Jim (cont'd):     

Start of Interview with
Dave Cote, CEO
Honeywell International

Jim:           Mr. Cote welcome to Mad Money...

Dave:        Thanks Jim, glad to be here.

Jim:           Now, one of the reasons we wanted you here… besides from the fact that we are honored, because we have always wanted you to come on the show… is that when people think of Honeywell, they think of these thermostats… this is not your fathers Honeywell… like for instance, what the heck am I wearing?

Dave:      That is a bullet proof vest, the type that are used in Iraq and Afghanistan today. And they are absolutely superb. Just to give you an example, this is where an AK-47 round entered, and this is where it didn’t come out. This saved a soldiers live. This saves people lives.

Jim:           Unbelievable… is this something from your plastics division?

Dave:      Yeah, this is made from a material called Spectra. The inside plating, Spectra is ten time stronger than steel, and floats in water. It is impressive stuff.

Jim:           Okay, how about this thing that we are just seeing right now, what is that about?

Dave:      This is a turbo charger. The turbo charger is uses extensively in Europe today, you are going to see them used even more in the US and around the world, because it allows an engine third smaller to produce the same power of a full size engine, and using 25% less gas.

Jim:           Okay, I am going to step over here… you stay there… we have got another feature of the new Honeywell. Want is this monster?

Dave:      I love this. This is a remote control helicopter. So you think about a soldier, for example, today when they have to go up over a hill to see what is going on. This is 14 pounds and can be carried in their backpack. They can send it over the hill, it can travel 45 minutes worth of fuel. Carry a 3 pound payload, go 40 miles an hour, this is impressive.

Jim:           Now, is this something that your company invents?

Dave:      Yeah, we invented this.

Jim:           Is this part of your decision to make Honeywell into a different kind of company, one that is prepared for the next 25 years?

Dave:      Oh absolutely. Cause this is, one of the things that we have wanted to do is say focus a lot on the customer, understand your customer, focus on technology where we can make a difference, and invent markets. Don’t just take market share, invent markets. This is an invention of a market, this did not exist before.

Jim:           Alright, let’s talk about something you probably did, that you have augmented. You have brought a gigantic HTF 7000, now I know these things… now you probably ask me how do I know it is an HTF 7000, because I know everything about the company… okay, go ahead.

Dave:      This is an jet engine that would typically be used on a business jet. This entry into service has been absolutely superb, the technology in this is state of the art, and we sell a lot of jet engines every year. This is also what leads into our auxiliary power unit business. And when you think about the flight that splashed into the Hudson recently, it was an Honeywell auxiliary power unit that provided enough power for them to control the flaps all the way to the controlled landing.

Jim:           Now, I understand all the special… we have a war in Afghanistan… obviously we want smaller and better that use less energy… this device is exactly what Obama is talking about… when I think about something like this I worry… I know that Boeing is struggling… I know the aerospace industry has genuine capital issues… doesn’t this in the end become a drag on the Honeywell?

Dave:      I would not say that it is a drag. You can expect that in a recession everybody’s company, everybody’s business gets impact. There is nobody that is immune. But if you have done the right kind of seed planting ahead of time, put yourself in the right markets, have products that help you grow share. It more than mitigates that impact. Sure we will be impacted, we will sell less engines. But we have got a lot of other things that will help make up that difference.

Jim:           That is why I think it is important to talk about something that resonates throughout your conference call… you have been talking about great positions in good industries… but which of these is the ones that I don’t have to worry about in the next two or three years? Transportation is going to be an issue.

Dave:      Well, aerospace should continue to do well. They also have a large defense in space component, which will be resilient for a number of years. You think about automation and control solutions, piles of new products. 400 new product introductions this year alone. Energy efficiency, a lot of our portfolio is energy efficiency, if the US just used existing Honeywell products today, 25% to 20% national energy savings.

Jim:           Okay, let’s go there… we had some very interesting and I will admit, not correct picks betting on what the stimulus package would be… because we thought that the stimulus package might be more of a road and bridge building… it looks like that you had some foresight as to where stimulus is going?

Dave:      Well, I don’t know if it was foresight as to where stimulus is going, but I would say 6 or 7 years ago we were pretty well convinced that energy was going to be a problem for the world for a long time to come. And we had a good portfolio already, and said let’s build this out. And we have done a heck of a job building that out, we have got a superb suite of energy efficiency products.

Jim:           Is this one where you sit there and say holy cow, we just went from $147 to $35, we are dead?

Dave:      No, don’t worry about that. Because oil is not going to say at $35, first of all. And even at $35 all of these products make sense. This is good stuff.

Jim:           And also, this is carbon… the idea that world wide we are not even sensitive right to energy price… we are sensitive to clean air… now one business that I absolutely love… whether it be from Tyco or United Technologies, is fire and fire control… why don’t you come over here and talk about what we have got here.

Dave:      Well, this is a new business that we acquired. And we make personal protection equipment. And it is amazing how much technology goes into personal protection equipment or PPE. You look at all of our businesses where we differentiate and make a difference. You tend to look at this and think that it is just clothing, it is not. These guys count on this significantly. You take a look at like NYFD, they use almost exclusively our product. It is really terrific stuff, and it is an amazing amount of technology, all the way to the helmet.

Jim:           Now, you are going after businesses where there have been entrenched interest that have dominated in these… whether it be, as we know the plating… companies have been producing this for years… how do you decide, hey I am taking on them, and I can get that business.

Dave:      Well, actually with us it started with first great positions in good industries. And if we are not in a particular place already, and it is too difficult too invent, we have learned that acquisition is a great way for us to go in. You look at gas detection, things like bar code scanning, auto identification, personal protection equipment, all done thru acquisitions. And thru acquisitions, we have become the number one or two player pretty quickly.

Jim:           Now, can you just step back for one second… I know that they are giving me the hook there, but I don’t care… I have got to get them… on page 5 of your conference call you talked about how China you haven’t seen any turn yet… in subsequent analysts interviews, you say that there is some life to China. Which is it?

Dave:      There is still some life to China but it is not a big a life as people thought in the beginning. The growth rate is clearly coming down, but they are putting a lot of money into it.

Jim:           And is there a division that you think you would want to trade up out of… I mean transportation has always worried me… you know auto.

Dave:      No, actually the transportation business is going to be very good. Because we are not in the auto business there, we are in the turbo business. And when you are in something like this that is penetrating, it is 25% of the world auto uses turbo, there is a lot of penetration left to go.

Jim:           Okay, Dave Cote who is the CEO of Honeywell, proud to be my neighbor… I have to admit, I am very proud to be next door to you, you ought to drop by occasionally… you have done a fabulous job reinventing this company.

Dave:      Well, we are not done.

Jim:           No, it is an ongoing activity.

Dave:      I told you that we make all of the firemen’s helmets for the New York Fire Department. I also know that you are committed to supporting the fire department. Only the Chief is allowed to wear a white helmet. So this white helmet with the gold band.

Jim:           Thank you so much Dave, they are going to love me at the big fund raiser.