Honeywell 2006 Annual Report Download - page 23

industry. Changes are customary over the life of U.S. Government contracts, particularly development contracts, and generally result
in adjustments of contract prices.
Our contracts with the U.S. Government are subject to audits. Like many other government contractors, we have received audit reports
that recommend downward price adjustments to certain contracts to comply with various government regulations. We have made
adjustments and paid voluntary refunds in appropriate cases and may do so in the future.
U.S. Government contracts are subject to termination by the government, either for the convenience of the government or for our
failure to perform under the applicable contract. In the case of a termination for convenience, we are typically entitled to
reimbursement for our allowable costs incurred, plus termination costs and a reasonable profit. If a contract is terminated by the
government for our failure to perform we could be liable for additional costs incurred by the government in acquiring undelivered
goods or services from any other source and any other damages suffered by the government.
We are also subject to government investigations of business practices and compliance with government procurement regulations. If
Honeywell or one of its businesses were charged with wrongdoing as a result of any such investigation or other government
investigations (including violations of certain environmental or export laws), it could be suspended from bidding on or receiving
awards of new government contracts pending the completion of legal proceedings. The U.S. Government also reserves the right to
debar a contractor from receiving new government contracts for fraudulent, criminal or other egregious misconduct. Debarment
generally does not exceed three years.
Changes in legislation or government regulations or policies can have a significant impact on our results of operations.
The sales and margins of each of our segments are directly impacted by government regulations. Safety and performance
regulations (including mandates of the Federal Aviation Administration and other similar international regulatory bodies requiring the
installation of equipment on aircraft), product certification requirements and government procurement practices can impact Aerospace
sales, research and development expenditures, operating costs and profitability. The demand for and cost of providing Automation and
Control Solutions products, services and solutions can be impacted by fire, security, safety, health care and energy efficiency
standards and regulations. Specialty Materials' results of operations can be affected by environmental (e.g. government regulation of
fluorocarbons), safety and energy efficiency standards and regulations, while emissions and energy efficiency standards and
regulations can impact the demand for turbochargers in our Transportation Systems segment.
Completed acquisitions may not perform as anticipated or be integrated as planned, and divestitures may not occur as planned.
We regularly review our portfolio of businesses and pursue growth through acquisitions and seek to divest non-core businesses.
We may not be able to complete transactions on favorable terms, on a timely basis or at all. In addition, our results of operations and
cash flows may be adversely impacted by (i) the failure of acquired businesses to meet or exceed expected returns, (ii) the discovery
of unanticipated issues or liabilities, (iii) the failure to integrate acquired businesses into Honeywell on schedule and/or to achieve
synergies within the plan and timeframe, and/or (iv) the inability to dispose of non-core assets and businesses on satisfactory terms
and conditions and within the expected time frame.
We cannot predict with certainty the outcome of litigation matters, government proceedings and other contingencies and
uncertainties.
We are subject to a number of lawsuits, investigations and disputes (some of which involve substantial amounts claimed) arising
out of the conduct of our business, including matters relating to commercial transactions, government contracts, product liability
(including asbestos), prior acquisitions and divestitures, employment, employee benefits plans, and environmental, health and safety
matters. Resolution of these matters can be prolonged and costly, and the ultimate results or judgments are uncertain due to the
inherent uncertainty in litigation and other proceedings. Moreover, our potential liabilities are subject to change over time due to new
developments, changes in settlement strategy or the
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