Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in tables and graphs in millions)

The following Management Discussion and Analysis is intended to help the reader understand the results of operations and financial condition of Honeywell International Inc. and its consolidated subsidiaries (Honeywell or the Company) for the three and nine months ended September 30, 2022. The financial information as of September 30, 2022, should be read in conjunction with the Consolidated Financial Statements for the year ended December 31, 2021, contained in our 2021 Annual Report on Form 10-K. See Note 3 Acquisitions and Divestitures of Notes to Consolidated Financial Statements for a discussion of acquisition and divestiture activity during the nine months ended September 30, 2022.

BUSINESS UPDATE

In July 2022, we realigned certain business units within the Safety and Productivity Solutions reportable business segment. The Safety and Retail business unit, which included our gas detection and safety business, combined with the Advanced Sensing and Technologies business unit to form the Sensing and Safety Technologies business unit. This realignment provides opportunities to capitalize on shared synergies and core technologies resulting in greater value for our customers and the markets we serve. We recast historical periods to reflect this realignment.

On August 16, 2022, the U.S. federal government enacted the Inflation Reduction Act of 2022 into law. The bill includes numerous tax provisions, including a 15% corporate minimum tax as well as a 1% excise tax on share repurchases. We continue to evaluate the impact of this law on our operations; at this point, the legislation is not expected to have a material impact on our consolidated financial statements.

MACROECONOMIC CONDITIONS

We continue to monitor the ongoing impacts of current macroeconomic and geopolitical events, including changing conditions from the COVID-19 pandemic, the on-going Russia-Ukraine conflict, inflationary cost pressures, supply chain disruptions, and labor shortages.

The COVID-19 pandemic impacted our business operations, and our customers' and suppliers' ability to operate at normal levels. Disruptions in normal operating levels continue to create supply chain disruptions and inflationary cost pressures within our end-markets. We anticipate supply chain constraints, and the inflationary environment will continue for the remainder of 2022 and into 2023. As such, we implemented short-term and long-term strategies to reduce the impact of current and future effects.

Our mitigation strategies include pricing actions, material supply tracking tools, refinement of escalation processes to communicate supply shortages, and direct engagement with key suppliers to meet customer demand. Where we cannot supply key components or raw materials, we alter existing products or develop new products to satisfy current and changing demand. Alterations to existing products or the development of new products undergo product quality controls and engineering qualification, prior to releasing to our customers. Further, our relationships with primary and secondary suppliers allow us to reliably source key components and raw materials. We believe these mitigation strategies enable us to reduce supply risk, accelerate new product innovation, and expand our penetration in the markets we serve.

The Russia-Ukraine conflict also continues to create volatility in global financial and energy markets, creating energy and supply chain shortages, adding to the inflationary pressures in the global economy. We continue to actively work with our suppliers to minimize impacts of supply shortages on our manufacturing capabilities, and we implemented strategies to reduce our reliance on natural gas at critical sites in Europe.

If we are not successful in sustaining or executing these strategies these macroeconomic conditions could have a material adverse effect on our consolidated results of operations or operating cash flows.

See the section titled Review of Business Segments for additional information on the impacts of inflationary cost pressures, supply chain disruptions, and labor shortages to our businesses.

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COVID-19 UPDATE

During 2022, governments around the world removed many restrictions on businesses and the general public. Our manufacturing sites continue to operate at normal production levels. As of September 30, 2022, we returned nearly all of our non-manufacturing employees to the workplace.

We continue to actively monitor regional COVID-19 outbreaks, and the related government restrictions and lockdown activities in the areas we operate, particularly within areas of Asia. To date, the impacts of these actions have not been material.

See the section titled Review of Business Segments for additional information on the impacts of COVID-19 to our businesses.

RUSSIA-UKRAINE CONFLICT

The Russia-Ukraine conflict continues to negatively impact our businesses and operations, and drive global economic and political uncertainty. In response to the Russian invasion of Ukraine, in March 2022, we suspended substantially all of our sales, distribution, and service activities in Russia and Belarus (the Suspension). In June 2022, we approved a plan to wind down our existing businesses and operations in Russia (the Wind down). During the third quarter of 2022, we completed the sale of one of our entities domiciled in Russia. In October 2022, we completed the sale of two additional entities. For our two remaining entities, we are pursuing a voluntary liquidation strategy to completely exit our businesses and operations in Russia. The Suspension and Wind down impacts all reportable business segments, with the most significant impact to our Performance Materials and Technologies reportable business segment.

The impacts to revenue, net income, net assets, cash flow from operations, or our global workforce for the periods recognized are not material to our consolidated results of operations and consolidated financial position. For the year ended December 31, 2021, revenue from sales in Russia represented approximately 1% of our global revenues, and assets in Russia represented less than 1% of our total assets. Our estimate of potential future losses or other contingencies related to the Suspension and Wind down activities, including any guarantee payments or any litigation costs or as otherwise related to our Wind down in Russia, could adversely affect our consolidated results of operations in the periods recognized but would not be material with respect to our consolidated financial position. As the conflict evolves, existing conditions may worsen or other impacts that are unknown at this time may arise that could have a material adverse effect on our consolidated financial position.

See the section titled Review of Business Segments for additional information on the impacts of the Russia-Ukraine conflict to our businesses.

See Note 3 Acquisition and Divestitures and Note 5 Repositioning of Notes to Consolidated Financial Statements for additional information on the Sale and Other charges recognized related to the Suspension and Wind down, respectively.

See Item 1A. Risk Factors for additional information on potential risks to our business.

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RESULTS OF OPERATIONS

Consolidated Financial Results

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Net Sales by Segment

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Segment Profit by Segment

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CONSOLIDATED OPERATING RESULTS

Net Sales

The change in net sales was attributable to the following:

			Q3 2022 vs. Q3 2021						Year to Date 2022 vs. 2021
Volume						(2)		%				(4)		%
Price						11		%				9		%
Foreign Currency Translation						(3)		%				(3)		%
						6		%				2		%

Q3 2022 compared with Q3 2021

Net sales increased due to the following:

• Favorable pricing to offset higher direct and indirect material costs and higher labor costs,

• Partially offset by lower sales volumes in our Safety and Productivity Solutions reportable business segment, and

• The unfavorable impact of foreign currency translation, driven by the strengthening of the U.S. Dollar against the currencies of the majority of our international markets, primarily the Euro, British Pound, Turkish Lira, and Chinese Renminbi.

YTD 2022 compared with YTD 2021

Net sales increased due to the following:

• Favorable pricing to offset higher direct and indirect material costs and higher labor costs,

• Partially offset by lower sales volumes in our Safety and Productivity Solutions reportable business segment, and

• The unfavorable impact of foreign currency translation, driven by the strengthening of the U.S. Dollar against the currencies of the majority of our international markets, primarily the Euro, British Pound, Turkish Lira, and Australian Dollar.

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Cost of Products and Services Sold

Q3 2022 compared with Q3 2021

Cost of products and services sold increased due to the following:

• Higher direct and indirect material costs and higher labor costs, and

• Higher repositioning and other charges,

• Partially offset by lower sales volumes in our Safety and Productivity Solutions reportable business segment, and favorable impact of foreign currency translation.

YTD 2022 compared with YTD 2021

Cost of products and services sold increased due to the following:

• Higher direct and indirect material costs and higher labor costs, and

• Higher repositioning and other charges,

• Partially offset by lower sales volumes in our Safety and Productivity Solutions reportable business segment, and favorable impact of foreign currency translation.

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Gross Margin

Q3 2022 compared with Q3 2021

Gross margin and Gross margin as a percentage of net sales increased due to the following:

• Favorable pricing,

• Partially offset by lower gross margins due to higher direct and indirect material costs and higher labor costs, higher repositioning and other charges, and lower sales volumes in our Safety and Productivity Solutions reportable business segment.

YTD 2022 compared with YTD 2021

Gross margin and Gross margin as a percentage of net sales increased due to the following:

• Favorable pricing,

• Partially offset by lower gross margins due to higher direct and indirect material costs and higher labor costs, higher repositioning and other charges and lower sales volumes in our Safety and Productivity Solutions reportable business segment.

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Selling, General and Administrative Expenses

Q3 2022 compared with Q3 2021

Selling, general and administrative expenses increased primarily due to higher labor costs.

YTD 2022 compared to YTD 2021

Selling, general and administrative expenses increased due to the following:

• Higher labor costs, and

• Higher repositioning and other costs, including charges and accrual of reserves directly attributable to the initial Suspension and Wind down of businesses and operations in Russia.

Other (Income) Expense

			Three Months Ended September 30,															Nine Months Ended September 30,
			2022						2021									2022						2021
Other (Income) Expense						$	(337)					$	(215)								$	(846)					$	(1,023)

Q3 2022 compared with Q3 2021

Other income increased due to the following:

• Prior year recognition of an expense related to UOP matters,

• Partially offset by lower pension income.

YTD 2022 compared with YTD 2021

Other income decreased due to the following:

• Lower pension and other postretirement income,

• Prior year gain on sale of the retail footwear business, and

• Charges and accrual of reserves directly attributable to the initial Suspension and Wind down of businesses and operations in Russia,

• Partially offset by prior year recognition of an expense related to UOP matters.

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Tax Expense

Q3 2022 compared with Q3 2021

The effective tax rate decreased, but was higher than the U.S. federal statutory rate of 21%, due to the following:

• Benefits and changes in reserves attributable to the initial Suspension and Wind down of our businesses and operations in Russia,

• Absence of expense related to UOP matters without corresponding tax benefit, and

• Increased benefit related to reversal of valuation allowance and tax reserve accruals,

• Partially offset by the favorable resolution of certain foreign tax matters, lower benefits for employee share-based compensation and state taxes.

YTD 2022 compared with YTD 2021

The effective tax rate increased, and was higher than the U.S. federal statutory rate of 21%, due to the following:

• Charges and accrual of reserves directly attributable to the initial Suspension and Wind down of our businesses and operations in Russia without corresponding tax benefit,

• Expense related to UOP matters without corresponding tax benefit,

• Lower tax benefits for employee share-based compensation, and

• Incremental tax reserves and state taxes,

• Partially offset by the favorable resolution of certain foreign tax matters.

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Net Income Attributable to Honeywell

Q3 2022 compared to Q3 2021

Earnings per share of common stock–assuming dilution increased, due to the following:

• Higher segment profit from all of our reportable business segments,

• Prior year recognition of an expense related to UOP matters, and

• The favorable impact of lower share count.

YTD 2022 compared to YTD 2021

Earnings per share of common stock–assuming dilution decreased, due to the following:

• Higher repositioning and other charges, including charges and accrual of reserves directly attributable to the initial Suspension and Wind down of businesses and operations in Russia,

• Prior year gain on sale of the retail footwear business, and

• Lower pension income,

• Partially offset by higher segment profit driven by our Performance Materials and Technologies, Aerospace, and Honeywell Building Technologies reportable business segments, prior year recognition of an expense related to UOP matters, and the favorable impact of lower share count.

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REVIEW OF BUSINESS SEGMENTS

We globally manage our business operations through four reportable business segments: Aerospace, Honeywell Building Technologies, Performance Materials and Technologies, and Safety and Productivity Solutions.

AEROSPACE

Net Sales

			Three Months Ended September 30,																					Nine Months Ended September 30,
			2022						2021						% Change									2022						2021						% Change
Net sales						$	2,976					$	2,732					9		%							$	8,623					$	8,130					6		%
Cost of products and services sold						1,967						1,828															5,648						5,330
Selling, general and administrative and other expenses						191						164															637						588
Segment profit						$	818					$	740					11		%							$	2,338					$	2,212					6		%

			2022 vs. 2021
			Three Months Ended September 30,															Nine Months Ended September 30,
Factors Contributing to Year-Over-Year Change			Net Sales						Segment Profit									Net Sales						Segment Profit
Organic(1)						10		%				11		%							6		%				6		%
Foreign currency translation						(1)		%				—		%							—		%				—		%
Acquisitions, divestitures and other, net						—		%				—		%							—		%				—		%
Total % Change						9		%				11		%							6		%				6		%

(1) Organic sales % change, presented for all of our reportable business segments, is defined as the change in net sales, excluding the impact on sales from foreign currency translation and acquisitions, net of divestitures, for the first 12 months following the transaction date. We believe this non-GAAP measure is useful to investors and management in understanding the ongoing operations and analysis of ongoing operating trends.

Q3 2022 compared to Q3 2021

Sales increased due to favorable pricing, higher demand for our aftermarket products and services, as flight hours continued to increase, and commercial OEMs, partially offset by lower volumes in domestic and international defense.

• Commercial Aviation Original Equipment sales increased 30% (increased 30% organic) due to higher demand and favorable pricing in air transport, and regional and business aviation.

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• Commercial Aviation Aftermarket sales increased 24% (increased 24% organic) due to higher demand and favorable pricing in air transport, and regional and business aviation.

• Defense and Space sales decreased 11% (decreased 10% organic) due to lower sales volumes in domestic and international defense.

Cost of products and services sold increased due to higher direct and indirect material costs and higher labor costs, and higher sales volumes.

Segment profit increased due to favorable pricing and higher sales volumes, partially offset by higher direct and indirect material costs and higher labor costs.

YTD 2022 compared to YTD 2021

Sales increased due to favorable pricing, and higher demand for our aftermarket products and services, as flight hours increase from pandemic lows, and commercial OEMs, partially offset by lower volumes in domestic and international defense.

• Commercial Aviation Original Equipment sales increased 20% (increased 21% organic) due to higher demand in air transport.

• Commercial Aviation Aftermarket sales increased 24% (increased 24% organic) due to higher demand and favorable pricing in air transport, and regional and business aviation.

• Defense and Space sales decreased 12% (decreased 12% organic) due to lower sales volumes in domestic and international defense.

Cost of products and services sold increased due to higher direct and indirect material costs and higher labor costs, and higher sales volumes.

Segment profit increased due to favorable pricing and higher sales volumes, partially offset by higher direct and indirect material costs and higher labor costs.

HONEYWELL BUILDING TECHNOLOGIES

Net Sales

			Three Months Ended September 30,																					Nine Months Ended September 30,
			2022						2021						% Change									2022						2021						% Change
Net sales						$	1,526					$	1,370					11		%							$	4,486					$	4,135					8		%
Cost of products and services sold						898						798															2,621						2,409
Selling, general and administrative and other expenses						260						250															801						784
Segment profit						$	368					$	322					14		%							$	1,064					$	942					13		%

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			2022 vs. 2021
			Three Months Ended September 30,															Nine Months Ended September 30,
Factors Contributing to Year-Over-Year Change			Net Sales						Segment Profit									Net Sales						Segment Profit
Organic						19		%				23		%							14		%				19		%
Foreign currency translation						(8)		%				(9)		%							(6)		%				(7)		%
Acquisitions, divestitures and other, net						—		%				—		%							—		%				1		%
Total % Change						11		%				14		%							8		%				13		%

Q3 2022 compared to Q3 2021

Sales increased due to favorable pricing and higher sales volumes, partially offset by the unfavorable impact of foreign currency translation.

• Sales in Products increased 16% (increased 23% organic) due to favorable pricing and higher sales volumes, partially offset by the unfavorable impact of foreign currency translation.

• Sales in Building Solutions increased 5% (increased 13% organic) due to favorable pricing and higher sales volumes, partially offset by the unfavorable impact of foreign currency translation.

Cost of products and services sold increased due to higher direct and indirect material costs and higher labor costs, and higher volumes of lower margin products, partially offset by the favorable impact of foreign currency translation.

Segment profit increased due to favorable pricing and higher sales volumes, partially offset by higher direct and indirect material costs and higher labor costs, and the unfavorable impact of foreign currency translation.

YTD 2022 compared to YTD 2021

Sales increased due to favorable pricing and higher sales volumes, partially offset by the unfavorable impact of foreign currency translation.

• Sales in Products increased 15% (increased 20% organic) due to favorable pricing and higher sales volumes, partially offset by the unfavorable impact of foreign currency translation.

• Sales in Building Solutions were flat (increased 6% organic) due to favorable pricing, offset by the unfavorable impact of foreign currency translation.

Cost of products and services sold increased due to higher direct and indirect material costs and higher labor costs, and higher volumes of lower margin products, partially offset by the favorable impact of foreign currency translation.

Segment profit increased due to favorable pricing and higher sales volumes, partially offset by higher direct and indirect material costs and higher labor costs, and the unfavorable impact of foreign currency translation.

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PERFORMANCE MATERIALS AND TECHNOLOGIES

Net Sales

			Three Months Ended September 30,																					Nine Months Ended September 30,
			2022						2021						% Change									2022						2021						% Change
Net sales						$	2,720					$	2,510					8		%							$	7,867					$	7,408					6		%
Cost of products and services sold						1,774						1,653															5,109						4,940
Selling, general and administrative and other expenses						331						299															1,032						946
Segment profit						$	615					$	558					10		%							$	1,726					$	1,522					13		%

			2022 vs. 2021
			Three Months Ended September 30,															Nine Months Ended September 30,
Factors Contributing to Year-Over-Year Change			Net Sales						Segment Profit									Net Sales						Segment Profit
Organic						14		%				15		%							10		%				17		%
Foreign currency translation						(6)		%				(5)		%							(4)		%				(4)		%
Acquisitions, divestitures and other, net						—		%				—		%							—		%				—		%
Total % Change						8		%				10		%							6		%				13		%

Q3 2022 compared to Q3 2021

Sales increased due to favorable pricing, partially offset by the unfavorable impact of foreign currency translation.

• UOP sales increased 6% (increased 6% organic) due to favorable pricing, partially offset by lower demand for new oil and gas projects and the impact of the Russia-Ukraine conflict.

• Process Solutions sales decreased 2% (increased 6% organic) due to the unfavorable impact of foreign currency translation and the impact of the Russia-Ukraine conflict, partially offset by favorable pricing and higher demand for certain products and services.

• Advanced Materials sales increased 26% (increased 33% organic) due to favorable pricing and higher demand for fluorine products, partially offset by the unfavorable impact of foreign currency translation.

Cost of products and services sold increased due to higher direct and indirect material costs and higher labor costs, and lower sales volumes of higher margin products, partially offset by the favorable impact of foreign currency translation.

Segment profit increased due to favorable pricing, partially offset by higher direct and indirect material costs and higher labor costs, and lower sales volumes of higher margin products.

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YTD 2022 compared to YTD 2021

Sales increased due to favorable pricing, partially offset by the unfavorable impact of foreign currency translation and lower sales volumes primarily due to the impact of the Russia-Ukraine conflict.

• UOP sales decreased 1% (decreased 1% organic) due to lower demand for new oil and gas projects and the impact of the Russia-Ukraine conflict, partially offset by favorable pricing.

• Process Solutions sales increased 1% (increased 6% organic) due to favorable pricing and higher demand for certain products and services, partially offset by the unfavorable impact of foreign currency translation and the impact of the Russia-Ukraine conflict.

• Advanced Materials sales increased 19% (increased 23% organic) due to favorable pricing and higher demand for specialty products, partially offset by the unfavorable impact of foreign currency translation.

Cost of products and services sold increased due to higher direct and indirect material costs and higher labor costs, partially offset by the favorable impact of foreign currency translation, and lower sales volumes primarily due to the impact of the Russia-Ukraine conflict.

Segment profit increased due to favorable pricing, partially offset by higher direct and indirect material costs and higher labor costs, lower sales volumes of higher margin products, and the unfavorable impact of foreign currency translation.

SAFETY AND PRODUCTIVITY SOLUTIONS

Net Sales

			Three Months Ended September 30,																					Nine Months Ended September 30,
			2022						2021						% Change									2022						2021						% Change
Net sales						$	1,727					$	1,861					(7)		%							$	5,300					$	6,062					(13)		%
Cost of products and services sold						1,205						1,369															3,733						4,442
Selling, general and administrative and other expenses						251						247															812						780
Segment profit						$	271					$	245					11		%							$	755					$	840					(10)		%

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			2022 vs. 2021
			Three Months Ended September 30,															Nine Months Ended September 30,
Factors Contributing to Year-Over-Year Change			Net Sales						Segment Profit									Net Sales						Segment Profit
Organic						(4)		%				14		%							(10)		%				(7)		%
Foreign currency translation						(3)		%				(3)		%							(2)		%				(2)		%
Acquisitions, divestitures and other, net						—		%				—		%							(1)		%				(1)		%
Total % Change						(7)		%				11		%							(13)		%				(10)		%

Q3 2022 compared to Q3 2021

Sales decreased due to lower sales volumes and the unfavorable impact of foreign currency translation, partially offset by favorable pricing.

• Sales in Sensing and Safety Technologies decreased 2% (increased 3% organic) due to lower demand for personal protective equipment and the unfavorable impact of foreign currency translation, partially offset by favorable pricing and higher demand for advanced sensing and gas detection.

• Sales in Productivity Solutions and Services decreased 2% (increased 2% organic) due to the unfavorable impact of foreign currency translation, partially offset by favorable pricing and higher sales volumes (driven by a licensing agreement executed in the second quarter of 2022, discussed below).

• Sales in Warehouse and Workflow Solutions decreased 16% (decreased 15% organic) due to lower demand and timing of projects.

Cost of products and services sold decreased due to lower sales volumes and the favorable impact of foreign currency translation, partially offset by higher direct and indirect material costs and higher labor costs.

Segment profit increased primarily due to favorable pricing and lower sales volumes of lower margin products, partially offset by higher direct and indirect material costs and higher labor costs.

YTD 2022 compared to YTD 2021

Sales decreased due to lower sales volumes, the unfavorable impact of foreign currency translation, and the sale of the retail footwear business, partially offset by favorable pricing.

• Sales in Sensing and Safety Technologies decreased 11% (decreased 7% organic) due to lower demand for personal protective equipment, the unfavorable impact of foreign currency translation, and the sale of the retail footwear business, partially offset by favorable pricing and higher demand for advanced sensing and gas detection.

• Sales in Productivity Solutions and Services increased 8% (increased 12% organic) due to favorable pricing and higher sales volumes (driven by a licensing agreement executed in the second quarter of 2022, discussed below), partially offset by the unfavorable impact of foreign currency translation.

• Sales in Warehouse and Workflow Solutions decreased 24% (decreased 23% organic) due to lower demand and timing of projects.

Cost of products and services sold decreased due to lower sales volumes, partially offset by higher direct and indirect material costs and higher labor costs, and lower productivity (including a write-down of mask inventory).

Segment profit decreased primarily due to higher direct and indirect material costs and higher labor costs, lower productivity, and lower sales volumes, partially offset by favorable pricing.

During the second quarter of 2022, our Productivity Solutions and Services business entered into a license and settlement agreement (the Agreement). Under the Agreement, we will receive up to $360 million, paid in equal quarterly installments over eight quarters, beginning with the second quarter of 2022. The Agreement provides each party a license to its existing patent portfolio for use by the other party’s existing products and, resolves all patent-related litigation between the parties.

CORPORATE AND ALL OTHER

Corporate and All Other primarily includes unallocated corporate costs, interest expense on holding-company debt, and the controlling majority-owned interest in Quantinuum. Corporate and All Other is not considered a separate reportable business segment as segment reporting criteria is not met for the activities reported with Corporate and All Other. The Company continues to monitor the activities in Corporate and All Other to determine the need for further reportable business segment disaggregation.

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REPOSITIONING CHARGES

See Note 5 Repositioning and Other Charges of Notes to Consolidated Financial Statements for a discussion of our repositioning actions and related charges incurred in the nine months ended September 30, 2022 and 2021. Cash spending related to our repositioning actions was $206 million in the nine months ended September 30, 2022, and was funded through operating cash flows.

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LIQUIDITY AND CAPITAL RESOURCES

(Dollars in tables in millions)

We continue to manage our businesses to maximize operating cash flows as the primary source of liquidity. Each of our businesses is focused on increasing operating cash flows through revenue growth, margin expansion, and improved working capital turnover. Additional sources of liquidity include committed credit lines, short-term debt from the commercial paper market, long-term borrowings, access to the public debt and equity markets, U.S. cash balances, and the ability to access non-U.S. cash balances.

CASH

We monitor the third-party depository institutions that hold our cash and cash equivalents on a daily basis. Our emphasis is primarily safety of principal and secondarily maximizing yield of those funds. We diversify our cash and cash equivalents among counterparties to minimize exposure to any one counterparty. As of September 30, 2022, and December 31, 2021, we held $8.0 billion and $11.5 billion, respectively, of cash and cash equivalents, including our short-term investments.

As of September 30, 2022, $5.6 billion of the Company’s cash, cash equivalents, and short-term investments are held by non-US subsidiaries. We do not have material amounts related to any jurisdiction subject to currency control restrictions that impact our ability to access and repatriate such amounts. Under current law, we do not expect taxes on repatriation or restrictions on amounts held outside of the U.S. to have a material effect on our overall liquidity.

BORROWINGS

We leverage a variety of debt instruments to manage our overall borrowing costs. As of September 30, 2022, and December 31, 2021, our total borrowings were $17.0 billion and $19.6 billion, respectively.

			September 30, 2022						December 31, 2021
Commercial paper and other short-term borrowings						$	3,434					$	3,542
Variable rate notes						22						622
Fixed rate notes						13,740						15,314
Other						282						272
Fair value of hedging instruments						(294)						60
Debt issuance costs						(199)						(211)
Total borrowings						$	16,985					$	19,599

A primary source of liquidity is our ability to access the corporate bond markets. Through these markets, we issue a variety of long-term fixed rate notes, in a variety of currencies, to manage our overall funding costs.

Another primary source of liquidity is our ability to access the commercial paper market. Commercial paper notes are sold at a discount or premium and have a maturity of not more than 365 days from date of issuance. Borrowings under the commercial paper program are available for general corporate purposes as well as for financing acquisitions.

We also have the following revolving credit agreements:

• A $1.5 billion 364-Day Credit Agreement (the 364-Day Credit Agreement) with a syndicate of banks, dated March 24, 2022. Amounts borrowed under the 364-Day Credit Agreement are required to be repaid no later than March 23, 2023, unless (i) we elect to convert all then outstanding amounts into a term loan, upon which such amounts shall be repaid in full on March 23, 2024, or (ii) the 364-Day Credit Agreement is terminated earlier pursuant to its terms. The 364-Day Credit Agreement replaced the previously reported $1.5 billion 364-day credit agreement dated as of March 31, 2021, which was terminated in accordance with its terms effective March 24, 2022. As of September 30, 2022, there were no outstanding borrowings under our 364-Day Credit Agreement.

• A $4.0 billion Five Year Credit Agreement (the 5-Year Credit Agreement) with a syndicate of banks, dated March 24, 2022. 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 5-Year Credit Agreement amended and restated the previously reported $4.0 billion amended and restated five year credit agreement dated as of March 31, 2021. As of September 30, 2022, there were no outstanding borrowings under our 5-Year Credit Agreement.

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We also have a current shelf registration statement filed with the Securities and Exchange Commission (SEC) under which we may issue additional debt securities, common stock, and preferred stock that may be offered in one or more offerings on terms to be determined at the time of the offering. We anticipate that net proceeds of any offering would be used for general corporate purposes, including repayment of existing indebtedness, share repurchases, capital expenditures and acquisitions.

CREDIT RATINGS

Our ability to access the global debt capital markets and the related cost of these borrowings is affected by the strength of our credit rating and market conditions. Our credit ratings are periodically reviewed by the major independent debt-rating agencies. As of September 30, 2022, S&P Global Inc. (S&P), Fitch Ratings Inc. (Fitch), and Moody’s Investor Service (Moody's) have ratings on our debt set forth in the table below:

			S&P						Fitch						Moody's
Outlook			Stable						Stable						Stable
Short-term			A-1						F1						P1
Long-term			A						A						A2

CASH FLOW SUMMARY

Our cash flows from operating, investing, and financing activities, as reflected in the Consolidated Statement of Cash Flows, are summarized as follows:

			Nine Months Ended September 30,
			2022						2021						Variance
Cash and cash equivalents at beginning of period						$	10,959					$	14,275					$	(3,316)
Operating activities
Net income attributable to Honeywell						3,947						4,114						(167)
Noncash adjustments						1,202						675						527
Changes in working capital						(1,415)						(556)						(859)
Other operating activities						(826)						(858)						32
Net cash provided by operating activities						2,908						3,375						(467)
Net cash provided by (used for) investing activities						540						(1,347)						1,887
Net cash used for financing activities						(6,609)						(5,195)						(1,414)
Effect of exchange rate changes on cash						(349)						(21)						(328)
Net increase (decrease) in cash and cash equivalents						(3,510)						(3,188)						(322)
Cash and cash equivalents at end of period						$	7,449					$	11,087					$	(3,638)

Cash related to operating activities decreased due to an unfavorable impact to working capital and a decrease in net income, partially offset by an increase in noncash adjustments, primarily driven by an increase in repositioning and other charges and a gain from the 2021 sale of the retail footwear business.

Cash related to investing activities increased by $1,887 million primarily due to $1,156 million decrease in cash paid for acquisitions, $685 million increase in cash receipts from settlements of derivative contracts, and $133 million net decrease in investments, partially offset by $203 million in proceeds from the 2021 sale of the retail footwear business.

Cash related to financing activities decreased by $1,414 million primarily due to $2,507 million decrease in proceeds from the issuance of long-term debt and $328 million increase in repurchases of common stock, partially offset by $1,537 million decrease in payments of long-term debt.

50 Honeywell International Inc.

TABLE OF CONTENTS

CASH REQUIREMENTS AND ASSESSMENT OF CURRENT LIQUIDITY

In addition to our normal operating cash requirements, our principal future cash requirements will be to fund capital expenditures, share repurchases, dividends, strategic acquisitions and debt repayments. On February 12, 2021, the Board of Directors authorized the repurchase of up to a total of $10 billion of Honeywell common stock, which included amounts remaining under, and replaced, the previously approved share repurchase program. During the nine months ended September 30, 2022, we repurchased common stock of $2,827 million. Refer to the section titled Liquidity and Capital Resources of our 2021 Form 10-K for a discussion of our expected capital expenditures, share repurchases, and dividends for 2022.

We continue to identify opportunities to improve our liquidity and working capital efficiency, which includes the extension of payment terms with our suppliers and sales of our trade receivables to unaffiliated financial institutions without recourse. The impact of these programs is not material to our overall liquidity.

We continue to assess the relative strength of each business in our portfolio as to strategic fit, market position, profit, and cash flow contribution in order to identify target investment and acquisition opportunities in order to upgrade our combined portfolio. We identify acquisition candidates that will further our strategic plan and strengthen our existing core businesses. We also identify businesses that do not fit into our long-term strategic plan based on their market position, relative profitability, or growth potential. These businesses are considered for potential divestiture, restructuring, or other repositioning actions, subject to regulatory constraints.

Based on past performance and current expectations, we believe that our operating cash flows will be sufficient to meet our future operating cash needs. Our available cash, committed credit lines and access to the public debt and equity markets provide additional sources of short-term and long-term liquidity to fund current operations, debt maturities, and future investment opportunities.

See Note 8 Long-term Debt and Credit Agreements of Notes to Consolidated Financial Statements for additional discussion of items impacting our liquidity.

OTHER MATTERS

LITIGATION

We are subject to a number of lawsuits, investigations, and claims (some of which involve substantial amounts) arising out of the conduct of our business. See Note 14 Commitments and Contingencies of Notes to Consolidated Financial Statements for further discussion of environmental, asbestos and other litigation matters.

CRITICAL ACCOUNTING ESTIMATES

There have been no material changes to our Critical Accounting Estimates presented in our 2021 Annual Report on Form 10-K. For a discussion of the Company’s Critical Accounting Estimates, see the section titled Critical Accounting Estimates in our 2021 Annual Report on Form 10-K.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2 Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements for a discussion of recent accounting pronouncements.