Morris Township, NJ, Oct. 24— Honeywell had third quarter ongoing net income of $360 million or $0.44 per share, excluding $668 million (after tax) in repositioning and other charges for a third quarter loss per share of $0.38.

"Honeywell's third quarter performance reflects a work in progress," said Honeywell chairman and CEO Lawrence A. Bossidy. "Prior to the tragic events of September 11, we were engaged in aggressive across the board repositioning actions to address a softening economy. The subsequent abrupt and unprecedented decline in the aviation industry led us to redouble our cost reduction actions and further accelerate efforts to improve our performance. Even with the difficult operating environment this quarter, we saw double digit sales growth in some key businesses.

"Despite the sharp decline in third quarter ongoing earnings, free cash flow rose 5% to $353 million (exceeding 98% conversion), driven by improved working capital turnover."

Sales in the third quarter were $5.8 billion, down roughly 4%, excluding the effects of divestitures and a stronger dollar. Double digit sales growth occurred in Commercial Air Transport and Regional original equipment, Turbochargers and Industry Solutions. Sales growth also was seen in Military original equipment and Fire & Security.

Sales growth was offset by lower sales in Commercial Air Transport aftermarket, Electronic Materials, Performance Fibers and Automation & Control Products and Services. Lower volumes in these businesses drove third quarter operating margin to 10.3%.

Third quarter reported EPS results reflect a $668 million (after tax—$0.82 per share) charge related primarily to severance actions and write downs associated with business and manufacturing disposals and shutdowns. Census reductions are expected to total 15,800 by the end of the year.

"The comprehensive cost actions taken this year make us confident in our ability to deliver $1.3 billion of cost productivity in 2002," Bossidy said. "We are well ahead of the curve in reducing our costs. We expect these actions will lead to improved earnings performance in the fourth quarter and in 2002, which will help to restore investors' confidence in Honeywell.

"Our single goal is to ensure Honeywell executes its plans during this challenging period. We have built flexibility into our planning, based it on conservative economic assumptions and taken steps to strengthen our diverse portfolio."

Bossidy said Six Sigma is being reinvigorated with the goal of restoring the company's ability to achieve 6% year over year productivity improvement. Six Sigma and Digitization are being closely linked through a newly created Black Belt role designed specifically for driving the co-application of both disciplines across the company.

Specialty Materials—The segment's sales were off 19%, excluding acquisitions and divestitures. Sales in Electronic Materials were down 51% as a result of a dramatic slowdown in the electronics and telecommunications industries. Sales also were lower in Performance Fibers and Nylon System. The segment is seeing increased interest in its Spectra fiber products for use in security and defense applications.

Operating margins were down due to lower volumes and pricing, which were partially offset by improving raw material costs, ongoing productivity improvements and aggressive cost reductions and repositioning actions, including segment wide reductions in census and capacity.

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