Honeywell 2011 Annual Report Download - page 17

The cost of raw materials is a key element in the cost of our products, particularly in our Performance Materials and Technologies (cumene, fluorspar,
perchloroethylene, R240, natural gas, sulfur and ethylene), Transportation Systems (nickel, steel and other metals) and Aerospace (nickel, titanium and other
metals) segments. Our inability to offset material price inflation through increased prices to customers, formula or long-term fixed price contracts with
suppliers, productivity actions or through commodity hedges could adversely affect our results of operations.
Our manufacturing operations are also highly dependent upon the delivery of materials (including raw materials) by outside suppliers and their
assembly of major components, and subsystems used in our products in a timely manner and in full compliance with purchase order terms and conditions,
quality standards, and applicable laws and regulations. In addition, many major components, product equipment items and raw materials are procured or
subcontracted on a single-source basis with a number of domestic and foreign companies; in some circumstances these suppliers are the sole source of the
component or equipment. Although we maintain a qualification and performance surveillance process to control risk associated with such reliance on third
parties and 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. Our ability to manage inventory and meet delivery requirements may be constrained by our suppliers' inability to scale
production and adjust delivery of long-lead time products during times of volatile demand. Our suppliers may fail to perform according to specifications as
and when required and we may be unable to identify alternate suppliers or to otherwise mitigate the consequences of their non-performance. The supply
chains for our businesses could also be disrupted by suppliers' decisions to exit certain businesses, bankruptcy and by external events such as natural disasters,
extreme weather events, pandemic health issues, terrorist actions, labor disputes, governmental actions and legislative or regulatory changes (e.g., product
certification or stewardship requirements, sourcing restrictions, product authenticity, climate change or greenhouse gas emission standards, etc.). Our inability
to fill our supply needs would jeopardize our ability to fulfill obligations under commercial and government contracts, which could, in turn, result in reduced
sales and profits, contract penalties or terminations, and damage to customer relationships. Transitions to new suppliers may result in significant costs and
delays, including those related to the required recertification of parts obtained from new suppliers with our customers and/or regulatory agencies. In addition,
because our businesses cannot always immediately adapt their cost structure to changing market conditions, our manufacturing capacity for certain products
may at times exceed or fall short of our production requirements, which could adversely impact our operating costs, profitability and customer and supplier
relationships.
Our facilities, distribution systems and information technology systems are subject to catastrophic loss due to, among other things, fire, flood, terrorism
or other natural or man-made disasters. If any of these facilities or systems were to experience a catastrophic loss, it could disrupt our operations, result in
personal injury or property damage, damage relationships with our customers and result in large expenses to repair or replace the facilities or systems, as well
as result in other liabilities and adverse impacts. The same risk can also arise from the failure of critical systems supplied by Honeywell to large industrial,
refining and petrochemical customers.
Our future growth is largely dependent upon our ability to develop new technologies that achieve market acceptance with acceptable margins.
Our businesses operate in global markets that are characterized by rapidly changing technologies and evolving industry standards. Accordingly, our
future growth rate depends upon a number of factors, including our ability to (i) identify emerging technological trends in our target end-markets, (ii) develop
and maintain competitive products, (iii) enhance our products by adding innovative features that differentiate our products from those of our competitors and
prevent commoditization of our products, (iv) develop, manufacture and bring products to market quickly and cost-effectively, and (v) develop and retain
individuals with the requisite expertise.
Our ability to develop new products based on technological innovation can affect our competitive position and requires the investment of significant
resources. These development efforts divert resources from other potential investments in our businesses, and they may not lead to the development of new
technologies or products on a timely basis or that meet the needs of our customers as fully as competitive offerings. In addition, the markets for our products
may not develop or grow as we currently anticipate. The failure of our technologies or products to gain market acceptance due to more attractive offerings by
our competitors could significantly reduce our revenues and adversely affect our competitive standing and prospects.
Protecting our intellectual property is critical to our innovation efforts.
We own or are licensed under a large number of U.S. and non-U.S. patents and patent applications, trademarks and copyrights. Our intellectual property
rights may expire or be challenged, invalidated or infringed
14