________________________________________________________________________________
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8974
Honeywell International Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2640650
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 Columbia Road
Morris Township, New Jersey 07962
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(Address of principal executive
offices) (Zip Code)
Registrant's telephone number, including area code (973) 455-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
--------------------------------------- ------------------------------------
Common Stock, par value $1 per share* New York Stock Exchange
Chicago Stock Exchange
Pacific Exchange
Zero Coupon Serial Bonds due 2009 New York Stock Exchange
9 1/2% Debentures due June 1, 2016 New York Stock Exchange
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* The common stock is also listed for trading on the London stock exchange.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes X No _
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant was approximately $23.1 billion at June 30, 2003.
There were 858,794,651 shares of Common Stock outstanding at February 27, 2004.
Documents Incorporated by Reference
Part I and II: Annual Report to Shareowners for the Year Ended December 31,
2003.
Part III: Proxy Statement for Annual Meeting of Shareowners to be held
April 26, 2004.
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TABLE OF CONTENTS
Item Page
---- ----
Part I. 1. Business................................................................................... 1
2. Properties................................................................................. 11
3. Legal Proceedings.......................................................................... 12
4. Submission of Matters to a Vote of Security Holders........................................ 12
Executive Officers of the Registrant........................................................... 12
Part II. 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities................................................................... 14
6. Selected Financial Data.................................................................... 14
7. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 14
7A. Quantitative and Qualitative Disclosures About Market Risk................................. 14
8. Financial Statements and Supplementary Data................................................ 14
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....... 14
9A. Controls and Procedures.................................................................... 15
Part III. 10. Directors and Executive Officers of the Registrant........................................ 15
11. Executive Compensation.................................................................... 15
12. Security Ownership of Certain Beneficial Owners and Management............................ 15
13. Certain Relationships and Related Transactions............................................ 18
14. Principal Accountant Fees and Services.................................................... 18
Part IV. 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................... 18
Signatures............................................................................................... 19
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This report contains certain statements that may be deemed 'forward-looking
statements' within the meaning of Section 21E of the Securities Exchange Act of
1934. All statements, other than statements of historical fact, that address
activities, events or developments that we or our management intends, expects,
projects, believes or anticipates will or may occur in the future are
forward-looking statements. Such statements are based upon certain assumptions
and assessments made by our management in light of their experience and their
perception of historical trends, current conditions, expected future
developments and other factors they believe to be appropriate. The
forward-looking statements included in this report are also subject to a number
of material risks and uncertainties, including but not limited to economic,
competitive, governmental and technological factors affecting our operations,
markets, products, services and prices. Such forward-looking statements are not
guarantees of future performance, and actual results, developments and business
decisions may differ from those envisaged by such forward-looking statements.
PART I.
Item 1. Business
Honeywell International Inc. (Honeywell) is a diversified technology and
manufacturing company, serving customers worldwide with aerospace products and
services, control, sensing and security technologies for buildings, homes and
industry, automotive products, specialty chemicals, fibers, and electronic and
advanced materials. Honeywell was incorporated in Delaware in 1985.
We maintain an internet website at http://www.honeywell.com. Our Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, and any amendments to those reports, are available free of charge on
our website under the heading 'Investor Relations' (see 'SEC Filings')
immediately after they are filed with, or furnished to, the Securities and
Exchange Commission (SEC). Honeywell's Code of Business Conduct, Corporate
Governance Guidelines and Charters of the Committees of the Board of Directors
are also available, free of charge, on our website under the heading 'Investor
Relations' (see 'Corporate Governance'), or by writing to Honeywell, 101
Columbia Road, Morris Township, New Jersey 07962, c/o Vice President and
Corporate Secretary. Honeywell's Code of Business Conduct applies to all
Honeywell directors, officers (including the Chief Executive Officer, Chief
Financial Officer and Controller) and employees.
Major Businesses
We globally manage our business operations through strategic business units,
which have been aggregated under four reportable segments: Aerospace, Automation
and Control Solutions, Specialty Materials and Transportation Systems. Financial
information related to our reportable segments is included in Note 23 of Notes
to Financial Statements in our 2003 Annual Report to Shareowners which is
incorporated herein by reference.
Following is further information about our four reportable segments which
are comprised of various strategic business units and product classes that serve
multiple end markets:
Strategic
Business Units Product Classes Major Products/Services Major Customers/Uses Key Competitors
-------------- --------------- ----------------------- -------------------- ---------------
Aerospace
Engines, Systems Turbine propulsion TFE731 turbofan Business, regional United Technologies
and Services engines TPE331 turboprop and military trainer aircraft (Pratt & Whitney
TFE1042 turbofan Commercial and military Canada)
F124 turbofan helicopters Rolls Royce/
LF502 turbofan Military vehicles Allison
LF507 turbofan Turbomeca
CFE738 turbofan Williams
HTF 7000 turbofan
T53, T55 turboshaft
LT101 turboshaft
T800 turboshaft
AGT1500 turboshaft
LV 100 turboshaft
Repair, overhaul and
spare parts
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Auxiliary power units Airborne auxiliary Commercial, regional, United Technologies
(APUs) power units business and (Pratt & Whitney
Jet fuel starters military aircraft Canada)
Secondary power Ground power United Technologies
systems (Hamilton
Ground power units Sundstrand)
Repair, overhaul and
spare parts
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1
Strategic
Business Units Product Classes Major Products/Services Major Customers/Uses Key Competitors
-------------- --------------- ----------------------- -------------------- ---------------
Environmental control Air management systems: Commercial, regional Auxilec
systems Air conditioning and general Barber Colman
Bleed air aviation aircraft Dukes
Cabin pressure control Military aircraft Eaton-Vickers
Air purification and Ground vehicles Goodrich (Lucas
treatment Spacecraft Aerospace)
Electrical power systems: Liebherr
Power distribution and Litton Breathing
control Systems
Emergency power Pacific Scientific
generation Parker Hannifin
Repair, overhaul and United Technologies
spare parts (Hamilton
Sundstrand)
Smiths
TAT
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Engine systems and Electronic and Commercial, regional and BAE Controls
accessories hydromechanical general aviation aircraft Goodrich
fuel controls Military aircraft (Chandler-Evans)
Engine start systems Goodrich (Lucas
Electronic engine Aerospace)
controls Parker Hannifin
Sensors United Technologies
Electric and pneumatic (Hamilton
power generation systems Sundstrand)
Thrust reverser
actuation, pneumatic and
electric
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Aircraft hardware Consumable hardware, Commercial, regional, business Anixter (Pentacon)
distribution including fasteners, and military aviation Arrow Pemco
bearings, bolts and aircraft Avnet
o-rings BE Aerospace (M&M
Adhesives, sealants, Aerospace)
lubricants, cleaners Dixie
and paints Fairchild Direct
Electrical connectors, Wesco Aircraft
switches, relays and
circuit breakers
Value-added services,
repair and overhaul
kitting and point-of-use
replenishment
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Aerospace Avionics systems Flight safety systems: Commercial, business Airshow, Inc.
Electronic Enhanced Ground and general aviation aircraft BAE
Systems Proximity Warning Government aviation Boeing/Jeppesen
Systems (EGPWS) Century
Traffic Alert and Garmin
Collision Avoidance Goodrich
Systems (TCAS) Kaiser
Windshear detection L3
systems Lockheed Martin
Flight data and cockpit Northrop Grumman
voice recorders Rockwell Collins
Weather Radar Smiths
Communication, navigation S-tec
and surveillance Thales
systems: Trimble/Terra
Weather radar Universal Avionics
Navigation & communication Universal Weather
radios
Air-to-ground telephones
Global positioning
systems
Automatic flight control
systems
Satellite systems
Surveillance systems
Integrated systems
Flight management systems
Cockpit display systems
Data management and
aircraft performance
monitoring systems
Vehicle management
systems
Aircraft information
systems
2
Strategic
Business Units Product Classes Major Products/Services Major Customers/Uses Key Competitors
-------------- --------------- ----------------------- -------------------- ---------------
Network file servers
Wireless network
transceivers
Satellite TV systems
Audio/Video equipment
Weather information
network
Navigation database
information
Cabin management systems
Vibration detection and
monitoring
Mission management
systems
Tactical data management
systems
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Aircraft, Obstruction and Inset lights Airports Bruce
Airport lighting Control and monitoring Commercial, regional, Hella/Goodrich
systems business, helicopter and LSI
Regulators military aviation aircraft Luminator
Tower and obstruction (operators, OEMs, parts Safegate
lights distributors and MRO service Siemens
Interior and exterior providers) Thorn
aircraft lighting General contractors (building Whelen
Visual docking guidance and tower manufacturers),
systems cell phone companies
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Inertial sensor Inertial sensor systems Military and Astronautics-
for guidance, commercial vehicles Kearfott
stabilization, Commercial spacecraft BAE
navigation and control and launch vehicles Ball
Gyroscopes, Commercial, regional, business GEC
accelerometers, inertial and military aircraft L3 Com
measurement units and Transportation KVH
thermal switches Missiles Northrop Grumman
Munitions Rockwell
Smiths
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Automatic test EW ATE Boeing Northrop Grumman
equipment Avionics ATE USAF Lockheed
Vehicle health Foreign air forces
Management
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Control products Radar altimeters Military aircraft Ball Brothers
Pressure products Missiles, UAVs BAE
Air data products Commercial Druck
Thermal switches applications Goodrich
Magnetic sensors NavCom
RF sensors Northrop Grumman
Rosemount
Solarton
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Space products and Guidance subsystems Commercial and military- BAE
subsystems Control subsystems spacecraft Ithaco
Processing subsystems DoD L3
Radiation hardened FAA Northrop Grumman
electronics and NASA Raytheon
integrated circuits
GPS-based range safety
systems
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Management and technical Maintenance/operation U.S. government space (NASA) Bechtel
services and provision of space DoD (logistics and Boeing
systems, services information services) Computer Sciences
and facilities DoE Dyncorp
Systems engineering Local governments ITT
and integration Commercial space ground Lockheed Martin
Information technology segment systems and services Raytheon
services SAIC
Logistics and sustainment The Washington
Group
United Space
Alliance
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3
Strategic
Business Units Product Classes Major Products/Services Major Customers/Uses Key Competitors
-------------- --------------- ----------------------- -------------------- ---------------
Aircraft Landing Landing systems Wheels and brakes Commercial airline, Aircraft Braking
Systems Friction products regional, business Systems
Wheel and brake and military aircraft Dunlop Standard
repair and High performance commercial Aerospace
overhaul services vehicles Goodrich
USAF, DoD, DoE Messier-Bugatti
Boeing, Airbus, Lockheed NASCO
Martin Various smaller
repair and
overhaul companies
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Automation and Control Solutions
Automation and Control Products Heating, ventilating and Original equipment Carrier
Control Products (Environmental controls air conditioning manufacturers (OEMs) Cherry
and combustion; sensing controls and components Distributors Danfoss
and controls) for homes and buildings Contractors Eaton
Indoor air quality Retailers Emerson
products including System integrators Endruss & Hauser
zoning, air cleaners, Commercial customers and Holmes
humidification, heat and homeowners served by the Invensys
energy recovery distributor, wholesaler, Johnson Controls
ventilators contractor, retail and Kavlico
Controls plus integrated utility channels Motorola
electronic systems for Package and materials handling Omron
burners, boilers and operations Siemens
furnaces Appliance manufacturers SPX (EST)
Consumer household Automotive companies Yokogawa
products including Aviation companies
humidifiers and Food and beverage processors
thermostats Medical equipment
Water controls Heat treat processors
Sensors, measurement, Computer and business
control and industrial equipment manufacturers
components Data acquisition companies
Datacom components
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Security and fire Security products and OEMs Bosch
products and services systems Retailers GE (Interlogix)
Fire products and systems Distributors Pelco
Access controls and Commercial customers Phillips
closed circuit and homeowners served by the Siemens
television distributor, wholesaler, SPX (EST)
contractor, retail and Tyco
utility channels
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Process Solutions Industrial automation Advanced control software Refining and petrochemical Asea Brown Boveri
solutions and industrial companies Aspentech
automation systems for Chemical manufacturers Emerson (Fisher-
control and monitoring Oil and gas producers Rosemount)
of continuous, batch and Food and beverage processors Invensys
hybrid operations Pharmaceutical companies Siemens
Production management Utilities Yokogawa
software Film and coated producers
Communications systems Pulp and paper industry
for Industrial Control Continuous web producers in
equipment and systems the paper, plastics, metals,
Consulting, networking rubber, non-wovens and
engineering and printing industries
installation
Process control
instrumentation
Field instrumentation
Analytical
instrumentation
Recorders
Controllers
Critical environment
control solutions and
services
Aftermarket maintenance,
repair and upgrade
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4
Strategic
Business Units Product Classes Major Products/Services Major Customers/Uses Key Competitors
-------------- --------------- ----------------------- -------------------- ---------------
Building Solutions Solutions and services HVAC and building control Building managers and owners GroupMac
solutions and services Contractors, architects and Invensys
Energy management developers Johnson Controls
solutions and services Consulting engineers Local contractors
Security and asset Security directors and utilities
management solutions and Plant managers Siemens
services Utilities Trane
Enterprise building Large, global corporations
integration solutions Public school systems
Building information Universities
services Local governments
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Specialty Materials
Specialty Materials Nylon Nylon filament and Commercial, residential and BASF
staple yarns specialty carpet markets DSM
Nylon bulk Nylon for fibers, DuPont
continuous filament engineered resins and film Enichem
Nylon polymer Fertilizer ingredients Hoechst
Caprolactam Specialty chemicals Monsanto
Ammonium sulfate Rhodia
Cyclohexanol Solutia
Cyclohexanone
Sulfuric acid
Ammonia
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Performance fibers Industrial Passenger car tires Acordis
polyester yarns Passenger car and light truck Akra
seatbelts and airbags DuPont
Broad woven fabrics Far Eastern
Ropes and mechanical Hyosung
rubber goods Kolon
Sports gear Kosa
Sailcloth Shinkong
Cordage Teijin
Toray
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Advanced Fibers & High molecular weight Bullet resistant vests, DuPont
Composites polyethylene fiber and helmets and other armor DSM
shield composites applications Teijin
Aramid shield composites Cut-resistant gloves
Rope & cordage
----------------------------------------------------------------------------------------------------------
Specialty Films Cast nylon film Food and pharmaceutical American Biaxis
Bi-axially oriented nylon packaging CFP
film Daikan
Fluoropolymer film Kolon
Unitika
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Fluorocarbons Genetron'r' refrigerants, Refrigeration Atofina
aerosol and Air conditioning INEOS Fluor
insulation foam blowing Polyurethane foam Solvay-Solexis
agents Precision cleaning
Genesolv'r' solvents Optical
Oxyfume sterilant gases Metalworking
Ennovate 3000 blowing Hospitals
agent for refrigeration Medical equipment
insulation manufacturers
----------------------------------------------------------------------------------------------------------
Hydrofluoric acid (HF) Anhydrous and aqueous Fluorocarbons Ashland
hydrofluoric acid Steel Atofina
Oil refining E. Merck
Chemical intermediates Hashimoto
Norfluor
Quimica Fluor
----------------------------------------------------------------------------------------------------------
Fluorine specialties Sulfur hexafluoride Electric utilities Air Products
(SF[u]6) Magnesium Asahi Glass
Iodine pentafluoride Gear manufacturers Atofina
(IF[u]5) Solvay-Solexis
Antimony pentafluoride
(SbF[u]5)
----------------------------------------------------------------------------------------------------------
Nuclear services UF[u]6 conversion Nuclear fuel British Nuclear
services Electric utilities Fuels
Cameco
Cogema
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5
Strategic
Business Units Product Classes Major Products/Services Major Customers/Uses Key Competitors
-------------- --------------- ----------------------- -------------------- ---------------
Research and life sciences Active pharmaceutical Agrichemicals Avecia
ingredients Pharmaceuticals Degussa
Pharmaceutical Biotech DSM
intermediates E-Merck
Pharmaceutical Fisher Scientific
formulations Lonza
Oxime-based fine Sigma-Aldrich
chemicals
Fluoroaromatics
Bromoaromatics
High-purity solvents
----------------------------------------------------------------------------------------------------------
Electronic chemicals Ultra high-purity HF Semiconductors Air Products
Inorganic acids Arch
Hi-purity solvents E. Merck
----------------------------------------------------------------------------------------------------------
Performance chemicals HF derivatives Diverse by product type Atotech
Imaging chemicals Fluoroaromatics BASF
Chemical processing Phosphors Solvay-Solexis
Display chemicals Catalysts
Surface treatment Oxime-silanes
Catalysts Hydroxylamine
Sealants
----------------------------------------------------------------------------------------------------------
Specialty waxes Petroleum waxes and Candles Exxon
blends Tire and Rubber IGI
Personal care Schumann-Sasol
Packaging
Firelogs
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Specialty additives Polyethylene waxes Coatings and inks BASF
Petroleum waxes and PVC Clarient
blends Plastics Eastman
PVC lubricant systems Reflective coatings
Plastic additives Security and safe applications
Luminescent photodyes
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Semiconductor Interconnect- Semiconductors ATMI
materials and dielectrics Microelectronics Dow Chemical
services Interconnect-metals Telecommunications Dow Corning
Semiconductor packaging Japan Energy
materials JSR
Advanced polymers Sumitomo
Sapphire substrates Tokyo-Ohka
Anti-reflective coatings Tosoh SMD
Thermo-couplings
----------------------------------------------------------------------------------------------------------
UOP (50%-owned joint Catalysts Petroleum, ABB Lummus
venture) Molecular sieves petrochemical, gas Axens
Adsorbents processing and Exxon-Mobil
Design of process, chemical industries Procatalyse
plants and equipment Shell/Criterion
Customer catalyst Stone & Webster
manufacturing Zeochem
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Transportation Systems
Honeywell Turbo Charge-air systems Turbochargers Passenger car, truck ABB
Technologies Remanufactured components and off-highway Borg-Warner
OEMs Hitachi
Engine manufacturers Holset
Aftermarket distributors IHI
and dealers MHI
Tianyan
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Thermal systems Exhaust gas coolers Passenger car, truck Behr/McCord
Charge-air coolers and off-highway OEMs Modine
Aluminum radiators Engine manufacturers Valeo
Aluminum cooling Aftermarket distributors
modules and dealers
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6
Strategic
Business Units Product Classes Major Products/Services Major Customers/Uses Key Competitors
-------------- --------------- ----------------------- -------------------- ---------------
Consumer Products Aftermarket Oil, air, fuel, Automotive and heavy AC Delco
Group filters, spark plugs, transmission and coolant vehicle aftermarket channels, Bosch
electronic components and filters OEMs and OES Champion
car care products PCV valves Auto supply retailers Champ Labs
Spark plugs Specialty installers Havoline/Texaco
Wire and cable Mass merchandisers Mann & Hummel
Antifreeze/coolant NGK
Ice-fighter products Peak/Old World
Windshield washer fluids Industries
Waxes, washes and Pennzoil-Quaker
specialty cleaners State
Purolator/Arvin Ind
STP/ArmorAll/
Clorox
Turtle Wax
Various Private
Label
Wix/Dana
Zerex/Valvoline
-------------------------------------------------------------------------------------------------------------------------------
Friction Materials Friction materials Disc brake pads and shoes Automotive and heavy vehicle Akebono
Aftermarket brake hard Drum brake linings OEMs, OES, brake Dana
parts Brake blocks manufacturers and aftermarket Delphi
Disc and drum brake channels Federal-Mogul
components Mass merchandisers ITT Galfer
Brake hydraulic Installers JBI
components Railway and commercial/ Nisshinbo
Brake fluid military aircraft OEMs TMD
Aircraft brake linings and brake manufacturers Roulunds
Railway linings
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Aerospace Sales
Our sales to aerospace customers were 38, 40 and 41 percent of our total
sales in 2003, 2002 and 2001, respectively. Our sales to commercial aerospace
original equipment manufacturers were 7, 9 and 12 percent of our total sales in
2003, 2002 and 2001, respectively. If there were a large decline in sales of
aircraft that use our components, operating results could be negatively
impacted. In addition, our sales to commercial aftermarket customers of
aerospace products and services were 15, 16 and 16 percent of our total sales in
2003, 2002 and 2001, respectively. If there were a large decline in the number
of global flying hours or landings for aircraft that use our components or
services, operating results could be negatively impacted. The terrorist attacks
on September 11, 2001 resulted in an abrupt downturn in the aviation industry
which was already negatively impacted by a weak economy. This dramatic downturn
in the commercial air transport industry continued to adversely impact the
operating results of our Aerospace segment in 2003.
U.S. Government Sales
Sales to the U.S. Government (principally by our Aerospace segment), acting
through its various departments and agencies and through prime contractors,
amounted to $2,595, $2,277 and $2,491 million in 2003, 2002 and 2001,
respectively, which included sales to the U.S. Department of Defense, as a prime
contractor and subcontractor, of $2,269, $1,833 and $1,631 million in 2003, 2002
and 2001, respectively. U.S. defense spending increased in 2003 and is also
expected to increase in 2004.
In addition to normal business risks, companies engaged in supplying
military and other equipment to the U.S. Government are subject to unusual
risks, including dependence on Congressional appropriations and administrative
allotment of funds, changes in governmental procurement legislation and
regulations and other policies that may reflect military and political
developments, significant changes in contract scheduling, complexity of designs
and the rapidity with which they become obsolete, necessity for constant design
improvements, intense competition for U.S. Government business necessitating
increases in time and investment for design and development, difficulty of
forecasting costs and schedules when bidding on developmental and highly
sophisticated technical work and other factors characteristic of the industry.
Changes are customary over the life of U.S. Government contracts, particularly
development contracts, and generally result in adjustments of contract prices.
7
We, like other government contractors, are subject to government
investigations of business practices and compliance with government procurement
regulations. Although such regulations provide that a contractor may be
suspended or barred from government contracts under certain circumstances, and
the outcome of pending government investigations cannot be predicted with
certainty, we are not currently aware of any such investigations that we expect,
individually or in the aggregate, will have a material adverse effect on us. In
addition, we have a proactive business compliance program designed to ensure
compliance and sound business practices.
Backlog
Our total backlog at year-end 2003 and 2002 was $7,191 and $7,332 million,
respectively. We anticipate that approximately $5,573 million of the 2003
backlog will be filled in 2004. We believe that backlog is not necessarily a
reliable indicator of our future sales because a substantial portion of the
orders constituting this backlog may be canceled at the customer's option.
Competition
We are subject to active competition in substantially all product and
service areas. Competition is expected to continue in all geographic regions.
Competitive conditions vary widely among the thousands of products and services
provided by us, and vary country by country. Depending on the particular
customer or market involved, our businesses compete on a variety of factors,
such as price, quality, reliability, delivery, customer service, performance,
applied technology, product innovation and product recognition. Brand identity,
service to customers and quality are generally important competitive factors for
our products and services, and there is considerable price competition. Other
competitive factors for certain products include breadth of product line,
research and development efforts and technical and managerial capability. While
our competitive position varies among our products and services, we believe we
are a significant competitor in each of our major product and service classes.
However, a number of our products and services are sold in competition with
those of a large number of other companies, some of which have substantial
financial resources and significant technological capabilities. In addition,
some of our products compete with the captive component divisions of original
equipment manufacturers.
International Operations
We are engaged in manufacturing, sales, service and research and development
mainly in the United States, Europe, Canada, Asia and Latin America. U.S.
exports and foreign manufactured products are significant to our operations.
U.S. exports comprised 10 percent of our total net sales in both 2003 and 2002.
Foreign manufactured products and services, mainly in Europe, were 34 and 30
percent of our total net sales in 2003 and 2002, respectively.
Our international operations, including U.S. exports, are potentially
subject to a number of unique risks and limitations, including: fluctuations in
currency value; exchange control regulations; wage and price controls;
employment regulations; foreign investment laws; import and trade restrictions,
including embargoes; and governmental instability. However, we have limited
exposure in high risk countries and have taken action to mitigate these risks.
Approximately 19 percent of total net sales of Aerospace-related products
and services were exports of U.S. manufactured products and systems and
performance of services such as aircraft repair and overhaul. Exports were
principally made to Europe, Asia and Canada. Foreign manufactured products and
services comprised 14 percent of total Aerospace net sales.
Approximately 2 percent of total net sales of Automation and Control
Solutions products were exports of U.S. manufactured products. Foreign
manufactured products and services accounted for 48 percent of total net sales
of Automation and Control Solutions. The principal manufacturing facilities
outside the U.S. are in Europe, with less significant operations in Asia and
Canada.
Approximately 12 percent of total net sales of Specialty Materials were
exports of U.S. manufactured products. Exports were principally made to Asia,
Europe, Latin America and Canada. Foreign manufactured products comprised 28
percent of total net sales of Specialty Materials. The principal manufacturing
facilities outside the U.S. are in Europe, with less significant operations in
Asia and Canada.
8
Exports of U.S. manufactured products comprised 1 percent of total net sales
of Transportation Systems products. Foreign manufactured products accounted for
62 percent of total net sales of Transportation Systems. The principal
manufacturing facilities outside the U.S. are in Europe, with less significant
operations in Asia, Latin America and Canada.
Raw Materials
The principal raw materials used in our operations are generally readily
available. We experienced no significant or unusual problems in the purchase of
key raw materials and commodities in 2003. We are not dependent on any one
supplier for a material amount of our raw materials. However, we are highly
dependent on our suppliers and subcontractors in order to meet commitments to
our customers. In addition, many major components and product equipment items
are procured or subcontracted on a sole-source basis with a number of domestic
and foreign companies. We maintain a qualification and performance surveillance
process to control risk associated with such reliance on third parties. While we
believe that sources of supply for raw materials and components are generally
adequate, it is difficult to predict what effects shortages or price increases
may have in the future. The costs of certain key raw materials, including
natural gas and benzene, in our Specialty Materials' business were at
historically high levels in 2003 and are expected to remain at those levels in
2004. Based on current volume usage, a 10 percent increase in the year-end price
of natural gas and benzene would increase our costs by $12 and $15 million,
respectively. At present, we have no reason to believe a shortage of raw
materials will cause any material adverse impact during 2004.
Patents, Trademarks, Licenses and Distribution Rights
Our business as a whole, and that of our strategic business units, are not
dependent upon any single patent or related group of patents, or any licenses or
distribution rights. We own, or are licensed under, a large number of patents,
patent applications and trademarks acquired over a period of many years, which
relate to many of our products or improvements to those products and which are
of importance to our business. From time to time, new patents and trademarks are
obtained, and patent and trademark licenses and rights are acquired from others.
We also have distribution rights of varying terms for a number of products and
services produced by other companies. In our judgment, those rights are adequate
for the conduct of our business. We believe that, in the aggregate, the rights
under our patents, trademarks and licenses are generally important to our
operations, but we do not consider any patent, trademark or related group of
patents, or any licensing or distribution rights related to a specific process
or product to be of material importance in relation to our total business.
We have registered trademarks for a number of our products, including such
consumer brands as Honeywell, Prestone, FRAM, Anso, Autolite, Bendix King and
Garrett.
Research and Development
Our research activities are directed toward the discovery and development of
new products and processes, improvements in existing products and processes, and
the development of new uses for existing products.
Research and development expense totaled $751, $757 and $832 million in
2003, 2002 and 2001, respectively. The decrease in research and development
expense in 2002 compared with 2001 related mainly to lower spending by our
Aerospace segment due primarily to program completions and fewer new program
launches by original equipment manufacturers. Customer-sponsored (principally
the U.S. Government) research and development activities amounted to an
additional $608, $603 and $697 million in 2003, 2002 and 2001, respectively.
Environment
We are subject to various federal, state and local government requirements
regulating the discharge of materials into the environment or otherwise relating
to the protection of the environment. It is our policy to comply with these
requirements, and we believe that, as a general matter, our policies, practices
and procedures are properly designed to prevent unreasonable risk of
environmental damage, and of resulting financial liability, in connection with
our business. Some risk of environmental damage is, however, inherent in some of
our operations and products, as it is with other companies engaged in similar
businesses.
9
We are and have been engaged in the handling, manufacture, use and disposal
of many substances classified as hazardous or toxic by one or more regulatory
agencies. We believe that, as a general matter, our policies, practices and
procedures are properly designed to prevent unreasonable risk of environmental
damage and personal injury, and that our handling, manufacture, use and disposal
of these substances are in accord with environmental and safety laws and
regulations. It is possible, however, that future knowledge or other
developments, such as improved capability to detect substances in the
environment or increasingly strict environmental laws and standards and
enforcement policies, could bring into question our handling, manufacture, use
or disposal of these substances.
Among other environmental requirements, we are subject to the federal
superfund law, and similar state laws, under which we have been designated as a
potentially responsible party that may be liable for cleanup costs associated
with various hazardous waste sites, some of which are on the U.S. Environmental
Protection Agency's superfund priority list. Although, under some court
interpretations of these laws, there is a possibility that a responsible party
might have to bear more than its proportional share of the cleanup costs if it
is unable to obtain appropriate contribution from other responsible parties, we
have not had to bear significantly more than our proportional share in multi-
party situations taken as a whole.
In the matter entitled Interfaith Community Organization, et al. v.
Honeywell International Inc., et al., the United States District Court for the
District of New Jersey held in May 2003 that a predecessor Honeywell site
located in Jersey City, New Jersey constituted an imminent and substantial
endangerment and ordered Honeywell to conduct the excavation and transport for
offsite disposal of approximately one million tons of chromium residue present
at the site. Honeywell strongly disagrees with the Court's determinations and
has appealed the Court's decision to the Third Circuit Court of Appeals. Per the
Appeals Court's order, the parties are engaged in mediation. In October 2003,
the District Court denied Honeywell's motion for a stay of certain aspects of
its May 2003 order, and we are considering whether to appeal such ruling. The
site at issue is one of twenty-one sites located in Jersey City, New Jersey
which are the subject of an Administrative Consent Order (ACO) entered into with
the New Jersey Department of Environmental Protection (NJDEP) in 1993. Under the
ACO, Honeywell agreed to study and remediate these sites in accordance with
NJDEP's directions, provided that the total costs of such studies and
remediation do not exceed $60 million. Honeywell has cooperated with the NJDEP
under the ACO and believes that decisions regarding site cleanups should be made
by the NJDEP under the ACO. We are confident that proceeding under the ACO will
ensure a safe remediation and allow the property to be placed back into
productive use much faster and at a cost significantly less than the remedies
required by the Court's order. We have not completed development of a remedial
action plan for the excavation and offsite disposal directed under the Court's
order and therefore are unable to estimate the cost of such actions. At trial,
plaintiff's expert testified that the excavation and offsite disposal cost might
be $400 million. However, there are significant variables in the implementation
of the Court's order and depending on the method of implementation chosen, the
estimate could increase or decrease. Prior to 2003, provisions were made in our
financial statements as to remedial costs consistent with the ACO and during the
three months ended June 30, 2003 we provided for additional costs which are
likely to be incurred during the pendency of our appeal, which provisions do not
assume excavation and offsite removal of chromium from the site. There are
alternative outcomes and remedies beyond the scope of the ACO that could result
from the remanding, reversal or replacement of the Court's decision and order.
At this time, we can neither identify a probable alternative outcome nor
reasonably estimate the cost of an alternative remedy. Although we expect the
Court's decision and order to be remanded, reversed or replaced, should the
remedies prescribed in the Court's decision and order ultimately be upheld, such
outcome could have a material adverse impact on our consolidated results of
operations or operating cash flows in the periods recognized or paid. We do not
expect that this matter will have a material adverse effect on our consolidated
financial position.
In accordance with a 1992 consent decree with the State of New York,
Honeywell is studying environmental conditions in and around Onondaga Lake (the
Lake), in Syracuse, New York. The purpose of the study is to identify, evaluate
and propose remedial measures that can be taken to remedy historic industrial
contamination in the Lake. A predecessor company to Honeywell operated a
10
chemical plant which is alleged to have contributed mercury and other
contaminants to the Lake and certain surrounding areas. In May 2003, Honeywell
submitted to the New York State Department of Environmental Conservation (DEC) a
draft Feasibility Study for the Lake and certain surrounding areas. In November
2003, the DEC issued formal comments on the Feasibility Study. Those comments
include a request for further evaluation of remedies for the Lake and
surrounding areas. Accordingly, pursuant to the consent decree, Honeywell is
required to submit a revised Feasibility Study on or before May 3, 2004.
Provisions have been made in our financial statements based on our expected
revisions to our Feasibility Study. We do not expect that this matter will have
a material adverse effect on our consolidated financial position. However,
should the DEC ultimately require a substantially more extensive remedy than
that expected to be proposed in the revised Feasibility Study and should
Honeywell agree to undertake such a remedy, such outcome could have a material
adverse impact on our consolidated results of operations and operating cash
flows in the periods recognized or paid.
During 2003, three incidents occurred at our Baton Rouge, Louisiana chemical
plant including a release of chlorine, a release of antimony pentachloride which
resulted in an employee fatality, and an employee exposure to hydrofluoric acid.
As a result of these incidents, the United States Environmental Protection
Agency (USEPA), Occupational Health and Safety Administration (OSHA), the
Chemical Safety Board and state and local agencies commenced investigations. A
number of potential government claims have been settled, including a $110,000
penalty paid to OSHA for citations arising from the incidents. The USEPA and
Chemical Safety Board investigations are ongoing however no charges have been
filed or claims asserted. Honeywell has been served with several civil lawsuits.
We do not expect that these matters will have a material adverse effect on our
consolidated financial position, consolidated results of operations or operating
cash flows.
Further information regarding environmental matters is included in
Management's Discussion and Analysis of Financial Condition and Results of
Operations of our 2003 Annual Report to Shareowners which is incorporated
herein by reference.
Employees
We have approximately 108,000 employees at December 31, 2003, of which
approximately 61,000 were located in the United States.
Item 2. Properties
We have over 1,000 locations consisting of plants, research laboratories,
sales offices and other facilities. Our headquarters and administrative complex
is located at Morris Township, New Jersey. Our plants are generally located to
serve large marketing areas and to provide accessibility to raw materials and
labor pools. Our properties are generally maintained in good operating
condition. Utilization of these plants may vary with sales to customers and
other business conditions; however, no major operating facility is significantly
idle. We own or lease warehouses, railroad cars, barges, automobiles, trucks,
airplanes and materials handling and data processing equipment. We also lease
space for administrative and sales staffs. Our properties and equipment are in
good operating condition and are adequate for our present needs. We do not
anticipate difficulty in renewing existing leases as they expire or in finding
alternative facilities.
11
Our principal plants, which are owned in fee unless otherwise indicated, are
as follows:
Aerospace
---------
Glendale, AZ South Bend, IN Albuquerque, NM
(partially leased) Olathe, KS Rocky Mount, NC
Phoenix, AZ Minneapolis, MN Urbana, OH
Tempe, AZ Plymouth, MN Redmond, WA (leased)
Tucson, AZ Teterboro, NJ Toronto, Canada
Torrance, CA
(partially leased)
Clearwater, FL
Automation and Control Solutions
--------------------------------
Phoenix, AZ Northford, CT Golden Valley, MN
San Diego, CA Freeport, IL Juarez, Mexico
Specialty Materials
-------------------
Baton Rouge, LA Pottsville, PA Hopewell, VA
Geismar, LA Columbia, SC Seelze, Germany
Moncure, NC Chesterfield, VA Longlaville, France
Transportation Systems
----------------------
Mexicali, Mexico Thaon-Les-Vosges, France Atessa, Italy
Glinde, Germany Skelmersdale, United
Kingdom
Item 3. Legal Proceedings
We are subject to a number of lawsuits, investigations and claims (some of
which involve substantial amounts) arising out of the conduct of our business.
See a discussion of environmental, asbestos and other litigation matters in
Note 21 of Notes to Financial Statements of our 2003 Annual Report to
Shareowners which is incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
Executive Officers of the Registrant
The executive officers of Honeywell, listed as follows, are elected annually
by the Board of Directors. There are no family relationships among them.
Name, Age,
Date First
Elected an
Executive Officer Business Experience
----------------- -----------------------------------------------------------
David M. Cote (a), 51 Chairman of the Board and Chief Executive Officer since
2002 July 2002. President and Chief Executive Officer from
February 2002 to June 2002. Chairman of the Board,
President and Chief Executive Officer of TRW
(manufacturer of aerospace and automotive products) from
August 2001 to February 2002. President and Chief
Executive Officer of TRW from February 2001 to July 2001.
President and Chief Operating Officer of TRW from
November 1999 to January 2001. Senior Vice President of
General Electric Company and President and Chief
Executive Officer of GE Appliances from June 1996 to
November 1999.
---------
(a) Also a Director.
12
Name, Age,
Date First
Elected an
Executive Officer Business Experience
----------------- -----------------------------------------------------------
Dr. Nance K. Dicciani, 56 President and Chief Executive Officer Specialty Materials
2001 since November 2001. Senior Vice President and Business
Group Executive of Chemical Specialties and Director,
European Region of Rohm and Haas (chemical company) from
June 1998 to October 2001.
Roger Fradin, 50 President and Chief Executive Officer Automation and
2004 Control Solutions since January 2004. President of
Automation and Control Products from June 2002 to
December 2003. President and Chief Executive Officer of
Security and Fire Solutions from February 2000 to May
2002. President of The Security Group of The Pittway
Corporation from September 1995 to April 2002.
Robert J. Gillette, 44 President and Chief Executive Officer Transportation
2001 Systems since July 2001. President of Honeywell Turbo
Technologies from July 2000 to June 2001. Vice President
and General Manager of Engineering Plastics from
December 1996 to June 2000.
Robert D. Johnson, 56 President and Chief Executive Officer Aerospace since July
1998 2001. Chief Operating Officer and Executive Vice
President, Aerospace, from December 1999 to June 2001.
President and Chief Executive Officer of AlliedSignal
Aerospace from April 1999 to November 1999.
President -- Aerospace Marketing, Sales and Services from
January 1999 to March 1999.
David J. Anderson, 54 Senior Vice President and Chief Financial Officer since
2003 June 2003. Senior Vice President and Chief Financial
Officer of ITT Industries (global manufacturing company)
from December 1999 to June 2003. Senior Vice President
and Chief Financial Officer of Newport News Shipbuilding
from June 1996 to December 1999.
Larry E. Kittelberger, 55 Senior Vice President Administration and Chief Information
2001 Officer since August 2001. Senior Vice President and
Chief Information Officer of Lucent Technologies Inc.
from November 1999 to August 2001. Senior Vice President
and Chief Information Officer of AlliedSignal Inc from
February 1999 to November 1999. Vice President and Chief
Information Officer from August 1995 to January 1999.
Peter M. Kreindler, 58 Senior Vice President and General Counsel since
1992 March 1992. Secretary from December 1994 through
November 1999.
Thomas W. Weidenkopf, 45 Senior Vice President Human Resources and Communications
2002 since April 2002. Vice President of Human Resources,
Aerospace, from March 1999 to March 2002. Vice President,
Human Resources -- Aerospace Marketing, Sales & Services
from March 1997 to February 1999.
13
Part II.
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Market and dividend information for Honeywell's common stock is included in
Note 26 of Notes to Financial Statements of our 2003 Annual Report to
Shareowners which is incorporated herein by reference.
The number of record holders of our common stock at December 31, 2003 was
88,454.
The following table summarizes Honeywell's purchases of its common stock,
par value $1 per share, for the year ending December 31, 2003:
Issuer Purchases of Equity Securities
(a) (b) (c) (d)
Maximum
Total Number (or
Number of Approximate
Shares Dollar Value) of
Purchased as Shares that
Total Part of Publicly May Yet be
Number of Average Announced Purchased Under
Shares Price Paid Plans or Plans or
Period Purchased per Share Programs Programs
------ --------- --------- -------- --------
December 19-31, 2003 1,887,000 $32.71 1,887,000 (A)
---------
(A) In November 2003 Honeywell announced its intention to repurchase sufficient
outstanding shares of its common stock to offset the dilutive impact of
employee stock based compensation plans, including future option exercises,
restricted unit vesting and matching contributions under our savings plans.
We estimate share repurchases of approximately 10 million shares annually.
Item 6. Selected Financial Data
Selected Financial Data on page 26 of our 2003 Annual Report to Shareowners
is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
'Management's Discussion and Analysis' on pages 27 through 44 of our 2003
Annual Report to Shareowners is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Information relating to market risk is included under the caption 'Financial
Instruments' in 'Management's Discussion and Analysis' on pages 43 and 44 of our
2003 Annual Report to Shareowners, and such information is incorporated herein
by reference.
Item 8. Financial Statements and Supplementary Data
Our consolidated financial statements, together with the report thereon of
PricewaterhouseCoopers LLP dated February 5, 2004, appearing on pages 45 through
76 of our 2003 Annual Report to Shareowners, are incorporated herein by
reference. With the exception of the aforementioned information and the
information incorporated by reference in Items 1, 3, 5, 6, 7 and 7A, the 2003
Annual Report to Shareowners is not to be deemed filed as part of this
Annual Report on Form 10-K .
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable.
14
Item 9A. Controls and Procedures
Honeywell management, including the Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this
Annual Report on Form 10-K. Based upon that evaluation, the Chief Executive
Officer and the Chief Financial Officer concluded that such disclosure controls
and procedures were effective as of the end of the period covered by this Annual
Report on Form 10-K in alerting them on a timely basis to material information
relating to Honeywell required to be included in Honeywell's periodic filings
under the Exchange Act. There have been no changes that have materially
affected, or are reasonably likely to materially affect, Honeywell's internal
control over financial reporting that have occurred during the period covered by
this Annual Report on Form 10-K.
Part III.
Item 10. Directors and Executive Officers of the Registrant
Information relating to the Directors of Honeywell, as well as information
relating to compliance with Section 16(a) of the Securities Exchange Act of
1934, will be contained in our definitive Proxy Statement involving the election
of the Directors which will be filed with the SEC pursuant to Regulation 14A not
later than 120 days after December 31, 2003, and such information is
incorporated herein by reference. Certain other information relating to the
Executive Officers of Honeywell appears in Part I of this Annual Report on
Form 10-K under the heading 'Executive Officers of the Registrant'.
The members of the Audit Committee of our Board of Directors are: Russell E.
Palmer (Chair), Marshall N. Carter, James J. Howard, Eric K. Shinseki, John R.
Stafford, and Michael W. Wright. The Board has determined that Mr. Palmer
satisfies the 'audit committee financial expert' criteria established by the SEC
and the 'accounting or related financial management expertise' criteria
established by the New York Stock Exchange (NYSE). All members of the Audit
Committee are 'independent' as that term is defined in applicable SEC Rules and
NYSE listing standards.
Honeywell's Code of Business Conduct is available, free of charge, on our
website under the heading 'Investor Relations' (see 'Corporate Governance'), or
by writing to Honeywell, 101 Columbia Road, Morris Township, New Jersey 07962,
c/o Vice President and Corporate Secretary. Honeywell's Code of Business Conduct
applies to all Honeywell directors, officers (including the Chief Executive
Officer, Chief Financial Officer and Controller) and employees. Amendments to or
waivers of the Code of Business Conduct granted to any of Honeywell's directors
or executive officers will be published on our website within five business days
of such amendment or waiver.
Item 11. Executive Compensation
Information relating to executive compensation is contained in the Proxy
Statement referred to above in 'Item 10. Directors and Executive Officers of the
Registrant,' and such information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information relating to security ownership of certain beneficial owners and
management is contained in the Proxy Statement referred to above in 'Item 10.
Directors and Executive Officers of the Registrant,' and such information is
incorporated herein by reference.
15
Equity Compensation Plans
Information about our equity compensation plans is as follows:
Number of
Securities
Number of Remaining
Shares to Available for
be Issued Weighted- Future Issuance
Upon Average Under Equity
Exercise of Exercise Price of Compensation
Outstanding Outstanding Plans (Excluding
Options, Options, Securities
Warrants Warrants Reflected in
Plan Category and Rights and Rights Column(a))
------------- ---------- ---------- ----------
(a) (b) (c)
Equity compensation plans approved by security
holders...................................... 51,861,643(1) $37.13(2) 28,114,430(3)
Equity compensation plans not approved by
security holders............................. 920,285(4) N/A(5) N/A(6)
Total...................................... 52,781,928 $37.13 28,114,430
---------
(1) Equity compensation plans approved by shareowners that are included in
column (a) of the table are the 2003 Stock Incentive Plan of Honeywell
International Inc. and its Affiliates (the 2003 Stock Incentive Plan)
(524,500 common shares to be issued for options; 1,391,000 restricted units
subject to attainment of certain performance goals or continued employment;
and 543,600 deferred restricted units of previously earned and vested awards
under prior plans approved by shareowners where delivery of shares has been
deferred); the 1993 Stock Plan for Employees of Honeywell International Inc.
and its Affiliates (47,254,305 common shares to be issued for options;
190,725 shares to be issued for SARs; and 1,712,513 restricted units subject
to attainment of certain performance goals or continued employment); the
1985 Stock Plan for Employees of AlliedSignal Inc. and its Subsidiaries
(40,000 common shares to be issued for options); and the Stock Plan for
Non-Employee Directors of Honeywell International Inc. and predecessor plans
(154,000 common shares to be issued for options and 51,000 shares of
restricted stock). The 2003 Stock Incentive Plan has issued 628,830 growth
plan units for the two-year performance cycle beginning January 1, 2003 and
ending December 31, 2004. Growth plan units are denominated in cash units
and the percentage of such units that are payable depends upon the
achievement of pre-established performance goals during the two-year
performance cycle relating to growth in earnings per share, revenue and
return on investment. The value of any growth plan unit is not determinable
and may be paid in cash or shares of Honeywell common stock. Growth plan
units are therefore not included in the table above.
(2) Column (b) does not include any exercise price for restricted units or
growth plan units granted to employees or non-employee directors under
equity compensation plans approved by shareowners. Restricted units do not
have an exercise price because their value is dependent upon attainment of
certain performance goals or continued employment or service and they are
settled for shares of Honeywell common stock on a one-for-one basis. Growth
plan units are denominated in cash units and the ultimate value of the award
is dependent upon attainment of certain performance goals.
(3) The number of shares that may be issued under the 2003 Stock Incentive Plan
as of December 31, 2003 is 27,942,430 except that the following additional
shares under the 2003 Stock Incentive Plan (or any Prior Plan as defined in
the 2003 Stock Incentive Plan) may again be available for issuance: shares
that are settled for cash, expire, are tendered in satisfaction of an option
exercise price or tax withholding obligations, shares reacquired with cash
tendered in satisfaction of an option exercise price or with monies
attributable to any tax deduction enjoyed by Honeywell to the exercise of an
option, and shares under any outstanding awards assumed under any equity
compensation plan of an entity acquired by Honeywell. The remaining 172,000
shares included in column (c) are shares remaining for future grants under
the Stock Plan for Non-Employee Directors of Honeywell International Inc.
(footnotes continued on next page)
16
(footnotes continued from previous page)
(4) Equity compensation plans not approved by shareowners that are included in
the table are the Supplemental Non-Qualified Savings Plans for Highly
Compensated Employees of Honeywell International Inc. and its Subsidiaries,
the AlliedSignal Incentive Compensation Plan for Executive Employees of
AlliedSignal Inc. and its Subsidiaries, and the Deferred Compensation Plan
for Non-Employee Directors of Honeywell International Inc.
The Supplemental Non-Qualified Savings Plans for Highly Compensated
Employees of Honeywell International Inc. and its Subsidiaries are unfunded,
nonqualified plans that provide benefits equal to the employee deferrals and
company matching allocations that would have been provided under Honeywell's
U.S. tax-qualified savings plan if the Internal Revenue Code limitations on
compensation and contributions did not apply. The company matching
contribution is credited to participants' accounts in the form of notional
shares of Honeywell common stock. Additional notional shares are credited to
participants' accounts equal to the value of any cash dividends payable on
actual shares of Honeywell common stock. The notional shares are distributed
in the form of actual shares of Honeywell common stock when payments are
made to participants under the plans.
The AlliedSignal Incentive Compensation Plan for Executive Employees of
AlliedSignal Inc. and its Subsidiaries was a cash incentive compensation
plan maintained by AlliedSignal Inc. This plan has expired. Employees were
permitted to defer receipt of a cash bonus payable under the plan and invest
the deferred bonus in notional shares of Honeywell common stock. The
notional shares are distributed in the form of actual shares of Honeywell
common stock when payments are made to participants under the plan. No
further deferrals can be made under this plan. The number of Honeywell
securities that remain to be issued under this expired plan is 55,910.
The Deferred Compensation Plan for Non-Employee Directors of Honeywell
International Inc. provides for mandatory and elective deferral of certain
payments to non-employee directors. Mandatory deferrals are invested in
notional shares of Honeywell common stock. Directors may also invest any
elective deferrals in notional shares of Honeywell common stock. Additional
notional shares are credited to participant accounts equal to the value of
any cash dividends payable on actual shares of Honeywell common stock.
Notional shares of Honeywell common stock are converted to an equivalent
amount of cash at the time the distributions are made from the plan to
directors. However, two former directors are entitled to receive periodic
distributions of actual shares of Honeywell common stock that were
notionally allocated to their accounts in years prior to 1992. The number of
Honeywell securities that remain to be issued to these two directors is
4,772.
(5) Column (b) does not include any exercise price for notional shares allocated
to employees under Honeywell's equity compensation plans not approved by
shareowners because all of these shares are notionally allocated as a
matching contribution under the non-qualified savings plans or as a notional
investment of deferred bonuses or fees under the cash incentive compensation
and directors' plans as described in note 4 and are only settled for shares
of Honeywell common stock on a one-for-one basis.
(6) No securities are available for future issuance under the AlliedSignal
Incentive Compensation Plan for Executive Employees of AlliedSignal Inc. and
its Subsidiaries and the Deferred Compensation Plan for Non-Employee
Directors of Honeywell International Inc. The cash incentive compensation
plan has expired. All notional investments in shares of Honeywell common
stock are converted to cash when payments are made under the directors' plan
(other than with respect to 4,772 shares of Honeywell common stock included
in column (a) that is payable to two former directors). The amount of
securities available for future issuance under the Supplemental
Non-Qualified Savings Plan for Highly Compensated Employees of Honeywell
International Inc. and its Subsidiaries is not determinable because the
number of securities that may be issued under these plans depends upon the
amount deferred to the plans by participants in future years.
The table does not contain information for the following plans and arrangements:
Employee benefit plans of Honeywell intended to meet the requirements
of Section 401(a) of the Internal Revenue Code and a small number of
foreign employee benefit plans which are similar to such Section 401(a)
plans.
17
Equity compensation plans maintained by Honeywell Inc. immediately
prior to the merger of Honeywell Inc. and AlliedSignal Inc. on
December 1, 1999. The right to receive Honeywell International Inc.
securities was substituted for the right to receive Honeywell Inc.
securities under these plans. No new awards have been granted under
these plans after the merger date. The number of shares to be issued
under these plans upon exercise of outstanding options, warrants and
rights is 6,280,816 and their weighted-average exercise price is
$41.88.
The Honeywell Global Employee Stock Purchase Plan. This plan is
maintained solely for eligible employees of participating non-U.S.
affiliates. Eligible employees can contribute between 2 and 8 percent
of base pay from January through October of each year to purchase
shares of Honeywell common stock in November of that year at a 15
percent discount. Honeywell has historically purchased shares through
non-dilutive, open market purchases and intends to continue this
practice. Employees purchased 343,484 shares of common stock at $20.349
per share in 2002 and 351,283 shares of common stock at $21.233 per
share in 2003.
Item 13. Certain Relationships and Related Transactions
Information relating to certain relationships and related transactions is
contained in the Proxy Statement referred to above in 'Item 10. Directors and
Executive Officers of the Registrant,' and such information is incorporated
herein by reference.
Item 14. Principal Accountant Fees and Services
Information relating to fees paid to and services performed by
PricewaterhouseCoopers LLP in 2003 and 2002 and our Audit Committee's
pre-approval policies and procedures with respect to non-audit services are
contained in the Proxy Statement referred to above in 'Item 10. Directors and
Executive Officers of the Registrant,' and such information is incorporated
herein by reference.
Part IV.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Page Number in
Annual Report
(a)(1.) Consolidated Financial Statements: to Shareowners
--------------
Incorporated by reference to the 2003 Annual
Report to Shareowners:
Consolidated Statement of Operations for the
years ended December 31, 2003, 2002 and
2001 45
Consolidated Balance Sheet at December 31,
2003 and 2002 46
Consolidated Statement of Cash Flows for the
years ended December 31, 2003, 2002 and
2001 47
Consolidated Statement of Shareowners'
Equity for the years ended December 31,
2003, 2002 and 2001 48
Notes to Financial Statements 49
Report of Independent Auditors 76
Page Number
(a)(2.) Consolidated Financial Statement Schedules: in Form 10-K
------------
Report of Independent Auditors on Financial
Statement Schedule 23
Schedule II -- Valuation and Qualifying Accounts 24
All other financial statement schedules have been omitted because they are
not applicable to us or the required information is shown in the consolidated
financial statements or notes thereto.
(a)(3.) Exhibits
See the Exhibit Index on pages 20 through 22 of this Annual Report on
Form 10-K.
(b) Reports on Form 8-K
During the three months ended December 31, 2003, Current Reports on Form 8-K
were filed on October 16, reporting third quarter 2003 financial results and on
November 17, reporting the expiration of a letter of intent to acquire our
automotive Bendix Friction Materials business.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized.
HONEYWELL INTERNATIONAL INC.
March 4, 2004 By: /s/ JOHN J. TUS
-------------------------------------
John J. Tus
Vice President and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
annual report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
Name Name
---- ----
* *
------------------------------------ -------------------------------------
David M. Cote Bruce Karatz
Chairman of the Board, Director
Chief Executive Officer
and Director
* *
------------------------------------ -------------------------------------
Hans W. Becherer Robert P. Luciano
Director Director
* *
------------------------------------ -------------------------------------
Gordon M. Bethune Russell E. Palmer
Director Director
* *
------------------------------------ -------------------------------------
Marshall N. Carter Ivan G. Seidenberg
Director Director
* *
------------------------------------ -------------------------------------
Jaime Chico Pardo Eric K. Shinseki
Director Director
* *
------------------------------------ -------------------------------------
Clive R. Hollick John R. Stafford
Director Director
* *
------------------------------------ -------------------------------------
James J. Howard Michael W. Wright
Director Director
/s/ DAVID J. ANDERSON /s/ JOHN J. TUS
------------------------------------ -------------------------------------------
David J. Anderson John J. Tus
Senior Vice President and Vice President and Controller
Chief Financial Officer (Principal Accounting Officer)
(Principal Financial Officer)
*By: /s/ DAVID J. ANDERSON
------------------------------------
(David J. Anderson
Attorney-in-fact)
March 4, 2004
19
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
2 Omitted (Inapplicable)
3(i) Restated Certificate of Incorporation of Honeywell
(incorporated by reference to Exhibit 3(i) to Honeywell's
Form 8-K filed December 3, 1999)
3(ii) By-laws of Honeywell, as amended (incorporated by reference
to Exhibit 3(ii) to Honeywell's Form 10-Q for the quarter
ended September 30, 2001)
4 Honeywell is a party to several long-term debt instruments
under which, in each case, the total amount of securities
authorized does not exceed 10% of the total assets of
Honeywell and its subsidiaries on a consolidated basis.
Pursuant to paragraph 4(iii)(A) of Item 601(b) of
Regulation S-K, Honeywell agrees to furnish a copy of such
instruments to the Securities and Exchange Commission upon
request.
9 Omitted (Inapplicable)
10.1* 2003 Stock Incentive Plan of Honeywell International Inc.
and its Affiliates (incorporated by reference to
Honeywell's Proxy Statement, dated March 17, 2003, filed
pursuant to Rule 14a-6 of the Securities and Exchange Act
of 1934)
10.2* Deferred Compensation Plan for Non-Employee Directors of
Honeywell International Inc., as amended and restated
(incorporated by reference to Exhibit 10.2 to Honeywell's
Form 10-Q for the quarter ended June 30, 2003)
10.3* Stock Plan for Non-Employee Directors of AlliedSignal Inc.,
as amended (incorporated by reference to Exhibit 10.3 to
Honeywell's Form 10-Q for the quarter ended June 30, 2003)
10.4* 1985 Stock Plan for Employees of AlliedSignal Inc. and its
Subsidiaries, as amended (incorporated by reference to
Exhibit 19.3 to Honeywell's Form 10-Q for the quarter
ended September 30, 1991)
10.5* AlliedSignal Inc. Incentive Compensation Plan for Executive
Employees, as amended (incorporated by reference to
Exhibit B to Honeywell's Proxy Statement, dated March 10,
1994, filed pursuant to Rule 14a-6 of the Securities
Exchange Act of 1934, and to Exhibit 10.5 to Honeywell's
Form 10-Q for the quarter ended June 30, 1999)
10.6* Supplemental Non-Qualified Savings Plan for Highly
Compensated Employees of Honeywell International Inc. and
its Subsidiaries, as amended and restated (incorporated by
reference to Exhibit 10.6 to Honeywell's Form 10-Q for the
quarter ended June 30, 2003)
10.7* Honeywell International Inc. Severance Plan for Senior
Executives, as amended and restated (filed herewith)
10.8* Salary and Incentive Award Deferral Plan for Selected
Employees of Honeywell International Inc. and its
Affiliates, as amended and restated (incorporated by
reference to Exhibit 10.8 to Honeywell's Form 10-Q for the
quarter ended June 30, 2003)
20
Exhibit No. Description
----------- -----------
10.9* 1993 Stock Plan for Employees of Honeywell International
Inc. and its Affiliates, as amended (incorporated by
reference to Exhibit A to Honeywell's Proxy Statement,
dated March 10, 1994, filed pursuant to Rule 14a-6 of the
Securities Exchange Act of 1934) (amendment filed
herewith)
10.10 364-Day Credit Agreement dated as of November 26, 2003 among
Honeywell, the initial lenders named therein, Citibank,
N.A., as administrative agent, JPMorgan Chase Bank, as
syndication agent, and Deutsche Bank AG, New York Branch,
Bank of America, N.A. and Barclays Bank PLC, as
documentation agents, and CitiGroup Global Markets Inc.
and J.P. Morgan Securities Inc., as joint lead arrangers
and co-book managers (filed herewith)
10.11 Five-Year Credit Agreement dated as of November 26, 2003
among Honeywell, the initial lenders named therein,
Citibank, N.A., as administrative agent, JPMorgan Chase
Bank, as syndication agent, and Deutsche Bank AG, New York
Branch, Bank of America, N.A., and Barclays Bank PLC, as
documentation agents, and CitiGroup Global Markets Inc.
and J.P. Morgan Securities Inc., as joint lead arrangers
and co-book managers (filed herewith)
10.12* Honeywell International Inc. Supplemental Pension Plan, as
amended and restated (incorporated by reference to
Exhibit 10.13 to Honeywell's Form 10-K for the year ended
December 31, 2000)
10.13* Employment Separation Agreement and Release between J. Kevin
Gilligan and Honeywell International Inc. dated
February 10, 2004 (filed herewith)
10.14* Honeywell International Inc. Supplemental Executive
Retirement Plan for Executives in Career Band 6 and Above
(incorporated by reference to Exhibit 10.16 to Honeywell's
Form 10-K for the year ended December 31, 2000)
10.15* Honeywell Supplemental Defined Benefit Retirement Plan, as
amended and restated (incorporated by reference to
Exhibit 10.17 to Honeywell's Form 10-K for the year ended
December 31, 2000)
10.16* Letter between David J. Anderson and Honeywell International
Inc. dated June 12, 2003 (incorporated by reference to
Exhibit 10.26 to Honeywell's Form 10-Q for the quarter
ended June 30, 2003)
10.17* Employment Separation Agreement and Release between Richard
F. Wallman and Honeywell International Inc. dated July 17,
2003 (incorporated by reference to Exhibit 10.2 to
Honeywell's Form 10-Q for the quarter ended September 30,
2003)
10.18* Honeywell International Inc. Severance Plan for Corporate
Staff Employees (Involuntary Termination Following a
Change in Control), as amended and restated (incorporated
by reference to Exhibit 10.19 to Honeywell's Form 10-K for
the year ended December 31, 2002)
10.19* Employment Agreement dated as of February 18, 2002 between
Honeywell and David M. Cote (incorporated by reference to
Exhibit 10.24 to Honeywell's Form 8-K filed March 4, 2002)
11 Omitted (Inapplicable)
12 Statement re: Computation of Ratio of Earnings to Fixed
Charges (filed herewith)
21
Exhibit No. Description
----------- -----------
13 Pages 26 through 76 of Honeywell's 2003 Annual Report to
Shareowners (filed herewith)
16 Omitted (Inapplicable)
18 Omitted (Inapplicable)
21 Subsidiaries of the Registrant (filed herewith)
22 Omitted (Inapplicable)
23 Consent of PricewaterhouseCoopers LLP (filed herewith)
24 Powers of Attorney (filed herewith)
31.1 Certification of Principal Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith)
31.2 Certification of Principal Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith)
32.1 Certification of Principal Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (filed herewith)
32.2 Certification of Principal Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (filed herewith)
99 Omitted (Inapplicable)
---------
The Exhibits identified above with an asterisk(*) are management contracts
or compensatory plans or arrangements.
22
REPORT OF INDEPENDENT AUDITORS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
HONEYWELL INTERNATIONAL INC.
Our audits of the consolidated financial statements referred to in our
report dated February 5, 2004 appearing in the 2003 Annual Report to Shareowners
of Honeywell International Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in
Item 15(a)(2) of this Form 10-K. In our opinion, the Financial Statement
Schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
February 5, 2004
23
HONEYWELL INTERNATIONAL INC
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Three Years Ended December 31, 2003
(In millions)
Allowance for Doubtful Accounts:
Balance December 31, 2000................................... $ 99
Provision charged to income............................. 84
Deductions from reserves(1)............................. (55)
----
Balance December 31, 2001................................... 128
Provision charged to income............................. 109
Deductions from reserves(1)............................. (90)
----
Balance December 31, 2002................................... 147
Provision charged to income............................. 72
Deductions from reserves(1)............................. (69)
----
Balance December 31, 2003................................... $150
----
----
---------
(1) Represents uncollectible accounts written off, less recoveries, translation
adjustments and reserves acquired.
24
STATEMENT OF DIFFERENCES
------------------------
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The Japanese Yen sign shall be expressed as............................... 'Y'
The Euro sign shall be expressed as....................................... 'E'
The section symbol shall be expressed as.................................. 'SS'
Characters normally expressed as subscript shall be preceded by........... [u]