Honeywell, best known for its thermostats, also produces specialized chemicals used in semiconductor manufacturing. In an alliance, Honeywell supplied the chemicals, and Air Products handled sales and customer relationships. Air Products agreed to buy all its semiconductor chemical needs from Honeywell and share the profits. When Air Products later purchased a competing chemical business and stopped buying from Honeywell, Honeywell claimed breach of contract and sued for lost profits.
I’m not a lawyer, so I will avoid the nuances of this case. Despite the case being 20 years old, I wanted to highlight the use of two different financial experts: the CPA/economic damages analyst vs. the economist.
Honeywell’s Expert (CPA, Economic Damages Analyst)
The CPA, specializing in economic damages analysis, built a detailed cost accounting model separating fixed from variable costs to determine incremental profitability. He estimated that every dollar of lost sales would have generated roughly 48% profit and projected damages of about $10.8 million under the assumption that Honeywell would lose all alliance sales once Air Products left.
Air Products’ Expert (Economist)
The economist used regression analyses and three other statistical methods to estimate profit margins, averaging the results to an 11% profit rate. His damages estimate came in under $1 million. His primary criticism was that the accountant’s approach relied too heavily on internal assumptions and was overly optimistic.
The judge found the CPA’s analysis more grounded in business operations but slightly too optimistic. The economist’s model, though “mathematically neat,” was disconnected from how the business really functioned. The court ultimately reduced the accountant’s assumptions and awarded $6 million in lost profits plus $2 million for reimbursable plant expansion costs—a win for Honeywell.
Ultimately, CPAs who perform damages analysis are trained to focus on how a business earns, spends, and saves, grounding their analyses in real financial performance. Economists take a broader, more theoretical view, often modeling trends and relationships at a distance. In damages cases, that difference can be decisive.
I have a lot of respect for economists, whose work captures the broader theories and market forces that shape how businesses operate. However, when it comes to quantifying the specific damages a company faces, a CPA’s perspective is often more granular and grounded in the actual financial mechanics of the business.
And, for what it’s worth, Honeywell and Air Products have since kissed and made up, with Honeywell acquiring Air Products’ chemical business just last year. It’s a tidy ending for them—and hopefully for you, too. Let’s discuss your current damages case. Reserve some time to speak with me here.
