Honeywell 2006 Annual Report Download - page 24

impact of evidentiary requirements, and we may be required to pay damage awards or settlements, or become subject to damage
awards or settlements, that could have a material adverse effect on our results of operations, cash flows and financial condition. While
we maintain insurance for certain risks, the amount of our insurance coverage may not be adequate to cover the total amount of all
insured claims and liabilities. It also is not possible to obtain insurance to protect against all our operational risks and liabilities. The
incurrence of significant liabilities for which there is no or insufficient insurance coverage could adversely affect our results of
operations, cash flows, liquidity and financial condition.
Our operations and the prior operations of predecessor companies expose us to the risk of material environmental liabilities.
Mainly because of past operations and operations of predecessor companies, we are subject to potentially material liabilities
related to the remediation of environmental hazards and to personal injuries or property damages that may be caused by hazardous
substance releases and exposures. We have incurred remedial response and voluntary clean-up costs for site contamination and are a
party to lawsuits and claims associated with environmental and safety matters, including past production of products containing toxic
substances. Additional lawsuits, claims and costs involving environmental matters are likely to continue to arise in the future. We are
subject to various federal, state, local and foreign government requirements regulating the discharge of materials into the environment
or otherwise relating to the protection of the environment. These laws and regulations can impose substantial fines and criminal
sanctions for violations, and require installation of costly equipment or operational changes to limit emissions and/or decrease the
likelihood of accidental hazardous substance releases. We incur, and expect to continue to incur capital and operating costs to comply
with these laws and regulations. In addition, changes in laws, regulations and enforcement of policies, the discovery of previously
unknown contamination or new technology or information related to individual sites, or the imposition of new clean-up requirements
or remedial techniques could require us to incur costs in the future that would have a negative effect on our financial condition or
results of operations.
Our expenses include significant costs related to employee health and retiree health and income benefits.
With approximately 118,000 employees, including 56,000 in the U.S, our expenses relating to employee health and retiree health
and income benefits are significant. In recent years, we have experienced significant increases in certain of these costs, largely as a
result of economic factors beyond our control, in particular, ongoing increases in health care costs well in excess of the rate of
inflation. Continued increasing health-care costs, and changes in other assumptions used to calculate retiree health and income benefit
expenses, may affect our future profitability.
Additional tax expense or additional tax exposures could affect our future profitability
We are subject to income taxes in both the United States and various foreign jurisdictions, and our domestic and international tax
liabilities are dependent upon the distribution of income among these different jurisdictions. In 2006, our tax expense represented 25.7
percent of our income before tax, and includes estimates of additional tax which may be incurred for tax exposures and reflects
various estimates and assumptions, including assessments of future earnings of the Company that could effect the valuation of our
deferred tax assets. Our future results could be adversely affected by changes in the effective tax rate as a result of a change in the mix
of earnings in countries with differing statutory tax rates, changes in the overall profitability of the Company, changes in tax
legislation, changes in the valuation of deferred tax assets and liabilities, and continuing assessments of our tax exposures.
Item 1B. Unresolved Staff Comments
Not Applicable
Item 2. Properties
We have approximately 1,300 locations consisting of plants, research laboratories, sales offices and other facilities. Our
headquarters and administrative complex is located at Morris Township, New Jersey. Our plants are generally located to serve large
marketing areas and to provide accessibility to raw materials
14