HONEYWELL INTERNATIONAL INC (HON)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in tables and graphs in millions, except per share amounts)

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand the results of operations and financial condition of Honeywell International Inc. and its consolidated subsidiaries (Honeywell, we, us, our, or the Company) for the three years ended December 31, 2024. All references to Notes relate to Notes to Consolidated Financial Statements in the section titled Financial Statements and Supplementary Data.

A detailed discussion of the prior year 2023 to 2022 year-over-year changes is not included herein and can be found in the Management's Discussion and Analysis of Financial Condition and Results of Operations section in Exhibit 99.1 to the Current Report on Form 8-K filed April 25, 2024, which updated our Form 10-K for the year ended December 31, 2023, by recasting historical segment information to reflect the realignment of certain of the Company's business units effective the first quarter of 2024 and impacted the composition of the Company's reportable segments.

BUSINESS UPDATE

MACROECONOMIC CONDITIONS

We continue to monitor the impacts of ongoing macroeconomic conditions and geopolitical events. An escalation of geopolitical tensions or the implementation of global trade restrictions could impede disinflation and negatively impact growth prospects. Global conflicts, tariffs, labor disruptions, and regulations continue to create volatility in global markets and contribute to supply chain shortages and pricing volatility. We continue to actively collaborate with our suppliers to minimize shortages and reduce supply and price volatility. Global growth in the economy is projected to remain stable with further easing of inflation.

Our mitigation strategies include pricing actions and hedging strategies, longer term planning for constrained materials, new supplier development, material supply tracking tools, and direct engagement with key suppliers to meet customer demand. Our continued relationships with strategic primary and secondary suppliers allow us to reliably source key components and raw materials, which include considering altering existing products, developing new products, and committing our own resources to assist certain suppliers. We believe these mitigation strategies enable us to reduce supply risk, accelerate new product innovation, and expand our penetration in the markets we serve. Additionally, due to the strenuous quality controls and product qualification we perform on a new or altered product, these mitigation strategies have not impacted, and we do not expect them to impact, product quality or reliability.

To date, our strategies successfully mitigated our exposure to these conditions. However, if we are not successful in sustaining or executing these strategies, these macroeconomic conditions could have a material adverse effect on our consolidated results of operations or operating cash flows.

See the section titled Risk Factors for a discussion of risks associated with the potential adverse effects of inflationary cost pressures, supply chain disruptions, and labor shortages to our businesses.

SPIN-OFF OF ADVANCED MATERIALS

On October 8, 2024, the Company announced its intention to spin off its Advanced Materials business into an independent, U.S. publicly traded company, which is targeted to be completed by the end of 2025 or early 2026. The planned spin-off is intended to be a tax-free spin to Honeywell shareowners for U.S. federal income tax purposes. The spin-off will be subject to the satisfaction of a number of customary conditions, including, among others, finalization of the financial statements of the Advanced Materials business, the filing and effectiveness of applicable filings (including a Form 10 registration statement) with the SEC, assurance that the spin-off of the Advanced Materials business will be tax-free to Honeywell’s shareowners, receipt of applicable regulatory approvals and final approval by Honeywell’s Board of Directors. The proposed spin-off is complex in nature, and may be affected by unanticipated developments, credit and equity markets, or changes in market conditions.

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SEPARATION OF AUTOMATION AND AEROSPACE TECHNOLOGIES

On February 6, 2025, the Company announced its intention to pursue a separation of its Automation and Aerospace Technologies businesses into independent, U.S. publicly traded companies, which is targeted to be completed in the second half of 2026. The planned separation is intended to be a tax-free separation to Honeywell shareowners for U.S. federal income tax purposes. The separation will be subject to the satisfaction of a number of customary conditions, including, among others, finalization of the financial statements of the Automation and Aerospace Technologies businesses, the filing and effectiveness of applicable filings (including a Form 10 registration statement) with the SEC, assurance that the separation of the businesses will be tax-free to Honeywell’s shareowners, receipt of applicable regulatory approvals and final approval by Honeywell’s Board of Directors. The proposed separation is complex in nature, and may be affected by unanticipated developments, credit and equity markets, or changes in market conditions.

RESULTS OF OPERATIONS

Consolidated Financial Results

Net Sales by Segment

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Segment Profit by Segment

CONSOLIDATED OPERATING RESULTS

Net Sales

The increase in Net sales was attributable to the following:

A discussion of Net sales by reportable business segment can be found in the Review of Business Segments section of Management's Discussion and Analysis.

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2024 compared with 2023

Net sales increased due to the following:

•Incremental sales from recent acquisitions,

•Increased pricing and price adjustments to offset inflation, and

•Higher sales volumes.

Cost of Products and Services Sold

2024 compared with 2023

Cost of products and services sold increased due to the following:

•Higher direct and indirect material costs and higher labor costs of approximately $0.8 billion or 3%, and

•Incremental costs from recent acquisitions of approximately $0.5 billion or 2%,

•Partially offset by higher productivity of approximately $0.4 billion or 2%.

Gross Margin

2024 compared with 2023

Gross margin increased by approximately $1.0 billion and gross margin percentage increased 80 basis points to 38.1% compared to 37.3% for the same period of 2023.

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Research and Development Expenses

2024 compared with 2023

Research and development expenses slightly increased but were flat as a percentage of Net sales.

A summary of our research and development costs for the years ended December 31, 2024, 2023, and 2022, is as follows:

Selling, General and Administrative Expenses

2024 compared with 2023

Selling, general and administrative expenses increased due to the following:

•Higher labor costs of approximately $0.2 billion or 4%, and

•Incremental costs from acquisitions of approximately $0.2 billion or 4%,

•Partially offset by higher productivity of approximately $0.1 billion or 2%.

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Impairment of Assets Held for Sale

2024 compared with 2023

An impairment charge was recorded on assets held for sale related to the personal protective equipment business during the twelve months ended December 31, 2024.

Other (Income) Expense

2024 compared with 2023

Other income was flat due to the following:

•Higher interest income of approximately $0.1 billion, and

•Higher pension and post-retirement income of $0.1 billion,

•Partially offset by higher acquisition-related costs of $0.1 billion.

Interest and Other Financial Charges

2024 compared with 2023

Interest and other financial charges increased due to issuances of long-term debt during the twelve months ended December 31, 2024.

Tax Expense

2024 compared with U.S. Statutory Rate

The effective tax rate for 2024 was lower than the U.S. federal statutory rate of 21% as a result of the following:

•Tax credits, representing a 200 basis point decrease, and

•Tax benefits on non-U.S. earnings, representing a 140 basis point decrease,

•Partially offset by state, local, and global minimum taxes, representing a 170 basis point increase, and

•Change in accruals on global tax matters, representing a 120 basis point increase.

See Note 5 Income Taxes of Notes to Consolidated Financial Statements for further discussion of changes in the effective tax rate.

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Net Income Attributable to Honeywell

2024 compared with 2023

Earnings per share of common stock–assuming dilution increased due to the following:

•Lower repositioning and other charges ($0.73 after tax), and

•Lower share count ($0.17 after tax),

•Partially offset by higher interest expense ($0.35 after tax), and

•Impairment charges on assets held for sale ($0.33 after tax).

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TABLE OF CONTENTS

REVIEW OF BUSINESS SEGMENTS

During the first quarter of 2024, the Company realigned certain of its business units, which impacted the composition of its reportable segments. The Company recast historical periods to reflect this change in segment presentation. See Note 22 Segment Financial Data of Notes to Consolidated Financial Statements for further discussion.

We globally manage our business operations through four reportable business segments: Aerospace Technologies, Industrial Automation, Building Automation, and Energy and Sustainability Solutions.

AEROSPACE TECHNOLOGIES

Net Sales

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2024 compared with 2023

Sales increased $1,834 million due to higher organic sales of $907 million in Commercial Aviation Aftermarket driven by higher sales volumes in air transport due to an increase in flight hours and higher organic sales of $772 million in Defense and Space driven by higher sales volumes due to increased shipments. Additionally, the acquisitions of CAES and Civitanavi Systems contributed $332 million to 2024 sales.

During the fourth quarter of 2024, our Commercial Aviation Original Equipment business entered into a strategic agreement with Bombardier (the Agreement) to provide advanced technology for current and future Bombardier aircraft in avionics, propulsion, and satellite communications technologies. Sales and segment profit for the twelve months ended December 31, 2024, decreased by approximately $370 million due to the Agreement.

Segment profit increased $228 million and segment margin percentage decreased 180 basis points to 25.8% compared to 27.6% for the same period of 2023.

On February 6, 2025, the Company announced its intention to separate its Automation and Aerospace Technologies businesses into independent, U.S. publicly traded companies.

INDUSTRIAL AUTOMATION

Net Sales

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2024 compared with 2023

Sales decreased $705 million due to lower organic sales of $527 million in Warehouse and Workflow Solutions driven by lower demand for projects and lower organic sales of $155 million in Sensing and Safety Technologies driven by lower demand for personal protective equipment.

During the second quarter of 2022, our Productivity Solutions and Services business entered into a license and settlement agreement (the Agreement). Under the Agreement, we received $360 million, paid in equal quarterly installments over eight quarters, beginning with the second quarter of 2022 and ending with the first quarter of 2024. The Agreement provides each party a license to its existing patent portfolio for use by the other party’s existing products and resolved the patent-related litigation between the parties.

Segment profit decreased $247 million and segment margin percentage decreased 100 basis points to 19.5% compared to 20.5% for the same period in 2023.

On November 22, 2024, we announced an agreement to sell our PPE business for $1.3 billion, with the assets and liabilities of the business classified as held for sale until the closing date of the sale. The transaction is expected to be completed in the first half of 2025.

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BUILDING AUTOMATION

Net Sales

2024 compared with 2023

Sales increased $509 million due to higher organic sales of $245 million in Building Solutions driven by higher demand for building projects and services, partially offset by lower organic sales of $124 million in Products driven by lower demand. The acquisition of Access Solutions contributed $424 million to 2024 sales.

Segment profit increased $152 million and segment margin percentage increased 30 basis points to 25.7% compared to 25.4% for the same period of 2023.

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ENERGY AND SUSTAINABILITY SOLUTIONS

Net Sales

2024 compared with 2023

Sales increased $186 million due to higher organic sales of $144 million in Advanced Materials driven by higher demand for fluorine products. Additionally, the acquisition of LNG contributed $64 million to sales in 2024.

Segment profit increased $35 million and segment margin percentage decreased 10 basis points to 23.7% compared to 23.8% for the same period of 2023.

On October 8, 2024, the Company announced its intention to spin off its Advanced Materials business into an independent, U.S. publicly traded company.

CORPORATE AND ALL OTHER

Corporate and All Other primarily includes unallocated corporate costs, interest expense on holding-company debt, and the controlling majority-owned interest in Quantinuum. Corporate and All Other is not a separate reportable business segment as segment reporting criteria is not met. The Company continues to monitor the activities in Corporate and All Other to determine the need for further reportable business segment disaggregation.

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REPOSITIONING CHARGES

See Note 4 Repositioning and Other Charges of Notes to Consolidated Financial Statements for a discussion of our repositioning actions and related charges incurred in 2024, 2023, and 2022. Cash spending related to our repositioning actions was $195 million, $294 million, and $275 million in 2024, 2023, and 2022, respectively, and was funded through operating cash flows.

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TABLE OF CONTENTS

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in tables and graphs in millions, except per share amounts)

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand the results of operations and financial condition of Honeywell International Inc. and its consolidated subsidiaries (Honeywell, we, us, our, or the Company) for the three years ended December 31, 2023. All references to Notes relate to Notes to Consolidated Financial Statements in the section titled Financial Statements and Supplementary Data.

A detailed discussion of the prior year 2022 to 2021 year-over-year changes is not included herein and can be found in the Management's Discussion and Analysis of Financial Condition and Results of Operations section in the 2022 Annual Report on Form 10-K filed February 10, 2023.

BUSINESS UPDATE

MACROECONOMIC CONDITIONS

We continue to monitor the impacts of ongoing macroeconomic conditions and geopolitical events. During 2023, material inflation continued to moderate. Slowing global growth relieved pressure on logistics freight and service capacity and provided supply chain redundancy. We continue to leverage short-term and long-term mitigation strategies to reduce the impact of supply chain disruptions, including digital solutions to assist in identifying and managing shortages.

Our mitigation strategies include pricing actions, longer term planning for constrained materials, new supplier development, material supply tracking tools, and direct engagement with key suppliers to meet customer demand. Our relationships with primary and secondary suppliers allow us to reliably source key components and raw materials. In areas where we cannot procure key components or raw materials, we consider altering existing products and developing new products to satisfy customer needs. Alterations to existing products and the development of new products undergo product quality controls and engineering qualification prior to releasing to our customers. In addition, we assist certain suppliers facing manufacturing challenges by committing our own resources to their sites and facilities. We believe these mitigation strategies enable us to reduce supply risk, accelerate new product innovation, and expand our penetration in the markets we serve. Additionally, due to the strenuous quality controls and product qualification we perform on a new or altered product, we do not expect these mitigation strategies to impact product quality or reliability.

Global conflicts continue to create volatility in global financial and energy markets and contribute to supply chain shortages adding to the inflationary pressures in the global economy. We actively collaborate with our suppliers to minimize impacts of supply shortages on our manufacturing capabilities.

To date, our strategies have successfully mitigated our exposure to these conditions. However, if we are not successful in sustaining or executing these strategies, these macroeconomic conditions could have a material adverse effect on our consolidated results of operations or operating cash flows.

See the section titled Review of Business Segments for additional information on the impacts of inflationary cost pressures and labor shortages to our businesses.

See the section titled Risk Factors for a discussion of risks associated with the potential adverse effects of inflationary cost pressures, supply chain disruptions, and labor shortages to our businesses.

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RESULTS OF OPERATIONS

Consolidated Financial Results

Net Sales by Segment

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Segment Profit by Segment

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CONSOLIDATED OPERATING RESULTS

Net Sales

The change in Net sales was attributable to the following:

A discussion of Net sales by reportable business segment can be found in the Review of Business Segments section of Management's Discussion and Analysis.

2023 compared with 2022

Net sales increased due to the following:

•Increased pricing,

•Partially offset by the unfavorable impact of foreign currency translation, driven by the strengthening of the U.S. Dollar against the currencies in certain of our international markets, primarily the Chinese Renminbi, Canadian Dollar, Turkish Lira, Egyptian Pound, and Australian Dollar.

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Cost of Products and Services Sold

2023 compared with 2022

Cost of products and services sold increased due to the following:

•Higher direct and indirect material costs and higher labor costs of approximately $0.8 billion or 4%,

•Partially offset by higher productivity of approximately $0.3 billion or 1%.

Gross Margin

2023 compared with 2022

Gross margin increased by approximately $0.5 billion and gross margin percentage increased 30 basis points to 37.3% compared to 37.0% for the same period of 2022.

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Research and Development Expenses

2023 compared with 2022

Research and development expenses were flat.

Selling, General and Administrative Expenses

2023 compared with 2022

Selling, general and administrative expenses were flat due to the following:

•Higher productivity of approximately $0.2 billion or 4%,

•Partially offset by higher labor costs of approximately $0.2 billion or 4%.

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Other (Income) Expense

2023 compared with 2022

Other income increased due to the following:

•Reduced net expenses resulting from the North American Refractory Company (NARCO) Amended Buyout Agreement in 2022 of approximately $0.6 billion, which included a charge of $1.325 billion for the Buyout Amount, partially offset by the derecognition of the NARCO asbestos-related liability of $0.7 billion, and

•Higher interest income of approximately $0.2 billion,

•Partially offset by proceeds from HarbisonWalker International Holdings, Inc. (HWI) Sale of $0.3 billion and lower pension and postretirement income of $0.2 billion.

See Note 19 Commitments and Contingencies of Notes to Consolidated Financial Statements for additional information on NARCO Amended Buyout Agreement and HWI Net Sale Proceeds.

Tax Expense

2023 compared with U.S. Statutory Rate

The effective tax rate for 2023 was lower than the U.S. federal statutory rate of 21% as a result of the following:

•Tax benefits on non-U.S. earnings, tax credits, and other accrued tax benefits, representing a 580 basis-point decrease,

•Partially offset by incremental tax expense for tax reserves and other accrued tax expenses, representing a 560 basis-point increase.

See Note 5 Income Taxes of Notes to Consolidated Financial Statements for further discussion of changes in the effective tax rate.

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Net Income Attributable to Honeywell

2023 compared with 2022

Earnings per share of common stock–assuming dilution increased due to the following:

•Higher segment profit which impacted earnings per share by $0.70 after tax,

•Lower repositioning and other charges, including charges attributable to suspending and winding down our businesses and operations in Russia, which impacted earnings per share by $0.56 after tax,

•Higher interest income which impacted earnings per share by $0.21 after tax, and

•The favorable impact of lower share count which impacted earnings per share by $0.18 after tax,

•Partially offset by higher interest expense which impacted earnings per share by $0.40 after tax.

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TABLE OF CONTENTS

REVIEW OF BUSINESS SEGMENTS

We globally manage our business operations through four reportable business segments: Aerospace, Honeywell Building Technologies, Performance Materials and Technologies, and Safety and Productivity Solutions.

AEROSPACE

Net Sales

2023 compared with 2022

Sales increased $1,797 million due to higher organic sales of $1,148 million in Commercial Aviation Aftermarket driven by higher sales volumes in air transport due to an increase in flight hours, higher organic sales of $361 million in Defense and Space driven by higher sales volumes due to increased shipments, and higher organic sales of $315 million for Commercial Aviation Original Equipment driven by higher sales volumes due to increased shipments.

Segment profit increased $513 million and segment margin percentage increased 20 basis points to 27.5% compared to 27.3% for the same period of 2022.

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HONEYWELL BUILDING TECHNOLOGIES

Net Sales

2023 compared with 2022

Sales increased $31 million due to higher organic sales growth of $145 million in Building Solutions driven by increased pricing in building projects and services, partially offset by the unfavorable impact of foreign currency translation of $88 million and lower organic sales of $27 million in Products driven by lower sales volumes.

Segment profit increased $66 million and segment margin percentage increased 100 basis points to 25.0% compared to 24.0% for the same period of 2022.

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PERFORMANCE MATERIALS AND TECHNOLOGIES

Net Sales

2023 compared with 2022

Sales increased $779 million due to organic sales growth of $491 million in Process Solutions driven by increased demand in projects and lifecycle solutions and services and higher organic sales of $193 million in UOP driven by growth in gas processing and refining catalyst shipments.

Segment profit increased $195 million and segment margin percentage increased 30 basis points to 22.2% compared to 21.9% for the same period of 2022.

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SAFETY AND PRODUCTIVITY SOLUTIONS

Net Sales

2023 compared with 2022

Sales decreased $1,418 million due to lower organic sales of $866 million in Warehouse and Workflow Solutions driven by lower demand for projects and lower organic sales of $426 million in Productivity Solutions and Services driven by lower demand for products.

Segment profit decreased $179 million and segment margin percentage increased 80 basis points to 16.4% compared to 15.6% for the same period in 2022.

During the second quarter of 2022, our Productivity Solutions and Services business entered into a license and settlement agreement (the Agreement). Under the Agreement, we will receive up to $360 million, paid in equal quarterly installments over eight quarters, beginning with the second quarter of 2022. The Agreement provides each party a license to its existing patent portfolio for use by the other party’s existing products and resolves all patent-related litigation between the parties.

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CORPORATE AND ALL OTHER

Corporate and All Other primarily includes unallocated corporate costs, interest expense on holding-company debt, and the controlling majority-owned interest in Quantinuum. Corporate and All Other is not a separate reportable business segment as segment reporting criteria is not met. The Company continues to monitor the activities in Corporate and All Other to determine the need for further reportable business segment disaggregation.

REPOSITIONING CHARGES

See Note 4 Repositioning and Other Charges of Notes to Consolidated Financial Statements for a discussion of our repositioning actions and related charges incurred in 2023, 2022, and 2021. Cash spending related to our repositioning actions was $294 million, $275 million, and $382 million in 2023, 2022, and 2021, respectively, and was funded through operating cash flows.

BUSINESS REALIGNMENT

In October 2023, the Company announced a realignment, effective in the first quarter of 2024, of its business units comprising its Performance Materials and Technologies, and Safety and Productivity Solutions reportable business segments by forming two new reportable business segments: Industrial Automation, and Energy and Sustainability Solutions. Industrial Automation will include Sensing and Safety Technologies, Productivity Solutions and Services, and Warehouse and Workflow Solutions, which are currently included in Safety and Productivity Solutions, in addition to Process Solutions, which is currently included in Performance Materials and Technologies. Energy and Sustainability Solutions will include UOP and Advanced Materials, which are currently included in Performance Materials and Technologies. Further, as part of the realignment, the Company will rename its Aerospace and Honeywell Building Technologies reportable business segments to Aerospace Technologies and Building Automation, respectively. Following the realignment, the Company’s reportable business segments will be Aerospace Technologies, Industrial Automation, Building Automation, and Energy and Sustainability Solutions. The realignment will not impact the Company’s historical consolidated financial position, results of operations, or cash flows. The Company expects to report its financial performance based on this realignment effective with the first quarter of 2024.

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TABLE OF CONTENTS

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in tables and graphs in millions)

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand the results of operations and financial condition of Honeywell International Inc. and its consolidated subsidiaries (Honeywell or the Company) for the three years ended December 31, 2022. All references to Notes relate to Notes to Consolidated Financial Statements in the section titled Financial Statements and Supplementary Data.

A detailed discussion of the prior year 2021 to 2020 year-over-year changes is not included herein and can be found in the Management's Discussion and Analysis of Financial Condition and Results of Operations section in the 2021 Annual Report on Form 10-K filed February 11, 2022.

BUSINESS UPDATE

In July 2022, we realigned certain business units within the Safety and Productivity Solutions reportable business segment. The Safety and Retail business unit, which included our gas detection and safety business, combined with the Advanced Sensing Technologies business unit to form the Sensing and Safety Technologies business unit. This realignment provides opportunities to capitalize on shared synergies and core technologies resulting in greater value for our customers and the markets we serve. We recast historical periods to reflect this realignment.

On August 16, 2022, the U.S. federal government enacted the Inflation Reduction Act of 2022 into law. The bill includes numerous tax provisions, including a 15% corporate minimum tax as well as a 1% excise tax on share repurchases. We continue to evaluate the impact of this law on our operations; at this point, the legislation is not expected to have a material impact on our consolidated financial statements.

MACROECONOMIC CONDITIONS

Throughout 2022 and continuing into 2023, the global economy experienced and continues to experience significant supply chain disruptions, geopolitical tensions, and inflationary cost pressures.

Labor shortages continue to place a strain on our operations and the operations of our suppliers, creating challenges in procurement of materials and delivering products and services to our customers. In addition, in certain regions of Asia, the COVID-19 pandemic impacted our business operations and our customers' and suppliers' ability to operate at normal levels. We anticipate supply chain constraints and the inflationary environment to continue into 2023, and in response have implemented short-term and long-term strategies to mitigate the impact.

Mitigation strategies include pricing actions, material supply tracking tools, refinement of escalation processes to communicate supply shortages, and direct engagement with key suppliers to meet customer demand. Where we cannot procure key components or raw materials, we redesigned existing products or developed new products to satisfy current and changing demand where feasible. Redesigned products, or the development of new products, undergo product quality controls and engineering qualification prior to releasing to our customers. Further, our relationships with primary and secondary suppliers allow us to reliably source key components and raw materials. We believe these mitigation strategies enable us to reduce supply risk, accelerate new product innovation, and expand our penetration in the markets we serve. Additionally, due to the strenuous quality controls and product qualification we perform on new or redesigned products, we do not expect these mitigation strategies to impact product quality or reliability.

During 2022, the Russia-Ukraine conflict introduced volatility in global financial and energy markets, increasing energy costs and exacerbating existing supply chain constraints, which added to the inflationary pressures in the global economy. We continue to actively work with our suppliers to minimize impacts of supply shortages on our manufacturing capabilities, and we implemented strategies to reduce our reliance on natural gas at critical sites in Europe.

If we are not successful in sustaining or executing these strategies, these macroeconomic conditions could have a material adverse effect on our consolidated results of operations or operating cash flows.

See the section titled Review of Business Segments for additional information on the impacts of inflationary cost pressures, supply chain constraints, and labor shortages to our businesses.

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See the section titled Risk Factors for a discussion of risks associated with the potential adverse effects of inflationary cost pressures, supply chain disruptions, and labor shortages to our businesses.

RUSSIA-UKRAINE CONFLICT

The Russia-Ukraine conflict, which began in February 2022, continues to negatively impact our businesses and operations and drive global economic and political uncertainty. In response to the Russian invasion of Ukraine, in March 2022, we suspended substantially all of our sales, distribution, and service activities in Russia and Belarus (the Suspension). In June 2022, we approved a plan to wind down our existing businesses and operations in Russia (the Wind down). During September and October 2022, we completed the sale of three entities domiciled in Russia. For our two remaining entities, we are pursuing a voluntary liquidation strategy to completely exit our businesses and operations in Russia. The Suspension and Wind down impacts all reportable business segments, with the most significant impact to our Performance Materials and Technologies reportable business segment.

In light of the humanitarian crisis created by the Russia-Ukraine conflict, we remain focused on efforts to assist and support our employees and their families impacted by the conflict. In March 2022, we created a Ukraine Relief Fund, allowing employees to make donations to support organizations providing direct assistance to Ukrainians and those that are assisting them in the midst of this humanitarian crisis. Additionally, as the conflict began, we accelerated payroll payments to those affected by the conflict and our initial Suspension of our operations.

The impacts of the initial Suspension and Wind down to revenue, net income, net assets, or cash flow from operations for the periods recognized are not material to our consolidated results of operations and consolidated financial position. For the year ended December 31, 2021, revenue from sales in Russia represented approximately 1% of our global revenues, and assets in Russia represented less than 1% of our total assets. Our estimate of potential future losses or other contingencies related to the Suspension and Wind down activities, including any guarantee payments or any litigation costs or as otherwise related to our Wind down in Russia, could adversely affect our consolidated results of operations in the periods recognized but would not be material with respect to our consolidated financial position. As the conflict evolves, existing conditions may worsen or other impacts that are unknown at this time may arise that could have a material adverse effect on our consolidated financial position.

See the section titled Review of Business Segments for additional information on the impacts of the Russia-Ukraine conflict to our businesses.

See Note 2 Acquisitions and Divestitures and Note 4 Repositioning and Other Charges of Notes to Consolidated Financial Statements for additional information on the sale of our Russian entities and charges recognized related to the Suspension and Wind down, respectively.

See the section titled Risk Factors for additional information on potential risks to our business related to the Russia-Ukraine conflict.

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RESULTS OF OPERATIONS

Consolidated Financial Results

Net Sales by Segment

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Segment Profit by Segment

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CONSOLIDATED OPERATING RESULTS

Net Sales

The change in net sales was attributable to the following:

2022 compared with 2021

A discussion of net sales by reportable business segment can be found in the Review of Business Segments section of this Management Discussion and Analysis.

Net sales increased due to the following:

•Increased pricing,

•Partially offset by lower sales volumes, and

•The unfavorable impact of foreign currency translation, driven by the strengthening of the U.S. Dollar against the currencies of the majority of our international markets, primarily the Euro, British Pound, Turkish Lira, Chinese Renminbi, and Australian Dollar.

Reconciliation of Reported Sales % Change to Organic Sales % Change and Organic Sales % Change Excluding Lost Russian Sales

(1)    Organic sales % change, presented for all of our reportable business segments, is defined as the change in net sales, excluding the impact on sales from foreign currency translation and acquisitions, net of divestitures, for the first 12 months following the transaction date. We believe this non-GAAP measure is useful to investors and management in understanding the ongoing operations and analysis of ongoing operating trends.

(2)     Lost Russian sales is defined as the year-over-year decline in sales due to the decision to wind down our businesses and operations in Russia. This does not reflect management’s estimate of 2022 Russian sales absent the decision to wind down our businesses and operations in Russia.

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Cost of Products and Services Sold

2022 compared with 2021

Cost of products and services sold increased in 2022 primarily due to the following:

•Higher direct and indirect material costs and higher labor costs of approximately $1.4 billion or 6%,

•Partially offset by lower sales volumes of approximately $1 billion or 4%.

Gross Margin

2022 compared with 2021

Gross margin increased by approximately $0.6 billion and gross margin percentage increased 80 basis points to 32.8% compared to 32.0% for the same period of 2021.

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Selling, General and Administrative Expenses

2022 compared with 2021

Selling, general and administrative expenses increased primarily due to the following:

•Higher repositioning and other costs of approximately $0.2 billion or 4%, including charges and accrual of reserves directly attributable to the initial Suspension and Wind down of businesses and operations in Russia, and

•Higher labor costs of $0.1 billion or 2%.

Other (Income) Expense

2022 compared with 2021

Other income decreased primarily due to the following:

•Lower pension and other postretirement income of approximately $0.6 billion, and

•Net expenses related to the NARCO Buyout and HWI Sale of approximately $0.3 billion.

For additional information regarding the NARCO Buyout and HWI Sale, see Note 19 Commitments and Contingencies of Notes to Consolidated Financial Statements.

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Tax Expense

2022 compared with U.S. Statutory Rate

The effective tax rate for 2022 was higher than the U.S. federal statutory rate of 21% primarily due to the following:

•Tax expense from restructuring, incremental tax reserves, and state taxes, representing a 320 basis-point increase,

•Offset by benefits received from employee share-based payments and tax credits, representing a 210 basis-point decrease.

For further discussion of changes in the effective tax rate, see Note 5 Income Taxes of Notes to Consolidated Financial Statements.

Net Income Attributable to Honeywell

2022 compared with 2021

Earnings per share of common stock–assuming dilution decreased primarily due to the following:

•Higher repositioning and other charges, including charges and accrual of reserves directly attributable to the initial Suspension and Wind down of businesses and operations in Russia and net charges for the NARCO Buyout and HWI Sale, impacted earnings per share by $0.86 after tax, and

•Higher pension mark-to-market expense and lower pension income impacted earnings per share by $0.69 after tax,

•Partially offset by higher segment profit from our reportable business segments impacted earnings per share by $0.53 after tax.

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TABLE OF CONTENTS

REVIEW OF BUSINESS SEGMENTS

We globally manage our business operations through four reportable business segments: Aerospace, Honeywell Building Technologies, Performance Materials and Technologies, and Safety and Productivity Solutions.

AEROSPACE

Net Sales

2022 compared with 2021

Sales increased $801 million led by organic sales growth of $967 million in Commercial Aviation Aftermarket and $379 million in Commercial Aviation Original Equipment driven by higher sales volumes in air transport and business aviation, partially offset by a decline in organic sales of $491 million in Defense and Space primarily due to supply chain constraints and the overall unfavorable impact of foreign currency translation of $54 million.

Segment profit increased $177 million and segment margin percentage decreased 40 basis points to 27.3% compared to 27.7% for the same period of 2021.

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HONEYWELL BUILDING TECHNOLOGIES

Net Sales

2022 compared with 2021

Sales increased $461 million led by organic sales growth of $627 million in Products and $152 million in Building Solutions primarily due to increased pricing, partially offset by the unfavorable impact of foreign currency translation of $346 million.

Segment profit increased $201 million and segment margin percentage increased 160 basis points to 24.0% compared to 22.4% for the same period of 2021.

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PERFORMANCE MATERIALS AND TECHNOLOGIES

Net Sales

2022 compared with 2021

Sales increased $714 million led by organic sales growth of $684 million in Advanced Materials and $366 million in Process Solutions primarily due to increased pricing, partially offset by the unfavorable impact of foreign currency translation of $420 million. Compared to the same period of 2021, in 2022, sales volumes decreased in Process Solutions by $171 million and in UOP by $164 million due to the Russia-Ukraine conflict.

Segment profit increased $234 million and segment margin percentage increased 70 basis points to 21.9% compared to 21.2% for the same period of 2021.

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SAFETY AND PRODUCTIVITY SOLUTIONS

Net Sales

2022 compared with 2021

Sales decreased $907 million primarily due to lower organic sales of $587 million in Warehouse and Workflow Solutions driven by lower demand for projects, lower organic sales of $152 million in Sensing and Safety Technologies driven by lower demand for personal protective equipment, and the unfavorable impact of foreign currency translation of $195 million.

Segment profit increased $51 million and segment margin percentage increased 240 basis points to 15.6% compared to 13.2% for the same period in 2021.

During the second quarter of 2022, our Productivity Solutions and Services business entered into a license and settlement agreement (the Agreement). Under the Agreement, we will receive up to $360 million, paid in equal quarterly installments over eight quarters, beginning with the second quarter of 2022. The Agreement provides each party a license to its existing patent portfolio for use by the other party’s existing products and resolves all patent-related litigation between the parties.

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CORPORATE AND ALL OTHER

Corporate and All Other primarily includes unallocated corporate costs, interest expense on holding-company debt, and the controlling majority-owned interest in Quantinuum. Corporate and All Other is not a separate reportable business segment as segment reporting criteria is not met for the activities reported with Corporate and All Other and the Company does not believe the results of operations are meaningful to investors. The Company continues to monitor the activities in Corporate and All Other to determine the need for further reportable business segment disaggregation.

REPOSITIONING CHARGES

See Note 4 Repositioning and Other Charges of Notes to Consolidated Financial Statements for a discussion of our repositioning actions and related charges incurred in 2022, 2021, and 2020. We recognized higher Total net repositioning and other charges in 2022 compared to 2021 due to the recognition of Asbestos-related charges, net of insurance and reimbursements related to the North American Refractory Company (NARCO) Buyout and HarbisonWalker International Holdings, Inc. (HWI) Sale, and Other charges related to the initial Suspension and Wind down of our business and operations in Russia. Cash spending related to our repositioning actions was $275 million, $382 million, and $564 million in 2022, 2021, and 2020, respectively, and was funded through operating cash flows.

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TABLE OF CONTENTS

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in tables and graphs in millions)

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand the results of operations and financial condition of Honeywell International Inc. and its consolidated subsidiaries (Honeywell or the Company) for the three years ended December 31, 2021. All references to Notes relate to Notes to Consolidated Financial Statements in the section titled Financial Statements and Supplementary Data.

On November 29, 2021, Honeywell Quantum Solutions, a wholly-owned subsidiary of Honeywell, which was previously reported within the Aerospace reportable business segment, combined with Cambridge Quantum Computing, to form Quantinuum. Following the combination, Honeywell consolidated and reported Quantinuum within Corporate and All Other. Quantinuum is considered a separate operating segment, but does not meet aggregation criteria for presentation as a separate reportable segment. For this reason, it is reported within Corporate and All Other, which is not considered a reportable business segment. For the eleven months ended November 30, 2021 and the years ended December 31, 2020 and 20219, Honeywell Quantum Solutions incurred operating losses of $50 million, $41 million, and $36 million, respectively. Prior to November 29, 2021, our Aerospace business segment included the operating results of Honeywell Quantum Solutions.

Quantinuum is well-positioned to lead the quantum computing industry by offering advanced, fully integrated hardware and software solutions at an unprecedented pace, scale, and level of performance to large high-growth markets worldwide. Quantinuum supports customer needs for improved computation in cyber security, drug discovery and delivery, material science, finance, and optimization across all major industrial markets.

A detailed discussion of the prior year 2020 to 2019 year-over-year changes is not included herein and can be found in the Management's Discussion and Analysis of Financial Condition and Results of Operations section in the 2020 Annual Report on Form 10-K filed February 12, 2021.

COVID-19 UPDATE

In 2021, the COVID-19 pandemic continues to have a significant impact around the world. Many jurisdictions worldwide continue to distribute vaccines as a method to limit and control infections; however, the pandemic continues to impact our business as vaccine efforts face challenges and new variants of the virus emerge. Select governments continue to place restrictions on businesses (impacting manufacturing capabilities and distribution channels). Global supply shortages emerged for certain products (including electrical components), leading to delays in delivery schedules. Historically reliable supply chains were disrupted, impacting certain of our businesses. In certain parts of the world, labor shortages intensified.

These events continue to impact our business operations. As new variants of the virus emerge, we remain cautious as many factors remain unpredictable. We actively monitor and respond to the changing conditions created by the pandemic, with focus on prioritizing the health and safety of our employees, dedicating resources to support our communities, and innovating to address our customers’ needs.

In 2021, we actively promoted vaccines as a mechanism to protect the health of our employees. We supported several large-scale vaccination events to provide vaccines to our employees, their families, and the surrounding communities. In situations when local medical care was unavailable, we provided additional support to our employees to ensure they received the medical care needed. We continue to adapt our safety and hygiene protocols to enable our manufacturing employees to operate safely through the pandemic. We also continue to utilize our procedures for a phased return of our employees to our office sites, and in many parts of the world, we returned our non-manufacturing employees to the workplace. However, in certain countries, our non-manufacturing employees continue to work from home (for roles that allow for remote work).

On September 9, 2021, President Biden announced several initiatives to drive higher vaccination rates in the U.S., including an executive order for U.S. Government contractors to mandate vaccination against COVID-19. In response to these initiatives, we implemented a vaccine mandate requiring all U.S.-based employees at work locations that work on or in support of contracts with the U.S. Government to receive their first vaccine dose, or a medical or religious exemption, by January 4, 2022. Similarly, the Company adopted a vaccine mandate for all prospective and future employees and announced a timeline for a vaccine mandate for our remaining U.S. employees.

We continue to monitor and respond to the changing conditions created by the pandemic.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EMPLOYEE HEALTH, SAFETY, AND ECONOMIC WELLNESS

We continue to monitor the COVID-19 situation and its impacts globally. We are prioritizing the health and safety of our employees. Out of an abundance of caution for the health of our employees and to support local government initiatives to stem the spread of the virus, we implemented several precautions at various sites around the world. These include, but are not limited to:

•Limiting visitor site access to business-essential purposes;

•Enabling employees to work from home wherever and whenever required or appropriate;

•Continuously updating travel guidance, according to latest developments; and

•Complying with all local health authority guidance or regulations and our own protocols, including requesting employees to comply with self-quarantine requirements whenever advisable.

PLANT PRODUCTIVITY AND SAFETY

We continue to operate our manufacturing facilities with minimal disruption in our productivity. As of December 31, 2021, all of our manufacturing sites were operating at normal production levels. We continue to provide essential services and produce essential goods around the world. We employ standards such as screening checks, use of masks, face coverings, and other safety equipment and social distancing practices along production lines in our production facilities at all times in compliance with local government requirements and CDC guidelines. We take appropriate actions including disinfecting and quarantine procedures when a suspected COVID-19 case is identified.

CUSTOMERS AND SUPPLIERS

Current global economic conditions due to COVID-19 continue to impact our customers’ and suppliers’ ability to operate at normal levels. We continue to work with our suppliers to manage our supply chain disruptions and limit our exposure. We also work closely with our customers to manage expectations and meet their demand needs.

See the section titled Risk Factors for a discussion of risks associated with the potential adverse effects of the COVID-19 pandemic, including the impact of any applicable vaccine mandates.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Consolidated Financial Results

Net Sales by Segment

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Segment Profit by Segment

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CONSOLIDATED OPERATING RESULTS

Net Sales

The change in net sales was attributable to the following:

2021 compared with 2020

A discussion of net sales by segment can be found in the Review of Business Segments section of this Management Discussion and Analysis.

Net sales increased due to the following:

•Favorable pricing and price increases to offset the rising cost of materials,

•The favorable impact of foreign currency translation, driven by the weakening of the U.S. Dollar against the currencies of the majority of our international markets, primarily the Euro, British Pound, Chinese Renminbi, Canadian Dollar, and Australian Dollar, and

•Higher sales volumes due to an increase in demand for certain products and services as the global economy showed signs of recovery from the COVID-19 pandemic.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cost of Products and Services Sold

2021 compared with 2020

Cost of products and services sold increased in 2021 primarily due to the following:

•Higher direct and indirect material costs of approximately $1,350 million, due in part to supply chain constraints, and

•Higher repositioning and other costs of approximately $150 million,

•Partially offset by cost actions to improve productivity of approximately $380 million.

Gross Margin

2021 compared with 2020

Gross margin increased due to the following:

•Favorable pricing,

•Higher productivity,

•The favorable impact of foreign currency translation, and

•Increased demand for our products,

•Partially offset by higher direct and indirect material costs, higher repositioning and other costs of approximately $150 million, and a larger portion of our sales being driven by our Safety and Productivity Solutions segment.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Selling, General and Administrative Expenses

2021 compared with 2020

Selling, general and administrative expenses and Selling, general and administrative expenses as a percentage of net sales changed due to the following:

•Higher expenses due to increased sales volumes and labor expense,

•Partially offset by higher productivity, including lower costs resulting from repositioning actions.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Other (Income) Expense

2021 compared with 2020

Other (income) expense increased due to the following:

•Prior year non-cash charges associated with the reduction in value of reimbursement receivables due from Garrett,

•Higher pension income, and

•Gain on sale of the retail footwear business,

•Partially offset by the recognition of an expense related to UOP matters and increased foreign exchange expense. See Note 19 Commitments and Contingencies of Notes to the Consolidated Financial Statements for additional information on UOP Matters.

Tax Expense

2021 compared with 2020

The effective tax rate for 2021 was higher than the U.S. federal statutory rate of 21% primarily due to the following:

•Accrued withholding taxes related to unremitted foreign earnings,

•The establishment of a valuation allowance for deferred tax assets not expected to be realized, and

•Incremental tax reserves and state taxes,

•Partially offset by the tax impact of restructuring.

For further discussion of changes in the effective tax rate, see Note 5 Income Taxes of Notes to Consolidated Financial Statements.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net Income Attributable to Honeywell

2021 compared with 2020

Earnings per share of common stock–assuming dilution increased due to the following:

•Higher segment profit,

•Prior year non-cash charges associated with the reduction in value of reimbursement receivables due from Garrett,

•Higher pension income,

•Gain on sale of the retail footwear business, and

•Favorable impact of lower share count,

•Partially offset by higher income taxes, an expense related to UOP matters, and higher foreign exchange expense.

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REVIEW OF BUSINESS SEGMENTS

We globally manage our business operations through four segments: Aerospace, Honeywell Building Technologies, Performance Materials and Technologies, and Safety and Productivity Solutions.

AEROSPACE

Net Sales

(1) Organic sales % change, presented for all of our reportable business segments, is defined as the change in net sales, excluding the impact on sales from foreign currency translation and acquisitions, net of divestitures, for the first 12 months following the transaction date. We believe this non-GAAP measure is useful to investors and management in understanding the ongoing operations and analysis of ongoing operating trends.

2021 compared with 2020

Sales decreased due to lower demand from our commercial OEMs, and domestic and international defense, partially offset by higher demand for our aftermarket products and services, and favorable pricing.

•Commercial Aviation Original Equipment sales decreased 11% (decreased 12% organic) due to lower demand in air transport and regional and business aviation.

•Commercial Aviation Aftermarket sales increased 9% (increased 9% organic) due to higher demand in business aviation.

•Defense and Space sales decreased 11% (decreased 12% organic) driven by lower demand in U.S. and international defense and supply chain constraints.

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Cost of products and services sold decreased due to lower sales volumes and higher productivity.

Segment profit increased due to favorable pricing, higher productivity, and higher sales volume of higher margin products and services, partially offset by overall lower sales volume.

HONEYWELL BUILDING TECHNOLOGIES

Net Sales

2021 compared with 2020

Sales increased primarily due to the favorable impact of foreign currency translation and favorable pricing.

•Sales in Products increased 9% (increased 6% organic) due to higher demand for certain of our product offerings, and the favorable impact of foreign currency translation.

•Sales in Building Solutions increased 4% (flat on an organic basis) due to higher demand for our services businesses, and the favorable impact of foreign currency translation.

Cost of products and services sold increased primarily due to the rising cost of materials and the unfavorable impact of foreign currency translation, partially offset by higher productivity.

Segment profit increased primarily due to higher productivity, higher demand for certain products and services, favorable pricing, and the favorable impact of foreign currency translation, partially offset by the rising cost of materials.

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REVIEW OF BUSINESS SEGMENTS

PERFORMANCE MATERIALS AND TECHNOLOGIES

Net Sales

2021 compared with 2020

Sales increased due to the impact of foreign currency translation, higher demand for certain products, and the acquisition of Sparta Systems.

•UOP sales increased 8% (increased 6% organic) due to higher demand for oil and gas products and services, and the favorable impact of foreign currency translation.

•Process Solutions sales were flat (decreased 4% organic). The acquisition of Sparta Systems and the favorable impact of foreign currency translation was offset by lower demand for projects and services.

•Advanced Materials sales increased 15% (increased 13% organic) due to higher demand for fluorine products and the favorable impact of foreign currency translation.

Cost of products and services sold increased due to the rising cost of materials, partially offset by higher productivity.

Segment profit increased due to higher demand for certain products, favorable pricing, partially offset by the rising cost of materials.

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REVIEW OF BUSINESS SEGMENTS

SAFETY AND PRODUCTIVITY SOLUTIONS

Net Sales

2021 compared with 2020

Sales increased due to increased demand for certain products and favorable pricing.

•Sales in Safety and Retail decreased 1% (increased 5% organic) due to the sale of the retail footwear business, partially offset by increased demand for certain products.

•Sales in Productivity Solutions and Services increased 27% (increased 25% organic) due to higher demand on certain products.

•Sales in Warehouse and Workflow Solutions increased 50% (increased 49% organic) due to higher demand for warehouse automation and services.

•Sales in Advanced Sensing Technologies increased 5% (increased 3% organic) due to higher demand for certain products and the favorable impact of foreign currency translation.

Cost of products and services sold increased primarily due to higher sales volumes, higher sales on lower margin products, the rising cost of materials, partially offset by the sale of the retail footwear business.

Segment profit increased due to higher sales volumes and favorable pricing, partially offset by higher sales of lower margin products and the rising cost of materials.

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REVIEW OF BUSINESS SEGMENTS

CORPORATE AND ALL OTHER

Corporate and All Other primarily includes unallocated corporate costs, interest expense on holding-company debt and the controlling majority-owned interest in Quantinuum. Corporate and All Other is not considered a separate reportable business segment as segment reporting criteria is not met for the activities reported with Corporate and All Other and the Company does not believe the results of operations are meaningful to investors. The Company continues to monitor the activities in Corporate and All Other to determine the need for further reportable business segment disaggregation.

REPOSITIONING CHARGES

See Note 4 Repositioning and Other Charges of Notes to Consolidated Financial Statements for a discussion of our repositioning actions and related charges incurred in 2021, 2020, and 2019. Cash spending related to our repositioning actions was $382 million, $564 million and $249 million in 2021, 2020, and 2019, and was funded through operating cash flows.

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