filings.toolsItem 1. FINANCIAL STATEMENTS
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Item 1. FINANCIAL STATEMENTS
HONEYWELL INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| (Dollars in millions, except per share amounts) | |||||||||||||||||||||||
| Product sales | $ | 6,233 | $ | 5,885 | $ | 19,281 | $ | 17,933 | |||||||||||||||
| Service sales | 2,240 | 1,912 | 6,454 | 5,804 | |||||||||||||||||||
| Net sales | 8,473 | 7,797 | 25,735 | 23,737 | |||||||||||||||||||
| Costs, expenses and other | |||||||||||||||||||||||
| Cost of products sold | 4,463 | 4,315 | 13,748 | 12,852 | |||||||||||||||||||
| Cost of services sold | 1,283 | 1,068 | 3,710 | 3,341 | |||||||||||||||||||
| 5,746 | 5,383 | 17,458 | 16,193 | ||||||||||||||||||||
| Selling, general and administrative expenses | 1,152 | 1,103 | 3,595 | 3,524 | |||||||||||||||||||
| Other (income) expense | (215) | 62 | (1,023) | (546) | |||||||||||||||||||
| Interest and other financial charges | 90 | 101 | 263 | 264 | |||||||||||||||||||
| 6,773 | 6,649 | 20,293 | 19,435 | ||||||||||||||||||||
| Income before taxes | 1,700 | 1,148 | 5,442 | 4,302 | |||||||||||||||||||
| Tax expense | 427 | 367 | 1,274 | 816 | |||||||||||||||||||
| Net income | 1,273 | 781 | 4,168 | 3,486 | |||||||||||||||||||
| Less: Net income attributable to the noncontrolling interest | 16 | 23 | 54 | 66 | |||||||||||||||||||
| Net income attributable to Honeywell | $ | 1,257 | $ | 758 | $ | 4,114 | $ | 3,420 | |||||||||||||||
| Earnings per share of common stock - basic | $ | 1.82 | $ | 1.08 | $ | 5.93 | $ | 4.85 | |||||||||||||||
| Earnings per share of common stock - assuming dilution | $ | 1.80 | $ | 1.07 | $ | 5.86 | $ | 4.81 |
The Notes to Consolidated Financial Statements are an integral part of this statement.
1 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Net income | $ | 1,273 | $ | 781 | $ | 4,168 | $ | 3,486 | |||||||||||||||
| Other comprehensive income (loss), net of tax | |||||||||||||||||||||||
| Foreign exchange translation adjustment | (93) | (82) | 250 | (237) | |||||||||||||||||||
| Actuarial (gains) losses recognized during year | (1) | — | (1) | — | |||||||||||||||||||
| Prior service (credit) cost recognized | (21) | (20) | (64) | (60) | |||||||||||||||||||
| Pension and other postretirement benefit adjustments | (22) | (20) | (65) | (60) | |||||||||||||||||||
| Changes in fair value of available for sale investments | — | — | (3) | — | |||||||||||||||||||
| Cash flow hedges recognized in other comprehensive income (loss) | 1 | (54) | 16 | 50 | |||||||||||||||||||
| Less: Reclassification adjustment for gains (losses) included in net income | 5 | (30) | 14 | (8) | |||||||||||||||||||
| Changes in fair value of cash flow hedges | (4) | (24) | 2 | 58 | |||||||||||||||||||
| Other comprehensive income (loss), net of tax | (119) | (126) | 184 | (239) | |||||||||||||||||||
| Comprehensive income | 1,154 | 655 | 4,352 | 3,247 | |||||||||||||||||||
| Less: Comprehensive income attributable to the noncontrolling interest | 15 | 29 | 54 | 68 | |||||||||||||||||||
| Comprehensive income attributable to Honeywell | $ | 1,139 | $ | 626 | $ | 4,298 | $ | 3,179 |
The Notes to Consolidated Financial Statements are an integral part of this statement.
2 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
| September 30, 2021 | December 31, 2020 | ||||||||||
| (Dollars in millions) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 11,087 | $ | 14,275 | |||||||
| Short-term investments | 1,049 | 945 | |||||||||
| Accounts receivable - net | 7,239 | 6,827 | |||||||||
| Inventories | 4,967 | 4,489 | |||||||||
| Other current assets | 1,691 | 1,639 | |||||||||
| Total current assets | 26,033 | 28,175 | |||||||||
| Investments and long-term receivables | 1,243 | 685 | |||||||||
| Property, plant and equipment - net | 5,514 | 5,570 | |||||||||
| Goodwill | 16,963 | 16,058 | |||||||||
| Other intangible assets - net | 3,637 | 3,560 | |||||||||
| Insurance recoveries for asbestos related liabilities | 330 | 366 | |||||||||
| Deferred income taxes | 760 | 760 | |||||||||
| Other assets | 9,711 | 9,412 | |||||||||
| Total assets | $ | 64,191 | $ | 64,586 | |||||||
| LIABILITIES | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 6,116 | $ | 5,750 | |||||||
| Commercial paper and other short-term borrowings | 3,559 | 3,597 | |||||||||
| Current maturities of long-term debt | 3,344 | 2,445 | |||||||||
| Accrued liabilities | 7,188 | 7,405 | |||||||||
| Total current liabilities | 20,207 | 19,197 | |||||||||
| Long-term debt | 14,346 | 16,342 | |||||||||
| Deferred income taxes | 2,372 | 2,113 | |||||||||
| Postretirement benefit obligations other than pensions | 225 | 242 | |||||||||
| Asbestos-related liabilities | 1,765 | 1,920 | |||||||||
| Other liabilities | 7,155 | 6,975 | |||||||||
| Redeemable noncontrolling interest | 7 | 7 | |||||||||
| SHAREOWNERS’ EQUITY | |||||||||||
| Capital - common stock issued | 958 | 958 | |||||||||
| - additional paid-in capital | 7,612 | 7,292 | |||||||||
| Common stock held in treasury, at cost | (29,614) | (27,229) | |||||||||
| Accumulated other comprehensive loss | (3,193) | (3,377) | |||||||||
| Retained earnings | 42,079 | 39,905 | |||||||||
| Total Honeywell shareowners’ equity | 17,842 | 17,549 | |||||||||
| Noncontrolling interest | 272 | 241 | |||||||||
| Total shareowners’ equity | 18,114 | 17,790 | |||||||||
| Total liabilities, redeemable noncontrolling interest and shareowners’ equity | $ | 64,191 | $ | 64,586 |
The Notes to Consolidated Financial Statements are an integral part of this statement.
3 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| (Dollars in millions) | |||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 4,168 | $ | 3,486 | |||||||
| Less: Net income attributable to the noncontrolling interest | 54 | 66 | |||||||||
| Net income attributable to Honeywell | 4,114 | 3,420 | |||||||||
| Adjustments to reconcile net income attributable to Honeywell to net cash provided by operating activities: | |||||||||||
| Depreciation | 506 | 480 | |||||||||
| Amortization | 427 | 268 | |||||||||
| Gain on sale of non-strategic businesses and assets | (95) | — | |||||||||
| Repositioning and other charges | 338 | 486 | |||||||||
| Net payments for repositioning and other charges | (505) | (652) | |||||||||
| Pension and other postretirement income | (862) | (633) | |||||||||
| Pension and other postretirement benefit payments | (29) | (37) | |||||||||
| Stock compensation expense | 172 | 118 | |||||||||
| Deferred income taxes | 189 | (289) | |||||||||
| Reimbursement receivables charge | — | 350 | |||||||||
| Other | (106) | (369) | |||||||||
| Changes in assets and liabilities, net of the effects of acquisitions and divestitures: | |||||||||||
| Accounts receivable | (419) | 615 | |||||||||
| Inventories | (516) | (284) | |||||||||
| Other current assets | (324) | 246 | |||||||||
| Accounts payable | 379 | (460) | |||||||||
| Accrued liabilities | 106 | 167 | |||||||||
| Net cash provided by operating activities | 3,375 | 3,426 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Expenditures for property, plant and equipment | (614) | (615) | |||||||||
| Proceeds from disposals of property, plant and equipment | 18 | 17 | |||||||||
| Increase in investments | (1,989) | (2,371) | |||||||||
| Decrease in investments | 1,906 | 2,634 | |||||||||
| Receipts from Garrett Motion Inc. | 375 | — | |||||||||
| Receipts (payments) from settlements of derivative contracts | 88 | (75) | |||||||||
| Cash paid for acquisitions, net of cash acquired | (1,334) | — | |||||||||
| Proceeds from sales of businesses, net of fees paid | 203 | — | |||||||||
| Net cash used for investing activities | (1,347) | (410) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from issuance of commercial paper and other short-term borrowings | 3,640 | 8,577 | |||||||||
| Payments of commercial paper and other short-term borrowings | (3,637) | (8,512) | |||||||||
| Proceeds from issuance of common stock | 171 | 163 | |||||||||
| Proceeds from issuance of long-term debt | 2,509 | 10,105 | |||||||||
| Payments of long-term debt | (3,355) | (4,237) | |||||||||
| Repurchases of common stock | (2,499) | (2,149) | |||||||||
| Cash dividends paid | (1,950) | (1,921) | |||||||||
| Other | (74) | (54) | |||||||||
| Net cash provided by (used for) financing activities | (5,195) | 1,972 | |||||||||
| Effect of foreign exchange rate changes on cash and cash equivalents | (21) | (19) | |||||||||
| Net increase (decrease) in cash and cash equivalents | (3,188) | 4,969 | |||||||||
| Cash and cash equivalents at beginning of period | 14,275 | 9,067 | |||||||||
| Cash and cash equivalents at end of period | $ | 11,087 | $ | 14,036 |
The Notes to Consolidated Financial Statements are an integral part of this statement.
4 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||
| Shares | $ | Shares | $ | Shares | $ | Shares | $ | ||||||||||||||||||||||||||||||||||||||||
| (In millions, except per share amounts) | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock, par value | 957.6 | 958 | 957.6 | 958 | 957.6 | 958 | 957.6 | 958 | |||||||||||||||||||||||||||||||||||||||
| Additional paid-in capital | |||||||||||||||||||||||||||||||||||||||||||||||
| Beginning balance | 7,566 | 7,104 | 7,292 | 6,876 | |||||||||||||||||||||||||||||||||||||||||||
| Issued for employee savings and option plans | (10) | 11 | 148 | 161 | |||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 56 | 40 | 172 | 118 | |||||||||||||||||||||||||||||||||||||||||||
| Ending balance | 7,612 | 7,155 | 7,612 | 7,155 | |||||||||||||||||||||||||||||||||||||||||||
| Treasury stock | |||||||||||||||||||||||||||||||||||||||||||||||
| Beginning balance | (267.2) | (28,978) | (255.8) | (25,685) | (260.8) | (27,229) | (246.5) | (23,836) | |||||||||||||||||||||||||||||||||||||||
| Reacquired stock or repurchases of common stock | (2.9) | (650) | (1.0) | (164) | (11.5) | (2,499) | (13.1) | (2,149) | |||||||||||||||||||||||||||||||||||||||
| Issued for employee savings and option plans | 0.9 | 14 | 0.9 | 43 | 3.1 | 114 | 3.7 | 179 | |||||||||||||||||||||||||||||||||||||||
| Ending balance | (269.2) | (29,614) | (255.9) | (25,806) | (269.2) | (29,614) | (255.9) | (25,806) | |||||||||||||||||||||||||||||||||||||||
| Retained earnings | |||||||||||||||||||||||||||||||||||||||||||||||
| Beginning balance | 41,467 | 39,080 | 39,905 | 37,693 | |||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to Honeywell | 1,257 | 758 | 4,114 | 3,420 | |||||||||||||||||||||||||||||||||||||||||||
| Dividends on common stock | (645) | (635) | (1,940) | (1,910) | |||||||||||||||||||||||||||||||||||||||||||
| Ending balance | 42,079 | 39,203 | 42,079 | 39,203 | |||||||||||||||||||||||||||||||||||||||||||
| Accumulated other comprehensive income (loss) | |||||||||||||||||||||||||||||||||||||||||||||||
| Beginning balance | (3,075) | (3,310) | (3,377) | (3,197) | |||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange translation adjustment | (92) | (82) | 250 | (237) | |||||||||||||||||||||||||||||||||||||||||||
| Pension and other postretirement benefit adjustments | (22) | (20) | (65) | (60) | |||||||||||||||||||||||||||||||||||||||||||
| Changes in fair value of available for sale investments | — | — | (3) | — | |||||||||||||||||||||||||||||||||||||||||||
| Changes in fair value of cash flow hedges | (4) | (24) | 2 | 58 | |||||||||||||||||||||||||||||||||||||||||||
| Ending balance | (3,193) | (3,436) | (3,193) | (3,436) | |||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest | |||||||||||||||||||||||||||||||||||||||||||||||
| Beginning balance | 264 | 219 | 241 | 212 | |||||||||||||||||||||||||||||||||||||||||||
| Acquisitions, divestitures, and other | — | — | 5 | (6) | |||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interest | 16 | 23 | 54 | 66 | |||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange translation adjustment | (1) | 6 | — | 2 | |||||||||||||||||||||||||||||||||||||||||||
| Dividends paid | (7) | (9) | (32) | (35) | |||||||||||||||||||||||||||||||||||||||||||
| Contributions from noncontrolling interest holders | — | — | 4 | — | |||||||||||||||||||||||||||||||||||||||||||
| Ending balance | 272 | 239 | 272 | 239 | |||||||||||||||||||||||||||||||||||||||||||
| Total shareowners' equity | 688.4 | 18,114 | 701.7 | 18,313 | 688.4 | 18,114 | 701.7 | 18,313 | |||||||||||||||||||||||||||||||||||||||
| Cash dividends per share of common stock | $ | 0.930 | $ | 0.900 | $ | 2.790 | $ | 2.700 |
The Notes to Consolidated Financial Statements are an integral part of this statement.
5 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
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. 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 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, Honeywell will provide appropriate disclosures. Honeywell's actual closing dates for the three and nine months ended September 30, 2021, and September 30, 2020, were October 2, 2021, and September 26, 2020, 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 2020 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 our Consolidated Financial Statements.
In December 2019, the FASB issued an ASU to simplify the accounting for income taxes. The standard’s amendments include changes in various subtopics of accounting for income taxes including, but not limited to, accounting for “hybrid” tax regimes, tax basis step-up in goodwill obtained in a transaction that is not a business combination, intraperiod tax allocation exception to incremental approach, ownership changes in investments, interim-period accounting for enacted changes in tax law, and year-to-date loss limitation in interim-period tax accounting. Effective January 1, 2021, the Company adopted this standard. The adoption of this standard did not have a material impact on the Company's Consolidated Financial Statements.
In March 2020, the FASB issued guidance that 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. 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 is currently evaluating the impacts of this guidance on the Company’s Consolidated Financial Statements. The Company does not expect the adoption of this standard to have a material impact on the Company’s Consolidated Financial Statements.
6 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
(Dollars in tables in millions, except per share amounts)
NOTE 3. ACQUISITIONS AND DIVESTITURES
On February 12, 2021, the Company acquired 100% of the shares outstanding of Sparta Systems, a leading provider of enterprise quality management software for the life sciences industry, for $1,303 million. Sparta Systems is expected to further strengthen the Company's leadership in industrial automation, digital transformation solutions, and enterprise performance management software. The business is included within the Performance Materials and Technologies segment. The assets and liabilities acquired with Sparta Systems are included in the Consolidated Balance Sheet as of September 30, 2021, including $383 million of intangible assets and $1,029 million allocated to goodwill, which is non-deductible for tax purposes. The purchase accounting is subject to final adjustment, primarily for the valuation of intangible assets, amounts allocated to goodwill, tax balances, and certain pre-acquisition contingencies.
On March 15, 2021, the Company completed the sale of its retail footwear business in exchange for gross cash consideration of $230 million. The Company recognized a pre-tax gain of $95 million for the nine months ended September 30, 2021, which was recorded in Other (income) expense. The retail footwear business was previously included in the Safety and Productivity Solutions segment.
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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Aerospace | |||||||||||||||||||||||
| Commercial Aviation Original Equipment | $ | 415 | $ | 411 | $ | 1,282 | $ | 1,532 | |||||||||||||||
| Commercial Aviation Aftermarket | 1,083 | 779 | 3,008 | 2,825 | |||||||||||||||||||
| Defense and Space | 1,234 | 1,472 | 3,840 | 4,209 | |||||||||||||||||||
| 2,732 | 2,662 | 8,130 | 8,566 | ||||||||||||||||||||
| Honeywell Building Technologies | |||||||||||||||||||||||
| Products | 805 | 745 | 2,432 | 2,145 | |||||||||||||||||||
| Building Solutions | 565 | 560 | 1,703 | 1,618 | |||||||||||||||||||
| 1,370 | 1,305 | 4,135 | 3,763 | ||||||||||||||||||||
| Performance Materials and Technologies | |||||||||||||||||||||||
| UOP | 600 | 461 | 1,698 | 1,572 | |||||||||||||||||||
| Process Solutions | 1,160 | 1,135 | 3,422 | 3,379 | |||||||||||||||||||
| Advanced Materials | 750 | 656 | 2,288 | 1,916 | |||||||||||||||||||
| 2,510 | 2,252 | 7,408 | 6,867 | ||||||||||||||||||||
| Safety and Productivity Solutions | |||||||||||||||||||||||
| Safety and Retail | 525 | 599 | 1,884 | 1,612 | |||||||||||||||||||
| Productivity Solutions and Services | 407 | 322 | 1,132 | 877 | |||||||||||||||||||
| Warehouse and Workflow Solutions | 716 | 445 | 2,440 | 1,457 | |||||||||||||||||||
| Advanced Sensing Technologies | 213 | 212 | 606 | 595 | |||||||||||||||||||
| 1,861 | 1,578 | 6,062 | 4,541 | ||||||||||||||||||||
| Net sales | $ | 8,473 | $ | 7,797 | $ | 25,735 | $ | 23,737 |
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HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
(Dollars in tables in millions, except per share amounts)
Aerospace – A global supplier of products, software and services for aircraft that it sells to original equipment manufacturers (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 our 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; remote patient monitoring systems; and installation, maintenance and upgrades of systems. Honeywell Forge solutions enable our customers to digitally manage buildings, connecting data from different assets to enable smart maintenance, improve building performance and 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 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 personal protective equipment (PPE), apparel, gear, and footwear designed for work, play and outdoor activities; 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.
For a summary by disaggregated product and services sales for each segment, refer to Note 18 Segment Financial Data.
8 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
(Dollars in tables in millions, except per share amounts)
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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Products, transferred point in time | 58 | % | 61 | % | 58 | % | 61 | % | |||||||||||||||
| Products, transferred over time | 16 | 15 | 17 | 15 | |||||||||||||||||||
| Net product sales | 74 | 76 | 75 | 76 | |||||||||||||||||||
| Services, transferred point in time | 9 | 7 | 8 | 8 | |||||||||||||||||||
| Services, transferred over time | 17 | 17 | 17 | 16 | |||||||||||||||||||
| Net service sales | 26 | 24 | 25 | 24 | |||||||||||||||||||
| Net sales | 100 | % | 100 | % | 100 | % | 100 | % |
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:
| 2021 | 2020 | ||||||||||
| Contract assets - January 1 | $ | 1,618 | $ | 1,602 | |||||||
| Contract assets - September 30 | 2,087 | 1,819 | |||||||||
| Change in contract assets - increase (decrease) | $ | 469 | $ | 217 | |||||||
| Contract liabilities - January 1 | $ | (4,033) | $ | (3,501) | |||||||
| Contract liabilities - September 30 | (3,840) | (3,666) | |||||||||
| Change in contract liabilities - decrease (increase) | $ | 193 | $ | (165) | |||||||
| Net change | $ | 662 | $ | 52 | |||||||
For the three and nine months ended September 30, 2021, the Company recognized revenue of $225 million and $1,786 million that was previously included in the beginning balance of contract liabilities. For the three and nine months ended September 30, 2020, the Company recognized revenue of $351 million and $1,554 million that was previously included in the beginning balance of contract liabilities.
9 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
(Dollars in tables in millions, except per share amounts)
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.
The following table outlines the Company's remaining performance obligations disaggregated by segment:
| September 30, 2021 | ||||||||
| Aerospace | $ | 8,890 | ||||||
| Honeywell Building Technologies | 6,813 | |||||||
| Performance Materials and Technologies | 7,573 | |||||||
| Safety and Productivity Solutions | 4,264 | |||||||
| $ | 27,540 |
Performance obligations recognized as of September 30, 2021, 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 56% and 44%, 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 we 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 we recognize revenue in proportion to the amount we have the right to invoice for services performed.
10 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
(Dollars in tables in millions, except per share amounts)
NOTE 5. REPOSITIONING AND OTHER CHARGES
A summary of repositioning and other charges follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Severance | $ | 3 | $ | 113 | $ | 63 | $ | 433 | |||||||||||||||
| Asset impairments | 20 | 5 | 107 | 11 | |||||||||||||||||||
| Exit costs | 46 | 17 | 110 | 47 | |||||||||||||||||||
| Reserve adjustments | 3 | (11) | (18) | (42) | |||||||||||||||||||
| Total net repositioning charge | 72 | 124 | 262 | 449 | |||||||||||||||||||
| Asbestos related litigation charges, net of insurance and reimbursements | 24 | 13 | 68 | 33 | |||||||||||||||||||
| Probable and reasonably estimable environmental liabilities, net of reimbursements | 3 | 6 | 14 | 20 | |||||||||||||||||||
| Other | (3) | 1 | (6) | (16) | |||||||||||||||||||
| Total net repositioning and other charges | $ | 96 | $ | 144 | $ | 338 | $ | 486 |
The following table summarizes the pretax distribution of total net repositioning and other charges by classification:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Cost of products and services sold | $ | 63 | $ | 91 | $ | 248 | $ | 286 | |||||||||||||||
| Selling, general and administrative expenses | 33 | 53 | 90 | 200 | |||||||||||||||||||
| $ | 96 | $ | 144 | $ | 338 | $ | 486 |
The following table summarizes the pretax impact of total net repositioning and other charges by segment:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Aerospace | $ | (2) | $ | 33 | $ | 55 | $ | 151 | |||||||||||||||
| Honeywell Building Technologies | 5 | 29 | 9 | 87 | |||||||||||||||||||
| Performance Materials and Technologies | 5 | 34 | 12 | 139 | |||||||||||||||||||
| Safety and Productivity Solutions | 40 | 15 | 136 | 32 | |||||||||||||||||||
| Corporate | 48 | 33 | 126 | 77 | |||||||||||||||||||
| $ | 96 | $ | 144 | $ | 338 | $ | 486 |
In the three months ended September 30, 2021, we recognized gross repositioning charges totaling $69 million including severance costs of $3 million related to workforce reductions of 603 manufacturing and administrative positions mainly in our Safety and Productivity Solutions segment. The workforce reductions were primarily related to the re-alignment of a product line in our Safety and Productivity Solutions segment and to our productivity and ongoing functional transformation initiatives. The repositioning charge included asset impairments of $20 million primarily related to the write-down of certain manufacturing equipment. The repositioning charge also included exit costs of $46 million primarily for current period exit costs incurred for previously approved repositioning projects, closure obligations associated with site transitions, and lease obligations for equipment.
In the three months ended September 30, 2020, we recognized gross repositioning charges totaling $135 million including severance costs of $113 million related to workforce reductions of 3,113 manufacturing and administrative positions across all of the Company's segments, with a majority of the workforce reductions in Aerospace and Performance Materials and Technologies. The workforce reductions primarily related to the Company aligning its cost structure with the current slowdown in demand for many of the Company's products and services due to the global recession.
11 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
(Dollars in tables in millions, except per share amounts)
In the nine months ended September 30, 2021, we recognized gross repositioning charges totaling $280 million including severance costs of $63 million related to workforce reductions of 5,252 manufacturing and administrative positions mainly in our Safety and Productivity Solutions and Aerospace segments. The workforce reductions were primarily related to the re-alignment of a product line in our Safety and Productivity Solutions segment, site transitions, mainly in Aerospace, to more cost-effective locations, and our productivity and ongoing functional transformation initiatives. The repositioning charge included asset impairments of $107 million primarily related to the write-down of certain manufacturing and other equipment. The repositioning charge included exit costs of $110 million primarily for current period exit costs incurred for previously approved repositioning projects, closure obligations associated with site transitions, and lease obligations for equipment. Also, $18 million of previously established reserves, primarily for severance, were returned to income due to adjustments to the scope of previously announced repositioning actions.
In the nine months ended September 30, 2020, we recognized gross repositioning charges totaling $491 million including severance costs of $433 million related to workforce reductions of 13,042 manufacturing and administrative positions across the Company's segments, with a majority of the workforce reductions in Aerospace and Performance Materials and Technologies. The workforce reductions primarily related to the Company aligning its cost structure with the current slowdown in demand for many of the Company's products and services due to the global recession, and the Company's productivity and ongoing functional transformation initiatives. The repositioning charges included exit costs of $47 million primarily related to current period exit costs incurred for previously approved repositioning projects. Also, $42 million of previously established reserves, primarily for severance, were returned to income mainly as a result of higher attrition than anticipated in prior severance actions resulting in lower severance payments.
The following table summarizes the status of the Company's total repositioning reserves:
| Severance Costs | Asset Impairments | Exit Costs | Total | ||||||||||||||||||||
| Balance at December 31, 2020 | $ | 527 | $ | — | $ | 74 | $ | 601 | |||||||||||||||
| Charges | 63 | 107 | 110 | 280 | |||||||||||||||||||
| Usage - cash | (229) | — | (57) | (286) | |||||||||||||||||||
| Usage - noncash | — | (109) | — | (109) | |||||||||||||||||||
| Foreign currency translation | (2) | — | (2) | (4) | |||||||||||||||||||
| Adjustments | (19) | 2 | (1) | (18) | |||||||||||||||||||
| Balance at September 30, 2021 | $ | 340 | $ | — | $ | 124 | $ | 464 |
Certain repositioning projects will recognize exit costs in future periods when the actual liability is incurred. Such exit costs incurred in the nine months ended September 30, 2021 and 2020, were $30 million and $32 million, respectively.
NOTE 6. INCOME TAXES
The effective tax rate was higher than the U.S. federal statutory rate of 21% and increased during 2021 compared to 2020 primarily due to an expense related to UOP matters with no corresponding tax benefit, incremental tax reserves and state taxes, partially offset by increased tax benefits for employee share-based compensation and the favorable resolution of certain foreign tax matters in the current year, the absence of prior year items including a non-cash charge related to the reduction of the aggregate carrying value of certain receivables with no corresponding tax benefit, tax benefits realized as a result of the favorable resolution of a foreign tax matter related to the spin-off transactions, tax law changes in India and the resolution of certain U.S. tax matters.
12 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
(Dollars in tables in millions, except per share amounts)
NOTE 7. ACCOUNTS RECEIVABLE - NET
| September 30, 2021 | December 31, 2020 | ||||||||||
| Trade | $ | 7,427 | $ | 7,029 | |||||||
| Less - Allowance for doubtful accounts | (188) | (202) | |||||||||
| $ | 7,239 | $ | 6,827 |
Trade receivables include $2,049 million and $1,589 million of unbilled balances under long-term contracts as of September 30, 2021, and December 31, 2020. These amounts are billed in accordance with the terms of the customer contracts to which they relate.
NOTE 8. INVENTORIES
| September 30, 2021 | December 31, 2020 | ||||||||||
| Raw materials | $ | 1,296 | $ | 1,079 | |||||||
| Work in process | 848 | 798 | |||||||||
| Finished products | 2,823 | 2,612 | |||||||||
| $ | 4,967 | $ | 4,489 |
13 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
(Dollars in tables in millions, except per share amounts)
NOTE 9. LONG-TERM DEBT AND CREDIT AGREEMENTS
| September 30, 2021 | December 31, 2020 | ||||||||||
| 4.25% notes due 2021 | $ | — | $ | 800 | |||||||
| 1.85% notes due 2021 | 1,500 | 1,500 | |||||||||
| 0.483% notes due 2022 | 500 | 2,500 | |||||||||
| 2.15% notes due 2022 | 600 | 600 | |||||||||
| Floating rate notes due 2022 | 600 | 1,100 | |||||||||
| 1.30% Euro notes due 2023 | 1,450 | 1,534 | |||||||||
| 3.35% notes due 2023 | 300 | 300 | |||||||||
| 0.00% Euro notes due 2024 | 580 | 614 | |||||||||
| 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 | — | |||||||||
| 2.25% Euro notes due 2028 | 870 | 920 | |||||||||
| 2.70% notes due 2029 | 750 | 750 | |||||||||
| 1.95% notes due 2030 | 1,000 | 1,000 | |||||||||
| 1.75% notes due 2031 | 1,500 | — | |||||||||
| 0.75% Euro notes due 2032 | 580 | 614 | |||||||||
| 5.70% notes due 2036 | 441 | 441 | |||||||||
| 5.70% notes due 2037 | 462 | 462 | |||||||||
| 5.375% notes due 2041 | 417 | 417 | |||||||||
| 3.812% notes due 2047 | 445 | 445 | |||||||||
| 2.80% notes due 2050 | 750 | 750 | |||||||||
| Industrial development bond obligations, floating rate maturing at various dates through 2037 | 22 | 22 | |||||||||
| 6.625% debentures due 2028 | 201 | 201 | |||||||||
| 9.065% debentures due 2033 | 51 | 51 | |||||||||
| Other (including capitalized leases and debt issuance costs), 8.0% weighted average interest rate maturing at various dates through 2026 | 171 | 266 | |||||||||
| 17,690 | 18,787 | ||||||||||
| Less-current portion | (3,344) | (2,445) | |||||||||
| $ | 14,346 | $ | 16,342 |
14 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
(Dollars in tables in millions, except per share amounts)
On August 16, 2021 the Company issued $1.0 billion 1.10% Senior Notes due 2027 and $1.5 billion 1.75% Senior Notes due 2031 (collectively, the Notes). The Company may redeem the Notes at any time, and from time to time, in whole or in part, at the Company's option at the applicable make-whole redemption price. The Notes are senior unsecured and unsubordinated obligations of the Company and rank equally with each other and with all of the Company's existing and future senior unsecured debt and senior to all of the Company's subordinated debt. The offering provided gross proceeds of $2.5 billion, offset by $18.0 million in discount and closing costs related to the offering. The Company used the proceeds of the offering to redeem at par $2 billion of the $2.5 billion in outstanding principal amount of our callable 0.483% Senior Notes due 2022 and to redeem in full and at par $500 million callable Floating rate Senior Notes due 2022 that the Company issued in August 2020.
On March 31, 2021, the Company entered into a $4.0 billion Amended and Restated Five Year Credit Agreement (the 5-Year Credit Agreement) and a $1.5 billion 364-Day Credit Agreement (the 364-Day Credit Agreement). The 5-Year Credit Agreement amended and restated the previously reported $4.0 billion amended and restated five-year credit agreement dated as of April 26, 2019. Commitments under the 5-Year Credit Agreement can be increased pursuant to the terms of the 5-Year Credit Agreement to an aggregate amount not to exceed $4.5 billion. The 364-Day Credit Agreement replaced the $1.5 billion 364-day credit agreement dated as of April 10, 2020, which was terminated in accordance with its terms effective March 31, 2021. Amounts borrowed under the 364-Day Credit Agreement are required to be repaid no later than March 30, 2022, unless (i) Honeywell elects to convert all then outstanding amounts into a term loan, upon which such amounts shall be repaid in full on March 30, 2023, or (ii) the 364-Day Credit Agreement is terminated earlier pursuant to its terms. The 5-Year Credit Agreement and the 364-Day Credit Agreement are maintained for general corporate purposes.
On March 1, 2021, the Company repaid its 4.25% notes due 2021.
As of September 30, 2021, there were no outstanding borrowings under the 5-Year Credit Agreement or the 364-Day Credit Agreement.
15 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
(Dollars in tables in millions, except per share amounts)
NOTE 10. LEASES
The Company's operating and finance lease portfolio is described in Note 11 Leases of Notes to Consolidated Financial Statements in our 2020 Annual Report on Form 10-K.
Supplemental cash flow information related to leases was as follows:
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Net right-of-use assets obtained in exchange for lease obligations: | |||||||||||||||||||||||
| Operating leases | $ | 290 | $ | 155 | |||||||||||||||||||
| Finance leases | 24 | 24 |
Supplemental balance sheet information related to leases was as follows:
| September 30, 2021 | December 31, 2020 | ||||||||||
| Operating leases | |||||||||||
| Other assets | $ | 936 | $ | 773 | |||||||
| Accrued liabilities | 188 | 187 | |||||||||
| Other liabilities | 824 | 641 | |||||||||
| Total operating lease liabilities | $ | 1,012 | $ | 828 | |||||||
| Financing leases | |||||||||||
| Property, plant and equipment | $ | 335 | $ | 357 | |||||||
| Accumulated depreciation | (182) | (180) | |||||||||
| Property, plant and equipment - net | $ | 153 | $ | 177 | |||||||
| Current maturities of long-term debt | 58 | 60 | |||||||||
| Long-term debt | 103 | 124 | |||||||||
| Total financing lease liabilities | $ | 161 | $ | 184 |
NOTE 11. DERIVATIVE INSTRUMENTS AND HEDGING TRANSACTIONS
Our credit, market, foreign currency and interest rate risk management policies are described in Note 12 Derivative Instruments and Hedging Transactions of Notes to Consolidated Financial Statements in our 2020 Annual Report on Form 10-K. All derivative assets are presented in Other current assets or Other assets. All derivative liabilities are presented in Accrued liabilities or Other liabilities.
16 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
(Dollars in tables in millions, except per share amounts)
The following table summarizes the notional amounts and fair values of the Company’s outstanding derivatives by risk category and instrument type within the Consolidated Balance Sheet as of September 30, 2021, and December 31, 2020:
| Notional | Fair Value Asset | Fair Value (Liability) | |||||||||||||||||||||||||||||||||
| September 30, 2021 | December 31, 2020 | September 30, 2021 | December 31, 2020 | September 30, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||
| Derivatives in Fair Value Hedging Relationships: | |||||||||||||||||||||||||||||||||||
| Interest rate swap agreements | $ | 3,150 | $ | 3,950 | $ | 100 | $ | 194 | $ | — | $ | — | |||||||||||||||||||||||
| Derivatives in Cash Flow Hedging Relationships: | |||||||||||||||||||||||||||||||||||
| Foreign currency exchange contracts | 245 | 488 | 11 | 65 | — | (58) | |||||||||||||||||||||||||||||
| Derivatives in Net Investment Hedging Relationships: | |||||||||||||||||||||||||||||||||||
| Foreign currency exchange contracts | 759 | 806 | 72 | 45 | — | (1) | |||||||||||||||||||||||||||||
| Cross currency swap agreements | 1,200 | 1,200 | 13 | — | — | (50) | |||||||||||||||||||||||||||||
| Total Derivatives Designated as Hedging Instruments | 5,354 | 6,444 | 196 | 304 | — | (109) | |||||||||||||||||||||||||||||
| Derivatives Not Designated as Hedging Instruments: | |||||||||||||||||||||||||||||||||||
| Foreign currency exchange contracts | 11,930 | 14,829 | 220 | 92 | (219) | (91) | |||||||||||||||||||||||||||||
| Total Derivatives at Fair Value | $ | 17,284 | $ | 21,273 | $ | 416 | $ | 396 | $ | (219) | $ | (200) |
In addition to the derivative instruments listed above, certain of the Company's foreign currency denominated debt instruments are designated as net investment hedges. The carrying value of those debt instruments designated as net investment hedges, which includes the adjustment for the foreign currency transaction gain or loss on those instruments, was $4,172 million and $4,414 million as of September 30, 2021, and December 31, 2020.
The following table sets forth the amounts recorded on the Consolidated Balance Sheet related to cumulative basis adjustments for fair value hedges:
| Line in the Consolidated Balance Sheet of Hedged Item | Carrying Amount of the Hedged Item | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Item | |||||||||||||||||||||
| September 30, 2021 | December 31, 2020 | September 30, 2021 | December 31, 2020 | ||||||||||||||||||||
| Long-term debt | $ | 3,250 | $ | 4,144 | $ | 100 | $ | 194 |
17 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
(Dollars in tables in millions, except per share amounts)
The following tables summarize the location and impact to the Consolidated Statement of Operations related to derivative instruments:
| Three Months Ended September 30, 2021 | |||||||||||||||||||||||||||||
| Revenue | Cost of Products and Services Sold | SG&A | Other (Income) Expense | Interest and Other Financial Charges | |||||||||||||||||||||||||
| $ | 8,473 | $ | 5,746 | $ | 1,152 | $ | (215) | $ | 90 | ||||||||||||||||||||
| Gain or (loss) on cash flow hedges: | |||||||||||||||||||||||||||||
| Foreign Currency Exchange Contracts: | |||||||||||||||||||||||||||||
| Amount reclassified from accumulated other comprehensive income into income | 2 | 3 | 3 | — | — | ||||||||||||||||||||||||
| Gain or (loss) on fair value hedges: | |||||||||||||||||||||||||||||
| Interest Rate Swap Agreements: | |||||||||||||||||||||||||||||
| Hedged items | — | — | — | — | 14 | ||||||||||||||||||||||||
| Derivatives designated as hedges | — | — | — | — | (14) | ||||||||||||||||||||||||
| Gain or (loss) on net investment hedges: | |||||||||||||||||||||||||||||
| Foreign Currency Exchange Contracts: | |||||||||||||||||||||||||||||
| Amount excluded from effectiveness testing recognized in earnings using an amortization approach | — | — | — | — | 4 | ||||||||||||||||||||||||
| Gain or (loss) on derivatives not designated as hedging instruments: | |||||||||||||||||||||||||||||
| Foreign currency exchange contracts | — | — | — | 103 | — |
18 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
(Dollars in tables in millions, except per share amounts)
| Three Months Ended September 30, 2020 | |||||||||||||||||||||||||||||
| Revenue | Cost of Products and Services Sold | SG&A | Other (Income) Expense | Interest and Other Financial Charges | |||||||||||||||||||||||||
| $ | 7,797 | $ | 5,383 | $ | 1,103 | $ | 62 | $ | 101 | ||||||||||||||||||||
| Gain or (loss) on cash flow hedges: | |||||||||||||||||||||||||||||
| Foreign Currency Exchange Contracts: | |||||||||||||||||||||||||||||
| Amount reclassified from accumulated other comprehensive income into income | (1) | (1) | (1) | (35) | — | ||||||||||||||||||||||||
| Amount excluded from effectiveness testing recognized in earnings using an amortization approach | — | 4 | — | 8 | — | ||||||||||||||||||||||||
| Gain or (loss) on fair value hedges: | |||||||||||||||||||||||||||||
| Interest Rate Swap Agreements: | |||||||||||||||||||||||||||||
| Hedged items | — | — | — | — | 13 | ||||||||||||||||||||||||
| Derivatives designated as hedges | — | — | — | — | (13) | ||||||||||||||||||||||||
| Gain or (loss) on net investment hedges: | |||||||||||||||||||||||||||||
| Foreign Currency Exchange Contracts: | |||||||||||||||||||||||||||||
| Amount excluded from effectiveness testing recognized in earnings using an amortization approach | — | — | — | — | 4 | ||||||||||||||||||||||||
| Gain or (loss) on derivatives not designated as hedging instruments: | |||||||||||||||||||||||||||||
| Foreign currency exchange contracts | — | — | — | (136) | — |
| Nine Months Ended September 30, 2021 | |||||||||||||||||||||||||||||
| Revenue | Cost of Products and Services Sold | SG&A | Other (Income) Expense | Interest and Other Financial Charges | |||||||||||||||||||||||||
| $ | 25,735 | 17,458 | $ | 3,595 | (1,023) | $ | 263 | ||||||||||||||||||||||
| Gain or (loss) on cash flow hedges: | |||||||||||||||||||||||||||||
| Foreign currency exchange contracts: | |||||||||||||||||||||||||||||
| Amount reclassified from accumulated other comprehensive income into income | 4 | 7 | 7 | — | — | ||||||||||||||||||||||||
| Gain or (loss) on fair value hedges: | |||||||||||||||||||||||||||||
| Interest rate swap agreements: | |||||||||||||||||||||||||||||
| Hedged items | — | — | — | — | 94 | ||||||||||||||||||||||||
| Derivatives designated as hedges | — | — | — | — | (94) | ||||||||||||||||||||||||
| Gain or (loss) on net investment hedges: | |||||||||||||||||||||||||||||
| Foreign Currency Exchange Contracts: | |||||||||||||||||||||||||||||
| Amount excluded from effectiveness testing recognized in earnings using an amortization approach | — | — | — | — | 12 | ||||||||||||||||||||||||
| Gain or (loss) on derivatives not designated as hedging instruments: | |||||||||||||||||||||||||||||
| Foreign currency exchange contracts | — | — | — | 92 | — |
19 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
(Dollars in tables in millions, except per share amounts)
| Nine Months Ended September 30, 2020 | |||||||||||||||||||||||||||||
| Revenue | Cost of Products and Services Sold | SG&A | Other (Income) Expense | Interest and Other Financial Charges | |||||||||||||||||||||||||
| $ | 23,737 | $ | 16,193 | $ | 3,524 | $ | (546) | $ | 264 | ||||||||||||||||||||
| Gain or (loss) on cash flow hedges: | |||||||||||||||||||||||||||||
| Foreign currency exchange contracts: | |||||||||||||||||||||||||||||
| Amount reclassified from accumulated other comprehensive income into income | (2) | 29 | (4) | (37) | — | ||||||||||||||||||||||||
| Amount excluded from effectiveness testing recognized in earnings using an amortization approach | — | 12 | — | 25 | — | ||||||||||||||||||||||||
| Gain or (loss) on fair value hedges: | |||||||||||||||||||||||||||||
| Interest rate swap agreements: | |||||||||||||||||||||||||||||
| Hedged items | — | — | — | — | (206) | ||||||||||||||||||||||||
| Derivatives designated as hedges | — | — | — | — | 206 | ||||||||||||||||||||||||
| Gain or (loss) on net investment hedges: | |||||||||||||||||||||||||||||
| Foreign Currency Exchange Contracts: | |||||||||||||||||||||||||||||
| Amount excluded from effectiveness testing recognized in earnings using an amortization approach | — | — | — | — | 13 | ||||||||||||||||||||||||
| Gain or (loss) on derivatives not designated as hedging instruments: | |||||||||||||||||||||||||||||
| Foreign currency exchange contracts | — | — | — | (69) | — |
The following table summarizes the amounts of gain or (loss) on net investment hedges recognized in Accumulated other comprehensive income (loss):
| Derivatives Net Investment Hedging Relationships | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 | |||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Euro-denominated long-term debt | $ | 67 | $ | (126) | $ | 202 | $ | (64) | |||||||||||||||
| Euro-denominated commercial paper | 13 | (25) | 40 | 30 | |||||||||||||||||||
| Cross currency swap | 25 | (42) | 53 | (61) | |||||||||||||||||||
| Foreign currency exchange contracts | 6 | (28) | 18 | (46) |
20 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
(Dollars in tables in millions, except per share amounts)
NOTE 12. FAIR VALUE MEASUREMENTS
The accounting guidance for fair value measurements and disclosures establishes a three-level fair value hierarchy:
-
Level 1 - Inputs are based on quoted prices in active markets for identical assets and liabilities.
-
Level 2 - Inputs are based on observable inputs other than quoted prices in active markets for identical or similar assets and liabilities.
-
Level 3 - One or more inputs are unobservable and significant.
Financial and nonfinancial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The following table sets forth the Company’s financial assets and liabilities accounted for at fair value on a recurring basis:
| September 30, 2021 | December 31, 2020 | ||||||||||
| Assets: | |||||||||||
| Foreign currency exchange contracts | $ | 303 | $ | 202 | |||||||
| Available for sale investments | 994 | 1,118 | |||||||||
| Interest rate swap agreements | 100 | 194 | |||||||||
| Cross currency swap agreements | 13 | — | |||||||||
| Investments in equity securities | 52 | 11 | |||||||||
| Liabilities: | |||||||||||
| Foreign currency exchange contracts | $ | 219 | $ | 150 | |||||||
| Cross currency swap agreements | — | 50 |
The foreign currency exchange contracts, interest rate swap agreements, and cross currency swap agreements are valued using broker quotations or market transactions in either the listed or over-the-counter markets. As such, these derivative instruments are classified within level 2. The Company also holds investments in commercial paper, certificates of deposits, and time deposits that are designated as available for sale, as well as investments in equity securities, which are valued using published prices based off observable market data. As such, these investments are classified within level 2.
The Company holds certain available for sale investments in U.S. government and corporate debt securities, as well as investments in equity securities, which are 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 approximates fair value.
The following table sets forth the Company’s financial assets and liabilities that were not carried at fair value:
| September 30, 2021 | December 31, 2020 | ||||||||||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Short-term investment | $ | 242 | $ | 242 | $ | — | $ | — | |||||||||||||||
| Long-term receivables | $ | 170 | $ | 155 | $ | 137 | $ | 132 | |||||||||||||||
| Long-term investment | 353 | 353 | — | — | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Long-term debt and related current maturities | $ | 17,690 | $ | 18,888 | $ | 18,787 | $ | 20,176 |
The Company determined the fair value of the long-term receivables by utilizing transactions in the listed markets for identical or similar assets. As such, the fair values of these receivables are considered level 2.
21 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
(Dollars in tables in millions, except per share amounts)
The fair value of the short-term and long-term investments are based on the present value of the mandatory redemptions as reflected within Garrett Motion Inc.'s (Garrett) Series B Preferred Stock (Series B Preferred Stock) Certificate of Designation, as amended. Fair Value of the Series B Preferred Stock is not impacted by early redemptions until receipt of payment. The investment is designated as held to maturity and was initially recognized at fair value. The fair value of Garrett's Series B Preferred Stock was determined using observable market data and is considered level 2. Refer to Note 15 Commitments and Contingencies for further discussion of the Company’s investment in Garrett's Series B Preferred Stock.
The Company determined the fair value of the long-term debt and related current maturities utilizing transactions in the listed markets for identical or similar liabilities. As such, the fair value of the long-term debt and related current maturities is considered level 2.
NOTE 13. EARNINGS PER SHARE
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| Basic | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Net income attributable to Honeywell | $ | 1,257 | $ | 758 | $ | 4,114 | $ | 3,420 | |||||||||||||||
| Weighted average shares outstanding | 690.6 | 702.6 | 693.6 | 704.8 | |||||||||||||||||||
| Earnings per share of common stock - basic | $ | 1.82 | $ | 1.08 | $ | 5.93 | $ | 4.85 |
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| Assuming Dilution | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Net income attributable to Honeywell | $ | 1,257 | $ | 758 | $ | 4,114 | $ | 3,420 | |||||||||||||||
| Average Shares | |||||||||||||||||||||||
| Weighted average shares outstanding | 690.6 | 702.6 | 693.6 | 704.8 | |||||||||||||||||||
| Dilutive securities issuable - stock plans | 8.3 | 7.0 | 8.4 | 6.8 | |||||||||||||||||||
| Total weighted average diluted shares outstanding | 698.9 | 709.6 | 702.0 | 711.6 | |||||||||||||||||||
| Earnings per share of common stock - assuming dilution | $ | 1.80 | $ | 1.07 | $ | 5.86 | $ | 4.81 |
The diluted earnings per share calculations exclude the effect of stock options when the options’ exercise price exceed the average market price of the common shares during the period. For the three and nine months ended September 30, 2021, the weighted average number of stock options excluded from the computations were 1.9 million and 1.6 million, respectively. These stock options were outstanding at the end of each of the respective periods. For the three and nine months ended September 30, 2020, the weighted average number of stock options excluded from the computations were 7.1 million and 6.4 million, respectively.
As of September 30, 2021 and 2020, total shares outstanding were 688.4 million and 701.7 million, respectively, and as of September 30, 2021 and 2020, total shares issued were 957.6 million.
22 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
(Dollars in tables in millions, except per share amounts)
NOTE 14. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT
| Foreign Exchange Translation Adjustment | Pension and Other Postretirement Benefits Adjustments | Changes in Fair Value of Available for Sale Investments | Changes in Fair Value of Cash Flow Hedges | Total | |||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | (2,780) | $ | (601) | $ | 4 | $ | — | $ | (3,377) | |||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | 250 | — | (3) | 16 | 263 | ||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | — | (65) | — | (14) | (79) | ||||||||||||||||||||||||
| Net current period other comprehensive income (loss) | 250 | (65) | (3) | 2 | 184 | ||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | (2,530) | $ | (666) | $ | 1 | $ | 2 | $ | (3,193) |
| Foreign Exchange Translation Adjustment | Pension and Other Postretirement Benefits Adjustments | Changes in Fair Value of Available for Sale Investments | Changes in Fair Value of Cash Flow Hedges | Total | |||||||||||||||||||||||||
| Balance at December 31, 2019 | $ | (2,566) | $ | (675) | $ | — | $ | 44 | $ | (3,197) | |||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (227) | — | — | 50 | (177) | ||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | (10) | (60) | — | 8 | (62) | ||||||||||||||||||||||||
| Net current period other comprehensive income (loss) | (237) | (60) | — | 58 | (239) | ||||||||||||||||||||||||
| Balance at September 30, 2020 | $ | (2,803) | $ | (735) | $ | — | $ | 102 | $ | (3,436) |
NOTE 15. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL MATTERS
Our environmental matters are described in Note 20 Commitments and Contingencies of Notes to Consolidated Financial Statements in our 2020 Annual Report on Form 10-K.
The following table summarizes information concerning our recorded liabilities for environmental costs:
| Balance at December 31, 2020 | $ | 660 | |||
| Accruals for environmental matters deemed probable and reasonably estimable | 126 | ||||
| Environmental liability payments | (147) | ||||
| Balance at September 30, 2021 | $ | 639 |
23 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
(Dollars in tables in millions, except per share amounts)
Environmental liabilities are included in the following balance sheet accounts:
| September 30, 2021 | December 31, 2020 | ||||||||||
| Accrued liabilities | $ | 225 | $ | 225 | |||||||
| Other liabilities | 414 | 435 | |||||||||
| $ | 639 | $ | 660 |
The Company does 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, the Company does not expect that environmental matters will have a material adverse effect on its consolidated financial position.
In conjunction with the Resideo Technologies, Inc. (Resideo) spin-off, the Company entered into an indemnification and reimbursement agreement with a Resideo subsidiary, pursuant to which Resideo’s subsidiary has an ongoing obligation to make cash payments to Honeywell in amounts equal to 90% of Honeywell’s annual net spending for environmental matters at certain sites as defined in the agreement. The amount payable to Honeywell in any given year is subject to a cap of $140 million, and the obligation will continue until the earlier of December 31, 2043, or December 31, of the third consecutive year during which the annual payment obligation is less than $25 million.
Reimbursements associated with this agreement are collected from Resideo quarterly and were $35 million and $105 million in the three and nine months ended September 30, 2021, respectively, and offset operating cash outflows incurred by the Company. As the Company incurs costs for environmental matters deemed probable and reasonably estimable related to the sites covered by the indemnification and reimbursement agreement, a corresponding receivable from Resideo for 90% of such costs is also recorded. This receivable amount recorded in the nine months ended September 30, 2021, was $111 million. As of September 30, 2021, Other current assets and Other assets included $140 million and $457 million, respectively, for the short-term and long-term portion of the receivable amount due from Resideo under the indemnification and reimbursement agreement.
ASBESTOS MATTERS
Honeywell is named in asbestos-related personal injury claims related to North American Refractories Company (NARCO), which was sold in 1986, and the Bendix Friction Materials (Bendix) business, which was sold in 2014.
The following tables summarize information concerning NARCO and Bendix asbestos-related balances:
ASBESTOS-RELATED LIABILITIES
| Bendix | NARCO | Total | |||||||||||||||
| December 31, 2020 | $ | 1,441 | $ | 779 | $ | 2,220 | |||||||||||
| Accrual for update to estimated liability | 40 | 19 | 59 | ||||||||||||||
| Asbestos-related liability payments | (107) | (107) | (214) | ||||||||||||||
| September 30, 2021 | $ | 1,374 | $ | 691 | $ | 2,065 |
INSURANCE RECOVERIES FOR ASBESTOS-RELATED LIABILITIES
| Bendix | NARCO | Total | |||||||||||||||
| December 31, 2020 | $ | 148 | $ | 254 | $ | 402 | |||||||||||
| Probable insurance recoveries related to estimated liability | — | — | — | ||||||||||||||
| Insurance receipts for asbestos-related liabilities | (10) | (27) | (37) | ||||||||||||||
| Insurance receivables settlements | — | — | — | ||||||||||||||
| September 30, 2021 | $ | 138 | $ | 227 | $ | 365 |
24 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
(Dollars in tables in millions, except per share amounts)
NARCO and Bendix asbestos-related balances are included in the following balance sheet accounts:
| September 30, 2021 | December 31, 2020 | ||||||||||
| Other current assets | $ | 35 | $ | 36 | |||||||
| Insurance recoveries for asbestos-related liabilities | 330 | 366 | |||||||||
| $ | 365 | $ | 402 | ||||||||
| Accrued liabilities | $ | 300 | $ | 300 | |||||||
| Asbestos-related liabilities | 1,765 | 1,920 | |||||||||
| $ | 2,065 | $ | 2,220 |
NARCO Products – NARCO manufactured high-grade, heat-resistant, refractory products for various industries. Honeywell’s predecessor, Allied Corporation, owned NARCO from 1979 to 1986. Allied Corporation sold the NARCO business in 1986 and entered into a cross-indemnity agreement which included an obligation to indemnify the purchaser for asbestos claims, arising primarily from alleged occupational exposure to asbestos-containing refractory brick and mortar for high-temperature applications. NARCO ceased manufacturing these products in 1980 and filed for bankruptcy in January 2002, at which point in time all then current and future NARCO asbestos claims were stayed against both NARCO and Honeywell pending the reorganization of NARCO. The Company established its initial liability for NARCO asbestos claims in 2002.
NARCO emerged from bankruptcy in April 2013, at which time a federally authorized 524(g) trust was established to evaluate and resolve all existing NARCO asbestos claims (the Trust). 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 Trust. The NARCO Trust Agreement (TA) and the NARCO Trust Distribution Procedures (TDP) set forth the structure and operating rules of the Trust, and established Honeywell’s evergreen funding obligations.
In accordance with the TA, the Trust is eligible to receive cash dividends from Harbison-Walker International Inc. (HWI), the reorganized and renamed entity that emerged from the NARCO bankruptcy. HWI cash dividends are required to be used to pay asbestos-related claims which qualify for payment under the TDP (Annual Contribution Claims) until those funds are exhausted, at which point Honeywell’s funding obligation, subject to an annual cap of $145 million, is triggered. The Company is also required to fund amounts owed pursuant to settlement agreements reached during the pendency of the NARCO bankruptcy proceedings that provide for the right to submit claims to the Trust subject to qualification under the terms of the settlement agreements and TDP (Pre-Established Unliquidated Claims), as well as fund the annual operating costs of the Trust. There is no annual funding cap relative to Pre-Established Unliquidated Claims. In July 2021, HWI paid a dividend of $47 million to the Trust.
The operating rules per the TDP defines criteria claimants must meet for a claim to be considered valid and paid, which include adequate medical evidence of the claimant’s asbestos-related condition and credible evidence of exposure to a specific NARCO asbestos-containing product. The TDP allows Honeywell to audit claim support documents against these criteria. Once operational in 2014, the Trust began to receive, process and pay claims. The Company identified several issues with the way the Trust was adhering to the TDP in audits subsequent to the Trust becoming operational. The Company continued to identify and dispute these matters as further claims have been and are processed. In September 2021, Honeywell filed suit against the Trust in Bankruptcy Court alleging, among other claims, breach of certain provisions of the TA and TDP. The Trust also filed suit against Honeywell, alleging Honeywell has breached its obligations under the Trust's governing documents. At this time, we cannot predict the outcome of these matters.
Due to the bankruptcy filing in 2002, claimants were not permitted to file additional claims until the Trust became operative in 2014. As a consequence, there was a large backlog of claims filed with the Trust upon it becoming operative in 2014 through December 31, 2017, the date by which these claims had to be filed or else be barred by the expiration of the statute of limitations. Therefore, the claims filing rate did not start to normalize until 2018 and thereafter. As a result, between 2002 and 2018, the Company lacked a history of sufficiently reliable claims data to derive a reasonable estimate of its NARCO asbestos-related liability, and the Company continued to update its original estimate, as appropriate, using all available information.
25 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
(Dollars in tables in millions, except per share amounts)
In 2020, with three years of sufficiently reliable claims data, the Company updated its estimate of the NARCO asbestos-related liability utilizing claims data from January 1, 2018 through December 31, 2020. The Company utilizes an asbestos liability valuation specialist to support our preparation of the NARCO asbestos-related liability estimates. Our estimates, which involve significant management judgment, consider multiple scenarios, including a scenario adjusting for the impact of the COVID-19 pandemic on the Trust's ability to process claims during 2020. The estimate for the resolution of asserted Annual Contribution Claims and Pre-Established Unliquidated Claims uses average payment values for the relevant historical period. For unasserted claims, the estimate is based on historic and anticipated claims filing experience and payment rates, disease classifications and type of claim, and average payment values by the Trust for the relevant historical period. The Company's estimate also includes all years of epidemiological disease projection through 2059.
The NARCO asbestos-related liability reflects an estimate for the resolution of Annual Contribution Claims and Pre-Established Unliquidated Claims filed with the Trust, as well as for unasserted Annual Contribution Claims and Pre-Established Unliquidated Claims. The NARCO asbestos-related liability excludes the annual operating expenses of the Trust which are expensed as they are incurred.
The Company's NARCO-related insurance receivable reflects coverage which reimburses Honeywell for portions of NARCO-related claims and defense costs. This coverage 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. Honeywell's NARCO-related insurance receivable is an estimate of the probable amount of insurance that is recoverable for asbestos claims. Most of our insurance carriers remain solvent. However, select individual insurance carriers are now insolvent, which we have considered in our analysis of probable recoveries. Our judgments related to our insurance carriers and insurance coverages are reasonable and consistent with Honeywell's historical dealings and Honeywell's knowledge of any pertinent solvency issues surrounding insurers.
Bendix Products – Bendix manufactured automotive brake linings 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 present information regarding Bendix-related asbestos claims activity:
| Nine Months Ended September 30, | Years Ended December 31, | ||||||||||||||||
| Claims Activity | 2021 | 2020 | 2019 | ||||||||||||||
| Claims unresolved at the beginning of period | 6,242 | 6,480 | 6,209 | ||||||||||||||
| Claims filed | 1,883 | 2,233 | 2,659 | ||||||||||||||
| Claims resolved | (1,465) | (2,471) | (2,388) | ||||||||||||||
| Claims unresolved at the end of period | 6,660 | 6,242 | 6,480 |
| September 30, | December 31, | ||||||||||||||||
| Disease Distribution of Unresolved Claims | 2021 | 2020 | 2019 | ||||||||||||||
| Mesothelioma and other cancer claims | 3,968 | 3,422 | 3,399 | ||||||||||||||
| Nonmalignant claims | 2,692 | 2,820 | 3,081 | ||||||||||||||
| Total claims | 6,660 | 6,242 | 6,480 |
Honeywell has experienced average resolution values per claim excluding legal costs as follows:
| Years Ended December 31, | |||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||
| (in whole dollars) | |||||||||||||||||||||||||||||
| Malignant claims | $ | 61,500 | $ | 50,200 | $ | 55,300 | $ | 56,000 | $ | 44,000 | |||||||||||||||||||
| Nonmalignant claims | $ | 550 | $ | 3,900 | $ | 4,700 | $ | 2,800 | $ | 4,485 |
It is not possible to predict whether resolution values for Bendix-related asbestos claims will increase, decrease or stabilize in the future.
26 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
(Dollars in tables in millions, except per share amounts)
The Consolidated Financial Statements reflect an estimated liability for resolution of asserted (claims filed as of the financial statement date) and unasserted Bendix-related asbestos claims, which exclude the Company’s ongoing legal fees to defend such asbestos claims which will continue to be expensed as they are incurred.
The Company reflects the inclusion of all years of epidemiological disease projection through 2059 when estimating the liability for unasserted Bendix-related asbestos claims. Such liability for unasserted Bendix-related asbestos claims is based on historic and anticipated claims filing experience and dismissal rates, disease classifications, and resolution values in the tort system for the previous five years. The Company has valued Bendix asserted and unasserted claims using average resolution values for the previous five years. The Company updates the resolution values used to estimate the cost of Bendix asserted and unasserted claims during the fourth quarter each year.
The Company's insurance receivable corresponding to the liability for settlement of asserted and unasserted 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.
On October 31, 2018, David Kanefsky, a Honeywell shareholder, filed a putative class action complaint in the U.S. District Court for the District of New Jersey alleging violations of the Securities Exchange Act of 1934 and Rule 10b-5 related to the prior accounting for Bendix asbestos claims. An Amended Complaint was filed on December 30, 2019, and on February 7, 2020, we filed a Motion to Dismiss. On May 18, 2020, the court denied our Motion to Dismiss. We believe the claims have no merit.
GARRETT LITIGATION AND BANKRUPTCY PROCEEDINGS
In conjunction with the Garrett spin-off, the Company entered into a binding indemnification and reimbursement agreement (Garrett Indemnity) and a binding tax matters agreement (Tax Matters Agreement) with Garrett and a Garrett subsidiary. On December 2, 2019, Garrett and Garrett ASASCO Inc. filed a Summons with Notice and commenced a lawsuit in the Commercial Division of the Supreme Court of the State of New York, County of New York (the State Court), seeking to invalidate the Garrett Indemnity. Garrett sought damages and a declaratory judgment based on various claims set forth in the Summons with Notice. On July 17, 2020, the Company received a notice from Garrett asserting that the Company had caused material breaches of the Tax Matters Agreement and that the Tax Matters Agreement was unenforceable.
On September 20, 2020, Garrett and 36 of its affiliates filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court). On September 24, 2020, Garrett moved the existing State Court litigation against Honeywell to the Bankruptcy Court. On April 26, 2021, the Bankruptcy Court confirmed Garrett’s amended Chapter 11 plan of reorganization (the Confirmed Plan), and on April 30, 2021 (the Effective Date), Garrett emerged from bankruptcy. On the Effective Date, and in accordance with the Confirmed Plan, (i) the Company received from Garrett an initial payment of $375 million and 834.8 million shares of Garrett's Series B Preferred Stock in full and final satisfaction of the Garrett Indemnity and Tax Matters Agreement, (ii) the Garrett Indemnity and Tax Matters Agreement were terminated, (iii) the Company and Garrett mutually released each other from the claims asserted in all pending legal actions related to the Garrett Indemnity and Tax Matters Agreement, and (iv) all pending litigation between the Company and Garrett in connection with those agreements was resolved.
The Series B Preferred Stock Certificate of Designation provides for mandatory redemptions by Garrett of $35 million in 2022 and $100 million per year from 2023 to 2030 (inclusive) at the anniversary of the Effective Date, unless (i) Garrett’s consolidated EBITDA as of the end of the most recently completed fiscal year is less than $425 million, or (ii) Garrett does not have sufficient funds available to pay the redemption, at which point the redemption amounts past due will accrue interest. The Series B Preferred Stock Certificate of Designation also includes rights which allow (a) the Company to put the Series B Preferred Stock to Garrett if certain EBITDA conditions are met, and (b) Garrett to call the Series B Preferred Stock in whole or in part if certain EBITDA conditions are met.
27 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
(Dollars in tables in millions, except per share amounts)
On September 30, 2021, Garrett filed an Amended and Restated Series B Preferred Stock Certificate of Designation with the Secretary of State of Delaware. The Amended and Restated Series B Preferred Stock Certificate of Designation requires Garrett to partially redeem a portion of the Series B Preferred Stock on or before March 31, 2022, such that the present value of remaining outstanding shares of the Series B Preferred Stock will be $400 million, subject to applicable law, including that Garrett has funds legally available for the partial redemption. Such redemption would be applied to the latest scheduled redemption dates, beginning with the shares to be redeemed in 2030. The Amended and Restated Series B Preferred Stock Certificate of Designation also provides that the Company cannot exercise its right to put the Series B Preferred Stock to Garrett until after December 31, 2022, subject to the EBITDA conditions described in the above section, unless the partial redemption does not occur on or before March 31, 2022. All other material terms and conditions in the Amended and Restated Series B Preferred Stock Certificate of Designation are unchanged from the original Series B Preferred Stock Certificate of Designation, including the scheduled redemption payment by Garrett of $35 million due April 30, 2022.
We recorded the Series B Preferred Stock at fair value at the Effective Date. We believe the present value of the mandatory redemptions is an appropriate basis for determining the fair value of the Series B Preferred Stock. Our present value reflects amortized cost determined by the present value of the mandatory redemptions discounted at 7.25%, which is the rate reflected in the Series B Preferred Stock Certificate of Designation. The discount amount will accrete into interest income over the mandatory redemption period. In addition to the Series B Preferred Stock, the Company subscribed for 4.2 million shares of Garrett's Series A Preferred Stock, which are convertible into Garrett’s Common Stock if certain conditions are met. Prior to and following Garrett’s emergence from bankruptcy, the Company also held 2.9 million shares of Garrett’s Common Stock. As of September 30, 2021, Short-term investments included $242 million and Investments and long-term receivables included $405 million for the Company's investments in Garrett's Series B Preferred Stock, Series A Preferred Stock and Common Stock.
The Garrett matter and bankruptcy proceedings are described in further detail in Note 20 Commitments and Contingencies of Notes to Consolidated Financial Statements in our 2020 Annual Report on Form 10-K.
OTHER MATTERS
The Company is 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 (including the matter described below). We recognize a liability for any contingency that is probable of occurrence and reasonably estimable. We continually assess the likelihood of adverse judgments or outcomes in such 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.
Such matters include:
- Petrobras and Unaoil – We continue to cooperate with investigations by the U.S. Department of Justice (DOJ), the Securities and Exchange Commission (SEC) and the Brazilian authorities relating to our use of third parties who previously worked for our UOP business in Brazil in relation to Petróleo Brasileiro S.A. (Petrobras) in connection with a project awarded in 2010. The investigations focus on compliance with the U.S. Foreign Corrupt Practices Act and similar Brazilian laws (the UOP Matters), and involve, among other things, document production and interviews with former and current management and employees. The DOJ and the SEC are also examining a matter involving a foreign subsidiary’s prior contract with Unaoil S.A.M. in Algeria executed in 2011. We continue to be engaged in discussions with the authorities with respect to a potential comprehensive resolution of these matters.
28 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
(Dollars in tables in millions, except per share amounts)
As the discussions are both ongoing and at different stages with regards to each respective authority, there can be no assurance as to whether we will reach a resolution with such authorities or as to the potential timing, terms, or collateral consequences of any such resolution. As a result, we cannot predict the ultimate outcome of these UOP Matters or the potential impact on the Company. Based on available information to date, we estimate that a potential comprehensive resolution of these UOP Matters would result in a probable loss of at least $160 million, and we have recorded a charge in this amount in our Consolidated Statement of Operations, and have accrued a corresponding liability on the Consolidated Balance Sheet. Amounts payable to authorities pursuant to any potential final comprehensive resolution could differ from the amount recorded in our consolidated financial statements. Based on available information to date, we do not expect that any such difference would be material with respect to our consolidated financial position.
Given the uncertainty inherent in litigation and investigations, we do not believe it is possible to develop estimates of reasonably possible losses (or a range of possible losses) in excess of current accruals for such matters. Considering our past experience and existing accruals, we do not expect the outcome of such 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 consolidated results of operations or operating cash flows in the periods recognized or paid.
NOTE 16. PENSION BENEFITS
Net periodic pension benefit costs for the Company's significant defined benefit plans include the following components:
| U.S. Plans | |||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Service cost | $ | 26 | $ | 25 | $ | 79 | $ | 74 | |||||||||||||||
| Interest cost | 77 | 116 | 230 | 346 | |||||||||||||||||||
| Expected return on plan assets | (305) | (284) | (915) | (851) | |||||||||||||||||||
| Amortization of prior service (credit) | (11) | (11) | (33) | (32) | |||||||||||||||||||
| $ | (213) | $ | (154) | $ | (639) | $ | (463) |
| Non-U.S. Plans | |||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Service cost | $ | 7 | $ | 6 | $ | 20 | $ | 17 | |||||||||||||||
| Interest cost | 18 | 26 | 58 | 78 | |||||||||||||||||||
| Expected return on plan assets | (87) | (84) | (263) | (249) | |||||||||||||||||||
| Amortization of prior service (credit) | — | — | — | — | |||||||||||||||||||
| $ | (62) | $ | (52) | $ | (185) | $ | (154) |
29 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
(Dollars in tables in millions, except per share amounts)
NOTE 17. OTHER (INCOME) EXPENSE
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Interest income | $ | (28) | $ | (20) | $ | (70) | $ | (86) | |||||||||||||||
| Pension ongoing income – non-service | (306) | (238) | (925) | (711) | |||||||||||||||||||
| Other postretirement income – non-service | (18) | (13) | (53) | (40) | |||||||||||||||||||
| Equity income of affiliated companies | (21) | (17) | (53) | (44) | |||||||||||||||||||
| (Gain) loss on sale of non-strategic businesses and assets | (5) | — | (94) | — | |||||||||||||||||||
| Foreign exchange | 4 | (1) | 22 | (16) | |||||||||||||||||||
| Reimbursement receivables charge | — | 350 | — | 350 | |||||||||||||||||||
| Expense related to UOP Matters | 160 | — | 160 | — | |||||||||||||||||||
| Other (net) | (1) | 1 | (10) | 1 | |||||||||||||||||||
| $ | (215) | $ | 62 | $ | (1,023) | $ | (546) |
See Note 15 Commitments and Contingencies for further discussion of the UOP Matters.
NOTE 18. SEGMENT FINANCIAL DATA
Honeywell globally manages its business operations through four reportable operating segments. Segment information is consistent with how management reviews the businesses, makes investing and resource allocation decisions and assesses operating performance.
Honeywell’s senior management evaluates segment performance based on segment profit. Each segment’s profit is measured as segment income (loss) before taxes excluding general corporate unallocated expense, interest and other financial charges, stock compensation expense, pension and other postretirement income (expense), repositioning and other charges, and other items within Other (income) expense.
30 Honeywell International Inc.
HONEYWELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
(Dollars in tables in millions, except per share amounts)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net sales | |||||||||||||||||||||||
| Aerospace | |||||||||||||||||||||||
| Products | $ | 1,461 | $ | 1,623 | $ | 4,547 | $ | 5,335 | |||||||||||||||
| Services | 1,271 | 1,039 | 3,583 | 3,231 | |||||||||||||||||||
| Total | 2,732 | 2,662 | 8,130 | 8,566 | |||||||||||||||||||
| Honeywell Building Technologies | |||||||||||||||||||||||
| Products | 1,014 | 972 | 3,065 | 2,807 | |||||||||||||||||||
| Services | 356 | 333 | 1,070 | 956 | |||||||||||||||||||
| Total | 1,370 | 1,305 | 4,135 | 3,763 | |||||||||||||||||||
| Performance Materials and Technologies | |||||||||||||||||||||||
| Products | 2,007 | 1,803 | 5,931 | 5,510 | |||||||||||||||||||
| Services | 503 | 449 | 1,477 | 1,357 | |||||||||||||||||||
| Total | 2,510 | 2,252 | 7,408 | 6,867 | |||||||||||||||||||
| Safety and Productivity Solutions | |||||||||||||||||||||||
| Products | 1,751 | 1,487 | 5,738 | 4,281 | |||||||||||||||||||
| Services | 110 | 91 | 324 | 260 | |||||||||||||||||||
| Total | 1,861 | 1,578 | 6,062 | 4,541 | |||||||||||||||||||
| $ | 8,473 | $ | 7,797 | $ | 25,735 | $ | 23,737 | ||||||||||||||||
| Segment profit | |||||||||||||||||||||||
| Aerospace | $ | 740 | $ | 617 | $ | 2,212 | $ | 2,082 | |||||||||||||||
| Honeywell Building Technologies | 322 | 282 | 942 | 794 | |||||||||||||||||||
| Performance Materials and Technologies | 558 | 442 | 1,522 | 1,373 | |||||||||||||||||||
| Safety and Productivity Solutions | 245 | 219 | 840 | 610 | |||||||||||||||||||
| Corporate | (72) | (7) | (155) | (73) | |||||||||||||||||||
| Total segment profit | 1,793 | 1,553 | 5,361 | 4,786 | |||||||||||||||||||
| Interest and other financial charges | (90) | (101) | (263) | (264) | |||||||||||||||||||
| Stock compensation expense(a) | (56) | (40) | (172) | (118) | |||||||||||||||||||
| Pension ongoing income(b) | 261 | 197 | 809 | 593 | |||||||||||||||||||
| Other postretirement income(b) | 18 | 13 | 53 | 40 | |||||||||||||||||||
| Repositioning and other charges(c) | (96) | (144) | (338) | (486) | |||||||||||||||||||
| Other(d) | (130) | (330) | (8) | (249) | |||||||||||||||||||
| Income before taxes | $ | 1,700 | $ | 1,148 | $ | 5,442 | $ | 4,302 |
(a) Amounts included in Selling, general and administrative expenses.
(b) Amounts included in Cost of products and services sold and Selling, general and administrative expenses (service cost component) and Other (income) expense (non-service cost component).
(c) Amounts included in Cost of products and services sold, Selling, general and administrative expenses, and Other (income) expense.
(d) Amounts include the other components of Other (income) expense not included within other categories in this reconciliation. Equity income of affiliated companies is included in segment profit.
31 Honeywell International Inc.
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