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

Jeff Sprague - Citi John Inch – Merrill Lynch Shannon O’Callaghan - Lehman Brothers Scott Davis - Morgan Stanley Howard Rubel - Jefferies Deane Dray - Goldman Sachs

I would like to welcome everyone to the Honeywell Q2 2008 Earnings Call. (Operator Instructions) I’ll now turn the call over to Murray Grainger.

Good morning and welcome to Honeywell’s Q2 2008 earnings conference call. With me here today, our 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 second quarter and expectations for the remainder of the year and, of course, allow time for your questions. With that, I’ll turn the call over to Dave Cote.

Thanks, Murray. Good morning, everyone. I’m very pleased to report another quarter of strong results for Honeywell. Sales were up 13% to $9.7 billion with growth across all businesses and regions, and that includes constant currency organic growth of 6%. Segment profit grew 13% to approximately $1.3 billion, generating margins in the quarter of 13.2%. Net income growth of 18% combined with a lower share count for the quarter versus prior year, resulted in a 23% increase in EPS to $0.96 per share. This is $0.02 above the high end of our previous earnings guidance and it includes over $60 million of new repositioning actions in the quarter. This brings our total repositioning spend to over $160 million so far in 2008, and approximately $350 million over the past six quarters. This restructuring really improves our position to deliver in ‘09 and ‘10. Even with these investments, we delivered reported EPS growth of 23% in the second quarter. Free cash flow came in at $853 million, an impressive 118% conversion to net income, and year-to-date free cash flow is up 11%. We’re very pleased with our second quarter performance and remain confident in our outlook for the year, despite a tougher economic environment. We are raising both our sales and EPS guidance for the full year and now expect EPS to be in the range of $3.75 to $3.85 for 2008. That’s an impressive 19% to 22% increase over last year. So overall, another great quarter of financial performance for Honeywell, as we continue to deliver on our commitments. Now let’s spend a few minutes updating you on some of the highlights for the quarter and reinforce some of the key themes that we believe have Honeywell well-positioned for continued performance in the future. First, we continue to benefit from our strong and increasing global presence, and especially our great positions in emerging regions. All geographies experienced organic growth in the quarter, with Asia and the Middle East continuing to lead the way with healthy double-digit growth rates. Second, our great positions in good industries are allowing us to gain share in key markets. Take for example our environmental & combustion controls business, which serves the residential segment primarily in the U.S. and Europe. Despite these end markets being down, ECC grew organically in the quarter, reflecting the contribution of new products and the success of our multi-brand, multi-channel strategy. Across our portfolio we continue to be awarded major multi-year contracts and platforms which really reinforces the confidence that our customers have in our technologies, products and solutions and allows us to grow faster than the markets in which we serve. Third, we are well-positioned to execute and deliver results in a tougher economic environment. The key macro drivers of our businesses -- safety, security, energy efficiency, energy generation -- all remain favorable. Additionally, the restructuring we have launched positions us very well. Next, our diversification between businesses and within each business provides a stable platform for growth. In our aerospace segment, we have a large and stable defense business; an increasingly global business jet franchise in the sweet spot of the medium to long range cabin class; and a commercial air transport business with content across a wide range of platforms all over the world. The breadth of our technologies and applications provides great stability. Our ACS segment has a huge and diversified installed base of products with a multi-brand, multi-channel strategy that is a unique competitive advantage in the marketplace. We have an installed base alone of over $16 billion in process solutions, which continues to grow due to our strong presence in the oil and gas industry. Our specialty materials segment also benefits from heavy investment in refining and petrochemical capacity worldwide. Through UOP, we are at the forefront of delivering solutions for the conversion of heavy crude, cleaning sour gas and the development of next generation renewable fuels like green diesel. Our resins and chemicals business -- once vulnerable to commodity cost increases, as I’m sure you remember -- is now insulated by formula-based pricing which protects our bottom line. This strength allows us to invest in attractive new diesel and gasoline turbo platforms at transportation systems, supporting growth in ‘09 and beyond despite the current headwinds in the automotive segment. All of these company advantages are really helping us to deliver in this tough environment while also allowing us to invest in new products and technologies for the future. We continue to effectively manage our portfolio, driving significant shareholder value. We closed Norcross Safety Products in the second quarter and Metrologic Instruments in early July. Metrologic Instruments is a great addition to our handheld platform in the attractive automatic identification and data collection space, and provides us with another great position in a good industry. We also announced the divestiture of our consumables solutions business to BE Aerospace for more than $1 billion. This is a great deal for Honeywell and allows our aerospace business to focus on high value, advanced technologies and integrated solutions for our customers. Finally, we just spent the last week reviewing the strategic plans for each of our businesses, and I have to say that I feel very good about the outlook for our company. Each of our businesses is focused on delivering superior results in this tougher economic environment. We have great positions in good industries. Our internal initiatives, such as HOS (Honeywell Operating System), FT, (Functional Transformation) and VPD, (Velocity Product Development) are really making a difference, and we are executing. I continue to feel confident in our ability to deliver double-digit earnings growth and 100% free cash flow conversions. So with that summary, let me now turn the call over to Dave to go through the financials in detail for the quarter and our outlook for the year.

Thanks, Dave, great set-up. Turning now to slide number 4, let me just take you through, as Dave said, some of the details. I’ll also talk about the outlook for Q3, the revised guidance for the full year and also the consumables solutions sale, which we anticipate closing in the third quarter. Turning to slide 4 you can see sales again were up 13%, including a 4 point benefit from acquisitions and a 3 point benefit from foreign exchange. We saw organic growth across all regions. This was consistent with what we saw in the first quarter and again underscores the strength of our positions and the diversity of the portfolio, as Dave said. We continue to benefit from global reach. More than 70% of the revenue growth in the quarter coming from outside the United States. Sales came in around $500 million better than we had anticipated and guided, driven by foreign exchange benefit of about $200 million; strength in aerospace which contributed about $100 million incrementally; the contribution of Norcross also adding about $100 million; and then the impact of raw material passthroughs, especially in the materials. I’ll talk more about that as we get into that segment, also translating to about $100 million of incremental revenue in the quarter. The segment profit was up $144 million or 13% versus last year. Segment margin climbed 10 basis points to 13.2%, primarily related to the dilutive impact of acquisitions and again, the dollar for dollar passthrough on formula pricing of raw materials. Excluding these impacts, segment margins for total HON would have been up 30 basis points in the quarter. Net income, up 18% second quarter, favorable segment profit and pension expense partially offset by repositioning, as Dave mentioned, $62 million in the quarter. We continue to take the opportunity to execute on these attractive projects, which will benefit us somewhat in the latter part of this year, but significantly in ‘09 and beyond. Strong profit performance as well as lower share count drove earnings per share up an impressive 23% to $0.96 in the quarter, $0.02 above the high end of our range that we previously communicated to you and include roughly $0.06 of repositioning actions. So in a tougher environment we continue to execute well and position ourselves for the future. We also, as Dave said, remain confident in the outlook for ‘08, raising our EPS guidance to $3.75 to $3.85 for the full year. I’m going to take you through the highlights of that on a business by business basis in just a moment. Again, as usual, our reforecast is based on a detailed bottom-up analysis in addition to that strategic planning reference that Dave made, we’ve also completed a thorough bottom-up review of each of our businesses in terms of their outlook for the remainder of ‘08. Free cash flow at $853 million was up 4% last year, an impressive 118% conversion and year-to-date up 11%. Working capital turns continue to improve and are up 0.2 turns again in the quarter, which is really particularly impressive when you consider the impact of the acquisitions, the receivables that we took on and the timing related to acquisitions. We’ll see that in terms of the benefit in terms of cash flow in the second half of the year. So in summary, another strong quarter with good execution across the portfolio. I’d like to now take you through each of the business segments, starting with aerospace on slide 5. Now as you can see from the upper left-hand portion of slide 5, aero had a very strong quarter with segment sales up 8%, segment profit up 15%, margins up an impressive 100 basis points to 18.3%. I want to give you some color on this and actually on the next slide also go through a little detail in terms of the outlook for aerospace. But first let’s just go through slide 5 and hit some of the highlights. Commercial air transport and regional sales were up 7% in the quarter. The ATR OE sales were up 8%, driven obviously by strong build rates at Boeing, Airbus as well as Embraer. Commercial air transport after-market sales were up 6%, in line with our expectations and in line with global flying hours which were up 5.5% in the quarter. Year-to-date air transport and regional aftermarket contract wins totaled more than $2 billion, including a great win in the quarter with Southwest Airlines to provide aftermarket maintenance services on their entire fleet of Boeing 737s for the next ten years. We’re clearly winning in the marketplace which is clearly supporting the confidence that we have in the outlook for this business. Total business and general aviation sales, as you can see, were up 6% in the quarter. OE sales were up 3%, mainly due to timing of shipments as a result of some delays in terms of supplier and component deliveries. We expect these sales to recover and be relatively robust in the second half of the year. The outlook for business jets continues to remain strong, supported by the increasingly global nature of the industry and strong order rates, which grew more than 40% according to the latest quarterly data. New platforms, such as the Gulfstream 650 and the Embraer MSJ/MLJ where we’ve won more than $25 billion worth of content, continue to gain positive customer acceptance and we think will be significant drivers for this business over the long term. Now, BGA aftermarket sales were up a strong 8% in the quarter, driven by increased revenues under maintenance service agreements, higher flight hours and also the sale of spares. As you know, more than 60% of our business jet sales are mechanical products and with over 15,000 jets now in operation across the industry, and by the way growing at a rate of about 1,000 annually, global flight hours continue to grow and order rates remain robust. We also saw strong sales of our avionics products in the quarter, particularly Synthetic Vision, which is gaining broader customer acceptance and frankly stands to revolutionize the business jet cockpit. On defense and space, not to forget about defense and space, up 11% in the quarter, including a 4 point impact from Dimensions International and strong performance in surface systems with the Tiger program and Space with Orion. Now on the margin side, Aero turned in a strong performance, 100 basis points of improvement. Price and productivity gains more than offset inflation in the quarter. For the full year of 2008, we’re reaffirming our aerospace sales in the range of $12.8 billion to $13 billion, up 5% to 7% despite the divestiture of the consumables solutions business, which we expect to close sometime here in the third quarter. Assuming that third quarter close, that will have about a $200 million sales impact or drain headwind to us relative to continuing operations. We expect margins in aero will be at the high end of the 18.7% to 19% range that we communicated previously. Now before we go to ACS, as I said, I think given all the news around the aerospace segment lately and all the headlines it’d be helpful to frame that discussion. Let’s go to slide 6 entitled Aerospace Outlook Update. First, with respect to commercial air transport, which is around 40% or $4.8 billion of our sales on the OE side, which is around $2 billion in revenues, we see continued strong demand for deliveries, particularly in international markets. Of the more than 7,000 aircraft, or roughly six to seven years of production currently in backlog, more than 85% are slated for delivery outside the United States. To date, approximately 1% of this backlog has been deferred by airlines and we’ve seen international carriers and leasing companies quickly fill these slots. Now we fully expect there to be further deferrals or potentially even cancellations during the cycle, however we are still confident we’ll still see multiple years of strong deliveries ahead in this business. Frankly, the biggest challenge, and I’ve had the opportunity and Dave’s had the opportunity to talk to a number of you about this on the OE side is not demand, but frankly managing the unprecedented level of backlog and managing the R&D resources given the rich pipeline of opportunities that we have in this business. Now on the aftermarket side of air transport, which is about $3 billion in revenues, the expectation for growth in global flight hours for ‘08 is now around 4%, down not quite 1 point from the estimate that we presented in our 2008 outlook last December. It does not materially impact our outlook for the year. It does not change the fundamentals relative to the strength that we continue to see in terms of the aftermarket. Based on our current outlook, we expect flight hour growth to exit ‘08 in the range of 1% to 2% and at this time, based upon the announcements that we’ve seen, to continue at this level into the first half of ‘09 before potentially increasing in the second half. We continue to believe that international demand, which is roughly 85% of total flight hours, will continue to drive the industry and that the announced capacity reductions at legacy U.S. carriers -- while an important data point -- represent really just a small percentage of the total global flying hours. Moving to BGA, accounts for around 20% or $2.8 billion of our total aerospace sales. We continue to, as I said earlier, see robust trends. On the OE side demand remains strong: 4,500 aircraft in backlog, a multi-year backlog and continued, very strong, healthy trends particularly from international markets which account for greater than 60% of all that order activity. You’ll recall that’s a new and important phenomena in terms of the diversity of the customer base and the demand base for business jets. We haven’t seen any signs of deferrals or cancellations in backlog and in the medium to long range platform sweet spot where we play we continue to see robust order and after-market activity. Now our strategy, as you know, in this business has been to target segments in the marketplace such as the medium to long range class of aircraft where we continue to achieve higher utilization rates due to the range, cabin size and overall efficiency characteristics. Finally with respect to defense and space which represents about 40% or around $5.4 billion of total aero sales, that business continues to perform well, in line with defense budget growth and we anticipate that growth will continue at consistent single-digit rates on average, with stable, attractive returns. You know that we’ve not materially benefited from the supplementals tied to the Iraqi conflict and other expenditures so we don’t expect to be negatively impacted by any significant reduction in military activities there. On the other side of the coin, we believe we’re well positioned on the reset side due to the increased presence through Dimensions International and we’re set to benefit as the armed forces look to rebuild and reset their capabilities. So overall we continue to feel good about the outlook at aerospace. We see continued strong trends in commercial air transport, business jet, OE. We had already anticipated some slowing in the air transport aftermarket segment. The bottom line, we are confident we’re going to achieve, continue to deliver, very attractive earnings growth and margin expansion in aero despite this selective slowing. With that, let’s now go to slide 7 and cover ACS for the quarter. Sales were up for ACS at 19%, including 10 points from acquisitions, 5 points from foreign exchange. By the way, it represents ACS’s 13th consecutive quarter of double-digit revenue growth. We saw good growth across both our products and solutions businesses in the quarter and orders trends continue to be positive across both businesses. Let me give you some color on each of these. The products businesses of ACS were up 22%, driven by the benefits from Norcross, handheld and Maxon acquisitions, as well as good growth at life safety and environmental and combustion controls. We saw significant growth in China, India and the Middle East in the quarter. We continue to benefit from the investments we’re making in these emerging regions. We did see softness in North America in residential markets, but that’s a trend that’s continued, it is not news. Our environment and combustion controls business grew organically in both North America and Europe, indicating continued market share gain in their segments. The solutions businesses were up 15% in the quarter. The process business, as Dave said with its focus on the oil and gas and refining petrochemical segments, was particularly strong; double-digit organic growth in the Americas and the Enraf acquisition in Europe is performing ahead of plan. The building solutions business saw continued growth in North America and Asia and a return to solid growth in Europe. Order rates continue to be strong. The solutions business’ orders were up 12% in the quarter. Importantly, the service backlog also grew in the quarter, reflecting continued strength in the aftermarket piece of the business. Now when you adjust for acquisitions and foreign exchange, overall ACS sales were up low single-digits in North America and Europe and over 20% in the emerging regions. ACS’ segment profit was up 17%, representing a 20 basis points decrease in margin to 10.8%. Importantly, if you exclude the impact of acquisitions, ACS margins were actually up 10 basis points in the quarter. So overall a good quarter for ACS despite some selective slowing, continued slower growth in the U.S. and European segments, however very good order trends that continue to support the strong outlook we feel we have for the business. Now for the full year 2008, we’re raising our revenue guidance for ACS by approximately $500 million to a range of $14.3 billion to $14.5 billion, reflecting our strong second quarter performance, the impact of the Metrologic acquisition and also foreign exchange. Due to these dilutive impacts of the costs associated with the acquisitions and foreign exchange, we expect segment margins for ACS to be in the range of 11.1% to 11.4% for the full year. Let’s now turn to slide 8, transportation systems. As you can see overall TS sales were up 6% in the quarter, and driven entirely in this case by foreign exchange impact. Foreign exchange gave us a benefit of 10% in the quarter. Let me go through some of the details there and explain that. At turbo, which reported revenue growth of 7%, we saw growth in the commercial vehicle segment and we continue to focus on and invest in platform launches in both our PV, our passenger vehicle, and CV, the commercial vehicle businesses. Volumes were down in PV as we saw continued softness in the European production rates in the quarter, as consumers shifted towards lower-displacement engines as well as slower growth in diesel penetration due to the recent spike in diesel prices at the pump. This has occurred in Europe as well as in the U.S. We also continue to see select European OEs delay platform launches until 2009 to coincide with the new Euro 5 standards in September. Now, we remain bullish on the long-term outlook for turbo. However, we see some short-term limits on its growth as OEs delay new platforms into late 2009 due to the soft European economy and also lower consumer spending. We’re well-positioned, as you know, on both new gas and diesel platforms in this business and across all displacements, from micro, literally, to large engines and we’re focused on flawlessly bringing these new platforms, new launches to market. We continue to feel very good about the macro drivers for turbo, with energy efficiency and lower emissions standards driving global growth in the business over the long term. In CPG, the consumer products business, we continue to face headwinds in the U.S. automotive aftermarket. Volumes were down in car care and filtration as high prices and lower consumer confidence continued to weigh on discretionary spending in the DIY aftermarket channel. We do, however, expect some recovery in our results in the second half of ‘08 and in fact we saw some of that in June just in terms of strengthening in terms of consumer. In friction materials sales grew 17%, primarily due to the impact of foreign exchange and also strength of demand in Europe. Segment profit for TS in the quarter was down 5%. Margins were down 130 basis points to 11.2% resulting from CPG volume declines, inflation, and also the continued investments we’re making in product development to support future Turbo platforms. For the full year, we’re maintaining sales guidance for transportation at $5.1 billion to $5.2 billion up 1% to 3%. However, we’re lowering our expectations for margin by 40 basis points and we now expect TS in the range of 11.2% to 11.5%. Now let’s go to slide 9 and talk about the strong top line that specialty materials experienced and their performance in the quarter. As you can see for SM, sales were up 19% driven by growth across all of their businesses. UOP grew sales 27% compared to the prior year. However, as we discussed previously, the mix at UOP was an impact in the quarter with licensing down more than 30% due to timing, offset by stronger than anticipated catalyst sales in the second quarter. Now UOP continues to experience strong demand for its proprietary technologies and products. Obviously we’ve seen again a robust performance in the refining and petrochemical markets. We also saw growth across all of specialty materials’ other businesses, with resins, chemicals up 30% driven by continued global demand for caprolactam but also importantly the impact of higher raw material costs on formula-based pricing. Fluorine products was up 10% in the quarter, primarily due to favorable pricing actions. Overall, more than $100 million of the sales growth at SM in 2Q was due to increase in raw material costs such as sulfur, natural gas, and phenol. But as you know, these increases are primarily passed through via formula pricing which has a 1:1 on sales and COGS, therefore preserving the operating income dollars, but dilutive to the margin rate. This effect drove segment profit up only 6% while resulting in 160 basis points contraction in margin rate. We expect this to continue for the full year 2008, Therefore, we’re raising SM sales guidance by $300 million and now we’re expecting revenues in the range of $5.4 billion to $5.5 billion for the full year but we estimate segment margins to be in the 13.3% to 13.6% range, reflecting primarily the flow of higher raw material costs. Now, let’s turn to slide 10 and let me just do a quick recap for 2008. It’s a slide that you’re familiar with. We used this starting last December and then again in February at our investor day and have updated it again this year. Now what we show here obviously is the in-depth, bottom-up assumptions, a summary of those assumptions that we made in our key markets for ‘08 during our planning cycle. As you can see, those assumptions remain largely consistent with our views today. On the slide we’ve highlighted three tweaks to the assumptions. First, continued strong performance at aerospace with a small moderation, as I mentioned, in global flying hours. By the way, we’ve seen stronger than anticipated global flying hours on a year-to-date basis, approximately 6% in the air transport segment. Continued robust demand in emerging markets, as well as growth in energy and efficiency projects, with select softening in developed markets at ACS, that’s a consistent theme. The passenger vehicle performance correlated to the European economy, with diesel penetration trends at lower rates of growth. So we see European auto production now anticipated to be flat for the full year, and European diesel penetration up roughly 1 percentage point. With those select modifications in terms of our assumptions for the full year, let’s now talk about the third quarter on slide 11. If you look at the takeaway, we expect to see sales for the third quarter of about $9.6 billion, up 10% compared to same period last year. EPS we are now expecting to be in the $0.94 to $0.96 range, up approximately 16% to 19% over the prior year. You can see the assumptions that we’ve laid out for each of the businesses. With aero we anticipate to be up approximately 5%, driven by growth across all of its businesses, despite lower flight hour growth of roughly 2% and in line with our assumption for a lower second half and full year rate of around 4%. For ACS, we expect revenues in the third quarter of about $3.8 billion, an increase of 17%, with acquisitions contributing to our top line performance, but again dilutive to our margin rate. In Transportation Systems we anticipate revenues of about $1.2 billion in the third, with similar trends that we saw in the first half. Finally at specialty materials we anticipate revenues of about $1.4 billion, driven primarily by formula pricing of raw materials, which will also have, as we mentioned, a dilutive impact on margin rate. So in summary, the well diversified and balanced portfolio is helping to drive strong results in the quarter and for the full year. Let’s turn to slide 12 and I’ll just summarize then what we see in terms of second half performance. You can see that we’re looking at sales growth of about 8% and EPS growth of 16%. We’ve already discussed, of course, our expectations for the third quarter. For the fourth quarter we anticipate revenues of approximately $9.8 billion and EPS in a range of $1.04, representing the midpoint of our guidance. With that let’s go to slide 13, the 2008 financial summary. We are increasing, as Dave said, our sales guidance for the full year by $800 million to go to $37.6 billion to 38.2 billion, up 9% to 11% versus 2007, again reflecting the strong performance in the second quarter which came in $500 million above our guidance. The contribution of Metrologic, continued favorability in terms of foreign exchange, and again the passthrough of raw material costs, all of these offset by the divestures of the consumables solutions business. We expect margins for the year to be in the 13.6% to 13.9% range, about 10 to 40 basis points increase over ‘07, and really reflecting the impact of acquisitions, foreign exchange which converts at a lower rate and also the passthrough of raw materials, which I mentioned earlier, of course are accretive to sales but dilutive to margins. We are raising our EPS guidance for the year to $3.75 to $3.85, $0.05 higher than our previously communicated range and representing a 19% to 22% increase over 2007. Finally, we’re holding our free cash flow guidance at $3.2 billion to $3.4 billion for the year, which translates to over 100% conversion of net income. Before I summarize and turn it back to Murray and you for Q&A, let me just spend a moment talking about the consumables solutions business. As you know, we announced the sale of this business to B/E Aerospace in June for $1.050 billion. It’s a great transaction for both parties. We expect the deal to close in the third quarter. We’re not including any of the gain in our guidance at this time, but we wanted to take you through some of the preliminary numbers. Now the purchase price yields a pre-tax gain that we estimate to be in the range of $620 million and an after-tax gain of approximately $425 million, with an estimated EPS impact of approximately $0.56. We’re looking at how to use the gain to improve our businesses. We see this, frankly, as a great opportunity to better position ourselves for ‘09 and ‘10. We may therefore see significant reductions in this gain so as I mentioned we’re not including it in our outlook for the full year at this time, but we’ll update you during the third quarter call once the transaction is closed. With that background, let’s go to slide 15 and I’ll summarize quickly before going to Q&A. Again, we feel very good about our performance in the first half of the year. Despite tougher economic conditions we’re executing well. We continue to deliver across the diversified global Honeywell portfolio. We also took this opportunity to launch over $160 million of repositioning projects in the first half as we continue to position ourselves for 2009 and beyond. We continue to benefit, as Dave said, and I thought he discussed very well the benefits of the diversified global portfolio. Despite slowing in some market segments, and again the anticipated slowing and anticipated softer second half for our company we continue to grow organically across all our regions. As a reminder -- and I touched on this very briefly when I gave you that update on market assumptions -- when we built our plan for the year we projected a relatively conservative top line. We anticipated a tougher, lower growth economic environment. With our diverse portfolio, we fully expect some ups and downs in the individual businesses, but overall the portfolio continues to perform exceptionally well. Our planning process is very rigorous. It includes detailed, bottom up as well as top down scenario analysis as well as contingencies across all of our business. That really translates to the confidence that we have for the rest of the year and translates into the increase in EPS guidance that we’ve given you. With that, Murray, let’s turn it over to Q&A.

Thanks, Dave. Christie, please open up the line for questions.

(Operator Instructions) Your first question comes from Jeff Sprague - Citi. Jeff Sprague - Citi: Thanks for all the aero details. If I could drill in for a little bit more color on the aftermarket, I’d appreciate it. Could you give us a little color specifically on the aftermarket? Maybe some color between actual mechanical spares activity versus R&O in terms of the growth you had in the quarter?

Jeff, interestingly they were roughly even in the quarter. We saw actually very good growth when you consider the headlines. We saw mechanical spares up 6% in the quarter, so we continue to see good demand. Also when we look at the backlog, the level of orders that we have relative to our third quarter forecast that we provided you for aerospace, those numbers are in line and strong relative to what we’ve experienced over the last two years. Jeff Sprague - Citi: Are you implying the book-to-bill in spares is north of 1 in Q2?

It’s slightly north of 1. Jeff Sprague - Citi: It’s interesting trying to drill this down to the sensitivity of U.S. carriers and obviously this may spill into a few other random carriers, but do you have a sense of the tempo of aftermarket revenue that an MD-80 or a 737 Classic would generate on an annual basis? A per-ship set, aftermarket revenue tail on an aircraft like that?

I think it’s actually pretty in line with our average across other platforms, Jeff. There aren’t any particular levels above our regular levels across the platforms that we serve. Jeff Sprague - Citi: This CS gain does provide a significant opportunity for restructuring. I’m sure you’ve got to think about what you’re going to do and communicate internally, but that actually seems like a heck of a lot more gain than you could easily use given the pretty active restructuring that you’ve been doing. Are there in fact some really target-rich opportunities or are you guys really stretching to find something to do with that gain?

Well there’s always stuff you can do and we’re in the process of sorting all that out, Jeff. I’d say it’s a little too early for us to declare one way or the other. We’re looking at all kinds of things that might make sense. Jeff Sprague - Citi: Is CPG losing money now?

No.

Your next question comes from John Inch - Merrill Lynch. John Inch - Merrill Lynch: I am a little confused. I thought you were 100% aerospace was going to show no profit this quarter.

I have to admit, I’ve been reading this stuff over the last three or four weeks and I’ve been a little surprised. John Inch - Merrill Lynch: I appreciate the preliminary read into ‘09. I think a lot of us feel pretty good about Honeywell’s near-term strength. The $64,000 question is the sensitivity around some of these variables into ‘09. I’m curious what you see as the prospective risk that perhaps flight hours actually go negative in ‘09? What kind of contingencies does Honeywell have to possibly offset some of that? Jeff mentioned the CS gain. Maybe a little bit more color in terms of how you see the sensitivity around those numbers and how we should think about the outlook?

Well, as I’m sure you’ve heard before, predictions are always difficult, especially about the future. But by and large, we still feel pretty good about our assumptions. You’ve probably noticed what we’ve tried to do over the last five years and are continuing to do is be conservative in our sales assumption for any year that we look at, make sure that we plan our costs accordingly and then basically give ourselves some headroom. So far growth has worked the way we’ve said and even though we’ve planned conservatively it’s worked out for us. The other advantage that we have is all the internal initiatives that we’ve been driving. In other words, there’s a lot of our world that we control ourselves and we’re not just dependant on market forces. You look at HOF, FT, VPD, those just aren’t acronyms we use. We’re actually doing something in all those areas. Those are the sort of things that continue to pay. Along with the repositioning; we’ve been quite active in really thinking through what repositionings are that we can do that are going to benefit us in ‘09 and ‘10, anticipating that if things do get tougher we’ll be in good shape. All those things work for us. It’s really part of a total package that says, how do you plan sales conservatively and then make sure you can still deliver? Dave, is there anything you want to add to that?

I would just reiterate what we said earlier, Dave. It’s the confidence that we have in our ability to deliver very attractive earnings and margin expansion in the aero business in 2009. I think we’ve tested that, we’ve gone through various scenarios and we feel confident in that. John Inch - Merrill Lynch: Maybe then just to switch gears, if you look at some of the non-residential data, it’s suggesting market conditions are getting significantly worse. Can you guys remind us again what your sensitivity is to new construction and how that perhaps gets offset with this whole building efficiency, higher energy demand for a lot of ACS products and how you see the two playing out here?

As you know, John, overall at ACS and I think the same is true for our building solutions business, about one-third of that is new construction, two-thirds is retrofit. Within that new construction bucket there are a lot of things in there. I think the majority of our revenues there come from institutional part sales, government buildings, federal buildings and a lot of energy upgrades. Only around 10% or so of those new construction numbers would be in sort of non-res institutional construction, things like retail. So we feel pretty well-insulated there. Also we have a lot of new construction activity and very, very robust sales and most of that growth is coming from places like the Middle East, China, and India.

Your next question comes from Shannon O’Callaghan - Lehman Brothers. Shannon O’Callaghan - Lehman Brothers: A follow up on the restructuring, We’re looking at about $0.40 of restructuring probably in the last couple years that you’ve done. Now you’ve got this $0.56 gain to offset so if you do a big chunk there plus a little more next year, I mean, we’re starting to talk about some pretty big numbers in terms of the expense line. When you’re talking about ‘09 and the savings flow through, can you scope that a little bit for us and what we might expect to actually see flow through on the savings line?

I think it’s a little early to be doing that. We really don’t get into much of the detail of ‘09, as you know, until we get into December. I would just say that with all the restructuring we have done it’s all been with an eye towards ‘09 and ‘10. Shannon O’Callaghan - Lehman Brothers: In terms of this CS sale, is that the type of divestiture we might see again anywhere in the portfolio? It’s probably not something that a lot of people were keyed in on. Are there things like that that you’re looking at across the portfolio?

Well there’s always stuff at the edges that we’re looking at. As you know we felt very good about all the portfolio repositioning that we did in the first three years, just because there was a lot to do. There’s not a lot to do anymore but that doesn’t mean that there aren’t things that you see on the edges. We felt with consumables solutions that it just didn’t really fit our persona in that aerospace industry, and it fit BE a lot better. I think it’s a win for both sides. I’d say there aren’t a lot of those kinds of things out there. Shannon O’Callaghan - Lehman Brothers: You called out this ECC example being able to grow organically even despite the residential markets. Can you dig in a little more as to what’s enabled that and can we draw anything from that? Do you draw anything from that and your ability to outgrow maybe tougher non-res markets because of new products or things like that? Are you feeling confident in your ability to buck some of these trends that are maybe getting a little worse?

The answer is yes. The color commentary on it is kind of boring because I’ll take you back to what we’ve been saying historically. It’s important to have a robust new product pipeline. There wasn’t much of one awhile back and it takes three to five years of good, constant, relentless effort combining marketing and technology, looking at what might be needed out there and how can you reinvent a category? We took you through some of the ECC examples in the February analyst day and you’re going to continue to see that sort of thing. Velocity product development, filling a product pipeline and making sure that every one of our business segments looks at it that way. It’s really just doing a great job in that basic blocking and tackling, identifying by product segment, by market segment, what customer needs might be and making sure that we actually do it. Kind of a boring answer, but that’s the truth of it. Shannon O’Callaghan - Lehman Brothers: A last one for me is on transportation margins, obviously some tough markets in CPG and things. What are you doing and when do you think you can get the margins to bottom out there and head the other way?

The thing that’s really driving us there is of course the CPG issue, which we have seen some indications of sales turnaround starting in June, as Dave mentioned. The big play there for us is going to be that turbo business. We’ve got a pile of orders and our focus has been on making sure that we invest whatever we need to make sure that those products get launched in the right way. You should start to see a turnaround there as we get towards ‘09 and ‘10.

I think we’re clearly starting to lap softer 2007 quarters in the second half of 2008. The comps will become easier and frankly with some of the expectations we have, particularly for CPG in the second half, not robust but just some stabilization in terms of CPG I think we could see favorability actually on a year-over-year basis as early as the third quarter in terms of the margin rate.

Your next question comes from the line of Scott Davis - Morgan Stanley. Scott Davis - Morgan Stanley: I applaud your presentation, the detail here is very helpful so thank you. Not much to pick on in a quarter like this, I’d just ask again on ACS margins, up 10 basis points, same-store sales margins with positive volumes. A little bit of color, have we hit the wall on Novar margins? Are there mix issues with softness in resi? Anything that can explain some of that flattish margin?

No, just the same things we’ve talked about before. It’s more acquisition impact than anything else and we just have a very rich pipeline there.

You get into FX, you get into raw materials, all of those things sort of play, FX to a big degree, raw materials to a lesser degree as we talked about in terms of the formula price, specialty materials. But those things affect margin rate as well. Just overall I think what we’re seeing is the underlying strength, continued good organic growth combined with good order rates. So overall, Scott, I think we’re just really, really pleased with the ACS performance, as well as the ACS outlook.

Those acquisitions are really the sort of thing that position us well for ‘09 and ‘10 because if you recall just about any acquisition you do is dilutive in the first year. Our model is it needs to be accretive in the second year. This is really another thing that helps to position us for next year and beyond. Scott Davis - Morgan Stanley: Right, it makes sense. I’m just always trying to figure out what the real margins are here. One question I’ve never asked in the past is, what do these margins look like if you back out the distribution business, which naturally has pretty low margins?

They’re better. Scott Davis - Morgan Stanley: You are not going to give me a number?

I don’t think we provide that kind of data, Scott. But nice try. Scott Davis - Morgan Stanley: All right, I’m fishing. Last question. I know, at least from your filings, it looks like you’re about 95% FIFO accounting. That argues that maybe you have additional price/cost headwinds ahead of you. What does that mean for your pricing? Does it give you a challenge for 3Q when you think about the huge raw material hits we took in May and June or are you already ahead of that on pricing?

I think we feel good about the pricing, Scott. The pricing relationship to raw material inflation, that continues to be something that is frankly a positive for the company in terms of the way that we’re managing through that. It varies, obviously, by business segment but overall is a positive for us. As you know, we’ve invested a significant amount as Dave mentioned earlier, not only in the new product pipeline and delivery and quality. We’ve also invested a lot in terms of just the transaction pricing capability, building the systems, the analytics, etc. It’s something we’ve been on top of. We’ve also, as you know, been on top of procurement strategies. Really for the last two years have been, we think, building capability in terms of managing the raw material spikes that we’ve been experiencing. So it’s sort of in the margin rates as we talk about it because we’re seeing the passthrough, the flowthrough if you will on the revenue side on the pricing, we are also seeing obviously on the cost side the flowthrough of the impact, the higher raw material costs so it’s affecting margin rate. The important thing is we’re delivering and growing our earnings substantially.

A big chunk of the inflation is in the resins and chemicals business which is 100% passthrough on formula pricing. Scott Davis - Morgan Stanley: Now, is that passthrough based on the FIFO accounting or are you getting a benefit from that with price going up ahead of your inventory cost?

The way I’d state it is it’s passthrough based upon income maintained and whatever costs we’re incurring are fully passed through.

That is within the current period -- either [inaudible] the benefit or cost for future periods is essentially with the inventory build up, Scott. Scott Davis - Morgan Stanley: So your turns are fast enough where it doesn’t matter, is that what you’re saying?

Turns are fast enough. Very, very fast in that business.

Your next question comes from Howard Rubel - Jefferies. Howard Rubel - Jefferies: Dave, clearly the world’s changed a little bit. Could you talk a little bit about your visibility in some of your businesses and what some of the commentary you got back from your business managers? You sat down and did a look ahead for the balance of the year, I know you gave us some numbers but what was the pushback from your managers when you said it was a tougher market and be prepared? What were sort of some of the marching orders that you asked them to come back to you with?

The story’s pretty consistent with what we’ve been saying for probably the past year-and-a-half now. ‘07 didn’t turn out as difficult as we had thought it might but for ‘07 and ‘08, despite how order trends may look at the time, we ask everybody to look at it assuming that it’s tougher, and despite how well things may be going assume that it’s going to be worse and how do you plan accordingly? So it comes to the same things that we’ve talked about before: being careful on hiring, making sure that we keep our costs in line, having spending that is geared towards actual sales performance, so you wait until the sales are there before you actually launch some of the programs. It’s a simple premise but it does work, is just to assume that sales are going to be on the low side and plan your costs accordingly. It really is, I’d say, as simple as that. Dave, is there anything else?

As we’ve talked about previously, also have contingencies for each of our businesses.

It’s a good point that Dave makes is that we ask each business, they have a plan but that plan is not based on 100% everything goes well, it’s sunny 365 days straight. You have a plan, you have some room within your plan to ensure that you can cover the things that don’t go as well as you might expect. I think that’s just sound planning practices that we’ve used from the beginning. Howard Rubel - Jefferies: One example of that is that even though you sell the consumables business you end up making your revenue target in aero anyhow so there was really a couple hundred million dollars of upside that we end up seeing that’ll show up in the second half?

Correct.

That’s exactly right, Howard. Howard Rubel - Jefferies: I don’t think you bought any stock back in the quarter. What are you thinking about in terms of your balance sheet? I mean, consumables sale helps a little bit. Just give us a little color on your thought process there.

Just a comment and I’ll turn it over to Dave. We’re still believers in a strong balance sheet supported by strong cash flow, and you’ve seen us really turn that cash flow story around. That’s not going to change for us. We’re always looking at opportunities for how can we improve the return to the shareowners and that includes repurchases, acquisitions, which has a good pipeline now also. So we have a good balance sheet and we want to keep it that way.

Your next question comes from Nigel Coe - Deutsche Bank. Nigel Coe - Deutsche Bank: I just want to pick up on a couple of previous threads. First of all on the margins, obviously we saw a lot of the growth coming from emerging regions. Is that creating a headwind on the margin or is it roughly equivalent to what you’ve seen in the U.S. and Europe at the margin line?

No, it is good stuff. Nigel Coe - Deutsche Bank: So there’s no dilution from that growth?

No. Nigel Coe - Deutsche Bank: Again on ACS, obviously there’s a lot of activity on building efficiency audits, efficiency upgrades within buildings. Are you seeing that impact within your solutions and controls businesses?

I’m not sure I followed the question, Nigel. Nigel Coe - Deutsche Bank: For example, Trane has called that out as a factor for increased growth in their services business. Are you seeing that coming through in terms of increasing activity on building efficiency? As building managers look to try and improve the efficiency of their systems, is that coming through? Are you seeing increased activity in that side of your business?

Absolutely, Nigel. In our building solutions business we’re seeing very, very robust trends there. We have actually for quite a while there. I mean, those numbers are up significantly year over year. Nigel Coe - Deutsche Bank: But is it moving the needle, or is it still quite a small portion of total sales?

I think it’s becoming much more meaningful for building solutions. At an ACS level it’s a couple of percent of their overall revenues but it’s growing at a very, very large clip and so you’re starting to build on some big numbers now.

I would still say though, Nigel, while energy efficiency plays very well to our entire company portfolio, as you know, I still don’t think we’re seeing everything out there that’s possible when it comes to what companies or apartment buildings or whoever ought to be doing. There’s still a lot of upside there left. Nigel Coe - Deutsche Bank: That’s what I’m trying to drive at is that obviously 2009 is going to be a bit more of a challenge for non-res markets in the U.S. and probably Europe. I’m just wondering if there’s going to be an offset to that volume decline, if you like.

Yes, it is, there’s no doubt about it. Nigel Coe - Deutsche Bank: I just want to pick up on the consumables sale. Obviously it’s a big gain, you talked about assessment options to offset that gain. Are you looking at the option of maybe using some of that gain to advance fund some of your legacy liabilities, maybe take some of those off the table?

As I said earlier, we’re looking at all kinds of things to see what makes the most sense for the company to position us the best for the future. There’s lots of possibilities we’re looking at and it’s really too early to declare one way or the other until we’ve sorted this all out. Nigel Coe - Deutsche Bank: Just on the proceeds, how are you thinking about acquisitions versus buying back your own stock at $50?

As I mentioned earlier, our strategy is going to continue to be the same whether it’s repurchases or acquisitions. We think both are great opportunities for us right now. The pipeline is rich, the stock price is much lower than it deserves to be. I think we have a pretty good record of cash deployment. I think you’ll see us continuing to do more of what we’ve done in the past.

Your last question comes from Deane Dray - Goldman Sachs. Deane Dray - Goldman Sachs: I’d like to hear the commentary about the flying hours in 2009. This is probably the more explicit that we’ve heard from companies about the outlook. It’s just very interesting about the slowing to 1% to 2% in the first half, but then the expectation is you could see some improvement in the second half. What do you think drives that? What kind of inflection point? Is it easier comps? Just take us through the thinking there, please.

Really as I said, what we’ve done is forecast an exit rate for 2008 in terms of global flying hour growth which right now, based on available information, would be in the 1% to 2% range. Again, based on what information we have now, the expectation is that’s a reasonable number for the first half of 2009 and as I said, with the potential for pick up in the second half of next year. The reason is really again it kind of comes back to the comparables. We see the second half as considerably slower than the first half of ’08 so we see about a 2% global flying hour growth on average for the second half of ‘08. So again in the second half of ‘09, assuming just even modest improvement in terms of the growth of the global economy, compared to economist consensus estimates for the second half of ‘08, that would give us some potential lift in the second half. So that’s really as far as it goes. I think for us right now for planning purposes, we’re just thinking conservatively, we believe, but not in a real the world is falling off a cliff type of thinking, but conservatively relative to what we could expect in terms of 2009. So those are just very, very preliminary numbers. We’ll obviously all have more insights on it as we progress through the rest of this year. And of course we’ll be providing our formal guidance to you for 2009 in the December month. But it’s that kind of thinking that has gone into the statement that I made relative to the confidence that we have of continuing to post the impressive earnings growth as well as margin expansion in our aerospace business.

Thanks. With that I’ll turn the call back to Dave for closing remarks.

Well, as we’ve said from the beginning, we want to be a company that’s understood by investors to be one that performs well in good times and bad. There are a number of dimensions that drive that. There’s no one thing that does it but I think you can see based on our performance that the things we’ve talked about: driving organic growth, having a good acquisitions platform and a discipline process to do them, the internal initiatives that we drive, the restructuring that we do when times are good to make sure that we’re in line to perform when times are tougher; we’re planning conservatively on our sales and costs, and all of these things are working for us. We’re going to keep doing them. Hopefully we’re not too far away from convincing you that good times or bad, Honeywell is a company you can count on to perform. Hopefully the second quarter is another indication that we’re doing exactly that. So thanks for listening and thanks for your support.