How does the new pension accounting method differ from the old one?

Previously, Honeywell used a three-year average for plan assets and recognized actuarial gains/losses outside a 10% corridor over six years. The new method recognizes changes in the fair value of plan assets and net actuarial gains/losses outside the corridor annually in the fourth quarter (MTM Adjustment), while other components (service and interest costs, return on assets) are recorded quarterly. This new approach provides more immediate recognition of pension expense fluctuations.

What is the impact of this accounting change on Honeywell's reported 2010 financial performance?

The retrospective application of the new pension accounting policy positively impacted Honeywell's reported 2010 results. Net income attributable to Honeywell increased by $103 million, $98 million, and $99 million for the first three quarters of 2010, respectively. Diluted earnings per share also saw an increase for these quarters. Additionally, opening shareholders' equity as of January 1, 2010, increased by $17 million.

Does this accounting change affect Honeywell's cash flow or underlying business operations?

This filing relates to an accounting policy change for pension expense recognition and does not directly impact the company's underlying business operations or cash flows. While it alters how pension costs are reported in net income and equity, it is a non-cash accounting adjustment. Investors should look at other parts of Honeywell's filings for information on cash generation and operational performance.

HON/HONIV 8-K: Earnings & Results

Q: What is the main purpose of this 8-K filing?

The main purpose of this 8-K filing is to announce and provide details about Honeywell's change in its accounting method for recognizing pension expense for its U.S. defined benefit pension plans. It also discloses the retrospective application of this new policy to its 2010 financial results.

Summary

This Form 8-K filing by Honeywell International Inc. (HON) on April 11, 2011, primarily concerns a change in the company's accounting method for recognizing pension expense for its U.S. defined benefit pension plans. The new method, which involves a mark-to-market (MTM) adjustment for changes in plan assets and actuarial gains/losses in the fourth quarter, is considered preferable by the company as it eliminates the delay in recognizing these items outside the 10% corridor. Crucially for investors, the company has retrospectively applied this new accounting policy to its 2010 quarterly financial statements. This retrospective application resulted in an increase in net income attributable to Honeywell and diluted earnings per share for all three quarters of 2010. Specifically, net income increased by $103 million, $98 million, and $99 million for the quarters ended March 31, June 30, and September 30, 2010, respectively, with corresponding increases in diluted EPS. The filing also notes an increase in opening shareholders' equity at January 1, 2010.

Key Highlights

1Honeywell changed its accounting method for U.S. defined benefit pension expense.
2The new method includes a quarterly mark-to-market (MTM) adjustment for plan assets and actuarial gains/losses.
3This change is intended to provide more timely recognition of pension-related financial impacts.
4The new policy was applied retrospectively to the company's 2010 quarterly financial statements.
5Retrospective application increased net income for all quarters of 2010 ($103M Q1, $98M Q2, $99M Q3).
6Diluted earnings per share (EPS) for the quarters of 2010 were also increased due to the accounting change.
7Opening shareholders' equity at January 1, 2010, saw an increase of $17 million as a result of this policy change.

HONEYWELL INTERNATIONAL INC 8-K Report, Financial Results (Apr 11, 2011)

Summary

Key Highlights

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