Honeywell Second Quarter Sales up 10% to $7.0 Billion; Earnings Per Share up 29% before Tax Charge to Repatriate $2.7 Billion of Foreign Earnings; Raises Forecast 10 Cents From Prior Guidance, Excluding Tax Charge For Repatriation

Business Wire, July 20, 2005

MORRIS TOWNSHIP, N.J. -- Honeywell (NYSE: HON) today announced a 10% increase in second quarter sales to $7.0 billion compared to $6.4 billion in 2004, primarily due to organic sales growth in each of its four businesses. The company reported earnings of 36 cents per share, including a tax charge of 18 cents per share for the repatriation of $2.7 billion of foreign earnings related to the provisions of the American Jobs Creation Act of 2004. Excluding this tax charge, earnings increased 29% to 54 cents per share (including 3 cents per share from discontinued operations) versus 42 cents per share in the second quarter of 2004. Net income was $306 million for the quarter ($461 million before the aforementioned tax charge) versus $361 million last year. Cash flow from operations was $569 million and free cash flow (cash flow from operations less capital expenditures) was $410 million.

"Second quarter performance was excellent, driven by organic sales growth and operational execution in each of our businesses," said Honeywell Chairman and Chief Executive Officer Dave Cote. "We are confident that this performance will continue for the remainder of the year and are increasing guidance accordingly."

The company increased its previously announced 2005 sales guidance by $400 million to $27.8 - $28.0 billion and earnings per share guidance (excluding the abovementioned tax charge) 10 cents to $2.05 - $2.15 ($1.87 - $1.97 per share on a reported basis). Free cash flow guidance was increased $100 million to $1.7 - $1.8 billion (cash flow from operations of $2.5 - $2.6 billion).

Cote concluded, "Each of our businesses demonstrated strong first half performance. Orders are up, pricing and productivity actions are offsetting higher commodity and raw materials costs, we introduced great new products and won important new contracts. We are repatriating $2.7 billion of foreign earnings to enhance the flexibility of our already strong balance sheet."

Second-Quarter Segment Highlights

Aerospace

--Sales were up 8% compared with the second quarter of 2004, with 14% growth in commercial markets offset by flat defense and space sales.

--Segment margins were 15.7% compared with 15.0% a year ago, due to strong volume growth.

--Boeing awarded Honeywell its fifth contract win on the 787 Dreamliner, bringing the total potential value of all awarded content over the expected life of the program to in excess of $2.8 billion.

--Malaysia Airlines was the second airline in Asia to select Honeywell's Runway Awareness and Advisory System (RAAS), a new safety system that helps pilots avoid on-ground incidents. The airline will install RAAS on its fleet of 92 aircraft and its three flight simulators. Over the past two years, RAAS has been selected by four major air carriers and is now scheduled to be installed on over 600 aircraft.

--Honeywell received FAA certification for its traffic surveillance system for the Airbus A330 and A340 aircraft. Honeywell's surveillance system adds greater distance and flight information capability to its Traffic Collision Avoidance System (TCAS) offering.

Automation and Control Solutions

--Sales were up 21% compared with the second quarter of 2004, driven by organic sales growth of 5%, primarily in Life Safety, Building Solutions and Security, and the net impact of acquisitions and divestitures of 16%.

--Segment margins were 10.1% compared with 10.5% a year ago, due to the anticipated dilutive impact of acquisitions and divestitures, partially offset by volume and productivity. Excluding the impact of acquisitions and divestitures, segment margins would have expanded to 11.5%.

--The Novar IBS integration is on track to deliver projected synergies. The sales process for the divestiture of the non-core Security Printing Services and Indalex Aluminum Solutions businesses was initiated in the quarter. Divestiture of the $10 million Esser Italia Fire business, as mandated by the European Union, was completed in June.

--Building Solutions signed four major energy savings performance contracts totaling $28 million, including a $10 million contract with the Chattanooga (Tennessee) Housing Authority for energy- and water-saving retrofits at 18 sites.

--Life Safety completed the acquisition of Zellweger Analytics, a $170 million global leader in hazardous gas detection technology, providing Honeywell customers with a full suite of gas detection solutions and broadening the company's sensing and detection capabilities.

Transportation Systems

--Sales were up 12% compared with the second quarter of 2004, reflecting continued growth in the Turbo Technologies and Consumer Products businesses.

--Segment margins were 13.5%, compared with 14.1% a year ago, due to higher raw material costs, partially offset by volume and pricing.

--Turbo Technologies launched the latest version of its AVNT(TM) (advanced variable nozzle turbine) turbocharger on the 2006 GM Duramax heavy duty pickup.

--The all-new FRAM(R) High Mileage oil filter, designed specifically for vehicles with more than 75,000 miles, debuted with strong retail performance.