REVENUE RECOGNITION AND CONTRACTS WITH CUSTOMERS | REVENUE RECOGNITION AND CONTRACTS WITH CUSTOMERS Honeywell generates revenue from a comprehensive offering of products and services, including software and technologies, that are sold to a variety of customers in multiple end markets. See the following table and related discussions by reportable business segment for details. Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Aerospace Commercial Aviation Original Equipment $ 538 $ 415 $ 1,543 $ 1,282 Commercial Aviation Aftermarket 1,339 1,083 3,715 3,008 Defense and Space 1,099 1,234 3,365 3,840 2,976 2,732 8,623 8,130 Honeywell Building Technologies Products 915 787 2,730 2,383 Building Solutions 611 583 1,756 1,752 1,526 1,370 4,486 4,135 Performance Materials and Technologies UOP 633 600 1,677 1,698 Process Solutions 1,141 1,160 3,472 3,422 Advanced Materials 946 750 2,718 2,288 2,720 2,510 7,867 7,408 Safety and Productivity Solutions Sensing and Safety Technologies 736 748 2,237 2,520 Productivity Solutions and Services 401 411 1,234 1,144 Warehouse and Workflow Solutions 590 702 1,829 2,398 1,727 1,861 5,300 6,062 Corporate and All Other 2 — 4 — Net sales $ 8,951 $ 8,473 $ 26,280 $ 25,735 In July 2022, the Company realigned certain business units within the Safety and Productivity Solutions reportable business segment. The Safety and Retail business unit, which included our gas detection and safety business, combined with the Advanced Sensing and Technologies business unit to form the Sensing and Safety Technologies business unit. The Company recast historical periods to reflect this realignment. Aerospace – A global supplier of products, software and services for aircrafts that it sells to OEM and other customers in a variety of end markets including: air transport, regional, business and general aviation aircraft, airlines, aircraft operators and defense and space contractors. Aerospace products and services include auxiliary power units, propulsion engines, environmental control systems, integrated avionics, wireless connectivity services, electric power systems, engine controls, flight safety, communications, navigation hardware, data and software applications, radar and surveillance systems, aircraft lighting, management and technical services, advanced systems and instruments, satellite and space components, aircraft wheels and brakes, repair, and overhaul services and thermal systems. Aerospace also provides spare parts, repair, overhaul and maintenance services (principally to aircraft operators) for the aftermarket. Honeywell Forge solutions are leveraged by the Company's customers as tools to turn data into predictive maintenance and predictive analytics to enable better fleet management and make flight operations more efficient. Honeywell Building Technologies – A global provider of products, software, solutions, and technologies that enable building owners and occupants to ensure their facilities are safe, energy efficient, sustainable, and productive. Honeywell Building Technologies products and services include advanced software applications for building control and optimization; sensors, switches, control systems, and instruments for energy management; access control; video surveillance; fire products; and installation, maintenance and upgrades of systems. Honeywell Forge solutions enable the Company's customers to digitally manage buildings, connecting data from different assets to enable smart maintenance, improve building performance, and even protect from incoming security threats. Performance Materials and Technologies – A global provider in developing and manufacturing high-quality performance chemicals and materials, process technologies, and automation solutions. The segment is comprised of Process Solutions, UOP, and Advanced Materials. Process Solutions provides automation control, instrumentation, advanced software, and related services for the oil and gas, refining, pulp and paper, industrial power generation, chemicals and petrochemicals, biofuels, life sciences, and metals, minerals, and mining industries. Through its smart energy products, Process Solutions enables utilities and distribution companies to deploy advanced capabilities to improve operations, reliability, and environmental sustainability. UOP provides process technology, products, including catalysts and adsorbents, equipment, and consulting services that enable customers to efficiently produce gasoline, diesel, jet fuel, petrochemicals and renewable fuels for the petroleum refining, gas processing, petrochemical, and other industries. Advanced Materials manufactures a wide variety of high-performance products, including materials used to manufacture end products such as bullet-resistant armor, nylon, computer chips, and pharmaceutical packaging, and provides reduced and low global-warming-potential materials based on hydrofluoro-olefin technology. In the industrial environment, Honeywell Forge solutions enable integration and connectivity to provide a holistic view of operations and turn data into clear actions to maximize productivity and efficiency. Honeywell Forge's cybersecurity capabilities help identify risks and act on cyber-related incidents, together enabling improved operations and protecting processes, people and assets. Safety and Productivity Solutions – A global provider of products and software that improve productivity, workplace safety and asset performance to customers around the globe. Sensing and Safety Technologies products include PPE, apparel, gear, and footwear; gas detection technology; custom-engineered sensors, switches and controls for sensing and productivity solutions; and cloud-based notification and emergency messaging. Productivity Solutions products and services include mobile devices and software for computing, data collection, and thermal printing; supply chain and warehouse automation equipment, software and solutions; and software-based data and asset management productivity solutions. Honeywell Forge solutions digitally automate processes to improve efficiency while reducing downtime and safety costs. Corporate and All Other – Corporate and All Other includes revenue from Honeywell's majority-owned investment in Quantinuum. Through Quantinuum, Honeywell provides a wide range of service offerings of fully integrated quantum computing hardware and software solutions. For a summary by disaggregated product and services sales for each segment, refer to Note 17 Segment Financial Data. The Company recognizes revenue from performance obligations to customers that are satisfied at a point in time and over time. The disaggregation of the Company's revenue based off timing of recognition is as follows: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Products, transferred point in time 61 % 58 % 60 % 58 % Products, transferred over time 13 16 14 17 Net product sales 74 74 74 75 Services, transferred point in time 7 9 8 8 Services, transferred over time 19 17 18 17 Net service sales 26 26 26 25 Net sales 100 % 100 % 100 % 100 % CONTRACT BALANCES The Company records progress on satisfying performance obligations to customers, and the related billings and cash collections, on the Consolidated Balance Sheet in Accounts receivable - net and Other assets (unbilled receivables (contract assets) and billed receivables) and Accrued liabilities and Other liabilities (customer advances and deposits (contract liabilities)). Unbilled receivables (contract assets) arise when the timing of cash collected from customers differs from the timing of revenue recognition, such as when contract provisions require specific milestones to be met before a customer can be billed. Unbilled receivable balance increases when the revenue associated with the contract is recognized prior to billing and decreases when billed in accordance with the terms of the contract. Contract liabilities increase when customers remit contractual cash payments in advance of the Company satisfying performance obligations under contractual arrangements, including those with performance obligations to be satisfied over a period of time. Contract liabilities decrease when revenue is recorded, either when a milestone is met triggering the contractual right to bill or when the performance obligation is satisfied. Contract balances are classified as assets or liabilities on a contract-by-contract basis at the end of each reporting period. The following table summarizes the Company's contract assets and liabilities balances: 2022 2021 Contract assets - January 1 $ 2,060 $ 1,618 Contract assets - September 30 2,239 2,087 Change in contract assets - increase (decrease) $ 179 $ 469 Contract liabilities - January 1 $ (4,290) $ (4,033) Contract liabilities - September 30 (4,177) (3,840) Change in contract liabilities - decrease (increase) $ 113 $ 193 Net change $ 292 $ 662 For the three and nine months ended September 30, 2022, the Company recognized revenue of $362 million and $1,633 million, respectively, that was previously included in the beginning balance of contract liabilities. For the three and nine months ended September 30, 2021, the Company recognized revenue of $225 million and $1,786 million, respectively, that was previously included in the beginning balance of contract liabilities. Contract assets include $2,208 million and $2,035 million of unbilled balances under long-term contracts as of September 30, 2022 and December 31, 2021, respectively. These amounts are billed in accordance with the terms of customer contracts to which they relate. When contracts are modified to account for changes in contract specifications and requirements, the Company considers whether the modification either creates new or changes the existing enforceable rights and obligations. Contract modifications that are for goods or services that are not distinct from the existing contract, due to the significant integration with the original good or service provided, are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price, and the Company's measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis. When the modifications include additional performance obligations that are distinct and at relative stand-alone selling price, they are accounted for as a new contract and performance obligation, which are recognized prospectively. PERFORMANCE OBLIGATIONS A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is defined as the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. When the Company's contracts with customers require highly complex integration or manufacturing services that are not separately identifiable from other promises in the contracts and, therefore, not distinct, then the entire contract is accounted for as a single performance obligation. In situations when the Company's contract includes distinct goods or services that are substantially the same and have the same pattern of transfer to the customer over time, they are recognized as a series of distinct goods or services. For any contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation based on the estimated relative standalone selling price of each distinct good or service in the contract. For product sales, each product sold to a customer typically represents a distinct performance obligation. In such cases, the observable standalone sales are used to determine the standalone selling price. Performance obligations are satisfied as of a point in time or over time. Performance obligations are supported by contracts with customers, providing a framework for the nature of the distinct goods, services or bundle of goods and services. The timing of satisfying the performance obligation is typically indicated by the terms of the contract. The following table outlines the Company's remaining performance obligations disaggregated by segment: September 30, 2022 Aerospace $ 10,974 Honeywell Building Technologies 7,082 Performance Materials and Technologies 7,811 Safety and Productivity Solutions 3,270 Corporate and All Other (1) 4 Total Performance Obligations (2) $ 29,141 (1) The remaining performance obligations within Corporate and All Other relate to the Quantinuum business. (2) Effective March 31, 2022, performance obligations exclude contracts with customers related to Russia as collectability is not reasonably assured. Performance obligations recognized as of September 30, 2022, will be satisfied over the course of future periods. The Company's disclosure of the timing for satisfying the performance obligation is based on the requirements of contracts with customers. However, from time to time, these contracts may be subject to modifications, impacting the timing of satisfying the performance obligations. Performance obligations expected to be satisfied within one year and greater than one year are 62% and 38%, respectively. The timing of satisfaction of the Company's performance obligations does not significantly vary from the typical timing of payment. Typical payment terms of the Company's fixed-price over time contracts include progress payments based on specified events or milestones, or based on project progress. For some contracts the Company may be entitled to receive an advance payment. The Company applied the practical expedient for certain revenue streams to exclude the value of remaining performance obligations for (i) contracts with an original expected term of one year or less, or (ii) contracts for which the Company recognizes revenue in proportion to the amount the Company has the right to invoice for services performed. |