What were the primary drivers of revenue growth in the second quarter of 2006?

Revenue growth in the second quarter of 2006 was primarily driven by acquisitions, contributing 8% to the 12% overall net sales increase. Organic volume growth accounted for an additional 4%. Key segments like Automation and Control Solutions and Specialty Materials showed particularly strong performance.

How has the adoption of SFAS No. 123R impacted the financial results?

The adoption of SFAS No. 123R (Share-Based Payment) starting January 1, 2006, has led to the recognition of stock-based compensation expense. In Q2 2006, this resulted in a $16 million charge, impacting selling, general and administrative expenses and reducing earnings per share by $0.02. For the first six months, the charge was $41 million.

What is the current status of Honeywell's environmental and asbestos-related liabilities?

Honeywell continues to manage significant environmental and asbestos-related liabilities. For environmental matters, the recorded liability was $888 million as of June 30, 2006. For asbestos claims, primarily related to NARCO and Bendix, the consolidated liabilities stood at approximately $2.01 billion, with corresponding insurance receivables of $1.29 billion. While these are substantial, the company believes it has sufficient insurance coverage and reserves to manage these obligations without a material adverse impact on its financial position.

What significant acquisitions or divestitures occurred during the period?

During the first half of 2006, Honeywell completed the acquisition of First Technology plc for approximately $723 million and Gardiner Groupe for an undisclosed amount, both accounted for under the purchase method. The company also completed the sale of Indalex Aluminum Solutions for $425 million in February 2006. Furthermore, Honeywell acquired the remaining 50% of UOP LLC in November 2005, consolidating its results fully starting in Q1 2006.

HON 10-Q Quarterly Report Q2 FY2006 — Revenue, Net Income, EPS

Summary

Honeywell International Inc. reported strong financial performance for the second quarter and first half of 2006. Net sales increased by 12% year-over-year for the quarter, driven by acquisitions and organic growth across key segments like Automation and Control Solutions and Specialty Materials. The company saw significant profit improvement, particularly in Specialty Materials, bolstered by the full acquisition of UOP. Profitability was enhanced by improved gross margins and a lower effective tax rate due to the absence of a one-time repatriation tax charge from the prior year. The company continued its strategic focus on acquisitions, notably the full acquisition of UOP and First Technology plc, while also actively managing its portfolio, evidenced by the sale of Indalex Aluminum Solutions. Cash flow from operations improved significantly, supported by higher earnings and effective management of legacy liabilities. The company also initiated a substantial share repurchase program. Key areas of focus for investors include the ongoing integration of recent acquisitions, the performance of the Aerospace and Transportation Systems segments, and the management of significant environmental and asbestos-related liabilities, which, while substantial, appear to be well-managed within the company's reserves and insurance coverage.

Key Highlights

1Net sales increased by 12% to $7.9 billion in Q2 2006 compared to Q2 2005, driven by acquisitions (8%) and volume (4%).
2Income from continuing operations rose significantly to $521 million ($0.63/share diluted) in Q2 2006, up from $274 million ($0.33/share diluted) in Q2 2005.
3Specialty Materials segment profit surged by 178% in Q2 2006 due to the full acquisition of UOP and organic growth.
4Cash flow from operations increased by $276 million to $1.174 billion for the first six months of 2006 compared to the same period in 2005.
5The company repurchased $828 million of its common stock in the first six months of 2006.
6Gross margin improved to 23.7% in Q2 2006 from 21.7% in Q2 2005, driven by higher margins in Specialty Materials.
7The effective tax rate decreased to 26.4% in Q2 2006 from 47.1% in Q2 2005, largely due to the absence of a prior year repatriation tax charge.

HONEYWELL INTERNATIONAL INC Quarterly Report for Q2 Ended Jun 30, 2006

Summary

Key Highlights

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