Murray Grainger - Vice President, Investor Relations Dave Cote - Chairman and Chief Executive Officer Dave Anderson - Senior Vice President and Chief Financial Officer

John Inch - Merrill Lynch Jeff Sprague - Citigroup Scott Davis - Morgan Stanley Shannon O'Callaghan - Lehman Brothers Howard Rubel - Jefferies Nigel Coe - Swiss Bank

Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to Honeywell's Q4 2007 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. I would now like to turn the call over to Mr. Murray Grainger, Vice President of Investor Relations. Sir, you may begin your conference. Murray Grainger - Vice President, Investor Relations : Thank you. Good morning, and welcome to Honeywell's fourth quarter and full year 2007 earnings conference call. With me here today are Chairman and CEO, Dave Cote, and Senior Vice President and CFO, Dave Anderson. This call and webcast including any non-GAAP reconciliations are available on our website, www.honeywell.com/investor. Note that elements of this presentation contain forward-looking statements that are based on our best view of the world and of our businesses as we see them today. Those elements can change, and we would ask that you interpret them in that light. This morning, we will review our financial results for the fourth quarter and full year for 2007, as well as our expectations for the first quarter of 2008. And of course allow time for your questions. With that, I will turn the call over to Dave Cote. Dave? Dave Cote - Chairman and Chief Executive Officer: Thanks Murray and good morning everyone. Well, it's another very nice day to be an investor or employee of Honeywell. We've had another quarter of strong results closing out what's been just a terrific year of performance for us. And our results in 2007 reinforce three or four important themes for us as a company. The three positions that we have in good industries, the progress we are making on profits improvements through our fine initiatives, the talent and depth of our management team, and the power of one, Honeywell. Dave will take us through the details of the quarter in a moment, but let me say the momentum we are carrying into 2008 with our fourth quarter sales growth of 12%, earnings per share growth of 26%, and free cash flow generation of $1.1 billion, gives us straight confidence in our outlook for the first quarter and the year, despite an expected tougher economic environment. Our well diversified and balanced portfolio is really helping to drive the overall strong performance, and for the full year 2007 we increased sales by 10% to $34.6 billion and increased EPS by 25% to $3.16 and we grew free cash flow by almost $700 million to $3.1 billion, and that was converting net income at an impressive rate of a 129%. During the year, we also completed the total of 12 acquisitions for $1.2 billion further building our growth platform. And we closed two acquisitions in the fourth quarter, Hand Held products and Maxon, both of which are great additions to our ACS portfolio and both integrations are well underway. Our acquisitions process really works incredibly well; it's disciplined, we don't overpay, and we integrate them very well. We also repurchased over 74 million shares for $4 billion and increased our dividend for the fourth consecutive year by 10%. Our key initiatives are gaining traction in our businesses and functions everyday, and we have a lot of room here for even further improvement adding further upside. The Honeywell operating system is now been initiated in 50% of our manufacturing cost base. And I want to point out, that's initiated not completed. We’ve really taken this slowly, because done right, it's a 20 year competitive advantage and we want it done right. The immediate benefits in quality, deliveries, safety, cost and inventory are certainly nice and we certainly want them. But the really big benefit here is a sustainable, repeatable platform for improvement. Functional Transformation is basically HOS for administrative functions. It’s the same concepts; standard work and a robust process designed to deliver better service at lower cost. We are only one-third of the way through this and that means more upside in FT. And finally I just spent two days with our top 300 leaders, where we concentrated almost exclusively on our products and services process. It's very clear that Velocity Product Development is playing a big role in our ability to deliver more and better products and services even faster. What we have done to-date tails next to what is coming down the pipe. And I am very excited about the contribution that new products will make to Honeywell's growth in the future. So, in summary great results for 2007 and the momentum we are building on our key initiatives Makes me feel very confident that our outlook for 2008, despite the signs of some slowing in the economy. And you can imagine give that we are looking very forward to keeping you updated through the year on our progress. And with that let me now turn the call over to Dave to go through the financials in details for the quarter. Dave? Dave Anderson - Senior Vice President and Chief Financial Officer : Good morning thanks Dave and welcome to our call. We appreciate your engagement this morning. Let's go to slide number four, entitled 2007 financial summary and as Dave mentioned we had obviously just terrific results in the fourth quarter, sales up 12%, EPS growth of 26%, free cash flow was up 20%, which was just really good. 164% conversion, you can see of net income in the quarter for cash flow. We saw growth across all of our regions. 60% of the growth in the quarter coming from outside the Americas, it really speaks to the balance of the portfolio and the balance of the geographic positioning that we've built. We closed inline with our guidance for below the line items. And we also took the opportunity to execute. We had $41 million of repositioning actions in the fourth quarter, bringing our total repositioning for the year to almost $200 million, so $191 million in total. And obviously that's something we are really proud of, because that just gives us more strength, more momentum for future periods. As Dave said we repurchased 3.5 million shares in the quarter, essentially keeping our share count flat for the year, $4 billion to shareholders, repurchasing 74.2 million shares. The effective tax rate for the quarter, 26.5%, now that was above last year's rate of 25.1%, but in line with our expectations, and for the year by the way, the ETR of 26.4% compares to 25.8% last year. And again that 26.4% is roughly in line with our target, and our ongoing ETR guidance. All in all, a terrific year for Honeywell, another addition to the track record of performance that we've been building over the last fiver years. With that overview, let's go now to each of the segments, starting with aerospace on slide number five. Aerospace, strong finish, revenues up 11% in the fourth quarter. Two points of benefit from acquisitions that would be the Dimensions International acquisition, so 9% organic, segment profit up 14% and margins up 60 basis points to an impressive 18.8% in the fourth quarter. Now, commercial sales in aero were up 12% in the quarter, again it was strong demand on both OE and the aftermarket side. Commercial OE up 15%, driven by continuing strong demand, particularly in the business jet segment, which saw OE sales grow 31% in the fourth quarter. Commercial aftermarket sales were up 10%, with ATR up 8%, roughly in line with higher global flying hours, which were up approximately 6%. And as you know, it’s a pretty good proxy, you see some variation quarter-to-quarter, but that's a reasonable proxy for us in terms of the ATR aftermarket. BGA aftermarket sales were up a robust 15% in the quarter, driven by increased service and also spare parts revenues. Turing to Defense and Space, sales were up 9%, driven by strength in surface which would be primarily the TIGER program and we are really continuing to benefit and see expansion, as well as the contribution, as I mentioned earlier from Dimensions International acquisition, by the way we feel very good about that, off to a terrific start with that transaction. On the margin side, volume growth, price and productivity more than offset the inflation in the quarter and drove the 60 basis points of margin expansion for aero. So, in summary another great quarter for aero, capping a great year, where sales grew 10% to $12.2 billion. Margin expanded, a 100 basis points to 18% and in 2007, of course we also the business solidify its leadership position in the industry, the win notably on A350 extra wide-body aircraft. We also saw just the continued pace of new technology and technology introductions, permanent example being Synthetic Vision, which is gaining acceptance in the BGA marketplace, as you know on the Gulfstream family of business jets. And we’re going to continue to benefit from our focus and Rob's leadership team's focus on customer service. We've got that, $1 billion plus aftermarket wins and we're seeing the benefit of that in both commercial and our defense businesses. So, again another great year for aero and continued momentum in aero into 2008. ACS on slide 6, sales were up an impressive 13% in the quarter, with positive growth across all regions, and by the way represents the 11th consecutive quarter for double-digit growth for ACS. The products businesses continue to perform well, they were up 9% in the quarter. We saw strength in ECC the Environmental and Combustion Controls business. Security had a strong quarter; Life Safety had a strong quarter. These, of course, are driven by new products, strong execution and the expansion into new markets, including emerging regions. Now, the solutions business continued to experience very good growth. They were up 20% in the fourth quarter combined, and they are benefiting from strong demand in emerging regions and obviously continued robust trends in the process industries including the refining end market. Our order book in Solutions was up 30% in the fourth quarter, which gives us confidence in a continued strength in the outlook for this business through 2008. Now, turning to margins, ACS segment profit was up 10%, which translated into a 20 basis point decrease in margin to 12.4%, but to shed some light on that, some visibility on that. For the quarter, it really boils down to the market headwinds related to mix, we had about 30 basis points impact as a result of mix in the quarter. Also, we had a higher ERP spend in the quarter as a result of just some year-over-year increases in comparisons and that also represented about 30 basis points impact in margin for the quarter. So in total of that 60 basis points of margin impact, you look at that and what you see is really a conversion rate that’s very much in line with what we'd expect given that revenue growth in ACS. So, for the year, ACS grew an impressive 13% to reach $12.5 billion, margins increased 20 basis points to 11.3%, which is inline with our expectations, and innovation at ACS, is really alive and well and really gaining traction. Dave spoke to that a little bit in terms of the recent forum, our recent senior leadership form. To illustrate that, in ACS we had over 300 new products introduced in 2007, and our increased penetration tapped together with increased penetration in emerging regions such as Asia and the Middle East are driving growth across all our ACS businesses. And we continue to focus on successfully integrating recent acquisitions, as well as working for further accretive acquisition opportunities in this segment. So now let's turn to Slide 7, Transportation Systems. As you can see there overall sales for the quarter for TS were up 11%, driven by a 17% increase at Turbo, and a 3% increase at CPG. Now the PV business of Turbo continues to perform particularly well, with robust demand in Europe and Asia-Pacific, and also benefiting from increased diesel penetration. Diesel penetration by the way in Europe was 54% in the fourth quarter. Our commercial Turbo business continues to be down year-over-year as anticipated; however, we are going to start seeing positive comparisons as we've shared with you. In our guidance call in December, we're going to start seeing positive comparisons in that business starting actually in the first quarter, this quarter of '08. Now, while sales for CPG were up 4% on a reported basis, the underlying volume was down in the quarter due to softness in the automotive component aftermarket. Segment profit for TS up 6% translating to a margin reduction of 60 basis points to 11%, and as you know, we continue to invest in new Turbo Platform launches, that's foundation for us. Those are going to provide significant benefits to us and the business in the future. For the quarter, for TS in total, productivity and pricing gains were offset by these new product investments, as well as material inflation and some of the continued challenges we’ve had within the CPG business. Now we expect sequential improvement in CPG in the first half of this year and we expect positive comparisons to last year for CPG in the second half of 2008. For the full year TS sales were $5 billion, an increase of 9%, segment margins were 11.6% down 90 basis points from prior year and really the same themes that we have talked about previously. So, while we had mix results for Transportation Systems in 2007, we continue to see very attractive future growth for this business with increased penetration of Turbo's worldwide and our significant win rate on new platforms, which of course reflects the technology and cost advantage position that we have in the marketplace. And of course we'll continue to remain focused on improving the CPG performance over the course of 2008. Let's go to now on slide number 8. Specialty Materials, sales for SM in the quarter were up 14%; segment profit increased an impressive 70% driving a 350 basis points improvement in segment margins to 10.8%. Clearly, UOP continues to experience strong demand for its proprietary technologies, and refining and petrochemical market conditions, those all remain favorable. The other SM businesses also grew in the quarter led by resins and chemicals, which was up 10%, driven by pricing and also continued strong demand globally for capital caprolactam. And as I mentioned segment margins, the 350 basis points improvement, driven by favorable UOP volumes, as well as productivity and price actions across the SM portfolio. For the year specialty material sales were up 5% to $4.9 billion, margins increased to 120 basis points to 13.5%. The business continues to benefit from strength, as you know in refining and petrochemical cycles and again the tight supply/demand relationship in key materials such as caprolactam. We are one of the worlds, as you know, leading suppliers. We also of course continue to focus in SM on price and productivity initiatives across all the businesses. So, with that review of the four business segments, let's go to slide 9 and just revisit and update you in terms of our financial guidance for 2008. Now, as we communicated to you in December, we expect '08 to be another year of overachievement and out performance for Honeywell. We're maintaining the guidance that we communicated previously; you can see the numbers on the page for revenues, segment profit, net income. EPS and free cash flow all of which are consistent with what we've shared with you previously. Small change in the revenue percent, year-over-year just given the stronger than anticipated finish to 2007. Now looking below on the bottom part of the slide, obviously these are the variables that we discussed with you, they could influence plus or minus in terms of within that range that we've given for 2008. However on a net basis the guidance again remains unchanged, so worthwhile though to talk just quickly about those assumptions on the bottom of the page. Now we anticipate economic growth could be at the lower end of the assumed range. We previously communicated 1% to 2% for both U.S. and Europe. Now as Dave said particularly you know more in the headlines of anything we're really seeing in terms of our actual business performance, but we would expect that economic growth to be on the lower-end of the range. On the other hand, while we're still finalizing the review of our foreign pension plans, the initial review of the pension assumptions for 2008 indicate they are going to be favorable in terms of the expense range we gave you earlier. We now expect pension expense for the year to be in the range of $30 to $50 million, due to favorability in our U.S. plans driven by the 2007 planned returns and also slightly higher discount rate that we had expected at the end of 2007. With respect to the Euro over dollar we are obliviously seeing the Euro over dollar hover in that 145 range, as we communicated we're using 1.4 as our base planning assumption and clearly if we sustain at the current levels that would represent top-line upside and some bottom-line upside to us in 2008. Regarding mix, we see no difference in the mix of our businesses today versus what we communicated to you in December and is consistent again with the outlook and the guidance we provided and I would say the same for the assumptions around inflation and productivity that those assumptions remain unchanged. So in conclusion, we feel we have a balanced plan for '08. We continue to demonstrate favorable growth. We're confident in our ability to executive this plan and to build on the track record that we're demonstrating. Let's talk now about the first quarter and let's go to slide number 10. We expect total sales in the first quarter of about $8.7 billion, up around 8% versus 2007. And we expect EPS in the range of $0.80 to $0.83; that would be up 21% to 26% compared to the first quarter of 2007. And you can see the highlights for each of the businesses, Aero we expect revenues up about - to be around $3 billion, up about 6%. Again consistent with the themes that we've talked about and the performance that we've seen in '07 for Aero. ACS, we expect revenues up about $3.1 billion; that represents an 11% increase over the same period for 2007, now keeping in mind that we would expect the solutions businesses to grow about faster than the product businesses, given new order rate and the backlog that we have there. In TS, we anticipate revenues in the first quarter of about $1.3 billion, up about 8%, similar really with the trends that we saw in the second half of 2007. And finally at Specialty Materials anticipating revenues of about $1.3 billion, up 8% and driven by growth across all our businesses with the anticipation that we're going to have a particularly strong quarter again in the first quarter in UOP. So, with that summary of the quarter, lets now summarize and before we go to Q&A. Obviously as Dave communicated, and as I took you through the details, we couldn’t be more pleased with 2007 and particularly the finish that we had and the continued moment that we see in the business, against the backdrop, your knowledge backdrop of a more difficult economic environment in '08. Again, we expect strong start in the first quarter with revenues up 8%, EPS growth in the 21% to 26% range. We’re committed, hopefully of that comes through to maintaining the performance track record we've built over the last five years. We are confident in our ability to execute in 2008. We are planning again for a softening global economy, and we expect spill over that weakness in US and residential credit markets. But we see our ability to continue to offset that by good execution and continued expansion both with innovation, as well as our strength in our emerging regions. Now inflationary pressures, we expect to persist but productivity, pricing initiatives across all of our businesses will continue, we believe in '08 to offset that. We believe we've got achievable top line growth, and by the way with a strong finish for 2007, if anything, that revenue growth in terms of expectation and guidance has moderated from what we had previously provided. We are going to be aggressively, as always, managing costs. We've got contingency plans in place that give us flexibility should economic conditions prove to be either more positive or more negative. So we have the ability to flex relative to achieving our goals. As Dave said, the HOS and FT initiatives are gaining traction. We are targeting more than 100 sites in HOS, more than 70% of our manufacturing costs to be undergoing HOS implementation by year end '08. We also expect continued progress in functional cost. We expect those to be down another 30 basis points to 40 basis points year-over-year to around 5.5% of sales in 2008. And by the way, just to put that in perspective that compares to 8% for that same group of FT cost in 2004. We focus on executing policy and ERP, in both the ACS and aerospace and this is foundation for the future, this is investment for the future and we are going to maintain that through 2008. So, in summary, we are very confident in our plans to deliver high-teens EPS growth and a 100% plus free cash flow conversion despite potentially tougher conditions. So as a reminder, finally just before turning it over to Murray and to you for Q&A, we will be hosting our Annual Investor Day in New York City on Monday February 25th, and we look forward to seeing all of you there and sharing more details about our business, our strategies and our outlook for 2008. So with that Murray, over to you for Q&A. Murray Grainger - Vice President, Investor Relations : Thanks Dave. Regina, please open the line for questions.

(Operator Instructions). Your first question comes from the line of John Inch of Merrill Lynch. John Inch : Thank you, good morning.

Hey, John.

I want to start with aerospace. Just as you guys look at the world right now, are there going to be some financial implications from the 787 delay, and if so, is that factored into the guidance?

John, not even a, gee! Nice quarter. John Inch : You know the compliance rules, but you set it for me. So I prefer….

I didn't know about the compliance rule. I thought that was just your job. John Inch : I concur with what you just said.

787 is not going to have much of an impact on us one way or the other, whether its gets pushed out, pulled in, we are in pretty good shape there. So I mean, there is some spending that's still needs to be done to complete everything, because some of the work we do, we can't get orders down until others do, we can't work on it independently as you know. But there is no impact on us really one way or the other. Dave, anything you'll add to it.

No, I would say John, since this is what we've discussed before, to Dave's point we've included the spend in our '08 outlook, in our guidance for aerospace, so we can manage the plus and minus that we recently anticipate within that budget level. John Inch : But Dave does the push-out give any kind of incremental mix benefit this year that helps the margins or not really?

No, not really. It's kind of interesting, in aerospace, if they've got $830 million set aside for engineering, you'll spend $830 million. It may not be the same programs that you started off with, but they will spend $830 million. John Inch : I just want to touch on Dave Cote, your comments on the softening economy, and obviously we all know sort of what your mix of business looks like today. The one thing that maybe struck me was business jet. And I think the OEs have been pretty positive on their outlook. With that said, it's been a very significant source of contribution to your aerospace results. Are you in anyway thinking about that business perhaps any differently? If we go into a recession that perhaps you need to modify some of your cost structure and business charter? Maybe just a little color on sort of how you think about outlook there?

First up, we probably got to be clear on the whole question of recession. And I say question, because so far all we do is read about possibility of it. We don't really see it yet. And could argue that our businesses are not leading indicators so that we wouldn't see it right away but, we've been really reading about subprime and everything all the problems that was going to cause for about seven or eight months now and we've never really seen it. Now, all that being said, when you read enough about something and these things can be psychologically so fulfilling; that it causes you to say well, let's plan conservatively. Let's plan our sales conservatively, let's plan our cost conservatively, whatever spending we were going to do let's hold back until we're sure the sales are there. You could argue that enough of us doing that and so creating a recession, but at the end of the day it’s a prudent thing for a company to do. So that's what we are doing. Even though we don't see the signs yet, we prefer to just be prepared. In the event that it does unfold the way, certainly the stuff you read says it's going to. Biz Jets are still going to do fine. And one of the things that biz jet manufacturers did a very good job of this time is, when they saw doubling in orders they didn't double capacity, and instead they just stretched out the fulfillment time, fire out into the future. They roughly expected that if things got tough, there would be some cancellations, and I fully expect that there would be. But at the end of the day there are two fundamentals that still makes this a very good industry for us. The first is that, what used to be about 65% US market five years ago is now more about 40% US market 60% outside. And all the guys who have placed orders for those jets still have a need for them and a desire for them. The second big change and then you saw what happened in our aftermarket numbers in the quarter, is that we've gone from an installed-base five years ago of 5,000 to an installed-base play of 10,000. That pertains a very good after market future in biz jets. So I don't really see anything that would need to change there. I would say that probably would stand a chance of being less cyclical at this point given the changes in the industry. John Inch : And you guys are proportionally on the larger platforms, and I am correct in that, that would prospectively be less susceptible versus smaller companies buying smaller planes that might be more inclined to cancel.

Now that's correct. I mean the people who have money to buy a $40 million jet when times are good, generally still have money, can't have that say money when times get tougher, not all of them but most of them.

Thanks very much.

You're welcome.

Your next question will be from Jeff Sprague with Citigroup.

Thank you, good morning.

Good morning, Jeff.

Dave Anderson, can we explore a little bit again, just kind of all the puts and takes that are going on in ACS, I mean obviously you've laid out your guidance for '08 there, but just as we jump off to this Q4 into Q1, I mean can you kind of baseline us on the ERP puts and takes and mix and you got some acquisition integration going on and really what we should think about in the margins there?

Yeah. Well, we are going to continue is as I said Jeff, we saw in the quarter I mentioned about 30 basis points impact, of the roughly 2x revenue growth rate in solutions, 20% up in solutions, 9% up in products and that mix impact translated in terms of margin rate, it was about a 30 basis point headwind for ACS in the fourth quarter. Now, we saw very robust orders, as I mentioned for the solutions business, both solutions businesses, the process and building solutions businesses in the fourth quarter, in the mid 20% on average. And that's going to be coupled with the order rate over the course of 2007, it is going to translate to headwind, margin headwind for the foreseeable future and that's just going to be part of what we're going to see. We have little bit of anomaly on the ERP side in the fourth quarter, where we had about a $10 million increase in spend, versus prior year. Run rate is essentially on track in terms of the ERP spend for ACS, but there was an increase year-over-year and that impact is about 30 basis points as well. So, again, adjusted for that, as I said in my comments, you really are looking at a pretty certain normal conversion rate in terms of what we'd expect in terms of margin expansion for ACS, given the, if you will that FX adjusted, because convert foreign currency at a lower rate. Revenue to operating income and we do constant currency revenues.

And you didn’t call that out Dave, but how much that the currency effect hurt margins in the quarter?

I don’t know that I've got the percent points on that, but you saw that currency reflected a significant part of the growth of ACS in the quarter. We had FX impact in terms of revenues Jeff of 6% growth, it was related to foreign currency. So, if you think about converting at around 10% on a variable basis versus more like 20% for the rest of the business, you can see the dilutive, you can anticipate and do the math, interpret the diluted impact of that. For 2008, just to kind of finalize then, for 2008 we wouldn’t anticipate that ERP is going to be significant in terms of year-over-year impact relative to 2007. And by the way as Dave said, and I think I pointed out in my comments, we are seen very affective acquisition integration, the Enraf acquisition for example, this fourth quarter, provided very, very nice results despite the acquisition accounting impacts. So, we look forward to a strong 2008 from ACS on all fronts.

And then, I just wonder, maybe Dave Cote, nice cash flow, I'll give you that for sure.

Just that?

Well, you know, we have got to take it easy here.

What? Is your lawyer sitting next to you?

I am sure he is on the line. Obviously, it looks like you got some real structural improvement in the cash generating capability of the company, and I just wonder about your thoughts to build on it from here. What would be the most likely source of improvement? Would it be, is it in the factories Dave or is it further margin improvement that’s going to give you profitability fall through off revenues? Working capital? What are you most focused on from here that continue to drive cash flow?

Well, it's kind of a comprehensive answer, because there are three things we really drive to make sure that the cash is there. And as I have said many times that both Dave and I have a high appreciation for cash and in the freedom that that gives you and we like a good conversion rate. There are three things that we look at. The first is high quality earnings, because if you have high quality earnings, you tend to have high quality cash. And it's probably the biggest element. High quality earnings do a lot to generate good cash flow. The second item is controlling CapEx. Not controlling it to a point where you disinvest in your businesses, but I call it lining up for the CapEx buffet, which is what business seem to want to do and they all come up with an incredible amount of money that they'd like to spend and interestingly they'll say, hey, the number that we are showing you we've cut back, then we cut it back further, then they don't even spend that much. So, there is a real difference between what's really needed and needed to support growth versus what the overall desires are. And we try to maintain a reinvestment rate on depreciation somewhere in that 1.05 to 1.15 range. Third area, working capital and we really do drive the hell out of that one and it's in our bonus plan, incentive compensation plan as one of the metrics, because not only is it a source of cash, which makes a big difference, you know could be a $200 million or $300 million positive versus negative swing in the course of the year, which is a big deal. But if you are going to reduce working capital and still do a great job with customer service it means that the only way you make that happen is to do a much better job on your operating routines. And we spend a lot of time on whether it's just basic, how do you make sure there are no customer disputes, how do you resolve customer disputes, how do you have a much better integration of the sales inventory and supplier chain. All these things end up collectively making a big difference when it comes to cash, so we will keep pushing on all three, Jeff. There is no magic to it. It's really just a matter of really paying attention.

May be if I could just sneak another quick one in for Dave Anderson. Dave anything else on the below the line items relative to what you laid out in the guidance call, you gave us pension, anything else to move around?

No, not really, Jeff. I think, you know the thing as I mentioned is really more of an '07 reference than '08 as we are particularly pleased to be able to deliver the kind of earnings growth that we did and to be able to fund, in a sense pre-fund the repositioning that we did for fourth quarter of this year and for full year this year. The numbers that we're looking at for next year in terms of repositioning, as well as pension are all pretty much consistent with what we’ve given you. There is the opportunity given the favorability that we have, intention to also continue to look at if things unfold as per plan to look at also repositioning opportunities in 2008, ahead or above the $100 million kind of holding number that we have in their, replace order that we have in their for repositioning for '08. So, I wouldn't be surprised if we in fact fund more than a $100 million in '08 of repositioning.

And Jeff, one of the nice things about having high quality earnings and a strong cash always is it gives us that flexibility to be able to do that, because if you have the earnings you can do it, if you don't you can't.

Right. Okay, thanks guys.

You're welcome.

Your next question will be from Scott Davis of Morgan Stanley.

Good morning guys.

Hey, Scott.

Instead of saying good quarter, maybe we'll do it on code and say lousy quarter, horrible year and poor performance, and today is opposite there, something I don't know what is there, but lawyers have taken the fun out of the job. I got a couple of follow-on questions when I look at TS and you think in terms of revenues being up $417 million, profits up just $9 million for the year and I know a big part of that revenue jump is currency. But how do you really -- I would call that somewhat disappointing, do you think in terms of how much of this is mix issue or you've gone from big turbo to smaller turbo for cars, how much of this investments you had to make for new platforms, how much of it is just that things like Bendix are still broking, and how do you fix it. How do you we look into 2008 as the only comfort level that you are not going to have a similar margin decline with revenues up?

Yes. Scott first of all maybe the best way to say it is, I think one of the advantages of having a strong multiple stream like Honeywell is, that when business has a lot of opportunity but is going to have to invest in order do it, we are able to support that. So that's actually I think a good sign for us overall. When we look at what the cause was for '07 and why it get better in '08 and beyond, there is two big drivers. The first is that over the last two year we won a lot of platforms, in fact we won two-thirds of all worldwide orders for Turbo's, large, small, gas, diesel two-thirds of everything worldwide. When you win all that, it's kind of like the dog finally catches the bus he has been chasing. That's what happened to us. So we've had to really spend the money to make sure that we have perfect launches here. We want to do a great job for our customers and we said if that's a hit, then we are willing to take. Because as you get into the second half of '08 on into '09, '10, '11, '12, it looks marvelous, I mean really good. That’s the advantage of having a multi-industry is, that's performing well on a number of fronts as it gave us the flexibility and the money to be able to do that, that's the first one; and that's all good. The second one is I'd have to say, we just didn't do a good job in CPG. We did not execute well. Fortunately, it's only about 3% or 4% of our total sales on a total company basis, but quite honestly, we just didn't do as good a job. It's a tougher market, that's true, but we didn't execute as well as we could. We've got new leadership in there. They are looking at things differently, and as Dave pointed out, we are pretty confident that you'll start to see improvement there in '08. So it's not going to go down, it's going to go up. So, the big driver is that we are investing for the future and you'll start to see that future materialize in the second half of this year. And then the second one is, the second issue is really one that's within our daily control Dave anything you want to add?

No, I think that covers it.

And when you think about ACS and as you've mentioned, certainly we've seen some weaker macro indicators, but you haven't seen it in your numbers and when you see your orders up 30%, that’s really quite an amazing number. We've seen strength from other companies like Tyco & Security and other firms who sell into environmental controls and these verticals. Is there a sense out there amongst your sales force or leadership team that, some of these energy efficiency teams and security teams are out there really having a huge impact and buffering the decline that we're seeing, I don’t know [exactly] but maybe some of the data in commercial alone next year? How do you tangibly put your hands on that, so you can plan for - I mean if you're planning for a weaker environment yet maybe these businesses actually remain reasonably strong in 2008, so you need to plan for capacity, as such. How does your management think about that?

Well, it's interesting. Those macro trends that you mentioned, first of all have been there from beginning. And I think it does help, although I wouldn’t say that we're seeing in '08 something that’s different in '07 in terms of the height in that macro trend. I would say though that, Roger Fradin is actually meeting with each of his businesses sales forces this week. So, they have their annual kick off, they bring the entire worldwide sales force together. And I talked to him yesterday afternoon and asked, what was the mood out there, what were the sales guys seeing? And to a person they are all pretty bullish about what they see out there. They don’t see any diminution in demand, they don’t see the all the stuff we are reading about in the paper. So far, they don’t feel it, at least with the products and services we sell. Whether that’s driven by those macro trends that continued share gain, just good overall demand, I am not sure, but certainly things still feel funny.

And just lastly on the currency, huge tailwind and I know you folks don’t edge and so, its even better tailwind on the translation. Is there another impact that you are seeing with the currency that your, is helping you get price out there or gain share above and beyond just the translation effect?

Not so much. We could say, I'd have to take a look at how much the export benefits might be, but it's not that bigger deal generally because we tend to manufacture and sell in the same locations or our cost of sales tend to be in the same currency. I would say what you are seeing is really more of the translation benefit. Dave anything you want to add.

Maybe some of that benefits to Aero there, [pretty much] certainly impacting and we are seeing that in terms of just pick up of interest activity, bid proposal activity outside the US. So I think that is probably a net benefit for our aero business?

Yeah.

Okay. I appreciate it. A fine year, fellows.

Thanks, Scott.

Thanks. Nice to hear it.

The next question will be from Shannon O'Callaghan with Lehman Brothers Shannon O'Callaghan: Good morning, guys.

Hey, Shannon. Shannon O'Callaghan: Just a couple of question on the comment you made around the initiatives. Dave, you made this point of a difference between initiating HOS and actually getting some progress on it. Can you talk about where that is, and when did this really start to stick, and how early on are we in that process?

I would say we are in the second inning of our nine inning game, when it comes to how far we have gone and how much upside there still is available when you get to HOS, because HOS is not something that’s just implemented and then you are done. Because once you've got it implemented, that’s really the beginning. And the thing I really like about it and that a company like Toyota has done marvelously, Shannon is; the idea of you have it in, when you make an improvement, the improvement is permanent. And too often in plants it's really interesting. You go around the world and you find people fixing the same thing that they fix two or three years ago, because of management change. So the thing I like about HOS is, where we have implemented it, you don’t see 2% and 3% improvements, you see 10%, 15%, 20% improvements, like a step change and that step change becomes permanent and that’s very nice and you see that in the 50% of operations that we have put it into. But this is all upside for us for a long time to come, and it is one of the things that I am particularly encouraged about with HOS. Did that answer your question? Shannon O'Callaghan: Yeah. And I guess it would seem that even in the 50% you roll that out, I mean typically these things, to get it really optimize is a long sort of never ending process or it would seem that even in those 50 there is a lot more to do it right?

There absolutely is, because like whenever you are trying to do something new, it's easy to do the announcement, it's much tougher to actually get the headset and cultural change that you need to sustain something like this. And we've paid a lot of attention to making sure that we get that right that we had a template that worked. We piloted this thing. I'd say we had three different ways of piloting as we further refined and made sure we understood how it worked. And I think we've really got something here and it’s going to last. And the nice thing about it is, is the improvement. So we'll see those step change improvements coming in over the next three, four, five years and then you have got that sustainable platform which just looks great for a long time. So, I'm really quite enthused about this one, on what it can do for us.

And Shannon both 50% are just in implementation phase, they are not completed with HOS. So there's only a handful that actually are sort of out of the process for implementation. So there's a lot of sort of room there. Shannon O'Callaghan: Okay, great. And then just on velocity product development not something that we've really talked a lot about it. You mentioned all the launches and new products in ACS. Can you talk about how you are seeing that impact the businesses across the portfolio; I know you've seen it show up in share gain or a difference in your reputation with customers?

Yeah, actually you see it on all the things you just talked about and in all the businesses. It's interesting that from the point that you announced that you are going to have a new product and service focus to the point where you actually start to see it in sales I would say is in the three to five year range. And if you're talking about aero, you could be 10 years, before you see it. But, that been said you have to do it, it's an important thing to get going. We had a pretty empty pipeline, if you go back five or six years ago. And we’ve spent the time and the money to make sure we understood our markets and then had a very focused plan in every business to make it go forward. Now I would ACS, I think has done it particularly well. But each of the businesses has had its focus and has got something to show for it. And you do end up seeing it in the organic growth, that's one of the big drivers of organic growth over time. And if once you get the pipeline going, its easier to keep it sustain, because it's exciting for people to do. There are no longer victims, there are no longer complaining that they don't have the product to go to market, it really become success, it's an area where success breed success. So, you see it in every business and you see it not just in share gain, but you'll find them starting to come up with products that for which there really wasn’t a market for before and these guys are coming up things that just didn’t exist perform, nobody even realized they had a need, once you develop it they realize they do. And you end up creating markets and of course then you have a 100% of that market. And it's really quite clever and actually we're looking forward to talking about some of this on the 25th and going through some of it, because it really is quite good. Shannon O'Callaghan: Okay, great. Thanks a lot. Nice job guys.

Thanks Shannon.

Your next question will be from Howard Rubel with Jefferies.

Thank you very much and just a couple of things, first a follow on the VPD development issues there is a couple of big aerospace awards in the pipeline more on the A350 XWB, and then Cessna with either avionics or engines on the new wide-body they are coming up with, how do you think you stand on some of those?

I have to get back to you on that one Howard. And the last thing I would have to do is forecast where would come on the bid.

I understand.

And my guess is our customers wouldn't care for us to even be there.

Or can you kind of give us the sense of some of the additional aerospace opportunities in the broader sense, Dave of what you are seeing?

Yeah I would say you are probably more or likely to see opportunity on the biz jet side. There are still a number of platforms that are being considered and thought about and I would say less so on the commercial side, the big commercial side.

I think that’s fair. And then...

I mean I like you Howard, but I can't answer all these questions.

Well you know you set standards that are high and every year you want your businesses to improve, so I figured a little bit of push back isn't at all bad. Can you give us the sense of the split between process and the buildings solutions mix and what do you see in terms of the refinery demand going forward?

I think first, I don't think we disclosed that split, but when it comes to our refinery demand we are still seeing that pretty strong, in fact they are very strong for couple of reasons, the first is capacity utilization around the world they are still pretty high. So, there is still a need for overall refining capacity. The other reason is that there is a shift, it's not a huge shift but its starting and small shifts make a big difference here, towards processing heavier crude. And not all refineries have the same capability there and they would all like it. So, I would say those two, and probably, a third one you might argue is the -- as there is a shift to more dieselization in economies like China, India and Europe, that you're starting to see the need for more diesel as oppose to gasoline. So, all of those things kind of push the demand for more and better refineries.

And then last, in terms of markets outside the United States, I mean granted, does seems to be a lot more focused, you know the concern seems to be a lot more U.S. focused. Could you touch on a little bit some of the emerging markets and what the feedback is there?

Same thing. It's the same thing, as I was saying before is that, everybody reads the press and wonders "jeez they are going to get here", but so far if you look at, what we define as are big emerging markets: India, China and the Middle East and I know Middle East, you might not think of it that way, but there is a lot of money there and lot of construction. Everything still looks pretty fine. I can say we've seen any slacking there. Dave, anything you want to add?

No. I would just say to that point, when you look at the fourth quarter it really continued that trend of what we've seen previously, which is sort of the mid-single digits on Americas and on a reported basis, obviously, because of currency stronger than EMEA, but even on a currency adjusted basis stronger than the Americas and then very good growth in AsiaPac. So, Dave to your point, AsiaPac really for us, from a reporting standpoint, includes both China and India. So, we continue to see very robust revenue growth in those markets.

Yeah. Thanks

I think we have time for one more question. Regina.

Thanks Howard.

Our last question will be from Nigel Coe with Swiss Bank. Nigel Coe : Thanks for taking me in there, that’s great.

Hey, Nigel. Nigel Coe : Hi. Today, just want to pickup on your comments on repositioning, it sounds the like the model is going to be up side pension of FX, whoever else, fit step goes on repositioning before raising EPS guidance. Is that a fair calculation?

Nigel, this is Dave Anderson. I don’t think so. I think when we think about our ability to fund the acquisitions, if that’s the question if I am hearing you correctly. Nigel Coe : No, repositioning.

It's repositioning, I am sorry, the ability to fund repositioning. Its really going to be dependent upon really two things, one is obviously the, what we see in terms of earning performance as we actually get results and begin the year. Our expectation is that, we’re looking at, I mentioned earlier very strong first quarter of the year and we think that’s going to give us the capacity to fund. We continue to fund repositioning for 2008 and obviously, the benefit of getting it out early, means the sooner we can execute and accrue and get the actions underway, the earlier we get the benefit, the operating income benefit. So, we will just continue to operate under that mode. And as I mentioned earlier, the pension improvement does provide some capacity for some potential increase against previous guidance that we've given you on repositioning. But that’s really subject to our actual business performance. Nigel Coe : Okay. And then when you look at, the additional spending. Where do you see the bulk of your spending is in, it looks like ACS has taken the bulk of, the majority of the spent in 2007. Will that continue in 2008, within ACS? And what kind of payback do you see right now from the spent because I think we see you spending about $200 million in total.

Yeah. It's about $200 million in total. You are right in terms of 2007, significant portion of that was ACS related. I think we see, it's very much business specific and opportunity specific. So, I think it is difficult to predict the mix that we might have in terms of repositioning for 2008. Payback, as you know, the real focus for us is on managing our global census. A high percentage of what you see in terms of what we take for repositioning is related to a census or sub-census reduction. Therefore there is pretty fast data, very, very quick in the U.S., little longer obviously in Europe just given the nature of laws and regulations and work standards in Europe. But, in general when you think about it in terms of being people, anywhere between a year and a year and a half on average, it is pretty reasonable in terms of what we are looking at in terms of operating income benefit. Nigel Coe : Okay. And then just one final quick one. Looks like UOP has got another strong quarter in 1Q08. The U.S. refiners, they are under a bit of margin pressure right now. I know the bulk of UOP is global rather than US, but are you seeing any change in behavior from the refiners, how they defer in large projects, are they bringing forward maintenance spend. Any break in that behavior there?

No. Not so far. They all still have, they go back to the dynamics we talked about earlier, those are all still true for them also. Nigel Coe : Okay. Thanks.

Thanks, Nigel. Dave, any final comments?

Yeah. We know the world is watching us this year to see if this performance that we have demonstrated for the last five years really is sustainable when times get tougher. In other words, is it for real? We have already committed to outperform our peers this year with that 16% to 21% EPS growth rate, in the guidance that we've already given. We will outperform. And we are confident of our guidance. And we are hopeful that, that kind of out performance in an economically more difficult year will finally convince everyone that we are for real. We have a great company. And we are going to do well. And we look forward to telling you about it all here. Thanks.

Thanks Dave. I look forward to seeing you in New York City on February 25th. Thanks for joining us today.

This concludes today's conference. Thank you for participating, you may now disconnect.