Honeywell 2003 Annual Report Download - page 17

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 2003 and 2002 was $7,191 and $7,332 million,
respectively. We anticipate that approximately $5,573 million of the 2003
backlog will be filled in 2004. 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, service 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.
U.S. exports comprised 10 percent of our total net sales in both 2003 and 2002.
Foreign manufactured products and services, mainly in Europe, were 34 and 30
percent of our total net sales in 2003 and 2002, respectively.
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.
Approximately 19 percent of total net sales of Aerospace-related products
and services were exports of U.S. manufactured products and systems and
performance of services such as aircraft repair and overhaul. Exports were
principally made to Europe, Asia and Canada. Foreign manufactured products and
services comprised 14 percent of total Aerospace net sales.
Approximately 2 percent of total net sales of Automation and Control
Solutions products were exports of U.S. manufactured products. Foreign
manufactured products and services accounted for 48 percent of total net sales
of Automation and Control Solutions. The principal manufacturing facilities
outside the U.S. are in Europe, with less significant operations in Asia and
Canada.
Approximately 12 percent of total net sales of Specialty Materials were
exports of U.S. manufactured products. Exports were principally made to Asia,
Europe, Latin America and Canada. Foreign manufactured products comprised 28
percent of total net sales of Specialty Materials. The principal manufacturing
facilities outside the U.S. are in Europe, with less significant operations in
Asia and Canada.
8