Murray Grainger – IR Dave Cote – Chairman and CEO Dave Anderson – SVP and CFO

Stephen Whittaker - Sanford Bernstein Shannon O'Callaghan - Barclays Capital Jeff Sprague - Citigroup Investments Scott Davis - Morgan Stanley Howard Rubel - Jefferies & Co. Nigel Coe - Deutsche Bank Securities [Alana Wood] - BAS-ML

Good day and welcome, ladies and gentlemen, to the Honeywell Q1 2009 conference call. As a reminder, today's call is being recorded. At this time I'd like to turn the call over to Murray Grainger, Vice President of Investor Relations.

Thank you, [Cecelia]. Good morning and welcome to Honeywell's first quarter 2009 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 first quarter and our 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. Dave?

Thanks, Murray. Good morning, everyone. Well, we were expecting a very tough economic environment and that's certainly what we saw. Even in that tougher environment, though, we were able to deliver results consistent with our guidance. With sales at $7.6 billion at the lower end of our guidance, we were able to deliver earnings per share of $0.54, including more than $40 million or $0.04 of earnings for additional repositioning actions, and additionally $232 million of free cash flow. We were able to deliver primarily because of the strong cost actions that we initiated over the last 18 months. All that being said, some of our end markets - notably commercial aerospace and the transportation industry - were tougher than we anticipated. And while it pains me significantly to do this, we are reducing our EPS outlook for the year to $2.85 to $3.20. It pains me because over the last six years we'd established a strong track record of doing what we said. We always have taken pride in doing what we said. Last December we forecasted 2009 results anticipating much tougher conditions than we were actually experiencing in an attempt to get ahead of it and again be able to do what we said. We also initiated over $400 million in restructuring actions to get ahead of those markets that we thought would worsen. While the times are unprecedented, we're disappointed in ourselves for not having been even more conservative. We're adjusting our outlook today with the assumption that the first quarter market reductions we saw continue throughout the year and that the earnings improvement we see in the second half comes almost solely from the benefit of restructuring products and other cost actions. We'll remain focused on flawlessly executing the approximately $470 million of restructuring projects that we've initiated over the past five quarter. This focus on fixed costs remains an absolute priority and is not a new concept for us. In addition to the $44 million or $0.04 of repositioning projects that we funded in the first quarter, we also initiated cost saving actions like plant shutdowns and furloughs across a number of our businesses. And we also continue to manage our global real estate portfolio through rooftop consolidation. Our business leaders have also significantly reduced the amount of discretionary spending across the organization. We're tracking and reporting all indirect spending activity and it's being aggressively managed with an emphasis on reducing non-essential, non-customer-related spending. We also continue to assess capital expenditures and new program investments as the economic environment develops. Our primary focus is still on the long-term health of our franchise, so we will continue to invest in attractive projects. However, we're making sure that our spending and prioritization decisions are firmly grounded. We don't know exactly how long these challenging economic times will continue, but either way we're also continuing with the seed planting that is so important for the future of a company. We'll continue investing in our big process initiatives like the Honeywell operating system, functional transformation, ERP, and velocity product development. We'll also keep investing in new winning technologies like wireless across our product lines, helicopter safety, and the smart path ground-based augmentation system - GBAS - which is the next generation navigation technology that supports precision approach and landings using GPS satellite data. This system can save airlines billions of dollars through more efficient flight paths and fewer delays. It was just picked up by Qantas Airlines for the Sidney International Airport, out eighth installation globally, with more to come in 2009. We are years ahead of our competition with this technology. And with over 2,100 airports worldwide, we see huge opportunity. And of course we'll continue to invest in energy efficiency solutions like the energy savings performance contract we just won with the U.S. Army Corps of Engineers, our 90th win with the DOD. Federal agencies continue to work aggressively to meet energy and environmental goals outlined by the president and Congress, and Honeywell has a long history of supporting these efforts. We will help the Army find the right mix of building retrofits, renewable energy and services that will not only meet these targets but deliver the greatest return on investment as well. It's a real win-win. We are no doubt in difficult times, more difficult than I'd estimated just four months ago. But like anything else in life, you have to pick yourself up and run again and we're running hard. I'm embarrassed over the EPS outlook reduction and it's not going to happen again. We will do what we said and we'll continue to invest for the future. We want to be your best investment not just during these tough times but also when better times return. And they will return. With our ongoing supportive seed planting, even during these tough times, we will be very well prepared. So with that, let me turn it over to Dave.

Thanks, Dave. Good morning, everyone. Let's go to Slide 4 and let me walk you through the financial summary results for the first quarter. In a very tough economic environment we posted results in line with the guidance we provided you with in January. Sales were down as you can see 15%, 11% organically excluding the impact of foreign exchange and acquisitions. Segment margins declined in the quarter 240 basis points to 11.6%, with another good margin performance from ACS. We'll go through that in a little more detail in a moment. ACS margin's up 10 basis points on the quarter; however, obviously, more than offset by continued weakness at Transportation Systems. TS's margins were down over 12 points in the quarter on significant volume declines. Net income for Honeywell declined 38% in the quarter. Higher pension expense was offset by lower environmental as well as lower repositioning charges, which by the way were a net $44 million in the quarter, importantly providing additional support for our 2009 earnings outlook and beyond. EPS for the quarter was down 30%. Free cash flow was below prior year at $232 million primarily due to lower net income. And while we're disappointed in the free cash flow, it was generally in line with our expectations. We believe we're still on track for the 100% plus conversion for the full year. So, overall, an in-line first quarter despite tough conditions. And before we talk you through each of the businesses, let's take a look at the key market assumptions just to give you an update of what we're seeing and what we expect for the rest of the year. So let's go to Slide 5, Market Assumptions Update. Starting with air transport and regional, the ATR business. With Aero, we continue to see capacity reductions globally among the airlines, as well as larger than expected increases in the number of parked aircraft. In the first quarter flight hours were down 4.5%. We had earlier estimated a decline of 4%. We saw particularly weak performance in February and March. As a result of the first quarter decline and the exit that we saw for the quarter, we're now expecting global flight hours - which, as you know, are closely correlated to our aftermarket business - to decline by approximately 4% in 2009 versus our previous estimate of down 2%. On the OE side of air transport we see no change to our previous estimate of flat to up 5% in delivery for the year. And BGA we still expect TSE flight hours to remain in the range of down 15% for the year. However, a big change within business jet OE. We saw significant reschedules in the first quarter. We anticipate that for the rest of the year. We now see deliveries down greater than 25% in '09 versus our previous estimate of down 5% to 10%. Now reschedules have occurred across all the OEs, all cabin ranges and the situation obviously continues to be challenging. In defense and space, which is approximately 45% of Aero sales, we still expect growth to be in the range of about 3%, in line with the base U.S. defense budget growth. We're well positioned with our logistics and reset businesses, the rest of our defense business, and we expect solid growth again in 2009. Looking at the ACS businesses on the chart, developed regions, and starting with U.S. and EU housing, still not expecting obviously any recovery in '09. We continue to see softness within combustion as well as security distribution. These are partially offset by new product introductions, however consumer spending declines, inventory destocking in the distribution channels have put increased pressure on our products businesses, particularly in the latter part of the first quarter. For new non-res construction markets in both the U.S. and EU, we're still expecting a downturn; however, we continue to execute on strong backlog, including energy efficiency projects and our building solutions business, supported by our business mix, which includes institutional customers, the government, health care and our large installed base, over 25,000 contracts. We're also seeing early activity on the stimulus front in the U.S. and we're actively engaged in discussions at the federal, state and municipal government levels. We expect to see orders as a result of the American Recovery and Reinvestment Act some time in the second half of the year and expect this activity to increase as we go into 2010. Regarding retrofit activity for ACS, which represents about two-thirds of the segment's revenues, that continues to remain relatively stable and our regulatory driven businesses, such as fire systems, continue to perform well, in fact achieving positive organic growth again in the first quarter. On the industrial side of ACS we're seeing weakness in discretionary CapEx and OPEX evidenced by softness in field devices within the process solutions business as well as in the gas detection business of life safety. We're seeing this softness particularly in the U.S. We're of course monitoring the longer cycle CapEx projects. What we're experiencing is to date critical high ROI process optimization investments continue to remain solid. Turning to the ACS businesses in emerging regions, we're seeing the consumer beginning to pull back in some of the residential markets, however non-res construction projects remain stable in the emerging markets. We'll continue to grow faster than the markets in which we participate as a result of our positions in places like India, the Middle East and China, which all posted organic growth in the first quarter. For turbo, conditions continue to be challenging, as Dave said, with low OE sales coupled with high new car and truck inventories. On the positive side, we're seeing inventory declines in the marketplace and stabilization in OE production rates, therefore we anticipate some improvement in production rates in the second half of the year, really beginning in the third quarter. On the negative side, however, diesel penetration in Europe, down 5 points versus the 1 point reduction assumption previously, and platform mix - that is the shift to smaller engines - those are both stronger headwinds for our turbo business in '09. Consumers continue to shift towards smaller, cheaper gasoline vehicles as a result of continued high diesel prices, CO2 taxation, and other temporary government stimulus incentives, particularly in Europe. We anticipate that normal consumer purchasing patterns will return, obviously once credit conditions, consumer confidence and the overall economy improves. However in the short term these factors are a negative for our platform mix. We still expect to benefit and gain share for over $3 billion of new platforms that release in 2010 and beyond. And finally on this slide, at UOP our backlog remains strong and our catalyst reloads continue to be deferred to weaker end market demand. We continue to see long-term demand from UOP products and technologies across both refining, petrochemical and natural gas markets; however, we're cautious in the short term with uncertainty in crude prices putting pressure on CapEx and OPEX at our customers. So, overall, continued challenging market conditions; however, the Honeywell team continues to respond quickly, as evidenced by our in-line quarter. Let's now go to Slide 6 on Aero and cover the highlights, starting with Aero of each of our businesses. As you can see, Aero segment sales in the first quarter were down 9%, but excluding the impact of the consumable solutions divestiture, we're down 5% on an organic basis. Segment profit down 13%, margins down 90 basis points to 17.7% for Aero in the first quarter. Now on an organic basis, total commercial sales - that is, the combination of air transport and business and general aviation - were down 11% in the quarter driven by lower flight hours as well as sharply lower business jet OE deliveries. The organic commercial OE sales were down 6%, air transport and regional sales were flat and in line with OE deliveries, but more than offset by business jet OE sales, which were down 14% in the quarter. Looking at commercial aftermarket for Aero, those sales were down 15% in the quarter. The ATR aftermarket sales were down 11%, significantly below flight hours, which declined 4.5 in the quarter, with the difference really due primarily to buyer behavior in spare parts, in other words, inventory reduction initiatives and also parked aircraft, the utilization of parts from parked aircraft. BGA aftermarket sales were down 25% in the quarter, in line with our expectations and in line with the TFE, the turbo fan engine, hours and maintenance events. Defense sales strong, up 4% in the quarter, driven by strength in logistics and services, which was up an impressive 14%. Now the defense and space portfolio remains well positioned. We expect continued nice growth throughout 2009. So in summary, some tougher market conditions at Aero, particularly within business jet OE and the ATR aftermarket; however, the Aero team just continues to execute very well. We've reacted quickly with additional cost actions to offset these volume declines and are we think well positioned despite the pressures for the rest of the year. Let's go now to Slide 7, ACS. As you can see on 7, reported sales for ACS were down 6% in the quarter, 3% down organic constant currency. ACS continued to have growth in emerging regions, flat comparisons in Europe, offset then by declines in the Americas. The products businesses for ACS were down 8% organically, with deteriorating trends as we move through the quarter. ECC and life safety both performed better than the segment average with continued growth and share gains in Europe, however weaker trends in the Americas, particularly as we exited the quarter. The security distribution sensing and control businesses continue to be impacted by weakness in residential and transportation end markets, as we discussed earlier. The solutions businesses continue to perform well. Organic growth was up 5% in the quarter. Demand for energy efficiency, as well as the integration of climate, fire and security controls for critical infrastructure continues to drive growth at building solutions. At process solutions oil and gas production, particularly upstream, as well as distribution projects continue to be solid. Orders in the first quarter for solutions were down 4% organically, mostly we believe reflecting order delay - it's just the timing - particularly within process solutions. The service bank, however, both in buildings as well as process solutions, which benefit from our installed base of over 5 million buildings and 10,000 industrial sites, increased during the quarter. And as I mentioned previously, we expect also increased order activity on our building solutions business in the second half of the year as a result of the U.S. stimulus-funded projects. ACS segment profit was down 5%, reflecting negative volume and the product solutions mix; however, we saw a 10 basis point increase in margin to 10.4%, reflecting more than $60 million in reduced SG&A costs in the quarter. It was a great effort by the ACS team, which continues to execute on new products, productivity actions, as well as acquisition integration, and all of these are contributing positively to the ACS results. With that, let's go to Slide 8 on Transportation Systems. Overall, TS sales were down 41%, including a 6% foreign currency impact on volume declines primarily at turbo and friction. Now, turbo really just unprecedented impact and declines, down 53% in the quarter reported due to lower production rates at OEMs globally year-over-year as well as the temporary consumer shift that we talked about earlier towards cheaper lower displacement engines. New platform launches continue to be pushed out as OE's focus on working down existing inventory; however, we're seeing positive progress on these efforts and in the meantime our content on future platforms continues to grow. So, overall, a very challenging period ahead in the near term for turbo, but positive macro trends, again, of energy efficiency and emissions as well as our robust backlog of attractive new platforms - just to remind ourselves, $3 billion of wins alone in 2008 - give us confidence in the long-term prospects for this business. CPG was down 3% reported. We actually saw an increase in volumes, however, with reported sales down due to the pass through of lower mostly ethylene glycol prices. Segment profit for TS was down 102% in the quarter due primarily to lower volumes at turbo; however, again, the TS team continues to make progress on productivity as well as cost actions and reduced their fixed cost structure by over 10% in the quarter. Let's now turn to Slide 9 for a summary of Specialty Materials. Sales were down for FM 25%, driven primarily by lower catalyst sales - you recall the record catalyst volumes in the first quarter of last year at UOP - and also formula pricing impacts at resins and chemicals. As expected, sales at UOP were down 27% due to tough comps of catalyst sales, as I mentioned. As you'll recall, we saw very large shipments in the first half of last year. Last year, in fact, our catalyst sales for UOP were up 45%. We've been anticipating tough comps in the first half of this year. Overall, UOP continues to see some evidence if deferrals in its short-cycle catalyst reload business; however, longer-cycle projects continue to remain stable, although we are seeing some weakness in CapEx spending in both the refining and petrochemical end markets. Resins and chemicals in the quarter were down 35% driven by the impact of lower raw material costs on formula pricing contracts despite higher volumes in our ammonium sulfate business. Specialty products declined 24% primarily by continued challenges in the semiconductor industry. For SM in total, segment profit, as you can see, down 53%, margins 690 basis points down to 11.9% due to lower volumes and the negative mix impact of lower UOP catalyst sales. And again, like the rest of the businesses, in the face of volume and mix impacts, the SM team continues to do a good job of controlling costs. Indirect spend was down more than $35 million, just to identify a key action on the part of the business, in the first quarter alone. So that's a summary of the businesses in the first quarter. Let's go to Slide 10 and just give you a little more color on the full year outlook. As Dave said, given the deterioration that we saw in the first quarter and the outlook that we see, particularly for our commercial aerospace business and transportation, we're adjusting the full year EPS outlook to $2.85 to $3.20, down 15% to 24% from last year's full year number. We now expect Aero sales to be in the range of $11.5 billion to $11.9 billion, the midpoint would be down about 7%, segment profit in the range of $2 to $2.2 billion for Aero, reflecting weaker global flight hours within commercial air transport and lower anticipated business jet OE deliveries. These, of course, would be partially offset by anticipated strong defense and space sales in the second half of the year. At ACS we expect sales to be in the range of $12.8 to $13.1 billion, again, midpoint down about 7%, with segment profit $1.4 to $1.5 billion on lower products volumes, offset by further cost actions across the ACS portfolio. For Transportation, we now anticipate revenues in the $3.2 to $3.4 billion range, midpoint down about 28%, segment profits of $100 to $200 million. And as we mentioned previously, we're seeing declining inventories and expect at the distribution - at the, if you will, retail level - and we expect improved OE production rates driving better turbo performance in the second half of 2009. And finally, Specialty Materials expects sales in the range of $4.6 to $4.7 billion for the full year, midpoint down about 12%, segment profit of approximately $600 million with sequential improvement at UOP in the second half of '09 following its very difficult first half comparisons. So we're aggressively driving cash flow across the organization. We still expect to generate greater than 100% of net income in the year. We're proud, obviously, of the track record we've developed. We're driving actions across the organization to help offset the decline in net income reflected in our latest guidance. So now let's turn to Slide 11 and give you a summary preview of the second quarter. For 2Q we're planning for total sales to be in the range of $7.4 to $8.1 billion, down 16% to 24% from the prior year, including about 7 points of negative foreign currency impact. We anticipate EPS for 2Q to be in the range of $0.55 to $0.65, down approximately 30% to 40%. We anticipate Aero sales to be around $2.6 to $2.8 billion, including a negative 4 point impact from the consumables solutions sale. We expect sales to OE customers to decline due to platform mix and the timing at air transport and also sharply reduced delivery schedules for business jets. In the aftermarket we would anticipate ATR sales to decline more than flight hours, again driven by buyer behavior, and we expect flight hours to be down about 5% in the second quarter. And at business jets the TSE hours are expected to be down in the second quarter, consistent with our expectations for declines for the full year, so somewhere in the neighborhood of about 15% for the full year. For ACS we expect sales in the second quarter of $3 to $3.2 billion. There's about a 7 point net headwind from FX in acquisitions. We expect similar trends for ACS in the second quarter that we saw in the first quarter, with acquisitions and organic solutions growth being offset by weakness in the shorter-cycle products businesses, particularly security and sensing controls. At Transportation, sales for the second quarter we anticipate in the range of $700 to $800 million, down more than 30%, again with similar trends that we saw in the first quarter, with lower OE sales coupled with higher new car and truck inventories that will continue to dampen production. However, as we stated previously, we're seeing signs of some positive progress on that front. And finally at SM for 2Q we anticipate revenues in the $1 to $1.1 billion range due to continued softness in residence and chemicals and electronic materials and extremely difficult comps at UOP, where high margin catalyst sales will be down more than 25% from the second quarter of '08. So in summary, we're preparing ourselves for another tough quarter in 2Q. We think it's representative of the industrial landscape that we think will unfold; however, the environment remains fluid, as evidenced by the trends that we saw in the first quarter. So now let me just summarize, Murray, before turning it back over to your for Q&A, Slide 12, we're obviously pleased to be able to report first quarter in line with the guidance we provided you back in January despite increasingly difficult economic conditions. With our reported EPS at $0.54, we're also able to fund an additional $44 million or $0.04 EPS of repositioning projects, which we expect to contribute approximately $40 million of incremental operating income benefit in the second half of '09 and another $90 million that is, $50 million of additional savings or benefit in 2010. However, as we discussed earlier, we now expect these tougher end market conditions to continue. We're adjusting the outlook for the year accordingly to address the reality. We've taken you through where the significant declines are, which includes the air transport aftermarket and business jet OE, as well as continued pressures on our turbo business, where we're experiencing unprecedented declines. Obviously these are all high-contribution margin businesses for Honeywell and represent the biggest changes to outlook since we hosted our investor day in February. The organization is on top of these shifts. We continue to respond quickly, we think effectively to the very fluid economic environment. Let me say we're still pleased to be able to anchor our new outlook to the low end of our previous range. We're executing on repositioning projects that we proactively set in motion last year - over $424 million worth - as well as the new projects that we funded in the first quarter. These projects are delivering savings in line with our expectations. We also continue to aggressively implement, as Dave said, functional transformation. We're on track to deliver more than $100 million in savings from FT this year. In addition, we've initiated additional cost actions across the organization, including plant shutdowns and furloughs and other actions to further offset the anticipated volume declines. So we're anticipating and preparing ourselves, as we said, for an extremely tough second quarter with challenging year-over-year comparisons, particularly given the relative strength of the first half of 2008. In the second half of '09 we anticipate incremental benefits from the repositioning actions that we've funded over the last five quarters as well as the additional cost actions that I referenced. We'll also see the tailwind from lower raw material costs and sequentially better-than-expected performance from defense and space, as well as some stabilization and slight improvement in turbo and UOP. And if you recall, earlier this year we laid out a framework outlining the relative strength that we're anticipating from these items in the second half of the year. This framework is still intact and the entire Honeywell organization is focused on driving the cost and earnings performance necessary to deliver on our adjusted EPS outlook. So with that let me turn it over to Murray for Q&A.

Thanks, Dave. Cecelia, please open the line for questions.

(Operator Instructions) Your first question comes from Stephen Whittaker - Sanford Bernstein. Stephen Whittaker - Sanford Bernstein: My first question is around guidance for the second half of the year that you started to get into. If my numbers are right, I think it implies to hit the low end of your guidance you've got to hit about $0.88 on average between each of the last two quarters. Operating deleverage in the first quarter was about 2.5 times, which implies for the second half it's going to be a lot lower. And I know you started to talk about it, but what has to go right in order for something that might be perceived as a hockey stick to really take place in the back half of this year?

Well, let me start and I'll turn it over to Dave, but we're counting on no market improvement in any of this other than I suppose you could point to the inventory correction in autos that should be done as we get towards the June/July timeframe, so production finally starts to match the anemic sales level. The biggest driver - two big drivers, I guess - the first one is all the repositioning that we talked about. Much of the benefit of that occurs more in the second half than it does the first. And that was pretty extensive, as you know. Over a 15-month period we allocated over $400 million to it and we did more in the first quarter. The second one that you end up seeing is the impact of purchasing. We've been doing, I'd say, pretty well on that in the first quarter, so we have a good sense of how that's going to flow through, but it's got to work its way through inventory first and that's why you'll see the bigger benefit of that in the second half than you will the first half. So we're really counting on no market improvement, but the cost actions that we've already taken and seen some of the benefits of will show up significantly more in the second half. Dave?

I think that's right. I think overall the restructuring is going to contribute somewhere between $150 million and $200 million, Steve, of incremental benefit to age comparative to the first half. On the direct materials it's in the range of $100 to $135 million, call it about $120 million, of incremental benefit year-over-year. Other cost actions are going to be a positive contributor. And then as I mentioned and as Dave referenced, the really, call it, stabilization on the European OE production as a result of just inventory being worked off and we're seeing that, we're seeing some signs of that already. We' don’t anticipate a crossover in terms of that production to consumer sales, consumer [inaudible], until some time in the third quarter. So I think that's pretty reasonable and pretty consistent with the prevailing forecasts that are out there. The other thing, as we mentioned, for UOP is UOP this year, the distribution of UOP this year, just turns out to be more of a second half than a first half as a result of some of the deferrals on the catalyst sales and also just the very tough comps that UOP had in the first part of this year. Those items really explain the majority of the 2H to first half comparison. Stephen Whittaker - Sanford Bernstein: And, as you mentioned, are you seeing a positive trajectory in any other places in recent weeks or is there a less negative trajectory may be a better way to say it?

I think probably that maybe the way to put it is that the rate of decline is clearly stabilizing. And I would say we don't see it getting worse than it was in the first quarter, so it feels like things are at least stabilizing at this lower level. That's probably the best way to put it. Dave, anything you want to -

No, I would say that's right. What we are using for our assumptions for 2Q, it's really pretty consistent with the exit rates that we saw from most of our businesses in the month of March. So, Steve, if you take, for example, the ATR flight hours assumption, the global flight hours assumption, that minus 5% that we're using for the second quarter is consistent with what we saw in terms of coming out of the first quarter.

And so far as we see April, that seems to be a consistent or a reasonable assumption. Stephen Whittaker - Sanford Bernstein: And just lastly, the restructuring number, are you looking at larger or additional restructuring in the rest of the year beyond the 44?

I would say it's possible. You know, right now for us, as you know, we are very, very clear in terms of reporting the restructuring within our operating results. We anticipated as a result, as Dave said, approximately $440 million coming into this year that there would not be significant restructuring. We were very pleased to initiate the actions that we did in the first quarter. And by the way, and you'll see this in our filings, we actually funded over $60 million of restructuring in the quarter of projects, thus the very high savings that I mentioned, $40 million of benefit for this year and approximately $90 million for next year, an incremental $50 million for next year. We had about $20 million of favorability in terms of accruals on prior restructuring mostly as a result of attrition and therefore we didn't have to take the cost actions, so we got the benefit without the spend. And so as a result we've actually funded about $64 million, $65 million of projects in the first quarter with this action, and we think that puts us in very good stead with the restructuring that we've done last five quarters to date.

Your next question comes from Shannon O'Callaghan - Barclays Capital. Shannon O'Callaghan - Barclays Capital: Just a little follow up on that. Dave, you're saying incrementally the actions you took in 1Q are going to give you a $50 million further benefit in 2010. Could you broaden that out a little bit to all your other actions? How much from all the restructuring that you've already accrued for but you're executing this year, as well as FTE and any other things, what do you see as the incremental tailwind going into 2010?

Well, going into 2010 we should pick up somewhere in the neighborhood of another $150 to $200 million, Shannon, of benefit over what we'll see flow through the P&L in '2009. We also would anticipate that we're going to see the benefits of other cost actions, the indirect saves, the FT actions, etc. Those are clearly on an annualized run rate, on a full year run rate, going to benefit us next year. And then the other thing just, you know, not related to cost actions, but we would certainly expect on the business side that both the turbocharger and commercial aerospace aftermarket businesses to rebound somewhat in 2010. It's early for us to say that, particularly given the numbers we're experiencing right now, but the reality is that those, given the severity of the declines that we're seeing in those markets, it's pretty clear - and based on history it's pretty clear that we're going to see some recovery in both of those businesses, which are obviously very high margin contributors for Honeywell. Shannon O'Callaghan - Barclays Capital: And just to be clear, the $150 to $200 million includes the $50 million you're talking about from the 1Q actions?

It does. Shannon O'Callaghan - Barclays Capital: And then you mentioned stimulus activity. It sounds like you're getting some better visibility into what might happen there. Can you give a little color in terms of what is playing out and when you expect things to hit and how big they might be?

It's kind of interesting that the stimulus package in the short term actually had the effect of slowing things down out there because municipalities and states were waiting to see what the results of the stimulus package would be before they would launch projects that they already had in process. We actually saw a slowing in some of the decision making. That's past now and we're starting to see that really pick up and we expect an acceleration as we get into the second half as those decisions get made and launched. So we expect that to actually do pretty well for us.

I think the team is, obviously, as I've said, working all levels - the municipal, the state and the federal levels - and just a lot of activity. And what we're seeing is actually now some of the, if you will, paperwork and the bureaucracy is actually starting to now translate, we believe, into some specifics that will translate into, as I said, order activity in the second half. That's only going to build. We're very, very well positioned there.

Your next question comes from Jeff Sprague - Citigroup Investments. Jeff Sprague - Citigroup Investments: Just drilling a little bit more into the H2 comp issues, I wonder if you could comment a little bit more on Aero. It looks like in the first half your annualized revenue run rate is 10.5% to 11% and your guidance for the year is 11.5% to 11.9%. Just thinking about sequentially what really would get better? Obviously the comps will be a little easier, but what do you actually see getting better in the second half? You did mention defense, but maybe you could elaborate on that.

Well, there's a couple of things that I would point to. First is defense, exactly as you said, and there we do well almost no matter how the spending goes because of the breadth of our portfolio and the things that we apply to. The second phenomenon, though, is it appears there is an inventory destocking that's going on out there amongst the airlines also and that doesn't go on forever. That can go on for a period of time. And as we saw the last time, that does adjust and does correct, so that should be some help. But in general, as Dave pointed out, we're not counting on much there. We're really assuming that the first quarter difficulties continue.

I think that's right. The key thing, just to sort of underscore what Dave said, is that we would obviously anticipate, Jeff, some moderation of the decline - some of that's just related to comps - in the year-over-year flight hours. We would anticipate -

There's a normal seasonality that you see first half to second half.

Plus just the year-over-years. As I said, negative 4.5 in the first quarter, negative 5 in the second. Right now we're looking at negative 3 in the third and that compares to positive 3 last year. And we're looking at about breakeven or zero to 1 in the fourth quarter, which compares it down about 2% in the fourth quarter of 2008. So we're just looking, Jeff, at a second half that is not robust, but I used the term earlier, more stable than the first half. And I think that's the best way to characterize it. The other thing, just to tell you very quickly, in Aero is we do have the anticipation of continued softness on the VGA/OE side, so that's a trend that's going to be with us. Jeff Sprague - Citigroup Investments: So you're anticipating still a very steep downturn in VGA?

Yes.

Yes. Jeff Sprague - Citigroup Investments: Dave Anderson, I know it's early, but on pension, OPEB and other things as we look into next year, if you were to lock down on current headcounts, current asset returns, expected returns, what type of headwind are we looking at in 2010 versus '09?

Well, I think on the OPEB side I don't think we have a large headwind there, but we will face a large headwind, Jeff, on the pension side. And right now if we assumed zero return on plan assets - and really speak to the U.S. pension plan, zero return, because that's really the largest element and biggest driver here, zero return on U.S. plan assets - and a discount rate equal to the 2008 year end number that obviously is the determiner of the 2009 pension expense, let's just hold that number, we'd be looking at about a $500 million headwind in terms of year-over-year 2010 versus 2009. Jeff Sprague - Citigroup Investments: And that includes the expected thing that you're going to do over the course of the year?

Tell me again? Jeff Sprague - Citigroup Investments: That headwind reflects the up to $1 billion in funding that you'll do this year?

Yes, it does.

Your next question comes from Scott Davis - Morgan Stanley. Scott Davis - Morgan Stanley: Just following up, that's about $0.50 of EPS, Dave, as an incremental headwind. Is that what you're saying?

Yes. Scott Davis - Morgan Stanley: That sounds like a pretty number versus the last cycle. And that's assuming the discount rate stayed at current levels, is that correct?

Yes. Scott Davis - Morgan Stanley: Okay, I got it. I just wanted to ask about process a bit. This business tends to have a fairly long order book and I don't think you've referenced any information on kind of how that longer order book is looking right now. And also we've heard some signs of pricing pressure in process. Can you just kind of reconcile your current bidding activity in the long order book versus maybe your shorter MRO delivery forecast?

I'm not sure I completely follow your question, Scott. Scott Davis - Morgan Stanley: Well, when you think about process a big part of that is going to be a fairly long backlog, correct?

The process solutions business in particular? Scott Davis - Morgan Stanley: Yes, just process solutions.

Right. Yes, this is one where I think we benefit from a less-cyclical business than what others might see. Less of our business is field instruments, which in the good times you sell a bunch; as soon as the tough times come, that stuff tends to get cranked down. So you'll see more cyclicality variability there than you will in our business which, as you know, tends to be more of the higher end control platform. And as these long projects evolve and they take sometimes years to get done, you end up with a lot more stability. You don't see it go as big during the flush times, but you don't see it come down as hard either when the times are a little tougher. And I have to say overall we do see some delays in the overall project portfolio, but we still see very good increases in what we would call our service bank - that's actually been improving there - and a lot of these longer-term projects are going to continue to get funded; they're too far along to stop. Does that answer your question? Scott Davis - Morgan Stanley: Yes, I was just curious to see whether you'd seen a material fall off in that longer order book and it sounds like you haven't.

No.

Just to give you some numbers there, Scott, the backlog, over $3 billion in the solutions business has basically held steady in the first quarter. If you look at that level of backlog compared to prior year period, same period, it's basically steady. And as I said and as Dave referenced, on a constant currency basis we saw a slight decline in order rate in the first quarter, but a lot of that we believe is really more timing related. I mean, we'll see as the second quarter progresses, but the business right now looks good, with particular strength on the energy efficiency side. Scott Davis - Morgan Stanley: Just going back to a little bit of a question on pension. You still have cash on the balance sheet and some borrowing capacity. You did contribute equity into your pension. How does the pension shortfall change your view on cash reinvestment? Does it kind of push you out of the M&A markets for awhile and away from share purchases just to try to shore that up? And then second, Dave Anderson, just to understand, that $0.50, is that primarily because you're falling out of the corridor and can you shore that up to make sure you're within the corridor or are you pretty much, for lack of a better word, dogged either way?

Well, as you know, on the pension side - you've heard me rail against this before - but ours is a much more aggressive accounting standard and Dave can take you into more of the particulars of that. It is all non-cash, as you know. It's got absolutely nothing to do with the reality of whatever funding needs are. If we take a look at our overall cash and debt position, we still feel very good about our overall liquidity and where we are on cash and debt. All that being said, when it comes to M&A one of the things that still kind of strikes us is the pricing still hasn't really gotten to where it should be. It's interesting. It's just like the guy whose house was worth $500,000 six months ago; as far as he's concerned it still is and it's not. And we're seeing that same sort of thing on the M&A side. So I'd say while we're always interested and we'll always look, it's still a case where how people think about what their company or business is worth hasn't quite adjusted to where it should be yet.

The second part of your question - and Dave gave a good response to that in terms of the pension accounting - just to remind everybody, we're using a, per FAS 87, a three-year smoothing and a six-year amortization of losses outside the actuarial corridor, which is a significantly less time period than typical and typical of our peer group, who are more like a five-year smoothing and closer to a 10 to 12-year amortization of either actuarial losses or gains. So what you see is much greater volatility, to Dave's point. It's non-cash. And it's really separate and distinct from the funded status and the funded requirements of the plan, which are driven by a separate set of regulations. So while it creates volatility in the P&L, we really do our best to try to look through that in terms of the underlying economics and obviously the cash generation of the company. Scott Davis - Morgan Stanley: I guess what I'm trying to ask, Dave, which, again, I know this stuff is confusing - I remember last cycle you had the same issues and you fell out of the corridor and then you had to amortize over the short amount of time versus your competitors - but if you contributed $1 billion theoretically, does that materially change the $0.50 headwind because it pulls you within the corridor or not?

No. No, it's separate math.

The correlation between cash and income in pension accounting is, I don't know, is less than zero possibly right? Scott Davis - Morgan Stanley: Well, when you do fall out of the corridor, though, it changes it, so we can talk about it offline.

We can do that. And we're definitely out of the corridor and what's really hitting us there in terms of that forecast that I provided is the amortization of losses.

Your next question comes from Howard Rubel - Jefferies & Co.. Howard Rubel - Jefferies & Co.: Given sort of the stretch out that you're seeing in the business jet area, are you also adjusting some of your development programs and are you doing that not only at Aero but in other areas just to accommodate customer change and how much do you think that is rough order of magnitude, Dave?

I'd say in general when it comes to customer launches, whether it's in Aero or auto, there's the stuff that's declared, in which case you have to adjust accordingly, there's stuff that doesn't get declared that you have to try to figure out and anticipate yourself, and then there's the stuff that's declared positively where they are going to stick with the program. Those first and third categories, of course, are the easiest ones and we're sticking with that. That second category's a little tougher and requires some judgment, but in general we're going to adhere to our customer's schedules when it comes to what do they see as a launch and the timing of that and we're going to make sure that we're ready and that's, I think, just important to maintaining that long-term customer relationship. But in general, yes, there's certainly not launches that are being accelerated. I'd say it's more a case where stuff is being postponed and we are seeing some benefit from that. I can't quantify it for you; I don't know, Dave, if you have a sense for it, but it is there.

Yes, I think everybody's adjusting. We're adjusting. If there's deferrals or push outs in terms of programs, we're clearly responding. On the other hand, Howard, there are a number of items that are absolutely staying on track and, as I said earlier, sort of high-priority ROI projects for our customers and we're committed to those and doing that across the board. The other thing is the theme really of new product introductions and innovation in VPD. As Dave said at the very outset, we're absolutely committed to that and that's very much front and center in terms of strategic priority for us. You won't be surprised to hear that. Howard Rubel - Jefferies & Co.: I'm going to step out of something I shouldn't totally do, but I thought your comments, Dave, at the beginning were refreshing and, you know, I realize they were pretty hard to do, so I just want to recognize them for what they were.

Actually, I appreciate that, Howard. Thank you.

Your next question comes from Nigel Coe - Deutsche Bank Securities. Nigel Coe - Deutsche Bank Securities: Just going back to the pension very quickly. It sounds like market returns is the biggest sensitivity around that number. How sensitive is that $0.50 to maybe a 5% change either way to the market's return? And is there a characteristic of your pension plan, you know, why you have this more aggressive accounting policy?

You've got to go into history for that one.

Nigel, it's not surprising and pretty consistent, again, I think with other companies that the calculation of the FAS 87 expense is more sensitive to the discount rate assumption than it is to the return on plan asset assumptions. And we can refer you back to, for example, if you looked at our first guidance for '09, we provided a framework - this is in December - we provided a framework, as we usually do, for pension expense showing discount rate on what axis and return on assets on the other axis. If you go there you can kind of interpret pretty easily in terms of getting to that math. The history, Dave, on the pension?

Before I was here.

Yes. Nigel Coe - Deutsche Bank Securities: Okay. It's just historical. And then on the [inaudible] you talked about obviously the second half potential orders. I just want to confirm that, first of all, there's nothing along those lines in the guidance and do you care to give us maybe a number for 2010 in terms of opportunity and then maybe how much you could maybe recognize in 2010?

Tell me again, Nigel - I'm sorry - the specific item you said in terms of recognizing potentially in the second half? Nigel Coe - Deutsche Bank Securities: Well, I just want to make sure there's nothing in the guidance [inaudible].

What?

Nigel, [there's] nothing. We're expecting really just order activity from stimulus projects in 2009, no sales. But then those would track like south in 2010. But I think it's a little bit early to try and sort of put numbers around that at this point. There's still a lot of discussions going on, a lot of activity, so I think it'd be a little bit early to try and put a dollar figure on that for 2010. Nigel Coe - Deutsche Bank Securities: And then one more quick one - CPG. One thing I didn't expect to see was CPG volumes up. Has that business turned the corner?

Yes. It's been a nice surprise, actually. It's almost as if, while people are not buying new cars, they're refreshing their old ones and we've benefited from that.

Your last question comes from [Alana Wood] - BAS-ML. Alana Wood - BAS-ML: A question on pricing. How much did price benefit or drag top line this quarter and would you expect pricing to improve as the year progresses or should we assume it gets tougher?

Overall we've actually, I think, positioned ourselves pretty well when it comes to pricing and a lot of it has to do with new product introductions that we've been about to put out there. That makes a big difference as you add more value for your customer versus your competition, and I'd say that's what we're benefiting from mostly. I really don't see that changing over the course of the year. It's holding pretty well wherever we've implemented and I don't see that being an issue for us. Alana Wood - BAS-ML: And then following up on Transportation, do you think you might return profitability by the second quarter and, if so, what would be the primary driver of improvement quarter to quarter?

I'd look more for second half than I would second quarter there. As Dave mentioned earlier as did I, the inventory correction still needs to occur out there - and it's occurring pretty quickly - as sales, even at their anemic level, sales are exceeding production, and we expect correction there some time in the June/July timeframe to pretty much be done. Alana Wood - BAS-ML: And then just a follow up on the margin, CPG versus turbo. Did both businesses see sequential deterioration or how shall we think about it?

I mean, so far it was really down because the volumes in CPG had improvement [inaudible] in the quarter.

And I'd like to turn the conference back over to management for any additional or concluding remarks.

Okay, Dave, closing remarks?

We delivered as promised in the first quarter, but I have to say reducing our total year outlook for the first time in seven years was painful for me personally and for us as a company. We pride ourselves on doing what we said for our customers and our investors and we've adjusted our outlook to reflect a total year of these further depressed markets that we saw in the first quarter. Now this clearly is a difficult economic time globally and for everybody. We're going to continue to invest in the seed planting that develops a strong company. Our process initiatives and our new products and services will continue to be funded. These tough times will end and while we will continue to perform well in these tough times, the benefits from that ongoing seed planting will show up even more when those better times return. Thanks.

Thank you for joining us and I'm available for any further questions during the day. Thank you.

That does conclude today's conference, ladies and gentlemen. We appreciate everyone's participation today.