Honeywell 2002 Annual Report Download - page 18

We, like other government contractors, are subject to government
investigations of business practices and compliance with government procurement
regulations. Although such regulations provide that a contractor may be
suspended or barred from government contracts under certain circumstances, and
the outcome of pending government investigations cannot be predicted with
certainty, we are not currently aware of any such investigations that we expect,
individually or in the aggregate, will have a material adverse effect on us. In
addition, we have a proactive business compliance program designed to ensure
compliance and sound business practices.
BACKLOG
Our total backlog at year-end 2002 and 2001 was $7,332 and $7,178 million,
respectively. We anticipate that approximately $6,194 million of the 2002
backlog will be filled in 2003. We believe that backlog is not necessarily a
reliable indicator of our future sales because a substantial portion of the
orders constituting this backlog may be canceled at the customer's option.
COMPETITION
We are subject to active competition in substantially all product and
service areas. Competition is expected to continue in all geographic regions.
Competitive conditions vary widely among the thousands of products and services
provided by us, and vary country by country. Depending on the particular
customer or market involved, our businesses compete on a variety of factors,
such as price, quality, reliability, delivery, customer service, performance,
applied technology, product innovation and product recognition. Brand identity,
service to customers and quality are generally important competitive factors for
our products and services, and there is considerable price competition. Other
competitive factors for certain products include breadth of product line,
research and development efforts and technical and managerial capability. While
our competitive position varies among our products and services, we believe we
are a significant competitor in each of our major product and service classes.
However, a number of our products and services are sold in competition with
those of a large number of other companies, some of which have substantial
financial resources and significant technological capabilities. In addition,
some of our products compete with the captive component divisions of original
equipment manufacturers.
INTERNATIONAL OPERATIONS
We are engaged in manufacturing, sales and research and development mainly
in the United States, Europe, Canada, Asia and Latin America. U.S. exports and
foreign manufactured products are significant to our operations.
Our international operations, including U.S. exports, are potentially
subject to a number of unique risks and limitations, including: fluctuations in
currency value; exchange control regulations; wage and price controls;
employment regulations; foreign investment laws; import and trade restrictions,
including embargoes; and governmental instability. However, we have limited
exposure in high risk countries and have taken action to mitigate these risks.
Financial information related to geographic areas is included in Note 24 of
Notes to Financial Statements in our 2002 Annual Report to Shareowners which is
incorporated herein by reference.
RAW MATERIALS
The principal raw materials used in our operations are generally readily
available. We experienced no significant or unusual problems in the purchase of
key raw materials and commodities in 2002. We are not dependent on any one
supplier for a material amount of our raw materials. However, we are highly
dependent on our suppliers and subcontractors in order to meet commitments to
our customers. In addition, many major components and product equipment items
are procured or subcontracted on a sole-source basis with a number of domestic
and foreign companies. We maintain a qualification and performance surveillance
process to control risk associated with such reliance on third parties. While we
believe that sources of supply for raw materials and components are generally
adequate, it is difficult to predict what effects shortages or price increases
may have in the future. A prolonged and substantial increase above recent
historical levels in petroleum prices would adversely affect our Specialty
Materials businesses which use petroleum byproducts as raw materials. However,
at present,
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