Honeywell 2010 Annual Report Download - page 19

As a supplier of military and other equipment to the U.S. Government, we are subject to unusual risks, such as the right of the U.S. Government to
terminate contracts for convenience and to conduct audits and investigations of our operations and performance.
In addition to normal business risks, companies like Honeywell that supply military and other equipment to the U.S. Government are subject to unusual
risks, including dependence on Congressional appropriations and administrative allotment of funds, changes in governmental procurement legislation 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, such as contract award protests and delays in the timing of contract approvals.
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 or changes to certain accounting systems or controls 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.
Our reputation and ability to do business may be impacted by the improper conduct of employees, agents or business partners.
We cannot ensure that our extensive compliance controls, policies and procedures will in all instances protect us from reckless or criminal acts
committed by our employees, agents or business partners that would violate the laws of the jurisdictions in which the Company operates, including laws
governing payments to government officials, competition and data privacy. Any improper actions could subject us to civil or criminal investigations,
monetary and non-monetary penalties and could adversely impact our ability to conduct business, results of operations and reputation.
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, environmental 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. Legislation or regulations regarding areas such as labor and
employment, employee benefit plans, tax, health, safety and environmental matters, import, export and trade, intellectual property, product certification, and
product liability may impact the results of each of our operating segments and our consolidated results.
Completed acquisitions may not perform as anticipated or be integrated as planned, and divestitures may not occur as planned.
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