HONEYWELL INC, 10-K, 1997-02-25

HONEYWELL INC
10-K, 1997-02-25
AUTO CONTROLS FOR REGULATING RESIDENTIAL & COMML ENVIRONMENTS

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1996
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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [ FEE REQUIRED ]

For the fiscal year ended December 31, 1996

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [ NO FEE REQUIRED ]

For the transition period from.......... to....................................

Commission file number 1-971

HONEYWELL INC.
(Exact name of registrant as specified in its charter)

DELAWARE 41-0415010
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

HONEYWELL PLAZA, MINNEAPOLIS, MINNESOTA 55408
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code 612-951-1000

Securities registered pursuant to section 12(b) of the act:

Name of each exchange on which
Title of each class registered
Common Stock, par value $1.50 New York Stock Exchange
per share

Preferred Stock Purchase Rights New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___.

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. /X/

Based on the closing sales price of $75.00 on February 14, 1997, the
aggregate market value of the voting stock held by nonaffiliates of the
registrant was $9,463,942,950.

As of February 14, 1997, the number of shares outstanding of the
registrant's common stock, par value $1.50 per share, was 126,755,156 shares.

DOCUMENTS INCORPORATED IN PART BY REFERENCE

Incorporated Documents Location in Form 10-K
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Honeywell Notice of 1997 Annual Meeting and Proxy Part III
Statement

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<PAGE>
PART I

ITEM 1. BUSINESS

Honeywell Inc., a Delaware corporation incorporated in 1927, is a
Minneapolis-based international corporation that supplies automation and control
systems, components, software, products and services for homes and buildings,
industry, and space and aviation. The purpose of the company is to develop and
supply advanced-technology control products, systems and services that conserve
energy and protect the environment, improve productivity, enhance comfort and
increase safety. Development and modification occur continuously in Honeywell's
business as new or improved products and services are introduced, new markets
are created or entered, distribution methods are revised, and products and
services are discontinued.

INDUSTRY SEGMENT INFORMATION

Honeywell's products and services are classified by management into three
primary industry segments: (i) Home and Building Control, (ii) Industrial
Control, and (iii) Space and Aviation Control. Financial information relating to
these industry segments is set forth in Part II, Item 6 at page 11.

HOME AND BUILDING CONTROL

Honeywell's Home and Building Control business provides controls and systems
for building automation, energy management, fire and security, as well as
thermostats, air cleaners and other environmental controls products and services
for buildings and homes.

Honeywell manufactures, markets and installs mechanical, pneumatic,
electrical and electronic control products and systems for heating, ventilation
and air conditioning in homes and commercial, industrial and public buildings.
The systems, which may be generic or specifically designed for each application,
may include panels and control systems to centralize mechanical and electrical
functions.

Honeywell produces building management systems for commercial buildings and
controls for a variety of applications, including burner and boiler, lighting,
thermostatic radiators, pressure regulators for water systems, thermostats,
actuators, humidistats, relays, contactors, transformers, air-quality products,
and gas valves and ignition controls for homes and commercial buildings.
Honeywell also produces standalone consumer products such as fans, heaters,
humidifiers and water filtration products. Sales of these products are made
directly to original equipment manufacturers, including manufacturers of heating
and air conditioning equipment; through wholesalers, distributors, dealers,
contractors, hardware stores and home-care centers; and also through the
company's nationwide sales and service organization.

Services provided include indoor air-quality services, central-station
burglary and fire protection services for homes and commercial buildings, video
surveillance, access control and entry management services for commercial
buildings, contract maintenance services for commercial building mechanical and
control systems, automated management of building operations for building
complexes, energy management services, energy retrofit services and training.

INDUSTRIAL CONTROL

The Industrial Control business serves the automation and control needs of
its worldwide industrial customers as a major supplier of products, systems and
services ranging from sensors to integrated systems designed for specific
applications.

Honeywell's Industrial Control segment supplies process control systems and
associated application software and services to customers in a broad range of
markets, which include process industries such as the refining, petrochemical,
bulk and fine chemical, pulp-and-paper, electric utility, food and consumer
goods, pharmaceutical, metals and transportation industries. Industrial Control
has an

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extensive customer base worldwide, including most of the leading oil refiners,
pulp and paper manufacturers and chemical companies. Honeywell also designs and
manufactures process instruments, process controllers, recorders, programmers,
programmable controllers, transmitters and other field instruments that may be
sold as stand-alone products or integrated into systems. These products are
generally used in indicating, recording and automatically controlling process
variables.

Under the MICRO SWITCH trademark, Honeywell manufactures solid-state sensors
(including position, pressure, airflow, temperature and current sensors), sensor
interface devices, manual controls, explosion-proof switches and precision
snap-acting switches, as well as proximity, photoelectric and mercury switches
and lighted/unlighted pushbuttons. These products are used in industrial,
commercial and business equipment, and in consumer, medical, automotive,
aerospace and computer applications.

Other products include solenoid valves, optoelectronic devices, fiber-optic
systems and components, as well as microcircuits, sensors, transducers and
high-accuracy, noncontact measurement and detection products for factory
automation, quality inspection and robotics applications.

Honeywell also furnishes industrial customers with various services,
including the following: product and component testing services; project
management, engineering and installation services, instrument maintenance,
repair and calibration services; contract services for industrial control
equipment including third-party maintenance for CAD/CAM and other industrial
control equipment; advanced control, networking and optimization services; and
training, customized products for customer applications and a range of other
customer support services.

Services are generally sold directly to users on a monthly or annual
contract basis. Products are customarily sold by Honeywell on a delivered,
supervised or installed basis directly to end users, to equipment manufacturers
and contractors, or through third-party channels such as distributors and
systems houses.

SPACE AND AVIATION CONTROL

Honeywell's Space and Aviation Control business supplies avionics for the
commercial, military and space markets. The company designs, manufactures,
services and markets a variety of sophisticated electronic control systems and
components for commercial and business aircraft, military aircraft and
spacecraft.

Products manufactured for aircraft use include the following: integrated
avionics systems; ring laser gyro-based inertial reference systems; navigation
and guidance systems; flight control systems; flight management systems;
inertial sensors; air data computers; radar altimeters; automatic test
equipment; cockpit display systems; and other communication and flight
instrumentation.

Honeywell products and services have been involved in every major U.S. space
mission since the mid-1960s. These products and services include guidance
systems for launch and re-entry vehicles, flight and engine control systems for
manned spacecraft, precision components for strategic missiles and on-board data
processing. Other products include spacecraft attitude and positioning systems,
and precision pointing and isolation systems.

Honeywell's avionics have been purchased by leading aircraft manufacturers
for use in aircraft throughout the world, including the Boeing 777, the
McDonnell Douglas MD-11 and MD 90, the GulfStream IV and V, the Cessna Citation
X and the Bombardier Global Expressjet. In the military and space markets, the
Company solutions are found on key platforms, including the F-15 and the F-16
military jets and Space Station Alpha.

Space and Aviation Control products are sold through an integrated
international marketing organization, with customer service centers providing
international service for commercial and business aviation users.

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OTHER PRODUCTS

Products and services not included in the foregoing segment information are
described below.

The Honeywell Technology Center provides systems analysis and applied
research and development on systems and products, including, application
software, sensors and advanced electronics.

Solid State Electronics Center, a semiconductor facility in Minnesota,
designs and manufactures integrated circuits and sensors for Honeywell,
government customers and selected external customers.

Honeywell, through its operations in Germany, develops, markets and sells to
European countries, among other things, military avionics and electro-optic
devices for flight control and nautical systems, including sonar transducers and
echo sounders.

GENERAL INFORMATION

RAW MATERIALS

Honeywell experienced no significant or unusual problems in the purchase of
raw materials and commodities in 1996. Although it is impossible to predict what
effects shortages or price increases may have in the future, at present
management has no reason to believe a shortage of raw materials will cause any
material adverse impact during 1997.

PATENTS, TRADEMARKS, LICENSES AND DISTRIBUTION RIGHTS

Honeywell owns, or is licensed under, a large number of patents, patent
applications and trademarks acquired over a period of many years, which relate
to many of its products or improvements thereon and are of importance to its
business. From time to time, new patents and trademarks are obtained, and patent
and trademark licenses and rights are acquired from others. In addition,
Honeywell has distribution rights of varying terms in a number of products and
services produced by other companies. In the judgment of management, such rights
are adequate for the conduct of the business being done by Honeywell. See Item 3
at page 7 for information concerning litigation relating to patents in which
Honeywell is involved.

SEASONALITY

Although Honeywell's core businesses are not seasonal in the traditional
sense, revenues and earnings have tended to concentrate to some degree in the
fourth quarter of each calendar year, reflecting the tendency of customers to
increase ordering and spending for capital goods late in the year.

MAJOR CUSTOMER

Honeywell provides products and services to the United States government as
a prime contractor or subcontractor, the majority of which are described under
the heading "Space and Aviation Control" on page 2. Such business is significant
because of its volume and its contribution to Honeywell's technical
capabilities, but Honeywell's dependence upon individual programs is minimized
by the large variety of products and services it provides. Contracts and
subcontracts for all of such sales are subject to the standard provisions
permitting the government to terminate for convenience or default.

BACKLOG

The total dollar amount of backlog of Honeywell's orders believed to be firm
was approximately $3,919 million at December 31, 1996, and $3,676 million at
December 31, 1995. All but approximately $700 million of the 1996 backlog is
expected to be delivered within the current fiscal year. Backlog is not a
reliable indicator of Honeywell's future revenues because a substantial portion
of backlog represents the value of orders that can be canceled at the customer's
option.

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COMPETITION

Honeywell is subject to active competition in substantially all products and
services. Competitors generally are engaged in business on a nationwide or an
international scale. Honeywell is the largest producer of control systems and
products used to regulate and control heating and air conditioning in commercial
buildings, and of systems to control industrial processes worldwide. Honeywell
is also a leading supplier of commercial aviation, space and avionics systems.
Honeywell's automation and control businesses compete worldwide, supported by a
strong distribution network with manufacturing and/or marketing capabilities,
for at least a portion of these businesses, in 95 countries.

Competitive conditions vary widely among the thousands of products and
services provided by Honeywell, and vary as well from country to country.
Markets, customers and competitors are becoming more international in their
outlook. In those areas of environmental and industrial components and controls
where sales are primarily to equipment manufacturers, price/performance is
probably the most significant competitive factor, but customer service and
applied technology are also important. Competition is increasingly being applied
to government procurements to improve price and product performance. In service
businesses, quality, reliability and promptness of service are the most
important competitive factors. Service must be offered from many areas because
of the localized nature of such business. In engineering, construction,
consulting and research activities, technological capability and a record of
proven reliability are generally the principal competitive factors. Although in
a small number of highly specialized products and services Honeywell may have
relatively few significant competitors, in most markets there are many
competitors.

RESEARCH AND DEVELOPMENT

During 1996 Honeywell spent approximately $694.7 million on research and
development activities, including $341.4 million in customer-funded research,
relating to the development of new products or services, or the improvement of
existing products or services. Honeywell spent $659.8 million in 1995 and $659.5
million in 1994 on research and development activities, including $336.6 million
and $340.5 million, respectively, in customer-funded research.

ENVIRONMENTAL PROTECTION

Compliance with current federal, state and local provisions regulating the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, has not had, and in the opinion of management
will not have, a material effect on Honeywell's financial position, net income,
capital expenditures or competitive position. See Item 7 at page 13 for further
information concerning environmental matters.

EMPLOYEES

Honeywell employed approximately 53,000 persons in total operations as of
December 31, 1996.

GEOGRAPHIC AREAS

Honeywell engages in material operations in foreign countries. A large
majority of Honeywell's foreign business is in Western Europe, Canada and the
Asian Pacific Rim.

Although there are risks attendant to foreign operations, such as potential
nationalization of facilities, currency fluctuation and restrictions on movement
of funds, Honeywell has taken action to mitigate such risks.

Financial information related to geographic areas is included in Note 17 to
the financial statements in Part II, Item 8 at page 39.

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EXECUTIVE OFFICERS OF THE REGISTRANT

<TABLE>
<CAPTION>
POSITION HELD AGE AT
NAME OFFICE SINCE 3/1/97
- ----------------------------- -------------------------------------------------------------- ------------- -----------
<S> <C> <C> <C>
M. R. Bonsignore (1) Chairman of the Board and Chief Executive Officer 1993 55
D. L. Moore (2) President and Chief Operating Officer 1993 60
D. E. Bogle (3) President, Home and Building Control 1997 51
E. D. Grayson (4) Vice President and General Counsel 1992 58
W. M. Hjerpe (5) President, Honeywell Europe 1997 45
B. M. McGourty (6) Senior Vice President 1997 59
P. M. Palazzari (7) Vice President and Controller 1994 49
J. T. Porter (8) Corporate Vice President, Human Resources 1996 45
D. K. Schwanz (9) President, Space and Aviation Control 1997 52
L. W. Stranghoener (10) Vice President and Chief Financial Officer 1997 42
M. I. Tambakeras (11) President, Industrial Control 1995 45
</TABLE>

Officers are elected by the Board of Directors to terms of one year and
until their successors are elected and qualified.
- ------------------------
(1) Mr. Bonsignore was elected to this position effective April 20, 1993. For
more than five years prior thereto, he was an executive officer of the
company.

(2) Dr. Moore was elected to this position effective April 20, 1993. From
November 1990 to April 1993, he was Executive Vice President and Chief
Operating Officer, Space and Aviation, and Industrial.

(3) Mr. Bogle was elected to this position effective January 1, 1997. From
January 1996 to December 1996, he was Vice President and General Manager of
Honeywell's worldwide Home and Building Control strategic business unit.
From October 1994 to November 1996, he was Vice President and General
Manager of Home and Building Control. From May 1992 to September 1994, he
was Vice President and General Manager of Industrial Automation and Control.
From November 1990 to April 1992 he was President of U.S. Process Automation
Business for ASEA Brown Boveri.

(4) Mr. Grayson was elected to this position on effective April 1, 1992, when he
joined the company. For more than five years prior thereto, he was Senior
Vice President, General Counsel, Corporate Secretary and Clerk of Wang
Laboratories.

(5) Mr. Hjerpe was elected to this position effective March 1, 1997. From
February 1992 to October 1994, he was Vice President and Controller of the
company. From October 1994 to January 1997, he was Vice President and Chief
Financial Officer of the company.

(6) Mr. McGourty was elected an executive officer of the company effective April
1, 1994. He was appointed to his current position effective January 1, 1997.
From April 1994 to December 1996 he was President, Home and Building
Control. From December 1991 to March 1994, he was Vice President, Field
Operations for Home and Building Control.

(7) Mr. Palazzari was elected to this position effective October 16, 1994. From
May 1993 to October 1994, he was Vice President, Finance for Home and
Building Control. From March 1992 to April 1993, he was Vice President and
Assistant Controller of Operations for the company.

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(8) Mr. Porter was elected an executive officer of the company effective April
16, 1996. He has held his current position since May 1993. From January 1992
to April 1993 he was Director, Human Resources, Home and Building Control.

(9) Mr. Schwanz was elected to this position effective January 1, 1997. From
September 1993 to December 1996 he was Vice President and General Manager of
Air Transport Systems. From March 1992 to August 1993, he was Vice President
of Marketing for Air Transport Systems.

(10) Mr. Stranghoener was elected to this position effective February 1, 1997.
From March 1996 to January 1997, he was Vice President, Business
Development. From July 1993 to February 1996, he was Vice President for
Finance for Industrial Automation and Control. From April 1992 to June 1993
he was Director, Corporate Financial Planning and Business Analysis.

(11) Mr. Tambakeras was elected to this position effective February 1, 1997.
From February 1995 to January 1997, he was President, Industrial Automation
and Control. From January 1992 to February 1995, he was President of
Honeywell Asia Pacific.

ITEM 2. PROPERTIES

Honeywell and its subsidiaries operate facilities worldwide comprising
approximately 18,706,200 square feet of space for use as manufacturing, office
and warehouse space, of which approximately 10,587,200 square feet is owned and
approximately 8,119,000 square feet is leased. In the judgment of management,
the facilities used by Honeywell are adequate and suitable for the purposes they
serve.

Facilities allocated for corporate use in the United States, including sales
offices, comprise approximately 1,511,500 square feet of space, of which
approximately 1,462,000 square feet is owned and approximately 49,500 square
feet is leased. These figures include Honeywell's principal executive offices in
Minneapolis, Minnesota which comprise approximately 957,400 square feet, all of
which is owned.

A summary of properties held by each segment of Honeywell is set forth
below, showing major plants, their location, size and type of holding. The
descriptions include approximately 545,800 square feet of space owned or leased
by Honeywell's operations in the United States that has been leased or subleased
to third parties. In addition, approximately 4,064,700 square feet of previously
leased space in the United States is under assignment to third parties
(including 2,417,300 square feet, 437,200 square feet and 79,000 square feet
which is assigned to Alliant Techsystems Inc., Federal Systems Inc. and Bull HN
Information Systems, Inc., respectively, all of which were formerly affiliates
of the company).

HOME AND BUILDING CONTROL

Home and Building Control occupies approximately 3,523,900 square feet of
space for operations in the United States, of which approximately 1,396,300
square feet is owned and approximately 2,127,600 square feet is leased.

Outside the United States, Home and Building Control operations occupy
approximately 3,637,400 square feet, of which approximately 1,063,100 square
feet is owned and approximately 2,574,300 square feet is leased. Principal
facilities operated outside the United States are located in Canada, Germany,
The Netherlands, the United Kingdom and Australia.

Facilities in the United States comprising 300,000 square feet or more are
listed below.

<TABLE>
<CAPTION>
APPROXIMATE OWNED OR
LOCATION MAJOR USE OF FACILITY SQUARE FEET LEASED
- --------------------------- ------------------------------------ ------------ -----------
<S> <C> <C> <C>
Arlington Heights, Ill. Manufacturing 500,000 Leased
Golden Valley, Minn. Manufacturing 1,185,300 Owned
Memphis, Tenn. Warehouse/Distribution Center 500,000 Leased
</TABLE>

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INDUSTRIAL CONTROL

Industrial Control occupies approximately 2,946,900 square feet of space for
operations in the United States, of which approximately 2,265,300 square feet is
owned and approximately 681,600 square feet is leased.

Outside the United States, Industrial Control operations occupy
approximately 2,461,700 square feet, of which approximately 1,080,600 square
feet is owned and approximately 1,381,100 square feet is leased. Principal
facilities operated outside the United States are located in the United Kingdom,
Australia, Canada, Switzerland, France, Germany, Belgium and The Netherlands.

Facilities in the United States comprising 300,000 square feet or more are
listed below.

SPACE AND AVIATION CONTROL

Space and Aviation Control occupies approximately 4,439,300 square feet of
space for operations in the United States, of which approximately 3,179,300
square feet is owned and approximately 1,260,000 square feet is leased.

Outside the United States, Space and Aviation Control operations occupy
approximately 185,600 square feet, of which approximately 140,600 square feet is
owned and approximately 45,000 square feet is leased. Principal facilities
operated outside the United States are located in Canada, the United Kingdom and
Singapore.

Facilities in the United States comprising 300,000 square feet or more are
listed below.

<TABLE>
<CAPTION>
MAJOR USE OF APPROXIMATE OWNED OR
LOCATION FACILITY SQUARE FEET LEASED
- --------------------------- ------------------- ------------ -----------
<S> <C> <C> <C>
Phoenix, Ariz. Manufacturing 939,000 Owned
Albuquerque, N.M. Manufacturing 526,600 Owned
Minneapolis, Minn. Manufacturing 550,000 Owned
Clearwater, Fla. Manufacturing 914,800 Owned
St. Petersburg, Fla. Manufacturing 304,000 Leased
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

On March 13, 1990, Litton Systems, Inc. filed suit against Honeywell in U.S.
District Court, Central District of California, alleging patent infringement
relating to a process used by Honeywell to coat mirrors incorporated in its ring
laser gyroscopes; intentional interference by Honeywell with Litton's
prospective advantage with customers and with its contractual relationships with
Ojai Research, Inc.; and attempted monopolization and predatory pricing by
Honeywell in certain alleged markets for products containing ring laser
gyroscopes. Honeywell denied Litton's allegations; contested both the validity
and infringement of the patent; and alleged that the patent had been obtained by
Litton's inequitable conduct before the United States Patent and Trademark
Office.

U.S. District Judge Mariana Pfaelzer presided over the trial of the patent
and two state tort claims and on August 31, 1993, a jury returned a verdict in
favor of Litton and awarded damages against Honeywell in the amount of $1.2
billion for these claims. On January 9, 1995, the trial court set aside the jury
verdict and damage award, ruling, among other things, that the Litton patent was
unenforceable and invalid. The trial court also ruled that if its rulings were
vacated or reversed on appeal, Honeywell would be granted a new trial on the
issue of damages because the jury's award was inconsistent with the clear weight
of the evidence.

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Litton appealed to the United States Court of Appeals for the Federal
Circuit, and on July 3, 1996, a three judge panel overruled the trial court's
rulings of patent invalidity, unenforceability and non-infringement, and also
found Honeywell liable under Litton's state tort claims. However, the panel
upheld the trial court's ruling that Honeywell is entitled to a new trial for
damages on all claims, as well as its granting to Honeywell of certain
intervening patent rights. Honeywell requested a rehearing by the full Court of
Appeals, which was denied on September 11, 1996. On November 26, 1996, Honeywell
petitioned the U.S. Supreme Court for review of the panel's decision, which
petition is still pending. In the interim, Litton filed a motion with the trial
court seeking injunctive relief which was denied on December 23, 1996.

The patent and tort damages retrial is scheduled to begin May 6, 1997. On
February 7, 1997, Litton submitted damage studies seeking damages as high as
$1.9 billion. Honeywell believes that Litton's damage studies are flawed and
speculative for a number of reasons. Although it is not possible to predict the
verdict of the jury in the upcoming trial, and such verdict could result in an
award which is material, Honeywell believes that any award should be based on a
royalty which reasonably reflects the value of the mirror coating process, and
that such an award would not be material to Honeywell's financial position or
results of operations.

The jury trial for the antitrust case began November 20, 1995, also before
Judge Pfaelzer. The trial court dismissed, for failure of proof, Litton's
contentions that Honeywell engaged in below-cost predatory pricing, illegal
tying and bundling, and an illegal acquisition of Sperry Avionics in 1986. On
February 2, 1996, the case was submitted to the jury on two claims,
monopolization and attempt to monopolize. These claims were based on allegations
that Honeywell entered into certain long-term exclusive dealing and penalty
arrangements with aircraft manufacturers and airlines to exclude Litton from the
commercial aircraft market, and that Honeywell failed to provide Litton with
access to certain proprietary software. On February 29, 1996, the jury returned
a $234 million single damages verdict against Honeywell for the monopolization
claim, which would have been automatically trebled. On March 1, 1996, the jury
indicated that it was unable to reach a verdict on damages for the attempted
monopolization claim, and a mistrial was declared on that claim. Following the
verdict, Honeywell filed a Motion for Judgment as a Matter of Law and a Motion
for a New Trial, contending that the jury's partial verdict should be overturned
because Litton (i) failed to prove essential elements of liability and (ii)
failed to submit competent evidence to support its claim for damages by offering
only a speculative, all-or-nothing $298.5 million damage study. Litton filed a
Motion for Injunctive Relief and a Motion for Entry of Judgment.

On July 24, 1996, the trial court denied Honeywell's Motion for Judgment as
a Matter of Law but concluded, that Litton's damage study was seriously flawed,
and granted Honeywell a retrial on damages only. The court also denied Litton's
Motion for Injunctive Relief and Litton's Motion for Entry of Judgment. No date
has been set for the retrial on damages. Honeywell believes there are questions
concerning what conduct the original jury found anti-competitive that may give
rise to damages in a retrial, and consequently a damages retrial should also
require a retrial of liability issues in some respects. Following the damages
retrial, Honeywell will have the right to appeal both the liability and damages
verdicts. Therefore, no provision has been made in the financial statements with
respect to this contingent liability.

In the fall of 1996, Litton and Honeywell commenced court ordered mediation
of the patent, tort and antitrust claims. No resolution of the claims has
occurred and the mediation is currently in recess.

On September 12, 1994, Honeywell filed a declaratory judgment action against
American Flywheel Systems, Inc. ("AFS") in the Superior Court of Maricopa
County, Arizona, seeking a declaration as to the rights and obligations of the
parties under an agreement regarding the development of an electro-mechanical
flywheel battery. In October 1994, Honeywell ceased work under the project as a
result of AFS's failure to make payments under the agreement. On July 21, 1995,
AFS filed an answer

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and counterclaim alleging breach of contract and related tort claims, including
fraud. Honeywell denied AFS's allegations and amended its complaint to seek
damages for nonpayment of monies owed under the agreement. The trial in the case
began on October 7, 1996. On November 27, 1996, the jury returned three verdicts
against Honeywell which total $38 million and one verdict in favor of Honeywell
for relief which will be determined by the Court. On February 7, 1997, Honeywell
filed motions to contest the verdicts and resolve the remaining technology
issues in the case. Oral arguments on the motions are scheduled in mid-April
1997. Honeywell believes that it will be successful on some or all of these
motions, and that an adverse decision, if any, is not likely to be material to
Honeywell's net income, financial position or liquidity.

Honeywell is a party to other various claims, legal and governmental
proceedings, including claims relating to previously reported environmental
matters. It is the opinion of management that any losses in connection with
these matters and the resolution of the environmental claims will not have a
material effect on net income, financial position or liquidity.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of 1996.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The principal U.S. market for Honeywell's common stock is the New York Stock
Exchange. The high and low sales prices for the stock as reported by the
consolidated transaction reporting system, of the two most recent fiscal years
is set forth in Note 21 to the financial statements in Part II, Item 8 at page
46.

Information regarding the frequency and amount of dividends paid by
Honeywell on its common stock during the two most recent years is set forth in
Note 21 to the financial statements in Part II, Item 8 at page 46. Further
information regarding the company's payment of dividends is set forth in Part
II, Item 7 at page 18.

Information regarding Honeywell's share repurchase plans is set forth in
Part II, Item 7 at page 18.

Stockholders of record on February 14, 1997 totaled 31,591, excluding
individual participants in security position listings.

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ITEM 6. SELECTED FINANCIAL DATA

HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS AND SHARES IN MILLIONS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Results of Operations
Sales................................................ $7,311.6 $6,731.3 $6,057.0 $5,963.0 $6,222.6 $6,192.9
Sales growth rate.................................. 8.6% 11.1% 1.6% (4.2)% 0.5% (1.8)%
-------- -------- -------- -------- -------- --------
Cost of sales........................................ 4,975.4 4,584.2 4,082.1 4,019.6 4,195.3 4,185.1
Research and development............................. 353.3 323.2 319.0 337.4 312.6 300.7
Selling, general and administrative.................. 1,313.1 1,263.1 1,173.8 1,075.7 1,196.8 1,150.9
Litigation settlements (1)........................... (32.6) (287.9)
Discontinuance of product lines......................
Special charges...................................... 62.7 51.2 128.4
Interest -- net...................................... 72.9 68.9 60.2 51.0 58.5 61.4
Gain on sale of assets...............................
Equity income........................................ (13.3) (13.6) (10.5) (17.8) (15.8) (14.6)
-------- -------- -------- -------- -------- --------
6,701.4 6,225.8 5,687.3 5,484.5 5,587.9 5,683.5
-------- -------- -------- -------- -------- --------
Income from continuing operations before income
taxes............................................... 610.2 505.5 369.7 478.5 634.7 509.4
Provision for income taxes........................... 207.5 171.9 90.8 156.3 234.8 178.3
-------- -------- -------- -------- -------- --------
Income from continuing operations.................... 402.7 333.6 278.9 322.2 399.9 331.1
Income from discontinued operations..................
Extraordinary item (2)............................... (8.6)
Cumulative effect of accounting changes (3).......... (144.5)
-------- -------- -------- -------- -------- --------
Net income........................................... $ 402.7 $ 333.6 $ 278.9 $ 322.2 $ 246.8 $ 331.1
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Net income growth rate............................. 20.7% 19.6% (13.4)% 30.6% (25.5)% (13.3)%
Earnings Per Common Share
Continuing operations................................ $ 3.18 $ 2.62 $ 2.15 $ 2.40 $ 2.88 $ 2.35
Discontinued operations..............................
Provision for loss on disposal of discontinued
operations..........................................
Extraordinary item (2)............................... (0.06)
Cumulative effect of accounting changes (3).......... (1.04)
-------- -------- -------- -------- -------- --------
Net income........................................... $ 3.18 $ 2.62 $ 2.15 $ 2.40 $ 1.78 $ 2.35
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Earnings per share growth rate..................... 21.4% 21.9% (10.4)% 34.8% (24.3)% (6.7)%
Cash Dividends Per Common Share........................ $ 1.06 $ 1.01 $ 0.97 $ 0.91 $ 0.84 $ 0.77
Dividend growth rate................................. 5.0% 4.1% 6.6% 8.3% 9.1% 10.0%
Financial Position
Current assets....................................... $2,981.2 $2,766.9 $2,649.4 $2,550.2 $2,707.8 $2,698.9
Current liabilities.................................. 2,066.9 2,022.5 2,071.8 1,856.1 1,969.2 2,095.0
-------- -------- -------- -------- -------- --------
Working capital $ 914.3 $ 744.4 $ 577.6 $ 694.1 $ 738.6 $ 603.9
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Current ratio........................................ 1.4 1.4 1.3 1.4 1.4 1.3
Short-term debt...................................... $ 252.4 $ 312.4 $ 360.6 $ 187.9 $ 188.4 $ 168.4
Long-term debt....................................... 715.3 481.0 501.5 504.0 512.1 639.8
-------- -------- -------- -------- -------- --------
Total debt........................................... 967.7 793.4 862.1 691.9 700.5 808.2
Stockholders' equity................................. 2,204.9 2,040.1 1,854.7 1,773.0 1,790.4 1,850.8
-------- -------- -------- -------- -------- --------
Capitalization....................................... $3,172.6 $2,833.5 $2,716.8 $2,464.9 $2,490.9 $2,659.0
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>

- --------------------------
(1) In 1993, the settlement of the lawsuits against Unisys Corporation and other
parties in connection with Honeywell's 1986 purchase of the Sperry Aerospace
Group resulted in a gain of $22.4. Litigation settlements in 1993 and 1992
in the amounts of $10.2 and $287.9, respectively are one-time settlements,
after associated expenses, reached with various camera manufacturers for
their use of Honeywell's patented automatic focus camera technology.

(2) Extraordinary item resulting from the loss on early redemption of debt.

(3) The cumulative effect of accounting changes is the result of adopting
Statement of Financial Accounting Standards (SFAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," which reduced
net income by $151.3 ($1.09 per share); SFAS No. 109, "Accounting for Income
Taxes," which increased net income by $31.4 ($0.23 per share); and SFAS No.
112, "Employers' Accounting for Postemployment Benefits," which reduced net
income by $24.6 ($0.18 per share).

10
<PAGE>
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS AND SHARES IN MILLIONS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991
---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sales
Home and Building Control.................. $ 3,327.1 $ 3,034.7 $ 2,664.5 $ 2,424.3 $ 2,393.6 $ 2,249.1
Industrial Control......................... 2,199.6 2,035.9 1,835.3 1,691.5 1,743.9 1,626.8
Space and Aviation Control................. 1,640.0 1,527.4 1,432.0 1,674.9 1,933.1 2,132.3
Other...................................... 144.9 133.3 125.2 172.3 152.0 184.7
---------- ----------- ----------- ----------- ----------- -----------
$ 7,311.6 $ 6,731.3 $ 6,057.0 $ 5,963.0 $ 6,222.6 $ 6,192.9
---------- ----------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- ----------- -----------
Operating Profit (1)(2)
Home and Building Control.................. $ 345.8 $ 308.6 $ 236.5 $ 232.7 $ 193.4 $ 229.1
Industrial Control......................... 254.9 233.8 206.6 189.7 156.9 224.0
Space and Aviation Control................. 163.3 127.6 80.9 148.1 175.8 226.1
Other...................................... 6.2 2.8 (1.8) (9.5) (3.1)
---------- ----------- ----------- ----------- ----------- -----------
Total operating profit..................... 770.2 672.8 524.0 568.7 516.6 676.1
Operating profit as a percent of sales..... 10.5% 10.0% 8.7% 9.5% 8.3% 10.9%
Interest expense........................... (81.4) (83.3) (75.5) (68.0) (89.9) (89.4)
Litigation settlements..................... 32.6 287.9
Gain on sale of assets.....................
Equity income.............................. 13.3 13.6 10.5 17.8 15.8 14.6
General corporate expense.................. (91.9) (97.6) (89.3) (72.6) (95.7) (91.9)
---------- ----------- ----------- ----------- ----------- -----------
Income before income taxes................. $ 610.2 $ 505.5 $ 369.7 $ 478.5 $ 634.7 $ 509.4
---------- ----------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- ----------- -----------
Assets
Home and Building Control.................. $ 2,144.3 $ 1,727.2 $ 1,529.8 $ 1,327.3 $ 1,302.4 $ 1,282.8
Industrial Control......................... 1,376.1 1,307.2 1,273.3 1,059.8 1,057.5 1,001.7
Space and Aviation Control................. 1,037.3 971.1 1,174.9 1,219.6 1,403.6 1,594.5
Corporate and Other........................ 935.6 1,054.7 907.9 991.4 1,106.6 927.7
Discontinued Operations....................
---------- ----------- ----------- ----------- ----------- -----------
$ 5,493.3 $ 5,060.2 $ 4,885.9 $ 4,598.1 $ 4,870.1 $ 4,806.7
---------- ----------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- ----------- -----------
Additional information
Average number of common shares
outstanding............................... 126.6 127.1 129.4 134.2 138.5 140.9
Return on average stockholders' equity..... 19.7% 17.1% 15.6% 18.4% 13.8% 19.2%
Stockholders' equity per common share...... $ 17.44 $ 16.09 $ 14.57 $ 13.48 $ 13.10 $ 13.25
Price/Earnings ratio (3)................... 20.7 18.6 14.7 14.3 11.5 13.9
Percent of debt to total capitalization.... 31% 28% 32% 28% 28% 30%
Research and development
Honeywell-funded......................... $ 353.3 $ 323.2 $ 319.0 $ 337.4 $ 312.6 $ 300.7
Customer-funded.......................... 341.4 336.6 340.5 404.8 390.5 373.5
Capital expenditures....................... 296.5 238.1 262.4 232.1 244.1 240.2
Depreciation and amortization.............. 287.5 292.9 287.4 284.9 292.7 286.0
Employees at year end...................... 53,000 50,100 50,800 52,300 55,400 58,200
</TABLE>

- --------------------------
(1) Operating profit is net of special charges amounting to $62.7, $51.2 and
$128.4 in 1994, 1993 and 1992, respectively, as follows: Home and Building
Control, $28.7, $9.9 and $42.7; Industrial Control, $14.4, $9.0 and $38.6;
Space and Aviation Control, $19.6, $7.4 and $34.9; Other, $--, $16.4 and
$2.6; and General Corporate Expense, $--, $8.5 and $9.6.

(2) Operating profit is net of the additional operating expense impact of
adopting SFAS 106 and SFAS 112 amounting to $16.4 and $3.8, respectively, in
1992 as follows: Home and Building Control, $4.3 and $1.0; Industrial
Control, $4.0 and $0.9; Space and Aviation Control, $7.0 and $1.6; Other,
$0.5 and $0.1; and General Corporate Expense, $0.6 and $0.2.

(3) Price/Earnings ratio calculated using earnings from continuing operations

11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OPERATIONS

SALES

Honeywell's sales increased to $7.312 billion in 1996, compared with $6.731
billion in 1995 and $6.057 billion in 1994. Sales in the United States of $4.478
billion were up 10 percent, as a result of increased volume in all three
business units. International sales, which represent 39 percent of total sales,
increased seven percent to $2.834 billion in 1996.

The international sales increase was the result of positive sales growth of
nine percent measured in local currency, partially offset by negative currency
effects as the U.S. dollar strengthened an average of two percent against local
currencies in countries where Honeywell does business. U.S. export sales,
including exports to foreign affiliates, were $973 million in 1996, compared
with $839 million in 1995 and $780 million in 1994.

COST OF SALES

Cost of sales was $4.975 billion in 1996, or 68.0 percent of sales, compared
with $4.584 billion (68.1 percent) in 1995 and $4.082 billion (67.4 percent) in
1994. Cost as a percentage of sales decreased slightly in 1996 due to improved
gross-margins in the commercial Space and Aviation business. In 1995, cost as a
percent of sales increased, from 1994, due to the increased sales in lower gross
margin Space and Aviation business and service business in Industrial Control.

RESEARCH AND DEVELOPMENT

Honeywell spent $353 million, or 4.8 percent of sales, on research and
development in 1996, compared with $323 million (4.8 percent) in 1995 and $319
million (5.3 percent) in 1994. The 1994 percentage reflects significant
investments in integrated avionics for the new Boeing 777 aircraft. Honeywell
expects to maintain its current rate of R&D spending in 1997 as we invest for
the future. Honeywell also received $341 million in funds for customer-funded
research and development in 1996, compared with $337 million in 1995 and $340
million in 1994.

OTHER EXPENSES AND INCOME

Selling, general and administrative expenses were $1.313 billion, or 18.0
percent of sales in 1996, compared with $1.263 billion (18.8 percent) in 1995
and $1.174 billion (19.4 percent) in 1994. Selling, general and administrative
expenses declined in 1996 as a result of the continued emphasis on improving
processes, automation and productivity. The higher percentage in 1994 was
primarily due to increased legal costs.

In 1994, Honeywell recorded special charges of $63 million, or $38 million
($0.29 per share) after income tax.

Net interest expense was $73 million in 1996, $69 million in 1995 and $60
million in 1994. Interest expense was 8.3 percent of average debt in 1996,
compared with 9.5 and 9.0 percent in 1995 and 1994, respectively. Net interest
expense decreased slightly as a percent of average debt in 1996 largely due to
lower interest rates on the $300 million of notes issuances. Net interest
expense increased in 1995, as compared to 1994, due to both higher average debt
and higher market interest rates. Information concerning Honeywell's exposure
to, and management of, interest rate risk through the use of derivative
financial instruments is provided on page 19 and in Notes 12 and 13 to Financial
Statements on page 33.

Earnings of companies owned 20 percent to 50 percent (primarily
Yamatake-Honeywell Co., Ltd.), which are accounted for using the equity method,
were $13 million in 1996, $14 million in 1995 and $11 million in 1994.

12
<PAGE>
INCOME TAXES

The provision for income taxes was $208 million in 1996 or 34%, compared
with $172 million in 1995 (34 percent) and $91 million in 1994 (25 percent). The
1994 income tax provision was reduced by $38 million ($0.29 per share) as a
result of a favorable tax settlement. Further information about income taxes is
provided in Note 3 to Financial Statements on page 27.

NET INCOME

Honeywell's net income increased 21 percent in 1996, primarily due to
increased sales volume and lower operating expenses. Net income was $403 million
($3.18 per share) in 1996, compared with $334 million ($2.62 per share) in 1995
and $279 million ($2.15 per share) in 1994. Net income in 1994 included an
after-tax provision for special charges of $38 million ($0.29 per share) and a
reduction of the provision for income taxes of $38 million ($0.29 per share)
from a favorable tax settlement.

RETURN ON EQUITY AND INVESTMENT

Return on equity (ROE) was 19.7 percent in 1996, 17.1 percent in 1995 and
15.6 percent in 1994. Return on investment (ROI) was 15.1 percent in 1996, 13.5
percent in 1995 and 12.3 percent in 1994.

OTHER OPERATING SEGMENTS

The "other" category which generated revenues of $145, $133 and $125 million
in 1996, 1995 and 1994, respectively, is primarily the results of Honeywell's
research operations. Operating profit for the other operations totaled $6
million in 1996, compared to $3 million in 1995 and a break-even performance in
1994.

CURRENCY

The U.S. dollar strengthened an average of two percent in 1996 compared with
1995, in relation to the principal foreign currencies in countries where
Honeywell products are sold. A stronger dollar has a negative effect on
international results because foreign-exchange denominated transactions
translate into fewer U.S. dollars, which Honeywell manages through its hedging
strategies. Information about Honeywell's exposure to, and management of,
currency risk through the use of derivative financial instruments is provided on
page 19 and in Notes 4, 12 and 13 to Financial Statements on pages 28, 33 and
33, respectively.

INFLATION

Highly competitive market conditions have minimized inflation's impact on
the selling prices of Honeywell's products and the cost of its purchased
materials. Productivity improvements and cost-reduction programs have largely
offset the effects of inflation on other costs and expenses.

EMPLOYMENT

Honeywell employed 53,000 people worldwide at year-end 1996, compared with
50,100 people in 1995 and 50,800 people in 1994. Approximately 30,300 employees
work in the United States, with 22,700 employed in other regions, primarily in
Europe. Total compensation and benefits in 1996 were $2.8 billion, or 42 percent
of total costs and expenses. Sales per employee were $138,500 in 1996, compared
with $132,800 in 1995 and $118,600 in 1994.

ENVIRONMENTAL MATTERS

Honeywell is committed to protecting the environment, both through
Honeywell's products and in our manufacturing operations. Our use and release of
chemicals to the environment continues to decline steadily. Releases of toxic
and ozone-depleting chemicals are being phased out well ahead of regulatory
requirements. We are increasing our commitment to pollution prevention:
reducing, reusing and recycling to minimize wastes. The costs of managing wastes
are decreasing as well. For more information on environmental matters, see Note
20 on page 45.

13
<PAGE>
NEW ACCOUNTING STANDARDS

In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." In accordance with this
standard, after a transfer of financial assets has occurred, Honeywell will
recognize the financial and servicing assets it controls and the liabilities it
has incurred, derecognize financial assets when control has been surrendered and
derecognize liabilities when extinguished. This statement is effective for
transfers and servicing of financial assets and extinguishment of liabilities
occurring after December 31, 1996, and shall be applied prospectively. Adoption
by Honeywell is not expected to have a material effect on results of operations
or financial position.

In October 1996, The American Institute of Certified Public Accountants
issued Statement of Position (SOP) 96-1, "Environmental Remediation
Liabilities." This SOP provides guidance on specific accounting issues that are
present in the recognition, measurement, display and disclosure of environmental
remediation liabilities. The provisions of the SOP are effective for fiscal
years beginning after December 15, 1996, and adoption by Honeywell in 1997 is
not expected to have a material effect on results of operations or financial
position.

SAFE HARBOR CAUTIONARY STATEMENT

Honeywell may occasionally make statements regarding its businesses and
their respective markets, such as projections of future performance, statements
of management's plans and objectives, forecasts of market trends and other
matters, which to the extent they are not historical fact, may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Statements containing the words or phrases "will
likely result", "are expected to," "will continue," "is anticipated,"
"estimate," "project," "outlook" or similar expressions, which may appear herein
or in certain documents, reports, press releases, and written or oral
presentations made by officers of the company to analysts, shareholders,
investors, news organizations and others, identify such forward-looking
statements. No assurance can be given that the results in any forward-looking
statements will be achieved and actual results could be affected by one or more
factors, which could cause them to differ materially. Therefore, all
forward-looking statements are qualified in their entirety by reference to, and
are accompanied by, the factors listed in Exhibit 99(i) to this report and
subsequent quarterly reports on Form 10Q, as filed with the Securities and
Exchange Commission, which could cause Honeywell's actual results to differ
materially from those projected in such forward-looking statements.

DISCUSSION AND ANALYSIS BY SEGMENT

HOME AND BUILDING CONTROL

Home and Building Control is a global leader in providing comfortable,
healthy, safe and energy-efficient indoor environments. Customer loyalty to our
brand is based on more than 3,500 products, a broad range of systems and
services, and an unmatched distribution network that supports our customer
solutions.

THREE-YEAR SALES OVERVIEW

Sales in 1996 were $3.327 billion compared with $3.035 billion in 1995 and
$2.665 billion in 1994. Home Control experienced strong sales growth from the
retail business, new product introductions in Europe, expansion of our overall
distribution business, and OEM product globalization. Our Building Control sales
increased as we grew our presence in small- and mid-sized buildings, enhanced
our EXCEL 5000-Registered Trademark- building management systems and expanded
our European building service presence.

Strategic expansion through acquisitions helped drive sales growth. The 1996
acquisition of Duracraft combined our strong brand equity with Duracraft's
product portfolio, cost-effectiveness

14
<PAGE>
and speed to market. This acquisition optimizes our strength in retail markets
and multiplies our visibility to homeowners. We also acquired Filtercold, a
premium water purification manufacturer. Another acquisition, Applied Products
Technology, adds compressed air control systems to our energy retrofit portfolio
and gives us a critical foothold into a large, untapped industrial market. Ten
acquisitions in Europe strengthened our capabilities there. For example,
Satronic Holding A.G., a Swiss manufacturer, expands our global boiler control
business.

We continue to grow through alliances forged with utilities and with
customers.

Because of our alliances with three energy suppliers -- LG&E, CNG Energy
Services Corp. and U.S. Energy Partners -- our customers in education, health
care, government and industrial markets can purchase natural gas at competitive
rates and reduce their energy costs.

Disney made us their preferred supplier of home comfort, convenience,
entertainment, security and indoor environment systems for the new town of
Celebration, Florida. Our Perfect-TM- Climate system products and the
TotalHome-Registered Trademark- home automation system will play prominent roles
in Celebration homes.

Our alliance with Lucent Technologies brings to customers an intelligent
building solution through integration of heating, ventilating, air conditioning,
fire, security, data and video communications in a single cable. Work with
Electric Power Research Institute resulted in a programmable line voltage
thermostat that dramatically improves comfort and reduces energy costs.

Sales in 1995 benefitted from growth in Europe and Asia Pacific. Home
Control grew sales from acquisitions, trade and retail business, and product
additions. Building Control's strong sales growth was fueled by Europe and by
U.S. energy retrofit and service business. Sales in 1994 grew moderately as the
U.S. economy and consumer confidence improved.

THREE-YEAR OPERATING PROFIT OVERVIEW

Home and Building Control 1996 operating profit was $346 million compared
with $309 million in 1995 and $236 million in 1994, which included $29 million
in special charges to streamline operations. In 1996, operating profit increased
12 percent. Home Control profit improved through volume increases and cost
reductions. Building Control profits declined due to a very competitive energy
retrofit business and investment in programs to enhance productivity.

In 1995, operating profit rose 16 percent, primarily from strong
international volume increases, new products and cost reductions. Excluding
special charges, 1994 operating profit increased moderately, due to improvement
in the U.S. economy and growing consumer confidence.

BUSINESS STRATEGIES

Increased regulation of the environment and a focus on energy management,
coupled with customer demands for greater comfort and security, position Home
and Building Control well for the future. Growth strategies include expanding
and globalizing the product portfolio, including consumer products and heating,
ventilation, and air conditioning (HVAC) products. Our strategies also include
broadening solution capabilities with a focus on open system technology,
globalizing energy retrofit and district energy solutions and enhancing life
cycle building service offerings.

INDUSTRIAL CONTROL

Industrial Control is a global leader in automation solutions from sensors
to integrated solutions. Industrial Automation and Control provides one-stop,
integrated system solutions including systems, products, and services for
process industries such as hydrocarbon processing, chemicals and pulp and paper.
Sensing and Control manufactures switches, sensors and solenoid valves for use
in vehicles, consumer products, data communication and industrial applications,
as well as smart position-sensing devices and systems used in factories and
package distribution systems.

15
<PAGE>
THREE-YEAR SALES OVERVIEW

Industrial Control sales in 1996 were $2.200 billion, compared with $2.036
billion in 1995 and $1.835 billion in 1994. Sales benefitted from the successful
introduction of new measurement, sensing and control products that incorporate
leading technology; the excellent market reception of our
TotalPlant-Registered Trademark- open solutions; and continued strong demand for
upgrades and services that increase the value of our installed control systems.
Through our leading technologies, industry expertise and balanced worldwide
distribution, we were able to expand global alliances with major customers.
Sales in developing markets, including Asia and Eastern Europe, experienced
solid growth as these markets invested in advanced technology to equip new
factories and processing plants.

Industrial Automation and Control introduced the new
TotalPlant-Registered Trademark- Solution (TPS) system, the first industrial
automation system that unifies business and control information throughout a
plant or mill. TPS was supplemented by 30 new products and services introduced
in 1996.

We expanded our measurement and control product portfolio with smart
pressure and temperature instruments that transmit system control information
from remote field locations, such as pipelines. In addition, we acquired the
line of analytical instruments and fully integrated the operations of Leeds +
Northrup.

Sensing and Control sales continued to benefit from our strategy of
integrating factory floor solutions and intelligent sensors. Our Smart
Distributed System, which allows customers to link intelligent control devices
through a simple, open network, has enjoyed rapid acceptance.

In 1995 and 1994, Industrial Control sales increased moderately due to
widespread demand for TotalPlant-Registered Trademark- open solutions in
domestic and international markets. We also saw strong international sales of
commercial sensors and switches.

THREE-YEAR OPERATING PROFIT OVERVIEW

Industrial Control operating profit in 1996 was $255 million, $234 million
in 1995 and $207 million in 1994. Operating profits increased in 1996, and the
profit rate also showed improvement, as a result of continuing strategic actions
to reduce overhead, streamline business operations, improve the mix of
higher--margin field instruments and automate component manufacturing.

In 1995, operating profit increased, spurred by a sharp rise in
profitability in Sensing and Control as switch margins improved in the United
States and as Europe experienced favorable volumes and lower product costs.
Operating profit in 1994 included special charges of $14 million to streamline
operations and improve productivity.

BUSINESS STRATEGIES

Industry consolidation and introduction of new standards for open systems
generate opportunities for new products and applications, as customers look to a
single control partner to improve productivity and meet safety and environmental
regulations. Industrial Control growth and value creation strategies complement
these trends. Industrial Automation and Control will grow by providing the best
value integrated solutions for process industries, expanding the measurement and
control product business, broadening our service portfolio and focusing on
fast-growing global markets such as Asia, Middle East, Eastern Europe and Latin
America.

Sensing and Control's strategies include broadening offerings in the rapidly
growing smart sensor market, integrating factory floor solutions with
intelligent sensors and focusing on fast-growing customer segments such as
information technology and on-board automotive sensors.

16
<PAGE>
SPACE AND AVIATION CONTROL

As a leading supplier of avionics systems and products for the commercial,
military and space markets, our Space and Aviation Control business serves
customers that range from aircraft manufacturers and business aircraft operators
to prime space contractors and the U.S. government. Our systems are on board
virtually every commercial aircraft produced in the Western world, and we have
also been aboard every manned space flight launched in the U.S.

THREE-YEAR SALES OVERVIEW

In 1996, Space and Aviation Control sales were $1.640 billion, compared with
$1.527 billion in 1995 and $1.432 billion in 1994. The sales growth results from
increased commercial aviation OEM business and our strategies to expand our
GPS-based guidance products and systems, pursue retrofit opportunities and bring
our Boeing 777 technology to all market segments worldwide.

Space and Aviation Control orders were up overall in 1996, with strong
growth in the commercial aviation business. Major wins include the cockpit
retrofits of Federal Express DC-10s, several orders for our enhanced airborne
collision avoidance system -- TCAS 2000, and the selection of the next
generation Primus Epic advanced integrated avionics system for Raytheon's new
Hawker Horizon business jet. Space Systems orders showed excellent growth, with
a key initial contract from NASA for an Integrated Global Positioning
System/Inertial Navigation System and major awards with Lockheed Martin and
Aerojet for work on a space-based infrared surveillance system

Sales in 1995 increased moderately, driven by the recovery in the business
jet and commuter aircraft market, strength in the retrofit and repair business,
and increased sales from the International Space Station program. Sales in 1994
experienced an anticipated decline because of lower commercial aircraft
production rates and reduced government spending.

THREE-YEAR OPERATING PROFIT OVERVIEW

Space and Aviation Control 1996 operating profit was $163 million compared
to $128 million in 1995 and $81 million in 1994. In 1996, operating profits
increased 28 percent, driven by improvements in the commercial markets,
continued productivity improvements and reductions in overhead expenses.

Operating profit in 1995 increased due to improved margins in commercial
aviation systems, lower development expenses and productivity improvements.
Operating profits in 1994 included special charges of $20 million to consolidate
facilities.

BUSINESS STRATEGIES

The commercial aircraft industry is poised for strong growth in 1997 and
beyond. Government spending for electronic components is stabilizing,
international opportunities for military avionics retrofits and space systems
are increasing, and commercial space programs are growing at a fast pace. Space
and Aviation Control strategies are positioned to take advantage of these trends
with a strong portfolio of products and solutions.

Growth strategies include expanding our global positioning-based guidance
products and systems; enhancing our offerings in growth markets such as aircraft
service and airport control; broadening our role in international military and
space programs; pursuing retrofit opportunities; and continuing to optimize our
investment in 777 technology application.

FINANCIAL POSITION

FINANCIAL CONDITION

At year-end 1996, Honeywell's capital structure comprised $253 million of
short-term debt, $715 million of long-term debt and $2.205 billion of
stockholders' equity. The ratio of debt-to-total capital was 31 percent,
compared with 28 percent at year-end 1995.

17
<PAGE>
Total debt increased $175 million during 1996 to $968 million. The increase
was used to fund acquisitions.

Stockholders' equity increased $165 million in 1996 to $2.205 billion. The
increase was primarily due to an increase in retained earnings of $403 million
from net income, a $96 million increase from stock option exercises and employee
stock plans, and a $15 million increase in the pension liability adjustment,
offset by a $52 million decrease in accumulated foreign currency translation,
dividends of $134 million, and $163 million of treasury stock purchases.

CASH GENERATION AND DEPLOYMENT

In 1996, $494 million of cash was generated from operating activities,
compared with $573 million in 1995 and $470 million in 1994. The decrease in
1996 was largely due to increased working capital. In 1996, cash generated from
investing and financing activities included $171 million from the issuance of
debt, $90 million of proceeds from the sale of assets and $57 million of
proceeds from employee stock plans and the exercise of Honeywell Foundation
stock options. These funds were used to support $376 million in acquisitions net
of cash acquired, $296 million of capital expenditures, $134 million of dividend
payments and $163 million of payments for share repurchases. Cash balances
decreased $165 million in 1996.

CONTROLLED WORKING CAPITAL

Cash used for increases in "controlled working capital" consisting of trade
and long-term receivables and inventories, offset by accounts payable and
customer advances, was $195 million in 1996. Average working capital as a
percentage of sales was 24.6 percent, an improvement of 60 basis points from
1995, in a continuing effort to reduce "controlled working capital" as a percent
of sales. The increase in receivable and payable balances in 1996 was consistent
with the increase in fourth-quarter sales.

CAPITAL EXPENDITURES AND ACQUISITIONS

Capital expenditures for property, plant and equipment were $296 million in
1996, compared with $238 million in 1995 and $262 million in 1994. The 1996
depreciation charges were $236 million. Honeywell continues to invest at levels
believed to be necessary to maintain its technological leadership position.
During 1996, Honeywell invested $411 million in complementary business
acquisitions.

SHARE REPURCHASE PROGRAMS

In December 1994, the Board of Directors authorized a program to purchase up
to 2 million Honeywell shares. This program was completed in the third quarter
of 1995. In July 1995, the Board of Directors authorized an open-ended program
to repurchase $250 million of Honeywell shares, of which $49 million was used in
the second half of 1995, and $163 million during 1996. The purpose of the
repurchase plan is to offset the shares issued as part of the 1993 Honeywell
Stock and Incentive Plan and other issuances (see Note 15 on page 35.) Honeywell
repurchased $129 million of shares in 1995, and $168 million of shares in 1994.

At year-end 1996, Honeywell had 188 million shares issued, 126 million
shares outstanding and 31,734 stockholders of record. At year-end 1995,
Honeywell had 188 million shares issued, 127 million shares outstanding and
32,569 stockholders of record.

DIVIDENDS

Honeywell has paid a quarterly dividend since 1932 and has increased the
annual payout per share in each of the last 21 years. In November 1995, the
Board of Directors approved a four percent increase in the regular annual
dividend to $1.04 per share, from $1.00 per share, effective in the fourth
quarter 1995. In July 1996, the Board of Directors approved an additional four
percent increase in the regular annual dividend to $1.08 per share effective in
the third quarter 1996. Honeywell paid $1.06 per share in dividends in 1996,
compared with $1.01 in 1995 and $0.97 in 1994.

18
<PAGE>
EMPLOYEE STOCK PROGRAM

In 1996, Honeywell contributed 395,000 shares of Honeywell common stock to
employees under its U.S. employee stock match savings plan. The number of shares
contributed under this program depends on employee savings levels and company
performance.

PENSION CONTRIBUTIONS

Cash contributions to Honeywell's pension and retirement plans amounted to
$201 million in 1996, $172 million in 1995 and $141 in 1994.

TAXES

In 1996, taxes paid were $113 million. Accrued income taxes and related
interest increased $42 million during 1996.

LIQUIDITY

Short-term debt at year-end 1996 was $253 million, consisting of $87 million
of commercial paper, $67 million of notes payable and $99 million of current
maturities of long-term debt. Short-term debt at year-end 1995 totaled $312
million, consisting of $65 million of commercial paper, $63 million of notes
payable and $184 million of current maturities of long-term debt.

Through its banks, Honeywell has access to various credit facilities,
including committed credit lines for which Honeywell pays commitment fees and
uncommitted lines provided by banks on a non-committed, best-efforts basis.
Available general-purpose lines of credit at year-end 1996 totaled $1.128
billion. This consisted of $725 million of committed credit lines to meet
Honeywell's financing requirements, including support of commercial paper and
bank note borrowings, and $403 million of uncommitted credit lines available to
certain foreign subsidiaries. This compared with $1.089 billion of available
credit lines at year-end 1995, consisting of $725 million of committed credit
lines for general financing requirements and $364 million of uncommitted credit
lines available to certain foreign subsidiaries. On January 30, 1997, Honeywell
increased its committed credit lines from $725 million to $1,375 billion.

Honeywell also has access to the public debt markets as evidenced by its
$500 million medium-term note program initiated in May 1996. The medium-term
note program allows note issuances with maturities beyond nine months. At
December 31, 1996, no notes had been issued under this program. Long-term debt
maturities consist of $99 million in 1997, $105 million in 1998, and $108
million in 1999.

In addition, Honeywell has agreements with two major financial institutions
whereby it may convert designated pools of trade accounts receivable to cash up
to approximately $85 million on an on-going basis (See Note 6 on page 30).

Cash and short-term investments totaled $136 million at year-end 1996 and
$301 million at year-end 1995. Honeywell believes its available cash, committed
credit lines, receivable programs, and access to the public debt markets,
through its medium-term note and commercial paper programs, provide adequate
short-term and long-term liquidity.

DERIVATIVE FINANCIAL INSTRUMENTS

Honeywell is exposed to market risk from changes in interest rates and
foreign currency exchange rates, which may adversely affect its results of
operations and financial condition. In seeking to minimize this risk, Honeywell
manages exposure to changes in interest rates and foreign currency rates through
its regular operating and financing activities and, when deemed appropriate,
through the use of derivative financial instruments. Honeywell policy prohibits
the use of derivative financial instruments for trading or other speculative
purposes and Honeywell is not a party to leveraged financial instruments.

19
<PAGE>
Honeywell has entered into various foreign currency exchange contracts
designed to manage its net exposure to exchange rate fluctuations on foreign
currency transactions (see Notes 4, 12 and 13 to Financial Statements on pages,
28, 33 and 33 respectively). Foreign exchange contracts reduce Honeywell's
overall exposure to exchange rate movements, since the gains and losses on these
contracts offset losses and gains on the assets, liabilities and transactions
being hedged. Transactions that are hedged include foreign currency denominated
receivables and payables on the balance sheet, firm purchase orders and firm
sales commitments. At year-end 1996, the notional amount of outstanding foreign
exchange contracts was $1.111 billion.

It is Honeywell's practice to manage the relative proportions of its fixed
and floating rate debt in the context of the interest rate environment. The
objective is to manage the cost of Honeywell's debt financing over an extended
period of time. To manage this mix in a cost efficient manner, Honeywell enters
into interest rate swap agreements, in which it agrees to exchange, at specified
intervals, the difference between fixed and variable interest amounts calculated
by reference to an agreed-upon notional principal amount (see Notes 12 and 13 to
Financial Statements on page 33). At year-end 1996, the notional amount of
outstanding interest rate swaps was $390 million.

LITIGATION

On March 13, 1990, Litton Systems, Inc. filed suit against Honeywell in U.S.
District Court, Central District of California, alleging Honeywell patent
infringement relating to the process used by Honeywell to coat mirrors
incorporated in its ring laser gyroscopes; intentional interference by Honeywell
with Litton's prospective advantage with customers and with its contractual
relationships with Ojai Research, Inc.; and attempted monopolization and
predatory pricing by Honeywell in certain alleged markets for products
containing ring laser gyroscopes. Honeywell generally denied Litton's patent,
tort and antitrust allegations; contested both the validity and infringement of
the patent; and alleged that the patent had been obtained by Litton's
inequitable conduct before the United States Patent and Trademark Office.

Separate trials were held on the patent and antitrust claims, and at the
conclusion of both trials, juries awarded Litton significant monetary damages.
However, the damage awards were set aside by the trial court judge and a new
trial ordered on the issue of damages for both claims. The parties have also
appealed various legal issues related to these cases. For a more detailed
discussion of this litigation, see Note 20 to the financial statements, which
appears on page 43 of this report.

CREDIT RATINGS

Honeywell's credit ratings by Standard and Poor's Corporation and Duff and
Phelps Corporation are at A/A-1 and A/Duff1, respectively for short-term and
long-term debt. Honeywell's credit rating by Moody's Investors Service, Inc.
improved to A2/P1 in 1996.

On January 27, 1997, Honeywell announced a definitive agreement to acquire
Measurex Corporation for approximately $600 million in cash (see Note 22 on page
46). The acquisition will be financed with debt. After careful review of
Honeywell's capital structure and financial position given the debt increase,
the major credit rating agencies confirmed Honeywell's current credit ratings.

STOCK PERFORMANCE

The market price of Honeywell stock ranged from $69 7/8 to $44 3/8 in 1996,
and was $65 3/4 at year end. Book value per common share at year end was $17.44
in 1996 and $16.09 in 1995.

20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEPENDENT AUDITORS' REPORT

To the Stockholders of Honeywell Inc.:

We have audited the statement of financial position of Honeywell Inc. and
subsidiaries as of December 31, 1996 and 1995, and the related statements of
income and cash flows for each of the three years in the period ended December
31, 1996. Our audits also included the financial statement schedule listed at
Part IV, Item 14(a)(2). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Honeywell Inc. and subsidiaries at December
31, 1996 and 1995, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

Deloitte & Touche LLP
Minneapolis, Minnesota
February 12, 1997

21
<PAGE>
INCOME STATEMENT
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS AND SHARES IN MILLIONS
EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------
1996 1995 1994
--------- ---------- ----------
<S> <C> <C> <C>
Sales......................................................................... $ 7,311.6 $ 6,731.3 $ 6,057.0
Costs and Expenses
Cost of sales............................................................... 4,975.4 4,584.2 4,082.1
Research and development.................................................... 353.3 323.2 319.0
Selling, general and administrative......................................... 1,313.1 1,263.1 1,173.8
Special charges............................................................. 62.7
--------- ---------- ----------
6,641.8 6,170.5 5,637.6
--------- ---------- ----------
Interest
Interest expense............................................................ 81.4 83.3 75.5
Interest income............................................................. 8.5 14.4 15.3
--------- ---------- ----------
72.9 68.9 60.2
--------- ---------- ----------
Equity Income................................................................. 13.3 13.6 10.5
--------- ---------- ----------
Income before Income Taxes.................................................... 610.2 505.5 369.7
Provision for Income Taxes.................................................... 207.5 171.9 90.8
--------- ---------- ----------
Net Income.................................................................... $ 402.7 $ 333.6 $ 278.9
--------- ---------- ----------
--------- ---------- ----------
Earnings Per Common Share..................................................... $ 3.18 $ 2.62 $ 2.15
--------- ---------- ----------
--------- ---------- ----------
Average Number of Common Shares Outstanding................................... 126.6 127.1 129.4
</TABLE>

See accompanying Notes to Financial Statements.

22
<PAGE>
STATEMENT OF FINANCIAL POSITION
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS)

ASSETS

<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Current Assets
Cash and cash equivalents.............................................................. $ 127.1 $ 291.6
Short-term investments................................................................. 8.6 9.0
Receivables............................................................................ 1,714.7 1,477.3
Inventories............................................................................ 937.6 794.4
Deferred income taxes.................................................................. 193.2 194.6
---------- ----------
2,981.2 2,766.9
Investments and Advances................................................................. 247.6 244.8
Property, Plant and Equipment
Property, plant and equipment.......................................................... 2,973.6 2,857.1
Less accumulated depreciation.......................................................... 1,839.4 1,758.2
---------- ----------
1,134.2 1,098.9
Other Assets
Long-term receivables.................................................................. 25.7 46.8
Goodwill............................................................................... 507.7 240.7
Patents, licenses and trademarks....................................................... 34.1 43.4
Software and other intangibles......................................................... 149.1 340.1
Deferred income taxes.................................................................. 33.0 71.8
Other.................................................................................. 380.7 206.8
---------- ----------
Total Assets......................................................................... $ 5,493.3 $ 5,060.2
---------- ----------
---------- ----------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt........................................................................ $ 252.4 $ 312.4
Accounts payable....................................................................... 584.8 491.5
Customer advances...................................................................... 202.0 158.2
Accrued compensation and benefit costs................................................. 287.8 374.3
Accrued income taxes................................................................... 316.9 274.8
Deferred income taxes.................................................................. 21.9 20.4
Other accrued liabilities.............................................................. 401.1 390.9
---------- ----------
2,066.9 2,022.5
Long-Term Debt........................................................................... 715.3 481.0
Other Liabilities
Accrued benefit costs.................................................................. 382.0 416.3
Deferred income taxes.................................................................. 46.0 39.2
Other.................................................................................. 78.2 61.1
---------- ----------
3,288.4 3,020.1
Stockholders' Equity
Common stock -- $1.50 par value
Authorized -- 250,000,000 shares
Issued -- 1996 -- 187,809,512 shares................................................... 281.7
1995 -- 188,126,704 shares.................................................... 282.2
Additional paid-in capital............................................................. 528.8 481.3
Retained earnings...................................................................... 3,074.7 2,805.8
Treasury stock -- 1996 -- 61,360,813 shares............................................ (1,763.5)
1995 -- 61,306,251 shares............................................. (1,650.2)
Accumulated foreign currency translation............................................... 88.2 140.9
Pension liability adjustment........................................................... (5.0) (19.9)
---------- ----------
2,204.9 2,040.1
---------- ----------
Total Liabilities and Stockholders' Equity........................................... $ 5,493.3 $ 5,060.2
---------- ----------
---------- ----------
</TABLE>

See accompanying Notes to Financial Statements.

23
<PAGE>
STATEMENT OF CASH FLOWS
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income..................................................................... $ 402.7 $ 333.6 $ 278.9
Adjustments to reconcile net income to net cash flows from operating
activities:
Depreciation................................................................. 236.1 236.1 235.3
Amortization of intangibles.................................................. 51.4 56.8 52.1
Deferred income taxes........................................................ 38.5 67.2 14.0
Equity income, net of dividends received..................................... (10.8) (11.0) (7.6)
(Gain) Loss on sale of assets................................................ (12.0) 7.2 1.0
Contributions to employee stock plans........................................ 38.2 27.4 26.5
Increase in receivables...................................................... (203.0) (38.4) (83.8)
(Increase) decrease in inventories........................................... (89.9) (27.6) 20.9
Increase in accounts payable................................................. 51.8 50.1 27.7
Increase (decrease) in accrued income taxes and interest..................... 57.4 (35.4) (4.6)
Other changes in working capital, excluding short term investments and
short-term debt............................................................. (81.4) (99.1) (93.9)
Other noncurrent items -- net................................................ (148.0) 5.6 3.0
--------- --------- ---------
Net cash flows from operating activities......................................... 493.8 572.5 469.5
--------- --------- ---------
Cash Flows from Investing Activities
Proceeds from sale of assets................................................... 90.3 18.7 22.6
Capital expenditures........................................................... (296.5) (238.1) (262.4)
Investment in acquisitions..................................................... (376.2) (37.7) (104.6)
(Increase) decrease in short-term investments.................................. (0.2) (1.4) 6.7
Other -- net................................................................... 0.4 (5.2) 10.5
--------- --------- ---------
Net cash flows from investing activities......................................... (582.2) (263.7) (327.2)
--------- --------- ---------
Cash Flows from Financing Activities
Net increase (decrease) in short-term debt..................................... 18.8 (101.0) 35.7
Proceeds from issuance of long-term debt....................................... 340.4 167.5 126.5
Repayment of long-term debt.................................................... (188.8) (156.4) (1.8)
Purchase of treasury stock..................................................... (163.2) (137.3) (162.5)
Proceeds from exercise of stock options........................................ 57.3 60.4 5.9
Dividends paid................................................................. (133.5) (127.5) (125.6)
--------- --------- ---------
Net cash flows from financing activities......................................... (69.0) (294.3) (121.8)
--------- --------- ---------
Effect of exchange rate changes on cash.......................................... (7.1) 9.7 4.6
--------- --------- ---------
Increase (decrease) in cash and cash equivalents................................. (164.5) 24.2 25.1
Cash and cash equivalents at beginning of year................................... 291.6 267.4 242.3
--------- --------- ---------
Cash and cash equivalents at end of year......................................... $ 127.1 $ 291.6 $ 267.4
--------- --------- ---------
--------- --------- ---------
</TABLE>

See accompanying Notes to Financial Statements.

24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 1 -- ACCOUNTING POLICIES

CONSOLIDATION

The consolidated financial statements and accompanying data comprise
Honeywell Inc. and subsidiaries. All material intercompany transactions are
eliminated.

ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires Honeywell to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results can differ from estimates.

SALES

Product sales are recorded when title is passed to the customer, which
usually occurs at the time of delivery or acceptance. Sales under long-term
contracts are recorded on the percentage-of-completion method measured on the
cost-to-cost basis for engineering-type contracts and the units-of-delivery
basis for production-type contracts. Provisions for anticipated losses on
long-term contracts are recorded in full when such losses become evident.

EARNINGS PER COMMON SHARE

Earnings per common share are based on the average number of common shares
outstanding during the year.

STATEMENT OF CASH FLOWS

Cash equivalents are all highly liquid, temporary cash investments with an
original maturity of three months or less.

Cash flows from purchases and maturities of held-to-maturity securities are
classified as cash flows from investing activities. Cash flows from contracts
used to hedge cash dividend payments from subsidiaries are classified as part of
the effect of exchange rate changes on cash.

INVENTORIES

Inventories are valued at the lower of cost or market. Cost is determined
using the weighted-average method. Market is based on net realizable value.

Payments received from customers relating to the uncompleted portion of
contracts are deducted from applicable inventories.

INVESTMENTS

Investments in companies owned 20 to 50 percent are accounted for using the
equity method.

PROPERTY

Property is carried at cost and depreciated primarily using the
straight-line method over estimated useful lives of 10 to 40 years for buildings
and improvements, and three to 15 years for machinery and equipment.

INTANGIBLES

Intangibles are carried at cost and amortized using the straight-line method
over their estimated useful lives of not more than 40 years for goodwill (15-25
years for recent acquisitions), four to 17

25
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)
years for patents, licenses and trademarks, and three to 24 years for software
and other intangibles. Intangibles also include the asset resulting from
recognition of the defined benefit pension plan minimum liability, which is
amortized as part of net periodic pension cost.

DERIVATIVES

Derivative financial instruments are used by Honeywell to manage interest
rate and foreign exchange risks. These financial exposures are managed in
accordance with Corporate polices and procedures. Honeywell does not hold or
issue derivative financial instruments for trading purposes.

Foreign exchange contracts are accounted for as hedges to the extent they
are designated as, and are effective as, hedges of firm foreign currency
commitments. Other such foreign exchange contracts are marked-to-market on a
current basis and are included in selling, general and administrative expenses
on the income statement and were not material in any year.

Interest rate contracts designated and effective as a hedge of underlying
debt obligations are not marked-to-market, but cash flow from such contracts
results in adjustments to interest expense recognized over the life of the
underlying debt agreement. Gains and losses from terminated contracts are
deferred and amortized over the remaining period of the original contract. Open
interest rate contracts are reviewed regularly to ensure that they remain
effective as hedges of interest rate exposure.

FOREIGN CURRENCY

Foreign currency assets and liabilities are generally translated into U. S.
dollars using the exchange rates in effect at the statement of financial
position date. Results of operations are generally translated using the average
exchange rates throughout the period. The effects of exchange rate fluctuations
on translation of assets, liabilities and hedges of cash dividend payments from
subsidiaries are reported as accumulated foreign currency translation and
increased/(reduced) stockholders' equity: $(52.7) in 1996, $33.5 in 1995, and
$54.5 in 1994.

LONG-LIVED ASSETS

In 1996, Honeywell adopted Statement of Financial Accounting Standards No.
121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of". In accordance with SFAS 121, Honeywell
evaluates the carrying value of long-lived assets when events and circumstances
warrant such a review. The adoption of SFAS 121 did not have a material effect
on the results of operations or financial position in 1996.

STOCK BASED COMPENSATION

In 1996, Honeywell adopted Statement of Financial Accounting Standards No.
123 (SFAS 123), "Accounting for Stock-Based Compensation". As permitted under
this standard, Honeywell will continue to apply the recognition and measurement
principles of Accounting Principles Board (APB) No. 25 to its stock options and
other stock-based employee compensation awards. The disclosure of the pro forma
net income and pro forma earnings per share as if the fair value method of SFAS
123 had been applied can be found in Note 15 to the financial statements on page
35.

BASIS OF PRESENTATION

Certain prior year amounts have been reclassified to conform with the
current year presentation.

26
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 2 -- ACQUISITIONS AND SALE OF ASSETS
Honeywell acquired 17 companies in 1996, nine companies in 1995, and 15
companies in 1994 for $411.2 (including cash acquired of $35.0 and $290.6 for
Duracraft Corp.), $37.7, and $104.6 in cash, respectively. These acquisitions
were accounted for as purchases, and accordingly, the assets and liabilities of
the acquired entities have been recorded at their estimated fair values at the
dates of acquisition. The excess of purchase price over the estimated fair
values of the net assets acquired, in the amount of $294.7 in 1996, $32.4 in
1995, and $87.4 in 1994, has been recorded as goodwill and is amortized over
estimated useful lives. The pro forma results for 1996, 1995 and 1994, assuming
these acquisitions had been made at the beginning of the year, would not be
significantly different from reported results.

Proceeds from the sale of assets, including facilities located in St. Louis
Park, Minnesota; Arlington Heights, Illinois; Durham, North Carolina; and
Shoenaich, Germany and the collection of notes receivable from asset sales made
in previous years, amounted to $90.3 in 1996. Proceeds from asset sales in 1995
and 1994 were $18.7 and $22.6, respectively. Gains and losses from asset sales
were not material in any year and are included in selling, general and
administrative expenses on the income statement.

NOTE 3 -- INCOME TAXES
The components of income before income taxes consist of the following:

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Domestic.................................................................. $ 349.4 $ 285.4 $ 208.4
Foreign................................................................... 260.8 220.1 161.3
--------- --------- ---------
$ 610.2 $ 505.5 $ 369.7
</TABLE>

The provision for income taxes on that income is as follows:

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current tax expense
United States............................................................ $ 60.8 $ 39.8 $ 33.8
Foreign.................................................................. 84.7 59.9 40.6
State and local.......................................................... 27.2 8.9 2.9
--------- --------- ---------
Total current............................................................ 172.7 108.6 77.3
--------- --------- ---------
Deferred tax expense
United States............................................................ 27.4 41.7 13.0
Foreign.................................................................. 4.0 17.5 (0.8)
State and local.......................................................... 3.4 4.1 1.3
--------- --------- ---------
Total deferred........................................................... 34.8 63.3 13.5
--------- --------- ---------
Provision for income taxes................................................. $ 207.5 $ 171.9 $ 90.8
</TABLE>

A favorable tax settlement reduced the 1994 provision for income taxes by
$37.6 ($0.29 per share).

27
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 3 -- INCOME TAXES (CONTINUED)
A reconciliation of the provision for income taxes to the amount computed
using U.S. federal statutory rates is as follows:

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Taxes on income at U.S. federal statutory rates........................... $ 213.6 $ 176.9 $ 129.4
Tax effects of foreign income............................................. (15.9) (11.7) (15.5)
State taxes............................................................... 21.1 9.9 4.2
Tax effect of settlement.................................................. (37.6)
Adjustments to effective tax rates used in recording tax assets
andliabilities........................................................... 2.7
Other..................................................................... (11.3) (3.2) 7.6
--------- --------- ---------
Provision for income taxes................................................ $ 207.5 $ 171.9 $ 90.8
</TABLE>

Interest costs related to prior years' tax issues are included in the
provision for income taxes. Taxes paid were $113.1 in 1996, $128.3 in 1995 and
$79.4 in 1994.

Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of Honeywell's assets and
liabilities. Temporary differences comprising the net deferred taxes shown in
the statement of financial position are:

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Employee benefits................................................................... $ 64.9 $ 101.6
Miscellaneous accruals.............................................................. 85.1 76.4
Excess of tax over book depreciation/amortization................................... (2.4) (8.4)
Asset valuation reserves............................................................ 36.3 37.6
Long-term contracts................................................................. 14.0 16.0
State taxes......................................................................... 20.9 24.3
Pension liability adjustment........................................................ 3.4 12.7
Other............................................................................... (63.9) (53.4)
--------- ---------
158.3 $ 206.8
</TABLE>

The components of net deferred taxes shown in the statement of financial
position are:

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax assets................................................................. $ 458.8 $ 463.7
Deferred tax liabilities............................................................ 300.5 256.9
</TABLE>

Provision has not been made for U.S. or additional foreign taxes on $669.1
of undistributed earnings of international subsidiaries, as those earnings are
considered to be permanently reinvested in the operations of those subsidiaries.
It is not practicable to estimate the amount of tax that might be payable on the
eventual remittance of such earnings.

At December 31, 1996, foreign subsidiaries had tax operating loss
carryforwards of $14.7.

NOTE 4 -- FOREIGN CURRENCY
Honeywell has entered into various foreign currency exchange contracts
(primarily Belgian francs, Deutsche marks and Canadian dollars) designed to
manage its exposure to exchange rate fluctuations on foreign currency
transactions. Foreign exchange contracts reduce Honeywell's overall

28
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 4 -- FOREIGN CURRENCY (CONTINUED)
exposure to exchange rate movements, since the gains and losses on these
contracts offset losses and gains on the assets, liabilities, and transactions
being hedged. Honeywell hedges a significant portion of all known foreign
exchange exposures, including non-functional currency receivables and payables
and foreign currency imports and exports. The notional amount of Honeywell's
outstanding foreign currency contracts, consisting of forwards, purchased
options and swaps, was approximately $1,111.2 and $1,262.2 at December 31, 1996,
and 1995, respectively. These contracts generally have a term of less than one
year.

NOTE 5 -- INVESTMENTS IN DEBT AND EQUITY SECURITIES
Honeywell's investments in held-to-maturity securities are reported at
amortized cost in the statement of financial position as follows:

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Cash equivalents..................................................................... $ 42.9 $ 161.6
Short-term investments............................................................... 8.6 9.0
Investments and advances............................................................. 5.5 6.9
--------- ---------
$ 57.0 $ 177.5
</TABLE>

Held-to-maturity securities generally mature within one year and include the
following:

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Time deposits with financial institutions............................................ $ 40.5 $ 53.4
Commercial paper..................................................................... 0.0 109.3
Other................................................................................ 16.5 14.8
--------- ---------
$ 57.0 $ 177.5
</TABLE>

Honeywell's purchases of held-to-maturity securities, consisting primarily
of commercial paper, amounted to $4,128.0 and $3,528.0 in 1996 and 1995,
respectively. Proceeds from maturities of held-to-maturity securities amounted
to $4,248.5 in 1996 and $3,494.3 in 1995. Honeywell has no investments in
trading securities, and available-for-sale securities are not material. The
estimated aggregate fair value of these securities approximates their carrying
amounts in the statement of financial position. Gross unrealized holding gains
and losses were not material in any year.

NOTE 6 -- RECEIVABLES
Receivables have been reduced by an allowance for doubtful accounts as
follows:

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Receivables, current.................................................................. $ 33.5 $ 34.5
Long-term receivables................................................................. 0.7 0.7
</TABLE>

Receivables include approximately $19.8 in 1996 and $20.1 in 1995 billed to
customers but not paid pursuant to contract retainage provisions. These balances
are due upon completion of the contracts, generally within one year.

Unbilled receivables related to long-term contracts amount to $360.5 and
$314.0 at December 31, 1996, and 1995, respectively, and are generally billable
and collectible within one year.

Long-term, interest-bearing notes receivable from the sale of assets have
been reduced by valuation reserves of $1.7 in 1996 and $1.8 in 1995 to an amount
that approximates realizable value.

29
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 6 -- RECEIVABLES (CONTINUED)
Honeywell maintains an agreement with a large international banking
institution whereby it can sell an undivided interest in a designated pool of
trade accounts receivable up to a maximum of $50.0 on an ongoing basis and
without recourse. As collections reduce accounts receivable sold, Honeywell may
sell an additional undivided interest in new receivables to bring the amount
sold up to the $50.0 maximum. Proceeds received from the sale of receivables
amounted to $238.8 in 1996, $22.4 in 1995 and $34.4 in 1994. The uncollected
balance of receivables sold amounted to $7.0 and $1.5 at December 31, 1996, and
1995, respectively, and averaged $23.2 and $2.7 during those respective years.
Honeywell, as agent for the purchaser, retains collection and administrative
responsibilities for the participating interests sold.

In 1996, Honeywell entered into an asset securitization program with a large
financial institution to sell, with recourse, up to a maximum of $50.0 Canadian
dollars (approximately $36.5 US Dollars at December 31, 1996) of certain
eligible trade receivables to a trust. As receivables transferred to the trust
are collected, Honeywell may transfer additional receivables up to the
predetermined facility limits. Gross receivables transferred to the trust
amounted to $31.5 in 1996. Honeywell retains the right to repurchase transferred
receivables under the program and included at year-end are $31.5 of uncollected
receivables held in trust.

NOTE 7 -- INVENTORIES

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Finished goods............................................................ $ 386.5 $ 356.6
Inventories related to long-term contracts................................ 122.7 73.6
Work in process........................................................... 185.8 159.5
Raw materials and supplies................................................ 242.6 204.7
--------- ---------
$ 937.6 $ 794.4
</TABLE>

Inventories related to long-term contracts are net of payments received from
customers relating to the uncompleted portions of such contracts in the amounts
of $60.7 and $56.4 at December 31, 1996, and 1995, respectively.

NOTE 8 -- GROSS PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
Land.................................................................. $ 71.6 $ 77.7
Buildings and improvements............................................ 600.7 585.8
Machinery and equipment............................................... 2,208.7 2,100.3
Construction in progress.............................................. 92.6 93.3
--------- ----------
$ 2,973.6 $ 2,857.1
</TABLE>

30
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 9 -- FOREIGN SUBSIDIARIES
The following is a summary of financial data pertaining to foreign
subsidiaries:

<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ----------
<S> <C> <C> <C>
Net income................................................ $ 172.9 $ 142.9 $ 121.5
Assets.................................................... $ 1,847.8 $ 1,849.4 $ 1,742.3
Liabilities............................................... 838.5 802.8 726.4
--------- ---------- ----------
Net assets................................................ $ 1,009.3 $ 1,046.6 $ 1,015.9
</TABLE>

Insofar as can be reasonably determined, there are no foreign-exchange
restrictions that materially affect the financial position or the operating
results of Honeywell and its subsidiaries.

NOTE 10 -- INVESTMENTS IN OTHER COMPANIES
Following is a summary of financial data pertaining to companies 20 to 50
percent owned. The principal company included is Yamatake-Honeywell Co., Ltd.,
of which Honeywell owns 23.3 percent of the outstanding common stock. This
investment had a market value of $329.8 and $316.3 at December 31, 1996, and
1995, respectively.

<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ----------
<S> <C> <C> <C>
Sales..................................................... $ 1,949.2 $ 2,065.1 $ 1,877.0
Gross profit.............................................. 688.8 743.5 680.7
Net income................................................ 51.8 54.2 48.4
Equity in net income...................................... 13.3 13.6 10.5
Current assets............................................ $ 1,576.9 $ 1,400.6 $ 1,371.4
Noncurrent assets......................................... 421.1 598.8 616.8
--------- ---------- ----------
1,998.0 1,999.4 1,988.2
--------- ---------- ----------
Current liabilities....................................... 853.5 742.6 841.6
Noncurrent liabilities.................................... 181.4 327.8 225.8
--------- ---------- ----------
1,034.9 1,070.4 1,067.4
--------- ---------- ----------
Net assets................................................ $ 963.1 $ 929.0 $ 920.8
Equity in net assets...................................... $ 241.0 $ 236.8 $ 225.5
</TABLE>

NOTE 11 -- INTANGIBLE ASSETS
Intangible assets have been reduced by accumulated amortization as follows:

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Goodwill.................................................................. $ 74.9 $ 49.2
Patents, licenses and trademarks.......................................... 83.4 75.8
Software and other intangibles............................................ 189.1 168.1
</TABLE>

NOTE 12 -- DEBT

SHORT-TERM DEBT

Honeywell had general purpose lines of credit available totaling $1,127.9 at
December 31, 1996. Committed revolving credit lines with 21 banks total $725.0,
which management believes is adequate to meet its financing requirements,
including support of commercial paper and bank note borrowings. These lines have
commitment fee requirements. There were no borrowings on these lines at December
31, 1996. The remaining credit facilities of $402.9 have been arranged by
non-U.S. subsidiaries in

31
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 12 -- DEBT (CONTINUED)
accordance with customary lending practices in their respective countries of
operation. Borrowings against these lines amounted to $53.5 at December 31,
1996. The weighted-average interest rate on short-term borrowings outstanding at
December 31, 1996, and 1995, respectively, was as follows: commercial paper, 4.2
percent and 6.0 percent; and notes payable, 3.9 percent and 6.5 percent.

Short-term debt consists of the following:

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Commercial paper.......................................................... $ 86.5 $ 65.0
Notes payable............................................................. 67.2 62.8
Current maturities of long-term debt.................................. 98.7 184.6
--------- ---------
$ 252.4 $ 312.4
</TABLE>

LONG-TERM DEBT

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Honeywell Inc.
7 7/8% due 1996......................................................... $ 100.0
6 1/4% Deutsche mark bonds due 1997..................................... $ 96.6 104.7
7.15% to 7.71% medium-term notes due 1998............................... 50.0 50.0
7.36% to 7.46% medium-term notes due 1999............................... 70.5 70.5
7.35% medium-term notes due 2000........................................ 75.0 75.0
6.60% due 2001.......................................................... 100.0
8 5/8% due 2006......................................................... 100.0 100.0
7 1/8% due 2008......................................................... 200.0
7.45 % to 10 1/2% due 2001 to 2010...................................... 27.1 28.0
Subsidiaries
9.6% Canadian dollar notes due 1996..................................... 84.4
3.02% to 10.0% due 1997 to 2008, various currencies..................... 94.8 53.0
--------- ---------
814.0 665.6
Less amount included in short-term debt................................... 98.7 184.6
--------- ---------
$ 715.3 $ 481.0
</TABLE>

The 7 7/8 percent notes matured in May, 1996. The 9.6 percent Canadian
dollar notes matured in December, 1996 and were refinanced with a receivables
securitization agreement, as discussed in Note 6, and a commercial paper
program. Included in Notes Payable are $31.5 of liabilities related to the asset
securitization program. In 1993, Honeywell entered into interest rate swap
agreements effectively converting the 9.6 percent Canadian dollar notes to
floating-rate debt based on three-month Canadian bankers acceptance rates. The
swap agreements for the 9.6 percent Canadian dollar notes also expired in
December 1996.

The 6 1/4 percent Deutsche mark bonds due 1997 are linked to a currency
exchange agreement that converts principal and interest payments into fixed U.S.
dollar obligations with an interest cost of 8.17 percent.

In August 1994, Honeywell initiated a $500.0 medium-term note program
whereby it may issue notes with maturities of nine months to 30 years
denominated in U.S. dollars or foreign currencies

32
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 12 -- DEBT (CONTINUED)
with fixed or variable interest rates. Honeywell issued $121.0 and $100.5 of
U.S. dollar fixed-rate medium-term notes in 1995 and 1994, respectively. This
facility was fully utilized in the first half of 1996 with the issuance of
$100.0 of 6.6 percent debt due in 2001 and $200.0 of 7 1/8 percent debt due in
2008.

In May 1996, Honeywell established a $500.0 medium term note program whereby
it may issue notes with maturities beyond nine months in U.S. dollars or foreign
currencies with fixed or variable interest rates. At December 31, 1996, no notes
have been issued against this facility.

Honeywell uses interest rate swaps to manage its interest rate exposures and
its mix of fixed and floating interest rates. In 1994, Honeywell entered into
interest rate swap agreements effectively converting $50.0 of the $70.5 of
medium-term notes due in 1999 to floating rate debt based on three-month LIBOR
rates. In 1995, interest rate swap agreements were initiated to effectively
convert $40.0 of medium-term notes back to fixed-rate debt. In 1996, Honeywell
entered into interest rate swap agreements converting the $100.0 of bonds due in
2001 and $200.0 of bonds due in 2008 to floating rate debt based on six months
LIBOR rates. The swap agreements outstanding at December 31, 1996 expire as
follows: $20.0 in July 1997, $20.0 in May 1998, $50.0 in August 1999, $100.0 in
April 2001, and $200.0 in April 2008.

Annual sinking-fund and maturity requirements for the next five years on
long-term debt outstanding at December 31, 1996, are as follows:

Interest paid amounted to $77.3, $86.0, and $69.1 in 1996, 1995, and 1994,
respectively.

NOTE 13 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
All financial instruments are held for purposes other than trading. The
estimated fair values of all nonderivative financial instruments approximate
their carrying amounts in the statement of financial position with the exception
of long-term debt. The estimated fair value of long-term debt is based on quoted
market prices for the same or similar issues or on current rates available to
Honeywell for debt of the same remaining maturities. The carrying amount of
long-term debt was $814.0 and $665.6 at December 31, 1996, and 1995,
respectively; and the fair value was $833.4 and $702.6 at December 31, 1996, and
1995, respectively.

The estimated fair value of interest rate swaps, foreign currency contracts,
and option contracts, which is the net unrealized market gain or loss, is based
primarily on quotes obtained from various

33
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 13 -- FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
financial institutions that deal in these types of instruments. The following
table summarizes the notional value, carrying value and fair value of
Honeywell's derivative financial instruments on and off the balance sheet.

<TABLE>
<CAPTION>
AT DECEMBER 31, 1996 At December 31, 1995
--------------------------------- ----------------------------------
NOTIONAL CARRYING FAIR Notional Carrying Fair
VALUE VALUE VALUE Value Value Value
--------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest rate swaps........... $ 390.0 $ 0.0 $ 7.2 $ 225.0 $ 0.0 $ (4.7)
Currency contracts............ $ 1,111.2 17.6 $ 22.9 1,262.2 25.7 4.7
--------- ----- --------- ---------- ----- ---------
Total......................... $ 1,501.2 $ 17.6 $ 30.1 $ 1,487.2 $ 25.7 $ 0.0
--------- ----- --------- ---------- ----- ---------
--------- ----- --------- ---------- ----- ---------
</TABLE>

Honeywell is exposed to credit risk to the extent of nonperformance by the
counterparties to the foreign currency contracts and the interest rate swaps
shown above. However, the credit ratings of the counterparties, which consist of
a diversified group of financial institutions, are regularly monitored and risk
of default is considered remote.

NOTE 14 -- LEASING ARRANGEMENTS
As lessee, Honeywell has minimum annual lease commitments outstanding at
December 31, 1996, with the majority of the leases having initial periods
ranging from one to 10 years. Following is a summary of operating lease
information.

<TABLE>
<CAPTION>
OPERATING
LEASES
-----------
<S> <C>
1997..................................................................... $ 103.0
1998..................................................................... 79.7
1999..................................................................... 60.0
2000..................................................................... 44.7
2001..................................................................... 31.4
2002 and beyond.......................................................... 84.0
-----------
$ 402.8
</TABLE>

Rent expense for operating leases was $153.7 in 1996, $143.4 in 1995, and
$136.9 in 1994.

Substantially all leases are for plant, warehouse, office space and
automobiles. A number of the leases contain renewal options ranging from one to
10 years.

34
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 15 -- CAPITAL STOCK

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN TREASURY
STOCK CAPITAL STOCK
----------- ----------- -----------
<S> <C> <C> <C>
Balance January 1, 1994................................... $ 282.5 $ 431.5 $ (1,428.4)
Purchase of treasury stock --
5,223,800 shares........................................ (168.0)
Issued for employee stock plans --
962,242 treasury shares 15.4 19.9
42,570 shares canceled.................................. (0.1)
----------- ----------- -----------
Balance December 31, 1994................................. 282.4 446.9 (1,576.5)
Purchase of treasury stock --
3,090,400 shares........................................ (129.3)
Issued for Honeywell Foundation Pledge --
1,000,000 treasury shares............................... 13.4 21.7
Issued for employee stock plans --
1,814,714 treasury shares 21.0 33.9
159,296 shares canceled................................. (0.2)
----------- ----------- -----------
Balance December 31, 1995................................. 282.2 481.3 (1,650.2)
Purchase of treasury stock --
2,904,000 shares........................................ (163.2)
Issued for Honeywell Foundation Pledge --
450,000 treasury shares................................. 8.3 9.2
Issued for employee stock plans --
2,399,438 treasury shares............................... 39.2 40.7
317,192 shares canceled................................. (0.5)
----------- ----------- -----------
Balance December 31, 1996................................. $ 281.7 $ 528.8 $ (1,763.5)
</TABLE>

STOCK-BASED COMPENSATION PLANS FOR KEY EMPLOYEES

In 1993, the Board of Directors adopted, and the shareholders approved, the
1993 Honeywell Stock and Incentive Plan. The plan, which terminates December 31,
1998, provides for the award of up to 7,500,000 shares of common stock. The
purpose of the plan is to align the personal interests of key employees, through
the ownership of shares of common stock and other incentives, to those of
Honeywell shareholders and provide flexibility to Honeywell in its ability to
motivate, attract and retain the services of such key employees who have the
ability to enhance the value of Honeywell and its subsidiaries. Awards made
under the plan may be in the form of stock options, restricted stock or other
stock-based awards. The plan replaced similar plans, and awards currently
outstanding under those plans, were not affected. At December 31, 1996 there
were 6,843,074 shares reserved for all key employee plans.

In 1996, Honeywell adopted Statement of Financial Accounting Standard No.
123 (SFAS 123), "Accounting for Stock-Based Compensation". As permitted by SFAS
123, Honeywell has elected to continue following the guidance of APB 25 for
measurement and recognition of stock-based transactions with employees (See Note
1 on page 26). The compensation cost that has been charged against income, for
the restricted stock and other stock-based awards, was $12.2, $3.2 and $5.6 in
1996, 1995 and 1994, respectively. No compensation cost has been recognized for
the awards made in the form of

35
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 15 -- CAPITAL STOCK (CONTINUED)
stock options. If compensation cost for Honeywell's stock-based compensation
plans had been determined based on the fair value at the grant dates for awards
under those plans, consistent with the method provided in FAS 123, Honeywell's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C> <C>
Net Income................................ As reported $ 402.7 $ 333.6
Pro forma $ 392.6 $ 329.7
Earnings Per Share........................ As reported $ 3.18 $ 2.62
Pro forma $ 3.10 $ 2.59
</TABLE>

FIXED STOCK OPTIONS

All stock option grants are reviewed and approved by the Personnel Committee
of the Board of Directors. Stock options are granted periodically at the fair
market value of Honeywell common stock on the date of the grant and exercisable
one year from the date of the grant. In 1995, the Committee extended the vesting
period for certain newly granted stock options to eighteen months.

A summary of the status of the fixed stock options as of December 31, 1996,
1995 and 1994 and changes during the years ending on those dates is presented
below:

<TABLE>
<CAPTION>
1996 1995 1994
-------------------------- ---------------------------- ----------------------------
SHARES WEIGHTED AVG Shares Weighted Avg Shares Weighted Avg
(000) EXERCISE PRICE (000) Exercise Price (000) Exercise Price
--------- --------------- --------- ----------------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Fixed Options
Outstanding at beginning of year.... 5,963 $ 35 5,346 $ 30 4,740 $ 29
Granted............................. 423 54 1,891 43 1,001 33
Exercised........................... 1,821 31 1,248 28 320 22
Forfeited........................... 58 42 26 39 75 33
Outstanding at end of year.......... 4,507 39 5,963 35 5,346 30
Options exercisable at year end..... 4,088 37 4,087 31 4,390 30
Weighted average fair value of
options granted during the year.... $ 14.19 $ 10.43
</TABLE>

The weighted average fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model and represents the
difference between the fair market value on the date of grant and the estimated
market value on the exercise date. The following weighted-average assumptions
are used in the Black Scholes model for grants in 1996 and 1995, respectively:
dividend yield of two percent for all years; expected volatility of 27 and 24
percent, risk-free interest rates of 6.3 and 6.0 percent, and expected lives of
four for all years.

36
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 15 -- CAPITAL STOCK (CONTINUED)
The following table summarizes information about fixed stock options
outstanding at December 31, 1996. The fixed options outstanding include options
issued under the 1993 Honeywell Stock and Incentive Plan and the previous plans
which the 1993 plan replaced.

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------------
SHARES REMAINING SHARES
RANGE OF OUTSTANDING AT CONTRACTUAL WEIGHTED AVERAGE EXERCISABLE AT WEIGHTED AVERAGE
EXERCISE PRICES 12/31/96 (000) LIFE EXERCISE PRICE 12/31/96 (000) EXERCISE PRICE
- ------------------- --------------- ----------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
$16-$24 195 2.2 yrs $ 20 195 $ 20
$25-$36 1,609 5.9 yrs 32 1,609 32
$37-$54 2,616 8.2 yrs 44 2,284 42
$55-$69 87 9.8 yrs 62 0 0
</TABLE>

RESTRICTED STOCK AWARDS

Restricted shares of common stock are issued to certain key employees as
compensation and as incentives tied to Honeywell performance. Restricted shares
issued as compensation are awarded with a fixed restriction period ranging from
three to six years. In 1993, shares were issued and tied to performance goals
which restricted the shares until the earlier to occur of: (i) the achievement
of performance goals within a specified measurement period, not more than three
years, or (ii) nine years. The vesting of performance shares awarded in 1996 to
senior executives was established at not more than two years. Owners of
restricted shares have the rights of shareholders, including the right to
receive cash dividends and the right to vote. Restricted shares forfeited revert
to Honeywell at no cost. Restricted shares issued totaled 371,917 in 1996,
212,781 in 1995, and 141,376 in 1994. At December 31, restricted shares
outstanding under key employee plans totaled 835,443 in 1996, 665,005 in 1995,
and 705,030 in 1994 with a weighted average grant-date fair value of $46 and $37
in 1996 and 1995, respectively.

EMPLOYEE STOCK MATCH PLANS

In 1990, Honeywell adopted Stock Match and Performance Stock Match plans
under which Honeywell matches, in the form of Honeywell common stock, certain
eligible U.S. employee savings plan contributions. Employees are vested in the
shares after three years of employment. Shares issued under the stock match
plans totaled 394,534 in 1996, 571,905 shares in 1995, and 634,561 shares in
1994 at a cost of $23.4, $24.2 and $20.7, respectively. There were 747,295
shares reserved for employee stock match plans at December 31, 1996.

STOCK PLEDGE

In 1993, Honeywell pledged to the Honeywell Foundation a five-year option to
purchase 2,000,000 shares of common stock at $33 per share. This option is
transferable to charitable organizations and exercisable in whole or in part,
subject to certain conditions, from time to time during its term. Shares
purchased under the option totaled 450,000 in 1996 and 1,000,000 in 1995.

PREFERENCE STOCK

Twenty-five million preference shares with a par value of $1 have been
authorized. None have been issued at December 31, 1996.

37
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 16 -- RETAINED EARNINGS

<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ----------
<S> <C> <C> <C>
Balance January 1......................................... $ 2,805.8 $ 2,600.4 $ 2,447.3
Net income................................................ 402.7 333.6 278.9
Dividends
1996-$1.06 PER SHARE.................................... (133.8)
1995-$1.01 per share.................................... (128.2)
1994-$0.97 per share.................................... (125.8)
--------- ---------- ----------
Balance December 31....................................... $ 3074.7 $ 2,805.8 $ 2,600.4
</TABLE>

Included in retained earnings are undistributed earnings of companies 20 to
50 percent owned, amounting to $155.2 at December 31, 1996.

NOTE 17 -- SEGMENT INFORMATION
Honeywell is a global controls company focused on creating value through
control technology. Honeywell serves customers worldwide through operations
engaged in the design, development, manufacture, marketing and service of
control solutions in three industry segments -- Home and Building Control,
Industrial Control and Space and Aviation Control. Honeywell's broad range of
products, systems, and services provide solutions worldwide as our customers
look to improve productivity, energy efficiency and environmental protection,
increase safety, and enhance comfort.

Home and Building Control provides products and services to create
efficient, safe, comfortable environments by offering controls for heating,
ventilation, humidification and air-conditioning equipment; security and fire
alarm systems; home automation systems; energy-efficient lighting controls;
building management systems and services; and home comfort consumer products.
Customers include building managers and owners; distributors and wholesalers;
heating, ventilation and air conditioning manufacturers; home builders; home
owners; and original equipment manufacturers.

Industrial Control produces systems for the automation and control of
process operations in industries such as oil refining, oil and gas drilling,
pulp and paper manufacturing, food processing, chemical manufacturing and power
generation; solid-state sensors for position, pressure, air flow, temperature
and current; precision electromechanical switches; manual controls; advanced
vision-based sensors; fiber-optic components; and solenoid valves used in fluid
control and processing industries. Customers include appliance manufacturers;
automotive companies; food processing companies; oil and gas producers; refining
and petrochemical companies; pharmaceutical companies; paper companies; and
utilities.

Space and Aviation Control is a full-line avionics supplier and systems
integrator for commercial, military and space applications, providing automatic
flight control systems, electronic cockpit displays, flight management systems,
navigation, surveillance and warning systems, severe weather avoidance systems
and flight reference sensors. Customers include airframe manufacturers;
international, national and regional airlines; NASA; prime U.S. defense
contractors; and the U.S. Department of Defense.

In addition to the three industry segments, Honeywell has two research and
development operations that promote technology and products to both external
customers and operating units. The results of these research operations comprise
primarily the "other" category.

38
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 17 -- SEGMENT INFORMATION (CONTINUED)
Information concerning Honeywell's sales, operating profit and identifiable
assets by industry segment can be found on page 11. This information for 1996,
1995 and 1994 is an integral part of these financial statements. Sales include
external sales only. Intersegment sales are not significant. Corporate and other
assets include the assets of the entities in the "other" category and cash,
short-term investments, investments, property and deferred taxes held by
corporate.

Following is additional financial information relating to industry segments:

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Capital expenditures
Home and Building Control..................................... $ 106.8 $ 87.2 $ 95.6
Industrial Control............................................ 74.8 73.0 73.6
Space and Aviation Control.................................... 55.8 42.9 54.9
Corporate and other........................................... 59.1 35.0 38.3
--------- --------- ---------
$ 296.5 $ 238.1 $ 262.4
Depreciation and amortization
Home and Building Control..................................... $ 98.4 $ 87.4 $ 71.8
Industrial Control............................................ 72.3 69.3 67.1
Space and Aviation Control.................................... 84.0 109.7 120.0
Corporate and other........................................... 32.8 26.5 28.5
--------- --------- ---------
$ 287.5 $ 292.9 $ 287.4
</TABLE>

Honeywell is a global company and as such engages in material operations in
countries worldwide. Geographic areas of operation include Europe, Canada,
Mexico, Asia, Australia, and South America.

Following is financial information relating to geographic areas:

<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ----------
<S> <C> <C> <C>
External sales
United States........................................... $ 4,477.9 $ 4,087.5 $ 3,824.7
Europe.................................................. 1,981.7 1,858.9 1,528.5
Other areas............................................. 852.0 784.9 703.8
--------- ---------- ----------
$ 7,311.6 $ 6,731.3 $ 6,057.0
Transfers between geographic areas
United States........................................... $ 364.4 $ 318.6 $ 293.3
Europe.................................................. 73.2 67.1 46.3
Other areas............................................. 77.5 61.5 54.3
--------- ---------- ----------
$ 515.1 $ 447.2 $ 393.9
Total sales
United States........................................... $ 4,842.3 $ 4,406.1 $ 4,118.0
Europe.................................................. 2,054.9 1,926.0 1,574.8
Other areas............................................. 929.5 846.4 758.1
Eliminations............................................ (515.1) (447.2) (393.9)
--------- ---------- ----------
$ 7,311.6 $ 6,731.3 $ 6,057.0
</TABLE>

39
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 17 -- SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ----------
Operating profit
<S> <C> <C> <C>
United States........................................... $ 484.2 $ 425.4 $ 343.7
Europe.................................................. 203.0 191.7 139.1
Other areas............................................. 83.0 55.7 41.2
--------- ---------- ----------
Operating profit........................................ 770.2 672.8 524.0
Interest expense........................................ (81.4) (83.3) (75.5)
Equity income........................................... 13.3 13.6 10.5
General corporate expense............................... (91.9) (97.6) (89.3)
--------- ---------- ----------
Income before income taxes.............................. $ 610.2 $ 505.5 $ 369.7
Identifiable Assets
United States........................................... $ 2,828.3 $ 2,331.1 $ 2,356.2
Europe.................................................. 1,479.9 1,375.0 1,303.1
Other areas............................................. 444.9 461.4 434.9
Corporate............................................... 740.2 892.7 791.7
--------- ---------- ----------
$ 5,493.3 $ 5,060.2 $ 4,885.9
</TABLE>

Honeywell transfers products from one geographic region for resale in
another. These transfers are priced to provide both areas with an equitable
share of the overall profit.

In December 1994, Honeywell committed itself to a plan of action and
recorded special charges of $62.7 to consolidate manufacturing capacity and
reduce the overhead structure. At December 31, 1996, the accruals made in
December 1994 had been paid and were funded by cash flows from operations.
Operating profit is net of provisions for special charges amounting to $62.7 in
1994 as follows: United States, $23.2; Europe, $29.6; other areas, $9.9.

NOTE 18 -- PENSION PLANS
Honeywell and its subsidiaries have noncontributory defined benefit pension
plans that cover substantially all of their U.S. employees. The plan covering
non-union employees provides pension benefits based on employee average earnings
during the highest paid 60 consecutive calendar months of employment during the
10 years prior to retirement. The plan covering union employees provides pension
benefits of stated amounts for each year of credited service. Funding for these
plans is provided solely through contributions from Honeywell determined by the
Board of Directors after consideration of recommendations from the plans'
independent actuary. Such recommendations are based on actuarial valuations of
benefits payable under the plans.

The components of net periodic pension cost for U.S. defined benefit pension
plans are as follows:

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Service cost of benefits earned during the period............. $ 55.6 $ 50.5 $ 53.8
Interest cost of projected benefit obligation................. 226.3 222.8 201.5
Actual return on assets....................................... (339.1) (400.8) (73.3)
Net amortization and deferral................................. 130.6 228.9 (92.6)
--------- --------- ---------
$ 73.4 $ 101.4 $ 89.4
</TABLE>

40
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 18 -- PENSION PLANS (CONTINUED)
Following is a summary of assumptions used in the accounting for the U.S.
defined benefit plans.

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Discount rate used in determining present values..................... 7.8% 7.5% 8.5%
Annual increase in future compensation levels........................ 4.7% 4.4% 5.4%
Expected long-term rate of return on assets.......................... 9.5% 8.5% 8.5%
</TABLE>

Employees in foreign countries who are not U.S. citizens are covered by
various retirement benefit arrangements, some of which are considered to be
defined benefit pension plans for accounting purposes. The net cost of all
foreign pension plans amounted to $10.9 in 1996, $(3.6) in 1995 and $1.2 in
1994.

The components of net periodic pension cost for foreign defined benefit
pension plans are as follows:

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Service cost of benefits earned during the period............... $ 33.6 $ 31.2 $ 30.3
Interest cost of projected benefit obligation................... 58.3 55.7 47.6
Actual return on assets......................................... (102.8) (90.6) (43.2)
Net amortization and deferral................................... 19.6 (3.2) (37.1)
--------- --------- ---------
$ 8.7 $ (6.9) $ (2.4)
</TABLE>

Assumptions used in the accounting for foreign defined benefit plans were:

<TABLE>
<CAPTION>
1996 1995 1994
---------- ------------ ----------
<S> <C> <C> <C>
Discount rate used in determining present values........ 4.5-9.0% 4.5-9.5% 4.5-9.0%
Annual increase in future compensation levels........... 2.0-7.0% 2.0-7.25% 2.0-8.0%
Expected long-term rate of return on assets............. 5.5-9.0% 5.5-9.0% 5.5-9.5%
</TABLE>

41
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 18 -- PENSION PLANS (CONTINUED)
The plans' funded status as of September 30, adjusted for fourth quarter
contributions, and amounts recognized in Honeywell's statement of financial
position for its pension plans are summarized below.

<TABLE>
<CAPTION>
Plans Whose Plans Whose
Assets Exceed Accumulated
Accumulated Benefits
1996 (U.S. and Foreign) Benefits Exceed Assets
- ------------------------------------------------------------------------------------ ------------- -------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation......................................................... $ (3,193.1) $ (163.0)
Accumulated benefit obligation.................................................... $ (3,462.2) $ (192.5)
Projected benefit obligation...................................................... $ (3,798.9) $ (211.3)
Plan assets at fair value........................................................... 3,845.0 118.9
------------- -------------
Projected benefit obligation (in excess of) less than plan assets................... 46.1 (92.4)
Remaining unrecognized net transition obligation (asset)............................ (81.1) 41.4
Unrecognized prior service cost..................................................... 233.2 9.0
Unrecognized net loss............................................................... 40.5 25.0
Other............................................................................... 0.1 (1.3)
Fourth-quarter 1996 contributions to plans.......................................... 20.3 0.6
Adjustment to recognize minimum liability........................................... (17.8)
------------- -------------
Overfunded (unfunded) pension asset (liability) recognized in the statement of
financial position................................................................. $ 259.1 $ (35.5)
</TABLE>

<TABLE>
<CAPTION>
Plans Whose Plans Whose
Assets Exceed Accumulated
Accumulated Benefits
1995 (U.S. and Foreign) Benefits Exceed Assets
- ------------------------------------------------------------------------------------ ------------- -------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation......................................................... $ (503.3) $ (2,778.7)
Accumulated benefit obligation.................................................... $ (506.5) $ (2,988.4)
Projected benefit obligation...................................................... $ (631.4) $ (3,236.0)
Plan assets at fair value........................................................... 809.2 2,740.5
------------- -------------
Projected benefit obligation (in excess of) less than plan assets................... 177.8 (495.5)
Remaining unrecognized net transition obligation (asset)............................ (68.6) 11.1
Unrecognized prior service cost..................................................... 3.8 205.9
Unrecognized net (gain) loss........................................................ (34.6) 259.8
Fourth-quarter 1995 contributions to plans.......................................... 36.1
Adjustment to recognize minimum liability........................................... (220.2)
------------- -------------
Overfunded (unfunded) pension asset (liability) recognized in the statement of
financial position................................................................. $ 78.4 $ (202.8)
</TABLE>

Adjustments recorded to recognize the minimum liability required for defined
benefit pension plans whose accumulated benefits exceed assets amounted to $17.8
in 1996 and $220.2 in 1995. A corresponding amount was recognized as an
intangible asset to the extent of unrecognized prior service cost and
unrecognized transition obligation. At December 31, 1996, $8.0 of excess minimum

42
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 18 -- PENSION PLANS (CONTINUED)
liability resulted in a reduction in shareholders' equity, net of income taxes,
of $4.9. At December 31, 1995, $32.6 of excess minimum liability resulted in a
reduction in shareholders' equity, net of income taxes, of $19.9.

Plan assets are held by trust funds devoted to servicing pension benefits
and are not available to Honeywell until all covered benefits are satisfied
after a plan is terminated. The assets held by the trust funds consist of a
diversified portfolio of fixed-income investments and equity securities.

NOTE 19 -- POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Substantially all of Honeywell's domestic and Canadian employees who retire
from Honeywell between the ages of 55 and 65 with 10 or more years of service
are eligible to receive health-care benefits, until age 65, identical to those
available to active employees. Honeywell funds postretirement benefits on a
pay-as-you-go basis.

The components of net periodic postretirement benefit cost are as follows:

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Service cost of benefits earned during the period................... $ 13.0 $ 11.5 $ 10.4
Interest cost on accumulated postretirement benefit obligation...... 22.4 23.1 18.0
Net amortization.................................................... 0.9 1.1 0.5
--------- --------- ---------
$ 36.3 $ 35.7 $ 28.9
</TABLE>

The amounts recognized in Honeywell's statement of financial position are as
follows:

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................................ $ 78.9 $ 90.4
Fully eligible active plan participants................................. 60.2 63.8
Other active plan participants.......................................... 148.3 175.5
Unrecognized prior service cost......................................... (6.0) (6.9)
Unrecognized net gain (loss)............................................ 41.0 (14.8)
--------- ---------
Accrued postretirement benefit cost....................................... $ 322.4 $ 308.0
</TABLE>

The discount rate used in determining the APBO was 7.5 percent in 1996 and
7.0 percent in 1995. The assumed health-care cost trend rate used in measuring
the APBO was 5.7 percent. The health-care cost trend rate assumption has a
significant effect on the amounts reported. For example, a one percent increase
in the health-care trend rate would increase the APBO by 11.0 percent at
December 31, 1996, and the net periodic postretirement benefit cost by 14.4
percent for 1996.

NOTE 20 -- CONTINGENCIES

LITTON LITIGATION

43
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 20 -- CONTINGENCIES (CONTINUED)
markets for products containing ring laser gyroscopes. Honeywell denied Litton's
allegations; contested both the validity and infringement of the patent; and
alleged that the patent had been obtained by Litton's inequitable conduct before
the United States Patent and Trademark Office.

Litton appealed to the United States Court of Appeals for the Federal
Circuit, and on July 3, 1996, a three judge panel overruled the trial court's
rulings of patent invalidity, unenforceability and non-infringement, and also
found Honeywell liable under Litton's state tort claims. However, the panel
upheld the trial court's ruling that Honeywell is entitled to a new trial for
damages on all claims, as well as its granting to Honeywell of certain
intervening patent rights. Honeywell requested a rehearing by the full Court of
Appeals, which was denied on September 11, 1996. On November 26, 1996, Honeywell
petitioned the U.S. Supreme Court for review of the panel's decision, which
petition is still pending. In the interim, Litton filed a motion with the trial
court seeking injunctive relief which was denied on December 23, 1996.

44
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 20 -- CONTINGENCIES (CONTINUED)
On July 24, 1996, the trial court denied Honeywell's Motion for Judgment as
a Matter of Law but concluded, that Litton's damage study was seriously flawed,
and granted Honeywell a retrial on damages only. The court also denied Litton's
Motion for Injunctive Relief and Litton's Motion for Entry of Judgment. No date
has been set for the retrial on damages. Honeywell believes there are questions
concerning what conduct the original jury found anti-competitive that may give
rise to damages in a retrial, and consequently a damages retrial should also
require a retrial of liability issues in some respects. Following the damages
retrial, Honeywell will have the right to appeal both the liability and damages
verdicts. Therefore, no provision has been made in the financial statements with
respect to this contingent liability.

ENVIRONMENTAL MATTERS

Honeywell's manufacturing sites generate both hazardous and nonhazardous
wastes, the treatment, storage, transportation and disposal of which are subject
to various local, state and federal laws relating to protection of the
environment. Honeywell is in varying stages of investigation or remediation of
potential, alleged or acknowledged contamination at currently or previously
owned or operated sites and at off-site locations where its wastes were taken
for treatment or disposal. In connection with the cleanup of various off-site
locations, Honeywell, along with a large number of other entities, has been
designated a potentially responsible party (PRP) by the U.S. Environmental
Protection Agency under the Comprehensive Environmental Response, Compensation
and Liability Act or by state agencies under similar state laws (Superfund),
which potentially subject PRPs to joint and several liability for the costs of
such cleanup. In addition, Honeywell is incurring costs relating to
environmental remediation pursuant to the federal Resource Conservation and
Recovery Act. Based on Honeywell's assessment of the costs associated with its
environmental responsibilities, compliance with federal, state and local laws
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, has not had and, in the opinion
of Honeywell management, will not have a material effect on Honeywell's
financial position, net income, capital expenditures or competitive position.
Honeywell's opinion with regard to Superfund matters is based on its assessment
of the predicted investigation, remediation and associated costs, its expected
share of those costs, and the availability of legal defenses. Honeywell's policy
is to record environmental liabilities when loss amounts are probable and
reasonably estimable.

OTHER MATTERS

Honeywell is a party to a large number of other legal proceedings, some of
which are for substantial amounts. It is the opinion of management that any
losses in connection with these matters will not have a material effect on
Honeywell's net income, financial position or liquidity.

Honeywell has entered into letter of credit agreements with various
financial institutions to support certain financing instruments and insurance
policies aggregating approximately $185.2 at December 31, 1996.

45
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 21 -- QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1996 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
- -------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales....................................... $ 1,619.5 $ 1,771.6 $ 1,803.1 $ 2,117.4
Cost of sales............................... 1,109.0 1,222.6 1,221.7 1,422.1
Net income.................................. 65.1 83.3 101.1 153.2
Per share................................. 0.51 0.66 0.80 1.21

1995 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- -------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales....................................... $ 1,478.7 $ 1,655.6 $ 1,680.3 $ 1,916.7
Cost of sales............................... 1,013.2 1,137.8 1,148.1 1,285.1
Net income.................................. 54.7 68.9 84.2 125.8
Per share................................. 0.43 0.54 0.66 0.99
</TABLE>

<TABLE>
<CAPTION>
Common Stock Price
(New York Stock
Exchange Composite)
Dividends Per --------------------
Share High Low
------------- --------- ---------
<S> <C> <C> <C> <C>
1996 FIRST QUARTER........................................... $ .26 $ 57 1/2 $ 44 3/8
SECOND QUARTER.......................................... .26 56 5/8 49 3/8
THIRD QUARTER........................................... .27 65 7/8 48 1/4
FOURTH QUARTER.......................................... .27 69 7/8 59 7/8
1995 First Quarter........................................... $ .25 $ 38 1/2 $ 30 3/4
Second Quarter.......................................... .25 44 3/4 36 3/4
Third Quarter........................................... .25 46 1/2 40 5/8
Fourth Quarter.......................................... .26 49 1/2 39 1/4
</TABLE>

Shareholders of record on January 31, 1997, totaled 31,658.

NOTE 22 -- SUBSEQUENT EVENT

On January 27, 1997, Honeywell announced that it had entered into a
definitive agreement to acquire Measurex Corporation for approximately $600.0 in
cash. Under the terms of the agreement, which was approved by the Boards of
Directors of both companies, a Honeywell subsidiary has commenced an all cash
tender offer for all the shares of Measurex. The offer is conditioned upon,
among other things, there having been validly tendered, and not withdrawn prior
to the expiration of the tender offer, a number of Measurex shares which equal a
majority of the shares outstanding on a fully diluted basis and the expiration
of governmental waiting periods relating to acquisitions and satisfactory
completion of certain environmental tests. On January 30, 1997, Honeywell
increased the amounts available under its committed credit lines, under which it
may borrow to finance the acquisition, from $725 million to $1.375 billion. It
is anticipated that borrowings, if any, in connection with the acquisition will
be repaid for internally generated funds of Honeywell and Measurex and/or
refinanced in the private or public markets. Measurex Corporation is a supplier
of computer-integrated measurement, control and information systems and
services. For the year ended December 1, 1996, Measurex reported sales of $416.0
and net income of $37.0. The acquisition will be accounted for as a purchase and
will be included in the Industrial Automation and Control business unit.

46
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

No report on Form 8-K reporting a change in Honeywell's certifying
independent accountants has been filed within the 24 months prior to the date of
the most recent financial statements.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Pages 6 through 11 of the Honeywell Notice of 1997 Annual Meeting and Proxy
Statement are incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Pages 17 through 26 of the Honeywell Notice of 1997 Annual Meeting and Proxy
Statement are incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Page 16 of the Honeywell Notice of 1997 Annual Meeting and Proxy Statement
are incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A) DOCUMENTS FILED AS A PART OF THIS REPORT

1. FINANCIAL STATEMENTS
The financial statements required to be filed as part of this Annual Report
on Form 10-K are listed below with their location in this report.

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Honeywell Inc. and Subsidiaries:
Independent Auditors' Report....................................................... 21
Income Statement................................................................... 22
Statement of Financial Position.................................................... 23
Statement of Cash Flows............................................................ 24
Notes to Financial Statements...................................................... 25
</TABLE>

2. FINANCIAL STATEMENT SCHEDULES
The schedules required to be filed as part of this Annual Report on Form
10-K are listed below with their location in this report.

PAGE
----
Honeywell Inc. and Subsidiaries:
Independent Auditors' Report...................................... 21
Schedules for the Years Ended December 31, 1996, 1995 and 1994:
II -- Valuation Reserves................................ 51

All schedules, other than indicated above, are omitted because of the
absence of the conditions under which they are required or because the
information required is shown in the financial statements or notes thereto.

47
<PAGE>
3. EXHIBITS
Documents Incorporated by Reference:

<TABLE>
<S> <C>
(3)(i) Restated Certificate of Incorporation of Honeywell Inc. dated June 18, 1991
is incorporated by reference to Exhibit 3(a) to Honeywell Annual Report on
Form 10-K for the fiscal year ended December 31, 1992, Commission file
number 1-971.
(4)(i) Rights Agreement between Honeywell Inc. and Chemical Mellon Shareholder
Services L.L.C., as Rights Agent, dated as of January 16, 1996 is
incorporated by reference to Exhibit 4 to Honeywell's Current Report on
Form 8-K dated January 31, 1996.
(4)(ii)(a) Indenture, dated as of August 1, 1994, between Honeywell Inc. and The Chase
Manhattan Bank (National Association), as Trustee for Honeywell Inc.
Medium-Term Notes, Series A is incorporated by reference to Exhibit (4)(b)
to Honeywell's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
(4)(ii)(b) Indenture, dated as of July 15, 1996, between Honeywell Inc., as Guarantor,
Honeywell Canada Limited, Honeywell N.V. and The Chase Manhattan Bank
(National Association), as Trustee for Honeywell Inc., Honeywell Canada
Limited, Honeywell N.V. is incorporated by reference to Exhibit 4.2 to
Honeywell's Current Report on Form 8-K dated July 18, 1996.
(10)(i)(a) Form of Revolving Credit dated as of October 1, 1995 betweeen Honeywell
Inc., Honeywell Finance Inc., and each of the 21 banks a party thereto,
providing for loans of up to $725 million in the aggregate is incorporated
by reference to Exhibit 99.B.1 to Schedule 14D-1 Tender Offer Statement
filed by Honeywell Acquisition Corp. and Honeywell Inc. dated January 31,
1997.
(10)(i)(b) Revolving Credit Agreement dated as of January 30, 1997 among Honeywell
Inc., The Chase Manhattan Bank and Morgan Guaranty Trust Company of New
York, The Chase Manhattan Bank, as Administrative Agent and Morgan Guaranty
Trust Company of New York, as Documentation Agent is incorporated by
reference to Exhibit 99.B.1 to Schedule 14D-1 Tender Offer Statement filed
by Honeywell Acquisition Corp. and Honeywell Inc. dated January 31, 1997.
(10)(iii)(a) Honeywell Key Employee Severance Plan, as amended is incorporated by
reference to Exhibit (10)(iii)(a) to Honeywell's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.*
(10)(iii)(b) Honeywell Supplementary Executive Retirement Plan for Mid-Career Hires, as
amended is incorporated by reference to Exhibit (10)(iii)(b) to Honeywell's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994.*
(10)(iii)(c) Honeywell-Norwest Rabbi Trust Agreement, as amended is incorporated by
reference to Exhibit (10)(iii)(c) to Honeywell's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.*
(10)(iii)(d) 1993 Honeywell Stock and Incentive Plan, as amended is incorporated by
reference to Exhibit (10)(iii)(d) to Honeywell's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.*
(10)(iii)(e) 1988 Honeywell Stock and Incentive Plan, as amended is incorporated by
reference to Exhibit (10)(iii)(e) to Honeywell's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.*
</TABLE>

48
<PAGE>
3. EXHIBITS (CONTINUED)
<TABLE>
<S> <C>
(10)(iii)(g) Honeywell Corporate Executive Compensation Plan, as amended is incorporated
by reference to Exhibit (10)(iii)(g) to Honeywell's Annual Report on Form
10-K for the fiscal year ended December 31, 1996.*
(10)(iii)(h) Honeywell Supplementary Executive Retirement Plan for Compensation in
Excess of $200,000, as amended is incorporated by reference to Exhibit
(10)(iii)(h) to Honeywell's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.*
(10)(iii)(i) Honeywell Supplementary Executive Retirement Plan for CECP Participants, as
amended is incorporated by reference to Exhibit (10)(iii)(i) to Honeywell's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994.*
(10)(iii)(j) Honeywell Supplementary Retirement Plan, as amended is incorporated by
reference to Exhibit (10)(iii)(j) to Honeywell's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.*
(10)(iii)(k) Honeywell Supplementary Executive Retirement Plan for Benefits in Excess of
Limits Under Tax Reform Act of 1986, as amended is incorporated by
reference to Exhibit (10)(iii)(k) to Honeywell's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.*
(10)(iii)(l) Honeywell Executive Life Insurance Agreement, is incorporated by reference
to Exhibit 10(iii)(m) to Honeywell's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.*
(10)(iii)(m) Form of Executive Termination Contract is incorporated by reference to
Exhibit (10)(iii)(m) to Honeywell's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.*
(10)(iii)(n) Honeywell Senior Management Performance Incentive Plan is incorporated by
reference to Exhibit (10)(iii)(o) to Honeywell's Annual Report on Form 10-K
for the fiscal year ended 1996.*
(99)(ii) Honeywell Notice of 1997 Annual Meeting and Proxy Statement.**
Exhibits submitted herewith:
(3)(ii) By-laws of Honeywell Inc., as amended through February 18, 1997.
(10)(iii)(f) Honeywell Non-Employee Directors Fee and Stock Unit Plan.*
(11) Computation of Earnings Per Share.
(12) Computation of Ratios of Earnings to Fixed Charges.
(21) Subsidiaries of Honeywell.
(23) Consent of Independent Auditors.
(24) Powers of Attorney.
(27) Financial Data Schedule.
(99)(i) Cautionary Statements for Purposes of the Safe Harbor Provisions of The
Private Securities Litigation Reform Act of 1995.
(B) REPORTS ON FORM 8-K
None
</TABLE>

- ------------------------
*Management contract or compensatory plan or arrangement.
**Only the portions of Exhibit (99)(ii) specifically incorporated by reference
are deemed filed with the Commission.

49
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

HONEYWELL INC.

By: /s/ SIGURD UELAND, JR.
-----------------------------------------
Sigurd Ueland, Jr., VICE PRESIDENT

Dated: February 25, 1997

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- ----------------------------- ----------------------------------------------------------------------------

<S> <C>
M. R. BONSIGNORE Chairman of the Board and Chief Executive Officer and Director

L.W. STRANGHOENER Vice President and Chief Financial Officer

P. M. PALAZZARI Vice President and Controller, and Principal Accounting Officer

A. J. BACIOCCO, JR. Director

E. E. BAILEY Director

E. H. CLARK, JR. Director

W. H. DONALDSON Director

R. D. FULLERTON Director

J. J. HOWARD Director

B. E. KARATZ Director

D. L. MOORE Director

A. B. RAND Director

S. G. ROTHMEIER Director

M. W. WRIGHT Director
</TABLE>

By: /s/ SIGURD UELAND, JR.
-------------------------
Sigurd Ueland, Jr.,
ATTORNEY-IN-FACT
February 25, 1997

50
<PAGE>
SCHEDULE II
HONEYWELL INC. AND SUBSIDIARIES

VALUATION RESERVES

FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
BALANCE AT ADDITIONS DEDUCTIONS BALANCE
BEGINNING CHARGED TO FROM AT CLOSE
OF YEAR INCOME RESERVES OF YEAR
----------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Reserves deducted from assets to which they apply -- allowance
for doubtful accounts:
RECEIVABLES -- CURRENT
Year ended December 31, 1996.................................... $ 34.5 $ 10.5 (1) $ 11.5 (2) 33.5
Year ended December 31, 1995.................................... 31.1 10.4 (1) 7.0 (2) 34.5
Year ended December 31, 1994.................................... 24.3 12.5 (1) 5.7 (2) 31.1
LONG-TERM RECEIVABLES
Year ended December 31, 1996.................................... 0.7 -- -- 0.7
Year ended December 31, 1995.................................... 0.7 -- -- 0.7
Year ended December 31, 1994.................................... 0.5 -- (0.2)(2) 0.7
Reserves deducted from assets to which they apply -- valuation
reserve:
LONG-TERM RECEIVABLES
Year ended December 31, 1996.................................... 1.8 (0.1)(1) -- 1.7
Year ended December 31, 1995.................................... 1.9 (0.1)(1) -- 1.8
Year ended December 31, 1994.................................... 3.6 (1.7)(1) -- 1.9
Reserves deducted from assets to which they apply -- allowance
for amortization of intangibles:
GOODWILL
Year ended December 31, 1996.................................... 49.2 21.5 (3) (4.2)(4) 74.9
Year ended December 31, 1995.................................... 42.3 12.6 (3) 5.7 (4) 49.2
Year ended December 31, 1994.................................... 34.3 8.6 (3) 0.6 (4) 42.3
PATENTS, LICENSES AND TRADEMARKS
Year ended December 31, 1996.................................... 75.8 9.8 (3) 2.2 (4) 83.4
Year ended December 31, 1995.................................... 175.4 24.0 (3) 123.6 (4) 75.8
Year ended December 31, 1994.................................... 170.0 24.2 (3) 18.8 (4) 175.4
SOFTWARE AND OTHER INTANGIBLES
Year ended December 31, 1996.................................... 168.1 20.1 (3) (0.9)(4) 189.1
Year ended December 31, 1995.................................... 152.4 20.2 (3) 4.5 (4) 168.1
Year ended December 31, 1994.................................... 135.4 19.3 (3) 2.3 (4) 152.4
</TABLE>

- ------------------------
Notes:

(1) Represents amounts included in selling, general and administrative expense.

(2) Represents uncollectible accounts written off, less recoveries and
translation adjustments.

(3) Represents amounts included in cost of sales.

(4) Represents removal of fully amortized amounts and translation adjustments.

<PAGE>
---------------------------------------------------------
---------------------------------------------------------

HONEYWELL INC.

------------------

INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE

OCTOBER 27, 1927

------------------------

BY-LAWS

AS ADOPTED OCTOBER 27, 1927, AND AMENDED

THROUGH FEBRUARY 18, 1997

----------------------------------------------------
----------------------------------------------------
<PAGE>
INDEX OF BY-LAWS

<TABLE>
<CAPTION>
PAGE

<C> <S> <C>
ARTICLE I. MEETINGS OF
STOCKHOLDERS................................................................... 1
Section 1. Annual Meetings................................................................. 1
Section 2. Advance Notice of Stockholder-
Proposed Business at Annual Meetings........................................... 1
Section 3. Special Meetings................................................................ 2
Section 4. Place of Meeting................................................................ 3
Section 5. Notices of Meetings............................................................. 3
Section 6. Quorum.......................................................................... 4
Section 7. Organization.................................................................... 5
Section 8. Order of Business............................................................... 5
Section 9. Voting.......................................................................... 5
Section 10. List of Stockholders............................................................ 7
Section 11. Inspectors of Election.......................................................... 8

ARTICLE II. CONSENTS TO CORPORATE ACTION.................................................... 8
Section 1. Consent of Stockholders in Lieu of Meeting...................................... 8
Section 2. Record Date..................................................................... 9
Section 3. Procedures...................................................................... 10
</TABLE>

<PAGE>
ii

<TABLE>
<C> <S> <C>
ARTICLE III. BOARD OF DIRECTORS.............................................................. 11
Section 1. General Powers.................................................................. 11
Section 2. Number, Qualifications and
Term of Office................................................................. 11
Section 3. Nominations of Directors........................................................ 11
Section 4. Election of Directors........................................................... 12
Section 5. Organization.................................................................... 13
Section 6. Resignations.................................................................... 13
Section 7. Qualifications and Retirement................................................... 13
Section 8. Vacancies....................................................................... 15
Section 9. Place of Meeting, etc........................................................... 15
Section 10. First Meeting................................................................... 15
Section 11. Regular Meetings................................................................ 16
Section 12. Special Meetings; Notice........................................................ 16
Section 13. Quorum and Manner of Acting..................................................... 17
Section 14. Removal of Directors............................................................ 17
Section 15. Compensation.................................................................... 17
Section 16. Committees...................................................................... 18
Section 17. Indemnification of Employees, Officers and Directors............................ 19
Section 18. Action Without Meeting.......................................................... 21
Section 19. Presence at Meetings............................................................ 21
</TABLE>

<PAGE>
iii

<TABLE>
<C> <S> <C>
ARTICLE IV. OFFICERS........................................................................ 22
Section 1. Number.......................................................................... 22
Section 2. Election, Term of Office and Qualifications..................................... 23
Section 3. Removal......................................................................... 23
Section 4. Resignations.................................................................... 23
Section 5. Vacancies....................................................................... 23
Section 6. The Chairman of the
Board of Directors............................................................. 24
Section 7. The Vice Chairman of the
Board of Directors............................................................. 24
Section 8. The President of the Corporation................................................ 25
Section 9. Authority and Duties of the Business Presidents, Executive Vice Presidents,
Senior Vice Presidents, and Vice Presidents.................................... 25
Section 10. The Treasurer................................................................... 26
Section 11. The Secretary................................................................... 27
Section 12. Assistant Treasurers, Assistant Secretaries and Attesting Secretaries........... 28
Section 13. Salaries........................................................................ 29
Section 14. Subordinate Positions, etc...................................................... 29

ARTICLE V. CONTRACTS, LOANS, CHECKS, DEPOSITS, ETC......................................... 29
Section 1. Contracts, etc. How Executed.................................................... 29
Section 2. Loans........................................................................... 30
Section 3. Checks, Drafts, etc............................................................. 30
Section 4. Deposits........................................................................ 30
Section 5. General and Special Bank Accounts............................................... 31

ARTICLE VI. SHARES AND THEIR TRANSFER....................................................... 31
Section 1. Certificates for Stock.......................................................... 31
Section 2. Transfer of Stock............................................................... 32
Section 3. Transfer and Registry Agents.................................................... 33
Section 4. Lost, Stolen, Destroyed,
and Mutilated Certificates..................................................... 33
Section 5. Fixing Date for Determination
of Stockholders of Record...................................................... 33
</TABLE>

<PAGE>
iv

<TABLE>
<C> <S> <C>
ARTICLE VII. OFFICES......................................................................... 35
Section 1. Registered Office............................................................... 35
Section 2. Other Offices................................................................... 35

ARTICLE VIII. DIVIDENDS, SURPLUS, ETC......................................................... 35

ARTICLE IX. SEAL............................................................................ 36

ARTICLE X. FISCAL YEAR AND AUDIT........................................................... 36
Section 1. Fiscal Year..................................................................... 36
Section 2. Audit of Books and Accounts..................................................... 36

ARTICLE XI. WAIVER OF NOTICES............................................................... 37

ARTICLE XII. INCENTIVE COMPENSATION PAYMENTS................................................. 37

ARTICLE XIII. NATIONAL EMERGENCY.............................................................. 39
Section 1. Definition and Application...................................................... 39
Section 2. Meetings, etc................................................................... 39
Section 3. Amendment....................................................................... 40
Section 4. Chief Executive Officer......................................................... 41
Section 5. Substitute Directors............................................................ 41

ARTICLE XIV. AMENDMENTS...................................................................... 41

CERTIFICATION.................................................................................... 42
</TABLE>
<PAGE>
BY-LAWS
OF
HONEYWELL INC.
---------

ARTICLE I.

MEETINGS OF STOCKHOLDERS

SECTION 1. ANNUAL MEETINGS. The annual meeting of the stockholders of
Honeywell Inc. (hereinafter called the Corporation) for the election of
directors and for the transaction of any other proper business, notice of which
is given in the notice of the meeting, shall be held on such date and at such
hour as may be determined from time to time by the Board of Directors, which
date and hour shall be designated in the notice thereof. If any annual meeting
for the election of directors shall not be held on the date designated therefor,
the Board of Directors shall cause the meeting to be held as soon thereafter as
convenient.

SECTION 2. ADVANCE NOTICE OF STOCKHOLDER-PROPOSED BUSINESS AT ANNUAL
MEETINGS. At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board,
otherwise properly brought before the meeting by or at the direction of the
Board, or otherwise properly brought before the meeting by a stockholder. In
addition to any other applicable requirements, for business to be properly
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary, Honeywell Inc. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the
<PAGE>
2

Corporation, not less than 50 days nor more than 75 days prior to the meeting;
provided, however, that in the event that less than 65 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the 15th day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure was made. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and record
address of the stockholder proposing such business, (iii) the class and number
of shares of the Corporation which are beneficially owned by the stockholder,
and (iv) any material interest of the stockholder in such business.

Notwithstanding anything in the By-Laws to the contrary, no business shall be
conducted at the annual meeting except in accordance with the procedures set
forth in this Section 2, PROVIDED, HOWEVER, that nothing in this Section 2 shall
be deemed to preclude discussion by any stockholder of any business properly
brought before the annual meeting in accordance with said procedure.

The Chairman of an annual meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 2, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.

SECTION 3. SPECIAL MEETINGS. A special meeting of the stockholders for any
purpose or purposes may be called at any time by the Board of Directors, or by
the Chairman of the
<PAGE>
3

Board of Directors, or by the President of the Corporation, or as otherwise
prescribed by statute or by the Certificate of Incorporation of the Corporation.

SECTION 4. PLACE OF MEETING. Meetings of the stockholders (including annual
meetings, special meetings, meetings for the election of directors, and any and
all other meetings of stockholders) may be held at such places, within or
without the State of Delaware, as may be designated from time to time by the
Board of Directors or in the notices thereof. The Board of Directors is
authorized to and shall fix the place of meeting. Such action by the Board of
Directors may be taken from time to time and may fix different places from time
to time.

SECTION 5. NOTICES OF MEETINGS. Every stockholder shall furnish the
Secretary of the Corporation with an address at which notices of meetings and
all other corporate communications may be served on or mailed to him. Except in
special cases with respect to which other provision is made by statute or by the
Certificate of Incorporation of the Corporation, and except in those situations
in which action is to be taken pursuant to Section 1 of Article II, written or
printed notice of each meeting of the stockholders, whether annual or special,
shall be given, not less than ten (10) nor more than fifty (50) days before the
date on which the meeting is to be held, to each stockholder of record of the
Corporation entitled to vote at such meeting by delivering such notice thereof
to him personally or by depositing such notice in the United States mail, in a
postage-prepaid envelope directed to him at the post office address furnished by
him to the Secretary of the Corporation for such purpose, or, if he shall not
have furnished to the Secretary of the Corporation his address for such purpose,
then at his address as it shall otherwise appear on the records of the
Corporation. Except in special cases where other provision is made by statute,
no publication of any notice of a meeting of stockholders shall be required.
Every notice of a
<PAGE>
4

meeting of stockholders shall state the place, date and hour of the meeting and
the purpose or purposes for which the meeting is called. Nevertheless, notice of
any meeting of stockholders shall not be required to be given to any stockholder
who shall attend such meeting in person or by proxy except a stockholder who
shall attend such meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting was not
lawfully called or convened. Except where otherwise required by statute, notice
of any adjourned meeting of the stockholders of the Corporation shall not be
required to be given if the time and place thereof are announced at the meeting
which is adjourned.

SECTION 6. QUORUM. At all meetings of the stockholders of the Corporation,
except where other provision is made by statute, stockholders of the Corporation
holding of record a majority of the shares of stock of the Corporation entitled
to vote thereat shall be present in person or by proxy to constitute a quorum
for the transaction of business. In the absence of a quorum at any meeting or
any adjournment thereof, a majority in voting interest of those present in
person or by proxy and entitled to vote may adjourn such meeting from time to
time. At any such adjourned meeting at which a quorum may be present any
business may be transacted which might have been transacted at the meeting as
originally called. The absence from any meeting of stockholders holding the
number of shares of stock of the Corporation required by statute or by the
Certificate of Incorporation of the Corporation or by these by-laws for action
upon any given matter shall not prevent action at such meeting upon any other
matter or matters which may properly come before the meeting, if there shall be
present thereat in person or by proxy stockholders holding the number of shares
of stock of the Corporation required in respect of such other matter or matters.
<PAGE>
5

SECTION 7. ORGANIZATION. At each meeting of the stockholders the Chairman of
the Board of Directors, or in his absence the Vice Chairman of the Board of
Directors, or in their absence the President of the Corporation, or in the
absence of the Chairman of the Board, the Vice Chairman of the Board and the
President of the Corporation, a chairman (who shall be one of the other
Executive Vice Presidents or Vice Presidents, if any of them be present) chosen
by a majority in voting interest of the stockholders present in person or by
proxy and entitled to vote, shall act as chairman; and the Secretary of the
Corporation or, in his absence, an Assistant Secretary or, in the absence of the
Secretary and Assistant Secretaries of the Corporation, any person whom the
chairman of the meeting shall appoint, shall act as secretary of the meeting.

SECTION 8. ORDER OF BUSINESS. The order of business at all meetings of the
stockholders shall be determined by the chairman of the meeting, but such order
of business may be changed by the vote of a majority in voting interest of those
present or represented at said meeting and entitled to vote thereat.

SECTION 9. VOTING. Each stockholder of the Corporation entitled to vote at a
meeting of stockholders or entitled to give consent in writing to corporate
action without a meeting shall have one vote in person or by proxy for each
share of stock having voting rights held by him and registered in his name on
the books of the Corporation:

(a) on the date fixed pursuant to the provisions of Subsection (a) of
Section 5 of Article VI of these by-laws as the record date for the
determination of stockholders who shall be entitled to notice of and to vote
at such meeting or to give consent in writing to corporate action without a
meeting, or

<PAGE>
6

(b) if no such record date shall have been so fixed,
then as provided by the provisions of Subsection (b) of Section 5 of Article
VI of these by-laws.

Shares of its own capital stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors of such other corporation is held by the Corporation, shall not be
entitled to vote. Persons holding stock in a fiduciary capacity shall be
entitled to vote the shares so held, and persons whose stock is pledged shall be
entitled to vote, unless in the transfer by the pledgor on the books of the
Corporation he shall have expressly empowered the pledgee to vote thereon, in
which case only the pledgee or his proxy may represent said stock and vote
thereon. If shares shall stand of record in the names of two or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in common,
tenants by the entirety or otherwise, or if two or more persons shall have the
same fiduciary relationship respecting the same shares, unless the Secretary of
the Corporation shall have been given written notice to the contrary and have
been furnished with a copy of the instrument of order appointing them or
creating the relationship wherein it is so provided, their acts with respect to
voting shall have the following effect:

(i) if only one shall vote, his act shall bind all,

(ii) if more than one shall vote, the act of the majority
so voting shall bind all, or

(iii) if more than one shall vote, but the vote shall be
evenly split on any particular matter, then, except as otherwise required by
statute, each faction may vote the shares in question proportionally.

If the instrument so filed shall show that any such tenancy is held in unequal
interests, a majority or even-split for the purpose of the next preceding
sentence shall be a majority or
<PAGE>
7

even-split in interest. Any vote on stock of the Corporation may be given by the
stockholder entitled thereto in person or by his proxy appointed by an
instrument in writing, subscribed by such stockholder or by his attorney
thereunto authorized and delivered to the secretary of the meeting; provided,
however, that no proxy shall be voted or acted upon after three years from its
date unless said proxy provides for a longer period. Except as provided in
Section 1 of Article II and Section 13 of Article III of these by-laws, and
except also in special cases where otherwise made mandatory by statute or by the
Certificate of Incorporation of the Corporation, all matters coming before the
stockholders shall be decided by the vote of a majority in voting interest of
the stockholders of the Corporation present in person or by proxy at a meeting
and entitled to vote thereat, a quorum being present.

SECTION 10. LIST OF STOCKHOLDERS. It shall be the duty of the Secretary, or
other officer of the Corporation who shall have charge of the stock ledger,
either directly or through a transfer agent appointed by the Board of Directors,
to prepare and make, at least ten days before every meeting of stockholders, a
complete list of stockholders entitled to vote thereat, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. Upon the wilful
neglect or refusal of the directors to produce such a list at any meeting for
the election of directors, they shall be ineligible for election to any office
at
<PAGE>
8

such meeting. The stock ledger shall be the only evidence as to who are
stockholders entitled to examine the stock ledger, such list or the books of the
Corporation, or to vote in person or by proxy, at any meeting of stockholders.

SECTION 11. INSPECTORS OF ELECTION. At each meeting of the stockholders, the
chairman of such meeting may appoint two Inspectors of Election to act thereat.
Each Inspector of Election so appointed shall first subscribe an oath or
affirmation faithfully to execute the duties of an Inspector of Election at such
meeting with strict impartiality and according to the best of his ability. Such
Inspectors of Election, if any, shall take charge of the ballots at such meeting
and after the balloting thereat on any question shall count the ballots cast
thereon and shall make a report in writing to the secretary of such meeting of
the results thereof. An Inspector of Election need not be a stockholder of the
Corporation, and any officer or employee of the Corporation may be an Inspector
of Election on any question other than a vote for or against his election to any
position with the Corporation or on any other question in which he may be
directly interested.

ARTICLE II.

CONSENTS TO CORPORATE ACTION

SECTION 1. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. The election of
directors and any other action required by the General Corporation Law of the
State of Delaware or these by-laws to be taken at any annual or special meeting
of stockholders, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the
<PAGE>
9

minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Separate written consents may be signed by stockholders severally. Prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.

SECTION 2. RECORD DATE. The record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting
shall be as fixed by the Board or as otherwise established under this Section.
Any person seeking to have the stockholders authorize or take corporate action
by written consent without a meeting may, by written notice addressed to the
Secretary and delivered to the Company as set forth below, request that a record
date be fixed for such purpose. The record date for determining stockholders
entitled to consent in writing without a meeting to corporate action for which
no prior action by the Board is required under the General Corporation Law of
the State of Delaware shall be (i) the date fixed by the Board or (ii) if no
record date has been so fixed prior to the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the Company by delivery to its registered office in Delaware, its principal
place of business or an officer or agent of the corporation having custody of
the book in which proceedings of meetings of stockholders are recorded, then
such first date. The record date for determining stockholders entitled to
consent in writing without a meeting to corporate action for which prior action
by the Board is required under the General Corporation Law of the State of
Delaware shall be (i) the date fixed by the Board or (ii) if the Board has not
taken action to fix the record date then such record date shall be the close of
business on the date upon which the Board adopts the resolution taking such
prior action. In connection with a record date fixed by the Board, in
<PAGE>
10

no case shall such record date (i) precede or (ii) be fixed more than 10 days
after the date upon which the resolution fixing the record date is adopted by
Board.

SECTION 3. PROCEDURES. In the event of the delivery to the Corporation of a
written consent or consents purporting to authorize or take corporate action
and/or related revocations (each such written consent and related revocation is
referred to in this Article II as a "Consent"), the Secretary of the Corporation
shall provide for the safe-keeping of such Consent and shall promptly conduct
such ministerial review of the sufficiency of the consents and of the validity
of the action to be taken by stockholder consent as he deems necessary or
appropriate including, determining whether the holders of shares having the
requisite voting power to authorize or take the action specified in the Consent
have given consent; PROVIDED, HOWEVER, that if the corporate action to which the
Consent relates is the removal or replacement of one or more members of the
Board, the Secretary of the Corporation shall designate two persons, who may not
be members of the Board, to serve as Inspectors with respect to such Consent and
such Inspectors shall discharge the functions of the Secretary of the
Corporation under this Section 3. If after such investigation the Secretary or
the Inspectors (as the case may be) shall determine that the Consent is valid
and that the action purported to be authorized or taken has been validly
authorized, that fact shall be noted on the records of the Corporation kept for
the purpose of recording the proceedings of meetings of stockholders, and the
Consent shall be filed in such records, at which time the Consent shall become
effective as stockholder action. In conducting the investigation required by
this Section 3, the Secretary or the Inspectors (as the case may be) may, at the
expense of the Corporation, retain special legal counsel and other necessary or
appropriate professional advisors, and such other personnel as they may deem
necessary or appropriate, to assist them.
<PAGE>
11

ARTICLE III.

BOARD OF DIRECTORS

SECTION 1. GENERAL POWERS. The property, affairs and business of the
Corporation shall be managed by the Board of Directors.

SECTION 2. NUMBER, QUALIFICATIONS AND TERM OF OFFICE. The number of
directors shall be twelve, but the number may be increased, or diminished to
not less than three, by amendment of these by-laws. Directors need not be
stockholders. Each of the directors of the Corporation shall hold office until
the annual meeting held next after his election and shall qualify, or until his
earlier death or his earlier resignation or removal in the manner hereinafter
provided.

SECTION 3. NOMINATIONS OF DIRECTORS. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors by any nominating committee or person appointed by the
Board or by any stockholder of the Corporation entitled to vote for the election
of directors at the meeting who complies with the notice procedures set forth in
this Section 3. Such nominations, other than those made by or at the direction
of the Board, shall be made pursuant to timely notice in writing to the
Secretary, Honeywell Inc. To be timely, a stockholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 50 days nor more than 75 days prior to the meeting;
PROVIDED, HOWEVER, that in the event that less than 65 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the
<PAGE>
12

stockholder to be timely must be so received not later than the close of
business on the 15th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice to the Secretary shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director, (i)
the name, age, business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class and number of
shares of capital stock of the Corporation which are beneficially owned by the
person and (iv) any other information relating to the person that is required to
be disclosed in solicitations for proxies for election of directors pursuant to
Rule 14a under the Securities Exchange Act of 1934, as amended; and (b) as to
the stockholder giving the notice (i) the name and record address of stockholder
and (ii) the class and number of shares of capital stock of the Corporation
which are beneficially owned by the stockholder. The Corporation may require any
proposed nominee to furnish such other information as may reasonably be required
by the Corporation to determine the eligibility of such proposed nominee to
serve as director of the Corporation. No person shall be eligible for election
as a director of the Corporation unless nominated in accordance with the
procedures set forth herein.

The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.

SECTION 4. ELECTION OF DIRECTORS. At each meeting of stockholders for the
election of directors at which a quorum is present, the persons receiving the
largest number of votes (up to and including the number of directors to be
elected) shall be directors. If directors are to be elected by consent in
writing of the stockholders without a meeting pursuant to Section 1 of
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13

Article II of these by-laws, those persons receiving the consent in writing of
the largest number of shares in the aggregate and constituting not less than a
majority of the total outstanding shares entitled to give consent in writing
thereon (up to and including the number of directors to be elected) shall be
directors.

SECTION 5. ORGANIZATION. At each meeting of the Board of Directors, the
Chairman of the Board of Directors, or in his absence, the President of the
Corporation, or in his absence an Executive Vice President, if a member of the
Board of Directors, or in the absence of all of said officers, a Vice President,
if a member of the Board of Directors, or in the absence of all of said
officers, a chairman chosen by the majority of the directors present, shall
preside. The Secretary of the Corporation, or in his absence, an Assistant
Secretary, if any, or, in the absence of both the Secretary and Assistant
Secretaries, any person whom the chairman shall appoint, shall act as secretary
of the meeting. Any person so appointed as secretary of the meeting shall, if so
required by the Board of Directors, be sworn to the faithful discharge of his
duties before entering thereupon.

SECTION 6. RESIGNATIONS. Any director of the Corporation may resign at any
time by giving written notice to the Chairman of the Board of Directors or to
the President of the Corporation or to the Secretary of the Corporation. Such
resignation shall take effect at the time specified therein, or, if the time be
not specified, upon receipt thereof by the Chairman of the Board of Directors,
the President of the Corporation or the Secretary, as the case may be; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.

SECTION 7. QUALIFICATIONS AND RETIREMENT.

(a) CHIEF EXECUTIVE OFFICERS OF HONEYWELL. A director who is also the Chief
Executive Officer of the Company shall
<PAGE>
14

no longer be qualified to act as a director and his or her term of office shall
expire at the time he or she ceases to hold that position; PROVIDED, HOWEVER,
that in the event the Nominating Committee determines that it will be in the
best interests of the Company for the former Chief Executive Officer to continue
as a director, the Committee may ask him or her to continue as a director
through the completion of any remaining part of his or her current, regular term
of office as a director and, in addition to any such partial year, may nominate
the former Chief Executive Officer to be a director for a single term of one
year.

(b) OTHER INSIDE DIRECTORS. Any director who is an officer of the Company,
other than the Chief Executive Officer, shall no longer be qualified to act as a
director and his or her term of office shall expire on the earliest to occur of:
(i) the time of a diminution in his or her duties or responsibilities as an
officer unless the Nominating Committee at its sole discretion determines such
officer continues to be qualified to act as a director, (ii) the time he or she
ceases to be an employee of the Corporation for any reason, or (iii) on his or
her sixty-fifth birthday.

(c) OUTSIDE DIRECTORS. Any director who is not and has not been an officer
of the Company (an Outside Director) shall not be nominated for re-election as a
director at the next annual meeting following either (i) fifteen years service
as a director or (ii) the director's seventieth birthday. At the time an Outside
Director retires from or changes the principal occupation engaged in when
initially elected as a director, he or she shall notify the Nominating Committee
of his or her change of position together with an indication of whether or not
he or she is willing to stand for election as a director at the next annual
meeting; thereafter the Nominating Committee at
<PAGE>
15

its discretion will determine whether or not to ask that director to stand for
re-election to the Board, provided the director shall not be permitted to stand
for re-election beyond the age and years-of-service limits set forth above.

(d) INTERPRETATION. The Nominating Committee in its sole discretion shall
have the responsibility for interpretation of qualifications for directors
identified in this Section 7.

SECTION 8. VACANCIES. Except as otherwise provided by law, any vacancy in
the Board of Directors (whether because of death, resignation, removal, an
increase in the number of directors or any other cause) may be filled by a
majority of the directors then in office, though less than a quorum; and each
director so chosen shall hold office until the next annual election and until
his successor shall be duly elected and qualified, unless sooner displaced.

SECTION 9. PLACE OF MEETING, ETC. The Board of Directors may hold its
meetings at such place or places within or without the State of Delaware as the
Board may from time to time determine, or as shall be specified or fixed in the
respective notices or waivers of notice thereof. The Corporation may have one or
more offices, and may keep its books and records at such place or places within
or without the State of Delaware as the Board shall from time to time determine.

SECTION 10. FIRST MEETING. As soon as practicable after each annual election
of directors and on the same day, the Board of Directors may meet for the
purposes of organization and of choosing the officers of the Corporation and for
the transaction of other business at the place where regular meetings of the
Board of Directors are held. Notice of such meeting need not be given. Such
first meeting may be held at any other time or place which shall be specified in
a notice given as hereinafter provided for special meetings of the Board, or in
a consent and waiver of notice thereof signed by all the directors.
<PAGE>
16

SECTION 11. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such times as the Board of Directors shall by resolution from
time to time determine. If any day fixed for a regular meeting shall be a legal
holiday at the place where the meeting is to be held, then the meeting shall be
held at the same hour and place on the next succeeding secular day not a legal
holiday. Notice of regular meetings need not be given, except of the regular
meetings at which it is proposed to alter or repeal these by-laws or to adopt
one or more new by-laws, of each of which meetings a notice, which shall state
at least the substance of the proposed change, shall be given in the same manner
as is required for a special meeting.

SECTION 12. SPECIAL MEETINGS; NOTICE. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board of
Directors or by the President of the Corporation or by any two of the directors.
A notice shall be given as hereinafter in this section provided of each such
special meeting, in which shall be stated the time and place of such meeting,
but, except as otherwise expressly provided by law or by these by-laws, the
purposes thereof need not be stated in such notice. Except in special cases
where other provision is made by statute, notice of each such meeting shall be
mailed to each director, addressed to him at his residence or usual place of
business, at least two days before the day on which the meeting is to be held,
or shall be sent to him at such place by telegraph or cable or be delivered
personally or by telephone not later than the day before the day on which the
meeting is to be held. Any meeting of the Board of Directors shall be a legal
meeting without any notice thereof having been given if all the directors shall
be present thereat or if notice thereof shall be waived either before or after
such meeting in writing or by telegraph or cable by all absentees therefrom
provided a quorum be present thereat. Notice of any adjourned meeting need not
be given.
<PAGE>
17

SECTION 13. QUORUM AND MANNER OF ACTING. One third of the directors in
office at the time of any regular or special meeting of the Board of Directors
shall be present in person at such meeting in order to constitute a quorum for
the transaction of business and, except as specified in Sections 8, 16 and 17 of
this Article III and Section 4 of Article IV of these by-laws, and except also
in special cases where other provision is made by statute, the vote of a
majority of the directors present at any such meeting, at which a quorum is
present, shall be the act of the Board of Directors. In the absence of a quorum,
a majority of directors present at any meeting may adjourn the same from time to
time until a quorum be had. The directors shall act only as a board and the
individual directors shall have no power as such.

SECTION 14. REMOVAL OF DIRECTORS. Any director may be removed for cause at
any time by the affirmative vote of the holders of a majority of all the shares
of stock outstanding and entitled to vote for the election of directors, given
at a special meeting of such stockholders called for the purpose; and the
vacancy in the Board of Directors caused by such removal shall be filled by such
stockholders at such meeting, or, if the stockholders shall fail to fill such
vacancy, by the Board of Directors.

SECTION 15. COMPENSATION. Directors and members of any committee of the
Corporation contemplated by these by-laws or otherwise provided for by
resolution of the Board of Directors, who are not salaried officers of the
Corporation, shall receive such fixed sum per meeting attended, or such annual
sum or sums, as shall be determined from time to time by resolution of the Board
of Directors. All directors and members of any such committee shall receive
their expenses, if any, of attendance at meetings of the Board of Directors or
of such committee. Nothing herein contained shall be construed to preclude any
director from serving the Corporation in any other capacity, and receiving
proper compensation therefor.
<PAGE>
18

SECTION 16. COMMITTEES.

(a) There shall be an Executive Committee which shall have such powers
and authority provided by resolution passed by a majority of the Board of
Directors.

(b) The Board of Directors may, by resolution passed by a majority of the
whole Board, designate one or more committees, in addition to the Executive
Committee, which, to the extent provided in said resolution, shall have and
may exercise the powers and authority of the Board in the management of the
business and affairs of the Corporation and may authorize the seal of the
Corporation to be affixed to all papers which may require it.

(c) Each committee, for which provision is made by paragraph (a) or (b)
of this Section 16, shall consist of one or more directors of the Corporation
who shall be appointed by the Chairman of the Board of Directors provided,
however, that each such appointment shall be reported promptly to the Board
of Directors and no member of a committee shall participate in any action
by a committee which shall constitute an exercise of a power of the Board
until the appointment of such member has been ratified by a majority of the
full Board. Any vacancy on a committee shall be filled by appointment by the
Chairman of the Board of Directors in the same manner in which original
appointments to such committee were made. The chairman of each committee
shall be designated by the Chairman of the Board of Directors. A majority of
those entitled to vote at any meeting of any committee shall constitute a
quorum for the transaction of business at that meeting. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board
to act at the meeting in the place of any such absent or disqualified member.

<PAGE>
19

SECTION 17. INDEMNIFICATION OF EMPLOYEES, OFFICERS AND DIRECTORS.

(a) Any person who is or was an employee, officer or director of the
Corporation, or of any other corporation, partnership, joint venture, trust
or other enterprise, including service with respect to employee benefit
plans, which he served as such at the request of the Corporation, shall,
unless prohibited by law, be indemnified by the Corporation in accordance
with paragraph (b) below, against reasonable expenses, paid or incurred by
him in connection with or resulting from any claim, action, suit or
proceeding (whether brought by or in the right of the Corporation or
otherwise), civil, criminal, administrative or investigative, including any
appeal therein in which he may be involved, or threatened to be involved, as
a party or otherwise, by reason of the fact he is or was an employee, officer
or director, provided such person acted, in good faith, in what he reasonably
believed to be in or not opposed to the best interest of the Corporation or
such other corporation or organization and, in addition, with respect to any
criminal actions or proceedings, had no reasonable cause to believe his
conduct was unlawful, provided further the Corporation shall indemnify any
such person in connection with a claim, action, suit or proceeding initiated
by such person only if such matter was authorized by the Board of Directors,
and provided further no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court
<PAGE>
20

shall deem proper. The termination of any claim, action, suit or proceeding,
by judgment, settlement (whether with or without court approval), adverse
decision or conviction after trial or upon a plea of guilty or of NOLO
CONTENDERE, or its equivalent, shall not create a presumption that such
person did not meet the standards of conduct set forth in this paragraph (a).
As used in this Section 17 the term "expenses" shall include, but not be
limited to, counsel fees and disbursements, amounts of judgments, fines or
penalties against, and amounts paid in settlement by, such person.

(b) To the extent that any person claiming indemnification under
paragraph (a) of this Section 17 has been successful, on the merits or
otherwise, in defense of any claim, action, suit or proceeding of the
character described in paragraph (a), he shall be reimbursed by the
Corporation for the amounts of all reasonable expenses paid or incurred by
him in connection with such successful defense. Any person claiming
indemnification under said paragraph (a) shall be reimbursed by the
Corporation for his reasonable expenses if (i) the Board of Directors by a
majority vote of a quorum consisting of directors who are not parties to such
claim, action, suit or proceeding shall deliver to the Corporation its
written findings that such person is entitled to reimbursement under the
provisions of said paragraph or (ii) if such a quorum is not attainable, or
even if obtainable a quorum of disinterested directors so directs,
independent legal counsel (who may be regular counsel for the Corporation)
selected by the Board of Directors shall deliver to the Corporation written
advice that, in their judgment, such person is so entitled.

(c) Any expenses incurred by an officer or director with respect to any
claim, action, suit or proceeding of the character described in paragraph
(a) of this Section 17 may be advanced by the Corporation prior to the
final

<PAGE>
21

disposition thereof upon receipt of an undertaking by or on behalf of the
person to repay such amount if it is ultimately determined that he is not to
be indemnified under this Section 17. Such expenses incurred by other
employees may be so paid upon such terms and conditions, if any, as the Board
of Directors shall determine to be appropriate.

(d) The rights of indemnification provided in this Section 17 shall be in
addition to any other rights to which any such person may otherwise be
entitled by contract or as a matter of law; and such rights shall continue as
to a person who has ceased to be an employee, officer or director and, in the
event of such person's death, shall extend to his heirs and legal
representatives.

SECTION 18. ACTION WITHOUT MEETING. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if all members of the Board or of such committee, as
the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board or of such committee.

SECTION 19. PRESENCE AT MEETINGS. Members of the Board of Directors or of
any committee designated by it may participate in a meeting of such Board or
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 19 shall constitute
presence in person at such meeting.
<PAGE>
22

ARTICLE IV.

OFFICERS

SECTION 1. NUMBER. The officers of the Corporation shall be a Chairman of
the Board of Directors who shall be chosen by the directors from their own
number, one or more Vice Chairmen of the Board of Directors if the Board of
Directors shall so determine, a President of the Corporation if the Board of
Directors shall so determine, one or more Presidents of the businesses of the
Corporation if the Board of Directors shall so determine, one or more Vice
Presidents, a Treasurer, a Secretary and such other officers as may be appointed
in accordance with the provisions of this Article. The Board of Directors may
designate one or more Vice Presidents to be an Executive Vice President or
Senior Vice President. The Board of Directors, by resolution, the Chairman of
the Board of Directors, the President of the Corporation, or the Treasurer may
create the offices of and appoint one or more Assistant Treasurers. The Board of
Directors, by resolution, the Chairman of the Board of Directors, the President
of the Corporation, or the Secretary may create the offices of and appoint one
or more Assistant Secretaries and one or more Attesting Secretaries. The term of
office for each Assistant Treasurer, each Assistant Secretary and Attesting
Secretary appointed by any of the foregoing officers shall be determined by the
officer making such appointment but shall not in any event exceed twelve months.
No more than three Assistant Treasurers and three Assistant Secretaries may be
appointed by those officers at any one time. The officer making the appointment
shall give to the Secretary written notification of each such appointment. The
notification shall be placed in the book containing the proceedings of the Board
of Directors.

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23

Any two or more of the above-mentioned offices may be held by the same
person.

SECTION 2. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. Except for Assistant
Treasurers, Assistant Secretaries and Attesting Secretaries appointed by the
Chairman of the Board of Directors, the President of the Corporation, the
Treasurer, or the Secretary, the officers of the Corporation shall be chosen
annually by the Board of Directors at the first meeting thereof held after each
annual meeting of stockholders for the election of directors and shall hold
office until his successor shall have been duly chosen and shall qualify, or
until his earlier death or his earlier resignation or removal in the manner
hereinafter provided.

SECTION 3. REMOVAL. Any officer may be removed, either with or without
cause, at any time, by resolution adopted by a majority of the whole Board of
Directors at a special meeting of the Board called for that purpose, or, except
in the case of any officer elected or appointed by the stockholders or by the
Board of Directors, by any committee or superior officer upon whom such power of
removal may be conferred by the Board of Directors.

SECTION 4. RESIGNATIONS. Any officer may resign at any time by giving
written notice of his resignation to the Board of Directors, or to the Chairman
of the Board of Directors, or to the President of the Corporation, or to the
Secretary of the Corporation. Any such resignation shall take effect at any time
specified therein; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.

SECTION 5. VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or otherwise,

<PAGE>
24

shall be filled for the unexpired portion of the term in the manner prescribed
in these by-laws for regular appointments or elections to such office.

SECTION 6. THE CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board
of Directors shall, be the chief executive officer of the corporation and shall
have general supervision over the business and affairs of the Corporation and
over its several officers and employees, subject, however, to the control of the
Board of Directors. He shall, if present, preside at all meetings of the Board
of Directors and of the stockholders. The Chairman of the Board of Directors
shall see that all orders and resolutions of the Board of Directors are carried
into effect and shall from time to time report to the Board of Directors all
matters within his knowledge which the interests of the Corporation may require
to be brought to their notice. The Chairman of the Board of Directors may sign,
execute and deliver in the name of the Corporation, certificates for shares of
the capital stock of the Corporation, any deeds, mortgages, bonds, contracts or
other instruments which the Board of Directors shall have authorized to be
executed, except in cases where the signing and execution thereof shall be
expressly delegated by the Board or by these by-laws to some other officer or
agent of the Corporation or shall be required by law otherwise to be signed or
executed. In general, the Chairman of the Board of Directors shall perform all
duties incident to the office of the Chairman of the Board of Directors, and
such other duties as from time to time may be assigned by the Board of
Directors.

SECTION 7. THE VICE CHAIRMAN OF THE BOARD OF DIRECTORS. In the absence of
the Chairman of the Board of Directors, the Vice Chairman of the Board of
Directors shall, if present, preside at meetings of the Board of Directors, and
shall perform such other duties that may be assigned to him by the Board of
Directors.
<PAGE>
25

SECTION 8. THE PRESIDENT OF THE CORPORATION. The President of the
Corporation shall be the chief operating officer of the Corporation and shall
perform the duties assigned to him from time to time by the Chairman of the
Board of Directors or by the Board of Directors. In the absence of the Chairman
of the Board of Directors or a Vice Chairman of the Board of Directors (if that
position has been filled by the Board of Directors) the President of the
Corporation shall, if present, preside at meetings of the Board of Directors.
The President of the Corporation may sign, with the Secretary or Treasurer or
any other proper officer of the Corporation thereunto authorized by the Board of
Directors, certificates for shares of the capital stock of the Corporation, any
deeds, mortgages, bonds, contracts or other instruments which the Board of
Directors shall have authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Board or by
these by-laws to some other officer or agent of the Corporation or shall be
required by law otherwise to be signed or executed; and, in general, shall
perform all duties incident to the office of the President of the Corporation.

SECTION 9. AUTHORITY AND DUTIES OF THE BUSINESS PRESIDENTS, EXECUTIVE VICE
PRESIDENTS, SENIOR VICE PRESIDENTS, AND VICE PRESIDENTS. Any Business
President, Executive Vice President, Senior Vice President, or Vice President
authorized so to do by the Board of Directors may sign, with the Secretary or
the Treasurer or any other proper officer of the Corporation thereunto
authorized by the Board of Directors, certificates for shares of the capital
stock of the Corporation; and shall perform such other duties as from time to
time may be assigned to them by the Chairman of the Board of Directors or by the
President of the Corporation or by the Board of Directors.
<PAGE>
26

SECTION 10. THE TREASURER. The Treasurer shall:

(a) Have charge and custody of, and be responsible
for, all funds and securities of the Corporation, receive and give receipts
for moneys due and payable to the Corporation from any sources whatsoever,
and deposit all such moneys in the name of the Corporation in such banks,
trust companies or other depositaries as shall be selected in accordance with
the provisions of Article V of these by-laws;

(b) Have the right to require, from time to time,
reports or statements giving such information as he may desire with respect
to any and all financial transactions of the Corporation from the officers or
agents transacting the same;

(c) Render to the Board of Directors, whenever the
Board of Directors shall require him so to do, an account of the financial
condition of the Corporation and of all of his transactions as Treasurer;

(d) Exhibit at all reasonable times his books of
account and other records to any of the directors of the Corporation upon
application during business hours at the office of the Corporation where such
books and records are kept;

(e) Sign (unless the Secretary or other proper officer
thereunto duly authorized by the Board of Directors shall sign), with the
Chairman of the Board of Directors or the President of the Corporation or an
Executive Vice President or a Vice President, certificates for shares of the
capital stock of the Corporation the issue of which shall have been
authorized by resolution of the Board of Directors, provided that the
signatures of the officers of the Corporation thereon may be facsimile as
provided in Section 1 of Article VI of these by-laws; and
<PAGE>
27

(f) In general, perform all the duties incidental to the office of
Treasurer and such other duties as from time to time may be assigned to him
by the Chairman of the Board of Directors or by the President of the
Corporation or by the Board of Directors.

SECTION 11. THE SECRETARY. The Secretary shall:

(a) Record all the proceedings of the stockholders,
the Board of Directors and the Executive Committee in one or more books kept
for that purpose;

(b) See that all notices are duly given in accordance with the
provisions of these by-laws or as required by law;

(c) Be custodian of the corporate records and of the seal of the
Corporation and see that the seal or a facsimile thereof is affixed to or
impressed or reproduced on all stock certificates prior to the issue thereof
and to all documents the execution of which on behalf of the Corporation
under its seal is duly authorized in accordance with the provisions of these
by-laws. Unless the Board of Directors shall otherwise direct in specific
instances, the seal of the Corporation when so affixed, impressed or
reproduced shall always be attested by the signature of the Secretary, or,
if any, of an Assistant Secretary or an Attesting Secretary, provided that
signatures on certificates for shares of the capital stock of the Corporation
may be facsimile as provided in Section 1 of Article VI of these by-laws;

(d) Keep a register of the post office address of each stockholder which
shall be furnished to the Secretary by such stockholder in accordance with
the provisions of Section 1 of Article II of these by-laws;

(e) See that the duties prescribed by Section 9 of Article I of these
by-laws are performed;
<PAGE>
28

(f) Sign (unless the Treasurer or other proper officer
thereunto duly authorized by the Board of Directors shall sign), with the
Chairman of the Board of Directors or the President of the Corporation or an
Executive Vice President or a Vice President, certificates for shares of the
capital stock of the Corporation the issue of which shall have been
authorized by resolution of the Board of Directors, provided that the
signatures of the officers of the Corporation thereon may be facsimile as
provided in Section 1 of Article VI of these by-laws;

(g) Have general charge of the stock certificate books of the Corporation
and also of the other books and papers of the Corporation and see that the
books, reports, statements, certificates and all other documents and records
required by law are properly kept and filed; and

(h) In general, perform all duties incident to the office of Secretary,
and such other duties as from time to time may be assigned to him by the
Chairman of the Board of Directors or by the President of the Corporation or
by the Board of Directors.

SECTION 12. ASSISTANT TREASURERS, ASSISTANT SECRETARIES AND ATTESTING
SECRETARIES. The Assistant Treasurers and Assistant Secretaries, if thereunto
authorized by the Board of Directors, may sign, with the Chairman of the Board
of Directors, or the President of the Corporation, or an Executive Vice
President, or a Vice President, certificates for shares of the capital stock of
the Corporation the issue of which shall have been authorized by resolution of
the Board of Directors and, in general, shall perform such duties as shall be
assigned to them by the Treasurer or the Secretary, respectively, or by the
Board of Directors. The Assistant Secretaries and Attesting
<PAGE>
29

Secretaries shall have the power to affix and attest the corporate seal of the
Corporation and to attest the execution of documents on behalf of the
Corporation.

SECTION 13. SALARIES. The salaries of the officers shall be fixed from time
to time by the Board of Directors, or by one or more committees or officers to
the extent so authorized from time to time by the Board of Directors, and no
officer shall be prevented from receiving such salary by reason of the fact that
he is also a director of the Corporation.

SECTION 14. SUBORDINATE POSITIONS, ETC. The Corporation may provide titles,
including the title of Vice President, for other individuals who serve in
management positions with the corporate staff, or with group, division or other
operational units of the Corporation but who do not perform the function of
officer for the Corporation. Individuals in such positions shall hold such
titles at the discretion of the appointing officer and shall have such authority
and perform such duties as the Chairman of the Board of Directors, or the Vice
Chairman of the Board of Directors, or any officer to whom they delegate their
authority in this regard, may from time to time determine.

ARTICLE V.

CONTRACTS, LOANS, CHECKS, DEPOSITS, ETC.

SECTION 1. CONTRACTS, ETC. HOW EXECUTED. The Board of Directors, except as
in these by-laws otherwise provided, may authorize any officer or officers,
agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation, and such authority
may be general or confined to specific instances; and, unless so authorized by
the Board of Directors or by the provisions of these by-laws, no officer, agent
or employee other than the Chairman of the Board of Directors and the President
shall
<PAGE>
30

have any power or authority to bind the Corporation by any contract or
engagement or to pledge its credit or to render it liable pecuniarily for any
purpose or to any amount.

SECTION 2. LOANS. No loans shall be contracted on behalf of the Corporation
and no negotiable paper shall be issued in its name, unless authorized by vote
of the Board of Directors. When so authorized by the Board of Directors any
officer or agent of the Corporation designated by the Board of Directors may
effect loans and advances at any time for the Corporation from any bank, trust
company or other institution, or from any firm, corporation or individual, and
for such loans and advances may make, execute and deliver bonds, notes and other
obligations or evidences of indebtedness of the Corporation, and when authorized
as aforesaid, as security for the payment of any and all loans, advances,
indebtedness and liabilities of the Corporation and of the interest thereon, may
pledge, hypothecate or transfer any and all stocks, securities and other
personal property held or owned by the Corporation and to that end endorse,
assign and deliver the same. Such authority may be general or confined to
specific instances.

SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money, notes, or other evidences of indebtedness issued in the name
of the Corporation, shall be signed by such officer or officers, agent or agents
of the Corporation and in such manner as shall from time to time be determined
by resolution of the Board of Directors.

SECTION 4. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositaries as the Board of Directors may
select or as may be selected by any officer or officers, agent or agents of the
Corporation to whom such power may from time to time be delegated by the Board
of Directors. For the purpose of
<PAGE>
31

such deposit, checks, drafts and other orders for the payment of money which are
payable to the order of the Corporation may be endorsed, assigned and delivered
by the Chairman of the Board of Directors, the President of the Corporation, any
Business President, any Executive Vice President, any Vice President, the
Treasurer or the Secretary, or by any officer, agent or employee of the
Corporation to whom any of said officers, in writing, or the Board of Directors,
by resolution, shall have delegated such power.

SECTION 5. GENERAL AND SPECIAL BANK ACCOUNTS. The Board of Directors may
from time to time authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositaries as the Board of
Directors may select, and may make such special rules and regulations with
respect thereto, not inconsistent with the provisions of these by-laws, as they
may deem expedient.

ARTICLE VI.

SHARES AND THEIR TRANSFER

SECTION 1. CERTIFICATES FOR STOCK. Every owner of stock of the Corporation
shall be entitled to a certificate to be in such form as the Board of Directors
shall prescribe, certifying the number and class of shares of stock of the
Corporation owned by him. The certificates for the respective classes of such
stock shall be numbered in the order in which they shall be issued and shall be
signed in the name of the Corporation by the Chairman of the Board of Directors,
or the President of the Corporation, or Executive Vice President, or a Vice
President and by the Secretary or the Treasurer, or by any other proper officer
of the Corporation thereunto authorized by the Board of Directors and the seal
of the Corporation shall be affixed thereto, provided that the signatures of the
officers of
<PAGE>
32

the Corporation and the seal thereon may be facsimile if such certificates are
signed by a transfer agent other than the Corporation or an employee of the
Corporation or by a registrar other than the Corporation or an employee of the
Corporation. The signature by or on behalf of the transfer agent on any such
certificate may also be facsimile if such certificate is signed by a registrar
other than the Corporation or an employee of the Corporation. A record shall be
kept of the name of the person, firm or corporation owning the stock represented
by such certificates, the number and class of shares represented by such
certificates, respectively, and the respective dates thereof, and in case of
cancellation, the respective dates of cancellation. Every certificate
surrendered to the Corporation for exchange or transfer shall be cancelled and
no new certificate or certificates shall be issued in exchange for any existing
certificate until such existing certificate shall have been so cancelled, except
in cases provided for in Section 4 of this Article VI.

SECTION 2. TRANSFER OF STOCK. Transfers of shares of the capital stock of
the Corporation shall be made only on the books of the Corporation by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the Corporation, or with
its transfer agent, and on surrender for cancellation of the certificate or
certificates for such shares. The person in whose name shares of stock stand on
the books of the Corporation shall be deemed the owner thereof for all purposes
as regards the Corporation; provided that whenever any transfers of shares shall
be made as collateral security, and not absolutely, such fact shall be so
expressed in the entry of transfer if, when the certificate or certificates
shall be presented to the Corporation or to said transfer agent for transfer,
both the transferor and the transferee request the Corporation to do so.
<PAGE>
33

SECTION 3. TRANSFER AND REGISTRY AGENTS. The Corporation may maintain a
transfer office or agency where its stock shall be directly transferable and a
registry office, which may be identical with the transfer office or agency,
where its stock shall be registered; and the Corporation may, from time to time,
maintain one or more other transfer offices or agencies, and registry offices;
and the Board of Directors may from time to time, define the duties of such
transfer agents and registrars and make such rules and regulations as it may
deem expedient, not inconsistent with these By-laws, concerning the issue,
transfer and registration of certificates for shares of the capital stock of the
Corporation.

SECTION 4. LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. The owner of
any stock of the Corporation shall immediately notify the Corporation of any
loss, theft, destruction or mutilation of the certificate therefor, and the
Corporation may issue a new certificate of stock in the place of any certificate
theretofore issued by it, alleged to have been lost, stolen or destroyed, and
the Board of Directors may, in its discretion, require the owner of the lost,
stolen or destroyed certificate or his legal representatives to give the
Corporation a bond in such sum as it may direct, not exceeding double the value
of the stock, to indemnify the Corporation against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate. A new certificate may be issued without requiring any bond when, in
the judgment of the Board of Directors, it is proper so to do.

SECTION 5. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.

(a) In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other
<PAGE>
34

distribution or allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion or exchange of stock or for the purpose
of any other lawful action, the Board of Directors may fix, in advance, a
record date, which shall not be more than sixty (60) nor less than ten (10)
days before the date of such meeting, nor more than sixty (60) days prior to
any other action.

(b) If no record date is fixed:

(1) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business
on the day next preceding the day on which notice is given, or, if notice
is waived, at the close of business on the day next preceding the day on
which the meeting is held.

(2) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which
the first written consent is expressed.

(3) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board
of Directors adopts the resolution relating thereto.

(c) A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
<PAGE>
35

ARTICLE VII.

OFFICES

SECTION 1. REGISTERED OFFICE. The registered office of the Corporation in
the State of Delaware shall be in the City of Wilmington, County of New Castle,
and the registered agent of the Corporation in said State is Corporation Trust
Company of America. The Corporation's "principal office or place of business" in
said State and its "resident agent" in said State shall be deemed to mean said
registered office and registered agent, respectively.

SECTION 2. OTHER OFFICES. The Corporation shall also have an office in the
City of Minneapolis, State of Minnesota, and at such other places as the Board
of Directors may from time to time appoint or the business of the Corporation
require.

ARTICLE VIII.

DIVIDENDS, SURPLUS, ETC.

Subject to the provisions of law, of the Certificate of Incorporation of the
Corporation and of these by-laws, the Board of Directors may declare and pay
dividends upon the shares of stock of the Corporation either (a) out of its
surplus as defined in and computed in accordance with the provisions of the laws
of the State of Delaware or (b) in case there shall be no such surplus, out of
its net profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year, whenever, and in such amounts as, in its opinion, the
condition of the affairs of the Corporation shall render it advisable. Subject
as aforesaid, the Board of Directors in its discretion may use and apply any of
the surplus or net profits of the Corporation applicable for such purpose in
purchasing
<PAGE>
36

or acquiring any of the shares of the capital stock of the Corporation in
accordance with law, or any of its bonds, debentures, notes, scrip or other
securities or evidences of indebtedness, or from time to time may set aside from
such surplus or net profits such sum or sums as it, in its absolute discretion,
may think proper, as a reserve fund to meet contingencies, or for the purpose of
maintaining or increasing the property or business of the Corporation, or for
any other purpose it may think conducive to the best interests of the
Corporation.

ARTICLE IX.

SEAL

The Board of Directors shall provide a corporate seal, which shall be in the
form of a circle and shall bear the name of the Corporation and words and
figures showing that it was incorporated in the State of Delaware in the year
1927.

ARTICLE X.

FISCAL YEAR AND AUDIT

SECTION 1. FISCAL YEAR. The fiscal year of the Corporation shall end on the
thirty-first day of December in each year.

SECTION 2. AUDIT OF BOOKS AND ACCOUNTS. The books and accounts of the
Corporation shall be audited at least once in each fiscal year, by certified
public accountants of good standing selected by the Board of Directors.
<PAGE>
37

ARTICLE XI.

WAIVER OF NOTICES

Whenever any notice whatever is required to be given by these by-laws or the
Certificate of Incorporation of the Corporation or any of the corporate laws of
the State of Delaware, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent to notice.

ARTICLE XII.

INCENTIVE COMPENSATION PAYMENTS

As an incentive to efficient and profitable management, there is hereby
authorized to be set aside for payment, for any fiscal year, beginning with the
year 1954, as additional compensation to officers, heads of departments and
other executives and key employees of the Corporation and its subsidiaries whose
work most affects the Corporation's earnings, amounts which, in the aggregate,
shall not exceed 3% of the consolidated net income during such year of the
Corporation and its subsidiaries, before deducting Federal or state taxes based
on income and before any provision for such additional compensation, provided
that no such additional compensation shall be paid for any year unless cash
dividends shall be paid in that year on the Common Stock of the Corporation at
the rate of at least $2 per share as constituted at January 1, 1954. Such
consolidated net income shall exclude, to the extent that the Committee
hereinafter mentioned shall in its discretion deem proper, the whole or any part
of any item of unusual or non-recurring income or loss not arising in the
ordinary course of business. Such aggregate amounts of
<PAGE>
38

additional compensation for any fiscal year shall be in addition to deferred
portions of additional compensation authorized for a prior year or years.
Subject to the foregoing limitations (which shall not be changed without the
approval of the holders of a majority of the outstanding stock of the
Corporation having general voting power), the total amount of additional
compensation, if any, that may be authorized for any year, the participants in
such additional compensation, the apportionment thereof among such participants
and the time or times of payment thereof shall be determined by a Committee of
the Board of Directors consisting of not less than three nor more than five of
those Directors who are not entitled to share in the payments or who shall have
advised the Board of Directors in writing that they irrevocably have elected not
to participate in the payments, as the Chairman of the Board of Directors shall
appoint to such Committee from time to time. Said Committee, which shall act by
a majority of its members, shall be authorized to determine that any award to
any participant for any year shall be paid at one time or to direct the payment
of all or any part thereof in such deferred installments over a period of not
exceeding ten consecutive years commencing not later than the tenth year
following the year for which the award was made, the payment of any such
deferred installments to be subject to such conditions, if any, with respect to
the continued employment of the participant, his refraining from competing with
the Corporation or otherwise, as the Committee shall determine. Said Committee
shall also be authorized to determine that any payment to be made to any
participant in any year shall be made in cash or partly in cash and partly in
Common Stock of the Corporation purchased in the open market for that purpose,
in such proportions as the Committee shall determine, such stock being valued
for such purpose at the mean price thereof on the New York Stock Exchange on
such date as the Committee shall determine. The total amount authorized under
this Article for
<PAGE>
39

any year shall be reported to the stockholders at or before the annual meeting
of stockholders following such year. The provisions of this Article shall not be
deemed to preclude such forms of incentive compensation for other employees of
the Corporation as shall be authorized from time to time by the Board of
Directors.

ARTICLE XIII.

NATIONAL EMERGENCY

SECTION 1. DEFINITION AND APPLICATION. For the purposes of this Article XIII
the term "national emergency" is defined as an emergency situation resulting
from an attack upon the United States, a nuclear disaster within the United
States, a catastrophe, or other emergency condition, as a result of which
attack, disaster, catastrophe or emergency condition a quorum of the Board of
Directors cannot readily be convened for action. Persons not directors of the
Corporation may conclusively rely upon a determination by the Board of Directors
of the Corporation, at a meeting held or purporting to be held pursuant to this
Article XIII that a national emergency as hereinabove defined exists regardless
of the correctness of such determination made or purporting to be made as
hereinafter provided. During the existence of a national emergency the
provisions of this Article XIII shall become operative, but, to the extent not
inconsistent with such provisions, the other provisions of these by-laws shall
remain in effect during any national emergency and upon its termination the
provisions of this Article XIII shall cease to be operative.

SECTION 2. MEETINGS, ETC. When it is determined in good faith by any
director that a national emergency exists, special meetings of the Board of
Directors may be called by such director. The director calling any such special
meeting shall make a reasonable effort to notify all other directors of
<PAGE>
40

the time and place of such special meeting, and such effort shall be deemed to
constitute the giving of notice of such special meeting, and every director
shall be deemed to have waived any requirement, of law or otherwise, that any
other notice of such special meeting be given. At any such special meeting two
directors shall constitute a quorum for the transaction of business including,
without limiting the generality hereof, the filling of vacancies among directors
and officers of the Corporation and the election of additional Vice Presidents,
Assistant Secretaries and Assistant Treasurers. The act of a majority of the
directors present thereat shall be the act of the Board of Directors. If at any
such special meeting of the Board of Directors there shall be only one director
present, such director present may adjourn the meeting from time to time until a
quorum is obtained, and no further notice thereof need be given of any such
adjournment.

The directors present at any such special meeting shall make reasonable
effort to report any action taken thereat to all absent directors, but failure
to give such report shall not affect the validity of the action taken at any
such meeting. All directors, officers, employees and agents of, and all persons
dealing with, the Corporation, if acting in good faith, may conclusively rely
upon any action taken at any such special meeting.

SECTION 3. AMENDMENT. The Board of Directors shall have the power to alter,
amend, or repeal any of these by-laws by the affirmative vote of at least
two-thirds (2/3) of the directors present at any special meeting attended by two
(2) or more directors and held in the manner prescribed in Section 2 of this
Article, if it is determined in good faith by said two-thirds (2/3) that such
alteration, amendment or repeal would be conducive to the proper direction of
the Corporation's affairs.
<PAGE>
41

SECTION 4. CHIEF EXECUTIVE OFFICER. If, during the existence of a national
emergency, the Chairman of the Board of Directors of the Corporation becomes
incapacitated, cannot by reasonable effort be located or otherwise is unable or
unavailable to perform the duties of his office, the Vice Chairman of the Board
of Directors of the Corporation is hereby designated as Chairman of the Board of
Directors. If the Vice Chairman of the Board of Directors is unable or
unavailable to perform the duties of the Chairman of the Board, unless otherwise
determined by the Board of Directors in accordance with the provisions of this
Article XIII, the senior available officer of the Corporation is hereby
designated as Chairman of the Board of Directors of the Corporation, the
seniority of such officer to be determined in order of rank of office and within
the same rank by the date on which he was first elected or appointed to such
office.

SECTION 5. SUBSTITUTE DIRECTORS. To the extent required to constitute a
quorum at any meeting of the Board of Directors during a national emergency, the
officers of the Corporation who are present shall be deemed, in order of rank of
office and within the same rank in order of election or appointment to such
offices, directors for such meeting.

ARTICLE XIV.

AMENDMENTS

The Board of Directors of the Corporation is expressly authorized (except as
otherwise provided in these by-laws) to make by-laws for the Corporation and
from time to time to alter or repeal by-laws so made but the by-laws made or
altered by the Board of Directors may be altered or repealed by the stockholders
at any annual or special meeting thereof, provided that notice of the proposal
so to alter or repeal such by-laws be included in the notice of such meeting.

<PAGE>

EXHIBIT 10 (iii)(f)

HONEYWELL NON-EMPLOYEE DIRECTORS FEE AND STOCK UNIT PLAN

1. PURPOSE OF THE PLAN. The purpose of the Honeywell Non-Employee
Directors Fee and Stock Unit Plan ("Plan") is to grant Awards of Stock Units to
non-employee directors of the Company in order to align their compensation with
the equity interests of the Company's stockholders. The Plan provides for
compensation through the payment of Directors' Annual Retainer and Meeting Fees
in cash or Stock Units, or for the deferral of such fees. The Plan shall become
effective on the date ("Effective Date") the Plan is approved by the
stockholders or such later date as may be established by the Board.

2. DEFINITIONS.

"Alliant Restricted Stock" shall mean Restricted Stock (as defined in the
Prior Plans) of Alliant Techsystems, Inc.

"Annual Meeting" shall mean an annual meeting of stockholders of the
Company.

"Annual Retainer" shall mean the retainer fee, established by the Board,
paid to a Director for services on the Board for a Director Year.

"Award" shall mean an award of Stock Units pursuant to the Plan.

"Board" shall mean the Board of Directors of the Company.

"Canadian Director" shall mean a Director who is a citizen of Canada.

"Change in Control" of the Company shall have occurred if:

(i) any "person", as such term is used in Sections 13(d) and 14(d)
of the Exchange Act (other than the Company or any of its subsidiaries;
any trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any of its subsidiaries; an underwriter
temporarily holding securities pursuant to an offering of such
securities; or any corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company), is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding securities; or

<PAGE>
-2-

(ii) during any period of not more than two consecutive years (not
including any period prior to the execution of this amendment to the
Plan), individuals who at the beginning of such period constitute the
Board, and any new director (other than a director designated by a
person who has entered into an agreement with the Company to effect a
transaction described in clause (i), (iii) or (iv) of this Section)
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a
majority thereof;

(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A)
a merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) more than 50% of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation or (B)
a merger or consolidation effected to implement a recapitalization of
the Company (or similar transaction) in which no person (as hereinabove
defined) acquires more than 30% of the combined voting power of the
Company's then outstanding securties; or

(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
of the Company of all or substantially all of the Company's assets (or
any transaction having a similar effect).

"Change in Control Price" of the Stock shall equal the higher of (i) if
applicable, the price paid for the Stock in the transaction constituting Change
in Control and (ii) the reported closing price of the Stock on the New York
Stock Exchange on the last trading day preceding the date of the Change in
Control.

"Committee" shall mean the Nominating and Governance Committee of the Board
or such other committee as may be designated by the Board.

"Company" shall mean Honeywell Inc.

"Company Restricted Stock" shall mean Restricted Stock (as defined in the
Prior Plans) of the Company.

"Deferred Account" shall mean the account established and maintained by the
Company for specified deferrals by a Director in accordance with Section 5(c).

<PAGE>
-3-

"Director" shall mean a non-employee director of the Company.

"Director Year" shall mean the fiscal year commencing on the date of the
Company's Annual Meeting and ending on the date immediately preceding the next
Annual Meeting.

"Dividend Equivalent Rights" shall mean a right, described in Section 7
hereof, of a holder of Stock Units with respect to certain dividends paid on
outstanding shares of Stock.

"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.

"Fair Market Value" of the Stock on a particular date shall equal the
average of the reported closing prices for the Stock on the New York Stock
Exchange for the ten (10) consecutive trading days immediately preceding such
date.

"Fees" shall mean the sum, for any Director Year, of the Annual Retainer,
the Meeting Fees and Per Diem Fees, if any.

"Meeting Fees" shall mean the fees, established by the Board, paid to a
Director for attending a meeting of the Board or a committee of the Board. This
term shall include all fees paid to a Director for extraordinary or special
Board and/or committee meetings.

"Per Diem Fee" shall mean a fee, established by the Board, authorized by
the Chief Executive Officer of the Company, in his or her sole discretion, to a
Director who is asked to work on Board issues for a significant part of a day
outside of normal Board or committee meetings.

"Prior Plans" shall mean the Honeywell Restricted-Stock Retirement Plan for
Non-Employee Directors and the Honeywell Inc. Compensation Plan for Outside
Directors.

"Rule 16b-3" shall mean Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended.

"Stock" shall mean shares of Common Stock, par value $1.50 per share, of
the Company.

"Stock Unit" shall mean a right to receive payment, in accordance with the
conditions set forth herein, of the Fair Market Value of a share of Stock.

<PAGE>
-4-

"Termination Date" shall mean the date the Director's service on the Board
terminates for any reason.

3. STOCK SUBJECT TO THE PLAN. The maximum number of shares of Stock
reserved for issuance pursuant to the Plan shall be 300,000 shares, subject to
adjustment as provided in Section 11 of the Plan.

4. ANNUAL STOCK UNIT AWARDS. On the date of each Annual Meeting,
commencing with the 1996 Annual Meeting, each person who has served as a
Director during the preceding Director Year shall receive an Award of Stock
Units (including fractional Stock Units) with respect to Stock having a Fair
Market Value equal to one-half the Fees earned by the Director for the
immediately preceding Director Year.

5. FEES. Each Director shall be entitled to receive Fees with respect to
each Director Year in accordance with the provisions of this Section 5. Each
Director shall be given an opportunity by the Company on an annual basis to
elect ("Annual Election") to receive his or her Annual Retainer and Meeting
Fees: (i) in cash, (ii) in Stock Units, or (iii) in a combination of cash and
Stock Units. In addition a Director may elect to defer receipt of the Annual
Retainer and Meeting Fees that the Director has the opportunity to earn during
the next succeeding Director Year, which would otherwise be payable in cash.

(a) The Annual Election must be in writing and shall be delivered
to the Secretary of the Company no later than the tenth day preceding
the date of the Annual Meeting. (The Annual Election shall be
irrevocable after the tenth day preceding the date of the Annual
Meeting.) The Annual Election shall specify the applicable percentage
of the Annual Retainer and Meeting Fees that such Director elects to
receive in cash, or Stock Units, or to defer.

(b) If a Director elects to receive Fees in cash, cash payment for
the Annual Retainer shall be paid as soon as practicable after the
beginning of a Director Year, and cash payment for Meeting Fees shall be
paid as soon as practicable after a meeting. If a Director elects to
receive Stock Units in lieu of all or a portion of the Annual Retainer,
the Director shall receive Stock Units (including fractional Stock
Units) with respect to Stock having a Fair Market Value (on the date of
the Company's Annual Meeting) equal to 110% of the portion of the Annual
Retainer payable in Stock Units. If a Director elects to receive Stock
Units in lieu of all or a portion of the Meeting Fees, then with respect
to all meetings occurring within a calendar quarter, the Director shall
receive Stock Units (including fractional Stock Units) with respect to
Stock having a Fair Market Value (determined as of the last trading day
for such quarter) equal to 110% of the portion of such Meetings Fees
payable in Stock Units.

<PAGE>
-5-

(c) If a Director elects to defer all or a portion of the Fees,
such deferred Fees shall be credited to the Deferred Account established
for each Director. Interest shall be credited to each Deferred Account
annually, as of December 31, and at the time of distribution of the
entire balance of the Deferred Account, on the daily average balance of
such Deferred Account for such year or portion thereof at an interest
rate equal to the Company's average five-year borrowing rate.

(d) Any person who becomes a Director following an Annual Meeting,
whether by appointment or election as a director (or by change in status
from a full-time employee), shall receive an Annual Retainer prorated
for the balance of that Director Year. In the event a Director
voluntarily resigns from the Board during a Director Year, (i) the
Director shall return to the Company any cash payment covering the
prorated portion of the Annual Retainer for the balance of that Director
Year, (ii) any Stock Units awarded, and any Fees credited to the
Deferred Account, in respect of the prorated portion of the Annual
Retainer for the balance of that Director Year shall be forfeited. No
return of any portion of the Annual Retainer shall be required in the
event a Director leaves the Board as the result of retirement,
incapacity or death.

6. CONVERSION OF PRIOR AWARDS. As of the Effective Date, all Company
Restricted Stock and all Alliant Restricted Stock outstanding under the Prior
Plans which is held by Directors who are not Canadian Directors shall be
cancelled. Each Director who, immediately prior to the Effective Date, holds
Company Restricted Stock or Alliant Restricted Stock, which shall be
cancelled in accordance with the immediately preceding sentence, shall
receive, in consideration for such cancellation, an Award of Stock Units with
respect to the number of shares of Stock equal to the sum of (i) number of
such Director's cancelled Company Restricted Stock and (ii) the total value,
as of the Effective Date, of the stock underlying such Director's Alliant
Restricted Stock divided by the Fair Market Value per share of Stock on the
Effective Date. Prior to the Effective Date (but in no event later than the
tenth day preceding the Effective Date), each Director may elect to cancel,
as of the Effective Date, all or a portion of such Director's Fees then held
in the Director's deferred compensation account under the Prior Plans in
exchange for an Award of Stock Units with respect to the number of shares of
Stock equal to the amount so cancelled divided by the Fair Market Value per
share of Stock on the Effective Date. Any such election shall be irrevocable.

7. DIVIDEND EQUIVALENT RIGHTS. Outstanding Stock Units shall be
credited with Dividend Equivalent Rights based upon dividends paid on
outstanding shares of Stock between the date such Stock Units are granted and
the date of payment in respect of such Stock Units. Such Dividend Equivalent
Rights, once credited, shall be converted into an equivalent number of Stock
Units (including fractional Stock Units). If a dividend is paid in cash,
each Director shall be credited, as of each dividend payment date, in
accordance with the following formula:

<PAGE>
-6-

(A x B)/C

in which "A" equals the number of Stock Units held by the Director on the
dividend payment date, "B" equals the cash dividend per share and "C" equals
the Fair Market Value per share of Stock on the dividend payment date. If a
dividend is paid in property other than cash, Dividend Equivalent Rights
shall be credited, as of the dividend payment date, in accordance with the
formula set forth above, except that "B" shall equal the fair market value
per share of the property which the Director would have received in respect
of the number of shares of Stock equal to the number of Stock Units held by
the Director as of the dividend payment date, had such shares been owned as
of the record date for such dividend.

8. TIME OF PAYMENT. Unless otherwise provided herein, all payments in
respect of a Director's Stock Units and in settlement of a Director's
Deferred Account shall be made as soon as practicable after the earlier of:

(I) the occurrence of a Change in Control; and

(II) the Termination Date;

provided, however, that no payment in respect of a Canadian Director's Stock
Units and in settlement of a Canadian Director's Deferred Account shall be made
prior to such Canadian Director's Termination Date.

9. FORM OF PAYMENT.

(a) Except as described in Section 9 (c), payment in respect of
Stock Units shall be made in Stock.

(b) Payment in settlement of the Director's Deferred Account shall
be made in cash.

(c) Any payment made upon an occurrence of a Change in Control,
whether in respect of Stock Units or in settlement of the Deferred
Account (including Stock Units of Deferred Accounts with respect to
which one or more installment payments have previously been made), shall
be made in a single lump sum cash payment. For purposes of the
preceding sentence, the amount of cash delivered in full or partial
payment of Stock Units shall equal the Change in Control Price of the
number of shares of Stock relating to the Stock Units with respect to
which such cash payment is being made.

(d) Except as described in sections 9(c) or 17, payments with
respect to Stock Units or in settlement of Deferred Accounts shall be
paid in annual installments over a specified period of time or in a lump
sum, all at such time and

<PAGE>
-7-

over such period as the Director may elect and subject to change from time
to time; provided however, that unless determined otherwise by the
Committee, no such election, change or revocation will be given effect if
it is made less than one year in advance of the Director's Termination
Date; and, provided, further that any payment with respect to a Canadian
Director's Stock Units or in settlement of a Canadian Director's Deferred
Accounts shall be made in a single lump sum as soon as practicable after,
and in any case in the same calendar year as, the Termination Date.

(e) The Company shall not issue fractions of shares. Whenever
under the terms of the Plan, a fractional share would otherwise be
required to be issued, the Director shall be paid in cash for such
fractional share.

10. STATEMENT OF ACCOUNT. Each director shall receive an annual
statement showing the number of Stock Units that have been awarded to the
director under the Plan.

11. CHANGE IN CAPITAL STRUCTURE. In the event of any change in the
Stock by reason of any stock dividend, split, combination of shares, exchange
of shares, warrants or rights offering to purchase Stock at a price below its
fair market value, reclassification, recapitalization, merger, consolidation
or other change in capitalization, appropriate adjustment shall be made by
the Committee in the number and kind of shares subject to the Plan and any
other relevant provisions of the Plan, whose determination shall be binding
and conclusive on all persons.

12. NONTRANSFERABILITY. Unless determined otherwise by the Committee,
Stock Units shall not be transferable by a Director except by will or the laws
of descent and distribution.

13. RIGHTS. Except to the extent otherwise set forth herein, the
Directors shall not have any of the rights of a stockholder with respect to
the Stock Units.

14. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Committee. The Committee shall have full power, discretion and authority to
interpret and administer the Plan, except that the Committee shall have no
power to (a) determine the eligibility for Awards or the number of Stock
Units or timing or value of Awards to be granted to any Director, or (b) take
any action specifically delegated to the Board under the Plan. The
Committee's interpretations and actions shall, except as otherwise determined
by the Board, be final, conclusive and binding on all persons for all
purposes.

15. AMENDMENT OR TERMINATION OF THE PLAN. The Board may, at any time,
amend or terminate the Plan; but no amendment or termination shall, without
the written consent of a Director, reduce the Director's rights under
previously granted Awards or with respect to any Fees previously earned.

<PAGE>
-8-

16. NO RIGHT TO RENOMINATION. Nothing in the Plan or in any Award
shall confer upon any Director the right to be nominated for reelection to the
Board.

17. PAYMENTS UPON DEATH. In the event of a Director's death, payments
with respect to any Stock Units or in settlement of any Deferred Account
(including Stock Units or Deferred Account with respect to which one or more
installment payments have previously been made) shall be made in a single
lump sum payment (in Stock with respect to the Stock Units and in cash with
respect to the Deferred Account) to the beneficiary designated by the
Director (which beneficiary, for any Canadian Director, must be a relative or
a dependent of the Canadian Director), or in the absence of an executed
beneficiary form, to the person legally entitled thereto, as designated under
his or her will, or to such heirs as determined under the laws of intestacy
for the state of his or her domicile.

18. GOVERNING LAW. The Plan and all actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of
Minnesota.

<PAGE>
EXHIBIT (11)

HONEYWELL INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
FOR THE FIVE YEARS ENDED DECEMBER 31, 1995
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Primary:
Income:
Income before extraordinary item and cumulative
effect of accounting changes................... $ 402.7 $ 333.6 $ 278.9 $ 322.2 $ 399.9
Extraordinary item -- loss on early redemption
of debt........................................ (8.6)
Cumulative effect of accounting changes
(Note)......................................... (144.5)
----------- ----------- ----------- ----------- -----------
Net income.................................... $ 402.7 $ 333.6 $ 278.9 $ 322.2 $ 246.8
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Shares:
Weighted average of shares outstanding during
the year....................................... 126,632,082 127,138,774 129,440,052 134,242,394 138,525,414
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Earnings per share:
Income before extraordinary item and cumulative
effect of accounting changes................... $ 3.18 $ 2.62 $ 2.15 $ 2.40 $ 2.88
Extraordinary item -- loss on early redemption
of debt........................................ (0.06)
Cumulative effect of accounting changes
(Note)......................................... (1.04)
----------- ----------- ----------- ----------- -----------
Net income.................................... $ 3.18 $ 2.62 $ 2.15 $ 2.40 $ 1.78
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Assuming full dilution:
Income:
Income before extraordinary item and cumulative
effect of accounting changes................... $ 402.7 $ 333.6 $ 278.9 $ 322.2 $ 399.9
Extraordinary item -- loss on early redemption
of debt........................................ (8.6)
Cumulative effect of accounting changes
(Note)......................................... (144.5)
----------- ----------- ----------- ----------- -----------
Net income.................................... $ 402.7 $ 333.6 $ 278.9 $ 322.2 $ 246.8
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Shares:
Weighted average of shares outstanding during
the year....................................... 126,632,082 127,138,774 129,440,052 134,242,394 138,525,414
Shares issuable in connection with stock plans
less shares purchaseable from proceeds......... 2,848,697 2,364,352 541,811 1,069,901 1,599,395
----------- ----------- ----------- ----------- -----------
Total shares.................................. 129,480,779 129,503,126 129,981,863 135,312,295 140,124,809
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Earnings per share:
Income before extraordinary item and cumulative
effect of accounting changes................... $ 3.11 $ 2.58 $ 2.15 $ 2.38 $ 2.85
Extraordinary item -- loss on early redemption
of debt........................................ (0.06)
Cumulative effect of accounting changes......... (1.03)
----------- ----------- ----------- ----------- -----------
Net income.................................... $ 3.11 $ 2.58 $ 2.15 $ 2.38 $ 1.76
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>

- ------------------------
Note: The cumulative effect of accounting changes in 1992 is the result of
adopting Statement of Financial Accounting Standards (SFAS) No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions,"
which reduced net income by $151.3 ($1.09 per share); SFAS No. 109,
"Accounting for Income Taxes," which increased net income by $31.4 ($0.23
per share); and SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," which reduced net income by $24.6 ($0.18 per share).

<PAGE>
EXHIBIT (12)

HONEYWELL INC. AND SUBSIDIARIES
COMBINED WITH PROPORTIONAL SHARES OF 50% OWNED COMPANIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
FOR THE FIVE YEARS ENDED DECEMBER 31, 1996
(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income before income taxes................................ $ 610.20 $ 505.50 $ 369.70 $ 478.50 $ 634.70
Deduct:
Equity income........................................... 13.30 13.60 10.50 17.80 15.80
--------- --------- --------- --------- ---------
Subtotal................................................ 596.90 491.90 359.20 460.70 618.90
Add (Deduct):
Dividends from less than 50% owned companies............ 2.16 2.58 2.37 2.10 1.54
Proportional share of income (loss) before income taxes
of 50% owned companies................................. (.93) .41 (2.83) .30 .79
--------- --------- --------- --------- ---------
Adjusted income........................................... 598.13 494.89 358.74 463.10 621.23
--------- --------- --------- --------- ---------
Fixed charges
Interest on indebtedness:
Honeywell Inc. and subsidiaries......................... 76.81 79.66 72.89 65.46 87.54
50% owned companies..................................... .05 -- -- -- --
--------- --------- --------- --------- ---------
Subtotal................................................ 76.86 79.66 72.89 65.46 87.54
Amortization of debt expense.............................. 4.55 3.66 2.61 2.54 2.36
Interest portion of rent expense.......................... 51.24 47.80 45.64 44.75 42.68
--------- --------- --------- --------- ---------
Total fixed charges....................................... 132.65 131.12 121.14 112.75 132.58
Total available income.................................... $ 730.78 $ 626.01 $ 479.88 $ 575.85 $ 753.81
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio of earnings to fixed charges........................ 5.51 4.77 3.96 5.11 5.69
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

<PAGE>

EXHIBIT (21)
HONEYWELL INC.
AFFILIATES

<TABLE>
<CAPTION>
A %
I COUNTRY OWNED COMPANY*
- - ------- ----- --------
<S> <C> <C> <C>
I UNITED STATES: CALIF 100 HONEYWELL ADVANCED SYSTEMS INC.
A UNITED STATES: DEL 100 HONEYWELL ASIA PACIFIC INC.
A UNITED STATES: DEL 100 HONEYWELL BUILDING MANAGEMENT SERVICES INC.
A UNITED STATES: DEL 100 HONEYWELL CHINA INC.
I UNITED STATES: MINN 100 HONEYWELL COMMUNICATIONS COMPANY
I UNITED STATES: DEL 100 HONEYWELL DISC INC.
A UNITED STATES: DEL 100 HONEYWELL EUROPE INC.
A UNITED STATES: DEL 100 HONEYWELL FINANCE INC.
A UNITED STATES: DEL 100 HONEYWELL FINANCE INTERNATIONAL INC.
I UNITED STATES: DEL 100 HONEYWELL HIGH-TECH TRADING INC.
A BRAZIL 50 HONEYWELL DO BRASIL & CIA. (Partnership)
[OTHER PARTNER IS HONEYWELL OVERSEAS FINANCE CO., OWNING 50%]
A UNITED STATES: DEL 100 HONEYWELL OVERSEAS FINANCE COMPANY
A UNITED STATES: DEL 100 HONEYWELL REALTY, INC.
A UNITED STATES: MASS 100 HONEYWELL DMC SERVICES, INC.
A UNITED STATES: DEL 100 HONEYWELL TCAS INC.
A UNITED STATES: DEL 50 CONTROL SYSTEMS CONTRACTING AND CONSULTING LLC
[OTHER 50% OWNERSHIP IS HELD BY MINNEAPOLIS-HONEYWELL
REGULATOR COMPANY, INC.]
A UNITED STATES: MASS 100 HONEYWELL CONSUMER PRODUCTS, INC.
A UNITED STATES: MASS 100 HONEYWELL CONSUMER PRODUCTS (CANADA) INC.
A UNITED STATES: MASS 100 HONEYWELL CONSUMER PRODUCTS SECURITY CORP.
A AUSTRIA 100 DURACRAFT HAUSHALTSGERATE VERTRIEBS GmbH
A ENGLAND 100 HONEYWELL CONSUMER PRODUCTS LIMITED
A GERMANY 100 HONEYWELL HAUSGERATE GmbH
A HONG KONG 100 DURACRAFT HONG KONG LTD.
A HONG KONG 100 FAITH GLORY HONG KONG LIMITED
A CHINA 100 DURACRAFT ELECTRICAL (SHENZHEN) CO. LTD.
A CHINA 100 DURACRAFT MOULDING (SHANGHAI) CO. LTD.
A PORTUGAL 74.3 DURACRAFT IBERICA S.A. [ALSO HONEYWELL CONSUMER PRODUCTS, INC.
OWNS 25.7%]
A TAIWAN 100 COMFORT ZONE
A UNITED STATES: IL 49 FOSTER/HONEYWELL JOINT VENTURE (Partnership)
A UNITED STATES: DEL 50 GE/MICROSWITCH CONTROL INC.
I UNITED STATES: DEL 100 MINNEAPOLIS-HONEYWELL REGULATOR COMPANY, INC.
I UNITED STATES: CALIF 100 TETRA TECH SYSTEMS, INC.
I UNITED STATES: CALIF 100 TETRA TECH MANAGEMENT SERVICES, INC.
I SAUDI ARABIA 75 SAUDI ARABIAN TETRA TECH LIMITED
A UNITED STATES: DEL 100 HONEYWELL ELECTRONICS CORPORATION
A UNITED STATES: DEL 100 COEUR D'ALENE DEVELOPMENT INC.
A ENGLAND 100 HONEYWELL LIMITED
A ENGLAND 100 HONEYWELL CONTROL SYSTEMS LIMITED
A SOUTH AFRICA 100 HONEYWELL SOUTHERN AFRICA (PROPRIETARY) LIMITED
A BOTSWANA 100 HONEYWELL BOTSWANA (PTY.) LIMITED
A ENGLAND 100 HONEYWELL AVIONICS SYSTEMS LIMITED
A ENGLAND 100 HONEYWELL AEROSPACE AND DEFENCE LIMITED
A ENGLAND 100 KODEN MAINTENANCE COMPANY LIMITED
A ENGLAND 100 HONEYWELL INFORMATION SYSTEMS LIMITED
I ENGLAND 100 HONEYWELL LEASING LIMITED
A ENGLAND 100 HONEYWELL PROFIMATICS LIMITED
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
A %
I COUNTRY OWNED COMPANY*
- - ------- ----- --------
<S> <C> <C> <C>
A ENGLAND 100 HONEYWELL PENSION TRUSTEES LIMITED
I ENGLAND 100 HONEYWELL I.S. LIMITED
A ENGLAND 100 COMFORT COOLING LIMITED
A ENGLAND 100 HONEYWELL FM(2) LIMITED
A ARGENTINA 100 HONEYWELL S.A.I.C.
I ARGENTINA 100 CONTROLES HONEYWELL S.A.I.C.
A AUSTRALIA 100 HONEYWELL HOLDINGS PTY. LIMITED
A AUSTRALIA 100 A.C.N. 000 371 184 PTY. LIMITED
A AUSTRALIA 100 HONEYWELL LIMITED
A NEW ZEALAND 100 HONEYWELL HOLDINGS LIMITED
A NEW ZEALAND 100 HONEYWELL HOLDINGS LIMITED
I NEW ZEALAND 100 HONEYWELL (WHOLESALE) LIMITED
A BELGIUM 100 HONEYWELL S.A.
A BELGIUM 99.97 HONEYWELL EUROPE S.A. [OTHER .03% OWNED BY HONEYWELL INC.]
A BERMUDA 100 HONEYWELL ASSURANCE LIMITED
I BRAZIL 49 EMBRASID S.A.
A CANADA 49 COMCEPT CANADA, INC.
A CANADA 100 HONEYWELL LIMITED-HONEYWELL LIMITEE
A BARBADOS 99 HONEYWELL (BARBADOS) FINANCE AND DEVELOPMENT SRL
[OTHER 1% OWNERSHIP IS HELD BY HONEYWELL CANADA LIMITED-HONEYWELL
CANADA LIMITEE]
A CANADA 100 INTER PLANT CONSULTING INC.
A CANADA 100 HONEYWELL CANADA LIMITED-HONEYWELL CANADA LIMITEE
A CHILE 100 HONEYWELL CHILE S.A.
A CHINA 55 SINOPEC HONEYWELL (TIANJIN) LIMITED
A CHINA 100 HONEYWELL (TIANJIN) LIMITED
A COLOMBIA 94.8 HONEYWELL COLOMBIA S.A.
[ALSO OTHER 5.2% OWNED BY MINNEAPOLIS HONEYWELL REGULATOR COMPANY, INC.,
HONEYWELL ELECTRONICS CORPORATION, HONEYWELL EUROPE INC., AND
HONEYWELL REALTY, INC.]
A CYPRUS 99.999% HONEYWELL CONTROLS INTERNATIONAL LIMITED
[OTHER .001% owned by HONEYWELL
ELECTRONICS CORPORATION]
A DENMARK 100 HONEYWELL A/S
A DENMARK 100 HONEYWELL EJENDOMSVIRKE A/S
I DOMINICAN REPUBLIC 100 HONEYWELL DOMINICANA C. POR A.
A ECUADOR 100 HONEYWELL S.A.
A FINLAND 100 HONEYWELL OY
A FINLAND 100 KIINTEISTOHUOLTO MERATEK OY
I FINLAND 100 VM-KIINTEISTOHUOLTO OY
A FINLAND 100 TULLINTORIN KIINTEISTPALVELU OY
A FRANCE 100 HONEYWELL S.A.
A FRANCE 100 DAVILOR TECHNOLOGIE S.A.
A FRANCE 100 HONEYWELL AEROSPACE S.A.
A FRANCE 100 AURIS S.A.
A FRANCE 100 APPLICATEL S.A.
A FRANCE 100 ALARME ET PROTECTION - SOCOMEX S.A.
A FRANCE 100 ALARME ET PROTECTION S.A.
A FRANCE 100 ALARME INTERCO S.A.
A FRANCE 100 SOVIALE INDUSTRIE
A FRANCE 100 ANJOU SECURITE S.A.
A FRANCE 100 HONEYWELL GERDS S.A.
A GERMANY 100 HONEYWELL HOLDING AG
A GERMANY 100 INGENIEURBETRIEB FUER AUTOMATISIERUNGSTECHNIK GmbH
A GERMANY 100 HONEYWELL REGELSYSTEME GmbH
A GERMANY 100 IAL VERTRIEBS GmbH
A GERMANY 100 HONEYWELL PAPER MACHINE AUTOMATION CENTER GmbH
A GERMANY 100 HONEYWELL SAFETY MANAGEMENT SYSTEMS GmbH
A GERMANY 100 METALLWERKE NEHEIM GOEKE & CO. GmbH
A FRANCE 100 MNG FRANCE E.U.R.L.
</TABLE>

2
<PAGE>

<TABLE>
<CAPTION>
A %
I COUNTRY OWNED COMPANY*
- - ------- ----- --------
<S> <C> <C> <C>
A BULGARIA 100 HONEYWELL EOOD
A CZECH REPUBLIC 100 HONEYWELL, Spol. sr.o.
A HUNGARY 100 HONEYWELL SZABALYOZASTECHNIKAI KFT
A POLAND 100 HONEYWELL SP.Z.O.O.
A POLAND 100 ENERGY SAVINGS COMPANY SP.Z.O.O.
A RUSSIA 100 HONEYWELL AVIATION CONTROL MOSCOW
A RUSSIA 100 HONEYWELL HOME AND BUILDING CONTROL
A SLOVAK REPUBLIC 100 HONEYWELL Spol. sr.o.
A GERMANY 100 HONEYWELL AG
A GERMANY 100 HONEYWELL UNTERSTUETZUNGSKASSE GmbH
A GERMANY 100 HONEYWELL BRAUKMANN UNTERSTUETZUNGSKASSE GmbH
A GERMANY 100 B&S KAELTE-WAERME-KLIMA GmbH
A GERMANY 100 ERG BETRIEBSGESELLSCHAFT mbH
A GERMANY 100 NAH NORD-ALARM GESELLSCHAFT FUER ALARM-UND OstmbH
A GERMANY 100 KG NORD-ALARM GESELLSCHAFT FUER ALARM-UND
SICHERHEITSANLAGEN mbH & Co.(KG Partnership)
A GERMANY 100 NA BETRIEBSFUEHRUNGs GmbH
A GERMANY 100 WSD GEBAEUDETECHNISCHER SERVICE GmbH
A AUSTRIA 100 HONEYWELL AUSTRIA Ges.m.b.H.
A RUSSIA 70 HONEYWELL-STERCH INDUSTRIAL CONTROLS
A UKRAINE 100 HONEYWELL LIMITED
A HONG KONG 100 HONEYWELL LIMITED
A INDIA 100 HONEYWELL INDIA SOFTWARE OPERATION PRIVATE LIMITED
A INDIA 40.62 TATA HONEYWELL LIMITED
I INDIA 40 HONEYWELL INDIA LIMITED
A ITALY 100 HONEYWELL S.p.A.
A ITALY 100 HONEYWELL U.G.V. S.r.l.
A ITALY 100 STRUMENTECNICA S.r.l.
A ITALY 100 TECNOREG S.r.l.
A ITALY 25 SINTED S.p.A.
A ITALY 40 SPACE CONTROLS ALENIA-HONEYWELL S.p.A.
A PORTUGAL 70 HONEYWELL PORTUGAL AUTOMACAO E CONTROLE, LDA.
[ALSO, HONEYWELL S.A. (SPAIN) OWNS 30%]
A PORTUGAL 100 ARCLASSE, SERVICO TOTAL DE CLIMATIZACAO S.A.
I JAPAN 50 NEC HONEYWELL SPACE SYSTEMS LTD.
A JAPAN 23.22 YAMATAKE-HONEYWELL CO., LTD.
A JAPAN 71.9 YAMATAKE & CO., LTD.
A JAPAN 50 TAISHIN CO., LTD.
A JAPAN 100 YAMATAKE KEISO CO., LTD.
A JAPAN 60 YAMATAKE ENGINEERING CO., LTD.
A JAPAN 100 YAMATAKE CONTROL PRODUCTS CO., LTD.
A JAPAN 100 YAMATAKE TECHNO-SYSTEMS CO., LTD.
A CHINA 100 DALIAN YAMATAKE CONTROL INSTRUMENTS CO., LTD.
A CHINA 60 SHANGHAI YAMATAKE-SIC BUILDING AUTOMATION CO., LTD.
A CHINA 52.9 BEIJING YAMATAKE-SIC CONTROL SYSTEMS CO., LTD.
A CHINA 60 SHANGHAI YAMATAKE JINSHAN CONTROL INSTRUMENTS CO., LTD.
A THAILAND 49 YAMATAKE-HONEYWELL (THAILAND) CO., LTD.
A UNITED STATES: ARIZONA 100 YCV CORPORATION
A KOREA 40 LG-HONEYWELL CO., LTD.[ALSO, YAMATAKE-HONEYWELL CO., LTD. OWNS 10%]
A MALAYSIA 100 HONEYWELL AUTOMATION AND CONTROLS SDN. BHD.
A MALAYSIA 100 HONEYWELL ENGINEERING SDN. BHD.
A MALAYSIA 30 BERKAT HONEYWELL SDN. BHD.
A MEXICO 100 HONEYWELL S.A. DE C.V.
A MEXICO 100 HONEYWELL OPTOELECTRONICA, S.A. DE C.V.
A MEXICO 100 MEXHON S.A. DE C.V.
A MEXICO 100 HONEYWELL MANUFACTURAS DE CHIHUAHUA, S.A. DE C.V.
A NETHERLANDS ANTILLES 100 HONEYWELL CAPITAL N.V.
A NETHERLANDS 100 HONEYWELL MIDDLE EAST B.V.
A KUWAIT 40 HONEYWELL KUWAIT K.S.C.
</TABLE>

3
<PAGE>

<TABLE>
<CAPTION>
A %
I COUNTRY OWNED COMPANY*
- - ------- ----- --------
<S> <C> <C> <C>
A EGYPT 98 HONEYWELL (EGYPT)[ALSO HONEYWELL S.p.A. OWNS 2%]
A OMAN 60 HONEYWELL & CO. OMAN LLC.
A TURKEY 80 HONEYWELL OTOMASYON VE KONTROL SISTEMLERI SAN. VE TIC.A.S.
A NETHERLANDS 100 HONEYWELL EUROPEAN DISTRIBUTION CENTER B.V.
A NETHERLANDS 100 SKINNER EUROPA B.V.
A NETHERLANDS 92.6 HONEYWELL B.V. [OTHER 7.4% OWNED BY SKINNER EUROPA B.V.]
A NETHERLANDS 100 HONEYWELL HI-SPEC SOLUTIONS B.V.
A NETHERLANDS 100 GASMODUL B.V.
A NETHERLANDS 50 TURNKIEK PROCESS CONTROL B.V.
A NETHERLANDS 100 TURNKIEK BUSINESS IMPROVEMENT B.V.
A NETHERLANDS 50 CARA C'AIR B.V.
A NETHERLANDS 100 HONEYWELL SAFETY MANAGEMENT SYSTEMS B.V.
A GERMANY 100 PROFIMATICS EUROPE GmbH
A NETHERLANDS 100 HONEYWELL FOREIGN SALES CORPORATION B.V.
A NETHERLANDS 100 HONEYWELL FINANCE B.V.
A NORWAY 100 HONEYWELL A/S
A NORWAY 100 HONEYWELL MILJOPARTNER A/S
A NORWAY 100 HONEYWELL KOLBERG SERVICE A/S
A NORWAY 100 FLEBU BERGEN A/S
A NORWAY 40 NORD VENTILASJON A/S
A NORWAY 100 VENTOK A/S
A PAKISTAN 100 HONEYWELL (PRIVATE) LIMITED
A PANAMA 100 HONEYWELL PROFIMATICS LATINOAMERICANA, S.A.
A VENEZUELA 100 HONEYWELL PROFIMATICS C.A.
A SAUDI ARABIA 50 HONEYWELL TURKI-ARABIA LIMITED
A SINGAPORE 100 HONEYWELL PTE. LTD.
A SINGAPORE 100 HONEYWELL AEROSPACE PTE. LTD.
A SINGAPORE 100 HONEYWELL SAFETY MANAGEMENT SYSTEMS PRIVATE LIMITED
I SINGAPORE 100 HONEYWELL COMPUTERS PRIVATE LIMITED
A SPAIN 100 HONEYWELL S.A.
A SPAIN 99.8 INTERNACIONAL DE MANTENIMIENTO, S.A.
[OTHER .02% OWNED BY MANTENIMIENTO Y CONTROL S.A.]
A SPAIN 99.9 MANTENIMIENTO Y CONTROL S.A.
[OTHER .01% OWNED BY INTERNACIONAL DE MANTENIMIENTO, S.A.]
A SPAIN 100 SINEL, S.A.
A SPAIN 100 HONEYWELL TECNOLOGIA Y CONROL, S.A.
A SWEDEN 100 HONEYWELL AB
A SWEDEN 100 INUCONTROL AB
A DENMARK 100 INUCONTROL ApS
A SWITZERLAND 100 HONEYWELL AG
A SWITZERLAND 100 HONEYWELL CENTRABUERKLE AG
A SWITZERLAND 100 HONEYWELL-LUCIFER S.A.
A SWITZERLAND 100 SATRONIC HOLDING AG
A ENGLAND 100 SATRONIC CONTROLS (UK) LTD.
A HUNGARY 100 FLAMTRONIC KFT
A NETHERLANDS 100 SATRONIC NEDERLAND B.V.
A SWITZERLAND 100 PERMONTAGGIO S.A.
A SWITZERLAND 100 R. LUDI AG
A SWITZERLAND 100 SATRONIC AG
A GERMANY 61 SATRONIC GmbH [OTHER 39% OWNED BY R. LUDI AG (SWITZERLAND)]
A TAIWAN 100 HONEYWELL TAIWAN LIMITED
A THAILAND 97.9 HONEYWELL SYSTEMS (THAILAND) LIMITED
[OTHER 2.1%EQUALLY OWNED BY MINNEAPOLIS-HONEYWELL REGULATOR COMPANY,
INC., HONEYWELL EUROPE INC., HONEYWELL ELECTRONIC INC., HONEYWELL
OVERSEAS FINANCE, HONEYWELL REALTY INC., and HONEYWELL
COMMUNICATIONS COMPANY]
A VENEZUELA 100 HONEYWELL C.A.
A VENEZUELA 100 SERVICIOS HONEYWELL C.A.
A PANAMA 100 HONEYWELL PANAMA, S.A.
</TABLE>

4
<PAGE>

NOTE: A=ACTIVE
I=INACTIVE

* SUBSIDIARIES OF HONEYWELL INC.s AFFILIATES OR SUBSIDIARIES ARE INDICATED
BY THE INDENTATION OF THE NAME BELOW THE NAME OF THE OWNING COMPANY:
e.g., HONEYWELL & CO. OMAN LLC. IS 60% OWNED BY HONEYWELL MIDDLE EAST
B.V., WHICH IS 100% OWNED BY HONEYWELL CAPITAL N.V., WHICH IS 100% OWNED
BY HONEYWELL INC.

<PAGE>
EXHIBIT (23)

INDEPENDENT AUDITORS CONSENT

We consent to the incorporation by reference in Registration Statements Nos.
2-64351, 2-98660, 33-29442, 33-44282, 33-44283, 33-44284, 33-49819, 33-59355,
33-59357 and 33-59359 on Form S-8, and Nos. 33-62300, 33-57135, 333-02589 and
333-04125 on Form S-3, of our report dated February 12, 1997, appearing in this
Annual Report on Form 10-K of Honeywell Inc. for the year ended December 31,
1996.

Deloitte & Touche LLP
Minneapolis, Minnesota
February 25, 1997

<PAGE>

POWER OF ATTORNEY

KNOW ALL BY THESE PRESENTS, that the undersigned director of HONEYWELL
INC., a Delaware corporation, constitutes and appoints SIGURD UELAND, JR. and
LAWRENCE W. STRANGHOENER, each of them with full power to act without the
other, as true and lawful attorneys-in-fact, for him in his name, place and
stead in any and all capacities to sign the Form 10-K Annual Report to be
filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
as amended for the fiscal year ended December 31, 1996, with full power to
file such report, with all amendments and exhibits thereto and other
documents in connection therewith.

I certify that I have read a draft of such Form 10-K Annual Report for
fiscal year ended December 31, 1996, and am aware of the contents thereof.

I hereby grant to said attorneys-in-fact, and each of them, full power
and authority to do and perform any and all acts necessary to be done, hereby
ratifying and confirming all that said attorneys-in-fact, or either of them,
may lawfully do or cause to be done pursuant hereto.

IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the
18th day of February, 1997.

/s/ M. R. Bonsignore
------------------------------------------
M. R. Bonsignore
Chairman of the Board and
Chief Executive Officer,
and Director

<PAGE>

POWER OF ATTORNEY

KNOW ALL BY THESE PRESENTS, that the undersigned director of HONEYWELL
INC., a Delaware corporation, constitutes and appoints SIGURD UELAND, JR. and
LAWRENCE W. STRANHOENER, each of them with full power to act without the
other, as true and lawful attorneys-in-fact, for him in his name, place and
stead in any and all capacities to sign the Form 10-K Annual Report to be
filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
as amended for the fiscal year ended December 31, 1996, with full power to
file such report, with all amendments and exhibits thereto and other
documents in connection therewith.

I certify that I have read a draft of such Form 10-K Annual Report for
fiscal year ended December 31, 1996, and am aware of the contents thereof.

IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the
18th day of February, 1997.

/s/ D. L. Moore
------------------------------------
D. L. Moore
President and
Chief Operating Officer,
and Director

<PAGE>

POWER OF ATTORNEY

KNOW ALL BY THESE PRESENTS, that the undersigned officer of HONEYWELL
INC., a Delaware corporation, constitutes and appoints SIGURD UELAND, JR. as
true and lawful attorney-in-fact, for him in his name, place and stead in any
and all capacities to sign the Form 10-K Annual Report to be filed pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934 as amended for
the fiscal year ended December 31, 1996, with full power to file such report,
with all amendments and exhibits thereto and other documents in connection
therewith.

I certify that I have read a draft of such Form 10-K Annual Report for
fiscal year ended December 31, 1996, and am aware of the contents thereof.

I hereby grant to said attorney-in-fact full power and authority to do
and perform any and all acts necessary to be done, hereby ratifying and
confirming all that said attorney-in-fact may lawfully do or cause to be done
pursuant hereto.

IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the
18th day of February, 1997.

/s/ L. W. Stranghoener
------------------------------------------
L. W. Stranghoener
Vice President
and Chief Financial Officer

<PAGE>

POWER OF ATTORNEY

I certify that I have read a draft of such Form 10-K Annual Report for
fiscal year ended December 31, 1996, and am aware of the contents thereof.

IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the
18th day of February, 1997.

/s/ P. M. Palazzari
-------------------------------------
P. M. Palazzari
Vice President and Controller

<PAGE>

POWER OF ATTORNEY

I certify that I have read a draft of such Form 10-K Annual Report for
fiscal year ended December 31, 1996, and am aware of the contents thereof.

IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the
18th day of February, 1997.

/s/ A. J. Baciocco, Jr.
------------------------------------
A. J. Baciocco, Jr.
Director

<PAGE>

POWER OF ATTORNEY

KNOW ALL BY THESE PRESENTS, that the undersigned director of HONEYWELL
INC., a Delaware corporation, constitutes and appoints SIGURD UELAND, JR. and
LAWRENCE W. STRANHOENER, each of them with full power to act without the
other, as true and lawful attorneys-in-fact, for her in her name, place and
stead in any and all capacities to sign the Form 10-K Annual Report to be
filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
as amended for the fiscal year ended December 31, 1996, with full power to
file such report, with all amendments and exhibits thereto and other
documents in connection therewith.

I certify that I have read a draft of such Form 10-K Annual Report for
fiscal year ended December 31, 1996, and am aware of the contents thereof.

IN WITNESS WHEREOF, the undersigned has hereunto set her hand as of the
18th day of February, 1997.

/s/ E. E. Bailey
------------------------------------
E. E. Bailey
Director

<PAGE>

POWER OF ATTORNEY

I certify that I have read a draft of such Form 10-K Annual Report for
fiscal year ended December 31, 1996, and am aware of the contents thereof.

IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the
18th day of February, 1997.

/s/ E. H. Clark, Jr.
------------------------------------
E. H. Clark, Jr.
Director

<PAGE>

POWER OF ATTORNEY

I certify that I have read a draft of such Form 10-K Annual Report for
fiscal year ended December 31, 1996, and am aware of the contents thereof.

IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the
18th day of February, 1997.

/s/ W. H. Donaldson
------------------------------------
W. H. Donaldson
Director

<PAGE>

POWER OF ATTORNEY

I certify that I have read a draft of such Form 10-K Annual Report for
fiscal year ended December 31, 1996, and am aware of the contents thereof.

IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the
18th day of February, 1997.

/s/ R. D. Fullerton
------------------------------------
R. D. Fullerton
Director

<PAGE>

POWER OF ATTORNEY

I certify that I have read a draft of such Form 10-K Annual Report for
fiscal year ended December 31, 1996, and am aware of the contents thereof.

IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the
18th day of February, 1997.

/s/ J. J. Howard
------------------------------------
J. J. Howard
Director

<PAGE>

POWER OF ATTORNEY

I certify that I have read a draft of such Form 10-K Annual Report for
fiscal year ended December 31, 1996, and am aware of the contents thereof.

IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the
18th day of February, 1997.

/s/ B. Karatz
----------------------------------
B. Karatz
Director

<PAGE>

POWER OF ATTORNEY

I certify that I have read a draft of such Form 10-K Annual Report for
fiscal year ended December 31, 1996, and am aware of the contents thereof.

IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the
18th day of February, 1997.

/s/ A. B. Rand
-------------------------------------
A. B. Rand
Director

<PAGE>

POWER OF ATTORNEY

I certify that I have read a draft of such Form 10-K Annual Report for
fiscal year ended December 31, 1996, and am aware of the contents thereof.

IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the
18th day of February, 1997.

/s/ S. G. Rothmeier
-------------------------------------
S. G. Rothmeier
Director

<PAGE>

POWER OF ATTORNEY

I certify that I have read a draft of such Form 10-K Annual Report for
fiscal year ended December 31, 1996, and am aware of the contents thereof.

IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the
18th day of February, 1997.

/s/ M. W. Wright
-------------------------------------
M. W. Wright
Director

<PAGE>
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</TABLE>

<PAGE>

EXHIBIT 99(i)

CAUTIONARY STATEMENTS
FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Honeywell may occasionally make statements regarding its businesses and their
respective markets, such as projections of future performance, statements of
management's plans and objectives, forecasts of market trends and other
matters, which to the extent they are not historical fact, may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Statements containing the words or phrases
"will likely result", "are expected to," "will continue," "outlook," "is
anticipated," "estimate," "project" or similar expressions, "which may
appear in certain documents, reports (including but not limited to those
filed with the Securities and Exchange Commission), press releases, and
written or oral presentations made by officers of the company to analysts,
shareholders, investors, news organizations and others, identify such
forward-looking statements. No assurance can be given that the results in
any forward-looking statements will be achieved and actual results could be
affected by one or more factors which could cause them to differ materially.
Therefore, Honeywell wishes to ensure that any written or oral
forward-looking statements made by it or on its behalf, are accompanied by,
or referenced to, meaningful cautionary statements in order to maximize to
the fullest extent possible the protections of the safe harbor established
in the Private Securities Litigation Reform Act of 1995.

All forward-looking statements made by or on behalf of Honeywell are
hereby qualified in their entirety by reference to the following important
factors, among others, that could affect the company's businesses and cause
actual results to differ materially from those projected. Any forward-looking
statement speaks only as of the date on which such statement is made, and
Honeywell undertakes no obligation to update such statement to reflect events or
circumstances arising after such date.

FOREIGN SALES. A significant portion of Honeywell's revenues are generated
from international business operations. Changes in trade, monetary policies and
regulatory requirements of the United States and other nations, as well as
political instability in certain regions may affect Honeywell's international
business. Many of Honeywell's sales outside the United States are denominated
in local currencies; therefore, exchange rate fluctuations may affect overall
financial performance.

PROJECT MANAGEMENT. Performance related programs and retrofit projects
have increasingly become an integral part of Honeywell's businesses. The
success of some of these programs may depend in part on the performance of third
parties. Honeywell manages its businesses in such a manner as to minimize the
potential impact of performance; nonetheless, bid variances, third party labor
disputes, and the availability, quality and timely delivery of supplies are
factors that could affect the company's ability to manage these programs within
their budgetary guidelines.

<PAGE>

COMPETITION. Honeywell's businesses are subject to various competitive
pressures, including but not limited to, the introduction of new competitive
technologies, industry consolidation, the growing acceptance of open systems
environments and the deregulation of certain industries. Developments in these
areas may influence Honeywell's strategies in certain markets and create new
challenges or opportunities.

HUMAN RESOURCES. Innovative products and solutions are continuously
developed by Honeywell's businesses for application in the markets they serve.
Highly trained technical and managerial employees are required for this effort,
and Honeywell's ability to manage its businesses successfully depends, in part,
on its ability to attract and retain such people. Shortages of skilled
personnel or negative compensation trends are factors that can affect the
availability of such people or increase Honeywell's costs in attracting and
retaining same. In certain foreign markets, local labor rates and practices may
affect Honeywell's operating costs or its ability to conduct business in such
areas.

GOVERNMENT REGULATION. In many of the markets in which Honeywell competes,
such as aviation, building control, processing and refining, government
regulation is extensive. Compliance with safety or environmental standards, may
impact Honeywell in those markets by increasing Honeywell's costs or
alternately, by providing opportunities for Honeywell to provide solutions for
customers affected thereby.

TECHNOLOGY. Honeywell's products and services are based on innovative
technologies developed by the company or licensed from others. To the extent
the company can secure intellectual property protection for products it
develops, it may be able to enhance its competitive position in certain markets.
Honeywell's ability to obtain licenses from third parties for other key
technologies, or to develop new technologies or solutions independently or
through collaborative efforts can impact the company's businesses.

CUSTOMER TRENDS. The demand for Honeywell's products is subject to the
demands in major customer markets. For example, the requirements of major
airlines for new aircraft may affect the demand for avionics and cockpit
controls produced by Honeywell's Space and Aviation Control business; new
construction or modernization activity may influence the demand for products and
services provided by the Home and Building Control business; the demand for new
or modernized processing plants in certain industrial sector markets may affect
Honeywell's Industrial Control business. The company endeavors to forecast such
demands, but unforeseen general economic conditions in the United States and
internationally, as well as industry specific factors, may affect such
forecasts.

<PAGE>

The foregoing factors are not exhaustive and new factors may emerge which
impact Honeywell's businesses. It is impossible for management to predict such
factors, therefore, forward-looking statements should not be relied upon as a
prediction of actual future results.