Fitch Affirms Honeywell at 'A+' on Announcement of UOP Acquisition.

CHICAGO -- Fitch Ratings has affirmed ratings for Honeywell International (HON) and its wholly owned subsidiary, Honeywell Holding B.V., as follows:

Honeywell International Inc.

-- Senior unsecured debt at 'A+';

-- Bank credit facilities at 'A+';

-- Issuer default rating at 'A+';

-- Commercial paper at 'F1'.

Honeywell Holding B.V.

-- Senior unsecured debt at 'A+';

-- Issuer default rating at 'A+'.

The Rating Outlook is Stable. Approximately $5.7 billion of debt is covered by the ratings.

Fitch has affirmed HON's ratings following the company's announcement of its agreement to purchase the remaining 50% of UOP LLC it does not already own. The purchase price is approximately $825 million, with the transaction expected to close during the fourth quarter of 2005. The purchase raises HON's acquisition spending toward the high end of the range incorporated in the ratings, but the ratings also consider debt reduction that is expected to occur not later than the end of the first quarter of 2006 upon HON's planned divestitures of Novar's aluminum and check-printing businesses.

Some of HON's cash flow credit metrics remain low relative to similarly rated companies, but Fitch anticipates a gradual improvement in the ratio of free cash flow to debt (free cash flow is defined as net cash from operations less capital expenditures and dividends). Future cash flow should benefit from ongoing productivity improvements, incremental cash flow from the acquisitions of Novar, Zellwegar, and UOP, and a decline in cash payments after 2005 for asbestos and other environmental liabilities. Fitch also expects that cash and debt levels will remain relatively stable, reflecting adequate free cash flow to fund the company's discretionary expenditures for acquisitions and modest share repurchases used to offset dilution. Though not anticipated by Fitch, any challenges in realizing stronger free cash flow, or excessive discretionary cash expenditures, could potentially result in a review of the ratings and Outlook if not offset by additional debt reduction.

The ratings also incorporate HON's geographic and product diversification, leading market positions, and technology portfolio. HON's operating performance and cash flow are currently supported by favorable economic conditions across many of its businesses and by the company's pruning of its business portfolio through asset sales. Rating concerns include cyclicality inherent in a number of its businesses, especially aerospace. In addition, while HON's exposure to lingering asbestos litigation is mitigated by insurance coverage and a possible legislative settlement, uncertainties remain given the long term and unpredictable nature of asbestos liabilities. Pension liabilities have been controlled by HON's previous contributions to its pension plans and much of the company's major restructuring is behind it, although modest restructuring activity is likely to continue, including the current reorganization of HON's aerospace segment.

Liquidity at June 30, 2005 was $2.6 billion, consisting of $1.9 billion in cash and $2.3 billion of credit facilities, offset by $1.6 billion of short-term debt and current maturities as well as letter of credit usage under the bank facilities. In addition, cash proceeds from the prospective sale of Novar's aluminum and check-printing businesses, estimated by HON at $1.0 billion-$1.5 billion, would support HON's ability to pay down debt while leaving HON with ample liquidity. The company is in the process of repatriating approximately $2.5 billion of foreign earnings (net of taxes) under the American Jobs Creation Act of 2004 that will provide for more flexibility with respect to its cash balances.

UOP, which generated revenue of $1.2 billion in 2004, is a 50/50 joint venture with Union Carbide, a subsidiary of Dow Chemical. UOP provides process technology to the petroleum refining and petrochemical and gas processing industries. As a part of HON's specialty materials segment, UOP will support HON's efforts to expand the segment's focus on proprietary technologies.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria, and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance, and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.