10-K 1 a36887.txt HONEYWELL INTERNATIONAL INC. ________________________________________________________________________________ ________________________________________________________________________________ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003 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 (I.R.S. Employer incorporation or organization) Identification No.) 101 Columbia Road Morris Township, New Jersey 07962 --------------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (973) 455-2000 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered --------------------------------------- ------------------------------------ Common Stock, par value $1 per share* New York Stock Exchange Chicago Stock Exchange Pacific Exchange Zero Coupon Serial Bonds due 2009 New York Stock Exchange 9 1/2% Debentures due June 1, 2016 New York Stock Exchange
--------- * The common stock is also listed for trading on the London stock exchange. Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes X No _ The aggregate market value of the voting stock held by nonaffiliates of the Registrant was approximately $23.1 billion at June 30, 2003. There were 858,794,651 shares of Common Stock outstanding at February 27, 2004. Documents Incorporated by Reference Part I and II: Annual Report to Shareowners for the Year Ended December 31, 2003. Part III: Proxy Statement for Annual Meeting of Shareowners to be held April 26, 2004. ________________________________________________________________________________ ________________________________________________________________________________ TABLE OF CONTENTS
Item Page ---- ---- Part I. 1. Business................................................................................... 1 2. Properties................................................................................. 11 3. Legal Proceedings.......................................................................... 12 4. Submission of Matters to a Vote of Security Holders........................................ 12 Executive Officers of the Registrant........................................................... 12 Part II. 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities................................................................... 14 6. Selected Financial Data.................................................................... 14 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 14 7A. Quantitative and Qualitative Disclosures About Market Risk................................. 14 8. Financial Statements and Supplementary Data................................................ 14 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....... 14 9A. Controls and Procedures.................................................................... 15 Part III. 10. Directors and Executive Officers of the Registrant........................................ 15 11. Executive Compensation.................................................................... 15 12. Security Ownership of Certain Beneficial Owners and Management............................ 15 13. Certain Relationships and Related Transactions............................................ 18 14. Principal Accountant Fees and Services.................................................... 18 Part IV. 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................... 18 Signatures............................................................................................... 19
--------- This report contains certain statements that may be deemed 'forward-looking statements' within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical fact, that address activities, events or developments that we or our management intends, expects, projects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are based upon certain assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. The forward-looking statements included in this report are also subject to a number of material risks and uncertainties, including but not limited to economic, competitive, governmental and technological factors affecting our operations, markets, products, services and prices. Such forward-looking statements are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by such forward-looking statements. PART I. Item 1. Business Honeywell International Inc. (Honeywell) is a diversified technology and manufacturing company, serving customers worldwide with aerospace products and services, control, sensing and security technologies for buildings, homes and industry, automotive products, specialty chemicals, fibers, and electronic and advanced materials. Honeywell was incorporated in Delaware in 1985. We maintain an internet website at http://www.honeywell.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports, are available free of charge on our website under the heading 'Investor Relations' (see 'SEC Filings') immediately after they are filed with, or furnished to, the Securities and Exchange Commission (SEC). Honeywell's Code of Business Conduct, Corporate Governance Guidelines and Charters of the Committees of the Board of Directors are also available, free of charge, on our website under the heading 'Investor Relations' (see 'Corporate Governance'), or by writing to Honeywell, 101 Columbia Road, Morris Township, New Jersey 07962, c/o Vice President and Corporate Secretary. Honeywell's Code of Business Conduct applies to all Honeywell directors, officers (including the Chief Executive Officer, Chief Financial Officer and Controller) and employees. Major Businesses We globally manage our business operations through strategic business units, which have been aggregated under four reportable segments: Aerospace, Automation and Control Solutions, Specialty Materials and Transportation Systems. Financial information related to our reportable segments is included in Note 23 of Notes to Financial Statements in our 2003 Annual Report to Shareowners which is incorporated herein by reference. Following is further information about our four reportable segments which are comprised of various strategic business units and product classes that serve multiple end markets:
Strategic Business Units Product Classes Major Products/Services Major Customers/Uses Key Competitors -------------- --------------- ----------------------- -------------------- --------------- Aerospace Engines, Systems Turbine propulsion TFE731 turbofan Business, regional United Technologies and Services engines TPE331 turboprop and military trainer aircraft (Pratt & Whitney TFE1042 turbofan Commercial and military Canada) F124 turbofan helicopters Rolls Royce/ LF502 turbofan Military vehicles Allison LF507 turbofan Turbomeca CFE738 turbofan Williams HTF 7000 turbofan T53, T55 turboshaft LT101 turboshaft T800 turboshaft AGT1500 turboshaft LV 100 turboshaft Repair, overhaul and spare parts ---------------------------------------------------------------------------------------------------------- Auxiliary power units Airborne auxiliary Commercial, regional, United Technologies (APUs) power units business and (Pratt & Whitney Jet fuel starters military aircraft Canada) Secondary power Ground power United Technologies systems (Hamilton Ground power units Sundstrand) Repair, overhaul and spare parts ----------------------------------------------------------------------------------------------------------
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Strategic Business Units Product Classes Major Products/Services Major Customers/Uses Key Competitors -------------- --------------- ----------------------- -------------------- --------------- Environmental control Air management systems: Commercial, regional Auxilec systems Air conditioning and general Barber Colman Bleed air aviation aircraft Dukes Cabin pressure control Military aircraft Eaton-Vickers Air purification and Ground vehicles Goodrich (Lucas treatment Spacecraft Aerospace) Electrical power systems: Liebherr Power distribution and Litton Breathing control Systems Emergency power Pacific Scientific generation Parker Hannifin Repair, overhaul and United Technologies spare parts (Hamilton Sundstrand) Smiths TAT ---------------------------------------------------------------------------------------------------------- Engine systems and Electronic and Commercial, regional and BAE Controls accessories hydromechanical general aviation aircraft Goodrich fuel controls Military aircraft (Chandler-Evans) Engine start systems Goodrich (Lucas Electronic engine Aerospace) controls Parker Hannifin Sensors United Technologies Electric and pneumatic (Hamilton power generation systems Sundstrand) Thrust reverser actuation, pneumatic and electric ---------------------------------------------------------------------------------------------------------- Aircraft hardware Consumable hardware, Commercial, regional, business Anixter (Pentacon) distribution including fasteners, and military aviation Arrow Pemco bearings, bolts and aircraft Avnet o-rings BE Aerospace (M&M Adhesives, sealants, Aerospace) lubricants, cleaners Dixie and paints Fairchild Direct Electrical connectors, Wesco Aircraft switches, relays and circuit breakers Value-added services, repair and overhaul kitting and point-of-use replenishment ------------------------------------------------------------------------------------------------------------------------------- Aerospace Avionics systems Flight safety systems: Commercial, business Airshow, Inc. Electronic Enhanced Ground and general aviation aircraft BAE Systems Proximity Warning Government aviation Boeing/Jeppesen Systems (EGPWS) Century Traffic Alert and Garmin Collision Avoidance Goodrich Systems (TCAS) Kaiser Windshear detection L3 systems Lockheed Martin Flight data and cockpit Northrop Grumman voice recorders Rockwell Collins Weather Radar Smiths Communication, navigation S-tec and surveillance Thales systems: Trimble/Terra Weather radar Universal Avionics Navigation & communication Universal Weather radios Air-to-ground telephones Global positioning systems Automatic flight control systems Satellite systems Surveillance systems Integrated systems Flight management systems Cockpit display systems Data management and aircraft performance monitoring systems Vehicle management systems Aircraft information systems
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Strategic Business Units Product Classes Major Products/Services Major Customers/Uses Key Competitors -------------- --------------- ----------------------- -------------------- --------------- Network file servers Wireless network transceivers Satellite TV systems Audio/Video equipment Weather information network Navigation database information Cabin management systems Vibration detection and monitoring Mission management systems Tactical data management systems ---------------------------------------------------------------------------------------------------------- Aircraft, Obstruction and Inset lights Airports Bruce Airport lighting Control and monitoring Commercial, regional, Hella/Goodrich systems business, helicopter and LSI Regulators military aviation aircraft Luminator Tower and obstruction (operators, OEMs, parts Safegate lights distributors and MRO service Siemens Interior and exterior providers) Thorn aircraft lighting General contractors (building Whelen Visual docking guidance and tower manufacturers), systems cell phone companies ---------------------------------------------------------------------------------------------------------- Inertial sensor Inertial sensor systems Military and Astronautics- for guidance, commercial vehicles Kearfott stabilization, Commercial spacecraft BAE navigation and control and launch vehicles Ball Gyroscopes, Commercial, regional, business GEC accelerometers, inertial and military aircraft L3 Com measurement units and Transportation KVH thermal switches Missiles Northrop Grumman Munitions Rockwell Smiths ---------------------------------------------------------------------------------------------------------- Automatic test EW ATE Boeing Northrop Grumman equipment Avionics ATE USAF Lockheed Vehicle health Foreign air forces Management ---------------------------------------------------------------------------------------------------------- Control products Radar altimeters Military aircraft Ball Brothers Pressure products Missiles, UAVs BAE Air data products Commercial Druck Thermal switches applications Goodrich Magnetic sensors NavCom RF sensors Northrop Grumman Rosemount Solarton ---------------------------------------------------------------------------------------------------------- Space products and Guidance subsystems Commercial and military- BAE subsystems Control subsystems spacecraft Ithaco Processing subsystems DoD L3 Radiation hardened FAA Northrop Grumman electronics and NASA Raytheon integrated circuits GPS-based range safety systems ---------------------------------------------------------------------------------------------------------- Management and technical Maintenance/operation U.S. government space (NASA) Bechtel services and provision of space DoD (logistics and Boeing systems, services information services) Computer Sciences and facilities DoE Dyncorp Systems engineering Local governments ITT and integration Commercial space ground Lockheed Martin Information technology segment systems and services Raytheon services SAIC Logistics and sustainment The Washington Group United Space Alliance -------------------------------------------------------------------------------------------------------------------------------
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Strategic Business Units Product Classes Major Products/Services Major Customers/Uses Key Competitors -------------- --------------- ----------------------- -------------------- --------------- Aircraft Landing Landing systems Wheels and brakes Commercial airline, Aircraft Braking Systems Friction products regional, business Systems Wheel and brake and military aircraft Dunlop Standard repair and High performance commercial Aerospace overhaul services vehicles Goodrich USAF, DoD, DoE Messier-Bugatti Boeing, Airbus, Lockheed NASCO Martin Various smaller repair and overhaul companies ------------------------------------------------------------------------------------------------------------------------------- Automation and Control Solutions Automation and Control Products Heating, ventilating and Original equipment Carrier Control Products (Environmental controls air conditioning manufacturers (OEMs) Cherry and combustion; sensing controls and components Distributors Danfoss and controls) for homes and buildings Contractors Eaton Indoor air quality Retailers Emerson products including System integrators Endruss & Hauser zoning, air cleaners, Commercial customers and Holmes humidification, heat and homeowners served by the Invensys energy recovery distributor, wholesaler, Johnson Controls ventilators contractor, retail and Kavlico Controls plus integrated utility channels Motorola electronic systems for Package and materials handling Omron burners, boilers and operations Siemens furnaces Appliance manufacturers SPX (EST) Consumer household Automotive companies Yokogawa products including Aviation companies humidifiers and Food and beverage processors thermostats Medical equipment Water controls Heat treat processors Sensors, measurement, Computer and business control and industrial equipment manufacturers components Data acquisition companies Datacom components ---------------------------------------------------------------------------------------------------------- Security and fire Security products and OEMs Bosch products and services systems Retailers GE (Interlogix) Fire products and systems Distributors Pelco Access controls and Commercial customers Phillips closed circuit and homeowners served by the Siemens television distributor, wholesaler, SPX (EST) contractor, retail and Tyco utility channels ------------------------------------------------------------------------------------------------------------------------------- Process Solutions Industrial automation Advanced control software Refining and petrochemical Asea Brown Boveri solutions and industrial companies Aspentech automation systems for Chemical manufacturers Emerson (Fisher- control and monitoring Oil and gas producers Rosemount) of continuous, batch and Food and beverage processors Invensys hybrid operations Pharmaceutical companies Siemens Production management Utilities Yokogawa software Film and coated producers Communications systems Pulp and paper industry for Industrial Control Continuous web producers in equipment and systems the paper, plastics, metals, Consulting, networking rubber, non-wovens and engineering and printing industries installation Process control instrumentation Field instrumentation Analytical instrumentation Recorders Controllers Critical environment control solutions and services Aftermarket maintenance, repair and upgrade -------------------------------------------------------------------------------------------------------------------------------
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Strategic Business Units Product Classes Major Products/Services Major Customers/Uses Key Competitors -------------- --------------- ----------------------- -------------------- --------------- Building Solutions Solutions and services HVAC and building control Building managers and owners GroupMac solutions and services Contractors, architects and Invensys Energy management developers Johnson Controls solutions and services Consulting engineers Local contractors Security and asset Security directors and utilities management solutions and Plant managers Siemens services Utilities Trane Enterprise building Large, global corporations integration solutions Public school systems Building information Universities services Local governments ------------------------------------------------------------------------------------------------------------------------------- Specialty Materials Specialty Materials Nylon Nylon filament and Commercial, residential and BASF staple yarns specialty carpet markets DSM Nylon bulk Nylon for fibers, DuPont continuous filament engineered resins and film Enichem Nylon polymer Fertilizer ingredients Hoechst Caprolactam Specialty chemicals Monsanto Ammonium sulfate Rhodia Cyclohexanol Solutia Cyclohexanone Sulfuric acid Ammonia ---------------------------------------------------------------------------------------------------------- Performance fibers Industrial Passenger car tires Acordis polyester yarns Passenger car and light truck Akra seatbelts and airbags DuPont Broad woven fabrics Far Eastern Ropes and mechanical Hyosung rubber goods Kolon Sports gear Kosa Sailcloth Shinkong Cordage Teijin Toray ---------------------------------------------------------------------------------------------------------- Advanced Fibers & High molecular weight Bullet resistant vests, DuPont Composites polyethylene fiber and helmets and other armor DSM shield composites applications Teijin Aramid shield composites Cut-resistant gloves Rope & cordage ---------------------------------------------------------------------------------------------------------- Specialty Films Cast nylon film Food and pharmaceutical American Biaxis Bi-axially oriented nylon packaging CFP film Daikan Fluoropolymer film Kolon Unitika ---------------------------------------------------------------------------------------------------------- Fluorocarbons Genetron'r' refrigerants, Refrigeration Atofina aerosol and Air conditioning INEOS Fluor insulation foam blowing Polyurethane foam Solvay-Solexis agents Precision cleaning Genesolv'r' solvents Optical Oxyfume sterilant gases Metalworking Ennovate 3000 blowing Hospitals agent for refrigeration Medical equipment insulation manufacturers ---------------------------------------------------------------------------------------------------------- Hydrofluoric acid (HF) Anhydrous and aqueous Fluorocarbons Ashland hydrofluoric acid Steel Atofina Oil refining E. Merck Chemical intermediates Hashimoto Norfluor Quimica Fluor ---------------------------------------------------------------------------------------------------------- Fluorine specialties Sulfur hexafluoride Electric utilities Air Products (SF[u]6) Magnesium Asahi Glass Iodine pentafluoride Gear manufacturers Atofina (IF[u]5) Solvay-Solexis Antimony pentafluoride (SbF[u]5) ---------------------------------------------------------------------------------------------------------- Nuclear services UF[u]6 conversion Nuclear fuel British Nuclear services Electric utilities Fuels Cameco Cogema ----------------------------------------------------------------------------------------------------------
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Strategic Business Units Product Classes Major Products/Services Major Customers/Uses Key Competitors -------------- --------------- ----------------------- -------------------- --------------- Research and life sciences Active pharmaceutical Agrichemicals Avecia ingredients Pharmaceuticals Degussa Pharmaceutical Biotech DSM intermediates E-Merck Pharmaceutical Fisher Scientific formulations Lonza Oxime-based fine Sigma-Aldrich chemicals Fluoroaromatics Bromoaromatics High-purity solvents ---------------------------------------------------------------------------------------------------------- Electronic chemicals Ultra high-purity HF Semiconductors Air Products Inorganic acids Arch Hi-purity solvents E. Merck ---------------------------------------------------------------------------------------------------------- Performance chemicals HF derivatives Diverse by product type Atotech Imaging chemicals Fluoroaromatics BASF Chemical processing Phosphors Solvay-Solexis Display chemicals Catalysts Surface treatment Oxime-silanes Catalysts Hydroxylamine Sealants ---------------------------------------------------------------------------------------------------------- Specialty waxes Petroleum waxes and Candles Exxon blends Tire and Rubber IGI Personal care Schumann-Sasol Packaging Firelogs ---------------------------------------------------------------------------------------------------------- Specialty additives Polyethylene waxes Coatings and inks BASF Petroleum waxes and PVC Clarient blends Plastics Eastman PVC lubricant systems Reflective coatings Plastic additives Security and safe applications Luminescent photodyes ---------------------------------------------------------------------------------------------------------- Semiconductor Interconnect- Semiconductors ATMI materials and dielectrics Microelectronics Dow Chemical services Interconnect-metals Telecommunications Dow Corning Semiconductor packaging Japan Energy materials JSR Advanced polymers Sumitomo Sapphire substrates Tokyo-Ohka Anti-reflective coatings Tosoh SMD Thermo-couplings ---------------------------------------------------------------------------------------------------------- UOP (50%-owned joint Catalysts Petroleum, ABB Lummus venture) Molecular sieves petrochemical, gas Axens Adsorbents processing and Exxon-Mobil Design of process, chemical industries Procatalyse plants and equipment Shell/Criterion Customer catalyst Stone & Webster manufacturing Zeochem ------------------------------------------------------------------------------------------------------------------------------- Transportation Systems Honeywell Turbo Charge-air systems Turbochargers Passenger car, truck ABB Technologies Remanufactured components and off-highway Borg-Warner OEMs Hitachi Engine manufacturers Holset Aftermarket distributors IHI and dealers MHI Tianyan ---------------------------------------------------------------------------------------------------------- Thermal systems Exhaust gas coolers Passenger car, truck Behr/McCord Charge-air coolers and off-highway OEMs Modine Aluminum radiators Engine manufacturers Valeo Aluminum cooling Aftermarket distributors modules and dealers -------------------------------------------------------------------------------------------------------------------------------
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Strategic Business Units Product Classes Major Products/Services Major Customers/Uses Key Competitors -------------- --------------- ----------------------- -------------------- --------------- Consumer Products Aftermarket Oil, air, fuel, Automotive and heavy AC Delco Group filters, spark plugs, transmission and coolant vehicle aftermarket channels, Bosch electronic components and filters OEMs and OES Champion car care products PCV valves Auto supply retailers Champ Labs Spark plugs Specialty installers Havoline/Texaco Wire and cable Mass merchandisers Mann & Hummel Antifreeze/coolant NGK Ice-fighter products Peak/Old World Windshield washer fluids Industries Waxes, washes and Pennzoil-Quaker specialty cleaners State Purolator/Arvin Ind STP/ArmorAll/ Clorox Turtle Wax Various Private Label Wix/Dana Zerex/Valvoline ------------------------------------------------------------------------------------------------------------------------------- Friction Materials Friction materials Disc brake pads and shoes Automotive and heavy vehicle Akebono Aftermarket brake hard Drum brake linings OEMs, OES, brake Dana parts Brake blocks manufacturers and aftermarket Delphi Disc and drum brake channels Federal-Mogul components Mass merchandisers ITT Galfer Brake hydraulic Installers JBI components Railway and commercial/ Nisshinbo Brake fluid military aircraft OEMs TMD Aircraft brake linings and brake manufacturers Roulunds Railway linings -------------------------------------------------------------------------------------------------------------------------------
Aerospace Sales Our sales to aerospace customers were 38, 40 and 41 percent of our total sales in 2003, 2002 and 2001, respectively. Our sales to commercial aerospace original equipment manufacturers were 7, 9 and 12 percent of our total sales in 2003, 2002 and 2001, respectively. If there were a large decline in sales of aircraft that use our components, operating results could be negatively impacted. In addition, our sales to commercial aftermarket customers of aerospace products and services were 15, 16 and 16 percent of our total sales in 2003, 2002 and 2001, respectively. If there were a large decline in the number of global flying hours or landings for aircraft that use our components or services, operating results could be negatively impacted. The terrorist attacks on September 11, 2001 resulted in an abrupt downturn in the aviation industry which was already negatively impacted by a weak economy. This dramatic downturn in the commercial air transport industry continued to adversely impact the operating results of our Aerospace segment in 2003. U.S. Government Sales Sales to the U.S. Government (principally by our Aerospace segment), acting through its various departments and agencies and through prime contractors, amounted to $2,595, $2,277 and $2,491 million in 2003, 2002 and 2001, respectively, which included sales to the U.S. Department of Defense, as a prime contractor and subcontractor, of $2,269, $1,833 and $1,631 million in 2003, 2002 and 2001, respectively. U.S. defense spending increased in 2003 and is also expected to increase in 2004. In addition to normal business risks, companies engaged in supplying military and other equipment to the U.S. Government are subject to unusual risks, including dependence on Congressional appropriations and administrative allotment of funds, changes in governmental procurement legislation and regulations and other policies that may reflect military and political developments, significant changes in contract scheduling, complexity of designs and the rapidity with which they become obsolete, necessity for constant design improvements, intense competition for U.S. Government business necessitating increases in time and investment for design and development, difficulty of forecasting costs and schedules when bidding on developmental and highly sophisticated technical work and other factors characteristic of the industry. Changes are customary over the life of U.S. Government contracts, particularly development contracts, and generally result in adjustments of contract prices. 7 We, like other government contractors, are subject to government investigations of business practices and compliance with government procurement regulations. Although such regulations provide that a contractor may be suspended or barred from government contracts under certain circumstances, and the outcome of pending government investigations cannot be predicted with certainty, we are not currently aware of any such investigations that we expect, individually or in the aggregate, will have a material adverse effect on us. In addition, we have a proactive business compliance program designed to ensure compliance and sound business practices. Backlog Our total backlog at year-end 2003 and 2002 was $7,191 and $7,332 million, respectively. We anticipate that approximately $5,573 million of the 2003 backlog will be filled in 2004. We believe that backlog is not necessarily a reliable indicator of our future sales because a substantial portion of the orders constituting this backlog may be canceled at the customer's option. Competition We are subject to active competition in substantially all product and service areas. Competition is expected to continue in all geographic regions. Competitive conditions vary widely among the thousands of products and services provided by us, and vary country by country. Depending on the particular customer or market involved, our businesses compete on a variety of factors, such as price, quality, reliability, delivery, customer service, performance, applied technology, product innovation and product recognition. Brand identity, service to customers and quality are generally important competitive factors for our products and services, and there is considerable price competition. Other competitive factors for certain products include breadth of product line, research and development efforts and technical and managerial capability. While our competitive position varies among our products and services, we believe we are a significant competitor in each of our major product and service classes. However, a number of our products and services are sold in competition with those of a large number of other companies, some of which have substantial financial resources and significant technological capabilities. In addition, some of our products compete with the captive component divisions of original equipment manufacturers. International Operations We are engaged in manufacturing, sales, service and research and development mainly in the United States, Europe, Canada, Asia and Latin America. U.S. exports and foreign manufactured products are significant to our operations. U.S. exports comprised 10 percent of our total net sales in both 2003 and 2002. Foreign manufactured products and services, mainly in Europe, were 34 and 30 percent of our total net sales in 2003 and 2002, respectively. Our international operations, including U.S. exports, are potentially subject to a number of unique risks and limitations, including: fluctuations in currency value; exchange control regulations; wage and price controls; employment regulations; foreign investment laws; import and trade restrictions, including embargoes; and governmental instability. However, we have limited exposure in high risk countries and have taken action to mitigate these risks. Approximately 19 percent of total net sales of Aerospace-related products and services were exports of U.S. manufactured products and systems and performance of services such as aircraft repair and overhaul. Exports were principally made to Europe, Asia and Canada. Foreign manufactured products and services comprised 14 percent of total Aerospace net sales. Approximately 2 percent of total net sales of Automation and Control Solutions products were exports of U.S. manufactured products. Foreign manufactured products and services accounted for 48 percent of total net sales of Automation and Control Solutions. The principal manufacturing facilities outside the U.S. are in Europe, with less significant operations in Asia and Canada. Approximately 12 percent of total net sales of Specialty Materials were exports of U.S. manufactured products. Exports were principally made to Asia, Europe, Latin America and Canada. Foreign manufactured products comprised 28 percent of total net sales of Specialty Materials. The principal manufacturing facilities outside the U.S. are in Europe, with less significant operations in Asia and Canada. 8 Exports of U.S. manufactured products comprised 1 percent of total net sales of Transportation Systems products. Foreign manufactured products accounted for 62 percent of total net sales of Transportation Systems. The principal manufacturing facilities outside the U.S. are in Europe, with less significant operations in Asia, Latin America and Canada. Raw Materials The principal raw materials used in our operations are generally readily available. We experienced no significant or unusual problems in the purchase of key raw materials and commodities in 2003. We are not dependent on any one supplier for a material amount of our raw materials. However, we are highly dependent on our suppliers and subcontractors in order to meet commitments to our customers. In addition, many major components and product equipment items are procured or subcontracted on a sole-source basis with a number of domestic and foreign companies. We maintain a qualification and performance surveillance process to control risk associated with such reliance on third parties. While we believe that sources of supply for raw materials and components are generally adequate, it is difficult to predict what effects shortages or price increases may have in the future. The costs of certain key raw materials, including natural gas and benzene, in our Specialty Materials' business were at historically high levels in 2003 and are expected to remain at those levels in 2004. Based on current volume usage, a 10 percent increase in the year-end price of natural gas and benzene would increase our costs by $12 and $15 million, respectively. At present, we have no reason to believe a shortage of raw materials will cause any material adverse impact during 2004. Patents, Trademarks, Licenses and Distribution Rights Our business as a whole, and that of our strategic business units, are not dependent upon any single patent or related group of patents, or any licenses or distribution rights. We own, or are licensed under, a large number of patents, patent applications and trademarks acquired over a period of many years, which relate to many of our products or improvements to those products and which are of importance to our business. From time to time, new patents and trademarks are obtained, and patent and trademark licenses and rights are acquired from others. We also have distribution rights of varying terms for a number of products and services produced by other companies. In our judgment, those rights are adequate for the conduct of our business. We believe that, in the aggregate, the rights under our patents, trademarks and licenses are generally important to our operations, but we do not consider any patent, trademark or related group of patents, or any licensing or distribution rights related to a specific process or product to be of material importance in relation to our total business. We have registered trademarks for a number of our products, including such consumer brands as Honeywell, Prestone, FRAM, Anso, Autolite, Bendix King and Garrett. Research and Development Our research activities are directed toward the discovery and development of new products and processes, improvements in existing products and processes, and the development of new uses for existing products. Research and development expense totaled $751, $757 and $832 million in 2003, 2002 and 2001, respectively. The decrease in research and development expense in 2002 compared with 2001 related mainly to lower spending by our Aerospace segment due primarily to program completions and fewer new program launches by original equipment manufacturers. Customer-sponsored (principally the U.S. Government) research and development activities amounted to an additional $608, $603 and $697 million in 2003, 2002 and 2001, respectively. Environment We are subject to various federal, state and local government requirements regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. It is our policy to comply with these requirements, and we believe that, as a general matter, our policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage, and of resulting financial liability, in connection with our business. Some risk of environmental damage is, however, inherent in some of our operations and products, as it is with other companies engaged in similar businesses. 9 We are and have been engaged in the handling, manufacture, use and disposal of many substances classified as hazardous or toxic by one or more regulatory agencies. We believe that, as a general matter, our policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage and personal injury, and that our handling, manufacture, use and disposal of these substances are in accord with environmental and safety laws and regulations. It is possible, however, that future knowledge or other developments, such as improved capability to detect substances in the environment or increasingly strict environmental laws and standards and enforcement policies, could bring into question our handling, manufacture, use or disposal of these substances. Among other environmental requirements, we are subject to the federal superfund law, and similar state laws, under which we have been designated as a potentially responsible party that may be liable for cleanup costs associated with various hazardous waste sites, some of which are on the U.S. Environmental Protection Agency's superfund priority list. Although, under some court interpretations of these laws, there is a possibility that a responsible party might have to bear more than its proportional share of the cleanup costs if it is unable to obtain appropriate contribution from other responsible parties, we have not had to bear significantly more than our proportional share in multi- party situations taken as a whole. In the matter entitled Interfaith Community Organization, et al. v. Honeywell International Inc., et al., the United States District Court for the District of New Jersey held in May 2003 that a predecessor Honeywell site located in Jersey City, New Jersey constituted an imminent and substantial endangerment and ordered Honeywell to conduct the excavation and transport for offsite disposal of approximately one million tons of chromium residue present at the site. Honeywell strongly disagrees with the Court's determinations and has appealed the Court's decision to the Third Circuit Court of Appeals. Per the Appeals Court's order, the parties are engaged in mediation. In October 2003, the District Court denied Honeywell's motion for a stay of certain aspects of its May 2003 order, and we are considering whether to appeal such ruling. The site at issue is one of twenty-one sites located in Jersey City, New Jersey which are the subject of an Administrative Consent Order (ACO) entered into with the New Jersey Department of Environmental Protection (NJDEP) in 1993. Under the ACO, Honeywell agreed to study and remediate these sites in accordance with NJDEP's directions, provided that the total costs of such studies and remediation do not exceed $60 million. Honeywell has cooperated with the NJDEP under the ACO and believes that decisions regarding site cleanups should be made by the NJDEP under the ACO. We are confident that proceeding under the ACO will ensure a safe remediation and allow the property to be placed back into productive use much faster and at a cost significantly less than the remedies required by the Court's order. We have not completed development of a remedial action plan for the excavation and offsite disposal directed under the Court's order and therefore are unable to estimate the cost of such actions. At trial, plaintiff's expert testified that the excavation and offsite disposal cost might be $400 million. However, there are significant variables in the implementation of the Court's order and depending on the method of implementation chosen, the estimate could increase or decrease. Prior to 2003, provisions were made in our financial statements as to remedial costs consistent with the ACO and during the three months ended June 30, 2003 we provided for additional costs which are likely to be incurred during the pendency of our appeal, which provisions do not assume excavation and offsite removal of chromium from the site. There are alternative outcomes and remedies beyond the scope of the ACO that could result from the remanding, reversal or replacement of the Court's decision and order. At this time, we can neither identify a probable alternative outcome nor reasonably estimate the cost of an alternative remedy. Although we expect the Court's decision and order to be remanded, reversed or replaced, should the remedies prescribed in the Court's decision and order ultimately be upheld, such outcome could have a material adverse impact on our consolidated results of operations or operating cash flows in the periods recognized or paid. We do not expect that this matter will have a material adverse effect on our consolidated financial position. In accordance with a 1992 consent decree with the State of New York, Honeywell is studying environmental conditions in and around Onondaga Lake (the Lake), in Syracuse, New York. The purpose of the study is to identify, evaluate and propose remedial measures that can be taken to remedy historic industrial contamination in the Lake. A predecessor company to Honeywell operated a 10 chemical plant which is alleged to have contributed mercury and other contaminants to the Lake and certain surrounding areas. In May 2003, Honeywell submitted to the New York State Department of Environmental Conservation (DEC) a draft Feasibility Study for the Lake and certain surrounding areas. In November 2003, the DEC issued formal comments on the Feasibility Study. Those comments include a request for further evaluation of remedies for the Lake and surrounding areas. Accordingly, pursuant to the consent decree, Honeywell is required to submit a revised Feasibility Study on or before May 3, 2004. Provisions have been made in our financial statements based on our expected revisions to our Feasibility Study. We do not expect that this matter will have a material adverse effect on our consolidated financial position. However, should the DEC ultimately require a substantially more extensive remedy than that expected to be proposed in the revised Feasibility Study and should Honeywell agree to undertake such a remedy, such outcome could have a material adverse impact on our consolidated results of operations and operating cash flows in the periods recognized or paid. During 2003, three incidents occurred at our Baton Rouge, Louisiana chemical plant including a release of chlorine, a release of antimony pentachloride which resulted in an employee fatality, and an employee exposure to hydrofluoric acid. As a result of these incidents, the United States Environmental Protection Agency (USEPA), Occupational Health and Safety Administration (OSHA), the Chemical Safety Board and state and local agencies commenced investigations. A number of potential government claims have been settled, including a $110,000 penalty paid to OSHA for citations arising from the incidents. The USEPA and Chemical Safety Board investigations are ongoing however no charges have been filed or claims asserted. Honeywell has been served with several civil lawsuits. We do not expect that these matters will have a material adverse effect on our consolidated financial position, consolidated results of operations or operating cash flows. Further information regarding environmental matters is included in Management's Discussion and Analysis of Financial Condition and Results of Operations of our 2003 Annual Report to Shareowners which is incorporated herein by reference. Employees We have approximately 108,000 employees at December 31, 2003, of which approximately 61,000 were located in the United States. Item 2. Properties We have over 1,000 locations consisting of plants, research laboratories, sales offices and other facilities. Our headquarters and administrative complex is located at Morris Township, New Jersey. Our plants are generally located to serve large marketing areas and to provide accessibility to raw materials and labor pools. Our properties are generally maintained in good operating condition. Utilization of these plants may vary with sales to customers and other business conditions; however, no major operating facility is significantly idle. We own or lease warehouses, railroad cars, barges, automobiles, trucks, airplanes and materials handling and data processing equipment. We also lease space for administrative and sales staffs. Our properties and equipment are in good operating condition and are adequate for our present needs. We do not anticipate difficulty in renewing existing leases as they expire or in finding alternative facilities. 11 Our principal plants, which are owned in fee unless otherwise indicated, are as follows: Aerospace --------- Glendale, AZ South Bend, IN Albuquerque, NM (partially leased) Olathe, KS Rocky Mount, NC Phoenix, AZ Minneapolis, MN Urbana, OH Tempe, AZ Plymouth, MN Redmond, WA (leased) Tucson, AZ Teterboro, NJ Toronto, Canada Torrance, CA (partially leased) Clearwater, FL Automation and Control Solutions -------------------------------- Phoenix, AZ Northford, CT Golden Valley, MN San Diego, CA Freeport, IL Juarez, Mexico Specialty Materials ------------------- Baton Rouge, LA Pottsville, PA Hopewell, VA Geismar, LA Columbia, SC Seelze, Germany Moncure, NC Chesterfield, VA Longlaville, France Transportation Systems ---------------------- Mexicali, Mexico Thaon-Les-Vosges, France Atessa, Italy Glinde, Germany Skelmersdale, United Kingdom
Item 3. Legal Proceedings 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 a discussion of environmental, asbestos and other litigation matters in Note 21 of Notes to Financial Statements of our 2003 Annual Report to Shareowners which is incorporated herein by reference. Item 4. Submission of Matters to a Vote of Security Holders Not Applicable. Executive Officers of the Registrant The executive officers of Honeywell, listed as follows, are elected annually by the Board of Directors. There are no family relationships among them.
Name, Age, Date First Elected an Executive Officer Business Experience ----------------- ----------------------------------------------------------- David M. Cote (a), 51 Chairman of the Board and Chief Executive Officer since 2002 July 2002. President and Chief Executive Officer from February 2002 to June 2002. Chairman of the Board, President and Chief Executive Officer of TRW (manufacturer of aerospace and automotive products) from August 2001 to February 2002. President and Chief Executive Officer of TRW from February 2001 to July 2001. President and Chief Operating Officer of TRW from November 1999 to January 2001. Senior Vice President of General Electric Company and President and Chief Executive Officer of GE Appliances from June 1996 to November 1999.
--------- (a) Also a Director. 12
Name, Age, Date First Elected an Executive Officer Business Experience ----------------- ----------------------------------------------------------- Dr. Nance K. Dicciani, 56 President and Chief Executive Officer Specialty Materials 2001 since November 2001. Senior Vice President and Business Group Executive of Chemical Specialties and Director, European Region of Rohm and Haas (chemical company) from June 1998 to October 2001. Roger Fradin, 50 President and Chief Executive Officer Automation and 2004 Control Solutions since January 2004. President of Automation and Control Products from June 2002 to December 2003. President and Chief Executive Officer of Security and Fire Solutions from February 2000 to May 2002. President of The Security Group of The Pittway Corporation from September 1995 to April 2002. Robert J. Gillette, 44 President and Chief Executive Officer Transportation 2001 Systems since July 2001. President of Honeywell Turbo Technologies from July 2000 to June 2001. Vice President and General Manager of Engineering Plastics from December 1996 to June 2000. Robert D. Johnson, 56 President and Chief Executive Officer Aerospace since July 1998 2001. Chief Operating Officer and Executive Vice President, Aerospace, from December 1999 to June 2001. President and Chief Executive Officer of AlliedSignal Aerospace from April 1999 to November 1999. President -- Aerospace Marketing, Sales and Services from January 1999 to March 1999. David J. Anderson, 54 Senior Vice President and Chief Financial Officer since 2003 June 2003. Senior Vice President and Chief Financial Officer of ITT Industries (global manufacturing company) from December 1999 to June 2003. Senior Vice President and Chief Financial Officer of Newport News Shipbuilding from June 1996 to December 1999. Larry E. Kittelberger, 55 Senior Vice President Administration and Chief Information 2001 Officer since August 2001. Senior Vice President and Chief Information Officer of Lucent Technologies Inc. from November 1999 to August 2001. Senior Vice President and Chief Information Officer of AlliedSignal Inc from February 1999 to November 1999. Vice President and Chief Information Officer from August 1995 to January 1999. Peter M. Kreindler, 58 Senior Vice President and General Counsel since 1992 March 1992. Secretary from December 1994 through November 1999. Thomas W. Weidenkopf, 45 Senior Vice President Human Resources and Communications 2002 since April 2002. Vice President of Human Resources, Aerospace, from March 1999 to March 2002. Vice President, Human Resources -- Aerospace Marketing, Sales & Services from March 1997 to February 1999.
13 Part II. Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market and dividend information for Honeywell's common stock is included in Note 26 of Notes to Financial Statements of our 2003 Annual Report to Shareowners which is incorporated herein by reference. The number of record holders of our common stock at December 31, 2003 was 88,454. The following table summarizes Honeywell's purchases of its common stock, par value $1 per share, for the year ending December 31, 2003: Issuer Purchases of Equity Securities
(a) (b) (c) (d) Maximum Total Number (or Number of Approximate Shares Dollar Value) of Purchased as Shares that Total Part of Publicly May Yet be Number of Average Announced Purchased Under Shares Price Paid Plans or Plans or Period Purchased per Share Programs Programs ------ --------- --------- -------- -------- December 19-31, 2003 1,887,000 $32.71 1,887,000 (A)
--------- (A) In November 2003 Honeywell announced its intention to repurchase sufficient outstanding shares of its common stock to offset the dilutive impact of employee stock based compensation plans, including future option exercises, restricted unit vesting and matching contributions under our savings plans. We estimate share repurchases of approximately 10 million shares annually. Item 6. Selected Financial Data Selected Financial Data on page 26 of our 2003 Annual Report to Shareowners is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 'Management's Discussion and Analysis' on pages 27 through 44 of our 2003 Annual Report to Shareowners is incorporated herein by reference. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Information relating to market risk is included under the caption 'Financial Instruments' in 'Management's Discussion and Analysis' on pages 43 and 44 of our 2003 Annual Report to Shareowners, and such information is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data Our consolidated financial statements, together with the report thereon of PricewaterhouseCoopers LLP dated February 5, 2004, appearing on pages 45 through 76 of our 2003 Annual Report to Shareowners, are incorporated herein by reference. With the exception of the aforementioned information and the information incorporated by reference in Items 1, 3, 5, 6, 7 and 7A, the 2003 Annual Report to Shareowners is not to be deemed filed as part of this Annual Report on Form 10-K . Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not Applicable. 14 Item 9A. Controls and Procedures Honeywell management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that such disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K in alerting them on a timely basis to material information relating to Honeywell required to be included in Honeywell's periodic filings under the Exchange Act. There have been no changes that have materially affected, or are reasonably likely to materially affect, Honeywell's internal control over financial reporting that have occurred during the period covered by this Annual Report on Form 10-K. Part III. Item 10. Directors and Executive Officers of the Registrant Information relating to the Directors of Honeywell, as well as information relating to compliance with Section 16(a) of the Securities Exchange Act of 1934, will be contained in our definitive Proxy Statement involving the election of the Directors which will be filed with the SEC pursuant to Regulation 14A not later than 120 days after December 31, 2003, and such information is incorporated herein by reference. Certain other information relating to the Executive Officers of Honeywell appears in Part I of this Annual Report on Form 10-K under the heading 'Executive Officers of the Registrant'. The members of the Audit Committee of our Board of Directors are: Russell E. Palmer (Chair), Marshall N. Carter, James J. Howard, Eric K. Shinseki, John R. Stafford, and Michael W. Wright. The Board has determined that Mr. Palmer satisfies the 'audit committee financial expert' criteria established by the SEC and the 'accounting or related financial management expertise' criteria established by the New York Stock Exchange (NYSE). All members of the Audit Committee are 'independent' as that term is defined in applicable SEC Rules and NYSE listing standards. Honeywell's Code of Business Conduct is available, free of charge, on our website under the heading 'Investor Relations' (see 'Corporate Governance'), or by writing to Honeywell, 101 Columbia Road, Morris Township, New Jersey 07962, c/o Vice President and Corporate Secretary. Honeywell's Code of Business Conduct applies to all Honeywell directors, officers (including the Chief Executive Officer, Chief Financial Officer and Controller) and employees. Amendments to or waivers of the Code of Business Conduct granted to any of Honeywell's directors or executive officers will be published on our website within five business days of such amendment or waiver. Item 11. Executive Compensation Information relating to executive compensation is contained in the Proxy Statement referred to above in 'Item 10. Directors and Executive Officers of the Registrant,' and such information is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management Information relating to security ownership of certain beneficial owners and management is contained in the Proxy Statement referred to above in 'Item 10. Directors and Executive Officers of the Registrant,' and such information is incorporated herein by reference. 15 Equity Compensation Plans Information about our equity compensation plans is as follows:
Number of Securities Number of Remaining Shares to Available for be Issued Weighted- Future Issuance Upon Average Under Equity Exercise of Exercise Price of Compensation Outstanding Outstanding Plans (Excluding Options, Options, Securities Warrants Warrants Reflected in Plan Category and Rights and Rights Column(a)) ------------- ---------- ---------- ---------- (a) (b) (c) Equity compensation plans approved by security holders...................................... 51,861,643(1) $37.13(2) 28,114,430(3) Equity compensation plans not approved by security holders............................. 920,285(4) N/A(5) N/A(6) Total...................................... 52,781,928 $37.13 28,114,430
--------- (1) Equity compensation plans approved by shareowners that are included in column (a) of the table are the 2003 Stock Incentive Plan of Honeywell International Inc. and its Affiliates (the 2003 Stock Incentive Plan) (524,500 common shares to be issued for options; 1,391,000 restricted units subject to attainment of certain performance goals or continued employment; and 543,600 deferred restricted units of previously earned and vested awards under prior plans approved by shareowners where delivery of shares has been deferred); the 1993 Stock Plan for Employees of Honeywell International Inc. and its Affiliates (47,254,305 common shares to be issued for options; 190,725 shares to be issued for SARs; and 1,712,513 restricted units subject to attainment of certain performance goals or continued employment); the 1985 Stock Plan for Employees of AlliedSignal Inc. and its Subsidiaries (40,000 common shares to be issued for options); and the Stock Plan for Non-Employee Directors of Honeywell International Inc. and predecessor plans (154,000 common shares to be issued for options and 51,000 shares of restricted stock). The 2003 Stock Incentive Plan has issued 628,830 growth plan units for the two-year performance cycle beginning January 1, 2003 and ending December 31, 2004. Growth plan units are denominated in cash units and the percentage of such units that are payable depends upon the achievement of pre-established performance goals during the two-year performance cycle relating to growth in earnings per share, revenue and return on investment. The value of any growth plan unit is not determinable and may be paid in cash or shares of Honeywell common stock. Growth plan units are therefore not included in the table above. (2) Column (b) does not include any exercise price for restricted units or growth plan units granted to employees or non-employee directors under equity compensation plans approved by shareowners. Restricted units do not have an exercise price because their value is dependent upon attainment of certain performance goals or continued employment or service and they are settled for shares of Honeywell common stock on a one-for-one basis. Growth plan units are denominated in cash units and the ultimate value of the award is dependent upon attainment of certain performance goals. (3) The number of shares that may be issued under the 2003 Stock Incentive Plan as of December 31, 2003 is 27,942,430 except that the following additional shares under the 2003 Stock Incentive Plan (or any Prior Plan as defined in the 2003 Stock Incentive Plan) may again be available for issuance: shares that are settled for cash, expire, are tendered in satisfaction of an option exercise price or tax withholding obligations, shares reacquired with cash tendered in satisfaction of an option exercise price or with monies attributable to any tax deduction enjoyed by Honeywell to the exercise of an option, and shares under any outstanding awards assumed under any equity compensation plan of an entity acquired by Honeywell. The remaining 172,000 shares included in column (c) are shares remaining for future grants under the Stock Plan for Non-Employee Directors of Honeywell International Inc. (footnotes continued on next page) 16 (footnotes continued from previous page) (4) Equity compensation plans not approved by shareowners that are included in the table are the Supplemental Non-Qualified Savings Plans for Highly Compensated Employees of Honeywell International Inc. and its Subsidiaries, the AlliedSignal Incentive Compensation Plan for Executive Employees of AlliedSignal Inc. and its Subsidiaries, and the Deferred Compensation Plan for Non-Employee Directors of Honeywell International Inc. The Supplemental Non-Qualified Savings Plans for Highly Compensated Employees of Honeywell International Inc. and its Subsidiaries are unfunded, nonqualified plans that provide benefits equal to the employee deferrals and company matching allocations that would have been provided under Honeywell's U.S. tax-qualified savings plan if the Internal Revenue Code limitations on compensation and contributions did not apply. The company matching contribution is credited to participants' accounts in the form of notional shares of Honeywell common stock. Additional notional shares are credited to participants' accounts equal to the value of any cash dividends payable on actual shares of Honeywell common stock. The notional shares are distributed in the form of actual shares of Honeywell common stock when payments are made to participants under the plans. The AlliedSignal Incentive Compensation Plan for Executive Employees of AlliedSignal Inc. and its Subsidiaries was a cash incentive compensation plan maintained by AlliedSignal Inc. This plan has expired. Employees were permitted to defer receipt of a cash bonus payable under the plan and invest the deferred bonus in notional shares of Honeywell common stock. The notional shares are distributed in the form of actual shares of Honeywell common stock when payments are made to participants under the plan. No further deferrals can be made under this plan. The number of Honeywell securities that remain to be issued under this expired plan is 55,910. The Deferred Compensation Plan for Non-Employee Directors of Honeywell International Inc. provides for mandatory and elective deferral of certain payments to non-employee directors. Mandatory deferrals are invested in notional shares of Honeywell common stock. Directors may also invest any elective deferrals in notional shares of Honeywell common stock. Additional notional shares are credited to participant accounts equal to the value of any cash dividends payable on actual shares of Honeywell common stock. Notional shares of Honeywell common stock are converted to an equivalent amount of cash at the time the distributions are made from the plan to directors. However, two former directors are entitled to receive periodic distributions of actual shares of Honeywell common stock that were notionally allocated to their accounts in years prior to 1992. The number of Honeywell securities that remain to be issued to these two directors is 4,772. (5) Column (b) does not include any exercise price for notional shares allocated to employees under Honeywell's equity compensation plans not approved by shareowners because all of these shares are notionally allocated as a matching contribution under the non-qualified savings plans or as a notional investment of deferred bonuses or fees under the cash incentive compensation and directors' plans as described in note 4 and are only settled for shares of Honeywell common stock on a one-for-one basis. (6) No securities are available for future issuance under the AlliedSignal Incentive Compensation Plan for Executive Employees of AlliedSignal Inc. and its Subsidiaries and the Deferred Compensation Plan for Non-Employee Directors of Honeywell International Inc. The cash incentive compensation plan has expired. All notional investments in shares of Honeywell common stock are converted to cash when payments are made under the directors' plan (other than with respect to 4,772 shares of Honeywell common stock included in column (a) that is payable to two former directors). The amount of securities available for future issuance under the Supplemental Non-Qualified Savings Plan for Highly Compensated Employees of Honeywell International Inc. and its Subsidiaries is not determinable because the number of securities that may be issued under these plans depends upon the amount deferred to the plans by participants in future years. The table does not contain information for the following plans and arrangements: Employee benefit plans of Honeywell intended to meet the requirements of Section 401(a) of the Internal Revenue Code and a small number of foreign employee benefit plans which are similar to such Section 401(a) plans. 17 Equity compensation plans maintained by Honeywell Inc. immediately prior to the merger of Honeywell Inc. and AlliedSignal Inc. on December 1, 1999. The right to receive Honeywell International Inc. securities was substituted for the right to receive Honeywell Inc. securities under these plans. No new awards have been granted under these plans after the merger date. The number of shares to be issued under these plans upon exercise of outstanding options, warrants and rights is 6,280,816 and their weighted-average exercise price is $41.88. The Honeywell Global Employee Stock Purchase Plan. This plan is maintained solely for eligible employees of participating non-U.S. affiliates. Eligible employees can contribute between 2 and 8 percent of base pay from January through October of each year to purchase shares of Honeywell common stock in November of that year at a 15 percent discount. Honeywell has historically purchased shares through non-dilutive, open market purchases and intends to continue this practice. Employees purchased 343,484 shares of common stock at $20.349 per share in 2002 and 351,283 shares of common stock at $21.233 per share in 2003. Item 13. Certain Relationships and Related Transactions Information relating to certain relationships and related transactions is contained in the Proxy Statement referred to above in 'Item 10. Directors and Executive Officers of the Registrant,' and such information is incorporated herein by reference. Item 14. Principal Accountant Fees and Services Information relating to fees paid to and services performed by PricewaterhouseCoopers LLP in 2003 and 2002 and our Audit Committee's pre-approval policies and procedures with respect to non-audit services are contained in the Proxy Statement referred to above in 'Item 10. Directors and Executive Officers of the Registrant,' and such information is incorporated herein by reference. Part IV. Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Page Number in Annual Report (a)(1.) Consolidated Financial Statements: to Shareowners -------------- Incorporated by reference to the 2003 Annual Report to Shareowners: Consolidated Statement of Operations for the years ended December 31, 2003, 2002 and 2001 45 Consolidated Balance Sheet at December 31, 2003 and 2002 46 Consolidated Statement of Cash Flows for the years ended December 31, 2003, 2002 and 2001 47 Consolidated Statement of Shareowners' Equity for the years ended December 31, 2003, 2002 and 2001 48 Notes to Financial Statements 49 Report of Independent Auditors 76
Page Number (a)(2.) Consolidated Financial Statement Schedules: in Form 10-K ------------ Report of Independent Auditors on Financial Statement Schedule 23 Schedule II -- Valuation and Qualifying Accounts 24
All other financial statement schedules have been omitted because they are not applicable to us or the required information is shown in the consolidated financial statements or notes thereto. (a)(3.) Exhibits See the Exhibit Index on pages 20 through 22 of this Annual Report on Form 10-K. (b) Reports on Form 8-K During the three months ended December 31, 2003, Current Reports on Form 8-K were filed on October 16, reporting third quarter 2003 financial results and on November 17, reporting the expiration of a letter of intent to acquire our automotive Bendix Friction Materials business. 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized. HONEYWELL INTERNATIONAL INC. March 4, 2004 By: /s/ JOHN J. TUS ------------------------------------- John J. Tus Vice President and Controller Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated:
Name Name ---- ---- * * ------------------------------------ ------------------------------------- David M. Cote Bruce Karatz Chairman of the Board, Director Chief Executive Officer and Director * * ------------------------------------ ------------------------------------- Hans W. Becherer Robert P. Luciano Director Director * * ------------------------------------ ------------------------------------- Gordon M. Bethune Russell E. Palmer Director Director * * ------------------------------------ ------------------------------------- Marshall N. Carter Ivan G. Seidenberg Director Director * * ------------------------------------ ------------------------------------- Jaime Chico Pardo Eric K. Shinseki Director Director * * ------------------------------------ ------------------------------------- Clive R. Hollick John R. Stafford Director Director * * ------------------------------------ ------------------------------------- James J. Howard Michael W. Wright Director Director /s/ DAVID J. ANDERSON /s/ JOHN J. TUS ------------------------------------ ------------------------------------------- David J. Anderson John J. Tus Senior Vice President and Vice President and Controller Chief Financial Officer (Principal Accounting Officer) (Principal Financial Officer) *By: /s/ DAVID J. ANDERSON ------------------------------------ (David J. Anderson Attorney-in-fact)
March 4, 2004 19 EXHIBIT INDEX
Exhibit No. Description ----------- ----------- 2 Omitted (Inapplicable) 3(i) Restated Certificate of Incorporation of Honeywell (incorporated by reference to Exhibit 3(i) to Honeywell's Form 8-K filed December 3, 1999) 3(ii) By-laws of Honeywell, as amended (incorporated by reference to Exhibit 3(ii) to Honeywell's Form 10-Q for the quarter ended September 30, 2001) 4 Honeywell is a party to several long-term debt instruments under which, in each case, the total amount of securities authorized does not exceed 10% of the total assets of Honeywell and its subsidiaries on a consolidated basis. Pursuant to paragraph 4(iii)(A) of Item 601(b) of Regulation S-K, Honeywell agrees to furnish a copy of such instruments to the Securities and Exchange Commission upon request. 9 Omitted (Inapplicable) 10.1* 2003 Stock Incentive Plan of Honeywell International Inc. and its Affiliates (incorporated by reference to Honeywell's Proxy Statement, dated March 17, 2003, filed pursuant to Rule 14a-6 of the Securities and Exchange Act of 1934) 10.2* Deferred Compensation Plan for Non-Employee Directors of Honeywell International Inc., as amended and restated (incorporated by reference to Exhibit 10.2 to Honeywell's Form 10-Q for the quarter ended June 30, 2003) 10.3* Stock Plan for Non-Employee Directors of AlliedSignal Inc., as amended (incorporated by reference to Exhibit 10.3 to Honeywell's Form 10-Q for the quarter ended June 30, 2003) 10.4* 1985 Stock Plan for Employees of AlliedSignal Inc. and its Subsidiaries, as amended (incorporated by reference to Exhibit 19.3 to Honeywell's Form 10-Q for the quarter ended September 30, 1991) 10.5* AlliedSignal Inc. Incentive Compensation Plan for Executive Employees, as amended (incorporated by reference to Exhibit B to Honeywell's Proxy Statement, dated March 10, 1994, filed pursuant to Rule 14a-6 of the Securities Exchange Act of 1934, and to Exhibit 10.5 to Honeywell's Form 10-Q for the quarter ended June 30, 1999) 10.6* Supplemental Non-Qualified Savings Plan for Highly Compensated Employees of Honeywell International Inc. and its Subsidiaries, as amended and restated (incorporated by reference to Exhibit 10.6 to Honeywell's Form 10-Q for the quarter ended June 30, 2003) 10.7* Honeywell International Inc. Severance Plan for Senior Executives, as amended and restated (filed herewith) 10.8* Salary and Incentive Award Deferral Plan for Selected Employees of Honeywell International Inc. and its Affiliates, as amended and restated (incorporated by reference to Exhibit 10.8 to Honeywell's Form 10-Q for the quarter ended June 30, 2003)
20
Exhibit No. Description ----------- ----------- 10.9* 1993 Stock Plan for Employees of Honeywell International Inc. and its Affiliates, as amended (incorporated by reference to Exhibit A to Honeywell's Proxy Statement, dated March 10, 1994, filed pursuant to Rule 14a-6 of the Securities Exchange Act of 1934) (amendment filed herewith) 10.10 364-Day Credit Agreement dated as of November 26, 2003 among Honeywell, the initial lenders named therein, Citibank, N.A., as administrative agent, JPMorgan Chase Bank, as syndication agent, and Deutsche Bank AG, New York Branch, Bank of America, N.A. and Barclays Bank PLC, as documentation agents, and CitiGroup Global Markets Inc. and J.P. Morgan Securities Inc., as joint lead arrangers and co-book managers (filed herewith) 10.11 Five-Year Credit Agreement dated as of November 26, 2003 among Honeywell, the initial lenders named therein, Citibank, N.A., as administrative agent, JPMorgan Chase Bank, as syndication agent, and Deutsche Bank AG, New York Branch, Bank of America, N.A., and Barclays Bank PLC, as documentation agents, and CitiGroup Global Markets Inc. and J.P. Morgan Securities Inc., as joint lead arrangers and co-book managers (filed herewith) 10.12* Honeywell International Inc. Supplemental Pension Plan, as amended and restated (incorporated by reference to Exhibit 10.13 to Honeywell's Form 10-K for the year ended December 31, 2000) 10.13* Employment Separation Agreement and Release between J. Kevin Gilligan and Honeywell International Inc. dated February 10, 2004 (filed herewith) 10.14* Honeywell International Inc. Supplemental Executive Retirement Plan for Executives in Career Band 6 and Above (incorporated by reference to Exhibit 10.16 to Honeywell's Form 10-K for the year ended December 31, 2000) 10.15* Honeywell Supplemental Defined Benefit Retirement Plan, as amended and restated (incorporated by reference to Exhibit 10.17 to Honeywell's Form 10-K for the year ended December 31, 2000) 10.16* Letter between David J. Anderson and Honeywell International Inc. dated June 12, 2003 (incorporated by reference to Exhibit 10.26 to Honeywell's Form 10-Q for the quarter ended June 30, 2003) 10.17* Employment Separation Agreement and Release between Richard F. Wallman and Honeywell International Inc. dated July 17, 2003 (incorporated by reference to Exhibit 10.2 to Honeywell's Form 10-Q for the quarter ended September 30, 2003) 10.18* Honeywell International Inc. Severance Plan for Corporate Staff Employees (Involuntary Termination Following a Change in Control), as amended and restated (incorporated by reference to Exhibit 10.19 to Honeywell's Form 10-K for the year ended December 31, 2002) 10.19* Employment Agreement dated as of February 18, 2002 between Honeywell and David M. Cote (incorporated by reference to Exhibit 10.24 to Honeywell's Form 8-K filed March 4, 2002) 11 Omitted (Inapplicable) 12 Statement re: Computation of Ratio of Earnings to Fixed Charges (filed herewith)
21
Exhibit No. Description ----------- ----------- 13 Pages 26 through 76 of Honeywell's 2003 Annual Report to Shareowners (filed herewith) 16 Omitted (Inapplicable) 18 Omitted (Inapplicable) 21 Subsidiaries of the Registrant (filed herewith) 22 Omitted (Inapplicable) 23 Consent of PricewaterhouseCoopers LLP (filed herewith) 24 Powers of Attorney (filed herewith) 31.1 Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) 31.2 Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) 32.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith) 32.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith) 99 Omitted (Inapplicable)
--------- The Exhibits identified above with an asterisk(*) are management contracts or compensatory plans or arrangements. 22 REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of HONEYWELL INTERNATIONAL INC. Our audits of the consolidated financial statements referred to in our report dated February 5, 2004 appearing in the 2003 Annual Report to Shareowners of Honeywell International Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, the Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP Florham Park, New Jersey February 5, 2004 23 HONEYWELL INTERNATIONAL INC SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS Three Years Ended December 31, 2003 (In millions)
Allowance for Doubtful Accounts: Balance December 31, 2000................................... $ 99 Provision charged to income............................. 84 Deductions from reserves(1)............................. (55) ---- Balance December 31, 2001................................... 128 Provision charged to income............................. 109 Deductions from reserves(1)............................. (90) ---- Balance December 31, 2002................................... 147 Provision charged to income............................. 72 Deductions from reserves(1)............................. (69) ---- Balance December 31, 2003................................... $150 ---- ----
--------- (1) Represents uncollectible accounts written off, less recoveries, translation adjustments and reserves acquired. 24 STATEMENT OF DIFFERENCES ------------------------ The registered trademark symbol shall be expressed as..................... 'r' The British pound sterling sign shall be expressed as..................... 'L' The Japanese Yen sign shall be expressed as............................... 'Y' The Euro sign shall be expressed as....................................... 'E' The section symbol shall be expressed as.................................. 'SS' Characters normally expressed as subscript shall be preceded by........... [u]