Honeywell Gabelli & Company 12th Annual Aircraft Supplier Symposium Presentation
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Transcript of Honeywell Gabelli & Company 12th Annual Aircraft Supplier Symposium Presentation
Gabelli Asset ManagementAircraft Supplier Conference
New York, NYSeptember 7, 2006
Dave Anderson, Senior V.P. and CFO
2 Gabelli Conference – September 7, 2006
This report contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of fact, that address activities, events or developments that we or our management intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements. Forward-looking statements are based on management’s assumptions and assessments in light of past experience and trends, current conditions, expected future developments and other relevant factors. They are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by our forward-looking statements. Our forward-looking statements are also subject to risks and uncertainties, which can affect our performance in both the near- and long-term. We identify the principal risks and uncertainties that affect our performance in our Form 10-K and other filings with the Securities and Exchange Commission.
Forward Looking Statements
3 Gabelli Conference – September 7, 2006
• Building Performance Track Record
• Businesses Well Positioned
• Aerospace – Positive Long Term Outlook
• 2006 – On Track For Record Performance
The New Honeywell
4 Gabelli Conference – September 7, 2006
Honeywell Benchmarks
Quantitative Qualitative
Value Drivers
Disciplined Capital Allocation
Portfolio For Growth
Setting/Meeting Expectations
World Class Leadership Team
Continuous Improvement
+5% Organic Sales Growth
Margin Expansion
Double Digit EPS Growth
100% Cash Conversion
Expanding ROI
5 Gabelli Conference – September 7, 2006
0%
5%
10%
15%
2003 2004 2005 2006E
-
0.50
1.00
1.50
2.00
2.50
3.00
2003 2004 2005 2006E-
5
10
15
20
25
30
35
2003 2004 2005 2006E
-
0.5
1.0
1.5
2.0
2.5
2003 2004 2005 2006E
Building Track Record Of Results
2003 – 2006 FinancialsSales
ROI
EPS
Free Cash Flow
10% CAGR 18% CAGR
14% CAGR
(1) ROI calculated as NIBI (net income plus after-tax interest) divided by Invested Capital (2 point average of the sum of the book value of equity and total debt).
($B)
($B)
($)
(1)
+3.0 Points
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$0.25
$0.50
$0.75
$1.00
2003 2004 2005 2006E
-
100
200
300
400
500
600
700
800
900
2003 2004 2005 2006E0.00
1.00
2.00
Cash Deployment
• Process Completely Redesigned– 39 Acquisitions / 21 Divestitures – Over $3.0B Cash Deployed
• 36 acquisitions ahead of HON model
• Repurchases Total $2.7B Last 2 Years– $1.1B in 2005– $0.8B through 2Q 2006
• Shares Outstanding Reduced by 5%– From 862M to 819M Shares
Business Investment Dividends
Acquisitions Repurchases
Disciplined And Balanced
Capex ($M) Reinvestment
Div
iden
d/Sh
are
Dividend Yield ~ 2.4%
$.9075
$.825$.75$.75
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Automation & Control
Specialty Materials
Aerospace
Transportation
35%
15%
35%
15%
Portfolio Overview
* Pie Chart calculated using 2006E Sales
$31B In Sales In 2006
8 Gabelli Conference – September 7, 2006
-
2.0
4.0
6.0
8.0
10.0
12.0
2003 2004 2005 2006E
Automation And Control Solutions – $11.0B
Momentum Building In Strengthened Portfolio
Macro Trends
Safety and Security Concerns
Energy Efficiency – Homes/Buildings
Technology Content Increasing
Global Infrastructure Needs
Honeywell Position
Strong Channels / Brands
Upgraded Technology / Sales & Marketing
Significant Installed Base
Expanded Geographic Scope
Homes Industrial
Buildings
Sales14% CAGR
($B)Verticals
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-
1.0
2.0
3.0
4.0
5.0
2003 2004 2005 2006E
Transportation Systems – $4.5B
Technology Leader In Long-term Growth Segment
Macro Trends
Tougher Emissions RegulationsNeed for Fuel Economy / EfficiencyGrowth in Turbo BoostingIncreased Auto Ownership in Emerging Regions
Honeywell Position
Technology Leadership / DifferentiationGlobal PresenceProductivity / Cost FocusChannel / Brand Leadership
Asia11%
Europe47%
Americas42%
Sales
7% CAGR($B)
Global Mix
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-0.51.01.52.02.53.03.54.04.55.0
2003 2004 2005 2006E
Specialty Materials – $4.5B
Transformed To Strong, Differentiated Positions
Macro Trends
Strong Growth in Energy Demand / Refining NeedsIncreased Environmental RegulationsSafety and SecurityEnergy Efficiency
Honeywell Position
Established Leader in Process, Catalyst, Adsorbent TechnologiesHFC Leader Serving HVAC IndustrySpectra Fiber Armor Applications2/3 Resins and Chemicals Insulated from Raws
Fluorines$0.9B
UOP $1.4B
Resins & Chemicals
$1.1B
Specialty Products
$1.1B
Sales12% CAGR
($B)Segments
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Aerospace – $11.0B
-
2.0
4.0
6.0
8.0
10.0
12.0
2003 2004 2005 2006E
Strong Franchise With Great Future
Macro TrendsIncreasing Commercial Air TravelCapacity / Efficiency Needs Drive OEM BuildsSafety Continues as Top ConcernDefense Budget Stable / Shrinking
Honeywell PositionSignificant Installed BaseTremendous Breadth / Depth of Technologies and Products Customer Focused and Cost EffectiveBroad Based Defense Supplier
Sales8% CAGR
($B)Product Mix
Electronics 45%
Mechanical 55%
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Aerospace OutlookAir Transport
&Regional
Drivers/Priorities
ElectronicsMechanical
Business & General Aviation
ElectronicsMechanical
Composition
Defense & Space
Services Aircraft
MissilesSpace
Surface
• MRO / Spares• Narrow Body• Safety Systems
• Avionics• Engines• Aftermarket
• Helicopters• Total Logistics• Precision Strike
Broad Portfolio In Growing Segments
2006E Sales $4.2B $2.4B $4.4B
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Air Transport & Regional
• Successful Launch A380, 787
• New Narrow Bodies- 737-RS- Airbus NSR
• A350XWB
• Preserve / Grow Aftermarket (MRO, spares)- Flying Hours +5%
• Safety Mandates
Strategic Priorities
0
200
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600
800
1,000
1,20020
00
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
0
5,000
10,000
15,000
20,000
25,000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
AC D
eliv
erie
sFl
eet i
nclu
ding
Car
go A
C
Deliveries: Strong Near Term Growth
Sustained Growth: +4% CAGR 2006-2016
Delivery Growth, New Business Opportunities,Aftermarket Momentum
14 Gabelli Conference – September 7, 2006
Business & General Aviation
HON Well Positioned In High Growth Segments
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Con
stan
t 200
5 ($
M)
History Forecast
V-LightLight
Light-Med
Medium
Med-Lrg
Large
Long Range
Ultra Long Range
$156B in New Deliveries
Prim
us E
pic™
Ape
x
HTF
70
00TF
E73
1
Major HON products
Eng. Avionics
(Honeywell’s 14th Annual Industry Outlook, November 2005)
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
AM (excluding mandates): Rapid expansion (7% CAGR)
• New Platforms• Aftermarket Growth
- Maintain industry leading aftermarket service programs
• Safety Mandates• Civil Helos
Strategic Priorities
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Defense & SpaceComprehensive Product &
Service OfferingsIncluding:
Propulsion SystemsEngine Systems and AccessoriesLanding SystemsPower SystemsAvionics & ElectronicsServicesSpace Systems
Installed Base: 25,000+ Vehicles Worldwide*
Surface Vehicles10+ platforms
Platform Breadth
Wide Range of CustomersMissile Systems
40+ systems
* Excludes missiles & missile systems
Aircraft60+ platforms
Helicopters20+ platforms
Space 40+ programs
Strong Installed Base, Diversified Platforms,Products And Customers
8th Largest Defense Supplier
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QDR And FY07 Budget Requests Match Strengths
US Defense Budgets
• Global War on Terror- Helicopters- Total Logistics
• Precision Strike- Navigation- Sensors
• Information Superiority- FCS- UAV
• International Growth
Strategic Priorities
MILPERS
O&M
Procurement
RDT&EOther
Supplem entals
0
100
200
300
400
500
600
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11
Cur
rent
Yea
r ($B
)
Source: National Defense Est. (Greenbook). Honeywell supplemental estimates.
CAGR00-05 06-11
Without Supplementals 5% 4%With Supplementals 9% -1%
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($M) 1H05 1H06Sales $13,477 $15,139
Segment Profit $1,595 $1,954- Margin % 11.8% 12.9%
EPS, Reported $0.78 $1.15
EPS, Adjusted (1) $0.93 $1.19
Free Cash Flow $604 $903
• 47% Growth
• 28% Growth
• Up 50%
1H Financials
Strong Financial Performance
• 23% Growth
(1) Reflects 1H05 tax charge for cash repatriation ($0.18) and Income from Discontinued Operations ($0.03), as well as 1H06 FAS 123R stock option expense ($0.04)
• 12% Growth7% Acq./Div.5% Organic
• +110 bps
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($B) 2005 2006E V’05
Sales $27.6 ~$31.0 12%Ex. Acquisitions/Divestitures 6%
Segment Profit $3.4 ~$4.1 22%- Margin % 12.2% ~13.4% 120 bps
EPS, Reported $1.92 $2.48 - 2.53 29 - 32%
Free Cash Flow $1.8 $2.1 - 2.3 20 - 31%Conversion 107% +100%
2006 Financial Summary
Significant Growth On All Fronts
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Honeywell Summary
• Macro Trends Support Business Growth
• Organic Growth and Margin Expansion Focus
• ACS – Global Expansion, New Products / Customers
• TS – Program Wins, New Markets / Technologies
• SM – UOP, Strong Cycle
• AERO – Program Wins, Breadth / Depth of Technologies
• Strong Financial Performance and Cash Generation
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AppendixReconciliation of non-GAAP Measures
to GAAP Measures
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($M ) 2003 2004Cash Provided by Operating Activities $2,199 $2,253Expenditures for Property, Plant and Equipment (655) (629)Free Cash Flow 1,544 1,624
Cash Provided by Operating Activities $2,199 $2,253Net Income 1,289 1,246Operating Cash Flow Conversion % 171% 181%
Free Cash Flow $1,544 $1,624Net Income 1,289 1,246Free Cash Flow Conversion % 120% 130%
÷
÷
Reconciliation of Free Cash Flow to Cash Provided by Operating Activities and Calculation of Cash Flow Conversion
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($M ) 1H05 1H06Sales $13,477 $15,139Cost of Products and Services Sold (10,585) (11,627)Selling, General and Administrative Expenses (1,789) (2,088)
Operating Income $1,103 $1,424
FAS 123R, Stock Option Expense $0 $41Repositioning and Other Charges 210 245Pension and OPEB Expense 282 244
Segment Profit $1,595 $1,954
Operating Income $1,103 $1,424Sales $13,477 $15,139Operating Income Margin % 8.2% 9.4%
Segment Profit $1,595 $1,954Sales $13,477 $15,139Segment Profit Margin % 11.8% 12.9%
Reconciliation of Segment Profit to Operating Income and Calculation of Segment Profit and Operating Income Margin
(1)
(1)
(1) Included in costs of products and services sold and selling, general and administrative expenses
÷
÷
(1)
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($M ) 1H05 1H06Cash Provided by Operating Activities $898 $1,174Expenditures for Property, Plant and Equipment (294) (271)Free Cash Flow 604 903
Cash Provided by Operating Activities $898 $1,174Net Income 660 957Operating Cash Flow Conversion % 136% 123%
Free Cash Flow $604 $903Net Income 660 957Free Cash Flow Conversion % 92% 94%
÷
÷
Reconciliation of Free Cash Flow to Cash Provided by Operating Activities and Calculation of Cash Flow Conversion
25 Gabelli Conference – September 7, 2006
($B) 2005 2006ESales $27.6 $31.0Cost of Products and Services Sold (21.5) (23.9)Selling, General and Administrative Expenses (3.7) (4.0)
Operating Income $2.4 $3.1
FAS 123R, Stock Option Expense 0.0 0.1Repositioning and Other Charges 0.4 0.4Pension and OPEB Expense 0.6 0.5
Segment Profit $3.4 $4.1
Operating Income $2.4 $3.1Sales $27.6 $31.0Operating Income Margin % 8.7% 10.0%
Segment Profit $3.4 $4.1Sales $27.6 $31.0Segment Profit Margin % 12.2% 13.4%
Reconciliation of Segment Profit to Operating Income and Calculation of Segment Profit and Operating Income Margin
(1)
(1)
÷
÷
(1)
(1) Included in costs of products and services sold and selling, general and administrative expenses
26 Gabelli Conference – September 7, 2006
($M) 2005 2006ECash Provided by Operating Activities $2,442 $2,900 - 3,100Expenditures for Property, Plant and Equipment (684) (800)Free Cash Flow $1,758 $2,100 - 2,300
Cash Provided by Operating Activities $2,442 $2,900 - 3,100Net Income $1,638 $2,050 - 2,100Operating Cash Flow Conversion % 149% +135%
Free Cash Flow $1,758 $2,100 - 2,300Net Income $1,638 $2,050 - 2,100Free Cash Flow Conversion % 107% +100%
÷
÷
Reconciliation of Free Cash Flow to Cash Provided by Operating Activities and Calculation of Cash Flow Conversion