Honeywell International Inc.

founded: 1906

Contact Information:

headquarters: 101 columbia rd., po box 4000morristown, nj 07962-2497 phone: (973)455-2000 fax: (973)455-4807 toll free: (800)707-4555 url: http://www.honeywell.com

OVERVIEW

Honeywell International Inc. is a widely diversified corporation that produces a wide range of products, most of which are then used as components in other products manufactured by other companies. Honeywell's products and services include control technologies, automotive products, power generation systems, aerospace products and services, and chemicals, fibers, and other specialty materials. The company's product line is divided into four basic sectors: Aerospace Solutions, Automation and Control Solutions, Specialty Materials, and Transportation and Power Systems. Within Honeywell's aerospace section, leading products include aircraft landing systems; engines, systems, and services; federal manufacturing and technologies; and aerospace electronic systems. The company's automation and control sector offers control products, industry solutions, security and fire solutions, and related services. Among the products produced in Honeywell's specialty materials sector are nylon, polyester, polypropylene, fine chemicals, and coated products for use in manufacturing silicon chips, wafers, and circuit boards.

Headquartered in Morristown, New Jersey, Honeywell in late 1999 merged with AlliedSignal Inc. Under the terms of the merger agreement, it was decided that the new, larger company formed by the merger would operate under the Honeywell name. In addition to its chemical business, AlliedSignal also did a fair amount of business in the aerospace sector, producing satellite flight control systems and telemetry data and processing systems. More recently, plans for a merger between General Electric and Honeywell were abandoned in 2001 when European Union antitrust regulators blocked the merger on grounds that its massive size would overpower its competition in the aerospace market.

COMPANY FINANCES

Honeywell's performance in 2001 was rather disappointing. The company reported a net loss of $99 million on revenue of $23.7 billion. This compared with a net profit in 2000 of almost $1.7 billion on sales of just over $25 billion. The company's net profit in 1999 totaled $1.5 billion on revenue of about $23.7 billion. Earnings per share Honeywell's net profit margin in 2000 was 6.6 percent, compared with 6.5 percent in 1999.

As of late May 2002, Honeywell's stock (HON on the New York Stock Exchange) in the previous 52 weeks had traded between a low of $22.15 and a high of $52.15. Thanks largely to the sale of the company's commercial vehicle braking systems, Honeywell's net earnings for the first quarter of 2002 were sharply higher. The company reported net income of $376 million on sales of $5.2 billion. However, lingering effects of the recent economic slowdown did not bode well for the remainder of 2002. Of the company's first quarter performance and the outlook for the rest of 2002, Honeywell Chairman Lawrence Bossidy said: "While we began to see signs of improvement in parts of the company in March, we are not experiencing robust economy recovery across the board." The company lowered its predictions for second quarter 2002 earnings, saying that sales and earnings in the company's ongoing businesses are not expected to bounce back quickly enough to sustain earlier predicted earnings levels. Despite the slowdown, Honeywell executives predicted that for 2002 as a whole they expected earnings to reach about $2.36 per share on revenue of $22.8 billion.

ANALYSTS' OPINIONS

Eli Lustgarten, an analyst with H.C. Wainwright & Co. in New York took a somewhat mixed view of Honeywell's financial performance in the first quarter of 2002. "The numbers were okay for the quarter," he said. "The main event was the reduced guidance on the second quarter."

FAST FACTS: About Honeywell International Inc.

Ownership: Honeywell International Inc. is a publicly owned company traded on the New York Stock Exchange.

Ticker Symbol: HON

Officers: Lawrence A. Bossidy, Chmn., 67, 2001 base salary $992,308; David M. Cote, Pres. and CEO, 49, 2002 base salary $1,500,000; Richard F. Wallman, SVP and CFO, 50, 2001 base salary $510,000

Employees: 115,000

Principal Subsidiary Companies: Honeywell owns a number of subsidiaries in North America and elsewhere around the world. Some of the company's major subsidiaries include ADEMCO Group, Honeywell Aerospace, and Honeywell International Specialty Materials. In addition to these subsidiaries, Honeywell has a number of foreign subsidiaries, each of which is responsible for operations in its geographical region. Such subsidiaries include Honeywell Asia Pacific Inc. in Hong Kong, Honeywell Ltd. in Canada, Honeywell Europe S.A., Tata Honeywell Ltd. in India, and GoldStar-Honeywell Company Ltd. in South Korea.

Chief Competitors: A widely diversified manufacturing and technology company, Honeywell International produces aerospace products and services, which account for roughly 40 percent of the company's annual revenue; automotive products; control technologies; power generation systems; and chemicals, fibers, and other materials. Some of its major competitors include Pratt & Whitney, Eaton Corporation, General Electric, Rolls-Royce plc, Boeing, Lockheed Martin, BASF AG, Bayer AG, and DuPont.

Analysts were less sanguine about the effects on Honeywell of the collapse of its takeover by General Electric during the summer of 2001. The planned merger had already won the approval of antitrust regulators in the United States and Canada but was blocked in Europe. Paul Nisbet, an analyst at JSA Research Inc. in Newport, Rhode Island, said Honeywell would have to decide whether to seek another suitor or continue on its own. "It's sort of hard to find too many companies that can buy a $40 billion firm," he added. "On the other hand, if Honeywell opts to remain independent," said Nisbet, "it would take them awhile to get back on their feet." James Ayscue, an analyst with PNC Advisors in Philadelphia, said he anticipated a major restructuring and sharp cost cutting by Honeywell if it decided to remain independent. He said that he expected the company would proceed with divestitures of some of its under performing businesses, including its automotive consumer products, U.S. security monitoring, and friction materials businesses.

HISTORY

Honeywell's roots can be traced back to 1885, when inventor Albert Butz patented the furnace regulator and alarm. The following year he founded Butz Thermo-Electric Regulator Company in Minneapolis. Shortly thereafter inventor Butz came up with still another useful device that he called the "damper flapper." Not long after that, Butz's patents and his business were purchased by Consolidated Temperature Controlling Company, which in 1893 renamed itself Electric Heat Regulator Company. Three years later W.R. Sweatt, who by 1912 had changed his company's name to Minneapolis Heat Regulator Company (MHR) and expanded its product line, bought out Consolidated. The Honeywell name first entered the scene in 1906 when engineer Mark Honeywell founded Honeywell Heating Specialty Company in Wabash, Indiana. Honeywell's company specialized in the manufacture and sale of hot water heat generators.

Honeywell Heating Specialty Company and MHR merged in 1927 to form Minneapolis-Honeywell Regulator Company with W.R. Sweat of MHR serving as the new company's chairman and Mark Honeywell as its president. To bolster its share of the controls market, the company made a number of acquisitions, including the Brown Instrument Company, a major player in the field of industrial controls and gauges. The company also was quick to recognize the potential for sales of its products in overseas markets. At first it sold its products through a network of foreign distributors, but in 1934 it acquired Time-O-Stat Controls Corporation and launched an ambitious program of foreign expansion. The first office outside the United States was set up in Toronto, Canada, followed not long thereafter by the establishment of a European subsidiary, based in the Netherlands. This global expansion has continued throughout the company's history.

To adjust to changing times, Minneapolis-Honeywell Regulator made a number of important changes, moving to mass production and adding to its product line. In 1942 the company developed the electronic autopilot. Other products were added over the years. In 1963, the company's name was officially changed to Honeywell Inc. In 1970 Honeywell and General Electric merged their computer businesses to form Honeywell Information Systems. After the emergence of the personal computer in the 1980s, Honeywell joined with France's Compagnie des Machines Bull and NEC Corporation of Japan to form Honeywell Bull, although by 1991 Honeywell had completely withdrawn from this venture. Honeywell's market share in the aerospace industry was substantially increased in 1986 when the company purchased Sperry Aerospace. In 1999 Honeywell Inc. merged with AlliedSignal to form Honeywell International Inc. The merger broadened Honeywell's product line significantly, adding a wide range of chemicals and chemical-related products, and strengthened its aerospace business. In 2001, a planned takeover of Honeywell by General Electric was abandoned after antitrust regulators in the European Union declined to approve the takeover without substantial changes, acceptable to neither GE nor Honeywell. The plan for GE's acquisition had already won the approval of antitrust regulators in both the United States and Canada.

CHRONOLOGY: Key Dates for Honeywell International Inc.

1906:

Mark Honeywell forms Honeywell Heating Specialty Co. in Wabash, Indiana

1927:

Honeywell Heating and Minneapolis Heat Regulator Co. merge to form Minneapolis-Honeywell Regulator Co.

1934:

Minneapolis-Honeywell acquires Brown Instrument Co., a leader in industrial controls

1942:

Minneapolis-Honeywell invents electronic autopilot

1955:

Minneapolis-Honeywell enters computer business through joint venture with Raytheon

1963:

Company name is changed to Honeywell Inc.

1970:

Honeywell, GE merge computer businesses to form Honeywell Information Systems

1986:

Honeywell purchases Sperry Aerospace

1999:

Honeywell merges with AlliedSignal

2001:

European Union blocks GE acquisition of Honeywell

STRATEGY

In the wake of the collapse of its planned takeover by General Electric in the summer of 2001, Honeywell brought back former chairman Lawrence Bossidy to help put the company's financial house in order. Bossidy was to remain as chairman for only a year and was to be replaced on July 1, 2002, by David Cote, the former chairman, president, and CEO of TRW. Cote actually came on board at Honeywell in February 2002 as president and CEO. Together the two in late February 2002 discussed their expectations for the company's short-term future in a joint interview on cable channel CNBC with moderator Mark Haines. Bossidy expressed optimism that the U.S. economy "can improve in the second half for a number of reasons, one being low interest rates and low raw material costs, the first installment of the government's tax plan reduction, and a host of things that look favorable. And the consumer, who has been strong throughout the whole period, continues to be strong. So I'm now of the belief that in the second half we'll see some signs of recovery, and I'm delighted to be able to say that." For his part, Cote voiced the hope that Honeywell can achieve significant growth in the short-term future. Asked to clarify the type of growth he anticipated for Honeywell, Cote said: "Well, there are two aspects to growth. There's the organic side, the focus on your existing where you provide quality, delivery, value, and technology every day. And there are also acquisition possibilities. We have a strong balance sheet. We've got a lot of business that can be added to. And I think our growth prospects are very good."

Honeywell's strategy for 2002 focused on four major goals: (1) Focus relentlessly on satisfying customers; (2) Enlist every employee in the plan for growth; (3) Achieve productivity, earnings, and cash flow commitments by driving Six Sigma and Digitization; and (4) Create a great place to work through learning and innovation.

INFLUENCES

To cope with the effects of a sluggish economy and the downturn in the air transportation industry that followed the September 11, 2001, terrorist attacks on the World Trade Center and Pentagon, Honeywell embarked on an aggressive campaign of cost cutting in 2001. Nearly 16,000 employees were laid off. Former Chairman Lawrence Bossidy was brought back to help restructure Honeywell after European Union regulators shot down the plan for its takeover by General Electric. Bossidy's strategy focused on sharp cuts in company costs and improvements in productivity. He predicted that, together, cost cutting and productivity improvements would save Honeywell approximately $1.3 billion, an amount sufficient to offset the effects of the slowdown in aerospace and other of the company's businesses.

CURRENT TRENDS

One of the most widespread trends in business today is the move toward consolidation in an effort to achieve greater efficiencies of scale and reduce costs through the unification of overlapping operations. For Honeywell a bold move in this direction—namely its proposed takeover by General Electric—was blocked in the summer of 2001 when European Union antitrust regulators refused to approve the proposal without radical changes that neither GE nor Honeywell found acceptable. In the wake of this frustration, Honeywell appeared determined, at least for the short term, to go its own way.

David Cote, former chairman, CEO, and president of TRW Inc., came onboard at Honeywell as president and CEO in February 2002. He was to succeed Lawrence Bossidy as chairman on July 1, 2002. Interviewed by the Arizona Republic in late February 2002, Cote declared: "We will remain an independent company." He also indicated that the company, rather than seek out a possible suitor to take it over, will be shopping for possible acquisitions in the aerospace, chemicals, and industrial controls businesses. Although he declined to provide any specifics, Cote said, "We have a great balance sheet, and there are some good prices out there. Now is a great time to buy."

PRODUCTS

Operationally, Honeywell International is divided into four distinct product segments: Aerospace, Automation and Control Solutions, Specialty Materials, and Transportation and Power Systems. Major products of Honeywell's Aerospace segment include aircraft engines, auxiliary power units, avionics systems and related products, environmental control systems, landing systems, repair and overhaul services, spare parts, and support and services for space and communications facilities.

Honeywell's Automation and Control Solutions produces a broad range of products and services, including controls for heating, cooling, ventilation, humidification, industrial process automation, video surveillance, and access control equipment, as well as security/fire alarm and industrial safety systems and home automation systems. The segment's other products include advanced software applications for home/building control and industrial optimization and sensors, switches, control systems, and instruments for measuring pressure, air flow, temperature, and electrical current.

The company's Specialty Materials produces high-performance specialty materials such as nylon, polyester, polyethylene, fluorocarons, caprolactam, and other specialty and fine chemicals. The segment's brand-name products include Genetron refrigerants, Capron nylon resin, Anso carpet fiber, Spectra high-performance fiber, AstorLite wax additive, AccuGlass spin-on-glass series, and Lumilux luminescent pigments. Honeywell's Transportation and Power Systems division is the world's leading innovator of automotive turbochargers and also produces friction materials used by major brake manufacturers. Its brand-name products include Garrett turbochargers, Prestone antifreeze/coolant, Autolite platinum spark plugs, and FRAM automotive filters.

CORPORATE CITIZENSHIP

Honeywell has long recognized its commitment to the communities in which it operates worldwide. The company and its employees have made substantial financial contributions to worthy causes in those communities, but it is in the realm of volunteerism that Honeywell feels its greatest contribution to community improvement has been made. Thousands of the company's employees and retirees volunteer their time and services to nonprofit organizations each year. Theses volunteers act as mentors, serve on boards, and roll up their sleeves to take part in a wide variety of community service activities.

Honeywell in the mid-1990s established a partnership with Habitat for Humanity. Under this partnership, the company has supplied thousands of company employees as volunteers in Habitat projects, not to mention substantial financial and product donations. Close to 3,500 Honeywell volunteers have worked on Habitat projects in Arizona, Georgia, Illinois, Kentucky, Louisiana, Michigan, Minnesota, New Mexico, North Carolina, North Dakota, Texas, and West Virginia in the United States and in Australia, Canada, and Hungary outside this country. In addition, the company has donated more than 6,000 home security systems, 8,000 thermostats, and more than $1 million in cash.

GLOBAL PRESENCE

As its corporate name indicates, Honeywell is a truly international corporation. The company has manufacturing, sales, and research and development operations in Canada, Europe, Asia, and Latin America, in addition to which U.S. exports of Honeywell products represent a major contribution to the company's annual revenue. Honeywell's European sales accounted for nearly $4.3 billion in revenue in 2001, compared with slightly more than $4.3 billion the previous year. Other international sales accounted for approximately $2 billion in 2001 revenue, compared with $2.7 billion the previous year. All international sales accounted for just over 26 percent of Honeywell's total 2001 revenue of about $23.7 billion. This was down slightly from 2000, when foreign operations accounted for 28 percent of total revenue.

EMPLOYMENT

As of December 31, 2001, Honeywell International had a total of 115,000 employees worldwide. Approximately 79,000 of those employees were based in the United States. Of the company's U.S. employees, approximately 19 percent were unionized, represented by various national or local labor unions. At its corporate Web site, Honeywell explains its approach to employment in these words: "Hire extremely talented people, nurture their growth, give them opportunities to make an impact, and promote heavily from within."

SIX SIGMA PLUS PAYS DIVIDENDS

Scores of companies have managed to speed up improvements in their operations while at the same time sharply reducing costs and improving quality by implementing the Six Sigma strategy. Six Sigma focuses on the elimination of waste and the reduction of defects and variations in the manufacturing process. Long aware of the benefits Six Sigma can achieve, Honeywell has put into force its proprietary version of the strategy, calling it Six Sigma Plus. Developed through the merger of Honeywell with AlliedSignal, the strategy equips company employees with the tools and skills they need to create greater value for Honeywell's customers; improve its products, services, and processes; and grow the company by using the power of the Internet through e-commerce. One of Honeywell's Six Sigma Plus teams managed to meet a critical customer need by setting up the largest Internet auction site for used truck and automotive parts. Honeywell predicts that the site could generate more than $100 million in additional high-margin revenue for the company within five years. Another Six Sigma Plus team devised a system that uses the Internet to accelerate the retrieval of customer payments. Over a 14-month period, the system resulted in an improvement in cash flow worth $6 million.

The company supports a comprehensive learning program for its employees, which ranges from 40 hours of mandatory, on-the-job experience to executive management courses at such prestigious schools as Harvard and Northwestern. Employees are also schooled in Six Sigma, Steven Covey's Seven Habits, team building, and other self-improvement programs at the company's on-site learning centers.

SOURCES OF INFORMATION

Bibliography

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honeywell 2001 annual report. morristown, nj: honeywell international inc., 2002.

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honeywell international inc. home page, 2002. available at http://www.honeywell.com.

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macintosh, julie. "trw ceo david cote resigns to lead honeywell." reuters business report, 19 february 2002.

mattern, hal. "honeywell's new chief focuses on growth." arizona republic, 22 february 2002.

"snapshot report: honeywell international." multex investor, 2002. available at http://www.marketguide.com.

For an annual report:

on the internet at: http://investor.honeywell.com/ireye/ir_site.html.

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. honeywell international inc.'s primary sics are:

3613 switchgear and switchboard apparatus

3625 relays and industrial controls

3812 search and navigation equipment

3822 environmental controls

3823 process control instruments

3826 analytical instruments

also investigate companies by their north american industrial classification system codes, also known as naics codes. honeywell international inc.'s primary naics codes are:

334511 search, detection, navigation, guidance and aeronautical systems

334512 automatic environmental control manufacturingstores

334513 instruments for measuring and displaying industrialprocess variables