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United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
__________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _____
Commission file number 1-8974

Honeywell International Inc.
(Exact name of registrant as specified in its charter)

Delaware
 
22-2640650
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
300 South Tryon Street
 
28202
Charlotte,
NC
 
(Address of principal executive offices)
 
(Zip Code)
 
704
627-6200
 
 
(Registrant’s telephone number, including area code)
 
 
 
 
 
 
Not Applicable
 
 
(Former name, former address and former fiscal year,
if changed since last report)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $1 per share*
 
HON
 
The New York Stock Exchange
1.300% Senior Notes due 2023
 
HON 23A
 
The New York Stock Exchange
0.000% Senior Notes due 2024
 
HON 24A
 
The New York Stock Exchange
2.250% Senior Notes due 2028
 
HON 28A
 
The New York Stock Exchange
0.750% Senior Notes due 2032
 
HON 32
 
The New York Stock Exchange
* The common stock is also listed on the London Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x  No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
x
Accelerated filer
Non-Accelerated filer
Smaller reporting company
 
 
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No x
There were 701,847,786 shares of Common Stock outstanding at March 31, 2020.





Honeywell International Inc.
Index
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cautionary Statement about Forward-Looking Statements
 
This report contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are those that address activities, events or developments that we or our management intends, expects, projects, believes or anticipates will or may occur in the future. They are based on management’s assumptions and assessments in the light of past experience and trends, current economic and industry conditions, expected future developments and other relevant factors. They are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by our forward-looking statements. Our forward-looking statements are also subject to risks and uncertainties, including the impact of the coronavirus pandemic (COVID-19), which can affect our performance and financial results in both the near- and long-term. These forward-looking statements should be considered in the light of the information included in this report and our other filings with the Securities and Exchange Commission, including, without limitation, the Risk Factors, as well as the description of trends and other factors in Management’s Discussion and Analysis of Financial Condition and Results of Operations, set forth in this report and our 2019 Annual Report on Form 10-K.


2





PART I. FINANCIAL INFORMATION
 
The financial statements and related footnotes as of March 31, 2020 should be read in conjunction with the financial statements for the year ended December 31, 2019 contained in our 2019 Annual Report on Form 10-K. 

ITEM 1. FINANCIAL STATEMENTS
 

Honeywell International Inc.
Consolidated Statement of Operations
(Unaudited)
 
Three Months Ended March 31,
 
2020
 
2019
 
(Dollars in millions, except per share amounts)
Product sales
$
6,305

 
$
6,713

Service sales
2,158

 
2,171

Net sales
8,463

 
8,884

Costs, expenses and other
 
 
 
Cost of products sold
4,374

 
4,622

Cost of services sold
1,160

 
1,257

 
5,534

 
5,879

Selling, general and administrative expenses
1,238

 
1,363

Other (income) expense
(317
)
 
(285
)
Interest and other financial charges
73

 
85

 
6,528

 
7,042

Income before taxes
1,935

 
1,842

Tax expense (benefit)
329

 
406

Net income
1,606

 
1,436

Less: Net income attributable to the noncontrolling interest
25

 
20

Net income attributable to Honeywell
$
1,581

 
$
1,416

Earnings per share of common stock - basic
$
2.23

 
$
1.94

Earnings per share of common stock - assuming dilution
$
2.21

 
$
1.92

 
The Notes to Consolidated Financial Statements are an integral part of this statement.

3





Honeywell International Inc.
Consolidated Statement of Comprehensive Income
(Unaudited)
 
Three Months Ended March 31,
 
2020
 
2019
 
(Dollars in millions)
Net income
$
1,606

 
$
1,436

Other comprehensive income (loss), net of tax
 
 
 
Foreign exchange translation adjustment
(276
)
 
205

Prior service (credit) cost recognized
(20
)
 
(19
)
Pension and other postretirement benefits adjustments
(20
)
 
(19
)
Cash flow hedges recognized in other comprehensive income (loss)
195

 
38

Less: Reclassification adjustment for gains (losses) included in net income
55

 
32

Changes in fair value of cash flow hedges
140

 
6

Other comprehensive income (loss), net of tax
(156
)
 
192

Comprehensive income
1,450

 
1,628

Less: Comprehensive income attributable to the noncontrolling interest
18

 
24

Comprehensive income attributable to Honeywell
$
1,432

 
$
1,604

 
The Notes to Consolidated Financial Statements are an integral part of this statement.

4





Honeywell International Inc.
Consolidated Balance Sheet
(Unaudited)
 
March 31, 2020
 
December 31, 2019
 
(Dollars in millions)
ASSETS
 
 
 
Current assets:
 

 
 

Cash and cash equivalents
$
7,721

 
$
9,067

Short-term investments
1,070

 
1,349

Accounts receivable - net
7,452

 
7,493

Inventories
4,584

 
4,421

Other current assets
1,786

 
1,973

Total current assets
22,613

 
24,303

Investments and long-term receivables
613

 
588

Property, plant and equipment - net
5,214

 
5,325

Goodwill
15,282

 
15,563

Other intangible assets - net
3,580

 
3,734

Insurance recoveries for asbestos related liabilities
383

 
392

Deferred income taxes
71

 
86

Other assets
9,666

 
8,688

Total assets
$
57,422

 
$
58,679

LIABILITIES
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
5,676

 
$
5,730

Commercial paper and other short-term borrowings
3,528

 
3,516

Current maturities of long-term debt
1,042

 
1,376

Accrued liabilities
7,131

 
7,476

Total current liabilities
17,377

 
18,098

Long-term debt
11,542

 
11,110

Deferred income taxes
1,670

 
1,670

Postretirement benefit obligations other than pensions
314

 
326

Asbestos related liabilities
1,948

 
1,996

Other liabilities
6,699

 
6,766

Redeemable noncontrolling interest
7

 
7

SHAREOWNERS’ EQUITY
 
 
 
Capital - common stock issued
958

 
958

- additional paid-in capital
7,047

 
6,876

Common stock held in treasury, at cost
(25,643
)
 
(23,836
)
Accumulated other comprehensive loss
(3,353
)
 
(3,197
)
Retained earnings
38,635

 
37,693

Total Honeywell shareowners’ equity
17,644

 
18,494

Noncontrolling interest
221

 
212

Total shareowners’ equity
17,865

 
18,706

Total liabilities, redeemable noncontrolling interest and shareowners’ equity
$
57,422

 
$
58,679

 
The Notes to Consolidated Financial Statements are an integral part of this statement.

5





Honeywell International Inc.
Consolidated Statement of Cash Flows
(Unaudited)
 
Three Months Ended March 31,
 
2020
 
2019
 
(Dollars in millions)
Cash flows from operating activities:
 

 
 

Net income
$
1,606

 
$
1,436

Less: Net income attributable to the noncontrolling interest
25

 
20

Net income attributable to Honeywell
1,581

 
1,416

Adjustments to reconcile net income attributable to Honeywell to net cash provided by operating activities:
 
 
 
Depreciation
153

 
163

Amortization
90

 
98

Repositioning and other charges
62

 
84

Net payments for repositioning and other charges
(111
)
 
(34
)
Pension and other postretirement income
(212
)
 
(163
)
Pension and other postretirement benefit payments
(14
)
 
(30
)
Stock compensation expense
44

 
41

Deferred income taxes
(58
)
 
80

Other
(179
)
 
(4
)
Changes in assets and liabilities, net of the effects of acquisitions and divestitures:
 
 
 
Accounts receivable
41

 
198

Inventories
(163
)
 
(221
)
Other current assets
166

 
(217
)
Accounts payable
(54
)
 
(29
)
Accrued liabilities
(407
)
 
(248
)
Net cash provided by (used for) operating activities
939

 
1,134

Cash flows from investing activities:
 
 
 
Expenditures for property, plant and equipment
(139
)
 
(141
)
Proceeds from disposals of property, plant and equipment
7

 
2

Increase in investments
(648
)
 
(1,226
)
Decrease in investments
843

 
796

Receipts (payments) from settlements of derivative contracts
287

 
(40
)
Net cash provided by (used for) investing activities
350

 
(609
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of commercial paper and other short-term borrowings
3,455

 
3,318

Payments of commercial paper and other short-term borrowings
(3,373
)
 
(3,319
)
Proceeds from issuance of common stock
66

 
145

Proceeds from issuance of long-term debt
1,127

 
20

Payments of long-term debt
(1,125
)
 
(13
)
Repurchases of common stock
(1,923
)
 
(750
)
Cash dividends paid
(635
)
 
(606
)
Other
(38
)
 
(30
)
Net cash provided by (used for) financing activities
(2,446
)
 
(1,235
)
Effect of foreign exchange rate changes on cash and cash equivalents
(189
)
 
48

Net increase (decrease) in cash and cash equivalents
(1,346
)
 
(662
)
Cash and cash equivalents at beginning of period
9,067

 
9,287

Cash and cash equivalents at end of period
$
7,721

 
$
8,625

 
The Notes to Consolidated Financial Statements are an integral part of this statement.

6





Honeywell International Inc.
Consolidated Statement of Shareowners' Equity
(Unaudited)
 
Three Months Ended March 31,
2020
 
2019
Shares
 
$
 
Shares
 
$
 
(Dollars in millions, except per share amounts)
Common stock, par value
957.6

 
958

 
957.6

 
958

Additional paid-in capital
 
 
 
 
 
 
 
Beginning balance
 
 
6,876

 
 
 
6,452

   Issued for employee savings and option plans
 
 
127

 
 
 
159

   Stock-based compensation expense
 
 
44

 
 
 
41

Ending balance
 
 
7,047

 
 
 
6,652

Treasury stock
 
 
 
 
 
 
 
Beginning balance
(246.5
)
 
(23,836
)
 
(228.0
)
 
(19,771
)
   Reacquired stock or repurchases of common stock
(11.7
)
 
(1,923
)
 
(5.1
)
 
(750
)
   Issued for employee savings and option plans
2.4

 
116

 
3.2

 
129

Ending balance
(255.8
)
 
(25,643
)
 
(229.9
)
 
(20,392
)
Retained earnings
 
 
 
 
 
 
 
Beginning balance
 
 
37,693

 
 
 
33,978

   Net income attributable to Honeywell
 
 
1,581

 
 
 
1,416

   Dividends on common stock
 
 
(639
)
 
 
 
(600
)
Ending balance
 
 
38,635

 
 
 
34,794

Accumulated other comprehensive income (loss)
 
 
 
 
 
 
 
Beginning balance
 
 
(3,197
)
 
 
 
(3,437
)
   Foreign exchange translation adjustment
 
 
(276
)
 
 
 
205

   Pensions and other postretirement benefit adjustments
 
 
(20
)
 
 
 
(19
)
   Changes in fair value of cash flow hedges
 
 
140

 
 
 
6

Ending balance
 
 
(3,353
)
 
 
 
(3,245
)
Noncontrolling interest
 
 
 
 
 
 
 
Beginning balance
 
 
212

 
 
 
178

   Acquisitions, divestitures, and other
 
 
(6
)
 
 
 

   Net income attributable to noncontrolling interest
 
 
25

 
 
 
20

   Foreign exchange translation adjustment
 
 
(7
)
 
 
 
4

   Dividends paid
 
 
(3
)
 
 
 
(13
)
Ending balance
 
 
221

 
 
 
189

Total shareowners' equity
701.8

 
17,865

 
727.7

 
18,956

Cash dividends per share of common stock
 
 
$
0.900

 
 
 
$
0.820


Notes to Consolidated Financial Statements are an integral part of this statement.

7


Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)



Note 1. Basis of Presentation
 
In the opinion of management, the accompanying unaudited Consolidated Financial Statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of Honeywell International Inc. and its consolidated subsidiaries (“Honeywell” or “the Company”) at March 31, 2020 and December 31, 2019, the cash flows for the three months ended March 31, 2020 and 2019 and the results of operations for the three months ended March 31, 2020 and 2019. The results of operations for the three months ended March 31, 2020 and cash flows for the three months ended March 31, 2020 should not necessarily be taken as indicative of the entire year.
 
We report our quarterly financial information using a calendar convention; the first, second and third quarters are consistently reported as ending on March 31, June 30 and September 30. It has been our practice to establish actual quarterly closing dates using a predetermined fiscal calendar, which requires our businesses to close their books on a Saturday in order to minimize the potentially disruptive effects of quarterly closing on our business processes. The effects of this practice are generally not significant to reported results for any quarter and only exist within a reporting year. In the event that differences in actual closing dates are material to year-over-year comparisons of quarterly or year-to-date results, we will provide appropriate disclosures. Our actual closing dates for the three months ended March 31, 2020 and 2019 were March 28, 2020 and March 30, 2019. 

Note 2. Summary of Significant Accounting Policies
 
The accounting policies of the Company are set forth in Note 1 to Consolidated Financial Statements contained in the Company’s 2019 Annual Report on Form 10-K. We include herein certain updates to those policies.
 
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 results of operations, financial position and cash flows (Consolidated Financial Statements).

In December 2019, the FASB issued an accounting standard update 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. The guidance is effective for fiscal years beginning after December 15, 2020 with early adoption permitted, including the interim periods within those years. We are currently evaluating impacts of these amendments on our Consolidated Financial Statements, and related notes to the Financial Statements. We do not expect the adoption of this standard to have a material impact on our Consolidated Financial Statements.
    
In June 2016, the FASB issued an accounting standard that requires companies to utilize an impairment model (current expected credit loss, or CECL) for most financial assets measured at amortized cost and certain other financial instruments, which include, but are not limited to, trade and other receivables. This accounting standard replaced the incurred loss model with a model that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate those losses. Effective January 1, 2020, the Company adopted this standard. The adoption of this standard did not have a material impact on our Consolidated Financial Statements.
 

8


Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)


Note 3. Repositioning and Other Charges
 
A summary of repositioning and other charges follows:
 
Three Months Ended March 31,
 
2020
 
2019
Severance
$
66

 
$
31

Asset impairments
2

 
11

Exit costs
15

 
18

Reserve adjustments
(13
)
 
(2
)
Total net repositioning charge
70

 
58

Asbestos related litigation charges, net of insurance and reimbursements
11

 
11

Probable and reasonably estimable environmental liabilities, net of reimbursements
8

 
14

Other
(27
)
 
1

Total net repositioning and other charges
$
62

 
$
84



The following table summarizes the pretax distribution of total net repositioning and other charges by classification:
 
Three Months Ended March 31,
 
2020
 
2019
Cost of products and services sold
$
20

 
$
55

Selling, general and administrative expenses
42

 
29

Other (income) expense

 

 
$
62

 
$
84



The following table summarizes the pretax impact of total net repositioning and other charges by segment:
 
Three Months Ended March 31,
 
2020
 
2019
Aerospace
$
11

 
$
16

Honeywell Building Technologies
25

 
8

Performance Materials and Technologies
21

 
(1
)
Safety and Productivity Solutions
6

 
5

Corporate
(1
)
 
56

 
$
62

 
$
84


 
In the quarter ended March 31, 2020, we recognized gross repositioning charges totaling $83 million including severance costs of $66 million related to workforce reductions of 2,124 manufacturing and administrative positions across our segments. The workforce reductions were primarily related to our productivity and ongoing functional transformation initiatives. 
    
In the quarter ended March 31, 2019, we recognized gross repositioning charges totaling $60 million including severance costs of $31 million related to workforce reductions of 1,047 manufacturing and administrative positions mainly in Corporate, Aerospace and Honeywell Building Technologies. The workforce reductions were primarily related to our productivity and ongoing functional transformation initiatives and to site transitions in Aerospace to more cost-effective locations. 


9


Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)


The following table summarizes the status of our total repositioning reserves:
 
Severance
Costs
 
Asset
Impairments
 
Exit
Costs
 
Total
December 31, 2019
$
555

 
$

 
$
96

 
$
651

Charges
66

 
2

 
15

 
83

Usage - cash
(70
)
 

 
(18
)
 
(88
)
Usage - noncash

 
(2
)
 

 
(2
)
Foreign currency translation
(6
)
 

 

 
(6
)
Adjustments
(12
)
 

 
(1
)
 
(13
)
March 31, 2020
$
533

 
$

 
$
92

 
$
625



 Certain repositioning projects will recognize exit costs in future periods when the actual liability is incurred. Such exit costs incurred in the quarters ended March 31, 2020 and 2019 were $11 million and $3 million, respectively.
 
Note 4. Other (Income) Expense
 
Three Months Ended March 31,
 
2020
 
2019
Interest income
$
(44
)
 
$
(67
)
Pension ongoing income – non-service
(237
)
 
(184
)
Other postretirement income – non-service
(13
)
 
(12
)
Equity income of affiliated companies
(12
)
 
(9
)
Foreign exchange
(12
)
 
(11
)
Other (net)
1

 
(2
)
 
$
(317
)
 
$
(285
)


Note 5. Income Taxes
 
The effective tax rate decreased for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily from tax law changes in India and the resolution of certain U.S. tax matters, partially offset by decreased tax benefits for employee share-based compensation.
 
The effective tax rate for the three months ended March 31, 2020 was lower than the U.S. federal statutory rate of 21% primarily from foreign earnings taxed at lower foreign tax rates, tax law changes in India and the resolution of certain U.S. tax matters, partially offset by incremental tax reserves and state taxes.
 
Note 6. Earnings Per Share
 
Three Months Ended March 31,
Basic
2020
 
2019
Net income attributable to Honeywell
$
1,581

 
$
1,416

Weighted average shares outstanding
709.6

 
729.7

Earnings per share of common stock
$
2.23

 
$
1.94


 

10


Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)


 
Three Months Ended March 31,
Assuming Dilution
2020
 
2019
Net income attributable to Honeywell
$
1,581

 
$
1,416

Average Shares
 
 
 
Weighted average shares outstanding
709.6

 
729.7

Dilutive securities issuable - stock plans
7.4

 
9.1

Total weighted average shares outstanding
717.0

 
738.8

Earnings per share of common stock
$
2.21

 
$
1.92



The diluted earnings per share calculations exclude the effect of stock options when the options’ assumed proceeds exceed the average market price of the common shares during the period. For the three months ended March 31, 2020 and 2019, the weighted average number of stock options excluded from the computations were 4.3 million and 3.7 million. These stock options were outstanding at the end of each of the respective periods.
 
As of March 31, 2020 and 2019, total shares outstanding were 701.8 million and 727.7 million and as of March 31, 2020 and 2019, total shares issued were 957.6 million.

Note 7. Revenue Recognition and Contracts with Customers
 
Honeywell has a comprehensive offering of products and services, including software and technologies, that are sold to a variety of customers in multiple end markets. See the following table and related discussions by operating segment for details.
 
Three Months Ended March 31,
 
2020
 
2019
Aerospace
 
 
 
Commercial Aviation Original Equipment
$
672

 
$
759

Commercial Aviation Aftermarket
1,380

 
1,361

Defense and Space
1,309

 
1,221

 
3,361

 
3,341

Honeywell Building Technologies
 
 
 
Products
748

 
810

Building Solutions
533

 
579

 
1,281

 
1,389

Performance Materials and Technologies
 
 
 
UOP
594

 
610

Process Solutions
1,151

 
1,246

Specialty Products
253

 
269

Fluorine Products
399

 
447

 
2,397

 
2,572

Safety and Productivity Solutions
 
 
 
Safety and Retail
502

 
538

Productivity Products
251

 
271

Warehouse and Workflow Solutions
494

 
558

Sensing & Internet-of-Things (IoT)
177

 
215

 
1,424

 
1,582

Net sales
$
8,463

 
$
8,884


 

11


Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)


Aerospace – A global supplier of products, software and services for aircrafts 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 designed to identify and resolve problems faster, making fleet management and 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 are designed to digitally manage buildings to use space intelligently, cut operating expenses and reduce maintenance.
 
Performance Materials and Technologies – A global provider in developing and manufacturing high-quality performance chemicals and materials, process technologies and automation solutions, including Honeywell Forge connected solutions. The segment comprises Process Solutions, UOP and Advanced Materials. Process Solutions provides automation control, instrumentation, advanced software and related services for the oil and gas, refining, pulp and paper, industrial power generation, chemicals and petrochemicals, biofuels, life sciences, and metals, minerals and mining industries. Through its smart energy products, Process Solutions enables utilities and distribution companies to deploy advanced capabilities to improve operations, reliability and environmental sustainability. UOP provides process technology, products, including catalysts and adsorbents, equipment, and consulting services that enable customers to efficiently produce gasoline, diesel, jet fuel, petrochemicals and renewable fuels for the petroleum refining, gas processing, petrochemical, and other industries. Advanced Materials manufactures a wide variety of high-performance products, including materials used to manufacture end products such as bullet-resistant armor, nylon, computer chips and pharmaceutical packaging, and provides reduced and low global-warming-potential (GWP) 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 protection equipment, 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 14 Segment Financial Data of Notes to Consolidated Financial Statements.
 

12


Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)


The Company recognizes revenue arising from performance obligations outlined in contracts with its customers that are satisfied at a point in time and over time. The disaggregation of our revenue based off timing of recognition is as follows:
 
Three Months Ended March 31,
 
2020
 
2019
Products, transferred point in time
61
%
 
61
%
Products, transferred over time
14

 
15

Net product sales
75

 
76

Services, transferred point in time
9

 
9

Services, transferred over time
16

 
15

Net service sales
25

 
24

Net sales
100
%
 
100
%

 
Contract Balances
 
Progress on satisfying performance obligations under contracts with customers and the related billings and cash collections are recorded 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. Those assets are recognized when the revenue associated with the contract is recognized prior to billing and derecognized when billed in accordance with the terms of the contract. Contract liabilities are recorded when customers remit contractual cash payments in advance of us satisfying performance obligations under contractual arrangements, including those with performance obligations to be satisfied over a period of time. Contract liabilities are derecognized 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: 
 
2020
 
2019
Contract assets - January 1
$
1,602

 
$
1,548

Contract assets - March 31
1,699

 
1,700

Change in contract assets - increase (decrease)
$
97

 
$
152

 
 
 
 
Contract liabilities - January 1
$
(3,501
)
 
$
(3,378
)
Contract liabilities - March 31
(3,506
)
 
(3,426
)
Change in contract liabilities - decrease (increase)
$
(5
)
 
$
(48
)
 
 
 
 
Net change
$
92

 
$
104


 
The net change for the three months ended March 31, 2020 and 2019 was primarily driven by the recognition of revenue as performance obligations were satisfied prior to billing exceeding receipt of advance payments from customers.

For the three months ended March 31, 2020 and 2019, we recognized revenue of $888 million and $720 million that was previously included in the beginning balance of contract liabilities.
 

13


Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)


When contracts are modified to account for changes in contract specifications and requirements, we consider 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 our 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 our 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 our 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, we allocate 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 stand alone 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: 
 
March 31, 2020
Aerospace
$
10,849

Honeywell Building Technologies
5,146

Performance Materials and Technologies
6,686

Safety and Productivity Solutions
2,603

 
$
25,284


 
Performance obligations recognized as of March 31, 2020 will be satisfied over the course of future periods. Our 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 58% and 42%, 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 our 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 has 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.

Note 8. Accounts Receivable - Net
 
 
March 31, 2020
 
December 31, 2019
Trade
$
7,600

 
$
7,639

Less - Allowance for doubtful accounts
(148
)
 
(146
)
 
$
7,452

 
$
7,493


 
Trade receivables include $1,660 million and $1,586 million of unbilled balances under long-term contracts as of March 31, 2020 and December 31, 2019. These amounts are billed in accordance with the terms of the customer contracts to which they relate. 

Note 9. Inventories
 
March 31, 2020
 
December 31, 2019
Raw materials
$
1,079

 
$
1,056

Work in process
859

 
817

Finished products
2,681

 
2,593

 
4,619

 
4,466

Reduction to LIFO cost basis
(35
)
 
(45
)
 
$
4,584

 
$
4,421




14


Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)


Note 10. Leases

The Company's operating and finance lease portfolio is described in Note 14, Leases of the Notes to the Consolidated Financial Statements in our 2019 Annual Report on Form 10-K.

Supplemental cash flow information related to leases was as follows:
 
Three Months Ended March 31,
 
2020
 
2019
Net right-of-use assets obtained in exchange for lease obligations:
 
 
 
Operating leases
68

 
$
10

Finance leases
3

 
4


Supplemental balance sheet information related to leases was as follows:
 
March 31, 2020
 
December 31, 2019
Operating leases
 
 
 
Other assets
$
699

 
$
673

Accrued liabilities
169

 
171

Other liabilities
575

 
534

Total operating lease liabilities
$
744

 
$
705

Financing leases
 
 
 
Property, plant and equipment
$
351

 
$
361

Accumulated depreciation
(155
)
 
(152
)
Property, plant and equipment - net
$
196

 
$
209

Current maturities of long-term debt
57

 
59

Long-term debt
144

 
156

Total financing lease liabilities
$
201

 
$
215




15


Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)


Note 11. Long-term Debt and Credit Agreements
 
March 31, 2020
 
December 31, 2019
0.65% Euro notes due 2020

 
1,123

4.25% notes due 2021
800

 
800

1.85% notes due 2021
1,500

 
1,500

2.15% notes due 2022
600

 
600

Floating rate notes due 2022
600

 
600

1.30% Euro notes due 2023
1,376

 
1,404

3.35% notes due 2023
300

 
300

0.00% Euro notes due 2024
550

 

2.30% notes due 2024
750

 
750

2.50% notes due 2026
1,500

 
1,500

2.25% Euro notes due 2028
825

 
842

2.70% notes due 2029
750

 
750

0.75% Euro notes due 2032
550

 

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

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), 7.0% weighted average maturing at various dates through 2025
444

 
278

 
12,584

 
12,486

Less: current portion
(1,042
)
 
(1,376
)
 
$
11,542

 
$
11,110


 
On March 10, 2020, the Company issued 500 million 0.00% Senior Notes due 2024 and 500 million 0.75% Senior Notes due 2032 (collectively, the "2020 Euro Notes"). The 2020 Euro Notes are senior unsecured and unsubordinated obligations of Honeywell and rank equally with all of Honeywell's existing and future senior unsecured debt and senior to all of Honeywell's subordinated debt. The offering resulted in gross proceeds of $1,136 million, offset by $9 million in discount and closing costs related to the offering.

On August 8, 2019, the Company issued $600 million 2.15% Senior Notes due 2022, $600 million Floating Rate Senior Notes due 2022, $750 million 2.30% Senior Notes due 2024 and $750 million 2.70% Senior Notes due 2029 (collectively, the "2019 Notes"). The 2019 Notes are senior unsecured and unsubordinated obligations of Honeywell and rank equally with all of Honeywell's existing and future senior unsecured debt and senior to all of Honeywell's subordinated debt. The offering resulted in gross proceeds of $2,700 million, offset by $18 million in discount and closing costs related to the offering.

For issuances described above, unless otherwise noted, all debt issuance costs are deferred and recognized as a direct deduction to the related debt liability and are amortized to interest expense over the debt term.

On February 21, 2020, the Company paid its 0.65% Euro notes due 2020.

On October 30, 2019, the Company paid its 1.40% notes due 2019, Three year floating-rate notes due 2019, Two year floating rate notes due 2019 and 1.80% notes due 2019.

16


Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)


    
On April 10, 2020, the Company entered into a $1.5 billion 364-Day Credit Agreement (the "364-Day Credit Agreement") with a syndicate of banks. This 364-Day Credit Agreement is maintained for general corporate purposes. The 364-Day Credit Agreement replaces the previously reported 364-day credit agreement dated as of April 26, 2019, which was terminated on April 10, 2020.
  
On March 26, 2020, the Company entered into a Delayed Draw Term Loan Agreement (the “Term Loan Agreement”) with a syndicate of banks. The Term Loan Agreement provides for a two-year, delayed draw term loan facility in the aggregate principal amount of up to $6.0 billion and is maintained for general corporate purposes. Commitments under the Term Loan Agreement can be increased pursuant to the terms of the Term Loan Agreement by an aggregate amount not to exceed $2.0 billion. Advances may be made on up to three different business days during the period from March 26, 2020 to the date that is the earlier of (a) June 26, 2020 and (b) such date on which the Term Loan Agreement is terminated pursuant to its terms (the earlier of such date). The amounts borrowed under the Term Loan Agreement are required to be repaid no later than March 26, 2022, unless the Term Loan Agreement is terminated earlier pursuant to its terms and may not be reborrowed.

On April 26, 2019, the Company entered into a $4.0 billion Amended and Restated Five Year Credit Agreement (the “5-Year Credit Agreement”) with a syndicate of banks. The 5-Year Credit Agreement is maintained for general corporate purposes. 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 amends and restates the previously reported $4.0 billion amended and restated five-year credit agreement dated as of April 27, 2018 (the "Prior Agreement"). The 5-Year Credit Agreement has substantially the same material terms and conditions of the Prior Agreement.
 
As of March 31, 2020, there are no outstanding borrowings under any of our credit agreements.

Note 12. Financial Instruments and Fair Value Measures
 
Our credit, market, foreign currency and interest rate risk management policies are described in Note 15, Financial Instruments and Fair Value Measures of Notes to Consolidated Financial Statements in our 2019 Annual Report on Form 10-K.
 
The following table sets forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis:
 
March 31, 2020
 
December 31, 2019
Assets:
 
 
 
Foreign currency exchange contracts
$
647

 
$
291

Available for sale investments
1,241

 
1,523

Interest rate swap agreements
230

 
38

Cross currency swap agreements
60

 
51

Liabilities:
 
 
 
Foreign currency exchange contracts
$
74

 
$
21

Interest rate swap agreements

 
13


 
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 and are valued using published prices based off observable market data. As such, these investments are classified within level 2. The Company also holds available for sale investments in U.S. government and corporate debt securities valued utilizing published prices based on quoted market pricing, which are classified within level 1.
 

17


Honeywell International Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in millions, except per share amounts)


The carrying value of cash and cash equivalents, trade accounts and notes receivables, payables, commercial paper (of which $3,119 million and $3,513 million was Euro denominated as of March 31, 2020 and December 31, 2019) and short-term borrowings contained in the Consolidated Balance Sheet approximates fair value.

The following table sets forth the Company’s financial assets and liabilities that were not carried at fair value:
 
March 31, 2020
 
December 31, 2019
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Assets
 
 
 
 
 
 
 
Long-term receivables
$
145

 
$
138

 
$
129

 
$
127

Liabilities
 
 
 
 
 
 
 
Long-term debt and related current maturities
$
12,584

 
$
13,238

 
$
12,486

 
$
13,578


 
The following table sets forth the amounts 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
 
March 31, 2020
 
December 31, 2019
 
March 31, 2020
 
December 31, 2019
Long-term debt
 
$
4,180

 
$
3,975

 
$
230