Honeywell International Inc agreed to pay Northrop Grumman Corp US$440 million to settle 11-year-old antitrust and patent-infringement claims on aircraft-navigation systems.
Honeywell, the biggest maker of cockpit equipment and automated controls, will continue to sell the products under the agreement. The settlement and other costs related to the writing off of assets and canceled aircraft-engine orders will reduce fourth-quarter profit by US$540 million, Honeywell said.
CEO Lawrence Bossidy, who returned from retirement in July, has pledged to reverse a slide in sales and profit and right operations at Honeywell after General Electric Co's takeover collapsed. Without the settlement, Honeywell said it faced a potential judgment and liabilities of as much as US$2 billion from the lawsuits.
"This is the kind of thing that Bossidy doesn't want hanging around," said Norman Klopp, a money manager for Midwest Investment Management in Cleveland, which owns Honeywell shares.
"When he came in, I'm sure he changed the legal department's priorities rather quickly."
Bossidy was traveling and unavailable for comment, said spokesman Thomas Crane.
Northrop, the fourth-largest US defense contractor, will receive US$220 million by year-end and the rest of the amount in July. Litton Industries, which was bought by Los Angeles-based Northrop in April, accused Honeywell of using patented gyroscope technology in its equipment.
Shares of Honeywell rose US$0.27 to US$32.70. The Morris Township, New Jersey-based company's stock has dropped 31 percent this year. Northrop's shares rose US$0.78 to US$98.84.
Honeywell expects fourth-quarter profit of US$0.14 to US$0.16 a share. The costs include writing down the value of some assets and British Aerospace's cancellation of 29 engine orders. Excluding the expenses, which aren't in accordance with general accepted accounting practices, Honeywell expects profit of US$0.54 to US$0.56. On that basis, the average forecast of analysts surveyed by Thomson Financial/First Call is US$0.55.
Honeywell will have a first-quarter gain related to the exiting of its Bendix truck-brake joint venture with Knorr Bremse AG. Crane wasn't more specific about the gain.
Sales will drop about 12 percent to US$5.7 billion in the fourth quarter. Honeywell had net income of US$254 million, or US$0.31, on sales of US$6.45 billion in the year-ago period.
Northrop said the settlement would not affect earnings because it will be accounted for as a reduction of goodwill related to the purchase of Litton.
Bossidy was given a year to fix operations or find another suitor for Honeywell after the company's board ousted former Chairman and CEO Michael Bonsignore. The European Union blocked the purchase by General Electric because of concern it would limit competition in the aerospace markets.
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