Edgar Filing: 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, 2010

o 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
9½% Debentures due June 1, 2016		New York Stock Exchange




* The common stock is also listed on the London Stock Exchange.

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No x

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 and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o

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. x

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):


Large accelerated filer x	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

The aggregate market value of the voting stock held by nonaffiliates of the Registrant was approximately $29.8 billion at June 30, 2010.

There were 784,122,288 shares of Common Stock outstanding at January 31, 2011.

Documents Incorporated by Reference

Part III: Proxy Statement for Annual Meeting of Shareowners to be held April 25, 2011.

TABLE OF CONTENTS


	Item		Page


Part I	1	Business	1
	1A	Risk Factors	13
	1B	Unresolved Staff Comments	18
	2	Properties	18
	3	Legal Proceedings	19
	Executive Officers of the Registrant		20

Part II.	5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21
	6	Selected Financial Data	22
	7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
	7A	Quantitative and Qualitative Disclosures About Market Risk	52
	8	Financial Statements and Supplementary Data	53
	9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	111
	9A	Controls and Procedures	111
	9B	Other Information	112

Part III.	10	Directors and Executive Officers of the Registrant	112
	11	Executive Compensation	112
	12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	112
	13	Certain Relationships and Related Transactions	112
	14	Principal Accounting Fees and Services	112

Part IV.	15	Exhibits and Financial Statement Schedules	113

Signatures			114

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, turbochargers, automotive products, specialty chemicals, electronic and advanced materials, process technology for refining and petrochemicals, and energy efficient products and solutions for homes, business and transportation. 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 & Reports”) immediately after they are filed with, or furnished to, the Securities and Exchange Commission (SEC). In addition, in this Form 10-K, the Company incorporates by reference certain information from parts of its proxy statement for the 2011 Annual Meeting of Stockholders, which we expect to file with the SEC on or about March 10, 2011, and which will also be available free of charge on our website.

Information relating to corporate governance at Honeywell, including 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 four businesses that are reported as operating segments: Aerospace, Automation and Control Solutions, Specialty Materials and Transportation Systems. Financial information related to our operating segments is included in Note 23 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data.”

The major products/services, customers/uses and key competitors of each of our operating segments follows:

Aerospace

Our Aerospace segment is a leading global provider of integrated avionics, engines, systems and service solutions for aircraft manufacturers, airlines, business and general aviation, military, space and airport operations.


Product/Service Classes	Major Products/Services	Major Customers/Uses	Key Competitors

Turbine propulsion engines	TFE731 turbofan	Business, regional, general	United Technologies
	TFE1042 turbofan	aviation and military trainer	Rolls Royce/Allison
	ATF3 turbofan	aircraft	Turbomeca
	F124 turbofan	Commercial and military	Williams
	ALF502 turbofan	helicopters
	LF507 turbofan	Military vehicles
	CFE738 turbofan
	HTF 7000 turbofan
	T53, T55 turboshaft
	T800 turboshaft
	TF40B/50A
	HTS900
	LT101-650/750/850
	TPE 331 turboprop
	AGT1500 turboshaft
	Repair, overhaul and spare
	parts


Product/Service Classes	Major Products/Services	Major Customers/Uses	Key Competitors

Auxiliary power units	Airborne auxiliary power units	Commercial, regional, business	United Technologies
(APU’S)	Jet fuel starters	and military aircraft
	Secondary power systems	Ground power
	Ground power units
	Repair, overhaul and spare
	parts

Product/Service Classes	Major Products/Services	Major Customers/Uses	Key Competitors

Environmental control	Air management systems:	Commercial, regional and	Auxilec
systems	Air conditioning	general aviation aircraft	Barber Colman
	Bleed air	Military aircraft	Dukes
	Cabin pressure control	Ground vehicles	Eaton-Vickers
	Air purification and treatment	Spacecraft	General Electric
	Gas Processing		Goodrich
	Heat Exchangers		Liebherr
	Repair, overhaul and spare		Pacific Scientific
	parts		Parker Hannifin
			TAT
			United Technologies

Product/Service Classes	Major Products/Services	Major Customers/Uses	Key Competitors

Electric power systems	Generators	Commercial, regional, business	General Electric
	Power distribution & control	and military aircraft	Goodrich
	Power conditioning		Safran
	Repair, overhaul and spare		United Technologies
	parts

Product/Service Classes	Major Products/Services	Major Customers/Uses	Key Competitors

Engine systems	Electronic and hydromechanical	Commercial, regional and	BAE Controls
accessories	fuel controls	general aviation aircraft	Goodrich
	Engine start systems	Military aircraft	Parker Hannifin
	Electronic engine controls		United Technologies
	Sensors
	Valves
	Electric and pneumatic power
	generation systems
	Thrust reverser actuation,
	pneumatic and electric

Product/Service Classes	Major Products/Services	Major Customers/Uses	Key Competitors

Avionics systems	Flight safety systems:	Commercial, business and	BAE
	Enhanced Ground Proximity	general aviation aircraft	Boeing/Jeppesen
	Warning Systems (EGPWS)	Government aviation	Garmin
	Traffic Alert and Collision		General Electric
	Avoidance Systems (TCAS)		Goodrich
	Windshear detection systems		Kaiser
	Flight data and cockpit voice		L3
	recorders		Lockheed Martin
	Weather radar		Northrop Grumman
	Communication, navigation		Rockwell Collins
	and surveillance systems:		Thales
	Navigation and guidance		Trimble/Terra
	systems		Universal Avionics
	Global positioning systems		Universal Weather


Product/Service Classes	Major Products/Services	Major Customers/Uses	Key Competitors

	Satellite systems
	Integrated avionics systems
	Flight management systems
	Cockpit display systems
	Data management and aircraft
	performance monitoring
	systems
	Aircraft information systems
	Network file servers
	Wireless network transceivers
	Weather information network
	Navigation database
	information
	Cabin management systems
	Vibration detection and
	monitoring
	Mission management systems
	Tactical data management
	systems
	Maintenance and health
	monitoring systems

Product/Service Classes	Major Products/Services	Major Customers/Uses	Key Competitors

Aircraft lighting	Interior and exterior aircraft	Commercial, regional,	Hella/Goodrich
	lighting	business, helicopter and	LSI
		military aviation aircraft	Luminator
		(operators, OEMs, parts	Whelen
		distributors and MRO
		service providers)

Product/Service Classes	Major Products/Services	Major Customers/Uses	Key Competitors

Inertial sensor	Inertial sensor systems for	Military and commercial	Astronautics
	guidance, stabilization,	vehicles	Kearfott
	navigation and control	Commercial spacecraft and	BAE
	Gyroscopes, accelerometers,	launch vehicles	GEC
	inertial measurement units	Transportation	General Electric
	and thermal switches	Missiles	Goodrich
	Attitude and heading	Munitions	L3 Com
	reference systems		KVH
			Northrop Grumman
			Rockwell

Product/Service Classes	Major Products/Services	Major Customers/Uses	Key Competitors

Control products	Radar altimeters	Military aircraft	BAE
	Pressure products	Missiles, UAVs	Goodrich
	Air data products	Commercial applications	Northrop Grumman
	Thermal switches	Commercial, regional, business	Rockwell Collins
	Magnetic sensors	and military aircraft	Rosemount


Product/Service Classes	Major Products/Services	Major Customers/Uses	Key Competitors

Space products and	Guidance subsystems	Commercial and military	BAE
subsystems	Control subsystems	spacecraft	Ithaco
	Processing subsystems	DoD	L3
	Radiation hardened electronics	FAA	Northrop Grumman
	and integrated circuits	NASA	Raytheon
	GPS-based range safety
	systems
	Gyroscopes

Product/Service Classes	Major Products/Services	Major Customers/Uses	Key Competitors

Management and technical	Maintenance/operation and	U.S. government space (NASA)	Bechtel
services	provision of space systems,	DoD (logistics and information	Boeing
	services and facilities	services)	Computer Sciences
	Systems engineering and	FAA	Dyncorp
	integration	DoE	ITT
	Information technology services	Local governments	Lockheed Martin
	Logistics and sustainment	Commercial space ground	Raytheon
		segment systems and	SAIC
		services	The Washington Group
			United Space Alliance

Product/Service Classes	Major Products/Services	Major Customers/Uses	Key Competitors

Landing systems	Wheels and brakes	Commercial airline, regional,	Dunlop Standard Aerospace
	Wheel and brake repair and	business and military aircraft	Goodrich
	overhaul services	High performance	K&F Industries
		commercial vehicles	Messier-Bugatti
		USAF, DoD, DoE	NASCO
		Boeing, Airbus, Lockheed
		Martin


Automation and Control Solutions

Our Automation and Control Solutions segment is a leading global provider of environmental and combustion controls, sensing controls, security and life safety products and services, scanning and mobility devices and process automation and building solutions and services for homes, buildings and industrial facilities.

Product/Service Classes	Major Products/Services	Major Customers/Uses	Key Competitors

Environmental and	Heating, ventilating and air	Original equipment	Bosch
combustion controls;	conditioning controls and	manufacturers (OEMs)	Cherry
sensing controls	components for homes and	Distributors	Danfoss
	buildings	Contractors	Eaton
	Indoor air quality products	Retailers	Emerson
	including zoning, air cleaners,	System integrators	Endress & Hauser
	humidification, heat and	Commercial customers and	Freescale
	energy recovery ventilators	homeowners served by	Semiconductor
	Controls plus integrated	the distributor, wholesaler,	GE
	electronic systems for	contractor, retail and utility	Holmes
	burners, boilers and	channels	Invensys
	furnaces	Package and materials handling	Johnson Controls
	Consumer household products	operations	Omron
	including humidifiers and	Appliance manufacturers	Schneider
	thermostats	Automotive companies	Siemens
	Electrical devices and switches	Aviation companies	United Technologies
	Water controls	Food and beverage processors	Yamatake
	Sensors, measurement, control	Medical equipment
	and industrial components	Heat treat processors
	Energy demand/response	Computer and business
	management products and	equipment manufacturers
	services

Product/Service Classes	Major Products/Services	Major Customers/Uses	Key Competitors

Security and life safety	Security products and systems	OEMs	Bosch
products and services	Fire products and systems	Retailers	Draeger
	Access controls and closed	Distributors	GE
	circuit television	Commercial customers and	Hubbell Inc
	Home health monitoring and	homeowners served by the	Mine Safety
	nurse call systems	the distributor, wholesaler,	Appliances
	Gas detection products and	contractor, retail and utility	Pelco
	systems	channels	Phillips
	Emergency lighting	Health care organizations	Riken Keiki
	Distribution	Security monitoring service	Siemens
	Personal protection equipment	providers	Tyco
		Industrial, fire service, utility	United Technologies
		distributors and U.S.	3M
		Government

Product/Service Classes	Major Products/Services	Major Customers/Uses	Key Competitors

Scanning and mobility	Hand held and hands free	OEMs	Datalogic
	image and laser based bar	Retailers	Intermec
	code scanners	Distributors	Technologies
	Scan engines	Commercial customers served	Motorola Solutions
	Mobile and wireless computers	by the transportation and
		and logistics, manufacturing,
		healthcare and retail
		channels


Product/Service Classes	Major Products/Services	Major Customers/Uses	Key Competitors

Process automation	Advanced control software and	Refining and petrochemical	ABB
products and solutions	industrial automation systems	companies	AspenTech
	for control and monitoring of	Chemical manufacturers	Emerson
	continuous, batch and hybrid	Oil and gas producers	Invensys
	operations	Food and beverage processors	Siemens
	Production management	Pharmaceutical companies	Yokogawa
	software	Utilities
	Communications systems for	Film and coated producers
	Industrial Control equipment	Pulp and paper industry
	and systems	Continuous web producers in
	Consulting, networking	the paper, plastics, metals,
	engineering and installation	rubber, non-woverns and
	Terminal automation solutions	printing industries
	Process control instrumentation	Mining and mineral industries
	Field instrumentation
	Analytical instrumentation
	Recorders and controllers
	Critical environment control
	solutions and services
	Aftermarket maintenance,
	repair and upgrade
	Gas control, measurement
	and analyzing equipment

Product/Service Classes	Major Products/Services	Major Customers/Uses	Key Competitors

Building solutions and	HVAC and building control	Building managers and owners	Ameresco
services	solutions and services	Contractors, architects and	GroupMac
	Energy management solutions	developers	Ingersoll Rand
	and services, including	Consulting engineers	Invensys
	demand response and	Security directors	Johnson Controls
	automation	Plant managers	Local contractors
	Security and asset	Utilities	and utilities
	management solutions and	Large global corporations	Safegate
	services	Public school systems	Schneider
	Enterprise building integration	Universities	Siemens
	solutions	Local governments	Trane
	Building information services	Public housing agencies	Thorn
	Airport lighting and systems,	Airports	United Technologies
	visual docking guidance


Specialty Materials

Our Specialty Materials segment is a global leader in providing customers with high-performance specialty materials, including hydrocarbon processing technologies, catalysts, adsorbents, equipment and services, fluorine products, specialty films and additives, advanced fibers and composites, intermediates, specialty chemicals, electronic materials and chemicals.

Product/Service Classes	Major Products/Services	Major Customers/Uses	Key Competitors

Resins & chemicals	Nylon 6 polymer	Nylon for carpet fibers,	BASF
	Caprolactam	engineered resins and	DSM
	Ammonium sulfate	flexible packaging	Sinopec
	Cyclohexanone	Compounded Fertilizer ingredients	UBE
	Cyclophexanol (KA Oil)	Specialty chemicals
	MEKO

Hydrofluoric acid (HF)	Anhydrous and aqueous	Fluorocarbons	Mexichem Flour
	hydrofluoric acid	Steel	Solvay
		Oil refining
		Chemical intermediates
		Semiconductors Photovoltaics

Fluorocarbons	Refrigerants, aerosol and	Refrigeration	Arkema
	insulation foam blowing	Air conditioning	Dupont
	agents	Polyurethane foam	Solvay
	Genesolv® solvents	Precision cleaning	Ineos
	Oxyfume sterilant gases	Optical
	Ennovate 3000 blowing agent	Appliances
	for refrigeration insulation	Hospitals
		Medical equipment
		manufacturers


Product/Service Classes	Major Products/Services	Major Customers/Uses	Key Competitors

Fluorine specialties	Sulfur hexafluoride (SF6)	Electric utilities	Air Products
	Iodine pentafluoride (IF)	Magnesium gear manufacturers	Asahi Glass
	Antimony pentafluoride (SbF5)		Solvay
			LiMing

Nuclear services	UF6 conversion services	Nuclear fuel	Cameco
		Electric utilities	Comurhex
			Rosatom

Research and fine	Oxime-based fine chemicals	Agrichemicals	Avecia
chemicals	Fluoroaromatics	Biotech	Degussa
	High-purity solvents		DSM
			E. Merck
			Thermo Fisher
			Scientific
			Lonza
			Sigma-Aldrich

Performance chemicals	HF derivatives	Diverse by product type	Atotech
Imaging chemicals	Fluoroaromatics		BASF
Chemical processing	Catalysts		DSM
sealants	Oxime-silanes


Product/Service Classes	Major Products/Services	Major Customers/Uses	Key Competitors

Advanced fibers &	High modulus polyethylene	Bullet resistant vests, helmets	DuPont
composites	fiber and shield composites	and other armor applications	DSM
	Aramid shield composites	Cut-resistant gloves	Teijin
		Rope & cordage

Specialty films	Cast nylon film	Food and pharmaceutical	American Biaxis
	Bi-axially oriented nylon film	packaging	CFP
	Fluoropolymer film		Daikin
			Kolon
			Unitika

Specialty additives	Polyethylene waxes	Coatings and inks	BASF
	Paraffin waxes and blends	PVC pipe, siding & profiles	Clariant
	PVC lubricant systems	Plastics	Eastman
	Processing aids	Reflective coatings
	Luminescent pigments	Safety & security applications


Product/Service Classes	Major Products/Services	Major Customers/Uses	Key Competitors

Electronic chemicals	Ultra high-purity HF	Semiconductors	KMG
	Inorganic acids	Photovoltaics	BASF
	Hi-purity solvents		General Chemical

Semiconductor materials	Interconnect-dielectrics	Semiconductors	BASF
and services	Interconnect-metals	Microelectronics	Brewer
	Semiconductor packaging	Telecommunications	Kyocera
	materials	LED	Nikko
	Advanced polymers	Photovoltaics	Praxair
	Anti-reflective coatings		Shinko
	Thermo-couples		Tosch


Product/Service Classes	Major Products/Services	Major Customers/Uses	Key Competitors

Catalysts, adsorbents and	Catalysts	Petroleum, refining,	Axens
specialties	Molecular sieves	petrochemical, gas	BASF
	Adsorbents	processing, and	WR Grace
	Customer catalyst	manufacturing industries	Haldor
	manufacturing		Shell/Criterion

Process technology	Technology licensing and	Petroleum refining,	Axens
and equipment	engineering design of	petrochemical and gas	BP/Amoco
	process units and systems	processing	Exxon-Mobil
	Engineered products		Chevron Lummus Global
	Proprietary equipment		Chicago Bridge & Iron
	Training and development of		Koch Glitsch
	technical personnel		Linde AG
	Gas processing technology		Natco
			Shaw Group
			Shell/SGS

Renewable fuels and	Technology licensing of	Agricultural products	Neste Oy
chemicals	Process, catalysts, absorbents,		Lurgi
	Refining equipment and		Syntroleum
	services for producing		Dynamotive
	renewable-based fuels
	and chemicals


Transportation Systems

Our Transportation Systems segment is one of the leading manufacturers of engine boosting systems for passenger cars and commercial vehicles, as well as a leading provider of automotive care and braking products.

Product/Service Classes	Major Products/Services	Major Customers/Uses	Key Competitors

Charge-air systems	Turbochargers for gasoline	Passenger car, truck and	Borg-Warner
	and diesel engines	off-highway OEMs	Holset
		Engine manufacturers	IHI
		Aftermarket distributors and	MHI
		dealers

Thermal systems	Exhaust gas coolers	Passenger car, truck and	Behr
	Charge-air coolers	off-highway OEMs	Modine
	Aluminum radiators	Engine manufacturers	Valeo
	Aluminum cooling modules	Aftermarket distributors and
		dealers

Aftermarket filters, spark	Oil, air, fuel, transmission and	Automotive and heavy vehicle	AC Delco
plugs, electronic	coolant filters	aftermarket channels, OEM’s	Bosch
components and car care	PCV valves	and Original Equipment	Champion
products	Spark plugs	Service Providers (OES)	Mann & Hummel
	Wire and cable	Auto supply retailers	NGK
	Antifreeze/coolant	Specialty installers	Peak/Old World
	Windshield washer fluids	Mass merchandisers	Industries
	Waxes, washes and specialty		Purolator
	cleaners		STP/ArmorAll
			Turtle Wax
			Zerex/Valvoline

Brake hard parts and other	Disc brake pads and shoes	Automotive and heavy vehicle	Advics
friction materials	Drum brake linings	OEMs, OES, brake	Akebono
	Brake blocks	manufacturers and	Continental
	Disc and drum brake	aftermarket channels	Federal-Mogul
	components	Installers	ITT Corp
	Brake hydraulic components	Railway and commercial/military	JBI
	Brake fluid	aircraft OEMs and brake	Nisshinbo
	Aircraft brake linings	manufacturers	TMD Friction
	Railway linings		TRW

Aerospace Sales

Our sales to aerospace customers were 32, 35 and 35 percent of our total sales in 2010, 2009 and 2008, respectively. Our sales to commercial aerospace original equipment manufacturers were 6, 7 and 9 percent of our total sales in 2010, 2009 and 2008, respectively. In addition, our sales to commercial aftermarket customers of aerospace products and services were 10, 11 and 11 percent of our total sales in 2010, 2009 and 2008, respectively. Our Aerospace results of operations can be impacted by various industry and economic conditions. See “Item 1A. Risk Factors.”

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 $4,354, $4,288 and $4,240 million in 2010, 2009 and 2008, respectively, which included sales to the U.S. Department of Defense, as a prime contractor and subcontractor, of $3,500, $3,455 and $3,412 million in 2010, 2009 and 2008, respectively. U.S. defense spending increased in 2010. Although we expect a slight decline in our defense and space revenue in 2011 (see Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations), we do not expect to be significantly affected by any proposed changes in 2011 federal spending due principally to the varied mix of the government programs which impact us (OEM production, engineering development programs, aftermarket spares and repairs and overhaul programs). Our contracts with the U.S. Government are subject to audits, investigations, and termination by the government. See “Item 1A. Risk Factors.”

Backlog

Our total backlog at December 31, 2010 and 2009 was $14,616 and $13,182 million, respectively. We anticipate that approximately $10,609 million of the 2010 backlog will be filled in 2011. 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 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. See Item 1A “Risk Factors” for further discussion.

International Operations

We are engaged in manufacturing, sales, service and research and development mainly in the United States, Europe, Asia, Canada, Middle East and Latin America. U.S. exports and foreign manufactured products are significant to our operations. U.S. exports comprised 11, 12 and 10 percent of our total sales in 2010, 2009 and 2008, respectively. Foreign manufactured products and services, mainly in Europe, were 41, 39 and 39 percent of our total sales in 2010, 2009 and 2008, respectively.

Approximately 17 percent of total 2010 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, Canada, Asia and Latin America. Foreign manufactured products and systems and performance of services comprised approximately 15 percent of total 2010 Aerospace sales. The principal manufacturing facilities outside the U.S. are in Europe, with less significant operations in Canada and Asia.

Approximately 2 percent of total 2010 sales of Automation and Control Solutions products and services were exports of U.S. manufactured products. Foreign manufactured products and performance of services accounted for 58 percent of total 2010 Automation and Control Solutions sales. The principal manufacturing facilities outside the U.S. are in Europe, with less significant operations in Asia and Canada.

Approximately 30 percent of total 2010 sales of Specialty Materials products and services were exports of U.S. manufactured products. Exports were principally made to Asia and Latin America. Foreign manufactured products and performance of services comprised 27 percent of total 2010 Specialty Materials sales. The principal manufacturing facilities outside the U.S. are in Europe, with less significant operations in Asia and Canada.

Approximately 3 percent of total 2010 sales of Transportation Systems products were exports of U.S. manufactured products. Foreign manufactured products accounted for 70 percent of total 2010 sales of Transportation Systems. The principal manufacturing facilities outside the U.S. are in Europe, with less significant operations in Asia and Latin America.

Financial information including net sales and long-lived assets related to geographic areas is included in Note 24 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data”. Information regarding the economic, political, regulatory and other risks associated with international operations is included in “Item 1A. Risk Factors.”

Raw Materials

The principal raw materials used in our operations are generally readily available. We experienced no significant problems in the purchase of key raw materials and commodities in 2010. We are not dependent on any one supplier for a material amount of our raw materials, except related to phenol, a raw material used in our Specialty Materials segment. We purchase phenol under a supply agreement with one supplier.

The costs of certain key raw materials, including natural gas, benzene (the key component in phenol), ethylene, fluorspar and sulfur in our Specialty Materials business, steel, nickel, other metals and ethylene glycol in our Transportation Systems business, and nickel, titanium and other metals in our Aerospace business, are expected to remain volatile. In addition, in 2010 certain large long-term fixed supplier price agreements expired, primarily relating to components used by our Aerospace business, which in the aggregate, subjected us to higher volatility in certain component costs. We will continue to attempt to offset raw material cost increases with formula or long-term supply agreements, price increases and hedging activities where feasible. We do not presently anticipate that a shortage of raw materials will cause any material adverse impacts during 2011. See “Item 1A. Risk Factors” for further discussion.

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 single-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. Furthermore, the inability of these suppliers to meet their quality and/or delivery commitments to us, due to bankruptcy, natural disasters or any other reason, may result in significant costs and delay, including those in connection with the required recertification of parts from new suppliers with our customers or regulatory agencies.

Patents, Trademarks, Licenses and Distribution Rights

Our segments 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. See “Item 1A. Risk Factors” for further discussion.

We have registered trademarks for a number of our products and services, including Honeywell, Aclar, Ademco, Autolite, Bendix, Enovate, Fire-Lite, FRAM, Garrett, Hand Held, Holts, Jurid, Metrologic, MK, North, Notifier, Novar, Prestone, Redex, RMG, Simoniz, Spectra, System Sensor and UOP.

Research and Development

Our research activities are directed toward the discovery and development of new products, technologies and processes and the development of new uses for existing products. The Company’s principal research and development activities are in the U.S., Europe, India and China.

Research and development (R&D) expense totaled $1,466, $1,330 and $1,543 million in 2010, 2009 and 2008, respectively. The increase in R&D expense of 10 percent in 2010 compared to 2009 was mainly due to

additional product design and development costs in Automation and Control Solutions and increased expenditures on the development of products for new aircraft platforms. The decrease in R&D expense in 2009 compared to 2008 of 14 percent was consistent with our 15 percent decrease in net sales. R&D as a percentage of sales was 4.4, 4.3 and 4.2 percent in 2010, 2009 and 2008, respectively. Customer-sponsored (principally the U.S. Government) R&D activities amounted to an additional $874, $852 and $903 million in 2010, 2009 and 2008, respectively.

Environment

We are subject to various federal, state, local and foreign 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.

We are and have been engaged in the handling, manufacture, use and disposal of many substances classified as hazardous 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 current or past handling, manufacture, use or disposal of these substances.

Among other environmental requirements, we are subject to the federal superfund and similar state and foreign laws and regulations, under which we have been designated as a potentially responsible party that may be liable for cleanup costs associated with current and former operating sites and 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.

We do not believe that existing or pending climate change legislation, regulation, or international treaties or accords are reasonably likely to have a material effect in the foreseeable future on the Company’s business or markets that it serves, nor on its results of operations, capital expenditures or financial position. We will continue to monitor emerging developments in this area.

Further information, including the current status of significant environmental matters and the financial impact incurred for remediation of such environmental matters, if any, is included in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in Note 21 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data,” and in “Item 1A. Risk Factors.”

Employees

We have approximately 130,000 employees at December 31, 2010, of which approximately 53,000 were located in the United States.


Item 1A.	Risk Factors

Cautionary Statement about Forward-Looking Statements

We have described many of the trends and other factors that drive our business and future results in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”, including the overview of the Company and each of our segments and the discussion of their respective economic and other factors and areas of focus for 2011. These sections and other parts of this report (including this Item 1A) contain “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 management intends, expects, projects, believes or anticipates will or may occur in the future. They are based on management’s assumptions and assessments in light of past experience and trends, current economic and industry conditions, expected future developments and other relevant factors. They are not guarantees of future performance, and actual results, developments and business decisions may differ significantly from those envisaged by our forward-looking statements. We do not undertake to update or revise any of our forward-looking statements. Our forward-looking statements are also subject to risks and uncertainties that can affect our performance in both the near-and long-term. These forward-looking statements should be considered in light of the information included in this Form 10-K, including, in particular, the factors discussed below.

Risk Factors

Our business, operating results, cash flows and financial condition are subject to the risks and uncertainties set forth below, any one of which could cause our actual results to vary materially from recent results or from our anticipated future results.

Industry and economic conditions may adversely affect the market and operating conditions of our customers, which in turn can affect demand for our products and services and our results of operations.

The operating results of our segments are impacted by general global industry and economic conditions that can cause changes in spending and capital investment patterns, demand for our products and services and the level of our manufacturing and shipping costs. The operating results of our Aerospace segment, which generated 32 percent of our consolidated revenues in 2010, are directly tied to cyclical industry and economic conditions, including global demand for air travel as reflected in new aircraft production, the deferral or cancellation of orders for new aircraft, delays in launch schedules for new aircraft platforms, the retirement of aircraft, global flying hours, and business and general aviation aircraft utilization rates, as well as changes in customer buying patterns with respect to aftermarket parts, supplier consolidation, factory transitions, capacity constraints, and the level and mix of U.S. Government appropriations for defense and space programs (as further discussed in other risk factors below). The challenging operating environment faced by the commercial airline industry may be influenced by a wide variety of factors including global flying hours, aircraft fuel prices, labor issues, airline consolidation, airline insolvencies, terrorism and safety concerns as well as changes in regulations. Future terrorist actions or pandemic health issues could dramatically reduce both the demand for air travel and our Aerospace aftermarket sales and margins. The operating results of our Automation and Control Solutions (ACS) segment, which generated 41 percent of our consolidated revenues in 2010, are impacted by the level of global residential and commercial construction (including retrofits and upgrades), capital spending and operating expenditures on building and process automation, industrial plant capacity utilization and expansion, inventory levels in distribution channels, and global economic growth rates. Specialty Materials’ operating results, which generated 14 percent of our consolidated revenues in 2010, are impacted by global economic growth rates, capacity utilization for chemical, industrial, refining, petrochemical and semiconductor plants, our customers’ availability of capital for refinery construction and expansion, and commodity demand volatility. Transportation Systems’ operating results, which generated 13 percent of our consolidated revenues in 2010, are impacted by global production and demand for automobiles and trucks equipped with turbochargers, and regulatory changes regarding automobile and truck emissions and fuel economy, delays in launch schedules for new automotive platforms, and consumer demand and spending for automotive aftermarket and car care products. Demand of global automotive and truck manufacturers will continue to be influenced by a wide variety of factors, including ability of consumers to obtain financing, ability to reduce operating costs and overall consumer and business confidence. Each of the segments is impacted by volatility in raw material prices (as further described below) and non-material inflation.

Raw material price fluctuations, the ability of key suppliers to meet quality and delivery requirements, or catastrophic events can increase the cost of our products and services, impact our ability to meet commitments to customers, and cause us to incur significant liabilities.

The cost of raw materials is a key element in the cost of our products, particularly in our Specialty Materials (benzene (the key component in phenol), natural gas, ethylene, fluorspar and sulfur), Transportation Systems (nickel, steel, other metals and ethylene glycol) and Aerospace (nickel, titanium and other metals) segments. Our inability to offset material price inflation through increased prices to customers, formula or long-term fixed price contracts with suppliers, productivity actions or through commodity hedges could adversely affect our results of operations.

Our manufacturing operations are also highly dependent upon the delivery of materials (including raw materials) by outside suppliers and their assembly of major components and subsystems used in our products in a timely manner and in full compliance with purchase order terms and conditions, quality standards, and applicable laws and regulations. In addition, many major components and product equipment items are procured or subcontracted on a single-source basis; in some circumstances these suppliers are the sole source of the component or equipment. Our ability to manage inventory and meet delivery requirements may be constrained by our suppliers’ ability to adjust delivery of long-lead time products during times of volatile demand. Our suppliers may fail to perform according to specifications as and when required and we may be unable to identify alternate suppliers or to otherwise mitigate the consequences of their non-performance. The supply chains for our businesses could also be disrupted by suppliers’ decisions to exit certain businesses and by external events such as natural disasters, extreme weather events, pandemic health issues, terrorist actions, labor disputes, governmental actions and legislative or regulatory changes (e.g., product certification or stewardship requirements, sourcing restrictions, climate change or greenhouse gas emission standards, etc.). Our inability to fill our supply needs would jeopardize our ability to fulfill obligations under commercial and government contracts, which could, in turn, result in reduced sales and profits, contract penalties or terminations, and damage to customer relationships. Transitions to new suppliers may result in significant costs and delays, including those related to the required recertification of parts obtained from new suppliers with our customers and/or regulatory agencies. In addition, because our businesses cannot always immediately adapt their cost structure to changing market conditions, our manufacturing capacity for certain products may at times exceed or fall short of our production requirements, which could adversely impact our operating costs, profitability and customer and supplier relationships.

Our facilities, distribution systems and information technology systems are subject to catastrophic loss due to, among other things fire, flood, terrorism or other natural or man-made disasters. If any of these facilities or systems were to experience a catastrophic loss, it could disrupt our operations, result in personal injury or property damage, damage relationships with our customers and result in large expenses to repair or replace the facilities or systems, as well as result in other liabilities and adverse impacts. The same risk can also arise from the failure of critical systems supplied by Honeywell to large industrial, refining and petrochemical customers.

Our future growth is largely dependent upon our ability to develop new technologies that achieve market acceptance with acceptable margins.

Our businesses operate in global markets that are characterized by rapidly changing technologies and evolving industry standards. Accordingly, our future growth rate depends upon a number of factors, including our ability to (i) identify emerging technological trends in our target end-markets, (ii) develop and maintain competitive products, (iii) enhance our products by adding innovative features that differentiate our products from those of our competitors and prevent commoditization of our products, (iv) develop, manufacture and bring products to market quickly and cost-effectively, and (v) develop and retain individuals with the requisite expertise.

Our ability to develop new products based on technological innovation can affect our competitive position and requires the investment of significant resources. These development efforts divert resources from other potential investments in our businesses, and they may not lead to the development of new technologies or products on a timely basis or that meet the needs of our customers as fully as competitive offerings. In addition, the markets for our products may not develop or grow as we currently anticipate. The failure of our technologies or products to gain market acceptance due to more attractive offerings by our competitors could significantly reduce our revenues and adversely affect our competitive standing and prospects.

Protecting our intellectual property is critical to our innovation efforts.

We own or are licensed under a large number of U.S. and non-U.S. patents and patent applications, trademarks and copyrights. Our intellectual property rights may expire or be challenged, invalidated or infringed upon by third parties or we may be unable to maintain, renew or enter into new licenses of third party proprietary intellectual property on commercially reasonable terms. In some non-U.S. countries, laws affecting intellectual property are uncertain in their application, which can affect the scope or enforceability of our patents and other

intellectual property rights. Any of these events or factors could diminish or cause us to lose the competitive advantages associated with our intellectual property, subject us to judgments, penalties and significant litigation costs, and/or temporarily or permanently disrupt our sales and marketing of the affected products or services.

Our systems are subject to risks from unlawful attempts by others to gain unauthorized access to our information technology systems through the Internet. The theft and/or unauthorized use or production of our trade secrets and other confidential business information could reduce the value of our investment in R&D and product development and could subject us to claims by third parties relating to loss of their confidential or proprietary information.

An increasing percentage of our sales and operations is in non-U.S. jurisdictions and is subject to the economic, political, regulatory and other risks of international operations.

Our international operations, including U.S. exports, comprise a growing proportion of our operating results. Our strategy calls for increasing sales to and operations in overseas markets, including developing markets such as Mexico, Brazil, China, India, Malaysia, the Middle East and Eastern Europe.

In 2010, 52 percent of our total sales (including products manufactured in the U.S. and in international locations) were outside of the U.S. including 28 percent in Europe and 11 percent in Asia. Risks related to international operations include exchange control regulations, wage and price controls, employment regulations, foreign investment laws, import, export and other trade restrictions (such as embargoes), changes in regulations regarding transactions with state-owned enterprises, nationalization of private enterprises, government instability, and our ability to hire and maintain qualified staff and maintain the safety of our employees in these regions. We are also subject to U.S. laws prohibiting companies from doing business in certain countries, or restricting the type of business that may be conducted in these countries. The cost of compliance with increasingly complex and often conflicting regulations worldwide can also impair our flexibility in modifying product, marketing, pricing or other strategies for growing our businesses, as well as our ability to improve productivity and maintain acceptable operating margins.

As we continue to grow our businesses internationally, our operating results could be increasingly affected by the relative strength of the European and Asian economies and the impact of exchange rate fluctuations. We do have a policy to reduce the risk of volatility through hedging activities, but such activities bear a financial cost and may not always be available to us and may not be successful in eliminating such volatility.

We may be required to recognize impairment charges for our long-lived assets or available for sale investments.

At December 31, 2010, the net carrying value of long-lived assets (property, plant and equipment, goodwill and other intangible assets) and available for sale securities totaled approximately $19.0 billion and $0.3 billion, respectively. In accordance with generally accepted accounting principles, we periodically assess these assets to determine if they are impaired. Significant negative industry or economic trends, disruptions to our business, unexpected significant changes or planned changes in use of the assets, divestitures and market capitalization declines may result in impairments to goodwill and other long-lived assets. An other than temporary decline in the market value of our available for sale securities may also result in an impairment charge. Future impairment charges could significantly affect our results of operations in the periods recognized. Impairment charges would also reduce our consolidated shareowners’ equity and increase our debt-to-total-capitalization ratio, which could negatively impact our credit rating and access to the public debt and equity markets.

A change in the level of U.S. Government defense and space funding or the mix of programs to which such funding is allocated could adversely impact Aerospace’s defense and space sales and results of operations.

Sales of our defense and space-related products and services are largely dependent upon government budgets, particularly the U.S. defense budget. Sales as a prime contractor and subcontractor to the U.S. Department of Defense comprised approximately 33 and 10 percent of Aerospace and total sales, respectively, for the year ended December 31, 2010. We cannot predict the extent to which total funding and/or funding for individual programs will be included, increased or reduced as part of the 2011 and subsequent budgets ultimately approved by Congress, or be included in the scope of separate supplemental appropriations. We also cannot predict the impact of potential changes in priorities due to military transformation and planning and/or the nature of war-related activity on existing, follow-on or replacement programs. A shift in defense or space spending to programs in which we do not participate and/or reductions in funding for or termination of existing programs could adversely impact our results of operations.

As a supplier of military and other equipment to the U.S. Government, we are subject to unusual risks, such as the right of the U.S. Government to terminate contracts for convenience and to conduct audits and investigations of our operations and performance.

In addition to normal business risks, companies like Honeywell that supply 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 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, such as contract award protests and delays in the timing of contract approvals. Changes are customary over the life of U.S. Government contracts, particularly development contracts, and generally result in adjustments of contract prices.

Our contracts with the U.S. Government are subject to audits. Like many other government contractors, we have received audit reports that recommend downward price adjustments to certain contracts or changes to certain accounting systems or controls to comply with various government regulations. We have made adjustments and paid voluntary refunds in appropriate cases and may do so in the future.

U.S. Government contracts are subject to termination by the government, either for the convenience of the government or for our failure to perform under the applicable contract. In the case of a termination for convenience, we are typically entitled to reimbursement for our allowable costs incurred, plus termination costs and a reasonable profit. If a contract is terminated by the government for our failure to perform we could be liable for additional costs incurred by the government in acquiring undelivered goods or services from any other source and any other damages suffered by the government.

We are also subject to government investigations of business practices and compliance with government procurement regulations. If Honeywell or one of its businesses were charged with wrongdoing as a result of any such investigation or other government investigations (including violations of certain environmental or export laws), it could be suspended from bidding on or receiving awards of new government contracts, suspended from contract performance pending the completion of legal proceedings and/or have its export privileges suspended. The U.S. Government also reserves the right to debar a contractor from receiving new government contracts for fraudulent, criminal or other egregious misconduct. Debarment generally does not exceed three years.

Our reputation and ability to do business may be impacted by the improper conduct of employees, agents or business partners.

We cannot ensure that our extensive compliance controls, policies and procedures will in all instances protect us from reckless or criminal acts committed by our employees, agents or business partners that would violate the laws of the jurisdictions in which the Company operates, including laws governing payments to government officials, competition and data privacy. Any improper actions could subject us to civil or criminal investigations, monetary and non-monetary penalties and could adversely impact our ability to conduct business, results of operations and reputation.

Changes in legislation or government regulations or policies can have a significant impact on our results of operations.

The sales and margins of each of our segments are directly impacted by government regulations. Safety and performance regulations (including mandates of the Federal Aviation Administration and other similar international regulatory bodies requiring the installation of equipment on aircraft), product certification requirements and government procurement practices can impact Aerospace sales, research and development expenditures, operating costs and profitability. The demand for and cost of providing Automation and Control Solutions products, services and solutions can be impacted by fire, security, safety, health care, environmental and energy efficiency standards and regulations. Specialty Materials’ results of operations can be affected by environmental (e.g. government regulation of fluorocarbons), safety and energy efficiency standards and regulations, while emissions and energy efficiency standards and regulations can impact the demand for turbochargers in our Transportation Systems segment. Legislation or regulations regarding areas such as labor and employment, employee benefit plans, tax, health, safety and environmental matters, import, export and trade, intellectual property, product certification, and product liability may impact the results of each of our operating segments and our consolidated results.

Completed acquisitions may not perform as anticipated or be integrated as planned, and divestitures may not occur as planned.

We regularly review our portfolio of businesses and pursue growth through acquisitions and seek to divest non-core businesses. We may not be able to complete transactions on favorable terms, on a timely basis or at all. In addition, our results of operations and cash flows may be adversely impacted by (i) the failure of acquired businesses to meet or exceed expected returns, (ii) the discovery of unanticipated issues or liabilities, (iii) the failure to integrate acquired businesses into Honeywell on schedule and/or to achieve synergies in the planned amount or within the expected timeframe, (iv) the inability to dispose of non-core assets and businesses on satisfactory terms and conditions and within the expected timeframe, and (v) the degree of protection provided by indemnities from sellers of acquired companies and the obligations under indemnities provided to purchasers of our divested businesses.

We cannot predict with certainty the outcome of litigation matters, government proceedings and other contingencies and uncertainties.

We are subject to a number of lawsuits, investigations and disputes (some of which involve substantial amounts claimed) arising out of the conduct of our business, including matters relating to commercial transactions, government contracts, product liability (including asbestos), prior acquisitions and divestitures, employment, employee benefits plans, intellectual property, import and export matters and environmental, health and safety matters. Resolution of these matters can be prolonged and costly, and the ultimate results or judgments are uncertain due to the inherent uncertainty in litigation and other proceedings. Moreover, our potential liabilities are subject to change over time due to new developments, changes in settlement strategy or the impact of evidentiary requirements, and we may become subject to or be required to pay damage awards or settlements that could have a material adverse effect on our results of operations, cash flows and financial condition. While we maintain insurance for certain risks, the amount of our insurance coverage may not be adequate to cover the total amount of all insured claims and liabilities. It also is not possible to obtain insurance to protect against all our operational risks and liabilities. The incurrence of significant liabilities for which there is no or insufficient insurance coverage could adversely affect our results of operations, cash flows, liquidity and financial condition.

Our operations and the prior operations of predecessor companies expose us to the risk of material environmental liabilities.

Mainly because of past operations and operations of predecessor companies, we are subject to potentially material liabilities related to the remediation of environmental hazards and to claims of personal injuries or property damages that may be caused by hazardous substance releases and exposures. We have incurred remedial response and voluntary clean-up costs for site contamination and are a party to lawsuits and claims associated with environmental and safety matters, including past production of products containing hazardous substances. Additional lawsuits, claims and costs involving environmental matters are likely to continue to arise in the future. We are subject to various federal, state, local and foreign government requirements regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. These laws and regulations can impose substantial fines and criminal sanctions for violations, and require installation of costly equipment or operational changes to limit emissions and/or decrease the likelihood of accidental hazardous substance releases. We incur, and expect to continue to incur capital and operating costs to comply with these laws and regulations. In addition, changes in laws, regulations and enforcement of policies, the discovery of previously unknown contamination or new technology or information related to individual sites, the establishment of stricter state or federal toxicity standards with respect to certain contaminants, or the imposition of new clean-up requirements or remedial techniques could require us to incur costs in the future that would have a negative effect on our financial condition or results of operations.

Our expenses include significant costs related to employee and retiree health benefits.

With approximately 130,000 employees, including approximately 53,000 in the U.S., our expenses relating to employee health and retiree health benefits are significant. In recent years, we have experienced significant increases in certain of these costs, largely as a result of economic factors beyond our control, in particular, ongoing increases in health care costs well in excess of the rate of inflation. Continued increasing health-care costs, legislative or regulatory changes, and volatility in discount rates, as well as changes in other assumptions used to calculate retiree health benefit expenses, may adversely affect our financial position and results of operations.

Risks related to our defined benefit pension plans may adversely impact our results of operations and cash flow.

Significant changes in actual investment return on pension assets, discount rates, and other factors could adversely affect our results of operations and pension contributions in future periods. U.S. generally accepted accounting principles require that we calculate income or expense for the plans using actuarial valuations. These valuations reflect assumptions about financial markets and interest rates, which may change based on economic conditions. Funding requirements for our U.S. pension plans may become more significant. However, the ultimate amounts to be contributed are dependent upon, among other things, interest rates, underlying asset returns and the impact of legislative or regulatory changes related to pension funding obligations. For a discussion regarding the significant assumptions used to estimate pension expense, including discount rate and the expected long-term rate of return on plan assets, and how our financial statements can be affected by pension plan accounting policies, see “Critical Accounting Policies” included in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Additional tax expense or additional tax exposures could affect our future profitability.

We are subject to income taxes in both the United States and various non-U.S. jurisdictions, and our domestic and international tax liabilities are dependent upon the distribution of income among these different jurisdictions. In 2010, our tax expense represented 28.4 percent of our income before tax, and includes estimates of additional tax which may be incurred for tax exposures and reflects various estimates and assumptions, including assessments of future earnings of the Company that could effect the valuation of our deferred tax assets. Our future results could be adversely affected by changes in the effective tax rate as a result of a change in the mix of earnings in countries with differing statutory tax rates, changes in the overall profitability of the Company, changes in tax legislation, changes in the valuation of deferred tax assets and liabilities, the results of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures.

Volatility of credit markets or macro-economic factors could adversely affect our business.

Changes in U.S. and global financial and equity markets, including market disruptions, limited liquidity, and interest rate volatility, may increase the cost of financing as well as the risks of refinancing maturing debt. In addition, our borrowing costs can be affected by short and long-term ratings assigned by independent rating agencies. A decrease in these ratings could increase our cost of borrowing.

Delays in our customers’ ability to obtain financing, or the unavailability of financing to our customers, could adversely affect our results of operations and cash flow. The inability of our suppliers to obtain financing could result in the need to transition to alternate suppliers, which could result in significant incremental cost and delay, as discussed above. Lastly, disruptions in the U.S. and global financial markets could impact the financial institutions with which we do business.


Item 1B.	Unresolved Staff Comments

Not Applicable


Item 2.	Properties

We have approximately 1,300 locations consisting of plants, research laboratories, sales offices and other facilities. Our headquarters and administrative complex is located in 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.

Our principal plants, which are owned in fee unless otherwise indicated, are as follows:


	Aerospace
Anniston, AL (leased)	South Bend, IN	Greer, SC
Glendale, AZ (leased)	Olathe, KS	Toronto, Canada
Phoenix, AZ	Minneapolis, MN (partially leased)	Olomouc, Czech Republic (leased)
Tempe, AZ	Plymouth, MN	Raunheim, Germany
Tucson, AZ	Rocky Mount, NC	Penang, Malaysia
Torrance, CA	Albuquerque, NM	Singapore (leased)
Clearwater, FL	Urbana, OH	Yeovil, UK (leased)

	Automation and Control Solutions
San Diego, CA (leased)	Pleasant Prairie, WI (leased)	Chihuahua, Mexico
Northford, CT	Shenzhen, China (leased)	Juarez, Mexico (partially leased)
Freeport, IL	Suzhou, China	Tijuana, Mexico (leased)
St. Charles, IL (leased)	Mosbach, Germany	Emmen, Netherlands
Golden Valley, MN	Neuss, Germany	Newhouse, Scotland
Houston, TX (leased)	Schonaich, Germany (leased)
York, PA (leased)	Pune, India (leased)

	Specialty Materials
Mobile, AL	Geismar, LA	Colonial Heights, VA
Des Plaines, IL	Shreveport, LA	Hopewell, VA
Metropolis, IL	Pottsville, PA	Spokane, WA
Baton Rouge, LA	Orange, TX	Seelze, Germany
	Chesterfield, VA

	Transportation Systems
Shanghai, China	Atessa, Italy	Mexicali, Mexico (partially leased)
Conde, France	Kodama, Japan	Bucharest, Romania
Glinde, Germany	Ansan, Korea (leased)	Pune India


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.

Environmental Matters Involving Potential Monetary Sanctions in Excess of $100,000

Although the outcome of the matters discussed below cannot be predicted with certainty, we do not believe that any of them, individually or in the aggregate, will have a material adverse effect on our consolidated financial position, consolidated results of operations or operating cash flows.

The United States Environmental Protection Agency and the United States Department of Justice (“federal authorities”) are investigating whether the storage of certain sludges generated during uranium hexafluoride production at our Metropolis, Illinois facility has been in compliance with the requirements of the Resource Conservation and Recovery Act. The federal authorities have convened a grand jury in this matter. The Company has cooperated fully in the investigation and has been engaged in discussions with the federal authorities regarding a resolution of this matter, which the Company expects to finalize in the first quarter of 2011. The storage issue at the Metropolis site was also previously voluntarily disclosed to the Illinois Environmental Protection Agency, with whom Honeywell has been working to resolve related civil environmental claims.

In November 2010 Honeywell reached a final settlement agreement with the New York State Department of Environmental Conservation to settle allegations that Honeywell failed to properly close out waste storage areas associated with legacy operations in Syracuse, New York, which areas are known as the Solvay Settling Basins. Under the terms of the settlement, Honeywell will pay a fine of $100,000 and implement certain environmental projects in the area.

The United States Environmental Protection Agency and the United States Department of Justice are investigating whether the Company’s manufacturing facility in Hopewell, Virginia is in compliance with the requirements of the Clean Air Act and the facility’s air operating permit. Based on these investigations, the federal authorities have issued notices of violation with respect to the facility’s benzene waste operations, leak detection and repair program, emissions of nitrogen oxides and emissions of particulate matter. The Company has entered into negotiations with federal authorities to resolve the alleged violations.

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, 58^(a)2002		Chairman of the Board and Chief Executive Officer since July 2002.

Alexandre Ismail, 45 2009		President and Chief Executive Officer Transportation Systems since April 2009. President Turbo Technologies from November 2008 to April 2009. President Global Passengers Vehicles from August 2006 to November 2008. Vice President and General Manager Turbo Technologies EMEA & India from September 2003 to August 2006.

Roger Fradin, 57 2004		President and Chief Executive Officer Automation and Control Solutions since January 2004.

Timothy O. Mahoney, 54 2009		President and Chief Executive Officer Aerospace since September 2009. Vice President Aerospace Engineering and Technology and Chief Technology Officer from March 2007 to August 2009. President of Air Transport and Regional from July 2005 to March 2007.

Andreas C. Kramvis, 58 2008		President and Chief Executive Officer Specialty Materials since March 2008. President of Environmental and Combustion Controls from September 2002 to February 2008.

David J. Anderson, 61 2003		Senior Vice President and Chief Financial Officer since June 2003.

Krishna Mikkilineni, 51 2010		Senior Vice President Engineering and Operations since April 2010 and President Honeywell Technology Solutions since January 2009. Vice President Honeywell Technology Solutions from July 2002 to January 2009.

Katherine L. Adams, 46 2009		Senior Vice President and General Counsel since April 2009. Vice President and General Counsel from September 2008 to April 2009. Vice President and General Counsel for Specialty Materials from February 2005 to September 2008.

Mark R. James, 49 2007		Senior Vice President Human Resources and Communications since November 2007. Vice President of Human Resources and Communications for Aerospace from October 2004 to November 2007.




(a) Also a Director.

Part II.


Item 5.	Market for 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 in “Item 8. Financial Statements and Supplementary Data.”

The number of record holders of our common stock at December 31, 2010 was 61,830.

Honeywell did not purchase any of its common stock, par value $1 per share, for the year ending December 31, 2010. The Board of Directors has authorized the repurchase of up to a total of $3 billion of Honeywell common stock, which amount includes $1.3 billion that remained available under the Company’s previously reported share repurchase program. Honeywell presently expects to repurchase outstanding shares from time to time during 2011 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. The amount and timing of future repurchases may vary depending on market conditions and the level of operating, financing and other investing activities.

Performance Graph

The following graph compares the five-year cumulative total return on our Common Stock to the total returns on the Standard & Poor’s 500 Stock Index and a composite of Standard & Poor’s Industrial Conglomerates and Aerospace and Defense indices, on a 60%/40% weighted basis, respectively (the “Composite Index”). The weighting of the components of the Composite Index are based on our segments’ relative contribution to total segment profit. In prior years, these components had been equally weighted. The change in weighting reflects the growth, both organic and through acquisitions, in the Company’s non-Aerospace businesses. The selection of the Industrial Conglomerates component of the Composite Index reflects the diverse and distinct range of non-aerospace businesses conducted by Honeywell. Per SEC rules, we are including the Composite Index on an equally weighted basis in the graph below with respect to 2005-2009. The annual changes for the five-year period shown in the graph are based on the assumption that $100 had been invested in Honeywell stock and each index on December 31, 2005 and that all dividends were reinvested.

(LINE GRAPH)


	Dec 2005	Dec 2006	Dec 2007	Dec 2008	Dec 2009	Dec 2010

Honeywell	100	124.17	172.15	94.08	116.49	162.52
S&P 500®	100	115.79	122.16	76.96	97.33	111.99
Composite Index (60/40)	100	115.23	127.14	69.27	80.32	94.19
Composite Index (50/50)	100	116.89	130.72	73.18	85.91

HONEYWELL INTERNATIONAL INC.

Information in Items 6, 7, 8 and Exhibit 12 for the years ended December 31, 2009, 2008, 2007 and 2006 have been revised, as applicable, for the retrospective application of our change in accounting policy for recognizing pension expense. See Note 1 of the Notes to the Financial Statements for a discussion of the change and the impacts for the years ended December 31, 2009 and 2008.


Item 6.	Selected Financial Data


	Years Ended December 31,

	2010		2009 ⁽¹⁾		2008 ⁽¹⁾		2007 ⁽¹⁾⁽²⁾		2006 ⁽¹⁾⁽³⁾

	(Dollars in millions, except per share amounts)
Results of Operations
Net sales	$	33,370	$	30,908	$	36,556	$	34,589	$	31,367
Net income attributable to Honeywell ⁽⁴⁾		2,022		1,548		806		2,594		2,284
Per Common Share
Earnings from continuing operations:
Basic		2.61		2.06		1.09		3.39		2.78
Assuming dilution		2.59		2.05		1.08		3.35		2.76

Dividends		1.21		1.21		1.10		1.00		0.9075
Financial Position at Year-End
Property, plant and equipment—net		4,840		4,847		4,934		4,985		4,797
Total assets		37,834		35,993		35,570		33,805		30,941
Short-term debt		889		1,361		2,510		2,238		1,154
Long-term debt		5,755		6,246		5,865		5,419		3,909
Total debt		6,644		7,607		8,375		7,657		5,063
Shareowners’ equity ⁽⁵⁾⁽⁶⁾		10,787		8,971		7,140		9,293		9,777



(1)	Reflects the retrospective change in our method of recognizing pension expense. See Note 1 of Notes to Financial Statements for a discussion of the change and the impacts of the change for the years ended December 31, 2009 and 2008.

(2)	For the year ended December 31, 2007 the retrospective change in recognizing pension expense increased Net income attributable to Honeywell by $150 million, Earnings per share, basic by $0.20, Earnings per share, assuming dilution by $0.19.

(3)	For the year ended December 31, 2006 the retrospective change in recognizing pension expense increased Net income attributable to Honeywell by $206 million, Earnings per share, basic by $0.25, Earnings per share, assuming dilution by $0.25.

(4)	For the year ended December 31, 2008 Net income attributable to Honeywell includes a $417 million, net of tax gain resulting from the sale of our Consumables Solutions business as well as a charge of $465 million for environmental liabilities deemed probable and reasonably estimable during 2008 (see Notes 2 and 3 of Notes to Financial Statements, respectively).

(5)	The retrospective change in our method of recognizing pension impacted Shareowners’ equity for the years ended December 31 as follows: 2009- increase of $17 million and 2008- decrease of $128 million.

(6)	For the year ended December 31, 2006 shareowners’ equity includes a reduction of $414 million related to the adoption of revised accounting guidance for “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”.


Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Dollars in millions, except per share amounts)

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Honeywell International Inc. (“Honeywell”) for the three years ended December 31, 2010. All references to Notes related to Notes to the Financial Statements in “Item 8-Financial Statements and Supplementary Data”.

CONSOLIDATED RESULTS OF OPERATIONS


Net Sales

	2010			2009			2008

Net sales	$	33,370		$	30,908		$	36,556
% change compared with prior period		8	%		(15	)%

The change in net sales compared to the prior year period is attributable to the following:


	2010 Versus 2009			2009 Versus 2008

Volume		5	%		(14	)%
Price		2	%		0	%
Acquisitions/Divestitures		1	%		1	%
Foreign Exchange		0	%		(2	)%

		8	%		(15	)%

A discussion of net sales by segment can be found in the Review of Business Segments section of this MD&A.


Cost of Products and Services Sold

	2010			2009			2008

Cost of products and services sold	$	25,519		$	24,012		$	31,118
% change compared with prior period		6	%		(23	)%

Gross Margin percentage		23.5	%		22.3	%		14.9	%

Cost of products and services sold increased by $1,507 million or 6 percent in 2010 compared with 2009 principally due to an estimated increase in direct material costs and indirect costs of approximately $1,300 million and $300 million, respectively, driven substantially by an 8 percent increase in sales as a result of the factors discussed above and in the Review of Business Segments section of this MD&A and an $150 million increase in Repositioning and Other Charges (see Note 3 of Notes to Financial Statements), partially offset by a $300 million decrease in pension expense.

Gross margin percentage increased by 1.2 percentage points in 2010 compared with 2009 primarily due to lower pension expense (approximate 1 percentage point impact) and higher sales volume driven by our Automation and Control Solutions segment, Specialty Materials segment and Transportation Systems segment (approximate 0.7 percentage point impact), partially offset by higher repositioning and other charges (approximate 0.4 percentage point impact).

Cost of products and services sold decreased by $7,106 million or 23 percent in the 2009 compared with 2008. The decrease is primarily due to lower pension expense, lower sales as a result of the factors discussed within the Review of Business Segments section of this MD&A, lower material costs, reduced labor costs (reflecting reduced census, work scheduled reductions, benefits from prior repositioning actions and lower incentive compensation), the positive impact of indirect cost savings initiatives across each of our Business Segments, and lower repositioning charges.

Gross margin percentage increased by 7.4 percentage points in 2009 compared with 2008, primarily due to lower pension expense, increases of 2.9 and 0.6 percent, respectively, in our Specialty Materials and Automation & Controls Solutions segments, as a result of the cost savings initiatives discussed above, and lower repositioning charges, partially offset by lower margins in our Transportation Systems and Aerospace Solutions segments of 3.2 and 0.7 percent, respectively, due to lower sales partially offset by the impact of cost savings initiatives.


Selling, General and Administrative Expenses

	2010			2009			2008

Selling, general and administrative expense	$	4,717		$	4,443		$	5,130
Percent of sales		14.1	%		14.4	%		14.0	%

Selling, general and administrative expenses (SG&A) decreased as a percentage of sales by 0.3 percent in 2010 compared to the 2009 driven by the impact of higher sales volume, discussed above, and lower pension expense, partially offset by an estimated $500 million increase in labor costs (reflecting the absence of prior period labor cost actions).

SG&A as a percentage of sales increased by 0.4 of a percentage point in 2009 compared with 2008. The increase as a percentage of sales was driven by lower sales volumes, substantially offset by the positive impact of i) lower pension expense, (ii) indirect cost savings initiatives across each of our Business Segments, iii) reduced labor costs (reflecting reduced census, work schedule reductions, benefits from prior repositioning actions and lower incentive compensation) and iv) lower repositioning charges.


Other (Income) Expense

	2010			2009			2008

Equity (income)/loss of affiliated companies	$	(29	)	$	(26	)	$	(63	)
Gain on sale of non-strategic businesses and assets		—			(87	)		(635	)
Interest income		(40	)		(33	)		(102	)
Foreign exchange		13			45			52
Other, net		(39	)		46			—

	$	(95	)	$	(55	)	$	(748	)

Other income increased by $40 million in 2010 compared to 2009 due primarily to i) a $62 million pre-tax gain related to the consolidation of a joint venture within our Specialty Materials segment in the third quarter of 2010 (see Note 4 of Notes to Financial statements) for further details, ii) the absence of an other-than-temporary impairment charge of $62 million in the second quarter of 2009, partially offset by the absence of a $50 million deconsolidation gain related to a subsidiary within our Automation and Control Solutions segment in 2009 and $22 million of acquisition related costs in 2010.

Other income decreased by $693 million in 2009 compared to 2008 primarily due to i) a lower gain on sale of non-strategic businesses and assets due to the gain on the sale of our Consumables Solutions business in 2008 partially offset by a gain related to the deconsolidation of a subsidiary within our Automation and Control Solutions segment in 2009 (See Note 4 to the financial statements) and ii) lower interest income primarily due to lower interest rates on cash balances.


Interest and Other Financial Charges

	2010			2009			2008

Interest and other financial charges	$	386		$	459		$	456
% change compared with prior period		(16	)%		1	%

Interest and other financial charges decreased by 16 percent in 2010 compared with 2009 primarily due to lower debt balances and lower borrowing costs.

Interest and other financial charges increased by 1 percent in 2009 compared with 2008 due to lower debt balances offset by higher borrowing costs on term debt.


Tax Expense

	2010			2009			2008

Tax expense	$	808		$	465		$	(226	)
Effective tax rate		28.4	%		22.7	%		(37.7	)%

The effective tax rate increased by 5.7 percentage points in 2010 compared with 2009 primarily due to a change in the mix of earnings related to lower U.S. pension expense, the impact of an enacted change in the tax treatment of the Medicare Part D program, the absence of manufacturing incentives, a decreased impact from the settlement of audits and an increase in the foreign effective tax rate. The foreign effective tax rate increased by approximately 7 percentage points which primarily consisted of i) a 6 percentage point impact from the absence of tax benefits related to foreign exchange and investment losses and ii) a 0.5 percentage points impact from increased valuation allowances on net operating loss. The effective tax rate was lower than the U.S. statutory rate of 35 percent primarily due to earnings taxed at lower foreign rates.

The effective tax rate increased by 60.4 percentage points in 2009 compared to 2008 primarily due to a change in the mix of earnings related to lower U.S. pension expense and to a lesser extent, a decreased impact from the settlement of audits. The effective tax rate was lower than the U.S. statutory rate of 35 percent primarily due to earnings taxed at lower foreign rates.

In 2011, the effective tax rate could change based upon the Company’s operating results and the outcome of tax positions taken regarding previously filed tax returns currently under audit by various Federal, State and foreign tax authorities, several of which may be finalized in the foreseeable future. The Company believes that it has adequate reserves for these matters, the outcome of which could materially impact the results of operations and operating cash flows in the period they are resolved.


Net Income Attributable to Honeywell

	2010		2009		2008

Net income attributable to Honeywell	$	2,022	$	1,548	$	806
Earnings per share of common stock – assuming dilution	$	2.59	$	2.05	$	1.08

Earnings per share of common stock – assuming dilution increased by $0.54 per share in 2010 compared with 2009 primarily due to increased segment profit in our Automation and Control Solutions, Specialty Materials and Transportation Systems segments and lower pension expense, partially offset by higher tax expense and higher repositioning and other charges.

Earnings per share of common stock – assuming dilution increased by $0.97 per share in 2009 compared with 2008 primarily relates to lower pension expense and lower repositioning charges, partially offset by a decrease in segment profit in each of our business segments, decreased Other (Income) Expense, as discussed above, and an increase in the number of shares outstanding.

For further discussion of segment results, see “Review of Business Segments”.

BUSINESS OVERVIEW

This Business Overview provides a summary of Honeywell and its four reportable operating segments (Aerospace, Automation and Control Solutions, Specialty Materials and Transportation Systems), including their respective areas of focus for 2011 and the relevant economic and other factors impacting their results, and a discussion of each segment’s results for the three years ended December 31, 2010. Each of these segments is comprised of various product and service classes that serve multiple end markets. See Note 23 to the financial statements for further information on our reportable segments and our definition of segment profit.

Economic and Other Factors

In addition to the factors listed below with respect to each of our operating segments, our consolidated operating results are principally driven by:


	•	Impact of global economic growth rates (U.S., Europe and emerging regions) and industry conditions on demand in our key end markets;

	•	Overall sales mix, in particular the mix of Aerospace original equipment and aftermarket sales and the mix of Automation and Control Solutions (ACS) products and services sales;

	•	The extent to which cost savings from productivity actions are able to offset or exceed the impact of material and non-material inflation;

	•	The impact of the pension discount rate and asset returns on pension expense, including mark-to-market adjustments, and funding requirements; and

	•	The impact of changes in foreign currency exchange rate, particularly the U.S. dollar-Euro exchange rate.

Areas of Focus for 2011

The areas of focus for 2011, which are generally applicable to each of our operating segments, include:


	•	Driving profitable growth by building innovative products that address customer needs;

	•	Achieving sales growth, technological excellence and manufacturing capability through global expansion, especially focused on emerging regions in China, India and the Middle East;

	•	Proactively managing raw material costs through formula and long term supply agreements, price increases and hedging activities, where feasible;

	•	Driving cash flow conversion through effective working capital management and capital investment in our businesses, thereby enhancing liquidity, repayment of debt, strategic acquisitions, and the ability to return value to shareholders;

	•	Actively monitoring trends in short-cycle end markets, such as the Transportation Systems Turbo business, ACS Products businesses, Aerospace commercial after-market and Specialty Materials Advanced Materials, and continuing to take proactive cost actions;

	•	Aligning and prioritizing investments in long-term growth considering short-term demand volatility;

	•	Driving productivity savings through execution of repositioning actions;

	•	Controlling discretionary spending levels with focus on non-customer related costs;

	•	Ensuring preparedness to maximize performance in response to improving end market conditions while controlling costs by proactively managing capacity utilization, supply chain and inventory demand;

	•	Utilizing our enablers Honeywell Operating System (HOS), Functional Transformation and Velocity Product Development (VPD) to standardize the way we work, increase quality and reduce the costs of product manufacturing, reduce costs and enhance the quality of our administrative functions and improve business operations through investments in systems and process improvements;

	•	Monitoring both suppliers and customers for signs of liquidity constraints, limiting exposure to any resulting inability to meet delivery commitments or pay amounts due, and identifying alternate sources of supply as necessary; and

	•	Controlling Corporate costs, including costs incurred for asbestos and environmental matters, pension and other post-retirement expenses and tax expense.

Review of Business Segments


	2010			2009			2008

Net Sales
Aerospace
Product	$	5,868		$	5,930		$	7,676
Service		4,815			4,833			4,974

Total		10,683			10,763			12,650
Automation and Control Solutions
Product		11,733			10,699			11,953
Service		2,016			1,912			2,065

Total		13,749			12,611			14,018
Specialty Materials
Product		4,449			3,895			4,961
Service		277			249			305

Total		4,726			4,144			5,266
Transportation Systems
Product		4,212			3,389			4,622
Service		—			—			—

Total		4,212			3,389			4,622
Corporate
Product		—			—			—
Service		—			1			—

Total		—			1			—

	$	33,370		$	30,908		$	36,556


Segment Profit
Aerospace	$	1,835		$	1,893		$	2,300
Automation and Control Solutions		1,770			1,588			1,622
Specialty Materials		749			605			721
Transportation Systems		473			156			406
Corporate		(211	)		(145	)		(204	)

	$	4,616		$	4,097		$	4,845

A reconciliation of segment profit to consolidated income from continuing operations before taxes are as follows:


	Years Ended December 31,

	2010			2009			2008

Segment Profit	$	4,616		$	4,097		$	4,845
Other income/ (expense)⁽¹⁾		66			29			685
Interest and other financial charges		(386	)		(459	)		(456	)
Stock compensation expense⁽²⁾		(164	)		(118	)		(128	)
Pension expense- ongoing⁽²⁾⁽³⁾		(189	)		(296	)		91
Pension mark to market adjustment⁽²⁾⁽³⁾		(471	)		(741	)		(3,290	)
Other postretirement income/(expense)⁽²⁾		(29	)		15			(135	)
Repositioning and other charges ⁽²⁾		(600	)		(478	)		(1,012	)

Income before taxes⁽³⁾	$	2,843		$	2,049		$	600



(1)	Equity income/(loss) of affiliated companies is included in Segment Profit.

(2)	Amounts included in cost of products and services sold and selling, general and administrative expenses.

(3)	As revised for the change in our method of recognizing pension expense. See Note 1 of Notes to Financial Statements for a discussion of the change and the impacts of the change for the years ended December 31, 2009 and 2008.


							% Change

	2010		2009		2008		2010 Versus 2009		2009 Versus 2008


Aerospace Sales
Commercial:
Air transport and regional
Original equipment	$	1,362	$	1,396	$	1,766	(2	)%	(21	)%
Aftermarket		2,437		2,419		2,866	1	%	(16	)%
Business and general aviation
Original equipment		513		709		1,459	(28	)%	(51	)%
Aftermarket		976		902		1,227	8	%	(26	)%
Defense and Space Sales		5,395		5,337		5,332	1	%	0	%

Total Aerospace Sales		10,683		10,763		12,650

Automation and Control Solutions Sales
Products		8,467		7,627		8,562	11	%	(11	)%
Solutions		5,282		4,984		5,456	6	%	(9	)%

Total Automation and Control Solutions Sales		13,749		12,611		14,018

Specialty Materials Sales
UOP		1,556		1,574		1,953	(1	)%	(19	)%
Advanced Materials		3,170		2,570		3,313	23	%	(22	)%

Total Specialty Materials Sales		4,726		4,144		5,266

Transportation Systems Sales
Turbo Technologies		3,192		2,432		3,582	31	%	(32	)%
Consumer Products Group		1,020		957		1,040	7	%	(8	)%

Total Transportation Systems Sales		4,212		3,389		4,622


Corporate		—		1		—

Net Sales	$	33,370	$	30,908	$	36,556

Aerospace

Overview

Aerospace is a leading global supplier of aircraft engines, avionics, and related products and services for aircraft manufacturers, airlines, aircraft operators, military services, and defense and space contractors. Our Aerospace products and services include auxiliary power units, propulsion engines, environmental control systems, electric power systems, engine controls, flight safety, communications, navigation, radar and surveillance systems, aircraft lighting, management and technical services, logistics services, advanced systems and instruments, aircraft wheels and brakes and repair and overhaul services. Aerospace sells its products to original equipment (OE) manufacturers in the air transport, regional, business and general aviation aircraft segments, and provides spare parts and repair and maintenance services for the aftermarket (principally to aircraft operators). The United States Government is also a major customer for our defense and space products.

Economic and Other Factors

Aerospace operating results are principally driven by:


	•	New aircraft production rates and delivery schedules set by commercial air transport, regional jet, business and general aviation OE manufacturers, as well as airline profitability, platform mix and retirement of aircraft from service;


	•	Global demand for commercial air travel as reflected in global flying hours and utilization rates for corporate and general aviation aircraft, as well as the demand for spare parts and maintenance and repair services for aircraft currently in use;

	•	Level and mix of U.S. Government appropriations for defense and space programs and military activity; and

	•	Availability and price volatility of raw materials such as titanium and other metals.

Aerospace


	2010		2009		Change			2008		Change

Net sales	$	10,683	$	10,763		(1	)%	$	12,650		(15	)%

Cost of products and services sold		8,099		8,099					9,426
Selling, general and administrative expenses		553		570					721
Other		196		201					203

Segment profit	$	1,835	$	1,893		(3	)%	$	2,300		(18	)%


Factors Contributing to Year-Over-Year Change	2010 vs. 2009						2009 vs. 2008

	Sales			Segment Profit			Sales			Segment Profit

Organic growth/ Operational segment profit		0	%		0	%		(13	)%		(18	)%
Acquisitions and divestitures, net		0	%		0	%		(2	)%		(2	)%
Other		(1	)%		(3	)%		—			2	%

Total % Change		(1	)%		(3	)%		(15	)%		(18	)%

Aerospace sales by major customer end-markets were as follows:


	% of Aerospace Sales									% Change in Sales

Customer End-Markets	2010			2009			2008			2010 Versus 2009			2009 Versus 2008

Commercial:
Air transport and regional
Original equipment		13	%		13	%		14	%		(2	)%		(21	)%
Aftermarket		23	%		22	%		23	%		1	%		(16	)%
Business and general aviation
Original equipment		5	%		7	%		11	%		(27	)%		(51	)%
Aftermarket		9	%		8	%		10	%		8	%		(27	)%
Defense and Space		50	%		50	%		42	%		1	%		0	%

Total		100	%		100	%		100	%		(1	)%		(15	)%

2010 compared with 2009

Aerospace sales decreased by 1 percent in 2010 compared with 2009 primarily due to a 1 percent reduction of revenue related to amounts recognized for payments to business and general aviation original equipment manufacturers (OEM Payments) to partially offset their pre-production costs associated with new aircraft platforms.

Details regarding the changes in sales by customer end-markets are as follows:


	•	Air transport and regional original equipment (OE) sales decreased by 2 percent in 2010 primarily due to lower sales to our air transport OE customers.


	•	Air transport and regional aftermarket sales increased by 1 percent for 2010 primarily due to increased sales of spare parts driven by the impact of increased flying hours of approximately 6 percent in 2010.

	•	Business and general aviation OE sales decreased by 27 percent in 2010 due to decreases in new business jet deliveries reflecting rescheduling and cancellations of deliveries by OE customers in the first six months and the impact of the OEM Payments discussed above.

	•	Business and general aviation aftermarket sales increased by 8 percent in 2010 primarily due to increased sales of spare parts due to higher engine utilization, partially offset by lower revenue associated with licensing and maintenance service agreements.

	•	Defense and space sales increased by 1 percent in 2010 primarily due to higher sales of logistics services partially offset by program wind-downs and completions and lower sales related to commercial helicopters. Changes in defense and space budgets and program delays are anticipated to impact the amount and timing of sales in this end-market in 2011.

Aerospace segment profit decreased by 3 percent in 2010 compared with 2009 primarily due to a negative 3 percent impact from the OEM payments, discussed above. Operational segment profit was flat in 2010 with the approximate positive 4 percent impact from price and productivity, net of inflation (including the absence of prior period labor cost actions offset by the benefits from prior repositioning actions) offset by an approximate negative 4 percent impact from lower sales volume. Cost of goods sold totaled $8.1 billion in 2010, unchanged from 2009.

2009 compared with 2008

Aerospace sales decreased by 15 percent in 2009. Details regarding the decrease in sales by customer end-markets are as follows:


	•	Air transport and regional original equipment (OE) sales decreased by 21 percent in 2009. The decrease is driven by lower sales to our OE customers, consistent with production rates and platform mix, and the impact of divesting our Consumables Solutions business, partially offset by a 12 percent increase in the fourth quarter of 2009 mainly due to the absence of a strike at a major OEM in the fourth quarter of 2008.

	•	Air transport and regional aftermarket sales decreased by 16 percent in 2009 primarily due to decreased sales of spare parts and lower maintenance activity driven by the impact of higher parked aircraft part utilization, customer inventory reductions initiatives and decreased flying hours of approximately 2 percent, including a 1 percent increase in the fourth quarter.

	•	Business and general aviation OE sales decreased by 51 percent in 2009 due to the decreases in new business jet deliveries reflecting rescheduling and cancellations of deliveries by OE customers.

	•	Business and general aviation aftermarket sales decreased by 27 percent in 2009. The decrease was primarily due to decreased sales of spare parts and lower revenue associated with maintenance service agreements, consistent with the decrease in business jet utilization. We started to see an increase in business jet utilization rates in the fourth quarter of 2009.

	•	Defense and space sales were essentially unchanged in 2009, primarily due to higher sales of logistics services and original equipment for military platforms in the first nine months of 2009 offset by program completions.

Aerospace segment profit decreased by 18 percent in 2009 compared to 2008 due primarily to lower sales as a result of the factors discussed above and inflation, partially offset by volume related material cost reductions and reduced labor costs (reflecting reduced census, work schedule reductions, benefits from prior repositioning actions and lower incentive compensation), the positive impact of cost savings initiatives and increased prices.

2011 Areas of Focus

Aerospace’s primary areas of focus for 2011 include:


	•	Aligning inventory, production and research and development with improving customer demand and production schedules;

	•	Expanding sales and operations in international locations;

	•	Global pursuit of new defense and space programs;

	•	Focus on cost structure initiatives to maintain profitability in face of evolving defense and space budgets and program specific appropriations;

	•	Continuing to design equipment that enhances the safety, performance and durability of aerospace and defense equipment, while reducing weight and operating costs;

	•	Delivering world-class customer service and achieving cycle and lead time reduction to improve responsiveness to customer demand; and

	•	Continued deployment of our common enterprise resource planning (ERP) system.

Automation and Control Solutions (ACS)

Overview

ACS provides innovative products and solutions that make homes, buildings, industrial sites and infrastructure more efficient, safe and comfortable. Our ACS products and services include controls for heating, cooling, indoor air quality, ventilation, humidification, lighting and home automation; advanced software applications for home/building control and optimization; sensors, switches, control systems and instruments for measuring pressure, air flow, temperature and electrical current; security, fire and gas detection; personal protection equipment; access control; video surveillance; remote patient monitoring systems; products for automatic identification and data collection, installation, maintenance and upgrades of systems that keep buildings safe, comfortable and productive; and automation and control solutions for industrial plants, including advanced software and automation systems that integrate, control and monitor complex processes in many types of industrial settings as well as equipment that controls, measures and analyzes natural gas production and transportation.

Economic and Other Factors

ACS’s operating results are principally driven by:


	•	Global commercial construction (including retrofits and upgrades);

	•	Demand for residential security and environmental control retrofits and upgrades;

	•	Demand for energy efficient products and solutions;

	•	Industrial production;

	•	Government and public sector spending;

	•	Economic conditions and growth rates in developed (U.S. and Europe) and emerging markets;

	•	The strength of global capital and operating spending on process (including petrochemical and refining) and building automation;

	•	Inventory levels in distribution channels; and

	•	Changes to energy, fire, security, health care, safety and environmental concerns and regulations.

Automation and Control Solutions


	2010		2009		Change			2008		Change

Net sales	$	13,749	$	12,611		9	%	$	14,018		(10	)%

Cost of products and services sold		9,312		8,561					9,594
Selling, general and administrative expenses		2,480		2,256					2,709
Other		187		206					93

Segment profit	$	1,770	$	1,588		11	%	$	1,622		(2	)%


Factors Contributing to Year-Over-Year Change	2010 vs. 2009						2009 vs. 2008

	Sales			Segment Profit			Sales			Segment Profit

Organic growth/ Operational segment profit		6	%		9	%		(9	)%		0	%
Foreign exchange		0	%		0	%		(4	)%		(2	)%
Acquisitions and divestitures, net		3	%		2	%		3	%		2	%
Other		0	%		0	%		0	%		(2	)%

Total % Change		9	%		11	%		(10	)%		(2	)%

2010 compared with 2009

Automation and Control Solutions (“ACS”) sales increased by 9 percent in 2010 compared with 2009, primarily due to a 6 percent increase in organic revenue driven by increased sales volume and 3 percent growth from acquisitions.


	•	Sales in our Products businesses increased by 11 percent in 2010 primarily reflecting higher sales volumes in our businesses tied to industrial production (environmental and combustion controls, sensing and control, gas detection, personal protective equipment and scanning and mobility products), new product introductions and acquisitions, primarily Sperian.

	•	Sales in our Solutions businesses increased by 6 percent in 2010 primarily due to the positive impact of increased volume, acquisitions, net of divestitures (primarily the RMG Group), net of divestitures, higher prices and growth in energy efficiency projects and industrial field solutions driven by orders growth and conversion to sales from order backlog. Orders and backlog increased in 2010 compared to 2009 primarily driven by energy efficiency projects, refining and natural gas infrastructure projects and growth in emerging regions.

ACS segment profit increased by 11 percent in 2010 compared with 2009 due to a 9 percent increase in operational segment profit and 2 percent increase from acquisitions. The increase in operational segment profit is comprised of an approximate 18 percent positive impact from higher sales volume, partially offset by an approximate 9 percent negative impact from inflation, net of price and productivity (including the absence of prior period labor cost actions, partially offset by the benefits of prior repositioning). Cost of goods sold totaled $9.3 billion in 2010, an increase of approximately $750 million which is primarily as a result of the factors discussed above.

2009 compared with 2008

ACS sales decreased by 10 percent in 2009 compared with 2008, primarily due to decreased sales volume (reflecting slower global economic growth) and an unfavorable impact of foreign exchange of 4 percent, partially offset by a 3 percent growth from acquisitions.


	•	Sales in our Products businesses decreased by 11 percent, including (i) lower volumes of sales in each of our businesses (excluding the impact of acquisitions) and (ii) the unfavorable impact of foreign exchange. Softness in residential and industrial end-markets was partially offset by the positive impact of acquisitions, most significantly Norcross Safety Products.

	•	Sales in our Solutions businesses decreased by 9 percent primarily due to the unfavorable impact of foreign exchange and volume decreases largely due to softening demand as a result of customer


		deferral of capital and operating expenditures. Orders decreased while backlog increased in 2009. Decreased orders are primarily due to the unfavorable impact of foreign exchange, softening demand (as noted above) and order timing and delays. Higher backlog is primarily due to longer duration projects. The impact of these factors was partially offset by the positive impact of acquisitions, most significantly the RMG Group.

ACS segment profit decreased by 2 percent in 2009 compared with 2008 principally due to the negative impact of lower sales as a result of the factors discussed above and inflation, partially offset by lower material costs, reduced labor costs (reflecting reduced census, work schedule reductions, benefits from prior repositioning actions and lower incentive compensation) and the positive impact of indirect cost savings initiatives. In the fourth quarter of 2009 these factors more than offset the impact of lower sales described above resulting in a 5 percent increase in segment profit.

2011 Areas of Focus

ACS’s primary areas of focus for 2011 include:


	•	Products and solutions for energy efficiency and asset management;

	•	Extending technology leadership: lowest total installed cost and integrated product solutions;

	•	Defending and extending our installed base through customer productivity and globalization;

	•	Sustaining strong brand recognition through our brand and channel management;

	•	Continued centralization and standardization of global software development capabilities;

	•	Continuing to identify, execute and integrate acquisitions in or adjacent to the markets which we serve;

	•	Continuing to establish and grow emerging markets presence and capability;

	•	Continuing to invest in new product development and introductions; and

	•	Continued deployment of our common ERP system.

Specialty Materials

Overview

Specialty Materials develops and manufactures high-purity, high-quality and high-performance chemicals and materials for applications in the refining, petrochemical, automotive, healthcare, agricultural, packaging, refrigeration, appliance, housing, semiconductor, wax and adhesives segments. Specialty Materials also provides process technology, products and services for the petroleum refining, gas processing, petrochemical, renewable energy and other industries. Specialty Materials’ product portfolio includes fluorocarbons, hydrofluoroolefins, caprolactam, resins, ammonium sulfate for fertilizer, specialty films, waxes, additives, advanced fibers, customized research chemicals and intermediates, electronic materials and chemicals, catalysts, and adsorbents.

Economic and Other Factors

Specialty Materials operating results are principally driven by:


	•	Level and timing of capital spending and capacity and utilization rates in refining and petrochemical end markets;

	•	Degree of pricing volatility in raw materials such as benzene (the key component in phenol), fluorspar, natural gas, ethylene and sulfur;

	•	Impact of environmental and energy efficiency regulations;

	•	Extent of change in order rates from global semiconductor customers;

	•	Global demand for non-ozone depleting Hydro fluorocarbons (HFC’s);

	•	Condition of the U.S. residential housing and non residential industries and automotive demand;


	•	Global demand for commodities such as caprolactam and ammonium sulfate; and

	•	Increasing demand for renewable energy and biofuels.

Specialty Materials


	2010		2009		Change			2008		Change

Net sales	$	4,726	$	4,144		14	%	$	5,266		(21	)%
Cost of products and services sold		3,554		3,127					4,121
Selling, general and administrative expenses		345		345					395
Other		78		67					29

Segment profit	$	749	$	605		24	%	$	721		(16	)%


Factors Contributing to Year-Over-Year Change	2010 vs. 2009						2009 vs. 2008

	Sales			Segment Profit			Sales			Segment Profit

Organic growth/ Operational segment profit		14	%		25	%		(20	)%		(14	)%
Foreign exchange		0	%		(1	)%		(1	)%		(2	)%

Total % Change		14	%		24	%		(21	)%		(16	)%

2010 compared with 2009

Specialty Materials sales increased by 14 percent in 2010 compared with 2009 predominantly due to organic growth.


	•	Advanced Materials sales increased by 23 percent in 2010 compared to 2009 primarily driven by (i) a 29 percent increase in Resins and Chemicals sales primarily due to higher prices driven by strong Asia demand, formula pricing arrangements and agricultural demand, (ii) a 21 percent increase in Specialty Products sales most significantly due to higher sales volume to our semiconductor, specialty additives, advanced fiber industrial applications and specialty chemicals customers, (iii) a 19 percent increase in our Fluorine Products business due to higher sales volume from increased demand for our refrigerants, insulating materials and industrial processing aids.

	•	UOP sales decreased by 1 percent in 2010 compared to 2009 primarily driven by lower new unit catalyst sales and timing of projects activity in the refining and petrochemical industries, partially offset by increased gas processing equipment sales.

Specialty Materials segment profit increased by 24 percent in 2010 compared with 2009 due to a 25 percent increase in operational segment profit. The increase in operational segment profit is primarily due to a 24 percent positive impact from higher sales volumes. The positive impact from price and productivity was offset by the negative impact from inflation (including the absence of prior period labor cost actions). Cost of goods sold totaled $3.6 billion in 2010, an increase of approximately $400 million which is primarily as a result of the factors discussed above.

2009 compared with 2008

Specialty Materials sales decreased by 21 percent in 2009 compared with 2008 primarily driven by (i) a 32 percent decrease in Resins and Chemicals sales due to substantial price declines arising from pass through of lower raw materials costs, partially offset by increased volume (most notably in the fourth quarter), (ii) a 19 percent decrease in UOP sales due to customer deferrals of projects as a result of reduced demand for additional capacity in the refining and petrochemical industries as well as lower catalyst sales, (iii) a 22 percent decrease in Specialty Products sales most significantly due to continued demand softness across key customer end-markets, and (iv) an 11 percent decrease in Fluorine Products sales due to lower volume sales of refrigerants and insulating materials principally driven by customer inventory reduction initiatives and soft construction and original equipment manufacturing end markets, partially offset by price increases.

Specialty Materials segment profit decreased by 16 percent in 2009 compared with 2008. This decrease is principally due to lower sales as a result of the factors discussed above, partially offset by lower material costs, reduced labor costs (reflecting reduced census, work schedule reductions and lower incentive compensation), the positive impact of indirect cost savings initiatives and increased prices. In the fourth quarter of 2009 these factors more than offset the impact of lower sales described above resulting in a 56 percent increase in segment profit.

2011 Areas of Focus

Specialty Materials primary areas of focus for 2011 include:


	•	Continuing to develop new processes, products and technologies that address energy efficiency, the environment and security, as well as position the portfolio for higher value;

	•	Commercializing new products and technologies in the petrochemical, gas processing and refining industries and renewable energy sector;

	•	Driving sales and marketing excellence and expand local presence in fast growing emerging markets;

	•	Execution of awarded government projects;

	•	Managing exposure to raw material commodity fluctuations; and

	•	Investing to increase plant reliability and operational effectiveness, productivity, quality and operational excellence.

Transportation Systems

Overview

Transportation Systems provides automotive products that improve the performance, efficiency, and appearance of cars, trucks, and other vehicles through state-of-the-art technologies, world class brands and global solutions to customers’ needs. Transportation Systems’ products include turbochargers and charge-air and thermal systems; car care products including anti-freeze (Prestone(R)), filters (Fram(R)), spark plugs (Autolite(R)), and cleaners, waxes and additives (Holts(R)); and brake hard parts and other friction materials (Bendix(R) and Jurid(R)). Transportation Systems sells its products to original equipment (“OE”) automotive and truck manufacturers (e.g., BMW, Caterpillar, Daimler, Renault, Ford, and Volkswagen), wholesalers and distributors and through the retail aftermarket.

Economic and Other Factors

Transportation Systems operating results are principally driven by:


	•	Financial strength and stability of automotive OE manufacturers;

	•	Global demand for automobile and truck production;

	•	Turbo penetration rates for new engine platforms;

	•	Global consumer preferences for boosted diesel passenger cars;

	•	Degree of volatility in raw material prices, including nickel and steel;

	•	New automobile production rates and the impact of customer inventory levels on demand for our products;

	•	Regulations mandating lower emissions and improved fuel economy;

	•	Consumers’ ability to obtain financing for new vehicle purchases; and

	•	Automotive aftermarket trends such as consumer confidence, miles driven, and consumer preference for branded vs. private label aftermarket and car care products.

Transportation system


	2010		2009		Change			2008		Change


Net sales	$	4,212	$	3,389		24	%	$	4,622		(27	)%
Cost of products and services sold		3,433		2,928					3,847
Selling, general and administrative expenses		246		252					323
Other		60		53					46

Segment profit	$	473	$	156		203	%	$	406		(62	)%


Factors Contributing to Year-Over-Year Change	2010 vs. 2009						2009 vs. 2008

	Sales			Segment Profit			Sales			Segment Profit


Organic growth/ Operational segment profit		25	%		206	%		(24	)%		(58	)%
Foreign exchange		(1	)%		(3	)%		(3	)%		(4	)%

Total % Change		24	%		203	%		(27	)%		(62	)%

2010 compared with 2009

Transportation Systems sales increased by 24 percent in 2010 compared with the 2009 primarily due to a 25 percent increase in organic revenue driven by increased sales volume, partially offset by an unfavorable impact of foreign exchange of 1 percent.


	•	Turbo Technologies sales increased 31 percent primarily due to increased turbocharger sales to both light vehicle and commercial vehicle engine manufacturers partially offset by the negative impacts of foreign exchange. We expect increased volume to continue in 2011 as we benefit from new platform launches and continued strong diesel penetration rates in Western Europe.

	•	Consumer Products Group (“CPG”) sales increased 7 percent, primarily due to higher prices (primarily pass through of ethylene glycol cost increases) and higher volume of antifreeze products in the fourth quarter.

Transportation Systems segment profit increased by $317 million in 2010 compared with 2009 predominantly due to the positive impact from increased sales volume. Cost of goods sold totaled $3.4 billion in 2010, an increase of approximately $500 million which is also primarily a result of increased sales volume.

2009 compared with 2008

Transportation Systems sales decreased by 27 percent in 2009 compared with the 2008, primarily due to lower volumes (driven by the ongoing challenging global automotive industry conditions) and the negative impact of foreign exchange in the first nine months of 2009.


	•	Turbo Technologies sales, including Friction Materials, decreased by 32 percent primarily due to lower sales volumes to both our commercial and light vehicle engine manufacturing customers and the negative impact of foreign exchange. Diesel penetration rates in Western Europe declined in the first nine months of 2009 and there was a shift in consumer preference towards lower displacement engines. Full year 2009 sales decline was partially offset by a 19 percent sales increase during the fourth quarter primarily due to the positive impact of foreign exchange and higher sales volumes to our light vehicle engine manufacturing customers.

	•	CPG sales decreased by 8 percent primarily due to lower prices (primarily pass through of ethylene glycol cost decreases), lower volumes, and the negative impact of foreign exchange.

Transportation Systems segment profit decreased by $ 250 million in 2009 compared with 2008 due principally to lower sales volume as a result of the factors discussed above partially offset by lower material costs, reduced labor costs (reflecting reduced census, work schedule reductions, benefits from prior repositioning actions and lower incentive compensation) and the positive impact of indirect cost savings initiatives. In the fourth

quarter of 2009 these factors and increased Turbo Technologies volumes resulted in a $66 million increase in Transportation Systems’ segment profit.

2011 Areas of Focus

Transportation Systems primary areas of focus in 2011 include:


	•	Sustaining superior turbocharger technology through successful platform launches;

	•	Maintaining the high quality of current products while executing new product introductions;

	•	Increasing global penetration and share of diesel and gasoline turbocharger OEM demand;

	•	Increasing plant productivity to address capacity challenges generated by volatility in product demand and OEM inventory levels;

	•	Aligning cost structure with current economic outlook, and successful execution of repositioning actions; and

	•	Aligning development efforts and costs with new turbo platform launch schedules.

Repositioning and Other Charges

See Note 3 to the financial statements for a discussion of repositioning and other charges incurred in 2010, 2009, and 2008. Our repositioning actions are expected to generate incremental pretax savings of approximately $200 million in 2011 compared with 2010 principally from planned workforce reductions. Cash expenditures for severance and other exit costs necessary to execute our repositioning actions were $151, $200, and $157 million in 2010, 2009, and 2008, respectively. Such expenditures for severance and other exit costs have been funded principally through operating cash flows. Cash expenditures for severance and other costs necessary to execute the remaining actions will approximate a total of $150 million in 2011 and will be funded through operating cash flows.

The following tables provide details of the pretax impact of total net repositioning and other charges by segment.


	Years Ended December 31,

	2010		2009		2008

Aerospace
Net repositioning charge	$	32	$	31	$	84


	Years Ended December 31,

	2010		2009		2008

Automation and Control Solutions
Net repositioning charge	$	79	$	70	$	164


	Years Ended December 31,

	2010		2009		2008

Specialty Materials
Net repositioning charge	$	18	$	9	$	37
Probable and reasonably estimable environmental liabilities		—		—		5

	$	18	$	9	$	42


	Years Ended December 31,

	2010		2009		2008

Transportation Systems
Net repositioning charge	$	22	$	61	$	103
Asbestos related litigation charges, net of insurance		158		112		125
Probable and reasonably estimable environmental liabilities		—		—		4
Other		—		—		1

	$	180	$	173	$	233


	Years Ended December 31,

	2010		2009		2008

Corporate
Net repositioning charge	$	—	$	—	$	36
Asbestos related litigation charges, net of insurance		17		43		—
Probable and reasonably estimable environmental liabilities		212		145		456
Other		62		7		(3	)

	$	291	$	195	$	489

LIQUIDITY AND CAPITAL RESOURCES

The Company continues to manage its businesses to maximize operating cash flows as the primary source of liquidity. In addition to our available cash and operating cash flows, additional sources of liquidity include committed credit lines, short-term debt from the commercial paper market, long-term borrowings, and access to the public debt and equity markets, as well as the ability to sell trade accounts receivables. We continue to balance our cash and financing uses through investment in our existing core businesses, acquisition activity, share repurchases and dividends.

Cash Flow Summary

Our cash flows from operating, investing and financing activities, as reflected in the Consolidated Statement of Cash Flows for the years ended 2010, 2009 and 2008, are summarized as follows:


	2010			2009			2008

Cash provided by (used for):
Operating activities	$	4,203		$	3,946		$	3,791
Investing activities		(2,269	)		(1,133	)		(2,023	)
Financing activities		(2,047	)		(2,152	)		(1,370	)
Effect of exchange rate changes on cash		(38	)		75			(162	)

Net (decrease)/increase in cash and cash equivalents	$	(151	)	$	736		$	236

2010 compared with 2009

Cash provided by operating activities increased by $257 million during 2010 compared with 2009 primarily due to i) increased accrued expenses of $690 million (due to increased customer advances and incentive compensation accruals), ii) a $550 million impact from increased deferred taxes (excluding the impact of cash taxes), iii) increased net income of $474 million, iv) lower cash tax payments of approximately $300 million and v) a $219 million decrease in payments for repositioning and other charges, partially offset by a i) $1,059 unfavorable impact from working capital driven by higher receivables and increased purchases of raw materials and component inventory to support higher demand, partially offset by a corresponding increase to accounts payable, ii) increased pension and other postretirement payments of $598 million and iii) the absence of $155 million sale of long-term receivables in 2009.

Cash used for investing activities increased by $1,136 million during 2010 compared with 2009 primarily due to an increase in cash paid for acquisitions of $835 million (most significantly Sperian Protection, discussed below), and a net $341 million increase in investments in short-term marketable securities.

Cash used for financing activities decreased by $105 million during 2010 compared to the 2009 primarily due to a decrease in the net repayment of debt (including commercial paper) of $287 million and an increase in the proceeds from the issuance of common stock, primarily related to stock option exercises of $158 million, partially offset by the repayment of $326 million of debt assumed in the acquisition of Sperian Protection (see below).

2009 compared with 2008

Cash provided by operating activities increased by $155 million during 2009 compared with 2008 primarily due to i) a favorable impact from working capital of $577 million (primarily due to a decrease in inventory of $479 million driven by reduced purchases of raw material and component inventory, lower production of finished goods in line with decreased sales volumes and inventory reduction initiatives across each of our segments), ii) lower cash tax payments of $449 million, iii) $155 million from the sale of long term receivables, iv) increased net income of $742 million and v) a $718 million impact from increased deferred income taxes (excluding the impact of cash tax payments noted above), partially offset by i) decreased pension expense of $2,312 million, ii) receipts from the sale of insurance receivables of $82 million in 2008, iii) a $56 million decreased impact from other current assets (most significantly lower receipts from insurance receivables) and iv) higher repositioning payments of $43 million.

Cash used for investing activities decreased by $890 million during 2009 compared with 2008 primarily due to a $1,713 million decrease in cash paid for acquisitions (most significantly the acquisition of Norcross and Metrolgic in 2008) and a $275 million decrease in expenditures for property, plant, and equipment, partially offset by a $908 million decrease in proceeds from sales of businesses (most significantly the divestiture of Consumables Solutions in 2008).

Cash used for financing activities increased by $782 million during 2009 compared with 2008 primarily due to a net repayment of debt (including commercial paper) in 2009 of $1,272 million compared to net proceeds (including commercial paper) of $733 million in 2008 partially offset by a decrease in repurchases of common stock of $1,459 million.

Liquidity

Each of our businesses is focused on implementing strategies to improve working capital turnover in 2011 to increase operating cash flows. Considering the current economic environment in which each of our businesses operate and our business plans and strategies, including our focus on growth, cost reduction and productivity

initiatives, we believe that our cash balances and operating cash flows will remain our principal source of liquidity. In addition to our available cash and operating cash flows, additional sources of liquidity include committed credit lines, short term debt from the commercial paper markets, long-term borrowings, and access to the public debt and equity markets, as well as our ability to sell trade accounts receivables.

A source of liquidity is our ability to issue short-term debt in the commercial paper market. Commercial paper notes are sold at a discount and have a maturity of not more than 365 days from date of issuance. Borrowings under the commercial paper program are available for general corporate purposes as well as for financing potential acquisitions. There was $299 million of commercial paper outstanding at December 31, 2010.

Our ability to access the commercial paper market, and the related cost of these borrowings, is affected by the strength of our credit rating and market conditions. Our credit ratings are periodically reviewed by the major independent debt-rating agencies. As of December 31, 2010, Standard and Poor’s (S&P), Fitch, and Moody’s have ratings on our long-term debt of A, A and A2 respectively, and short-term debt of A-1, F1 and P1 respectively. S&P, Fitch and Moody’s have Honeywell’s rating outlook as “stable”. To date, the company has not experienced any limitations in our ability to access these sources of liquidity. We maintain a $2.8 billion committed bank revolving credit facility for general corporate purposes, including support for the issuance of commercial paper, which expires in mid-May 2012. At December 31, 2010, there were no borrowings or letters of credit issued under the credit facility. The credit facility does not restrict Honeywell’s ability to pay dividends, nor does it contain financial covenants. We expect to refinance the credit facility in 2011.

In the first quarter of 2010, the Company repaid $1,000 million of its 7.50% notes. The repayment was funded with cash provided by operating activities.

In October 2010, we completed the acquisition of the issued and outstanding shares of Sperian Protection (Sperian), a French company that operates globally in the personal protection equipment design and manufacturing industry. The aggregate value, net of cash acquired, was approximately $1,475 million, including the assumption of approximately $326 million of outstanding debt.

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

As a source of liquidity, we sell interests in designated pools of trade accounts receivables to third parties. As of December 31, 2010 and 2009, none of the receivables in the designated pools had been sold to third parties. When we sell receivables, they are over-collateralized and we retain a subordinated interest in the pool of receivables representing that over-collateralization as well as an undivided interest in the balance of the receivables pools. The terms of the trade accounts receivable program permit the repurchase of receivables from the third parties at our discretion, providing us with an additional source of revolving credit. As a result, program receivables remain on the Company’s balance sheet with a corresponding amount recorded as either Short-term borrowings or Long-term debt.

We monitor the third-party depository institutions that hold our cash and cash equivalents on a daily basis. Our emphasis is primarily on safety of principal and secondarily on maximizing yield on those funds. We diversify our cash and cash equivalents among counterparties to minimize exposure to any one of these entities.

Global economic conditions or a tightening of credit markets could adversely affect our customers’ or suppliers’ ability to obtain financing, particularly in our long-cycle businesses and airline and automotive end markets. Customer or supplier bankruptcies, delays in their ability to obtain financing, or the unavailability of financing could adversely affect our cash flow or results of operations. To date we have not experienced material impacts from customer or supplier bankruptcy or liquidity issues. We continue to monitor and take measures to limit our exposure.

In addition to our normal operating cash requirements, our principal future cash requirements will be to fund capital expenditures, debt repayments, dividends, employee benefit obligations, environmental remediation costs, asbestos claims, severance and exit costs related to repositioning actions, share repurchases and any strategic acquisitions.

Specifically, we expect our primary cash requirements in 2011 to be as follows:


	•	Capital expenditures—we expect to spend approximately $800 million for capital expenditures in 2011 primarily for cost reduction, maintenance, replacement, growth, and production and capacity expansion.

	•	Debt repayments—there are $523 million of scheduled long-term debt maturities in 2011.

	•	Share repurchases—The Board of Directors has authorized the repurchase of up to a total of $3 billion of Honeywell common stock, which amount includes $1.3 billion that remained available under the Company’s previously reported share repurchase program. Honeywell presently expects to repurchase outstanding shares from time to time during 2011 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. The amount and timing of future repurchases may vary depending on market conditions and the level of operating, financing and other investing activities.

	•	Dividends—we expect to pay approximately $1,050 million in dividends on our common stock in 2011, reflecting a 1 percent increase in the number of shares outstanding and a 10 percent increase in the 2011 dividend rate.

	•	Asbestos claims—we expect our cash spending for asbestos claims and our cash receipts for related insurance recoveries to be approximately $162 and $50 million, respectively, in 2011. See Asbestos Matters in Note 21 to the financial statements for further discussion.

	•	Pension contributions—In 2011, we are not required to make any contributions to our U.S. pension plans to satisfy minimum statutory funding requirements. However, in January 2011 we made a voluntary cash contribution of $1 billion to our U.S. plans to improve the funded status of the plans. During 2010, we made voluntary contributions of $600 million in cash and $400 million of Honeywell common stock to our U.S. pension plans, as well as $242 million of marketable securities to our non-U.S. pension plans, to improve the funded status of our plans. See Note 22 to the financial statements for further discussion of pension contributions. In addition, the Company is evaluating additional voluntary contributions in 2011 and currently expects to contribute a portion of the proceeds from the sale of its Consumer Products Group business (discussed below) to our U.S. Pension plans. The timing and amount of contributions may be impacted by a number of factors, including the rate of return on plan assets and discount rates.

	•	Repositioning actions—we expect that cash spending for severance and other exit costs necessary to execute the previously announced repositioning actions will approximate $150 million in 2011.

	•	Environmental remediation costs—we expect to spend approximately $325 million in 2011 for remedial response and voluntary clean-up costs. See Environmental Matters in Note 21 to the financial statements for additional information.

We continuously assess the relative strength of each business in our portfolio as to strategic fit, market position, profit and cash flow contribution in order to upgrade our combined portfolio and identify business units that will most benefit from increased investment. We identify acquisition candidates that will further our strategic plan and strengthen our existing core businesses. We also identify businesses that do not fit into our long-term strategic plan based on their market position, relative profitability or growth potential. These businesses are considered for potential divestiture, restructuring or other repositioning actions subject to regulatory constraints. In 2008 we realized $909 million in cash proceeds from sales of non-strategic businesses.

In January 2011, the Company entered into a definitive agreement to sell its Consumer Products Group business (CPG) to Rank Group Limited for approximately $950 million. The sale, which is subject to customary closing conditions, including the receipt of regulatory approvals, is expected to close in the third quarter of 2011. We currently estimate that the transaction will result in a pre-tax gain of approximately $350 million, approximately $200 million net of tax. The sale of CPG, within the Transportation Systems segment, is consistent with the Company’s strategic focus on its portfolio of differentiated global technologies.

In July 2008, the Company completed the sale of its Consumables Solutions business to B/E Aerospace (“B/E”) for $1.05 billion, consisting of approximately $901 million in cash and six million shares of B/E common stock. As discussed in Note 3 to the financial statements, this transaction resulted in a pre-tax gain of $623 million, $417 million net of tax. These proceeds, along with our other sources and uses of liquidity, as discussed above, were utilized to invest in our existing core businesses and fund acquisition activity, share repurchases and dividends.

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

Contractual Obligations and Probable Liability Payments

Following is a summary of our significant contractual obligations and probable liability payments at December 31, 2010:


	Payments by Period

	Total(6)			2011			2012- 2013			2014- 2015			Thereafter

Long-term debt, including capitalized leases⁽¹⁾	$	6,278		$	523		$	1,022		$	608		$	4,125
Interest payments on long-term debt, including capitalized leases		2,844			259			421			360			1,804
Minimum operating lease payments		1,353			318			437			266			332
Purchase obligations⁽²⁾		1,856			978			533			190			155
Estimated environmental liability payments⁽³⁾		753			325			300			100			28
Asbestos related liability payments⁽⁴⁾		1,719			162			916			329			312
Asbestos insurance recoveries⁽⁵⁾		(875	)		(50	)		(133	)		(176	)		(516	)


	$	13,928		$	2,515		$	3,496		$	1,677		$	6,240


(1)	Assumes all long-term debt is outstanding until scheduled maturity.

(2)	Purchase obligations are entered into with various vendors in the normal course of business and are consistent with our expected requirements.

(3)	The payment amounts in the table only reflect the environmental liabilities which are probable and reasonably estimable as of December 31, 2010. See Environmental Matters in Note 21 to the financial statements for additional information.

(4)	These amounts are estimates of asbestos related cash payments for NARCO and Bendix based on our asbestos related liabilities which are probable and reasonably estimable as of December 31, 2010. NARCO estimated payments are based on the terms and conditions, including evidentiary requirements, specified in the definitive agreements or agreements in principle and pursuant to Trust Distribution Procedures. Projecting the timing of NARCO payments is dependent on, among other things, the effective date of the Trust which could cause the timing of payments to be earlier or later than that projected. Bendix payments are based on our estimate of pending and future claims. Projecting future events is subject to many uncertainties that could cause asbestos liabilities to be higher or lower than those projected and recorded. See Asbestos Matters in Note 21 to the financial statements for additional information.

(5)	These amounts represent our insurance recoveries that are deemed probable for asbestos related liabilities as of December 31, 2010. The timing of insurance recoveries are impacted by the terms of insurance settlement agreements, as well as the documentation, review and collection process required to collect on insurance claims. Where probable insurance recoveries are not subject to definitive settlement agreements with specified payment dates, but instead are covered by insurance policies, we have assumed collection will occur beyond 2015. Projecting the timing of insurance recoveries is subject to many uncertainties that could cause the amounts collected to be higher or lower than those projected and recorded or could cause the timing of collections to be earlier or later than that projected. We reevaluate our projections concerning insurance recoveries in light of any changes or developments that would impact recoveries or the timing thereof. See Asbestos Matters in Note 21 to the financial statements for additional information.


(6)	The table excludes $757 million of uncertain tax positions. See Note 6 to the financial statements.

The table also excludes our pension and other postretirement benefits (OPEB) obligations. In January 2011, we made a voluntary cash contribution of $1 billion to our U.S. plans to improve the funded status of our plans. In addition, the company is evaluating additional voluntary contributions in 2011. We also expect to make contributions to our non-U.S. plans of approximately $55 million in 2011. Beyond 2011, the actual amounts required to be contributed are dependent upon, among other things, interest rates, underlying asset returns and the impact of legislative or regulatory actions related to pension funding obligations. Payments due under our OPEB plans are not required to be funded in advance, but are paid as medical costs are incurred by covered retiree populations, and are principally dependent upon the future cost of retiree medical benefits under our plans. We expect our OPEB payments to approximate $188 million in 2011 net of the benefit of approximately $13 million from the Medicare prescription subsidy. See Note 22 to the financial statements for further discussion of our pension and OPEB plans.

Off-Balance Sheet Arrangements

Following is a summary of our off-balance sheet arrangements:

Guarantees—We have issued or are a party to the following direct and indirect guarantees at December 31, 2010:


	Maximum Potential Future Payments

Operating lease residual values	$	43
Other third parties’ financing		5
Unconsolidated affiliates’ financing		11
Customer financing		17

	$	76

We do not expect that these guarantees will have a material adverse effect on our consolidated results of operations, financial position or liquidity.

In connection with the disposition of certain businesses and facilities we have indemnified the purchasers for the expected cost of remediation of environmental contamination, if any, existing on the date of disposition. Such expected costs are accrued when environmental assessments are made or remedial efforts are probable and the costs can be reasonably estimated.

Environmental Matters

We are subject to various federal, state, local and foreign government requirements relating to the protection of the environment. 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 hazardous substances are in accordance with environmental and safety laws and regulations. However, mainly because of past operations and operations of predecessor companies, we, like other companies engaged in similar businesses, have incurred remedial response and voluntary cleanup costs for site contamination and are a party to lawsuits and claims associated with environmental and safety matters, including past production of products containing hazardous substances. Additional lawsuits, claims and costs involving environmental matters are likely to continue to arise in the future.

With respect to environmental matters involving site contamination, we continually conduct studies, individually or jointly, with other potentially responsible parties, to determine the feasibility of various remedial techniques to address environmental matters. It is our policy (see Note 1 to the financial statements) to record appropriate liabilities for environmental matters when remedial efforts or damage claim payments are probable and the costs can be reasonably estimated. Such liabilities are based on our best estimate of the undiscounted future costs required to complete the remedial work. The recorded liabilities are adjusted periodically as remediation efforts progress or as additional technical or legal information becomes available. Given the

uncertainties regarding the status of laws, regulations, enforcement policies, the impact of other potentially responsible parties, technology and information related to individual sites, we do not believe it is possible to develop an estimate of the range of reasonably possible environmental loss in excess of our recorded liabilities. We expect to fund expenditures for these matters from operating cash flow. The timing of cash expenditures depends on a number of factors, including the timing of litigation and settlements of remediation liability, personal injury and property damage claims, regulatory approval of cleanup projects, execution timeframe of projects, remedial techniques to be utilized and agreements with other parties.

Remedial response and voluntary cleanup payments were $266, $318 and $320 million in 2010, 2009 and 2008, respectively, and are currently estimated to be approximately $325 million in 2011. We expect to fund such expenditures from operating cash flow.

Remedial response and voluntary cleanup costs charged against pretax earnings were $225, $151 and $466 million in 2010, 2009 and 2008, respectively. At December 31, 2010 and 2009, the recorded liabilities for environmental matters was $753 and $779 million, respectively. In addition, in 2010 and 2009 we incurred operating costs for ongoing businesses of approximately $86 and $73 million, respectively, relating to compliance with environmental regulations.

Although we do not currently possess sufficient information to reasonably estimate the amounts of liabilities to be recorded upon future completion of studies, litigation or settlements, and neither the timing nor the amount of the ultimate costs associated with environmental matters can be determined, they could be material to our consolidated results of operations or operating cash flows in the periods recognized or paid. However, considering our past experience and existing reserves, we do not expect that environmental matters will have a material adverse effect on our consolidated financial position.

See Note 21 to the financial statements for a discussion of our commitments and contingencies, including those related to environmental matters and toxic tort litigation.

Financial Instruments

As a result of our global operating and financing activities, we are exposed to market risks from changes in interest and foreign currency exchange rates and commodity prices, which may adversely affect our operating results and financial position. We minimize our risks from interest and foreign currency exchange rate and commodity price fluctuations through our normal operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. We do not use derivative financial instruments for trading or other speculative purposes and do not use leveraged derivative financial instruments. A summary of our accounting policies for derivative financial instruments is included in Note 1 to the financial statements. We also hold investments in marketable equity securities, which exposes us to market volatility, as discussed in Note 16 to the financial statements.

We conduct our business on a multinational basis in a wide variety of foreign currencies. Our exposure to market risk from changes in foreign currency exchange rates arises from international financing activities between subsidiaries, foreign currency denominated monetary assets and liabilities and anticipated transactions arising from international trade. Our objective is to preserve the economic value of non-functional currency cash flows. We attempt to hedge transaction exposures with natural offsets to the fullest extent possible and, once these opportunities have been exhausted, through foreign currency forward and option agreements with third parties. Our principal currency exposures relate to the U.S. dollar, Euro, British pound, Canadian dollar, Hong Kong dollar, Mexican peso, Swiss franc, Czech koruna, Chinese renminbi, Indian rupee, Singapore dollar and Swedish krona.

Our exposure to market risk from changes in interest rates relates primarily to our net debt and pension obligations. As described in Notes 14 and 16 to the financial statements, we issue both fixed and variable rate debt and use interest rate swaps to manage our exposure to interest rate movements and reduce overall borrowing costs.

Financial instruments, including derivatives, expose us to counterparty credit risk for nonperformance and to market risk related to changes in interest or currency exchange rates. We manage our exposure to counterparty credit risk through specific minimum credit standards, diversification of counterparties, and procedures to monitor concentrations of credit risk. Our counterparties are substantial investment and commercial banks with significant experience using such derivative instruments. We monitor the impact of market risk on the fair value and expected future cash flows of our derivative and other financial instruments considering reasonably possible changes in interest and currency exchange rates and restrict the use of derivative financial instruments to hedging activities.

The following table illustrates the potential change in fair value for interest rate sensitive instruments based on a hypothetical immediate one-percentage-point increase in interest rates across all maturities, the potential change in fair value for foreign exchange rate sensitive instruments based on a 10 percent weakening of the U.S. dollar versus local currency exchange rates across all maturities, and the potential change in fair value of contracts hedging commodity purchases based on a 20 percent decrease in the price of the underlying commodity across all maturities at December 31, 2010 and 2009.


	Face or Notional Amount		Carrying Value⁽¹⁾			Fair Value⁽¹⁾			Estimated Increase (Decrease) in Fair Value

December 31, 2010
Interest Rate Sensitive Instruments
Long-term debt (including current maturities)	$	6,278	$	(6,278	)	$	(6,835	)	$	(399	)
Interest rate swap agreements		600		22			22			(18	)
Foreign Exchange Rate Sensitive Instruments
Foreign currency exchange contracts⁽²⁾		5,733		2			2			102
Commodity Price Sensitive Instruments
Forward commodity contracts⁽³⁾		23		—			—			(4	)
December 31, 2009
Interest Rate Sensitive Instruments
Long-term debt (including current maturities)	$	7,264	$	(7,264	)	$	(7,677	)	$	(421	)
Interest rate swap agreements		600		(2	)		(2	)		(23	)
Foreign Exchange Rate Sensitive Instruments
Foreign currency exchange contracts⁽²⁾		2,959		8			8			79
Commodity Price Sensitive Instruments
Forward commodity contracts⁽³⁾		52		4			4			(10	)



(1)	Asset or (liability).

(2)	Changes in the fair value of foreign currency exchange contracts are offset by changes in the fair value or cash flows of underlying hedged foreign currency transactions.

(3)	Changes in the fair value of forward commodity contracts are offset by changes in the cash flows of underlying hedged commodity transactions.

The above discussion of our procedures to monitor market risk and the estimated changes in fair value resulting from our sensitivity analyses are forward-looking statements of market risk assuming certain adverse market conditions occur. Actual results in the future may differ materially from these estimated results due to actual developments in the global financial markets. The methods used by us to assess and mitigate risk discussed above should not be considered projections of future events.

CRITICAL ACCOUNTING POLICIES

The preparation of our consolidated financial statements in accordance with generally accepted accounting principles is based on the selection and application of accounting policies that require us to make significant estimates and assumptions about the effects of matters that are inherently uncertain. We consider the accounting policies discussed below to be critical to the understanding of our financial statements. Actual results could differ from our estimates and assumptions, and any such differences could be material to our consolidated financial statements.

We have discussed the selection, application and disclosure of these critical accounting policies with the Audit Committee of our Board of Directors and our Independent Registered Public Accountants. New accounting standards effective in 2010 which had a material impact on our consolidated financial statements are described in the Recent Accounting Pronouncements section in Note 1 to the financial statements.

Contingent Liabilities—We are subject to a number of lawsuits, investigations and claims (some of which involve substantial dollar amounts) that arise out of the conduct of our global business operations or those of previously owned entities, including matters relating to commercial transactions, government contracts, product liability (including asbestos), prior acquisitions and divestitures, employee benefit plans, intellectual property, and environmental, health and safety matters. We recognize a liability for any contingency that is probable of occurrence and reasonably estimable. We continually assess the likelihood of any adverse judgments or outcomes to our contingencies, as well as potential amounts or ranges of probable losses, and recognize a liability, if any, for these contingencies based on a careful analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts. Such analysis includes making judgments concerning matters such as the costs associated with environmental matters, the outcome of negotiations, the number and cost of pending and future asbestos claims, and the impact of evidentiary requirements. Because most contingencies are resolved over long periods of time, liabilities may change in the future due to new developments (including new discovery of facts, changes in legislation and outcomes of similar cases through the judicial system), changes in assumptions or changes in our settlement strategy. For a discussion of our contingencies related to environmental, asbestos and other matters, including management’s judgment applied in the recognition and measurement of specific liabilities, see Notes 1 and 21 to the financial statements.

Asbestos Related Contingencies and Insurance Recoveries—We are a defendant in personal injury actions related to products containing asbestos (refractory and friction products). We recognize a liability for any asbestos related contingency that is probable of occurrence and reasonably estimable. Regarding North American Refractories Company (NARCO) asbestos related claims, we accrued for pending claims based on terms and conditions, including evidentiary requirements, in definitive agreements or agreements in principle with current claimants. We also accrued for the probable value of future NARCO asbestos related claims through 2018 based on the disease criteria and payment values contained in the NARCO trust as described in Note 21 to the financial statements. In light of the inherent uncertainties in making long term projections regarding claims filing rates and disease manifestation, we do not believe that we have a reasonable basis for estimating NARCO asbestos claims beyond 2018. Regarding Bendix asbestos related claims, we accrued for the estimated value of pending claims based on expected claim resolution values and historic dismissal rates. We also accrued for the estimated cost of future anticipated claims related to Bendix for the next five years based on our assessment of additional claims that may be brought against us and anticipated resolution values in the tort system. We value Bendix pending and future claims using the average resolution values for the previous five years. We will continue to update the expected resolution values used to estimate the cost of pending and future Bendix claims during the fourth quarter each year. For additional information see Note 21 to the financial statements. We continually assess the likelihood of any adverse judgments or outcomes to our contingencies, as well as potential ranges of probable losses and recognize a liability, if any, for these contingencies based on an analysis of each individual issue with the assistance of outside legal counsel and, if applicable, other experts.

In connection with the recognition of liabilities for asbestos related matters, we record asbestos related insurance recoveries that are deemed probable. In assessing the probability of insurance recovery, we make judgments concerning insurance coverage that we believe are reasonable and consistent with our historical experience with our insurers, our knowledge of any pertinent solvency issues surrounding insurers, various judicial determinations relevant to our insurance programs and our consideration of the impacts of any settlements with our insurers. At December 31, 2010, we have recorded insurance receivables of $718 million that can be specifically allocated to NARCO related asbestos liabilities. We also have $1.9 billion in coverage remaining for Bendix related asbestos liabilities although there are gaps in our coverage due to insurance company insolvencies, certain uninsured periods and insurance settlements. Our insurance is with both the domestic insurance market and the London excess market. While the substantial majority of our insurance carriers are solvent, some of our individual carriers are insolvent, which has been considered in our analysis of

probable recoveries. Projecting future events is subject to various uncertainties that could cause the insurance recovery on asbestos related liabilities to be higher or lower than that projected and recorded. Given the inherent uncertainty in making future projections, we reevaluate our projections concerning our probable insurance recoveries in light of any changes to the projected liability, our recovery experience or other relevant factors that may impact future insurance recoveries. See Note 21 to the financial statements for a discussion of management’s judgments applied in the recognition and measurement of insurance recoveries for asbestos related liabilities.

Defined Benefit Pension Plans— We sponsor both funded and unfunded U.S. and non-U.S. defined benefit pension plans covering the majority of our employees and retirees.

In 2010, we elected to change our method of recognizing pension expense. Previously, for our U.S. defined benefit pension plans we used the market-related value of plan assets reflecting changes in the fair value of plan assets over a three-year period. Further, net actuarial gains or losses in excess of 10 percent of the greater of the market-related value of plan assets or the plans’ projected benefit obligation (the corridor) were recognized over a six-year period. Under our new accounting method which we adopted in 2010, we will recognize changes in the fair value of plan assets and net actuarial gains or losses in excess of the corridor annually in the fourth quarter each year (MTM Adjustment). This new accounting method results in faster recognition of net actuarial gains and losses than our previous amortization method. Net actuarial gains and losses occur when the actual experience differs from any of the various assumptions used to value our pension plans or when assumptions change as they may each year. The primary factors contributing to actuarial gains and losses are changes in the discount rate used to value pension obligations as of the measurement date each year and the differences between expected and actual returns on plan assets. This accounting method also results in the potential for volatile and difficult to forecast MTM adjustments. MTM adjustments were $471, $741 and $3,290 million in 2010, 2009 and 2008, respectively. The remaining components of pension expense, primarily service and interest costs and assumed return on plan assets, will be recorded on a quarterly basis (On-going Pension Expense). See Note 1 to the financial statements for further details of the change and the impact of our retrospective application of the new policy.

For financial reporting purposes, net periodic pension expense is calculated based upon a number of actuarial assumptions, including a discount rate for plan obligations and an expected long-term rate of return on plan assets. We determine the expected long-term rate of return on plan assets utilizing historic and expected plan asset returns over varying long-term periods combined with current market conditions and broad asset mix considerations (see Note 22 to the financial statements for details on the actual various asset classes and targeted asset allocation percentages for our pension plans). The discount rate reflects the market rate on December 31 (measurement date) for high-quality fixed-income investments with maturities corresponding to our benefit obligations and is subject to change each year. Further information on all our major actuarial assumptions is included in Note 22 to the financial statements.

The key assumptions used in developing our 2010, 2009 and 2008 net periodic pension expense for our U.S. plans included the following:


	2010			2009			2008

Discount rate		5.75	%		6.95	%		6.50	%
Assets:
Expected rate of return		9	%		9	%		9	%
Actual rate of return		19	%		20	%		(29	%)
Actual 10 year average annual compounded rate of return		6	%		4	%		4	%

The discount rate can be volatile from year to year because it is determined based upon prevailing interest rates as of the measurement date. We will use a 5.25 percent discount rate in 2011, reflecting the decrease in the market interest rate environment since December 31, 2009. We will use an expected rate of return on plan assets of 8 percent for 2011 down from 9 percent in 2010 due to lower future expected market returns.

In addition to the potential for MTM adjustments, changes in our expected rate of return on plan assets and discount rate resulting from economic events also affects future on-going pension expense. The following table highlights the sensitivity of our U.S. pension obligations and on-going expense to changes in these

assumptions, assuming all other assumptions remain constant. These estimates exclude any potential MTM adjustment:



Change in Assumption	Impact on 2011 On-Going Pension Expense	Impact on PBO

0.25 percentage point decrease in discount rate	Decrease $8 million	Increase $390 million
0.25 percentage point increase in discount rate	Increase $6 million	Decrease $380 million
0.25 percentage point decrease in expected rate of return on assets	Increase $30 million	—
0.25 percentage point increase in expected rate of return on assets	Decrease $30 million	—

On-going pension expense for all of our pension plans is expected to be approximately $110 million in 2011, a decrease of $79 million from 2010, due primarily to a voluntary contribution of $1 billion in cash to our U.S. pension plans in January 2011 and strong 2010 asset returns. Also, if required, an MTM adjustment will be recorded in the fourth quarter of 2011 in accordance with our new pension accounting method as previously described. It is difficult to reliably forecast or predict whether there will be a MTM adjustment in 2011, and if one is required what the magnitude of such adjustment will be. MTM adjustments are primarily driven by events and circumstances beyond the control of the Company such as changes in interest rates and the performance of the financial markets.

In 2010, 2009 and 2008, we were not required to make contributions to satisfy minimum statutory funding requirements in our U.S. pension plans. However, we made voluntary contributions of $1,000, $740 and $242 million to our U.S. pension plans in 2010, 2009 and 2008, respectively, primarily to improve the funded status of our plans which had deteriorated during 2008 due to the significant asset losses resulting from the poor performance of the equity markets. In 2011, we are still not required to make any contributions to our U.S. pension plans to satisfy minimum statutory funding requirements. However, in January 2011 we made a voluntary cash contribution of $1 billion to our U.S. plans to improve the funded status of our plans. In addition, the Company is evaluating additional voluntary contributions in 2011. The timing and amount of contributions may be impacted by a number of factors, including the rate of return on plan assets and discount rate. We also expect to contribute approximately $55 million to our non-U.S. defined benefit pension plans in 2011 to satisfy regulatory funding standards.

Long-Lived Assets (including Tangible and Definite-Lived Intangible Assets)—To conduct our global business operations and execute our business strategy, we acquire tangible and intangible assets, including property, plant and equipment and definite-lived intangible assets. At December 31, 2010, the net carrying amount of these long-lived assets totaled $7.0 billion. The determination of useful lives (for depreciation/amortization purposes) and whether or not these assets are impaired involves the use of accounting estimates and assumptions, changes in which could materially impact our financial condition or operating performance if actual results differ from such estimates and assumptions. We periodically evaluate the recoverability of the carrying amount of our long-lived assets whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset group may not be fully recoverable. The principal factors we consider in deciding when to perform an impairment review are as follows:


	•	significant under-performance (i.e., declines in sales, earnings or cash flows) of a business or product line in relation to expectations;

	•	annual operating plans or five-year strategic plans that indicate an unfavorable trend in operating performance of a business or product line;

	•	significant negative industry or economic trends; and

	•	significant changes or planned changes in our use of the assets.

Once it is determined that an impairment review is necessary, recoverability of assets is measured by comparing the carrying amount of the asset grouping to the estimated future undiscounted cash flows. If the carrying amount exceeds the estimated future undiscounted cash flows, the asset grouping is considered to be impaired. The impairment is then measured as the difference between the carrying amount of the asset grouping and its fair value. We endeavor to utilize the best information available to measure fair value, which is usually either market prices (if available), level 1 or level 2 in the fair value hierarchy or an estimate of the future

discounted cash flow, level 3 of the fair value hierarchy. The key estimates in our discounted cash flow analysis include expected industry growth rates, our assumptions as to volume, selling prices and costs, and the discount rate selected. As described in more detail in Note 16 to the financial statements, we have recorded impairment charges related to long-lived assets of $30 and $28 million in 2010 and 2009, respectively, principally related to manufacturing plant and equipment in facilities scheduled to close or be downsized.

Goodwill Impairment Testing—Goodwill represents the excess of acquisition costs over the fair value of the net tangible assets and identifiable intangible assets acquired in a business combination. Goodwill is not amortized, but is subject to impairment testing. Our Goodwill balance, $11.6 billion as of December 31, 2010, is subject to impairment testing annually as of March 31, or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. This testing compares carrying values to fair values and, when appropriate, the carrying value is reduced to fair value. The fair value of our reporting units is estimated utilizing a discounted cash flow approach utilizing cash flow forecasts in our five year strategic and annual operating plans adjusted for terminal value assumptions. This impairment test involves the use of accounting estimates and assumptions, changes in which could materially impact our financial condition or operating performance if actual results differ from such estimates and assumptions. To address this uncertainty we perform sensitivity analysis on key estimates and assumptions.

We completed our annual impairment test as of March 31, 2010 and determined that there was no impairment as of that date. However, significant negative industry or economic trends, disruptions to our business, unexpected significant changes or planned changes in use of the assets, divestitures and market capitalization declines may have a negative effect on the fair value of our reporting units.

Income Taxes—Deferred tax assets and liabilities are determined based on the difference between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Our provision for income taxes is based on domestic and international statutory income tax rates in the jurisdictions in which we operate. Significant judgment is required in determining income tax provisions as well as deferred tax asset and liability balances, including the estimation of valuation allowances and the evaluation of tax positions.

As of December 31, 2010, we recognized a net deferred tax asset of $2,015 million, less a valuation allowance of $636 million. Net deferred tax assets are primarily comprised of net deductible temporary differences, net operating loss carryforwards and tax credit carryforwards that are available to reduce taxable income in future periods. The determination of the amount of valuation allowance to be provided on recorded deferred tax assets involves estimates regarding (1) the timing and amount of the reversal of taxable temporary differences, (2) expected future taxable income, and (3) the impact of tax planning strategies. A valuation allowance is established to offset any deferred tax assets if, based upon the available evidence it is more likely than not that some or all of the deferred tax asset will not be realized. In assessing the need for a valuation allowance, we consider all available positive and negative evidence, including past operating results, projections of future taxable income and the feasibility of ongoing tax planning strategies. The projections of future taxable income include a number of estimates and assumptions regarding our volume, pricing and costs. Additionally, valuation allowances related to deferred tax assets can be impacted by changes to tax laws.

Our net deferred tax asset of $2,015 million consists of $1,254 million related to U.S. operations and $761 million related to non-U.S. operations. The U.S. net deferred tax asset of $1,254 million consists of net deductible temporary differences, tax credit carryforwards, federal and state tax net operating losses which we believe will more likely than not be realized through the generation of future taxable income in the U.S. and tax planning strategies. We maintain a valuation allowance of $3 million against such asset related to state net operating losses. The non-U.S. net deferred tax asset of $761 million consists principally of net operating and capital loss carryforwards, mainly in the United Kingdom, Netherlands, Luxembourg and Germany. We maintain a valuation allowance of $634 million against these deferred tax assets reflecting our historical experience and lower expectations of taxable income over the applicable carryforward periods. As more fully described in Note 6 to the financial statements, our valuation allowance increased by $58 million in 2010 and increased by $133 million and decreased by $45 million in 2009 and 2008, respectively. In the event we determine that we will not be able to realize our net deferred tax assets in the future, we will reduce such amounts through a charge to income in the period such determination is made. Conversely, if we determine that we will be able to realize net deferred tax assets in excess of the carrying amounts, we will decrease the recorded valuation allowance through a credit to income in the period that such determination is made.

Significant judgment is required in determining income tax provisions and in evaluating tax positions. We establish additional provisions for income taxes when, despite the belief that tax positions are fully supportable, there remain certain positions that do not meet the minimum probability threshold, as defined by the authoritative guidance for uncertainty in income taxes, which is a tax position that is more likely than not to be sustained upon

examination by the applicable taxing authority. In the normal course of business, the Company and its subsidiaries are examined by various Federal, State and foreign tax authorities. We regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of our provision for income taxes. We continually assess the likelihood and amount of potential adjustments and adjust the income tax provision, the current tax liability and deferred taxes in the period in which the facts that give rise to a revision become known.

Sales Recognition on Long-Term Contracts—In 2010, we recognized approximately 14 percent of our total net sales using the percentage-of-completion method for long-term contracts in our Automation and Control Solutions, Aerospace and Specialty Materials segments. These long-term contracts are measured on the cost-to-cost basis for engineering-type contracts and the units-of-delivery basis for production-type contracts. Accounting for these contracts involves management judgment in estimating total contract revenue and cost. Contract revenues are largely determined by negotiated contract prices and quantities, modified by our assumptions regarding contract options, change orders, incentive and award provisions associated with technical performance and price adjustment clauses (such as inflation or index-based clauses). Contract costs are incurred over a period of time, which can be several years, and the estimation of these costs requires management judgment. Cost estimates are largely based on negotiated or estimated purchase contract terms, historical performance trends and other economic projections. Significant factors that influence these estimates include inflationary trends, technical and schedule risk, internal and subcontractor performance trends, business volume assumptions, asset utilization, and anticipated labor agreements. Revenue and cost estimates are regularly monitored and revised based on changes in circumstances. Anticipated losses on long-term contracts are recognized when such losses become evident. We maintain financial controls over the customer qualification, contract pricing and estimation processes to reduce the risk of contract losses.

OTHER MATTERS

Litigation

See Note 21 to the financial statements for a discussion of environmental, asbestos and other litigation matters.

Recent Accounting Pronouncements

See Note 1 to the financial statements for a discussion of recent accounting pronouncements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Information relating to market risk is included in Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations under the caption “Financial Instruments”.

ITEM 8. Financial Statements and Supplementary Data

Honeywell International Inc.
Consolidated Statement of Operations


	Years Ended December 31

	2010			2009			2008

	(Dollars in millions, except per share amounts)
Product sales	$	26,262		$	23,914		$	29,212
Service sales		7,108			6,994			7,344

Net sales		33,370			30,908			36,556

Costs, expenses and other
Cost of products sold		20,701			19,317			25,610
Cost of services sold		4,818			4,695			5,508

		25,519			24,012			31,118
Selling, general and administrative expenses		4,717			4,443			5,130
Other (income) expense		(95	)		(55	)		(748	)
Interest and other financial charges		386			459			456

		30,527			28,859			35,956

Income before taxes		2,843			2,049			600
Tax expense (benefit)		808			465			(226	)

Net income		2,035			1,584			826
Less: Net income attributable to the noncontrolling interest		13			36			20

Net income attributable to Honeywell	$	2,022			1,548			806

Earnings per share of common stock-basic	$	2.61		$	2.06		$	1.09

Earnings per share of common stock-assuming dilution	$	2.59		$	2.05		$	1.08

Cash dividends per share of common stock	$	1.21		$	1.21		$	1.10

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

Honeywell International Inc.

Consolidated Balance Sheet


	December 31,

	2010			2009

	(Dollars in millions)
ASSETS
Current assets:
Cash and cash equivalents	$	2,650		$	2,801
Accounts, notes and other receivables		7,068			6,274
Inventories		3,958			3,446
Deferred income taxes		877			1,034
Investments and other current assets		458			381

Total current assets		15,011			13,936
Investments and long-term receivables		616			579
Property, plant and equipment - net		4,840			4,847
Goodwill		11,597			10,494
Other intangible assets - net		2,574			2,174
Insurance recoveries for asbestos related liabilities		825			941
Deferred income taxes		1,218			2,006
Other assets		1,153			1,016

Total assets	$	37,834		$	35,993

LIABILITIES
Current liabilities:
Accounts payable	$	4,344		$	3,633
Short-term borrowings		67			45
Commercial paper		299			298
Current maturities of long-term debt		523			1,018
Accrued liabilities		6,484			6,153

Total current liabilities		11,717			11,147
Long-term debt		5,755			6,246
Deferred income taxes		636			542
Postretirement benefit obligations other than pensions		1,477			1,594
Asbestos related liabilities		1,557			1,040
Other liabilities		5,905			6,453
SHAREOWNERS’ EQUITY
Capital - common stock issued		958			958
- additional paid-in capital		3,977			3,823
Common stock held in treasury, at cost		(8,299	)		(8,995	)
Accumulated other comprehensive income (loss)		(1,067	)		(948	)
Retained earnings		15,097			14,023

Total Honeywell shareowners’ equity		10,666			8,861
Noncontrolling interest		121			110

Total shareowners’ equity		10,787			8,971

Total liabilities and shareowners’ equity	$	37,834		$	35,993

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

Honeywell International Inc.

Consolidated Statement of Cash Flows


	Years Ended December 31,

	2010			2009			2008

	(Dollars in millions)
Cash flows from operating activities:
Net income attributable to Honeywell	$	2,022		$	1,548		$	806
Adjustments to reconcile net income attributable to Honeywell to net cash provided by operating activities:
Depreciation and amortization		987			957			903
Gain on sale of non-strategic businesses and assets		—			(87	)		(635	)
Repositioning and other charges		600			478			1,012
Net payments for repositioning and other charges		(439	)		(658	)		(446	)
Pension and other postretirement expense		689			1,022			3,334
Pension and other postretirement benefit payments		(787	)		(189	)		(214	)
Stock compensation expense		164			118			128
Deferred income taxes		878			47			(1,120	)
Excess tax benefits from share based payment arrangements		(13	)		(1	)		(21	)
Other		(24	)		261			81
Changes in assets and liabilities, net of the effects of acquisitions and divestitures:
Accounts, notes and other receivables		(718	)		344			392
Inventories		(310	)		479			(161	)
Other current assets		14			(31	)		25
Accounts payable		625			(167	)		(152	)
Accrued liabilities		515			(175	)		(141	)

Net cash provided by operating activities		4,203			3,946			3,791

Cash flows from investing activities:
Expenditures for property, plant and equipment		(651	)		(609	)		(884	)
Proceeds from disposals of property, plant and equipment		14			31			53
Increase in investments		(453	)		(24	)		(6	)
Decrease in investments		112			1			18
Cash paid for acquisitions, net of cash acquired		(1,303	)		(468	)		(2,181	)
Proceeds from sales of businesses, net of fees paid		7			1			909
Other		5			(65	)		68

Net cash used for investing activities		(2,269	)		(1,133	)		(2,023	)

Cash flows from financing activities:
Net increase/(decrease) in commercial paper		1			(1,133	)		(325	)
Net increase/(decrease) in short-term borrowings		20			(521	)		(1	)
Payment of debt assumed with acquisitions		(326	)		—			—
Proceeds from issuance of common stock		195			37			146
Proceeds from issuance of long-term debt		—			1,488			1,487
Payments of long-term debt		(1,006	)		(1,106	)		(428	)
Excess tax benefits from share based payment arrangements		13			1			21
Repurchases of common stock		—			—			(1,459	)
Cash dividends paid		(944	)		(918	)		(811	)

Net cash used for financing activities		(2,047	)		(2,152	)		(1,370	)

Effect of foreign exchange rate changes on cash and cash equivalents		(38	)		75			(162	)

Net (decrease)/increase in cash and cash equivalents		(151	)		736			236
Cash and cash equivalents at beginning of period		2,801			2,065			1,829

Cash and cash equivalents at end of period	$	2,650		$	2,801		$	2,065

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

Honeywell International Inc.

Consolidated Statement of Shareowners Equity


	Years Ended December 31,

	2010						2009						2008

	Shares			$			Shares			$			Shares			$

	(in millions)
Common stock, par value		957.6			958			957.6			958			957.6			958

Additional paid-in capital
Beginning balance					3,823						3,994						4,014
Issued for employee savings and option plans					(35	)					(99	)					(56	)
Contributed to pension plans					32						(190	)					(90	)
Stock-based compensation expense					157						118						128
Other owner changes					—						—						(2	)

Ending balance					3,977						3,823						3,994

Treasury stock
Beginning balance		(193.4	)		(8,995	)		(223.0	)		(10,206	)		(211.0	)		(9,479	)
Reacquired stock or repurchases of common stock		—			—			—			—			(27.4	)		(1,459	)
Issued for employee savings and option plans		8.9			328			6.6			281			9.0			427
Contributed to pension plans		9.9			368			23.0			930			6.1			290
Other owner changes		—			—			—			—			0.3			15

Ending balance		(174.6	)		(8,299	)		(193.4	)		(8,995	)		(223.0	)		(10,206	)

Retained earnings
Beginning balance					14,023						13,391						13,400
Net income attributable to Honeywell					2,022						1,548						806
Dividends paid on common stock					(948	)					(916	)					(815	)

Ending balance					15,097						14,023						13,391

Accumulated other comprehensive income (loss)
Beginning balance					(948	)					(1,078	)					329
Foreign exchange translation adjustment					(249	)					259						(614	)
Pensions and other post retirement benefit adjustments