Environmental liability payments
|
|
|
(144
|
)
|
Other
|
|
|
(4
|
)
|
September 30, 2016
|
|
$
|
502
|
|
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Environmental liabilities are included in the following balance
sheet accounts:
|
|
September 30,
2016
|
|
December 31,
2015
|
Accrued liabilities
|
|
$
|
251
|
|
|
$
|
253
|
|
Other liabilities
|
|
|
251
|
|
|
|
265
|
|
|
|
$
|
502
|
|
|
$
|
518
|
|
We do not currently possess
sufficient information to reasonably estimate the amounts of environmental liabilities to be recorded upon future completion of
studies, litigation or settlements, and neither the timing nor the amount of the ultimate costs associated with environmental matters
can be determined although they could be material to our consolidated results of operations and operating cash flows in the periods
recognized or paid. However, considering our past experience and existing reserves, we do not expect that environmental matters
will have a material adverse effect on our consolidated financial position.
Onondaga Lake,
Syracuse, NY
—We are implementing a combined dredging/capping remedy of Onondaga Lake pursuant to a consent decree
approved by the United States District Court for the Northern District of New York in January 2007. We have accrued for our estimated
cost of remediating Onondaga Lake based on currently available information and analysis performed by our engineering consultants.
Honeywell is also conducting remedial investigations and activities at other sites in Syracuse. We have recorded reserves for these
investigations and activities where appropriate, consistent with the accounting policy described above.
Honeywell has entered
into a cooperative agreement with potential natural resource trustees to assess alleged natural resource damages relating to this
site. It is not possible to predict the outcome or duration of this assessment, or the amounts of, or responsibility for, any damages.
Asbestos Matters
Honeywell is a defendant
in asbestos related personal injury actions related to two predecessor companies:
|
·
|
North American Refractories Company (NARCO), which was sold in 1986, produced refractory products (bricks and cement used in high temperature applications). Claimants consist largely of individuals who allege exposure to NARCO asbestos-containing refractory products in an occupational setting.
|
|
|
|
|
·
|
Bendix Friction Materials (Bendix) business, which was sold in 2014, manufactured automotive brake parts that contained chrysotile asbestos in an encapsulated form. Claimants consist largely of individuals who allege exposure to asbestos from brakes from either performing or being in the vicinity of individuals who performed brake replacements.
|
|
|
|
|
|
The following tables summarize information concerning NARCO and Bendix asbestos related balances:
|
Asbestos Related Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Bendix
|
|
NARCO
|
|
Total
|
December 31, 2015
|
|
$
|
622
|
|
|
$
|
921
|
|
|
$
|
1,543
|
|
Accrual for update to estimated liability
|
|
|
170
|
|
|
|
7
|
|
|
|
177
|
|
Asbestos related liability payments
|
|
|
(143
|
)
|
|
|
(7
|
)
|
|
|
(150
|
)
|
September 30, 2016
|
|
$
|
649
|
|
|
$
|
921
|
|
|
$
|
1,570
|
|
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
Insurance Recoveries for Asbestos
Related Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Bendix
|
|
NARCO
|
|
Total
|
December 31, 2015
|
|
$
|
124
|
|
|
$
|
325
|
|
|
$
|
449
|
|
Probable insurance recoveries related to estimated liability
|
|
|
16
|
|
|
|
-
|
|
|
|
16
|
|
Insurance receivables settlements
|
|
|
8
|
|
|
|
-
|
|
|
|
8
|
|
Insurance receipts for asbestos related liabilities
|
|
|
(14
|
)
|
|
|
(3
|
)
|
|
|
(17
|
)
|
September 30, 2016
|
|
$
|
134
|
|
|
$
|
322
|
|
|
$
|
456
|
|
NARCO and Bendix asbestos related balances are included in the following balance sheet accounts:
|
|
September 30,
2016
|
|
December 31,
2015
|
Other current assets
|
|
$
|
23
|
|
|
$
|
23
|
|
Insurance recoveries for asbestos related liabilities
|
|
|
433
|
|
|
|
426
|
|
|
|
$
|
456
|
|
|
$
|
449
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
292
|
|
|
$
|
292
|
|
Asbestos related liabilities
|
|
|
1,278
|
|
|
|
1,251
|
|
|
|
$
|
1,570
|
|
|
$
|
1,543
|
|
NARCO Products
–In connection with NARCO’s emergence from bankruptcy on April 30, 2013, a federally authorized 524(g) trust (NARCO
Trust) was established for the evaluation and resolution of all existing and future NARCO asbestos claims. Both Honeywell and NARCO
are protected by a permanent channeling injunction barring all present and future individual actions in state or federal courts
and requiring all asbestos related claims based on exposure to NARCO asbestos-containing products to be made against the NARCO
Trust. The NARCO Trust reviews submitted claims and determines award amounts in accordance with established Trust Distribution
Procedures approved by the Bankruptcy Court which set forth the criteria claimants must meet to qualify for compensation including,
among other things, exposure and medical criteria that determine the award amount. In addition, Honeywell provided, and continues
to provide, input to the design of control procedures for processing NARCO claims, and has on-going audit rights to review and
monitor the claims processors’ adherence to the established requirements of the Trust Distribution Procedures.
Honeywell is obligated
to fund NARCO asbestos claims submitted to the NARCO Trust which qualify for payment under the Trust Distribution Procedures (Annual
Contribution Claims), subject to annual caps of $140 million in the years 2016 through 2018 and $145 million for each year thereafter.
However, the initial $100 million of claims processed through the NARCO Trust (the Initial Claims Amount) will not count against
the annual cap and any unused portion of the Initial Claims Amount will roll over to subsequent years until fully utilized. In
2015, Honeywell filed suit against the NARCO Trust in Bankruptcy Court alleging breach of certain provisions of the Trust Agreement
and Trust Distribution Procedures. The parties agreed to dismiss the proceeding without prejudice pursuant to an 18 month Standstill
Agreement. Claims processing will continue during this period subject to a defined dispute resolution process. As of September
30, 2016, Honeywell has not made any payments to the NARCO Trust for Annual Contribution Claims.
Honeywell is also responsible
for payments due to claimants pursuant to settlement agreements reached during the pendency of the NARCO bankruptcy proceedings
that provide for the right to submit claims to the NARCO Trust subject to qualification under the terms of the settlement agreements
and Trust Distribution Procedures criteria (Pre-established Unliquidated Claims), which amounts are estimated at $150 million and
are expected to be paid during the initial years of trust operations ($5 million of which has been paid since the effective date
of the NARCO Trust). Such payments are not subject to the annual cap described above.
Our consolidated financial
statements reflect an estimated liability for pre-established unliquidated claims ($145 million), unsettled claims pending as of
the time NARCO filed for bankruptcy protection ($33 million) and for the estimated value of future NARCO asbestos claims expected
to be asserted against the NARCO Trust through
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)
2018 ($743 million).
In the absence of actual trust experience on which to base the estimate, Honeywell projected the probable value of asbestos related
future liabilities, including trust claim handling costs, based on a commonly accepted methodology used by numerous bankruptcy
courts addressing 524(g) trusts. Some critical assumptions underlying this methodology include claims filing rates, disease criteria
and payment values contained in the Trust Distribution Procedures, estimated approval rates of claims submitted to the NARCO Trust
and epidemiological studies estimating disease instances. This projection resulted in a range of estimated liability of $743 million
to $961 million. We believe that no amount within this range is a better estimate than any other amount and accordingly, we have
recorded the minimum amount in the range. In light of the uncertainties inherent in making long-term projections and in connection
with the recent implementation of the Trust Distribution Procedures by the NARCO Trust, as well as the stay of all NARCO asbestos
claims which remained in place throughout NARCO’s Chapter 11 case, we do not believe that we have a reasonable basis for
estimating NARCO asbestos claims beyond 2018.
Our insurance receivable
corresponding to the estimated liability for pending and future NARCO asbestos claims reflects coverage which reimburses Honeywell
for portions of NARCO-related indemnity and defense costs and is provided by a large number of insurance policies written by dozens
of insurance companies in both the domestic insurance market and the London excess market. We conduct analyses to estimate the
probable amount of insurance that is recoverable for asbestos claims. While the substantial majority of our insurance carriers
are solvent, some of our individual carriers are insolvent, which has been considered in our analysis of probable recoveries. We
made judgments concerning insurance coverage that we believe are reasonable and consistent with our historical dealings and our
knowledge of any pertinent solvency issues surrounding insurers.
Projecting future events
is subject to many uncertainties that could cause the NARCO-related asbestos liabilities or assets to be higher or lower than those
projected and recorded. Given the uncertainties, we review our estimates periodically, and update them based on our experience
and other relevant factors. Similarly, we will reevaluate our projections concerning our probable insurance recoveries in light
of any changes to the projected liability or other developments that may impact insurance recoveries.
Friction Products
—The
following tables present information regarding Bendix related asbestos claims activity:
|
|
Nine Months Ended
September 30,
|
|
Years Ended
December 31,
|
Claims Activity
|
|
2016
|
|
2015
|
|
2014
|
Claims Unresolved at the beginning of period
|
|
|
7,779
|
|
|
|
9,267
|
|
|
|
12,302
|
|
Claims Filed
|
|
|
2,081
|
|
|
|
2,862
|
|
|
|
3,694
|
|
Claims Resolved
(1)
|
|
|
(2,066
|
)
|
|
|
(4,350
|
)
|
|
|
(6,729
|
)
|
Claims Unresolved at the end of period
|
|
|
7,794
|
|
|
|
7,779
|
|
|
|
9,267
|
|
(1) Claims resolved in 2014 include 2,110 cancer claims which
were determined to have no value. Also, claims resolved in 2015 and 2014 include significantly aged (i.e., pending for more than
six years) claims totaling 153 and 1,266.
|
|
September 30,
|
|
December 31,
|
Disease Distribution of Unresolved Claims
|
|
2016
|
|
2015
|
|
2014
|
Mesothelioma and Other Cancer Claims
|
|
|
3,559
|
|
|
|
3,772
|
|
|
|
3,933
|
|
Nonmalignant Claims
|
|
|
4,235
|
|
|
|
4,007
|
|
|
|
5,334
|
|
Total Claims
|
|
|
7,794
|
|
|
|
7,779
|
|
|
|
9,267
|
|
Honeywell International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share
amounts)
Honeywell has experienced
average resolution values per claim excluding legal costs as follows:
|
|
Years Ended December 31,
|
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
2011
|
|
|
(in whole dollars)
|
Malignant claims
|
|
$
|
44,000
|
|
|
$
|
53,500
|
|
|
$
|
51,000
|
|
|
$
|
49,000
|
|
|
$
|
48,000
|
|
Nonmalignant claims
|
|
$
|
100
|
|
|
$
|
120
|
|
|
$
|
850
|
|
|
$
|
1,400
|
|
|
$
|
1,000
|
|
It is not possible to
predict whether resolution values for Bendix-related asbestos claims will increase, decrease or stabilize in the future.
Our consolidated financial
statements reflect an estimated liability for resolution of pending (claims actually filed as of the financial statement date)
and future Bendix-related asbestos claims. We have valued Bendix pending and future claims using average resolution values for
the previous five years. We update the resolution values used to estimate the cost of Bendix pending and future claims during the
fourth quarter each year.
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 International Inc.
Notes to Financial Statements
(Unaudited)
(Dollars in millions, except per share
amounts)
Honeywell
v. United Auto Workers (UAW) et. al
—In July 2011, Honeywell filed an action in federal court (District of New Jersey)
against the UAW and all former employees who retired under a series of Master Collective Bargaining Agreements (MCBAs) between
Honeywell and the UAW seeking a declaratory judgment that certain express limitations on its obligation to contribute toward the
healthcare coverage of such retirees (the CAPS) set forth in the MCBAs may be implemented, effective January 1, 2012. The
UAW and certain retiree defendants filed a mirror suit in the Eastern District of Michigan alleging that the MCBAs do not provide
for CAPS on the Company’s liability for healthcare coverage. The New Jersey action was dismissed and Honeywell subsequently
answered the UAW’s complaint in Michigan and asserted counterclaims for fraudulent inducement, negligent misrepresentation
and breach of implied warranty. The UAW filed a motion to dismiss these counterclaims. The court dismissed Honeywell’s fraudulent
inducement and negligent misrepresentation claims, but let stand the claim for breach of implied warranty. In the second quarter
of 2014, the parties agreed to stay the proceedings with respect to those retirees who retired before the initial inclusions of
the CAPS in the 2003 MCBA until the Supreme Court decided the
M&G Polymers USA, LLC v. Tackett
case
.
In a ruling on January 26, 2015, the Supreme Court held that retiree health insurance benefits provided in collective bargaining
agreements do not carry an inference that they are vested or guaranteed to continue for life and that the “vesting”
issue must be decided pursuant to ordinary principles of contract law. The stay of the proceedings has been lifted and the case
is again proceeding. Based on the Supreme Court’s ruling, Honeywell is confident that the CAPS will be upheld and that its
liability for healthcare coverage premiums with respect to the putative class will be limited as negotiated and expressly set forth
in the applicable MCBAs. In the event of an adverse ruling, however, Honeywell’s other postretirement benefits for
pre-2003 retirees would increase by approximately $176 million, reflecting the estimated value of these CAPS.
In December 2013, the
UAW and certain of the plaintiffs filed a motion for partial summary judgment with respect to those retirees who retired after
the initial inclusion of the CAPS in the 2003 MCBA. The UAW sought a ruling that the 2003 MCBA did not limit Honeywell’s
obligation to contribute to healthcare coverage for the post-2003 retirees. That motion remains pending. Honeywell is confident
that the Court will find that the 2003 MCBA does, in fact, limit Honeywell’s retiree healthcare obligation for post-2003
retirees. In the event of an adverse ruling, however, Honeywell’s other postretirement benefits for post-2003 retirees would
increase by approximately $110 million, reflecting the estimated value of these CAPS.
Joint Strike Fighter
Investigation -
In 2013 the Company received subpoenas from the Department of Justice requesting information relating primarily
to parts manufactured in the United Kingdom and China used in the F-35 fighter jet. The Company is cooperating fully with the investigation.
While we believe that Honeywell has complied with all relevant U.S. laws and regulations regarding the manufacture of these sensors,
it is not possible to predict the outcome of the investigation or what action, if any, may result from it.
Given the uncertainty
inherent in litigation and investigations (including the specific matters referenced above), we do not believe it is possible to
develop estimates of reasonably possible loss in excess of current accruals for these matters (other than as specifically set forth
above). Considering our past experience and existing accruals, we do not expect the outcome of these matters, either individually
or in the aggregate, to have a material adverse effect on our consolidated financial position. Because most contingencies are resolved
over long periods of time, potential liabilities are subject to change due to new developments, changes in settlement strategy
or the impact of evidentiary requirements, which could cause us to pay damage awards or settlements (or become subject to equitable
remedies) that could have a material adverse effect on our results of operations or operating cash flows in the periods recognized
or paid.