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United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
__________________
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _____
Commission file number 1-8974
Honeywell International Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
Delaware | | 22-2640650 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | |
855 South Mint Street | | 28202 |
Charlotte, | NC | |
(Address of principal executive offices) | | (Zip Code) |
| | | | | | | | | | | |
| (704) | 627-6200 | |
| (Registrant’s telephone number, including area code) | |
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, par value $1 per share* | | HON | | The NASDAQ Stock Market LLC |
1.300% Senior Notes due 2023 | | HON 23A | | The NASDAQ Stock Market LLC |
0.000% Senior Notes due 2024 | | HON 24A | | The NASDAQ Stock Market LLC |
2.250% Senior Notes due 2028 | | HON 28A | | The NASDAQ Stock Market LLC |
0.750% Senior Notes due 2032 | | HON 32 | | The NASDAQ Stock Market LLC |
* The common stock is also listed on the London Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large Accelerated Filer | x | Accelerated filer | ☐ |
Non-Accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
There were 680,732,930 shares of Common Stock outstanding at March 31, 2022.
TABLE OF CONTENTS
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PART I | | | | |
ITEM 1 | | | | |
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ITEM 2 | | | | |
ITEM 3 | | | | |
ITEM 4 | | | | |
Part II | | | | |
ITEM 1 | | | | |
ITEM 1A | | | | |
ITEM 2 | | | | |
ITEM 4 | | | | |
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ITEM 6 | | | | |
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CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
We describe many of the trends and other factors that drive our business and future results in the section titled Management’s Discussion and Analysis of Financial Condition and Results of Operations and in other parts of this report (including Part II, Item 1A Risk Factors). Such discussions contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Forward-looking statements are those that address activities, events or developments that management intends, expects, projects, believes or anticipates will or may occur in the future. They are based on management’s assumptions and assessments in light of past experience and trends, current economic and industry conditions, expected future developments and other relevant factors. They are not guarantees of future performance, and actual results, developments and business decisions may differ significantly from those envisaged by our forward-looking statements. We do not undertake to update or revise any of our forward-looking statements. Our forward-looking statements are also subject to risks and uncertainties, including the impact of the coronavirus pandemic (COVID-19) and the Russia-Ukraine conflict, that can affect our performance in both the near- and long-term. These forward-looking statements should be considered in light of the information included in this report and our other filings with the Securities and Exchange Commission, including, without limitation, the Risk Factors, as well as the description of trends and other factors in Management’s Discussion and Analysis of Financial Condition and Results of Operations, set forth in this report and our 2021 Annual Report on Form 10-K.
ABOUT HONEYWELL
Honeywell International Inc. (Honeywell or the Company) invents and commercializes technologies that address some of the world’s most critical challenges around energy, safety, security, air travel, productivity, and global urbanization. We are a leading software-industrial company committed to introducing state of the art technology solutions to improve efficiency, productivity, sustainability, and safety in high growth businesses in broad-based, attractive industrial end markets. As a diversified technology and manufacturing company, we are uniquely positioned to blend physical products with software to serve customers worldwide with aerospace products and services, energy efficient products and solutions for businesses, specialty chemicals, electronic and advanced materials, process technology for refining and petrochemicals, and productivity, sensing, safety and security technologies for buildings and industries. Our products and solutions enable a safer, more comfortable, and more productive world, enhancing the quality of life of people around the globe. The Honeywell brand dates back to 1906, and the Company was incorporated in Delaware in 1985.
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports, are available free of charge on our website (honeywell.com) under the heading Investors (see SEC Filings) immediately after they are filed with, or furnished to, the SEC. Honeywell uses our Investor Relations website, investor.honeywell.com, as a means of disclosing information which may be of interest or material to our investors and for complying with disclosure obligations under Regulation FD. Accordingly, investors should monitor our Investor Relations website, in addition to following our press releases, SEC filings, public conference calls, webcasts, and social media. Information contained on or accessible through, including any reports available on, our website is not a part of, and is not incorporated by reference into, this Quarterly Report on Form 10-Q or any other report or document we file with the SEC. Any reference to our website in this Form 10-Q is intended to be an inactive textual reference only.
PART I. FINANCIAL INFORMATION
The financial statements and related notes as of March 31, 2022, should be read in conjunction with the financial statements for the year ended December 31, 2021, contained in the Company's 2021 Annual Report on Form 10-K.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HONEYWELL INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | 2022 | | 2021 |
| | | | | (Dollars in millions, except per share amounts) |
Product sales | | | | | $ | 6,132 | | | $ | 6,409 | |
Service sales | | | | | 2,244 | | | 2,045 | |
Net sales | | | | | 8,376 | | | 8,454 | |
Costs, expenses and other | | | | | | | |
Cost of products sold | | | | | 4,373 | | | 4,551 | |
Cost of services sold | | | | | 1,301 | | | 1,158 | |
| | | | | 5,674 | | | 5,709 | |
Selling, general and administrative expenses | | | | | 1,431 | | | 1,236 | |
Other (income) expense | | | | | (319) | | | (442) | |
Interest and other financial charges | | | | | 85 | | | 90 | |
| | | | | 6,871 | | | 6,593 | |
Income before taxes | | | | | 1,505 | | | 1,861 | |
Tax expense | | | | | 371 | | | 413 | |
Net income | | | | | 1,134 | | | 1,448 | |
Less: Net income attributable to the noncontrolling interest | | | | | — | | | 21 | |
Net income attributable to Honeywell | | | | | $ | 1,134 | | | $ | 1,427 | |
Earnings per share of common stock - basic | | | | | $ | 1.66 | | | $ | 2.05 | |
Earnings per share of common stock - assuming dilution | | | | | $ | 1.64 | | | $ | 2.03 | |
The Notes to Consolidated Financial Statements are an integral part of this statement.
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | 2022 | | 2021 |
| | | | | (Dollars in millions) |
Net income | | | | | $ | 1,134 | | | $ | 1,448 | |
Other comprehensive income (loss), net of tax | | | | | | | |
Foreign exchange translation adjustment | | | | | 126 | | | 214 | |
| | | | | | | |
| | | | | | | |
Prior service (credit) cost recognized | | | | | (17) | | | (22) | |
Pension and other postretirement benefit adjustments | | | | | (17) | | | (22) | |
Changes in fair value of available for sale investments | | | | | (6) | | | (3) | |
Cash flow hedges recognized in other comprehensive income (loss) | | | | | 8 | | | 8 | |
Less: Reclassification adjustment for gains (losses) included in net income | | | | | 3 | | | 3 | |
Changes in fair value of cash flow hedges | | | | | 5 | | | 5 | |
Other comprehensive income (loss), net of tax | | | | | 108 | | | 194 | |
Comprehensive income | | | | | 1,242 | | | 1,642 | |
Less: Comprehensive income attributable to the noncontrolling interest | | | | | — | | | 22 | |
Comprehensive income attributable to Honeywell | | | | | $ | 1,242 | | | $ | 1,620 | |
The Notes to Consolidated Financial Statements are an integral part of this statement.
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HONEYWELL INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| (Dollars in millions) |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 9,281 | | | $ | 10,959 | |
Short-term investments | 493 | | | 564 | |
Accounts receivable, less allowances of $326 and $177, respectively | 7,119 | | | 6,830 | |
Inventories | 5,472 | | | 5,138 | |
Other current assets | 1,916 | | | 1,881 | |
Total current assets | 24,281 | | | 25,372 | |
Investments and long-term receivables | 1,035 | | | 1,222 | |
Property, plant and equipment - net | 5,470 | | | 5,562 | |
Goodwill | 17,863 | | | 17,756 | |
Other intangible assets - net | 3,534 | | | 3,613 | |
Insurance recoveries for asbestos related liabilities | 314 | | | 322 | |
Deferred income taxes | 494 | | | 489 | |
Other assets | 10,361 | | | 10,134 | |
Total assets | $ | 63,352 | | | $ | 64,470 | |
LIABILITIES | | | |
Current liabilities: | | | |
Accounts payable | $ | 6,285 | | | $ | 6,484 | |
Commercial paper and other short-term borrowings | 3,526 | | | 3,542 | |
Current maturities of long-term debt | 3,207 | | | 1,803 | |
Accrued liabilities | 7,009 | | | 7,679 | |
Total current liabilities | 20,027 | | | 19,508 | |
Long-term debt | 12,636 | | | 14,254 | |
Deferred income taxes | 2,387 | | | 2,364 | |
Postretirement benefit obligations other than pensions | 220 | | | 208 | |
Asbestos-related liabilities | 1,807 | | | 1,800 | |
Other liabilities | 7,217 | | | 7,087 | |
Redeemable noncontrolling interest | 7 | | | 7 | |
SHAREOWNERS’ EQUITY | | | |
Capital - common stock issued | 958 | | | 958 | |
- additional paid-in capital | 8,326 | | | 8,141 | |
Common stock held in treasury, at cost | (31,420) | | | (30,462) | |
Accumulated other comprehensive loss | (2,787) | | | (2,895) | |
Retained earnings | 43,288 | | | 42,827 | |
Total Honeywell shareowners’ equity | 18,365 | | | 18,569 | |
Noncontrolling interest | 686 | | | 673 | |
Total shareowners’ equity | 19,051 | | | 19,242 | |
Total liabilities, redeemable noncontrolling interest and shareowners’ equity | $ | 63,352 | | | $ | 64,470 | |
The Notes to Consolidated Financial Statements are an integral part of this statement.
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HONEYWELL INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| (Dollars in millions) |
Cash flows from operating activities: | | | |
Net income | $ | 1,134 | | | $ | 1,448 | |
Less: Net income attributable to the noncontrolling interest | — | | | 21 | |
Net income attributable to Honeywell | 1,134 | | | 1,427 | |
Adjustments to reconcile net income attributable to Honeywell to net cash provided by operating activities: | | | |
Depreciation | 167 | | | 171 | |
Amortization | 163 | | | 170 | |
Gain on sale of non-strategic businesses and assets | — | | | (90) | |
Repositioning and other charges | 387 | | | 141 | |
Net payments for repositioning and other charges | (108) | | | (195) | |
Pension and other postretirement income | (261) | | | (293) | |
Pension and other postretirement benefit payments | (14) | | | (14) | |
Stock compensation expense | 60 | | | 77 | |
Deferred income taxes | 21 | | | 63 | |
| | | |
Other | (67) | | | (96) | |
Changes in assets and liabilities, net of the effects of acquisitions and divestitures: | | | |
Accounts receivable | (285) | | | 143 | |
Inventories | (331) | | | (158) | |
Other current assets | (29) | | | (66) | |
Accounts payable | (199) | | | 57 | |
Accrued liabilities | (602) | | | (359) | |
Net cash provided by operating activities | 36 | | | 978 | |
Cash flows from investing activities: | | | |
Expenditures for property, plant and equipment | (183) | | | (221) | |
Proceeds from disposals of property, plant and equipment | 10 | | | 14 | |
Increase in investments | (223) | | | (736) | |
Decrease in investments | 304 | | | 612 | |
Receipts from Garrett Motion Inc. | 197 | | | — | |
Receipts (payments) from settlements of derivative contracts | 61 | | | 140 | |
Cash paid for acquisitions, net of cash acquired | (176) | | | (1,303) | |
Proceeds from sales of businesses, net of fees paid | — | | | 190 | |
Net cash used for investing activities | (10) | | | (1,304) | |
Cash flows from financing activities: | | | |
Proceeds from issuance of commercial paper and other short-term borrowings | 1,228 | | | 1,268 | |
Payments of commercial paper and other short-term borrowings | (1,228) | | | (1,266) | |
Proceeds from issuance of common stock | 23 | | | 67 | |
Proceeds from issuance of long-term debt | 1 | | | 23 | |
Payments of long-term debt | (40) | | | (817) | |
Repurchases of common stock | (1,018) | | | (822) | |
Cash dividends paid | (668) | | | (640) | |
Other | (17) | | | (30) | |
Net cash used for financing activities | (1,719) | | | (2,217) | |
Effect of foreign exchange rate changes on cash and cash equivalents | 15 | | | (14) | |
Net increase (decrease) in cash and cash equivalents | (1,678) | | | (2,557) | |
Cash and cash equivalents at beginning of period | 10,959 | | | 14,275 | |
Cash and cash equivalents at end of period | $ | 9,281 | | | $ | 11,718 | |
The Notes to Consolidated Financial Statements are an integral part of this statement.
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HONEYWELL INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | 2022 | | 2021 |
| | | | | | | | Shares | | $ | | Shares | | $ |
| | | | | | | | | (In millions, except per share amounts) |
Common stock, par value | | | | | | | | | 957.6 | | | 958 | | | 957.6 | | | 958 | |
Additional paid-in capital | | | | | | | | | | | | | | | |
Beginning balance | | | | | | | | | | | 8,141 | | | | | 7,292 | |
Issued for employee savings and option plans | | | | | | | | | | | 116 | | | | | 136 | |
Stock-based compensation expense | | | | | | | | | | | 69 | | | | | 77 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Ending balance | | | | | | | | | | | 8,326 | | | | | 7,505 | |
Treasury stock | | | | | | | | | | | | | | | |
Beginning balance | | | | | | | | | (272.8) | | | (30,462) | | | (260.8) | | | (27,229) | |
Reacquired stock or repurchases of common stock | | | | | | | | | (5.5) | | | (1,018) | | | (4.0) | | | (822) | |
Issued for employee savings and option plans | | | | | | | | | 1.4 | | | 60 | | | 1.8 | | | 76 | |
Ending balance | | | | | | | | | (276.9) | | | (31,420) | | | (263.0) | | | (27,975) | |
Retained earnings | | | | | | | | | | | | | | | |
Beginning balance | | | | | | | | | | | 42,827 | | | | | 39,905 | |
| | | | | | | | | | | | | | | |
Net income attributable to Honeywell | | | | | | | | | | | 1,134 | | | | | 1,427 | |
Dividends on common stock | | | | | | | | | | | (673) | | | | | (650) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Ending balance | | | | | | | | | | | 43,288 | | | | | 40,682 | |
Accumulated other comprehensive income (loss) | | | | | | | | | | | | | | | |
Beginning balance | | | | | | | | | | | (2,895) | | | | | (3,377) | |
Foreign exchange translation adjustment | | | | | | | | | | | 126 | | | | | 213 | |
Pension and other postretirement benefit adjustments | | | | | | | | | | | (17) | | | | | (22) | |
Changes in fair value of available for sale investments | | | | | | | | | | | (6) | | | | | (3) | |
Changes in fair value of cash flow hedges | | | | | | | | | | | 5 | | | | | 5 | |
Ending balance | | | | | | | | | | | (2,787) | | | | | (3,184) | |
Noncontrolling interest | | | | | | | | | | | | | | | |
Beginning balance | | | | | | | | | | | 673 | | | | | 241 | |
| | | | | | | | | | | | | | | |
Net income attributable to noncontrolling interest | | | | | | | | | | | — | | | | | 21 | |
Foreign exchange translation adjustment | | | | | | | | | | | — | | | | | 1 | |
Dividends paid | | | | | | | | | | | (1) | | | | | (1) | |
Contributions from noncontrolling interest holders | | | | | | | | | | | 14 | | | | | 4 | |
Ending balance | | | | | | | | | | | 686 | | | | | 266 | |
Total shareowners' equity | | | | | | | | | 680.7 | | | 19,051 | | | 694.6 | | | 18,252 | |
Cash dividends per share of common stock | | | | | | | | | | | $ | 0.980 | | | | | $ | 0.930 | |
The Notes to Consolidated Financial Statements are an integral part of this statement.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in tables 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, results of operations, cash flows, and shareowners' equity of Honeywell International Inc. and its consolidated subsidiaries (Honeywell or the Company) for the periods presented. The interim results of operations and cash flows should not necessarily be taken as indicative of the entire year.
Honeywell reports its 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, respectively. It has been Honeywell's practice to establish actual quarterly closing dates using a predetermined fiscal calendar, which requires Honeywell's businesses to close their books on a Saturday in order to minimize the potentially disruptive effects of quarterly closing on the Company's 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 differences in actual closing dates are material to year-over-year comparisons of quarterly or year-to-date results, Honeywell will provide appropriate disclosures. Honeywell's actual closing dates for the three months ended March 31, 2022, and March 31, 2021, were April 2, 2022, and April 3, 2021, respectively.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of the Company are set forth in Note 1 to the Company's Consolidated Financial Statements contained in the Company’s 2021 Annual Report on Form 10-K. The Company includes herein certain updates to those policies.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company considers the applicability and impact of all Accounting Standards Updates (ASUs) issued by the Financial Accounting Standards Board (FASB). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company's Consolidated Financial Statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by the transition away from reference rates expected to be discontinued to alternative reference rates. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, to expand the scope of this guidance to include derivatives. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into on or before December 31, 2022. The Company will apply the guidance to impacted transactions during the transition period. The adoption of this standard does not have a material impact on the Company’s Consolidated Financial Statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. This ASU should be applied prospectively to acquisitions occurring on or after the effective date of December 15, 2022, and early adoption is permitted. The Company adopted this guidance on January 1, 2022. The adoption of this standard does not have a material impact on the Company’s Consolidated Financial Statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in tables in millions, except per share amounts)
NOTE 3. ACQUISITIONS AND DIVESTITURES
ACQUISITIONS
On January 18, 2022, the Company acquired 100% of the issued and outstanding shares of US Digital Design, Inc., a leading provider of technologies for first responders, for total consideration of $184 million. The business is included within the Honeywell Building Technologies segment. The assets and liabilities acquired with US Digital Designs, Inc. are included in the Consolidated Balance Sheet as of March 31, 2022, including $47 million of intangible assets and $133 million allocated to goodwill, which is deductible for tax purposes. The purchase accounting is subject to final adjustment, primarily for the valuation of intangible assets, amounts allocated to goodwill, and tax balances.
DIVESTITURES
During 2022, there were no significant divestitures that closed individually or in the aggregate.
As of March 31, 2022, the Company had no material adjustments for acquisitions or divestitures completed during 2021. See Note 2 Acquisitions and Divestitures of Notes to Consolidated Financial Statements in the Company's 2021 Annual Report on Form 10-K for discussion of acquisitions and divestitures during 2021.
NOTE 4. REVENUE RECOGNITION AND CONTRACTS WITH CUSTOMERS
Honeywell generates revenue from a comprehensive offering of products and services, including software and technologies, that are sold to a variety of customers in multiple end markets. See the following table and related discussions by operating segment for details.
| | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2022 | 2021 |
Aerospace | | | | | | | | |
Commercial Aviation Original Equipment | | | | | | $ | 478 | | | $ | 431 | |
Commercial Aviation Aftermarket | | | | | | 1,168 | | | 910 | |
Defense and Space | | | | | | 1,103 | | | 1,291 | |
| | | | | | 2,749 | | | 2,632 | |
Honeywell Building Technologies | | | | | | | | |
Products | | | | | | 879 | | | 784 | |
Building Solutions | | | | | | 550 | | | 574 | |
| | | | | | 1,429 | | | 1,358 | |
Performance Materials and Technologies | | | | | | | | |
UOP | | | | | | 480 | | | 527 | |
Process Solutions | | | | | | 1,152 | | | 1,096 | |
Advanced Materials | | | | | | 821 | | | 723 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | 2,453 | | | 2,346 | |
Safety and Productivity Solutions | | | | | | | | |
Safety and Retail | | | | | | 511 | | | 743 | |
Productivity Solutions and Services | | | | | | 391 | | | 346 | |
Warehouse and Workflow Solutions | | | | | | 599 | | | 831 | |
Advanced Sensing Technologies | | | | | | 243 | | | 198 | |
| | | | | | 1,744 | | | 2,118 | |
Corporate and All Other | | | | | | 1 | | | — | |
Net sales | | | | | | $ | 8,376 | | | $ | 8,454 | |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in tables in millions, except per share amounts)
Aerospace – A global supplier of products, software and services for aircrafts that it sells to OEM and other customers in a variety of end markets including: air transport, regional, business and general aviation aircraft, airlines, aircraft operators and defense and space contractors. Aerospace products and services include auxiliary power units, propulsion engines, environmental control systems, integrated avionics, wireless connectivity services, electric power systems, engine controls, flight safety, communications, navigation hardware, data and software applications, radar and surveillance systems, aircraft lighting, management and technical services, advanced systems and instruments, satellite and space components, aircraft wheels and brakes, repair, and overhaul services and thermal systems. Aerospace also provides spare parts, repair, overhaul and maintenance services (principally to aircraft operators) for the aftermarket. Honeywell Forge solutions are leveraged by the Company's customers as tools to turn data into predictive maintenance and predictive analytics to enable better fleet management and make flight operations more efficient.
Honeywell Building Technologies – A global provider of products, software, solutions, and technologies that enable building owners and occupants to ensure their facilities are safe, energy efficient, sustainable, and productive. Honeywell Building Technologies products and services include advanced software applications for building control and optimization; sensors, switches, control systems, and instruments for energy management; access control; video surveillance; fire products; and installation, maintenance and upgrades of systems. Honeywell Forge solutions enable the Company's customers to digitally manage buildings, connecting data from different assets to enable smart maintenance, improve building performance, and even protect from incoming security threats.
Performance Materials and Technologies – A global provider in developing and manufacturing high-quality performance chemicals and materials, process technologies, and automation solutions. The segment is comprised of Process Solutions, UOP, and Advanced Materials. Process Solutions provides automation control, instrumentation, advanced software, and related services for the oil and gas, refining, pulp and paper, industrial power generation, chemicals and petrochemicals, biofuels, life sciences, and metals, minerals, and mining industries. Through its smart energy products, Process Solutions enables utilities and distribution companies to deploy advanced capabilities to improve operations, reliability, and environmental sustainability. UOP provides process technology, products, including catalysts and adsorbents, equipment, and consulting services that enable customers to efficiently produce gasoline, diesel, jet fuel, petrochemicals and renewable fuels for the petroleum refining, gas processing, petrochemical, and other industries. Advanced Materials manufactures a wide variety of high-performance products, including materials used to manufacture end products such as bullet-resistant armor, nylon, computer chips, and pharmaceutical packaging, and provides reduced and low global-warming-potential materials based on hydrofluoro-olefin technology. In the industrial environment, Honeywell Forge solutions enable integration and connectivity to provide a holistic view of operations and turn data into clear actions to maximize productivity and efficiency. Honeywell Forge's cybersecurity capabilities help identify risks and act on cyber-related incidents, together enabling improved operations and protecting processes, people and assets.
Safety and Productivity Solutions – A global provider of products and software that improve productivity, workplace safety and asset performance to customers around the globe. Safety products include PPE, apparel, gear, and footwear; gas detection technology; and cloud-based notification and emergency messaging. Productivity Solutions products and services include mobile devices and software for computing, data collection, and thermal printing; supply chain and warehouse automation equipment, software and solutions; custom-engineered sensors, switches and controls for sensing and productivity solutions; and software-based data and asset management productivity solutions. Honeywell Forge solutions digitally automate processes to improve efficiency while reducing downtime and safety costs.
Corporate and All Other – Corporate and All Other includes revenue from Honeywell's majority-owned investment in Quantinuum. Through Quantinuum, Honeywell provides a wide range of service offerings of fully integrated quantum computing hardware and software solutions.
For a summary by disaggregated product and services sales for each segment, refer to Note 17 Segment Financial Data.
The Company recognizes revenue from performance obligations to customers that are satisfied at a point in time and over time. The disaggregation of the Company's revenue based off timing of recognition is as follows:
| | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2022 | 2021 |
Products, transferred point in time | | | | | | 59 | % | | 58 | % |
Products, transferred over time | | | | | | 14 | | | 18 | |
Net product sales | | | | | | 73 | | | 76 | |
Services, transferred point in time | | | | | | 8 | | | 7 | |
Services, transferred over time | | | | | | 19 | | | 17 | |
Net service sales | | | | | | 27 | | | 24 | |
Net sales | | | | | | 100 | % | | 100 | % |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in tables in millions, except per share amounts)
CONTRACT BALANCES
The Company records progress on satisfying performance obligations to customers, and the related billings and cash collections, on the Consolidated Balance Sheet in Accounts receivable - net and Other assets (unbilled receivables (contract assets) and billed receivables) and Accrued liabilities and Other liabilities (customer advances and deposits (contract liabilities)). Unbilled receivables (contract assets) arise when the timing of cash collected from customers differs from the timing of revenue recognition, such as when contract provisions require specific milestones to be met before a customer can be billed. Unbilled receivable balance increases when the revenue associated with the contract is recognized prior to billing and decreases when billed in accordance with the terms of the contract. Contract liabilities increase when customers remit contractual cash payments in advance of the Company satisfying performance obligations under contractual arrangements, including those with performance obligations to be satisfied over a period of time. Contract liabilities decrease when revenue is recorded, either when a milestone is met triggering the contractual right to bill or when the performance obligation is satisfied.
Contract balances are classified as assets or liabilities on a contract-by-contract basis at the end of each reporting period.
The following table summarizes the Company's contract assets and liabilities balances:
| | | | | | | | | | | | | | |
| 2022 | 2021 |
Contract assets - January 1 | | $ | 2,060 | | | $ | 1,618 | |
Contract assets - March 31 | | 2,170 | | | 1,789 | |
Change in contract assets - increase (decrease) | | $ | 110 | | | $ | 171 | |
| | | | |
Contract liabilities - January 1 | | $ | (4,290) | | | $ | (4,033) | |
Contract liabilities - March 31 | | (4,323) | | | (3,994) | |
Change in contract liabilities - decrease (increase) | | $ | (33) | | | $ | 39 | |
| | | | |
Net change | | $ | 77 | | | $ | 210 | |
| | | | |
For the three months ended March 31, 2022 and 2021, the Company recognized revenue of $927 and $1,120 million that was previously included in the beginning balance of contract liabilities.
Contract assets include $2,143 million and $2,035 million of unbilled balances under long-term contracts as of March 31, 2022 and December 31, 2021, respectively. These amounts are billed in accordance with the terms of customer contracts to which they relate.
When contracts are modified to account for changes in contract specifications and requirements, the Company considers whether the modification either creates new or changes the existing enforceable rights and obligations. Contract modifications that are for goods or services that are not distinct from the existing contract, due to the significant integration with the original good or service provided, are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price, and the Company's measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis. When the modifications include additional performance obligations that are distinct and at relative stand-alone selling price, they are accounted for as a new contract and performance obligation, which are recognized prospectively.
PERFORMANCE OBLIGATIONS
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is defined as the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. When the Company's contracts with customers require highly complex integration or manufacturing services that are not separately identifiable from other promises in the contracts and, therefore, not distinct, then the entire contract is accounted for as a single performance obligation. In situations when the Company's contract includes distinct goods or services that are substantially the same and have the same pattern of transfer to the customer over time, they are recognized as a series of distinct goods or services. For any contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation based on the estimated relative standalone selling price of each distinct good or service in the contract. For product sales, each product sold to a customer typically represents a distinct performance obligation. In such cases, the observable standalone sales are used to determine the standalone selling price.
Performance obligations are satisfied as of a point in time or over time. Performance obligations are supported by contracts with customers, providing a framework for the nature of the distinct goods, services or bundle of goods and services. The timing of satisfying the performance obligation is typically indicated by the terms of the contract.
9 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in tables in millions, except per share amounts)
The following table outlines the Company's remaining performance obligations disaggregated by segment:
| | | | | | | | | | |
| March 31, 2022 | | |
Aerospace | | $ | 10,211 | | | |
Honeywell Building Technologies | | 7,177 | | | |
Performance Materials and Technologies | | 7,245 | | | |
Safety and Productivity Solutions | | 3,861 | | | |
Corporate and All Other(1) | | 1 | | | |
Total Performance Obligations | | $ | 28,495 | | | |
(1) The remaining performance obligations within Corporate and All Other relate to the Quantinuum business.
Performance obligations recognized as of March 31, 2022, will be satisfied over the course of future periods. The Company's disclosure of the timing for satisfying the performance obligation is based on the requirements of contracts with customers. However, from time to time, these contracts may be subject to modifications, impacting the timing of satisfying the performance obligations. Performance obligations expected to be satisfied within one year and greater than one year are 59% and 41%, respectively.
The timing of satisfaction of the Company's performance obligations does not significantly vary from the typical timing of payment. Typical payment terms of the Company's fixed-price over time contracts include progress payments based on specified events or milestones, or based on project progress. For some contracts the Company may be entitled to receive an advance payment.
The Company applied the practical expedient for certain revenue streams to exclude the value of remaining performance obligations for (i) contracts with an original expected term of one year or less or (ii) contracts for which the Company recognizes revenue in proportion to the amount the Company has the right to invoice for services performed.
NOTE 5. REPOSITIONING AND OTHER CHARGES
A summary of repositioning and other charges follows:
| | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | 2022 | 2021 |
Severance | | | | | $ | 7 | | | $ | 28 | |
Asset impairments | | | | | 123 | | | 42 | |
Exit costs | | | | | 17 | | | 49 | |
Reserve adjustments | | | | | (15) | | | 1 | |
Total net repositioning charge | | | | | 132 | | | 120 | |
Asbestos related litigation charges, net of insurance and reimbursements | | | | | 46 | | | 21 | |
Probable and reasonably estimable environmental liabilities, net of reimbursements | | | | | 14 | | | 5 | |
Other | | | | | 195 | | | (5) | |
Total net repositioning and other charges | | | | | $ | 387 | | | $ | 141 | |
The following table summarizes the pretax distribution of total net repositioning and other charges by classification:
| | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | | | 2022 | 2021 |
Cost of products and services sold | | | | | $ | 199 | | | $ | 98 | |
Selling, general and administrative expenses | | | | | 188 | | | 43 | |
| | | | | | | |
| | | | | $ | 387 | | | $ | 141 | |
10 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in tables in millions, except per share amounts)
The following table summarizes the pretax impact of total net repositioning and other charges by segment. These amounts are excluded from segment profit as described in Note 17 Segment Financial Data:
| | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | | | 2022 | 2021 |
Aerospace | | | | | $ | 21 | | | $ | 48 | |
Honeywell Building Technologies | | | | | 14 | | | 5 | |
Performance Materials and Technologies | | | | | 159 | | | 5 | |
Safety and Productivity Solutions | | | | | 127 | | | 37 | |
Corporate and All Other | | | | | 66 | | | 46 | |
| | | | | $ | 387 | | | $ | 141 | |
In the three months ended March 31, 2022, the Company recognized gross repositioning charges totaling $147 million, primarily related to closing and relocating the production of certain respiratory manufacturing from a U.S.-based facility to a non-U.S. facility.
The repositioning charges include asset impairments of $123 million primarily related to the write-down of certain manufacturing equipment, and exit costs of $17 million primarily for current period costs incurred for previously approved repositioning projects, closure obligations associated with site transitions, and lease obligations for equipment. These charges also include severance costs of $7 million related to workforce reductions of 1,196 manufacturing and administrative positions across all of the Company's segments.
Further, during the three months ended March 31, 2022, Selling, general and administrative expenses on the Consolidated Statement of Operations and within Other charges on the table above included $183 million of reserves against outstanding accounts receivable, contract assets, and impairments of other assets due to the suspension of substantially all of the Company's sales, distribution and service activities in Russia and Belarus, sanctions, and deteriorating trade relations in Russia due to the Russia-Ukraine conflict. Based on available information to date, the Company’s estimate of potential future impairments on the Company's businesses in Russia would not be material with respect to the Company's consolidated financial position.
In the three months ended March 31, 2021, the Company recognized gross repositioning charges totaling $119 million including severance costs of $28 million related to workforce reductions of 1,021 manufacturing and administrative positions mainly in the Company's Aerospace and Safety and Productivity Solutions segments. The workforce reductions were primarily related to site transitions, mainly in Aerospace, to more cost-effective locations and to the Company's productivity and ongoing functional transformation initiatives. The repositioning charge included asset impairments of $42 million primarily related to the write-down of certain manufacturing and other equipment due to their planned disposition. The repositioning charge included exit costs of $49 million primarily for closure obligations associated with site transitions, lease exit obligations for certain equipment in Corporate and current period exit costs incurred for previously approved repositioning projects.
The following table summarizes the status of the Company's total repositioning reserves:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Severance Costs | Asset Impairments | Exit Costs | Total |
Balance at December 31, 2021 | | $ | 289 | | | $ | — | | | $ | 122 | | | $ | 411 | |
Charges | | 7 | | | 123 | | | 17 | | | 147 | |
Usage - cash | | (48) | | | — | | | (21) | | | (69) | |
Usage - noncash | | — | | | (123) | | | — | | | (123) | |
Foreign currency translation | | (1) | | | — | | | — | | | (1) | |
Adjustments | | (14) | | | — | | | (1) | | | (15) | |
Balance at March 31, 2022 | | $ | 233 | | | $ | — | | | $ | 117 | | | $ | 350 | |
Certain repositioning projects will recognize exit costs in future periods when the actual liability is incurred. Such exit costs incurred in the three months ended March 31, 2022 and 2021, were $11 million and $10 million, respectively.
11 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in tables in millions, except per share amounts)
NOTE 6. INCOME TAXES
The effective tax rate was higher than the U.S. federal statutory rate of 21% and increased during 2022 compared to 2021 primarily due to the accrual of reserves against outstanding accounts receivable, contract assets, and impairments of other assets due to the suspension of substantially all of the Company's sales, distribution, and service activities in Russia and Belarus with no corresponding tax benefit, lower tax benefits for employee share-based compensation, and incremental tax reserves and state taxes, partially offset by the favorable resolution of certain foreign tax matters.
NOTE 7. INVENTORIES
| | | | | | | | | | | | | | |
| March 31, 2022 | December 31, 2021 |
Raw materials | | $ | 1,556 | | | $ | 1,352 | |
Work in process | | 958 | | | 861 | |
Finished products | | 2,958 | | | 2,925 | |
| | $ | 5,472 | | | $ | 5,138 | |
| | | | |
| | | | |
12 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in tables in millions, except per share amounts)
NOTE 8. LONG-TERM DEBT AND CREDIT AGREEMENTS
| | | | | | | | | | | | | | |
| March 31, 2022 | December 31, 2021 |
| | | | |
| | | | |
| | | | |
0.483% notes due 2022 | | $ | 500 | | | $ | 500 | |
2.15% notes due 2022 | | 600 | | | 600 | |
Floating rate notes due 2022 | | 600 | | | 600 | |
1.30% Euro notes due 2023 | | 1,381 | | | 1,416 | |
3.35% notes due 2023 | | 300 | | | 300 | |
0.00% Euro notes due 2024 | | 552 | | | 566 | |
2.30% notes due 2024 | | 750 | | | 750 | |
1.35% notes due 2025 | | 1,250 | | | 1,250 | |
2.50% notes due 2026 | | 1,500 | | | 1,500 | |
1.10% notes due 2027 | | 1,000 | | | 1,000 | |
2.25% Euro notes due 2028 | | 829 | | | 849 | |
2.70% notes due 2029 | | 750 | | | 750 | |
1.95% notes due 2030 | | 1,000 | | | 1,000 | |
1.75% notes due 2031 | | 1,500 | | | 1,500 | |
0.75% Euro notes due 2032 | | 552 | | | 566 | |
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