Honeywell 2003 Annual Report Download - page 18

Exports of U.S. manufactured products comprised 1 percent of total net sales
of Transportation Systems products. Foreign manufactured products accounted for
62 percent of total net sales of Transportation Systems. The principal
manufacturing facilities outside the U.S. are in Europe, with less significant
operations in Asia, Latin America and Canada.
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 2003. 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. The costs of certain key raw materials, including
natural gas and benzene, in our Specialty Materials' business were at
historically high levels in 2003 and are expected to remain at those levels in
2004. Based on current volume usage, a 10 percent increase in the year-end price
of natural gas and benzene would increase our costs by $12 and $15 million,
respectively. At present, we have no reason to believe a shortage of raw
materials will cause any material adverse impact during 2004.
Patents, Trademarks, Licenses and Distribution Rights
Our business as a whole, and that of our strategic business units, are not
dependent upon any single patent or related group of patents, or any licenses or
distribution rights. We own, or are licensed under, a large number of patents,
patent applications and trademarks acquired over a period of many years, which
relate to many of our products or improvements to those products and which are
of importance to our business. From time to time, new patents and trademarks are
obtained, and patent and trademark licenses and rights are acquired from others.
We also have distribution rights of varying terms for a number of products and
services produced by other companies. In our judgment, those rights are adequate
for the conduct of our business. We believe that, in the aggregate, the rights
under our patents, trademarks and licenses are generally important to our
operations, but we do not consider any patent, trademark or related group of
patents, or any licensing or distribution rights related to a specific process
or product to be of material importance in relation to our total business.
We have registered trademarks for a number of our products, including such
consumer brands as Honeywell, Prestone, FRAM, Anso, Autolite, Bendix King and
Garrett.
Research and Development
Our research activities are directed toward the discovery and development of
new products and processes, improvements in existing products and processes, and
the development of new uses for existing products.
Research and development expense totaled $751, $757 and $832 million in
2003, 2002 and 2001, respectively. The decrease in research and development
expense in 2002 compared with 2001 related mainly to lower spending by our
Aerospace segment due primarily to program completions and fewer new program
launches by original equipment manufacturers. Customer-sponsored (principally
the U.S. Government) research and development activities amounted to an
additional $608, $603 and $697 million in 2003, 2002 and 2001, respectively.
Environment
We are subject to various federal, state and local government requirements
regulating the discharge of materials into the environment or otherwise relating
to the protection of the environment. It is our policy to comply with these
requirements, and we believe that, as a general matter, our policies, practices
and procedures are properly designed to prevent unreasonable risk of
environmental damage, and of resulting financial liability, in connection with
our business. Some risk of environmental damage is, however, inherent in some of
our operations and products, as it is with other companies engaged in similar
businesses.
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