SecProbe.io

CORRESP
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filename1.htm

September 23,
2010

Lyn Shenk

Branch Chief

Division of Corporation Finance

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549

 RE:

 Honeywell
 International Inc.

 Form 10-K
 for the year ended December 31, 2009

 Filed February 12, 2010

 Form 10-Q
 for the quarterly period ended June 30, 2010

 Filed July 23, 2010

 File No.
 001-08974

Dear Mr.
Shenk:

This letter
provides Honeywell International Inc.’s (Honeywell) response to your letter to
David J. Anderson dated August 20, 2010, setting forth the Staff’s comments on
the above referenced Form 10-K and Form 10-Q. The numbered paragraphs below
correspond to the numbered paragraphs in your letter.

Form 10-K: For the
fiscal year ended December 31, 2009

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

Consolidated Results
of Operations, page 22

 1.

 Staff’s Comment:
 Please refer to your response to our prior comment two. We have reviewed the
 proposed disclosure regarding your company’s consolidated results, and it
 appears that the concerns raised in our prior comment could be more fully
 addressed. For example, in your proposed disclosure, you only quantify the
 impact that the decline in direct material costs had on fiscal year 2009
 consolidated “cost of products and services sold.” In this regard, you do not
 quantify how much of the remaining $2.0 billion decline in cost of products
 and services sold related to (i) fluctuations in labor costs (or the specific
 factors impacting labor costs, such as lower incentive compensation), (ii) the
 impact of indirect cost savings initiatives, and (iii) lower repositioning
 charges. In addition, you do not quantify the absolute impact that (a)
 similar factors and/or (b) variances in similar costs (e.g., labor costs)
 have had on your reported selling, general, and administrative expense.
 Quantification of all material factors cited here and elsewhere in your
 MD&A analysis enables investors to

1

 understand
 the magnitude and relative impact of each on operations and results. Please
 expand your disclosure to quantify the absolute impact of all factors that
 materially impacted your consolidated results. Please provide your proposed
 expanded disclosure as part of your response.

 Our Response: We
 will revise our disclosure, on a prospective basis to provide additional
 quantification of items that materially impact our consolidated results of
 operations as shown in the below illustrative disclosure.

 Additionally,
 we would like to clarify the basis for our previous response to prior comment
 two. We believe that our historical disclosure in this format provided
 adequate qualitative and quantitative information to enable users of our
 financial statements to understand material fluctuations in our results of
 operations. While our financial systems are designed with controls in place
 at the transactional level to properly record operating costs as cost of
 goods sold (COGS) or selling, general and administrative (SG&A) expense
 and to ensure accurate income statement classification, once recorded at the
 transactional level, our systems are not configured to summarize details of
 the components of operating costs (e.g., material, labor, etc) included in either
 COGS or SG&A. We believe this is a common systems limitation for many large
 multi-national companies. We utilize estimated total cost data (estimated
 because our current systems configurations provide management cost reporting
 on an as incurred not as expensed basis) as a basis to identify the key
 drivers of our change in costs at the COGS or SG&A level and have
 provided these drivers in narrative format. We have chosen to disclose the
 estimated impact from direct materials because by its nature it is COGS.
 However, as shown in the following illustration we will expand the
 quantification of material drivers of changes in our COGS and SG&A using
 estimated impacts derived from our analysis of total costs.

 Representative disclosure example for
 Consolidated Results of Operations:

 Cost of Products and Services Sold

 Cost of
 products and services sold decreased by $4,809 million or 17 percent in 2009
 compared with 2008. The decrease is primarily due to i) an estimated decline
 in direct material costs of approximately $2.8 billion driven substantially
 by a 15 percent decrease in sales as a result of the factors discussed within
 the Review of Business Segments section of this MD&A, ii) an estimated
 $1.0 billion decrease in labor costs (reflecting reduced census, work
 scheduled reductions, benefits from prior repositioning actions and lower
 incentive compensation), iii) an approximate $500 million decrease in
 Repositioning and Other Charges (see Note 3 of Notes to Financial Statements)
 and iv) an estimated $500 million decrease in costs from indirect cost
 savings initiatives.

2

 Selling, General and Administrative Expense

 Selling,
 general and administrative expenses (SG&A) decreased $692 million and
 increased as a percentage of sales by 0.2 of a percentage point in 2009
 compared with 2008. The increase as a percentage of sales was driven by the
 15 percent decrease in sales, substantially offset by an estimated $400
 million impact of indirect cost savings initiatives across each of our
 Business Segments and an estimated $300 million reduction in labor costs
 (reflecting reduced census, work schedule reductions, benefits from prior
 repositioning actions and lower incentive compensation), collectively
 resulting in the decrease in SG&A.

 2.

 Staff’s Comment:
 Refer to the gross margin portion of the proposed revised disclosure provided
 in response to prior comment. Please explain to us why the decrease in direct
 material costs indicated therein is “estimated.” Also, with regard to the
 lower gross margin percentages in the Transportation Systems and Aerospace
 segments, it is not completely clear why they decreased when there was a
 decrease in direct material costs and cost savings initiatives were in effect
 – that is, why the affected costs did not decrease on a proportional basis
 commensurate with the lower sales experienced such that margins were negatively
 impacted. Please revise to explain more fully as appropriate.

 Our Response: In
 our response to the Staff’s prior comment two we described the decrease
 in direct materials as “estimated” because although our financial
 systems are designed with controls in place at the transactional level to properly
 record operating costs as cost of goods sold (COGS) or selling, general and
 administrative (SG&A) expense and to ensure accurate income statement
 classification, as described above, our financial systems are not configured
 to summarize details of the various components of operating costs included in
 COGS with the same rigor and controls supporting other financial statement
 data and information in our public disclosures. We conduct analysis to
 determine the estimated impact of key drivers on gross margin. For example,
 our financial systems provide total labor costs incurred and based on our
 businesses’ understanding of the census makeup, we determine the estimated
 COGS and SG&A allocation. We believe our analysis provides a reasonable
 basis for our estimates of the quantification of the changes of the
 components of COGS and SG&A.

 With regard
 to the lower gross margin percentages in our Transportation Systems and
 Aerospace segments in 2009 compared to 2008, we were unable to reduce our
 cost structure at the same rate as the decline in sales (27 percent and 15
 percent for Transportation Systems and Aerospace, respectively). While
 certain costs vary proportionally with our sales, such as volume-driven direct
 materials and labor, many of our costs do not. These include fixed costs and
 material and labor inflation.

 In future
 filings, we will more fully explain changes in costs that are
 disproportionate to changes in our sales as illustrated below:

3

 Gross margin increased by 1.6 percent in 2009 compared with 2008
 primarily due to increases of 2.9 and 0.6 percent, respectively, in our
 Specialty Materials and Automation and Control Solutions segments due
 primarily to an estimated decrease in direct material costs of approximately
 $700 million and $650 million, respectively, other cost savings initiatives
 discussed above and lower repositioning charges. This increase was partially
 offset by lower margins in our Transportation Systems and Aerospace segments
 of 3.2 and 0.7 percent, respectively, due to lower sales (27% and 15%
 declines, respectively). The negative impact of lower sales on gross margins
 in these segments was partially offset by an estimated decrease in direct
 material costs of approximately $700 million and $750 million, respectively,
 and the impact of cost savings initiatives. While these volume related
 decreases in direct materials and cost savings initiatives resulted in the
 absolute dollar decreases noted above, given the significance of the
 percentage sales decline and the fixed cost structure of our Transportation
 Systems and Aerospace segments, these decreases were disproportionate to the
 decline in sales, resulting in the noted decreases in the gross margins for
 these segments.

 Review of Business Segments, page 26

 3.

 Staff’s Comment:
 Please refer to the proposed disclosure provided in your response to our
 prior comment two, as well as the MD&A disclosure included in your Form
 10-Q for quarterly period ended June 30, 2010. It appears that you may not
 have adequately quantified the impact of various factors on the revenue
 earned by your business segments. In particular, we note that when you
 discuss changes in sales by product or service type, you oftentimes do not
 quantify the amount of the applicable sales or the absolute change in sales
 for the identified product or service type. For example, we note that in your
 proposed disclosure, you do not quantify the specific amount or impact of the
 declines in sales of “Products” and/or “Solutions” within the Automation and
 Control Solutions business. Furthermore, you do not quantify the extent to
 which each business’s sales were impacted by the factors referenced in your
 proposed disclosure (e.g., the lower sales volume and unfavorable impact of
 foreign exchange experienced by your Product business). Please revise your
 disclosure to fully quantify the respective sales of each product or service
 type identified, as well as the impact of the factors that have materially
 impacted the results of your business segments, so that investors may
 understand their relative magnitude. With regard to your Aerospace business
 segment, ensure that the identified factors impacting your sales to each
 customer end-market have been quantified. Please provide your proposed
 expanded disclosure as part of your response.

 Our Response: We
 will revise our disclosure in future filings to provide the additional
 revenue data as illustrated in the table below using revenue for the three
 and six months ended June 30, 2010 and 2009. We believe this table, in
 combination with the incremental disclosure regarding recurring material
 drivers of changes in segment revenue noted in our response to the Staff’s
 prior comment 2 will provide the users of our financial statements sufficient
 detail to understand changes in our sales in

4

 absolute
 dollars and on a percentage basis. If, aside from these material recurring
 drivers, there are factors impacting revenue variances that are material to
 an understanding of our financial results, we would identify and quantify
 such factors.

 Three Months Ended

 June 30,

 Six Months Ended

 June 30,

 %

 %

 2010

 2009

 change

 2010

 2009

 change

 Aerospace Sales

 Commercial:

 Air
 transport and regional

 $

 954

 $

 952

 0

 %

 $

 1,860

 $

 1,946

 (4

 )%

 Original
 equipment

 362

 335

 8

 %

 685

 719

 (5

 )%

 Aftermarket

 592

 617

 (4

 )%

 1,175

 1,227

 (4

 )%

 Business
 and general aviation

 362

 417

 (13

 )%

 707

 928

 (24

 )%

 Original
 equipment

 130

 202

 (36

 )%

 249

 488

 (49

 )%

 Aftermarket

 232

 215

 8

 %

 458

 440

 4

 %

 Defense
 and Space Sales

 1,331

 1,350

 (1

 )%

 2,586

 2,604

 (1

 )%

 Total Aerospace Sales

 2,647

 2,719

 5,153

 5,478

 Automation and Control
 Solutions Sales

 Products

 1,982

 1,826

 9

 %

 3,925

 3,671

 7

 %

 Solutions

 1,255

 1,187

 6

 %

 2,436

 2,343

 4

 %

 Total Automation and Control
 Solutions Sales

 3,237

 3,013

 6,361

 6,014

 Specialty Materials Sales

 UOP

 412

 390

 6

 %

 778

 823

 (5

 )%

 Advanced
 Materials

 847

 658

 29

 %

 1,620

 1,279

 27

 %

 Total Specialty Materials
 Sales

 1,259

 1,048

 2,398

 2,102

 Transportation Systems Sales

 Turbo
 Technologies

 784

 557

 41

 %

 1,551

 1,085

 43

 %

 Consumer
 Products Group

 234

 229

 2

 %

 474

 457

 4

 %

 Total Transportation Systems
 Sales

 1,018

 786

 2,025

 1,542

 Net Sales

 $

 8,161

 $

 7,566

 $

 15,937

 $

 15,136

 4.

 Staff’s Comment: With
 regard to the table of Aerospace Revenues by “Customer End-Markets” on page
 36 of the Form 10-Q for the quarterly period ended June 30, 2010, please
 explain to us how the amounts in the “% change” column throughout the table
 were computed. For example, “air transport and regional original equipment”
 sales as a percentage of total Aerospace sales are indicated to be 14% (or
 $370.58) and 12% (or $326.28) for the three months ended 2010 and 2009,
 respectively, and 13% (or $669.89) and 13% (or $712.14) for the six months
 ended 2010 and 2009, respectively. The respective percentage change
 represented by these amounts are 13.6% and (5.9), whereas the table indicates
 8% and (5)%, respectively. We note similar variations for each line item
 except for the “Total” line.

 Our Response: The
 referenced tables presented on page 36 of the Form 10-Q for the quarterly
 period ended June 30, 2010 present a percentage change for each customer
 end-market computed based on revenue for that end-market. The differences
 noted in the Staff’s Comments compared to those shown on page 36 of our Form
 10-Q are the

5

 result of
 rounding as our disclosure is presented in whole percentage points. The table
 below shows the underlying data used in these calculations:

 2009

 2010

 % Change

 ($M - USD)

 Q2

 % of

 Aero

 YTD

 % of

 Aero

 Q2

 % of

 Aero

 YTD

 % of

 Aero

 Q2

 YTD

 AT&R-OE

 334

 12.3

 %

 719

 13.1

 %

 362

 13.7

 %

 685

 13.3

 %

 8.3

 %

 (4.8

 )%

 AT&R-AM

 617

 22.7

 %

 1,227

 22.4

 %

 592

 22.4

 %

 1,176

 22.8

 %

 (4.1

 )%

 (4.1

 )%

 B&GA-OE

 202

 7.4

 %

 489

 8.9

 %

 130

 4.9

 %

 248

 4.8

 %

 (35.7

 )%

 (49.2

 )%

 B&GA-AM

 215

 7.9

 %

 440

 8.0

 %

 233

 8.8

 %

 459

 8.9

 %

 8.3

 %

 4.3

 %

 D&S

 1,351

 49.7

 %

 2,604

 47.5

 %

 1,331

 50.3

 %

 2,586

 50.2

 %

 (1.5

 )%

 (0.7

 )%

 Aerospace

 2,719

 100

 %

 5,478

 100

 %

 2,648

 100

 %

 5,153

 100

 %

 (2.6

 )%

 (5.9

 )%

 5.

 Staff’s Comment: We
 have reviewed your response to our prior comment three, the related proposed
 disclosure that was included in your response to our prior comment two, and
 the disclosure included in your Form 10-Q for the quarterly period ended June
 30, 2010. In this regard, we do not believe that you have adequately
 discussed the costs incurred by your business segments. We note that in your
 proposed disclosure, you quantify the estimated variance in direct material
 costs incurred by your Automation and Control Solutions business. Similarly,
 in the Form 10-Q, you quantify the change in costs of goods sold for each
 segment. However, the disclosures that you have proposed and included in the
 Form 10-Q do not quantify