Honeywell 2007 Annual Report Download - page 22

Congressional appropriations and administrative allotment of funds, changes in governmental procurement
legislations and regulations and other policies that reflect military and political developments, significant changes
in contract scheduling, complexity of designs and the rapidity with which they become obsolete, necessity for
constant design improvements, intense competition for U.S. Government business necessitating increases in
time and investment for design and development, difficulty of forecasting costs and schedules when bidding on
developmental and highly sophisticated technical work, and other factors characteristic of the 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, suspended from
contract performance pending the completion of legal proceedings and/or have its export privileges suspended.
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, enviornmental
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 in the planned
amount or within the expected timeframe, and/or (iv) the inability to dispose of non-core assets and businesses
on satisfactory terms and conditions and within the expected timeframe.
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