HONEYWELL INC, 10-K, 1998-03-18

HONEYWELL INC
10-K, 1998-03-18
AUTO CONTROLS FOR REGULATING RESIDENTIAL & COMML ENVIRONMENTS

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1997
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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

For the fiscal year ended December 31, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

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 per New York Stock Exchange
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. [ ]

Based on the closing sales price of $75.625 on February 20, 1998, the
aggregate market value of the voting stock held by nonaffiliates of the
registrant was $9,515,691,983.

As of February 20, 1998, the number of shares outstanding of the
registrant's common stock, par value $1.50 per share, was 126,307,784 shares.

DOCUMENTS INCORPORATED IN PART BY REFERENCE

Incorporated Documents Location in Form 10-K
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Honeywell Notice of 1998 Annual Meeting and Proxy Part III
Statement

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PART I

ITEM 1. BUSINESS

Honeywell Inc., a Delaware corporation incorporated in 1927, is a
Minneapolis-based international controls company 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 products, systems and services that
conserve energy and protect the environment, improve productivity, enhance
comfort and increase safety.

INDUSTRY SEGMENT INFORMATION

Honeywell's businesses 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 13.

HOME AND BUILDING CONTROL

Honeywell's Home and Building Control segment provides products and services
intended to create efficient, safe, comfortable environments. These products and
services include 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.

Home and Building Control 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. These systems, which may be generic or specifically designed for each
application, may include panels and control systems to centralize mechanical and
electrical functions.

Home and Building Control also 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. Sales of these products are made directly to
original equipment manufacturers, including manufacturers of heating and air
conditioning equipment; and through wholesalers, distributors, dealers,
contractors, hardware stores, home-care centers and Honeywell's nationwide sales
and service organization. In addition, Home and Building Control produces
standalone consumer products such as fans, heaters, humidifiers, and air and
water filtration products. These products are sold through retailers such as
hardware stores and home-care centers.

Home and Building Control provides indoor air-quality services, and
central-station burglary and fire protection services for homes and commercial
buildings; video surveillance, and 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; and energy management and energy retrofit services.

INDUSTRIAL CONTROL

Honeywell's Industrial Control segment serves the automation and control
needs of its worldwide industrial customers by supplying products, systems and
services ranging from sensors to integrated systems designed for specific
applications, to help customers improve productivity and meet increasingly
stringent environmental and safety requirements.

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Industrial Control provides process control systems, and associated
application software and services to customers in a broad range of markets,
including process industries such as: refining oil and gas, petrochemical, bulk
and fine chemical, pulp-and-paper; as well as the electric utility, food and
consumer goods, pharmaceutical, metals and transportation industries. Industrial
Control has an extensive customer base worldwide, including most of the leading
oil refiners, pulp and paper manufacturers and chemical companies.

Industrial Control 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 control systems. These products are generally used
in indicating, recording and automatically controlling process variables in
manufacturing processes.

Under the MICRO SWITCH trademark, Industrial Control 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, 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 Industrial Control products include optoelectronic devices, and
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.

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

Industrial Control services are generally sold directly to users on a
monthly or annual contract basis. Products are customarily sold on a delivered,
supervised or installed basis directly to end users, 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 segment supplies a full-line of
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: integrated avionics systems,
ring laser gyro-based inertial flight reference systems, navigation and guidance
systems, flight control systems, flight management systems, severe weather
avoidance systems, inertial sensors, air data computers, radar altimeters,
automatic test equipment, cockpit display systems, and other communication and
flight instrumentation.

Space and Aviation Control 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, surveillance and warning systems, and on-board data processing. Other
products include spacecraft attitude and positioning systems, and precision
pointing and isolation systems.

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Space and Aviation Control's avionics have been purchased by leading
airframe 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, the Bombardier Global Express; and by international, national
and regional airlines. In the military and space markets, where customers
include NASA, prime U.S. defense contractors and the U.S. Department of Defense,
Space and Aviation Control 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.

OTHER PRODUCTS

In addition to the three segments described above, Honeywell has two
research and development operations that promote technology and products to both
external customers and operating units.

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 1997. 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 1998.

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 8 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.

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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 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 $4,244 million at December 31, 1997, and $3,919 million at
December 31, 1996. All but approximately $902 million of the 1997 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.

COMPETITION

Honeywell is subject to active competition in substantially all product and
service areas. Competitors generally are engaged in business on a national 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 businesses. 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 1997, Honeywell spent approximately $769.1 million on research and
development activities, including $322.5 million in customer-funded research
relating to the development of new products or services, or the improvement of
existing products or services. Honeywell spent $694.7 million in 1996 and $659.8
million in 1995, on research and development activities, including $341.4
million and $336.6 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

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income, capital expenditures or competitive position. See Item 7 at page 16 for
further information concerning environmental matters.

EMPLOYEES

Honeywell employed approximately 57,500 persons in total operations as of
December 31, 1997.

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 19 to
the financial statements in Part II, Item 8 at page 48.

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EXECUTIVE OFFICERS OF THE REGISTRANT

<TABLE>
<CAPTION>
POSITION HELD AGE AT
NAME OFFICE SINCE 3/1/98
- --------------------------- ---------------------------------------------------------------- ------------- -----------
<S> <C> <C> <C>
M. R. Bonsignore (1) Chairman of the Board and Chief Executive Officer 1993 56

G. Ferrari (2) President and Chief Operating Officer 1997 58

J. K. Gilligan (3) President, Solutions and Services Business, Home and Building 1997 43
Control

E. D. Grayson (4) Vice President and General Counsel 1992 59

W. M. Hjerpe (5) President, Honeywell Europe 1997 46

P. M. Palazzari (6) Vice President and Controller 1994 50

J. T. Porter (7) Vice President and Chief Administrative Officer 1996 46

D. K. Schwanz (8) President, Space and Aviation Control 1997 53

L. W. Stranghoener (9) Vice President and Chief Financial Officer 1997 43

M. I. Tambakeras (10) President, Industrial Control 1997 46

A. Weiss (11) President, Products Business, Home and Building Control 1997 46
</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.

(2) Mr. Ferrari was elected to this position effective April 15, 1997. From
January 1992 to March 1997, he was President, Honeywell Europe S.A.

(3) Mr. Gilligan was elected to this position effective September 16, 1997. From
May 1994 to September 1997, he was Vice President and General Manager of
Honeywell Home and Building Control's North American Region. From October
1992 to May 1994, he was Vice President of the Building Control business in
Europe.

(4) Mr. Grayson was elected to this position effective April 1, 1992.

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

(6) Mr. Palazzari was elected to this position effective October 16, 1994. From
May 1993 to October 1994, he was Vice President, Finance, Home and Building
Control.

(7) Mr. Porter was elected to this position effective January 1, 1998. From May
1993 to December 1997, he was Corporate Vice President, Human Resources.

(8) 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 Space and Aviation Control's Air Transport Systems division. From March
1992 to August 1993, he was Vice President of Marketing for Air Transport
Systems.

(9) 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,
Finance, Industrial Automation and Control. From April 1992 to June 1993, he
was Director, Corporate Financial Planning and Business Analysis.

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(10) 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, Honeywell
Asia Pacific.

(11) Mr. Weiss was elected to this position effective September 16, 1997. From
January 1991 to September 1997, he was Vice President, Home and Building
Control Europe.

ITEM 2. PROPERTIES

Honeywell and its subsidiaries operate facilities worldwide comprising
approximately 18,716,800 square feet of space for use as manufacturing, office
and warehouse space, of which approximately 10,644,950 square feet is owned and
approximately 8,071,850 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 1,391,500 square feet of space, of which
approximately 1,342,000 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 714,500 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 3,632,000 square feet of previously
leased space in the United States is under assignment to third parties
(including 2,009,800 square feet, 435,000 square feet and 60,800 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 3,197,400 square feet of
space for operations in the United States, of which approximately 1,396,300
square feet is owned and approximately 1,801,100 square feet is leased.

Outside the United States, Home and Building Control operations occupy
approximately 3,372,600 square feet, of which approximately 1,029,350 square
feet is owned and approximately 2,343,250 square feet is leased. Principal
facilities operated outside the United States are located in Canada, China,
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>
Golden Valley, Minn. Manufacturing 1,185,300 Owned
Memphis, Tenn. Warehouse/Distribution Center 500,000 Leased
</TABLE>

INDUSTRIAL CONTROL

Industrial Control occupies approximately 3,422,800 square feet of space for
operations in the United States, of which approximately 2,640,300 square feet is
owned and approximately 782,500 square feet is leased.

Outside the United States, Industrial Control operations occupy
approximately 2,806,650 square feet, of which approximately 1,018,700 square
feet is owned and approximately 1,787,950 square feet

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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.

<TABLE>
<CAPTION>
MAJOR USE OF APPROXIMATE OWNED OR
LOCATION FACILITY SQUARE FEET LEASED
- ----------------- ------------------ ------------ ---------
<S> <C> <C> <C>
Cupertino, Ca. Office 360,000 Owned
Freeport, Ill. Manufacturing 365,000 Owned
Freeport, Ill. Office 316,000 Owned
Phoenix, Az. Manufacturing 550,000 Owned
</TABLE>

SPACE AND AVIATION CONTROL

Space and Aviation Control occupies approximately 4,419,800 square feet of
space for operations in the United States, of which approximately 3,179,300
square feet is owned and approximately 1,240,500 square feet is leased.

Outside the United States, Space and Aviation Control operations occupy
approximately 106,050 square feet, of which approximately 39,000 square feet is
owned and approximately 67,050 square feet is leased. Principal facilities
operated outside the United States are located in Canada, the United Kingdom,
France and Germany.

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>
Albuquerque, N.M. Manufacturing 526,600 Owned
Clearwater, Fla. Manufacturing 914,800 Owned
Minneapolis, Minn. Manufacturing 550,000 Owned
Phoenix, Ariz. Manufacturing 939,000 Owned
St. Petersburg, Fla. Manufacturing 304,000 Leased
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

On March 13, 1990, Litton Systems, Inc. filed a legal action against
Honeywell in U.S. District Court, Central District of California, Los Angeles,
(the "trial court") with claims that were subsequently split into two separate
cases. One alleges patent infringement under federal law for using an ion-beam
process to coat mirrors incorporated in Honeywell's ring laser gyroscopes, and
tortious interference under state law for interfering with Litton's prospective
advantage with customers and contractual relationships with an inventor and his
company, Ojai Research, Inc. The other case alleges monopolization and attempted
monopolization under federal antitrust laws by Honeywell in the sale of inertial
reference systems containing ring laser gyroscopes into the commercial aircraft
market. Honeywell generally denied Litton's allegations in both cases. In the
patent/tort case, Honeywell also contested the validity as well as the
infringement of the patent, alleging, among other things, that the patent had
been obtained by Litton's inequitable conduct before the United States Patent
and Trademark Office.

PATENT/TORT CASE

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by Honeywell's current process. It further ruled that the state tort claims were
not supported by sufficient evidence. The trial court also held that if its
rulings concerning liability were vacated or reversed on appeal, Honeywell
should be granted a new trial on the issue of damages because the jury's award
was inconsistent with the clear weight of the evidence and based upon a
speculative damage study.

Litton appealed to the U.S. Court of Appeals for the Federal Circuit (the
"Federal Circuit"), and on July 3, 1996, in a two to one split decision, a three
judge panel of that court reversed the trial court's rulings of patent
invalidity, unenforceability and non-infringement, and also found Honeywell to
have violated California law by intentionally interfering with Litton's
consultant contracts and customer prospects. However, the panel upheld two trial
court rulings favorable to Honeywell, namely that Honeywell was entitled to a
new trial for damages on all claims and also to a grant of intervening patent
rights which are to be defined and quantified by the trial court. After
unsuccessfully requesting an "en banc" rehearing of the panel's decision by the
full Federal Circuit appellate court, Honeywell filed a petition for
"certiorari" with the U.S. Supreme Court on November 26, 1996, seeking review of
the panel's decision. In the interim, Litton filed a motion and briefs with the
trial court seeking injunctive relief. After Honeywell and certain aircraft
manufacturers filed briefs and made oral arguments opposing the injunction, the
trial court denied Litton's motion on public interest grounds on December 23,
1996, and then scheduled the patent/tort damages retrial for May 6, 1997.

On March 17, 1997, the U.S. Supreme Court granted Honeywell's petition for
review in the patent/tort case and vacated the July 3, 1996 Federal Circuit
panel decision. The case was then remanded to the Federal Circuit panel for
reconsideration in light of a recent decision by the U.S. Supreme Court in the
WARNER-JENKINSON V. HILTON DAVIS case, which refined the law concerning patent
infringement under the doctrine of equivalents. On March 21, 1997, Litton also
filed a notice of appeal to the Federal Circuit of the trial court's December
23, 1996 decision to deny injunctive relief, but the Federal Circuit stayed any
briefing or consideration of that matter until such time as it completes the
reconsideration of liability issues ordered by the U.S. Supreme Court.

Following the submission of briefs, the parties argued the liability issues
before the same three judge Federal Circuit panel on September 30, 1997, and
that panel has not indicated when it will issue a decision. The panel could
rule, in whole or in part, for Honeywell or in favor of Litton, and any such
ruling could be subject to further appeal by either party. The damages only
retrial for the patent and tort claims, originally scheduled to commence in May
1997, was postponed indefinitely pending the decision of the Federal Circuit on
liability. Before that postponement occurred Litton had submitted a revised
damage study to the trial court, seeking damages as high as $1.9 billion.
Honeywell believes that Litton's damage study remains flawed and speculative for
a number of reasons, and depending upon the outcome of the appeal concerning
liability, it may be necessary for Litton to further revise its study.

It is not possible at this time to predict the outcome of appeals in this
case, or the verdict in any retrial which may occur thereafter, but certain
potential judgments could be material to Honeywell. Honeywell believes, however,
that any award of damages for infringement or interference should be based upon
a reasonable royalty reflecting the value of the ion-beam coating process, and
further that such an award would not be material to Honeywell's financial
position or results of operations. No provision has been made in the financial
statements with respect to this contingent liability.

ANTITRUST CASE

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Litton's contentions that Honeywell had illegally monopolized and attempted to
monopolize by engaging in below-cost predatory pricing; tying and bundling
product offerings under packaged pricing; misrepresenting its products and
disparaging Litton products; and acquiring the Sperry Avionics business in 1986.
On February 2, 1996, the case was submitted to the jury on the remaining
allegations that Honeywell had illegally monopolized and attempted to monopolize
by entering into certain long-term exclusive dealing and penalty arrangements
with aircraft manufacturers and airlines to exclude Litton from the commercial
aircraft market, and by failing to provide Litton with access to proprietary
software used in the cockpits of certain business jets. On February 29, 1996,
the jury returned a $234 million single damages verdict against Honeywell for
illegal monopolization which verdict would have been automatically trebled. On
March 1, 1996, the jury indicated that it was unable to reach a verdict on
damages for attempted monopolization, and a mistrial was declared as to that
claim.

Honeywell subsequently filed a motion for judgment as a matter of law and a
motion for a new trial, contending, among other things, that the jury's partial
verdict should be overturned because Honeywell was prejudiced at trial, and
Litton failed to prove essential elements of liability or submit competent
evidence to support its speculative, all-or-nothing $298.5 million damage claim.
Litton filed a motion for entry of judgment and a motion for injunctive relief.
On July 24, 1996, the trial court denied Honeywell's alternative motions for
judgment as a matter of law or a complete new trial, but concluded that Litton's
damage study was seriously flawed and granted Honeywell a retrial on damages
only. The court also denied Litton's two motions. At that time, Judge Pfaelzer
was expected to conduct the retrial of antitrust damages sometime following the
retrial of patent/tort damages. These retrials will be held before two new, and
different, juries. However, after the U.S. Supreme Court remanded the
patent/tort case to the Federal Circuit in March 1997, Litton moved to have the
trial court expeditiously schedule the antitrust damages retrial. In September
1997, the trial court rejected that motion, indicating that it wished to know
the outcome of the current patent/tort appeal before scheduling retrials of any
type.

Honeywell believes there are questions concerning the identity and nature of
the business arrangements and conduct which were found by the antitrust jury in
1996 to be anti-competitive and damaging to Litton, and that consequently any
damages retrial will also require a reappraisal of liability in some respects by
the next antitrust jury. Following this retrial, Honeywell will have the right
to appeal the eventual judgment, as to both liability and damages, to the U.S.
Court of Appeals for the Ninth Circuit. As a result of the uncertainty regarding
the outcome of this matter, no provision has been made in the financial
statements with respect to this contingent liability. Honeywell further believes
that it would be inappropriate for Litton to obtain recovery of the same
damages, e.g. losses it suffered due to Honeywell's sales of ring laser
gyroscope-based inertial systems to OEMs and airline customers, under multiple
legal theories and claims, and that eventually no duplicative recovery will be
permitted in and among the patent/tort and antitrust cases.

In the fall of 1996, Litton and Honeywell commenced a court ordered
mediation of the patent, tort and antitrust claims. No claim was resolved or
settled, and the mediation is currently in recess.

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 1997.

10
<PAGE>
PART II

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

The principal U.S. market for Honeywell's common stock is the New York Stock
Exchange. Dividends are paid by Honeywell on its common stock on a quarterly
basis. The high and low sales prices for Honeywell's common stock, within the
two most recent fiscal years, as reported by the consolidated transaction
reporting system, as well as quarterly dividends paid by Honeywell during such
period, are as follows:

<TABLE>
<CAPTION>
COMMON STOCK PRICE
(NEW YORK STOCK
EXCHANGE COMPOSITE)
----------------------- DIVIDENDS
HIGH LOW PER SHARE
--------- ---------- -----------
<S> <C> <C> <C> <C>
1997 First Quarter...................... $ 76 5/8 $ 63 7/8 $ .27
Second Quarter..................... 78 3/4 65 1/2 .27
Third Quarter...................... 80 3/8 66 7/16 .27
Fourth Quarter..................... 76 3/16 64 15/16 .28

1996 First Quarter...................... $ 57 1/2 $ 44 3/8 $ .26
Second Quarter..................... 56 5/8 49 3/8 .26
Third Quarter...................... 65 7/8 48 1/4 .27
Fourth Quarter..................... 69 7/8 59 7/8 .27
</TABLE>

Information regarding Honeywell's share repurchase plans is set forth in
Part II, Item 7 at page 23.

Shareowners of record on February 20, 1998 totaled 30,850, excluding
individual participants in security position listings.

11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

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

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Results of Operations
Sales................................................ $8,027.5 $7,311.6 $6,731.3 $6,057.0 $5,963.0 $6,222.6
Sales growth rate.................................. 9.8% 8.6% 11.1% 1.6% (4.2)% 0.5%
-------- -------- -------- -------- -------- --------
Cost of sales........................................ 5,425.1 4,975.4 4,584.2 4,082.1 4,019.6 4,195.3
Research and development............................. 446.6 353.3 323.2 319.0 337.4 312.6
Selling, general and administrative.................. 1,359.4 1,313.1 1,263.1 1,173.8 1,075.7 1,196.8
Litigation settlements (1)........................... (32.6) (287.9)
Special charges...................................... 90.7 62.7 51.2 128.4
Interest -- net...................................... 92.5 72.9 68.9 60.2 51.0 58.5
Gain on sale of businesses........................... (77.1)
Equity income........................................ (12.9) (13.3) (13.6) (10.5) (17.8) (15.8)
-------- -------- -------- -------- -------- --------
7,324.3 6,701.4 6,225.8 5,687.3 5,484.5 5,587.9
-------- -------- -------- -------- -------- --------
Income from continuing operations before income
taxes............................................... 703.2 610.2 505.5 369.7 478.5 634.7
Provision for income taxes (2)....................... 232.2 207.5 171.9 90.8 156.3 234.8
-------- -------- -------- -------- -------- --------
Income from continuing operations.................... 471.0 402.7 333.6 278.9 322.2 399.9
Extraordinary item (3)............................... (8.6)
Cumulative effect of accounting changes (4).......... (144.5)
-------- -------- -------- -------- -------- --------
Net income........................................... $ 471.0 $ 402.7 $ 333.6 $ 278.9 $ 322.2 $ 246.8
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Net income growth rate............................. 17.0% 20.7% 19.6% (13.4)% 30.6% (25.5)%
Basic Earnings Per Common Share
Continuing operations................................ $ 3.71 $ 3.18 $ 2.62 $ 2.15 $ 2.40 $ 2.88
Extraordinary item (3)............................... (0.06)
Cumulative effect of accounting changes (4).......... (1.04)
-------- -------- -------- -------- -------- --------
Net income........................................... $ 3.71 $ 3.18 $ 2.62 $ 2.15 $ 2.40 $ 1.78
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Basic earnings per share growth rate............... 16.7% 21.4% 21.9% (10.4)% 34.8% (24.3)%
Diluted Earnings Per Common Share.................... $ 3.65 $ 3.11 $ 2.58 $ 2.15 $ 2.38 $ 1.76
Diluted earnings per share growth rate............. 17.4% 20.5% 20.0% (9.7)% 35.2% (24.1)%
Cash Dividends Per Common Share...................... $ 1.09 $ 1.06 $ 1.01 $ 0.97 $ 0.91 $ 0.84
Dividend growth rate............................... 2.8% 5.0% 4.1% 6.6% 8.3% 9.1%
Financial Position
Current assets....................................... $3,258.2 $2,981.2 $2,766.9 $2,649.4 $2,550.2 $2,707.8
Current liabilities.................................. $2,318.9 $2,066.9 $2,022.5 $2,071.8 $1,856.1 $1,969.2
-------- -------- -------- -------- -------- --------
Working capital...................................... $ 939.3 $ 914.3 $ 744.4 $ 577.6 $ 694.1 $ 738.6
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Current ratio........................................ 1.4 1.4 1.4 1.3 1.4 1.4
Short-term debt...................................... $ 146.4 $ 252.4 $ 312.4 $ 360.6 $ 187.9 $ 188.4
Long-term debt....................................... $1,176.8 $ 715.3 $ 481.0 $ 501.5 $ 504.0 $ 512.1
-------- -------- -------- -------- -------- --------
Total debt........................................... $1,323.2 $ 967.7 $ 793.4 $ 862.1 $ 691.9 $ 700.5
Shareowners' equity.................................. $2,389.2 $2,204.9 $2,040.1 $1,854.7 $1,773.0 $1,790.4
-------- -------- -------- -------- -------- --------
Capitalization....................................... $3,712.4 $3,172.6 $2,833.5 $2,716.8 $2,464.9 $2,490.9
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</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) Financial Accounting Standard No. 96, "Accounting for Income Taxes," was
adopted in 1988 and had the effect of increasing the Provision for Taxes and
the net loss by approximately $20.0 (0.12 per share).

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

(4) 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).

12
<PAGE>
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS AND SHARES IN MILLIONS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales
Home and Building Control....................... $ 3,386.6 $ 3,327.1 $ 3,034.7 $ 2,664.5 $ 2,424.3 $ 2,393.6
Industrial Control.............................. 2,547.1 2,199.6 2,035.9 1,835.3 1,691.5 1,743.9
Space and Aviation Control...................... 1,956.9 1,640.0 1,527.4 1,432.0 1,674.9 1,933.1
Other........................................... 136.9 144.9 133.3 125.2 172.3 152.0
--------- --------- --------- --------- --------- ---------
Total sales..................................... $ 8,027.5 $ 7,311.6 $ 6,731.3 $ 6,057.0 $ 5,963.0 $ 6,222.6
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Operating Profit (1)(2)(3)
Home and Building Control....................... $ 290.2 $ 345.8 $ 308.6 $ 236.5 $ 232.7 $ 193.4
Industrial Control.............................. 309.2 254.9 233.8 206.6 189.7 156.9
Space and Aviation Control...................... 255.7 163.3 127.6 80.9 148.1 175.8
Other........................................... 18.8 6.2 2.8 (1.8) (9.5)
--------- --------- --------- --------- --------- ---------
Total operating profit.......................... 873.9 770.2 672.8 524.0 568.7 516.6
Operating profit as a percent of sales.......... 10.9% 10.5% 10.0% 8.7% 9.5% 8.3%
Interest expense................................ (101.9) (81.4) (83.3) (75.5) (68.0) (89.9)
Litigation settlements.......................... 32.6 287.9
Equity income................................... 12.9 13.3 13.6 10.5 17.8 15.8
General corporate expense....................... (81.7) (91.9) (97.6) (89.3) (72.6) (95.7)
--------- --------- --------- --------- --------- ---------
Income before income taxes...................... $ 703.2 $ 610.2 $ 505.5 $ 369.7 $ 478.5 $ 634.7
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Assets
Home and Building Control....................... $ 2,179.4 $ 2,144.3 $ 1,727.2 $ 1,529.8 $ 1,327.3 $ 1,302.4
Industrial Control.............................. 2,047.2 1,376.1 1,307.2 1,273.3 1,059.8 1,057.5
Space and Aviation Control...................... 1,065.6 1,037.3 971.1 1,174.9 1,219.6 1,403.6
Corporate and Other............................. 1,119.2 935.6 1,054.7 907.9 991.4 1,106.6
--------- --------- --------- --------- --------- ---------
Total assets.................................... $ 6,411.4 $ 5,493.3 $ 5,060.2 $ 4,885.9 $ 4,598.1 $ 4,870.1
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Additional information
Average number of common shares outstanding..... 127.1 126.6 127.1 129.4 134.2 138.5
Return on average shareowners' equity........... 20.8% 19.7% 17.1% 15.6% 18.4% 13.8%
Shareowners' equity per average common share.... $ 18.80 $ 17.44 $ 16.09 $ 14.57 $ 13.48 $ 13.10
Price/Earnings ratio (4)........................ 18.5 20.7 18.6 14.7 14.3 11.5
Percent of debt to total capitalization......... 36% 31% 28% 32% 28% 28%
Research and development
Honeywell-funded.............................. $ 446.6 $ 353.3 $ 323.2 $ 319.0 $ 337.4 $ 312.6
Customer-funded............................... $ 322.5 $ 341.4 $ 336.6 $ 340.5 $ 404.8 $ 390.5
Capital expenditures............................ $ 298.3 $ 296.5 $ 238.1 $ 262.4 $ 232.1 $ 244.1
Depreciation and amortization................... $ 319.6 $ 287.5 $ 292.9 $ 287.4 $ 284.9 $ 292.7
Employees at year-end........................... 57,500 53,000 50,100 50,800 52,300 55,400
</TABLE>

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

(1) Operating profit in 1997 includes $77.1 gain on sale of businesses as
follows: Home and Building Control, $5.7 and Industrial Control, $71.4.

(2) Operating profit is net of special charges amounting to $90.7, $62.7, $51.2
and $128.4 in 1997, 1994, 1993 and 1992, respectively, as follows: Home and
Building Control, $46.9, $28.7, $9.9 and $42.7; Industrial Control, $40.8,
$14.4, $9.0 and $38.6; Space and Aviation Control, $0.0, $19.6, $7.4 and
$34.9; Other, $3.0, $0.0, $16.4 and $2.6; and General Corporate Expense,
$0.0, $0.0, $8.5 and $9.6.

(3) 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.

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

13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OPERATIONS

SALES

Honeywell's sales increased 10 percent to $8.028 billion in 1997, compared
with $7.312 billion in 1996 and $6.731 billion in 1995. The 1997 sales growth
was negatively affected by three percent due to the strengthening of the U.S.
dollar relative to the currencies in countries where Honeywell does business.
Sales in the United States of $4.844 billion were up eight percent, primarily as
a result of increased volume in Space and Aviation Control and Industrial
Control. International sales of $3.184 billion increased 19 percent in local
currency terms, and 12 percent after consideration of the stronger dollar. U.S.
export sales, including exports to foreign affiliates, were $1.165 billion in
1997, compared with $973 million in 1996 and $839 million in 1995.

In 1997, the deterioration of some Asian economies had a minimal effect on
the results of operations. We expect that a continued Asian economic decline
would reduce the demand for U.S. exports in 1998 resulting in lower growth rates
in Southeast Asia. At this time, the impact of a decline is not quantifiable,
but the effect on sales is not anticipated to be material.

COST OF SALES

Cost of sales was $5.425 billion in 1997, or 67.6 percent of sales, compared
with $4.975 billion (68.0 percent) in 1996 and $4.584 billion (68.1 percent) in
1995. In 1997, cost as a percentage of sales decreased due to a mix of higher
margin products, primarily in the Space and Aviation business. Cost as a
percentage of sales decreased slightly in 1996 compared to 1995 due to improved
gross-margins in the commercial Space and Aviation business.

RESEARCH AND DEVELOPMENT

Honeywell spent $447 million, or 5.6 percent of sales, on research and
development in 1997, compared with $353 million (4.8 percent) in 1996 and $323
million (4.8 percent) in 1995. The additional spending in 1997 was a result of
increased investment in Industrial Control and Space and Aviation Control as we
continue to invest in our market leading technology platforms. Honeywell expects
to maintain or slightly decrease its current rate of R&D spending in 1998.
Honeywell also received $323 million in funds for customer-funded research and
development in 1997, compared with $341 million in 1996 and $337 million in
1995.

OTHER EXPENSES AND INCOME

Selling, general and administrative expenses were $1.359 billion, or 16.9
percent of sales in 1997, compared with $1.313 billion (18.0 percent) in 1996
and $1.263 billion (18.8 percent) in 1995. Selling, general and administrative
expenses have declined almost 200 basis points since 1995 as a result of the
continued emphasis on improving processes, automation and productivity. Net
interest expense was $93 million in 1997, $73 million in 1996 and $69 million in
1995. Interest expense was 7.8 percent of average debt in 1997, compared with
8.3 and 9.5 percent in 1996 and 1995, respectively. Net interest expense
decreased as a percent of average debt in 1997 largely due to lower interest
rates on the $550 million of note issuances and Honeywell's practice of managing
interest rates through its swap portfolio. Information concerning Honeywell's
exposure to, and management of, interest rate risk through the use of derivative
financial instruments is provided on page 24 and in Notes 6, 14 and 15 to
Financial Statements on pages 37, 40 and 42, respectively.

14
<PAGE>
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 1997, $13 million in 1996 and $14 million in 1995.

SPECIAL CHARGES

In the second half of 1997, Honeywell's management, with the approval of the
Board of Directors, committed itself to a plan of action and recorded special
charges of $90.7 million intended to reduce operating costs and improve margins.
The actions to be undertaken include productivity initiatives and the
rationalization of the Honeywell and Measurex product lines. The special charges
were recorded by the Home and Building Control business segment ($46.9 million)
to maintain competitiveness in a rapidly changing marketplace and the Industrial
Control business segment ($40.8 million) to rationalize product lines, R&D
facilities, and the work force to streamline the Industrial Automation and
Control business after the Measurex integration. An additional $3.0 million of
special charges were recorded by an operation included in the Other operating
segment.

Special charges include costs for work force reductions, worldwide
facilities consolidations, organizational changes, and other cost accruals. The
work force reduction costs of $74.2 million primarily include severance costs
related to involuntary termination programs instituted to improve efficiency and
reduce costs. Approximately 1,600 employees have been or will be terminated.
Facility consolidation costs amounting to $8.3 million are primarily associated
with the closing of facilities in California and Germany, and other cost
accruals total $8.2 million. For more information on the special charges, see
Note 3 to the Financial Statements on page 35.

SALE OF BUSINESSES

In September, Honeywell sold the net assets of Industrial Control's solenoid
valve business for approximately $102 million, resulting in a gain of $64.3
million. While this business, with its major facilities in Connecticut and
Switzerland, made contributions to Honeywell's success over the years, it was
not closely aligned with the future strategies and ambitions for the core
business. In the fourth quarter of 1997, Honeywell also sold the control valve
business of the Industrial Control business segment and a small security
monitoring business related to Home and Building Control for approximately $24
million of cash and receivables and a gain of $12.8 million.

INCOME TAXES

The provision for income taxes was $232 million in 1997 or 33 percent,
compared with $208 million in 1996 (34 percent) and $172 million in 1995 (34
percent). The 1997 effective income tax rate was reduced as a result of
favorable settlements with the U.S. tax authorities on previously questioned
items. Further information about income taxes is provided in Note 5 to the
Financial Statements on page 36.

NET INCOME

Honeywell's net income increased 17 percent in 1997, primarily due to
increased sales volume, a mix of higher margin products and lower operating
expenses. Net income was $471 million in 1997, compared with $403 million in
1996 and $334 million in 1995. Honeywell achieved a 17 percent increase in its
Basic Earnings per Share in 1997 despite an after-tax provision for special
charges of $60.8 million ($0.48 per share) and integration expenses associated
with over $650 million of acquisitions. These one-time charges were only
partially offset by the after-tax gains on the sale of various businesses of
$51.7 million ($0.41 per share). Basic and Diluted Earnings per Share were $3.71
and $3.65, respectively, in 1997, compared with $3.18 and $3.11 in 1996 and
$2.62 and $2.58 in 1995.

15
<PAGE>
RETURN MEASUREMENTS

Return on Equity (ROE) was 20.8 percent in 1997, 19.7 percent in 1996 and
17.1 percent in 1995. Return on Investment (ROI) was 14.6 percent in 1997, 15.1
percent in 1996 and 13.5 percent in 1995. Return on Investment declined slightly
in 1997 due to a larger investment base resulting from the acquisition of the
Measurex Corporation.

Economic Value Added (EVA), calculated by subtracting a cost of capital from
operating profits net of tax, increased to $95 million in 1997, compared to $92
million in 1996, and $44 million in 1995. Honeywell increased its EVA in 1997
despite the additional investment and integration expenses associated with the
acquisition of Measurex.

OTHER OPERATING SEGMENTS

The "other" category which generated revenues of $137, $145 and $133 million
in 1997, 1996 and 1995, respectively, is primarily the result of Honeywell's
research operations. Operating profit for the other operations totaled $19
million in 1997, compared to $6 million in 1996 and $3 million in 1995. The
increase in 1997 was driven primarily from improved performance in the research
centers and lower environmental remediation costs associated with discontinued
businesses.

CURRENCY

The U.S. dollar strengthened over 10 percent in 1997 compared with 1996,
based on the weighted-average of profits denominated in 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. Although the stronger dollar had
a three percent negative impact on total revenues in 1997, Honeywell managed the
exposure to earnings through its hedging strategies. Therefore, the stronger
dollar had a minimal impact on 1997 net income. In 1998, Honeywell anticipates
that a continued strong U.S. dollar may have a negative impact on earnings. This
negative impact is expected to be offset by the 1997 productivity initiatives
including the restructuring activities. Information about Honeywell's exposure
to, and management of, currency risk through the use of derivative financial
instruments is provided on page 24 and in Notes 6, 14 and 15 to Financial
Statements on pages 37, 40 and 42, 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 57,500 people worldwide at year-end 1997, compared with
53,000 people in 1996 and 50,100 people in 1995. Approximately 31,800 employees
work in the United States, with 25,700 employed in other regions, primarily in
Europe. Total compensation and benefits in 1997 were $3.0 billion, or 41 percent
of total costs and expenses. Sales per employee were $139,600 in 1997, compared
with $138,500 in 1996 and $132,800 in 1995.

ENVIRONMENTAL MATTERS

Honeywell is committed to protecting the environment, both through its
products and in its manufacturing operations. Honeywell's use and release of
chemicals to the environment continues to decline steadily, and releases of
toxic and ozone-depleting chemicals are being phased out well ahead of
regulatory requirements. Honeywell has increased its commitment to pollution
prevention: reducing,

16
<PAGE>
reusing and recycling to minimize wastes, while decreasing the costs of managing
wastes. For more information on these environmental matters, see Note 22 to the
Financial Statements on page 54.

NEW ACCOUNTING STANDARDS

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 128 "Earnings Per Share," which is
effective for financial statements for both interim and annual periods ending
after December 15, 1997. The statement requires the disclosure of Basic and
Diluted Earnings per Share on the face of the income statement. All prior year
Earnings per Share have been restated in accordance with the provisions of SFAS
128. The new calculations of Basic and Diluted Earnings per Share do not differ
materially from the Earnings per Share Honeywell has historically disclosed. For
additional information, see Notes 1 and 4 to the Financial Statements on pages
32 and 35.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income,"
which will be effective for Honeywell beginning January 1, 1998. SFAS No. 130
requires the disclosure of comprehensive income and its components in the
general-purpose financial statements. Honeywell anticipates the effect of SFAS
No. 130 will result in the disclosure of foreign currency translation
adjustments, unrealized gains in securities, minimum pension liability
adjustments and other comprehensive income on the face of the income statement.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which will be effective for Honeywell
beginning January 1, 1998. SFAS No. 131 redefines how operating segments are
determined and requires disclosure of certain financial and descriptive
information about a company's operating segments. Honeywell has not yet
completed its analysis of operating segments on which it will report. However, a
preliminary analysis has concluded the current reportable segments are
consistent with the "management approach" methodology outlined in SFAS 131.

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 this SOP were adopted by Honeywell in
1997 and did not have a material effect on the results of operations or
financial position.

In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2, "Software Revenue Recognition." This
SOP provides guidance on specific accounting issues that are present in the
recognition and measurement of software revenue. The provisions of the SOP are
effective for fiscal years beginning after December 15, 1997, and the adoption
by Honeywell in 1998 is not expected to have a material effect on results of
operations or financial position.

SAFE HARBOR CAUTIONARY STATEMENT

Statements in this report regarding Honeywell's outlook for 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, are forward-looking statements, some of which may be identified
by such words or phrases as "will likely result," "are expected to," "will
continue," "outlook," "is anticipated," "estimate," "project" or similar
expressions. No assurance can be given that the results in any forward-looking
statement will be achieved and actual results could be affected by one or more
factors which could cause them to differ materially. For these statements,
Honeywell

17
<PAGE>
claims the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995.

The following is a summary of certain factors, the results of which, if
markedly different from Honeywell's planning assumptions, could cause
Honeywell's future results to differ materially from those expressed in any
forward-looking statements contained in this report:

- foreign currency translations of sales denominated in other currencies;

- economic conditions, including changes in trade and monetary policies, and
customer demand for products and services, in regions throughout the world
in which Honeywell does business;

- risks pertaining to performance and energy retrofit contracts, including
dependence on the performance of third parties;

- various competitive pressures, such as new technologies, industry
consolidation and deregulation of certain industries;

- the availability of intellectual property rights for newly developed
products or key technologies; and

- significant acquisitions or divestitures.

Please refer to Exhibit 99(i) of this report, and subsequent quarterly
reports on Form 10-Q, as filed with the Securities and Exchange Commission, for
a more detailed discussion of these and other factors that could cause
Honeywell's actual results in future periods 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 worldwide.

THREE-YEAR SALES OVERVIEW

Sales in 1997 were $3.387 billion compared with $3.327 billion in 1996 and
$3.035 billion in 1995. Home and Building Control Products Business experienced
strong sales growth from the international market in 1997, driven by strong
demand in our water products and combustion control businesses, while cooler
weather softened demand in North America.

Our strategic partnerships with Sears and other mass merchandisers enabled
Honeywell to expand its retail market through the "store-within-a-store" concept
across the country, which features Honeywell home environment products. Since
the centers opened, Sears has reported an almost 50 percent increase in sales
for Honeywell air cleaners.

Strategic initiatives, which were focused on growing the energy retrofit
business, resulted in several key contract awards. Honeywell was chosen as the
sole supplier for energy systems at Ft. Bragg and the Army Reserve Centers, as
well as energy savings projects for the U.S. Army facilities around the world.
Valued at approximately $150 to $300 million, this is potentially one of the
largest performance contracts ever received by Honeywell. We were also among the
limited number of vendors selected by the U.S. Department of Energy to upgrade
energy systems in hundreds of federal buildings in the southeast and western
United States. Selected companies will be eligible for up to $750 million of
business over the next few years. Other multi-million dollar contracts with
Boeing, Caterpillar, Sweetheart Cup and NASA represent key wins in the
industrial marketplace.

18
<PAGE>
Honeywell secured its first fan coil unit service contract for guest rooms
at the Pan Pacific Hotel through an excellent track record with service of the
hotel's air handling units. Other faithful customers such as the Sheraton Towers
and Boeing continue to choose Honeywell as their preferred energy services
strategic partner for improved energy and operating efficiency.

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

The European Bank for Reconstruction and Redevelopment signed a
"multi-project facility" contract worth up to $70 million to help Honeywell
establish operating energy service companies to provide retrofits for industrial
buildings and district heating plants in Poland, the Czech Republic, Slovakia
and Hungary.

Honeywell's Centra factory in Schoenaich, Germany, received several major
quality awards in 1997, including the highest rating in the Ludwig Erhard Prize
competition, the German equivalent to the Baldrige award.

In 1996, sales growth resulted from expansion through strategic
acquisitions, new product introductions and customer alliances. Sales in 1995
benefited from acquisitions, trade and retail business, product additions, and
the energy retrofit and service business.

THREE-YEAR OPERATING PROFIT OVERVIEW

Home and Building Control 1997 operating profit was $290 million, including
special charges of $47 million and a gain of $6 million on the sale of a small
international security monitoring business, compared with $346 million in 1996
and $309 million in 1995. Excluding the impact of the gain and special charges,
operating profit declined due to the mix of lower margin products business and
lower than expected volume in building control.

In 1996, profits in the Products Business improved through volume increases
and cost reductions. Profits in the Solutions and Services Business declined due
to a 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.

BUSINESS STRATEGIES

We are well-positioned for strong sales growth and market penetration as we
capitalize on our strategic acquisitions which include Lincold, a United
Kingdom-based refrigeration services company. In 1997, we announced the intent
to purchase Phoenix Controls, the world's leading producer of laboratory airflow
control solutions. These acquisitions will enhance Honeywell's worldwide
products, solutions and services portfolio.

Late in the third quarter, Honeywell announced a restructuring of the Home
and Building Control business to realign North American operations and improve
financial results. The new structure allows for greater focus and establishes
specific responsibility for each of the businesses.

INDUSTRIAL CONTROL

Industrial Control is a global leader in automation solutions from sensors
to integrated systems. Industrial Automation and Control provides one-stop,
integrated automation solutions including systems, products, and services for
process industries such as hydrocarbon processing, chemicals and pulp and paper.
Sensing and Control manufactures switches and sensors 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. The acquisition of the Measurex Corporation in March 1997
transformed Honeywell into the world leader in control systems for the pulp and
paper industry and has provided new opportunities for global growth.

19
<PAGE>
THREE-YEAR SALES OVERVIEW

Industrial Control sales in 1997 were $2.547 billion, compared with $2.200
billion in 1996 and $2.036 billion in 1995. The 1997 sales benefited from the
successful acquisition of Measurex and the introduction of more than 80 new
products, including two new system platforms. Sales reflected strong demand for
the TotalPlant-Registered Trademark- Solution (TPS) system, the first open
Windows NT-based industrial automation system that unifies business and control
information throughout a plant or mill. Services were also strong across the
board.

Industrial Automation and Control introduced the scalable PlantScape-TM-
system to enhance the TotalPlant Solution (TPS) portfolio, putting Honeywell's
industry-leading process control technology in a cost-effective platform
designed specifically for hybrid processes in industries such as
pharmaceuticals, chemicals, food and beverage, mining and semiconductors. The
1997 introduction of Uniformance-TM-, a software suite designed to improve plant
management and performance, satisfies customer needs through the integration of
business and control systems. Another offering, called Plant Reliability
Solutions, helps prevent unexpected incidents that inflict annual losses of $20
billion in U.S. process industries alone.

Sensing and Control sales continued to strengthen, driven by our strategy of
integrating factory floor solutions and intelligent sensors. The Smart
Distributed System and our broad portfolio of industrial safety products have
created new opportunities to meet customers' automation needs. In September
1997, Honeywell sold its solenoid valve business, which had a minimal effect on
sales.

In 1996, sales benefited from the successful introduction of new
measurement, sensing and control products; the acquisition of Leeds & Northrup;
the excellent market reception of our TotalPlant Solution (TPS) system and
continued strong demand for upgrades and services that increase the value of our
installed control systems. In 1995, Industrial Control sales increased by a
strong 11 percent due to worldwide demand for TotalPlant open solutions and
strong international sales of commercial sensors and switches.

THREE-YEAR OPERATING PROFIT OVERVIEW

Industrial Control operating profit in 1997 was $309 million, including
special charges of $41 million and a gain of $71 million, primarily on the sale
of the solenoid valve business. Operating profit was $255 million in 1996 and
$234 million in 1995. Earnings in 1997, excluding one-time charges and gains,
have been positively affected by higher volume as well as improvement in the
industrial distribution business and ongoing productivity initiatives. The
earnings growth was negatively affected by goodwill, intangible amortization and
expected expenses related to the Measurex integration and softness in the global
pulp and paper market.

Operating profits increased in 1996 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 Europe
experienced favorable volumes and lower product costs.

BUSINESS STRATEGIES

Industrial Control's leading industry position is being further enhanced
with a focus on operational excellence, including cost reductions. Superior
technologies, coupled with a balanced business model of products, systems and
services continue to fuel growth and margin expansion, and drive successful
partnerships with key customers. Served market expansion and leadership in core
markets is bolstered by partnerships and strategic acquisitions like Measurex,
which established Honeywell as the leader in the pulp and paper automation
market.

20
<PAGE>
Alliances and strategic partnerships are providing advanced control
technology, solutions, optimization software and training to industries around
the world. Honeywell was chosen by a number of industrial customers for
strategic alliances in 1997, including British Petroleum Oil, Shell
International and Alcoa World Alumina & Chemicals. The introduction of the
PlantScape system and an attractive distribution agreement with Rockwell
Automation to distribute the system will allow for a quick and profitable volume
ramp-up in the next three years.

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 United States.

THREE-YEAR SALES OVERVIEW

In 1997, Space and Aviation Control sales were $1.957 billion, compared with
$1.640 billion in 1996 and $1.527 billion in 1995. The 19 percent increase in
sales was driven by strong growth in commercial avionics and strengthening of
the military and space businesses. The growth in commercial avionics is the
result of an increase in air transport deliveries which coincided with expected
1997 build rates and a strong increase in the business jet market. Honeywell has
advanced avionics systems on 14 new business and regional aircraft that are
either completing or undergoing certification. The latest wins include the
Fairchild-Dornier 328 regional commuter jet.

In 1997, the Honeywell/Pelorus Satellite Landing System became the first in
the world to receive Type Acceptance certification from the Federal Aviation
Administration (FAA). Continental Airlines will be the first airline to use the
system in revenue service at both Newark and Minneapolis-St. Paul airports in
early 1998. The Satellite Landing System increases airport capacity and safety
while reducing noise around the airport environment. The FAA plans to implement
this technology across the U.S. starting early in the next century. Other
countries are establishing implementation plans as well. The Satellite Landing
System is the first in a series of products focused on the growing airport
market to be offered globally by Honeywell's Airport Control business
initiative.

In 1997, Commercial Aviation Systems-Sensor Products Operation in
Minneapolis received the Minnesota State Quality award, the state's highest
recognition of quality processes, based on the criteria of the Malcolm Baldrige
National Quality Award.

Sales in 1996 increased seven percent from the prior year driven by
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. Sensor and Guidance
Products orders were up sharply, driven by guidance and navigation system
retrofits and tactical "smart guidance" munitions programs. 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.

THREE-YEAR OPERATING PROFIT OVERVIEW

Space and Aviation Control 1997 operating profit was $256 million compared
to $163 million in 1996 and $128 million in 1995. In 1997, operating profits
increased over 50 percent, driven by the mix of higher margin commercial
aviation business coupled with high profit programs in military avionics.
Operating margins increased to a record 13.1 percent, up 310 basis points from
1996.

21
<PAGE>
Operating profit in 1996 and 1995 increased due to improved margins in
commercial aviation systems, lower development expenses and productivity
improvements.

BUSINESS STRATEGIES

The commercial aircraft industry is poised for strong growth in 1998 and
beyond. Five growth strategies have been identified to mitigate cyclicality in
the commercial aviation industry: communication, navigation, surveillance
(CNS)/air traffic management (ATM); aviation services; airport control;
commercial space; and tactical guidance. Early success with these initiatives is
positioning Honeywell for the future in aviation technology.

FINANCIAL POSITION

FINANCIAL CONDITION

At year-end 1997, Honeywell's capital structure was comprised of $146
million of short-term debt, $1.177 billion of long-term debt and $2.389 billion
of shareowners' equity. The ratio of debt-to-total capital was 36 percent,
compared with 31 percent in 1996 and 28 percent at year-end 1995. Honeywell
demonstrated its financial strength in 1997, by acquiring seven companies worth
over $650 million, increasing the quarterly dividend by four percent, and
lowering the outstanding share count through its share repurchase program, all
while maintaining its preferred debt-to-capital ratio of 30-40 percent.

Shareowners' equity increased $184 million in 1997 driven by net income of
$471 million and stock option exercises and employee stock plan issuances of
$118 million. The gross increase of $589 million was offset by a $110 million
decrease in accumulated foreign currency translation, $139 million of dividends,
$154 million of treasury stock purchases, and a $2 million change in the pension
liability adjustment.

CASH GENERATION AND DEPLOYMENT

In 1997, $645 million of cash was generated from operating activities,
compared with $494 million in 1996, and $573 million in 1995. The increase in
1997 was largely due to working capital. In 1997, cash generated from investing
and financing activities included $598 million from the issuance of debt, $101
million of proceeds from the sale of various businesses, net of taxes paid, $77
million of proceeds from the sale of other assets and $45 million of proceeds
from the exercise of stock options. These funds were used to support $598
million in acquisitions net of cash acquired, $298 million of capital
expenditures, $140 million of dividend payments, $154 million of payments for
share repurchases and $256 million of debt repayments. Cash balances increased
$7 million in 1997.

CONTROLLED WORKING CAPITAL

Cash used for increases in "controlled working capital," which consists of
trade and long-term receivables and inventories, offset by accounts payable and
customer advances, was $45 million in 1997, compared with $195 million in 1996.
Average working capital as a percentage of sales was 24.7 percent in 1997
compared with 24.6 percent in 1996 and 25.2 percent in 1995. The increase in
controlled working capital as a percent of sales in 1997 was primarily driven by
the Measurex acquisition.

INVESTMENT

Honeywell continues to invest in its businesses at levels it believes to be
necessary to maintain its technological leadership position. Capital
expenditures for property, plant and equipment were $298 million in 1997,
compared with $296 million in 1996 and $238 million in 1995, while depreciation

22
<PAGE>
charges were $246 million in 1997. Honeywell invested an additional $650 million
in complementary business acquisitions in 1997. (For more information on these
acquisitions refer to Note 2 to the Financial Statements on page 34). Honeywell
also invested $447 million in research and development activities in 1997
compared with $353 in 1996 and $323 in 1995.

SHARE REPURCHASE PROGRAMS

In July 1995, the Board of Directors authorized an open-ended program to
repurchase $250 million of Honeywell shares which was completed in the fourth
quarter of 1997. In October 1997, the Board of Directors authorized a new
program to repurchase $350 million of Honeywell shares of which $116 million was
used during 1997. The purpose of the repurchase program is to acquire shares to
be issued as part of the 1997 Honeywell Stock and Incentive Plan and other
issuances as described in Note 17 to the Financial Statements on page 44.
Honeywell repurchased a total of $154 million of shares in 1997, $163 million in
1996 and $129 million in 1995.

At year-end 1997, Honeywell had issued 188 million shares, of which 126
million were outstanding. On December 31, 1997, there were 30,821 shareowners of
record. At year-end 1996, Honeywell had 188 million shares issued, 126 million
shares outstanding and 31,734 shareowners of record.

DIVIDENDS

Honeywell has paid a quarterly dividend since 1932 and has increased the
annual payout per share in each of the last 22 years. In July 1996, the Board of
Directors approved a four percent increase in the regular annual dividend to
$1.08 per share effective in the third quarter 1996. In October 1997, the Board
of Directors approved an additional four percent increase in the dividend to
$1.12 per share effective in the fourth quarter 1997. Honeywell paid $1.09 per
share in dividends in 1997, compared with $1.06 per share in 1996 and $1.01 in
1995.

EMPLOYEE STOCK PROGRAM

In 1997, Honeywell contributed 542,406 shares of Honeywell common stock to
U.S. employees under the Honeywell Savings and Stock Ownership Plan. The number
of shares contributed under this program is based on employee savings levels and
company performance.

PENSION CONTRIBUTIONS

Cash contributions to Honeywell's pension and retirement plans amounted to
$215 million in 1997, $201 million in 1996 and $172 million in 1995.

TAXES

In 1997, Honeywell paid $204 million in taxes compared to $113 million in
1996. The amount Honeywell accrued for income taxes and related interest
increased $27 million from 1996.

LIQUIDITY

Short-term debt at year-end 1997 was $146 million, consisting of $43 million
of commercial paper, $39 million of notes payable and $64 million of current
maturities of long-term debt. Short-term debt at year-end 1996 totaled $253
million, consisting of $87 million of commercial paper, $67 million of notes
payable and $99 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 1997 increased to $1.683
billion. This consisted of $1.325 billion of committed credit lines to meet
Honeywell's financing

23
<PAGE>
requirements, including support of commercial paper and bank note borrowings,
and $358 million of uncommitted credit lines available to certain foreign
subsidiaries. This compared with $1.128 billion of available credit lines at
year-end 1996, consisting of $725 million of committed credit lines for general
financing requirements and $403 million of uncommitted credit lines available to
certain foreign subsidiaries.

On March 12, 1997, Honeywell issued $550 million of fixed-rate long-term
debt through an underwritten offering with maturities of five and ten years. In
August 1997, Honeywell and its wholly-owned subsidiaries, Honeywell Canada
Limited and Honeywell Finance B.V., filed a shelf registration statement which
provides for the issuance of up to $500 million, in the aggregate, of debt
securities by Honeywell or such subsidiaries, with the guarantee of Honeywell.
At December 31, 1997, no debt had been issued under this program. Long-term debt
maturities consist of $64 million in 1998, $124 million in 1999, and $77 million
in 2000.

In addition, Honeywell has an agreement with a major financial institution
whereby it may convert designated pools of trade accounts receivable to cash up
to approximately $35 million on an ongoing basis (see Note 8 to the Financial
Statements on page 38).

Cash and short-term investments totaled $159 million at year-end 1997 and
$136 million at year-end 1996. Honeywell believes its available cash, committed
credit lines, receivable program, and access to the public debt markets, through
its debt securities and commercial paper programs, provide adequate short-term
and long-term liquidity.

RISK MANAGEMENT

Honeywell is exposed to market risk from changes in interest rates and
foreign currency exchange rates. To mitigate the risk from these exposures,
Honeywell enters into various hedging transactions through derivative financial
instruments that have been authorized pursuant to its corporate policy.
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.

FOREIGN EXCHANGE

Honeywell primarily uses foreign exchange forwards and purchased options to
hedge exposures to adverse changes in foreign exchange rates (see Notes 6 and 15
on pages 37 and 42). Such exposures result from cross-border transactions
principally in Belgian francs and Deutsche marks. Foreign exchange contracts
reduce Honeywell's overall exposure to exchange rate movements, since gains and
losses on these contracts offset losses and gains on the underlying exposures.
Transactions that are hedged include foreign currency net asset and net
liability exposures on the balance sheet, firm purchase orders and firm sales
commitments. At year-end 1997, the notional amount of outstanding foreign
exchange contracts was $1.214 billion.

INTEREST RATES

Honeywell manages its exposure to interest rate movements and the cost of
borrowing through the use of interest rate swaps by maintaining a proportionate
relationship of fixed rate debt to total debt between a minimum and maximum
percentage as set by corporate policy. 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 principle
amount (see Notes 14 and 15 on pages 40 and 42). At year-end 1997, the notional
amount of outstanding interest rate swaps was $1.340 billion.

24
<PAGE>
VALUE AT RISK

To estimate the maximum potential loss that may arise from adverse market
movements in foreign exchange rates and interest rates, Honeywell uses a "value
at risk" statistical model. The value at risk estimation utilizes weighted
historical foreign exchange rates and interest rates to estimate the volatility
of these rates in the future. The calculated volatility is used to estimate the
potential loss in the current value of the instruments at a specified
probability level. The value at risk methodology used by Honeywell uses
variance-covariance statistical modeling and includes debt, interest rate swaps
and foreign exchange hedges. The estimated value at risk amounts represent the
maximum potential loss that Honeywell may incur from adverse changes in foreign
exchange rates and interest rates based on a five-day time horizon and a 95
percent confidence level on December 31, 1997.

The value at risk for the combined portfolio was $6.8 million at December
31, 1997, which includes the diversification benefit of analyzing the value at
risk including the interest rates and foreign exchange on a combined basis as
compared to individually, as changes in market conditions affect interest rates
and foreign exchange differently. The value at risk for the combined portfolio
and the individual components are as follows:

VALUE AT RISK
(IN MILLIONS)

<TABLE>
<S> <C>
Combined Portfolio................................................... $ 6.8
Foreign Exchange................................................... $ 6.1
Interest Rates..................................................... $ 2.3
</TABLE>

The value at risk amounts presented above do not consider the potential
effect of favorable movements in market factors nor does the value at risk model
include all of the underlying exposures that the hedges are designed to cover.
Anticipated transactions, firm commitments and receivables and accounts payable
denominated in foreign currencies, which certain of these instruments are
intended to hedge, were excluded from the model. Since Honeywell utilized
foreign exchange contracts to hedge anticipated foreign currency transactions, a
loss in fair value for these instruments is generally offset by increases in the
value of the underlying anticipated transaction. The quantitative information
generated by the value at risk model is limited by the parameters built into the
model. Consequently, Honeywell relies on the experience and expertise of
management's regular review of its financial instruments and the current market
environment to manage its exposure to foreign exchange rates and interest rates.

YEAR 2000 COMPLIANCE

Computer programs which were written using two digits (rather than four) to
define the applicable year may recognize a date using "00" as the year 1900
rather than the year 2000, a result commonly referred to as the "Year 2000"
problem. This could result in a system failure or miscalculations.

In 1996, Honeywell initiated a program to evaluate whether internally
developed and purchased computer programs that utilize embedded date codes may
experience operational problems when the year 2000 is reached. The scope of this
effort addressed internal computer systems, products sold and supplier
capabilities.

Honeywell is completing an extensive review of each of its businesses to
determine whether or not purchased or internally developed computer programs are
Year 2000 compliant, as well as the remedial action and related costs associated
with required modifications or replacements. A significant amount of information
has been collected and analyzed as part of this review; however, the process
will not be completed until the end of the second quarter of 1998. Honeywell
plans to complete all

25
<PAGE>
remediation efforts for its critical systems prior to the year 2000. Based on
its evaluation to date, management currently believes that, while Honeywell will
incur internal and external costs to address the Year 2000 problem, such costs
will not have a material impact on the operations, cash flows or financial
condition of Honeywell and its subsidiaries, taken as a whole, in future
periods.

EURO CURRENCY

Beginning in January 1999, the European Monetary Union (EMU) will enter into
a three-year transition phase during which a common currency called the EURO
will be introduced in participating countries. Initially, this new currency will
be used for financial transactions, and progressively, it will replace the old
national currencies that will be withdrawn by July 2002. The transition to the
EURO currency will involve changing budgetary, accounting and fiscal systems in
companies and public administrations, as well as the simultaneous handling of
parallel currencies and conversion of legacy data. Uncertainty exists as to the
effects the EURO currency will have on the marketplace. Additionally, all of the
final rules and regulations have not yet been defined and finalized by the
European Commission with regard to the EURO currency. Honeywell has initiated a
program to evaluate whether internally developed and purchased computer programs
will experience operational problems when the Euro is introduced. Further,
Honeywell is monitoring the rules and regulations as they become known in order
to make any changes to its computer programs that Honeywell deems necessary to
comply with such rules and regulations. Although Honeywell believes that it will
be able to accommodate any required EURO currency changes in its computer
programs, there can be no assurance that once the final rules and regulations
are completed that Honeywell's computer programs will contain all of the
necessary changes or meet all of the EURO currency requirements. Based on its
evaluation to date, management currently believes that, while Honeywell will
incur internal and external costs to address the EURO currency issue, such costs
will not have a material impact on the operations, cash flows or financial
condition of Honeywell and its subsidiaries, taken as a whole, in future
periods.

LITIGATION

On March 13, 1990, Litton Systems, Inc. filed a legal action against
Honeywell in U.S. District Court, Central District of California, Los Angeles,
with claims that were subsequently split into two separate cases. One alleges
patent infringement under federal law for using an ion-beam process to coat
mirrors incorporated in Honeywell's ring laser gyroscopes, and tortious
interference under state law for interfering with Litton's prospective advantage
with customers and contractual relationships with an inventor and his company,
Ojai Research, Inc. The other case alleges monopolization and attempted
monopolization under federal antitrust laws by Honeywell in the sale of inertial
reference systems containing ring laser gyroscopes into the commercial aircraft
market. Honeywell generally denied Litton's allegations in both cases. In the
patent/tort case, Honeywell also contested the validity as well as the
infringement of the patent, alleging, among other things, that the patent had
been obtained by Litton's inequitable conduct before the United States Patent
and Trademark Office.

Trials were held for both cases and at the conclusion of each, juries
awarded Litton significant monetary damages. However, the awards were set aside
by the trial court judge and new trials ordered on the issue of damages in each
case. Following appeals by both parties of various issues related to these
cases, the U.S. Supreme Court remanded the patent/tort case to the U.S. Court of
Appeals for the Federal Circuit for further proceedings, and the retrial of
damages in the antitrust case was postponed indefinitely pending the outcome of
the Federal Circuit proceeding. For a detailed discussion of this litigation,
see Note 22 to Financial Statements on page 54.

26
<PAGE>
CREDIT RATINGS

As of December 31, 1997, Honeywell's credit ratings for long-term and
short-term debt, respectively, were A/A-1 by Standard and Poor's Corporation,
A2/P1 by Moody's Investors Service, Inc. and A/Duff by Duff and Phelps
Corporation.

STOCK PERFORMANCE

The market price of Honeywell stock ranged from $63 7/8 to $80 3/8 in 1997,
and was $68 1/2 at year-end. Book value per common share at year-end was $18.80
in 1997, $17.44 in 1996 and $16.09 in 1995.

27
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEPENDENT AUDITORS' REPORT

To the Shareowners of Honeywell Inc.:

We have audited the statement of financial position of Honeywell Inc. and
subsidiaries as of December 31, 1997 and 1996, and the related statements of
income and cash flows for each of the three years in the period ended December
31, 1997. Our audits also included the financial statement schedule listed as
Part IV, Item 14(a). 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, 1997 and 1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, 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 herein.

Deloitte & Touche LLP
Minneapolis, Minnesota
February 10, 1998

28
<PAGE>
INCOME STATEMENT
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS AND SHARES IN MILLIONS
EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------
1997 1996 1995
--------- ---------- ----------
<S> <C> <C> <C>
Sales......................................................................... $ 8,027.5 $ 7,311.6 $ 6,731.3
Costs and Expenses
Cost of sales............................................................... 5,425.1 4,975.4 4,584.2
Research and development.................................................... 446.6 353.3 323.2
Selling, general and administrative......................................... 1,359.4 1,313.1 1,263.1
Gain on sale of businesses.................................................. (77.1)
Special charges............................................................. 90.7
--------- ---------- ----------
Total Costs and Expenses...................................................... 7,244.7 6,641.8 6,170.5
--------- ---------- ----------
Interest
Interest expense............................................................ 101.9 81.4 83.3
Interest income............................................................. 9.4 8.5 14.4
--------- ---------- ----------
Net Interest.................................................................. 92.5 72.9 68.9
--------- ---------- ----------
Equity Income................................................................. 12.9 13.3 13.6
--------- ---------- ----------
Income before Income Taxes.................................................... 703.2 610.2 505.5
Provision for Income Taxes.................................................... 232.2 207.5 171.9
--------- ---------- ----------
Net Income.................................................................... $ 471.0 $ 402.7 $ 333.6
--------- ---------- ----------
--------- ---------- ----------
Basic Earnings Per Common Share............................................... $ 3.71 $ 3.18 $ 2.62
--------- ---------- ----------
--------- ---------- ----------
Average Number of Basic Common Shares Outstanding............................. 127.1 126.6 127.1
--------- ---------- ----------
--------- ---------- ----------
Diluted Earnings Per Common Share............................................. $ 3.65 $ 3.11 $ 2.58
--------- ---------- ----------
--------- ---------- ----------
Average Number of Diluted Common Shares Outstanding........................... 129.2 129.5 129.5
--------- ---------- ----------
--------- ---------- ----------
</TABLE>

See accompanying Notes to Financial Statements.

29
<PAGE>
STATEMENT OF FINANCIAL POSITION
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS)
ASSETS

<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1997 1996
---------- -----------
<S> <C> <C>
Current Assets
Cash and cash equivalents............................................................. $ 134.3 $ 127.1
Short-term investments................................................................ 24.9 8.6
Receivables........................................................................... 1,837.8 1,714.7
Inventories........................................................................... 1,028.0 937.6
Deferred income taxes................................................................. 233.2 193.2
---------- -----------
Total Current Assets................................................................ 3,258.2 2,981.2
Investments and Advances................................................................ 243.8 247.6
Property, Plant and Equipment
Property, plant and equipment......................................................... 3,045.0 2,973.6
Less accumulated depreciation......................................................... 1,916.3 1,839.4
---------- -----------
Total Property, Plant and Equipment................................................. 1,128.7 1,134.2
Other Assets
Long-term receivables................................................................. 39.2 25.7
Goodwill.............................................................................. 786.0 507.7
Intangibles........................................................................... 376.0 183.2
Deferred income taxes................................................................. 41.7 33.0
Other................................................................................. 537.8 380.7
---------- -----------
Total Assets........................................................................ $ 6,411.4 $ 5,493.3
---------- -----------
---------- -----------
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities
Short-term debt....................................................................... $ 146.4 $ 252.4
Accounts payable...................................................................... 572.9 584.8
Customer advances..................................................................... 269.7 202.0
Accrued compensation and benefit costs................................................ 301.6 287.8
Accrued income taxes.................................................................. 344.2 316.9
Deferred income taxes................................................................. 11.3 21.9
Other accrued liabilities............................................................. 672.8 401.1
---------- -----------
Total Current Liabilities........................................................... 2,318.9 2,066.9
Long-Term Debt.......................................................................... 1,176.8 715.3
Other Liabilities
Accrued benefit costs................................................................. 435.9 412.9
Deferred income taxes................................................................. 51.4 46.0
Other................................................................................. 39.2 47.3
---------- -----------
Total Liabilities................................................................... 4,022.2 3,288.4
Shareowners' Equity
Common stock -- $1.50 par value
Authorized -- 250,000,000 shares
Issued -- 1997 -- 187,633,023 shares.................................................. 281.5
1996 -- 187,809,512 shares................................................... 281.7
Additional paid-in capital............................................................ 608.4 528.8
Retained earnings..................................................................... 3,407.0 3,074.7
Treasury stock -- 1997 -- 61,433,075 shares........................................... (1,879.3)
1996 -- 61,360,813 shares............................................ (1,763.5)
Accumulated foreign currency translation.............................................. (21.4) 88.2
Pension liability adjustment.......................................................... (7.0) (5.0)
---------- -----------
Total Shareowners' Equity........................................................... 2,389.2 2,204.9
---------- -----------
Total Liabilities and Shareowners' Equity........................................... $ 6,411.4 $ 5,493.3
---------- -----------
---------- -----------
</TABLE>

See accompanying Notes to Financial Statements.

30
<PAGE>
STATEMENT OF CASH FLOWS
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income..................................................................... $ 471.0 $ 402.7 $ 333.6
Adjustments to reconcile net income to net cash flows from operating
activities:
Depreciation................................................................. 246.0 236.1 236.1
Amortization of intangibles.................................................. 73.6 51.4 56.8
Deferred income taxes........................................................ (19.5) 38.5 67.2
Equity income, net of dividends received..................................... (10.3) (10.8) (11.0)
Gain on sale of businesses................................................... (77.1)
(Gain) Loss on sale of assets................................................ (7.3) (12.0) 7.2
Contributions to employee stock plans........................................ 48.9 38.2 27.4
Increase in receivables...................................................... (60.7) (203.0) (38.4)
Increase in inventories...................................................... (67.1) (89.9) (27.6)
Increase (decrease) in accounts payable...................................... (20.3) 51.8 50.1
Increase (decrease) in accrued income taxes and interest..................... 49.7 57.4 (35.4)
Other changes in working capital, excluding short-term investments and
short-term debt............................................................. 216.8 81.4 (99.1)
Other noncurrent items -- net................................................ (199.1) (148.0) 5.6
--------- --------- ---------
Net Cash Flows from Operating Activities......................................... 644.6 493.8 572.5
--------- --------- ---------
Cash Flows from Investing Activities
Proceeds from sale of assets................................................... 77.2 90.3 18.7
Proceeds from sale of businesses............................................... 100.6
Capital expenditures........................................................... (298.3) (296.5) (238.1)
Investment in acquisitions..................................................... (598.4) (376.2) (37.7)
(Increase) decrease in short-term investments.................................. 0.4 (0.2) (1.4)
Other -- net................................................................... 5.6 0.4 (5.2)
--------- --------- ---------
Net Cash Flows from Investing Activities......................................... (712.9) (582.2) (263.7)
--------- --------- ---------
Cash Flows from Financing Activities
Net increase (decrease) in short-term debt..................................... (73.4) 18.8 (101.0)
Proceeds from issuance of long-term debt....................................... 597.7 340.4 167.5
Repayment of long-term debt.................................................... (182.3) (188.8) (156.4)
Purchase of treasury stock..................................................... (154.3) (163.2) (137.3)
Proceeds from exercise of stock options........................................ 44.7 57.3 60.4
Dividends paid................................................................. (140.1) (133.5) (127.5)
--------- --------- ---------
Net Cash Flows from Financing Activities......................................... 92.3 (69.0) (294.3)
--------- --------- ---------
Effect of Exchange Rate Changes on Cash.......................................... (16.8) (7.1) 9.7
--------- --------- ---------
Increase (Decrease) in Cash and Cash Equivalents................................. 7.2 (164.5) 24.2
Cash and Cash Equivalents at Beginning of Year................................... 127.1 291.6 267.4
--------- --------- ---------
Cash and Cash Equivalents at End of Year......................................... $ 134.3 $ 127.1 $ 291.6
--------- --------- ---------
--------- --------- ---------
</TABLE>

See accompanying Notes to Financial Statements.

31
<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

In 1997, Honeywell adopted Statement of Financial Accounting Standard No.
128 (SFAS 128), "Earnings Per Share". SFAS 128 requires the disclosure of Basic
and Diluted Earnings Per Share (EPS). Basic EPS is calculated using income
available to common shareowners divided by the weighted average of common shares
outstanding during the year. Diluted EPS is similar to Basic EPS except that the
weighted average of common shares outstanding is increased to include the number
of additional common shares that would have been outstanding if the dilutive
potential common shares, such as options, had been issued. The treasury stock
method is used to calculate dilutive shares which reduces the gross number of
dilutive shares by the number of shares purchaseable from the proceeds of the
options assumed to be exercised. All prior year Earnings per Share have been
restated in accordance with the provisions of SFAS 128. Adoption of SFAS 128 did
not have a material effect on Honeywell's historically disclosed Earnings Per
Share. See Note 4 on page 35 for more information regarding the earnings per
share calculations.

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.

32
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

HONEYWELL INC. AND SUBSIDIARIES

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)
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 15 to 40 years for goodwill, four to 17
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.

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) shareowners' equity: $(109.6) in 1997, $(52.7) in 1996, and
$33.5 in 1995.

33
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

HONEYWELL INC. AND SUBSIDIARIES

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS

Honeywell evaluates the carrying value of the long-lived assets using
discounted cash flows when events and circumstances warrant such a review.

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 17 to the Financial Statements on page
44.

BASIS OF PRESENTATION

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

NOTE 2 -- ACQUISITIONS AND SALE OF ASSETS

Honeywell acquired seven companies in 1997, 17 companies in 1996, and nine
companies in 1995 for $650.2, $411.2, and $37.7 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 $323.7 in
1997, $294.7 in 1996, and $32.4 in 1995, has been recorded as goodwill and is
amortized over estimated useful lives.

The largest acquisition in 1997, consisting of approximately $600 in cash,
was Measurex Corporation, a supplier of computer-integrated measurement, control
and information systems and services. The allocation of the purchase price for
Measurex resulted in goodwill of $305.9 and intangibles, including
patents/developed technology, work force value, and customer lists, of $202.5
which will be amortized over an average of approximately 26 years. Honeywell
assumed approximately 1.8 million options to purchase Measurex common stock and
converted such options to Honeywell options to acquire approximately 671,000
shares of Honeywell stock with an average exercise price of $52.24 and a range
of exercise prices from $34.58 to $72.85. The value of the options assumed is
included in the purchase price and as a component of shareowners equity in the
consolidated financial statements. The options are included in the stock option
discussion and analysis in Note 17 on page 44.

The pro forma results for 1997, 1996, and 1995, assuming these acquisitions
had been made at the beginning of the year, would not be materially different
from reported results.

On September 27, 1997, Honeywell sold the net assets of its solenoid valve
business in the Industrial Control business segment for approximately $102.0 in
cash and a $64.3 gain. This sale had a minimal impact on revenues in 1997. In
the fourth quarter of 1997, Honeywell sold the control valve business of
Industrial Control and an international Home and Building Control security
monitoring business for approximately $24.1 in cash and receivables and a gain
of $12.8. The sum of these gains are included as gain on sale of businesses on
the income statement.

Proceeds from the sale of other assets, including facilities located in the
United Kingdom; San Jose, California; and Denver, Colorado, amounted to $77.2 in
1997. Proceeds from asset sales in 1996

34
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

HONEYWELL INC. AND SUBSIDIARIES

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 2 -- ACQUISITIONS AND SALE OF ASSETS (CONTINUED)
and 1995 were $90.3 and $18.7, 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 -- SPECIAL CHARGES

In 1997, Honeywell's management, with the approval of the board of
directors, committed itself to a plan of action and recorded special charges of
$90.7. Honeywell remains committed to efforts to reduce operating costs and
improve margins. Special charges include costs for work force reductions,
worldwide facilities consolidations, organizational changes, and other cost
accruals. The Home and Building Control business segment recorded special
charges of $46.9 to strengthen the Company's competitiveness in a rapidly
changing marketplace. Industrial Control recorded $40.8 to rationalize product
lines, consolidate research and development facilities, restructure the
organization, and complete other activities associated with the integration of
Measurex. A total of $3.0 was recorded in the Other business segment.

Work force reduction costs of $74.2 primarily include severance costs
related to involuntary termination programs instituted to improve efficiency and
reduce costs. Approximately 1,600 employees, consisting largely of sales,
marketing, factory and other administrative personnel, have been or will be
terminated. Facility consolidation costs of $8.3 are primarily associated with
the closing of facilities in California and Germany, and other cost accruals
total $8.2. The charges are included as special charges on the income statement.
Expenditures will be funded with cash generated from operations and were $34.3
for workforce reductions, $0.9 for facilities, and $0.7 for other restructuring
expense in 1997.

NOTE 4 -- EARNINGS PER SHARE

<TABLE>
<CAPTION>
1997 1996 1995
------------- -------------- --------------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Income:
Income available to common shareowners................ $ 471.0 $ 402.7 $ 333.6
Shares:
Weighted Average Shares Outstanding................... 127,051,613 126,632,082 127,138,774
Basic EPS............................................... $ 3.71 $ 3.18 $ 2.62

DILUTED EARNINGS PER SHARE:
Income:
Income available to common shareowners................ $ 471.0 $ 402.7 $ 333.6
Shares:
Weighted Average Shares Outstanding................... 127,051,613 126,632,082 127,138,774
Dilutive shares issuable in connection with stock
plans.................................................. 4,767,393 6,286,392 7,326,033
Less: Shares purchaseable with proceeds................. (2,626,784) (3,437,695) (4,961,681)
------------- -------------- --------------
Total Shares........................................ 129,192,222 129,480,779 129,503,126
------------- -------------- --------------
------------- -------------- --------------
Diluted EPS............................................. $ 3.65 $ 3.11 $ 2.58
</TABLE>

35
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

HONEYWELL INC. AND SUBSIDIARIES

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 4 -- EARNINGS PER SHARE (CONTINUED)
Options to purchase 1.4 million shares of common stock at a range of $69.43
to $78.91 were outstanding during 1997 but were not included in the computation
of the diluted EPS because the options' exercise price was greater than the
average market price of the common shares.

NOTE 5 -- INCOME TAXES

The components of income before income taxes consist of the following:

<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Domestic.................................................................. $ 377.3 $ 349.4 $ 285.4
Foreign................................................................... 325.9 260.8 220.1
--------- --------- ---------
$ 703.2 $ 610.2 $ 505.5
</TABLE>

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

<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current tax expense
United States........................................................... $ 124.9 $ 60.8 $ 39.8
Foreign................................................................. 101.6 84.7 59.9
State and local......................................................... 27.1 27.2 8.9
--------- --------- ---------
Total current........................................................... 253.6 172.7 108.6
--------- --------- ---------
Deferred tax expense
United States........................................................... (13.9) 27.4 41.7
Foreign................................................................. (5.6) 4.0 17.5
State and local......................................................... (1.9) 3.4 4.1
--------- --------- ---------
Total deferred.......................................................... (21.4) 34.8 63.3
--------- --------- ---------
Provision for income taxes................................................ $ 232.2 $ 207.5 $ 171.9
</TABLE>

A reconciliation of the provision for income taxes to the amount computed
using U.S. federal statutory rates is as follows:

<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Taxes on income at U.S. federal statutory rates........................... $ 246.1 $ 213.6 $ 176.9
Tax effects of foreign income............................................. (17.6) (15.9) (11.7)
State taxes............................................................... 15.7 21.1 9.9
Goodwill.................................................................. 10.6 4.3 1.7
Other..................................................................... (22.6) (15.6) (4.9)
--------- --------- ---------
Provision for income taxes................................................ $ 232.2 $ 207.5 $ 171.9
</TABLE>

Interest costs related to prior years' tax issues are included in the
provision for income taxes. Taxes paid were $203.7 in 1997, $113.1 in 1996 and
$128.3 in 1995.

36
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

HONEYWELL INC. AND SUBSIDIARIES

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 5 -- INCOME TAXES (CONTINUED)
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 on
the statement of financial position are:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Employee benefits................................................................... $ 54.7 $ 64.9
Miscellaneous accruals.............................................................. 107.0 85.1
Excess of tax over book depreciation/amortization................................... (3.0) (2.4)
Asset valuation reserves............................................................ 44.0 36.3
Long-term contracts................................................................. 12.0 14.0
State taxes......................................................................... 24.9 20.9
Pension liability adjustment........................................................ 4.4 3.4
Other............................................................................... (31.8) (63.9)
--------- ---------
$ 212.2 $ 158.3
</TABLE>

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

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets................................................................. $ 506.8 $ 458.8
Deferred tax liabilities............................................................ 294.6 300.5
</TABLE>

Provision has not been made for U.S. or additional foreign taxes on $868.4
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, 1997, foreign subsidiaries had tax operating loss
carryforwards of $15.2.

NOTE 6 -- 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 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 $1,213.7 and $1,111.2 at December 31, 1997, and 1996,
respectively. These contracts generally have a term of less than one year.

37
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

HONEYWELL INC. AND SUBSIDIARIES

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 7 -- 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>
1997 1996
--------- ---------
<S> <C> <C>
Cash equivalents....................................................................... $ 27.7 $ 42.9
Short-term investments................................................................. 8.0 8.6
Investments and advances............................................................... 5.7 5.5
--------- ---------
$ 41.4 $ 57.0
</TABLE>

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

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Time deposits with financial institutions.............................................. $ 34.8 $ 40.5
Commercial paper....................................................................... 0.1 0.0
Other.................................................................................. 6.5 16.5
--------- ---------
$ 41.4 $ 57.0
</TABLE>

Honeywell's purchases of held-to-maturity securities, consisting primarily
of commercial paper, amounted to $1,809.0 and $4,128.0 in 1997 and 1996,
respectively. Proceeds from maturities of held-to-maturity securities amounted
to $1,812.5 in 1997 and $4,248.5 in 1996. 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 8 -- RECEIVABLES

Receivables have been reduced by an allowance for doubtful accounts as
follows:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Receivables, current................................................................... $ 38.5 $ 33.5
Long-term receivables.................................................................. 2.7 0.7
</TABLE>

Receivables include approximately $16.5 in 1997 and $19.8 in 1996 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 $331.0 and
$360.5 at December 31, 1997, and 1996, 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 $1.5 in 1997 and $1.7 in 1996 to an amount
that approximates realizable value.

Honeywell entered into an agreement with a large international banking
institution whereby it could 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
could 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 $238.0 in 1997,

38
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

HONEYWELL INC. AND SUBSIDIARIES

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 8 -- RECEIVABLES (CONTINUED)
$238.8 in 1996 and $22.4 in 1995. The uncollected balance of receivables sold
amounted to $0.0 and $7.0 at December 31, 1997, and 1996, respectively, and
averaged $19.7 and $23.2 during those respective years. This agreement was
terminated in December 1997.

In 1996, Honeywell entered into an asset securitization program with a large
financial institution to sell, with recourse, certain eligible trade receivables
up to a maximum of $50.0 Canadian dollars (approximately $34.8 and $36.5 U.S.
Dollars at December 31, 1997 and 1996, respectively). 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 $292.6 in 1997 and $31.5 in 1996. Honeywell retains the right to
repurchase transferred receivables under the program, and included on the
statement of financial position at year end are $27.7 and $31.5 in 1997 and
1996, respectively, of uncollected receivables held in trust.

NOTE 9 -- INVENTORIES

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Finished goods.................................................................... $ 379.3 $ 386.5
Inventories related to long-term contracts........................................ 151.4 122.7
Work in process................................................................... 211.3 185.8
Raw materials and supplies........................................................ 286.0 242.6
--------- ---------
$ 1,028.0 $ 937.6
</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 $43.5 and $60.7 at December 31, 1997, and 1996, respectively.

NOTE 10 -- GROSS PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
Land............................................................................ $ 68.7 $ 71.6
Buildings and improvements...................................................... 557.4 600.7
Machinery and equipment......................................................... 2,336.4 2,208.7
Construction in progress........................................................ 82.5 92.6
--------- ----------
$ 3,045.0 $ 2,973.6
</TABLE>

NOTE 11 -- FOREIGN SUBSIDIARIES

The following is a summary of financial data pertaining to foreign
subsidiaries:

<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ----------
<S> <C> <C> <C>
Net income.......................................................... $ 235.6 $ 172.9 $ 142.9
Assets.............................................................. $ 2,114.8 $ 1,847.8 $ 1,849.4
Liabilities......................................................... 1,019.0 838.5 802.8
--------- ---------- ----------
Net assets.......................................................... $ 1,095.8 $ 1,009.3 $ 1,046.6
</TABLE>

39
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

HONEYWELL INC. AND SUBSIDIARIES

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 11 -- FOREIGN SUBSIDIARIES (CONTINUED)
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 12 -- 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.,
located in Japan, of which Honeywell owned 21.7 and 23.3 percent of the
outstanding common stock at December 31, 1997 and 1996, respectively. This
investment had a market value of $216.9 and $329.8 at December 31, 1997, and
1996, respectively.

<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ----------
<S> <C> <C> <C>
Sales............................................................... $ 1,971.5 $ 1,949.2 $ 2,065.1
Gross profit........................................................ 662.7 688.8 743.5
Net income.......................................................... 58.7 51.8 54.2
Equity in net income................................................ 12.9 13.3 13.6

Current assets...................................................... $ 1,427.8 $ 1,576.9 $ 1,400.6
Noncurrent assets................................................... 332.8 421.1 598.8
--------- ---------- ----------
1,760.6 1,998.0 1,999.4
--------- ---------- ----------
Current liabilities................................................. 706.7 853.5 742.6
Noncurrent liabilities.............................................. 123.2 181.4 327.8
--------- ---------- ----------
829.9 1,034.9 1,070.4
--------- ---------- ----------
Net assets.......................................................... $ 930.7 $ 963.1 $ 929.0
Equity in net assets................................................ $ 238.0 $ 241.0 $ 236.8
</TABLE>

NOTE 13 -- INTANGIBLE ASSETS

Intangible assets have been reduced by accumulated amortization as follows:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Goodwill.................................................................. $ 134.8 $ 74.9
Intangibles............................................................... 305.3 272.5
</TABLE>

NOTE 14 -- DEBT

SHORT-TERM DEBT

Honeywell had general purpose lines of credit available totaling $1,683.1 at
December 31, 1997. Committed revolving credit lines with 17 banks total
$1,325.0, 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, 1997. The remaining credit facilities of $358.1 have been
arranged by non-U.S. subsidiaries in accordance with customary lending practices
in their respective countries of operation. Borrowings against these lines
amounted to $11.3 at December 31, 1997. The weighted-average interest rate on
short-term borrowings outstanding at December 31, 1997, and 1996, respectively,
was

40
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

HONEYWELL INC. AND SUBSIDIARIES

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 14 -- DEBT (CONTINUED)
as follows: commercial paper, 6.8 percent and 4.2 percent; and notes payable,
5.2 percent and 3.9 percent.

Short-term debt consists of the following:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Commercial paper........................................................ $ 43.0 $ 86.5
Notes payable........................................................... 38.9 67.2
Current maturities of long-term debt.................................... 64.5 98.7
--------- ---------
$ 146.4 $ 252.4
</TABLE>

LONG-TERM DEBT

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Honeywell Inc.
6.25% Deutsche mark bonds due 1997.................................... $ $ 96.6
7.15% to 7.71% due 1998............................................... 50.0 50.0
7.36% to 7.46% due 1999............................................... 70.5 70.5
7.35% due 2000........................................................ 75.0 75.0
6.60% due 2001........................................................ 100.0 100.0
6.75% due 2002........................................................ 200.0
8.63% due 2006........................................................ 100.0 100.0
7.00% due 2007........................................................ 350.0
7.13% due 2008........................................................ 200.0 200.0
7.45% to 10.50% due 2001 to 2010...................................... 24.4 27.1
Subsidiaries
3.0% to 10.0% due 1998 to 2008, various currencies.................... 71.4 94.8
--------- ---------
1,241.3 814.0
Less amount included in short-term debt................................. 64.5 98.7
--------- ---------
$ 1,176.8 $ 715.3
</TABLE>

The 6.25 percent Deutsche mark bonds matured in January 1997 and were linked
to a currency exchange agreement that converted principal and interest payments
into fixed U.S. dollar obligations with an interest cost of 8.17 percent.

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. This facility was fully
utilized in March 1997, as Honeywell issued $550.0 of new debt, primarily to
fund the acquisition of Measurex Corporation. Of this new debt, $200.0 has a
five year maturity and an interest rate of 6.75 percent. The remaining $350.0 is
due 10 years from the issuance with an interest rate of seven percent. In August
1997, Honeywell filed a shelf registration statement which provides for the
issuance of up to $500.0 of debt securities. At December 31, 1997, no debt had
been issued against this facility.

41
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

HONEYWELL INC. AND SUBSIDIARIES

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 14 -- DEBT (CONTINUED)
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-month
LIBOR rates. In 1997, Honeywell entered into swap agreements converting the new
$550.0 of debt from fixed-rate to floating-rate debt based on six-month LIBOR.
In addition, $420.0 of debt and previous swaps were converted to fixed-rate
debt. The swap agreements outstanding at December 31, 1997, expire as
follows:$40.0 in 1998, $100.0 in 1999, $100.0 in 2001, $400.0 in 2002, $450.0 in
2007 and $250.0 in 2008.

Annual sinking-fund and maturity requirements for the next five years on
long-term debt outstanding at December 31, 1997, are as follows:

<TABLE>
<S> <C>
1998...................................................... $ 64.5
1999...................................................... 124.4
2000...................................................... 76.7
2001...................................................... 116.2
2002...................................................... 210.2
2003 and beyond........................................... 649.3
---------
Total long-term debt...................................... $ 1,241.3
</TABLE>

Interest paid amounted to $95.0, $77.3 and $86.0 in 1997, 1996 and 1995,
respectively.

NOTE 15 -- 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 $1,241.3 and $814.0 at December 31, 1997, and 1996,
respectively; and the fair value was $1,291.3 and $833.4 at December 31, 1997,
and 1996, 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 financial institutions that deal in
these types of instruments. The following table summarizes the

42
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

HONEYWELL INC. AND SUBSIDIARIES

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 15 -- FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
notional value, carrying value and fair value of Honeywell's derivative
financial instruments on and off the balance sheet.

<TABLE>
<CAPTION>
AT DECEMBER 31, 1997 At December 31, 1996
--------------------------------- ----------------------------------
NOTIONAL CARRYING FAIR Notional Carrying Fair
VALUE VALUE VALUE Value Value Value
--------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest rate swaps............ $ 1,340.0 $ 0.0 $ 38.5 $ 390.0 $ 0.0 $ 7.2
Currency contracts............. 1,213.7 0.0 6.7 1,111.2 17.6 22.9
--------- --- --------- ---------- ----- ---------
Total.......................... $ 2,553.7 $ 0.0 $ 45.2 $ 1,501.2 $ 17.6 $ 30.1
--------- --- --------- ---------- ----- ---------
--------- --- --------- ---------- ----- ---------
</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 16 -- LEASING ARRANGEMENTS

As lessee, Honeywell has minimum annual lease commitments outstanding at
December 31, 1997, 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>
1998..................................................................... $ 139.5
1999..................................................................... 109.0
2000..................................................................... 77.0
2001..................................................................... 53.7
2002..................................................................... 34.5
2003 and beyond.......................................................... 154.8
-----------
$ 568.5
</TABLE>

Rent expense for operating leases was $141.6 in 1997, $153.7 in 1996, and
$143.4 in 1995.

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.

43
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

HONEYWELL INC. AND SUBSIDIARIES

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 17 -- CAPITAL STOCK

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN TREASURY
STOCK CAPITAL STOCK
----------- ----------- -----------
<S> <C> <C> <C>
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 shares........................................ 27.6 33.9
159,296 shares canceled................................. (0.2) (6.6)
----------- ----------- -----------
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 shares........................................ 55.8 40.7
317,192 shares canceled................................. (0.5) (16.6)
----------- ----------- -----------
Balance December 31, 1996................................. $ 281.7 $ 528.8 $ (1,763.5)
Purchase of treasury stock --
2,250,600 shares........................................ (154.3)
Issued for Honeywell Foundation Pledge --
285,700 treasury shares................................. 7.9 5.7
Issued for employee stock plans --
1,892,638 shares........................................ 84.4 32.8
176,489 shares canceled................................. (0.2) (12.7)
----------- ----------- -----------
Balance December 31, 1997................................. $ 281.5 $ 608.4 $ (1,879.3)
</TABLE>

STOCK-BASED COMPENSATION PLANS FOR KEY EMPLOYEES

In 1997, the Board of Directors adopted, and the shareowners approved, the
1997 Honeywell Stock and Incentive Plan. The 1997 plan replaces the 1993
Honeywell Stock and Incentive Plan. Awards currently outstanding under the 1993
plan were not affected. The 1997 plan which terminates on April 15, 2002,
provides for the award of up to 7,500,000 shares of common stock. The 1997 plan
is intended to facilitate ownership and increase the interest of key employees
in the growth and performance of Honeywell and motivate them to contribute to
the Company's future success, thus enhancing the value of the Company for the
benefit of shareowners.

Also in 1997, the Board of Directors approved the 1997 Honeywell Employee
Stock and Incentive Plan. This plan, which provides for the award of up to
2,000,000 shares of common stock, is primarily intended to retain and recognize
non-executive employees for their contributions to Honeywell's success.

44
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

HONEYWELL INC. AND SUBSIDIARIES

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 17 -- CAPITAL STOCK (CONTINUED)
The 1993 Honeywell Stock and Incentive Plan, which expired with the adoption
of the 1997 plan, provided for the award of up to 7,500,000 shares of common
stock. Awards made under any of the above plans may be in the form of stock
options, restricted stock or other stock-based awards. At December 31, 1997
there were 14,845,277 shares reserved for all 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 32). The compensation cost that has been charged against income, for
the restricted stock and other stock-based awards, was $11.2, $12.2 and $3.2 in
1997, 1996 and 1995, respectively. No compensation cost has been recognized for
the awards made in the form of 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 basic earnings per share
would have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C> <C>
Net Income............................ As reported $ 471.0 $ 402.7 $ 333.6
Pro forma $ 456.2 $ 392.6 $ 329.7

Basic Earnings Per Share.............. As reported $ 3.71 $ 3.18 $ 2.62
Pro forma $ 3.59 $ 3.10 $ 2.59
</TABLE>

FIXED STOCK OPTIONS

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 are
typically exercisable one year from the grant date.

In July 1997, Honeywell introduced an international stock purchase plan.
This plan allows eligible employees the option to purchase Honeywell shares in
July 2000, at an option price of $54.72. The number of shares estimated to be
issued from this program are 133,614 and have been included in the fixed options
numbers below.

45
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

HONEYWELL INC. AND SUBSIDIARIES

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 17 -- CAPITAL STOCK (CONTINUED)
A summary of the status of the fixed stock options as of December 31, 1997,
1996 and 1995 and changes during the years ending on those dates is presented
below:

<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ------------------------ ------------------------
WEIGHTED Weighted Weighted
AVERAGE Average Average
SHARES EXERCISE Shares Exercise Shares Exercise
(000) PRICE (000) Price (000) Price
--------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Fixed Options
Outstanding at beginning of year................ 4,507 $ 39 5,963 $ 35 5,346 $ 30
Granted......................................... 1,784 $ 73 423 $ 54 1,891 $ 43
Assumed......................................... 671 $ 52
Exercised....................................... 1,287 $ 37 1,821 $ 31 1,248 $ 28
Forfeited....................................... 192 $ 67 58 $ 42 26 $ 39
Outstanding at end of year...................... 5,483 $ 51 4,507 $ 39 5,963 $ 35
Options exercisable at year-end................. 3,820 $ 41 4,088 $ 37 4,087 $ 31
Weighted average fair value of options granted
during the year................................ $ 18.91 $ 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 1997, 1996 and 1995,
respectively: dividend yield of two percent for all years; expected volatility
of 24, 27 and 24 percent, risk-free interest rates of 5.6, 6.3 and 6.0 percent,
and expected life of four years for all options except the international stock
purchase plan which has a three year life. The "Assumed" line identifies the
options Honeywell assumed in the acquisition of Measurex and converted to
options to purchase Honeywell shares. For more information of these shares, see
Note 2 on page 34.

The following table summarizes information about fixed stock options
outstanding at December 31, 1997. The fixed options outstanding include options
issued under the new 1997 plans as well as the 1993 Honeywell Stock and
Incentive Plan and the previous plans which the 1993 plan replaced.

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------------
SHARES SHARES
OUTSTANDING AT REMAINING EXERCISABLE AT
RANGE OF 12/31/97 CONTRACTUAL WEIGHTED AVERAGE 12/31/97 WEIGHTED AVERAGE
EXERCISE PRICES (000) LIFE EXERCISE PRICE (000) EXERCISE PRICE
- ------------------- --------------- ----------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
$16-$24 114 1.7 yrs $ 21 114 $ 21
$25-$36 1,061 5.0 yrs $ 32 1,061 $ 32
$37-$54 2,331 7.4 yrs $ 44 2,331 $ 44
$55-$80 1,977 8.6 yrs $ 71 313 $ 60
</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

46
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

HONEYWELL INC. AND SUBSIDIARIES

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 17 -- CAPITAL STOCK (CONTINUED)
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 shareowners, 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 237,009 in
1997, 371,917 in 1996 and 212,781 in 1995. At December 31, restricted shares
outstanding under key employee plans totaled 913,667 in 1997, 835,443 in 1996
and 665,005 in 1995, with a weighted average grant date fair value of $55 and
$46 in 1997 and 1996, 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 542,406 in 1997, 394,534 in 1996 and 571,905 shares in 1995 at a
cost of $37.9, $23.4 and $24.2, respectively. There were 204,889 shares reserved
for employee stock match plans at December 31, 1997.

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 285,700 in 1997, 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, 1997.

NOTE 18 -- RETAINED EARNINGS

<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ----------
<S> <C> <C> <C>
Balance January 1......................................... $ 3,074.7 $ 2,805.8 $ 2,600.4
Net income................................................ 471.0 402.7 333.6
Dividends
1997-$1.09 PER SHARE.................................... (138.7)
1996-$1.06 per share.................................... (133.8)
1995-$1.01 per share.................................... (128.2)
--------- ---------- ----------
Balance December 31....................................... $ 3,407.0 $ 3,074.7 $ 2,805.8
</TABLE>

Included in retained earnings are undistributed earnings of companies 20 to
50 percent owned, amounting to $165.5 at December 31, 1997.

47
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

HONEYWELL INC. AND SUBSIDIARIES

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 19 -- 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; and fiber-optic components. 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.

Information concerning Honeywell's sales, operating profit and identifiable
assets by industry segment can be found on pages 12 and 13. This information for
1997, 1996 and 1995 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.

48
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

HONEYWELL INC. AND SUBSIDIARIES

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 19 -- SEGMENT INFORMATION (CONTINUED)

Following is additional financial information relating to industry segments:

<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Capital expenditures
Home and Building Control..................................... $ 117.8 $ 106.8 $ 87.2
Industrial Control............................................ 76.1 74.8 73.0
Space and Aviation Control.................................... 59.7 55.8 42.9
Corporate and other........................................... 44.7 59.1 35.0
--------- --------- ---------
$ 298.3 $ 296.5 $ 238.1

Depreciation and amortization
Home and Building Control..................................... $ 86.3 $ 98.4 $ 87.4
Industrial Control............................................ 71.6 72.3 69.3
Space and Aviation Control.................................... 55.3 84.0 109.7
Corporate and other........................................... 32.8 32.8 26.5
--------- --------- ---------
$ 246.0 $ 287.5 $ 292.9
</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>
1997 1996 1995
--------- ---------- ----------
<S> <C> <C> <C>
External sales
United States........................................... $ 4,843.5 $ 4,477.9 $ 4,087.5
Europe.................................................. 2,136.1 1,981.7 1,858.9
Other areas............................................. 1,047.9 852.0 784.9
--------- ---------- ----------
$ 8,027.5 $ 7,311.6 $ 6,731.3

Transfers between geographic areas
United States........................................... $ 410.8 $ 364.4 $ 318.6
Europe.................................................. 79.6 73.2 67.1
Other areas............................................. 102.8 77.5 61.5
--------- ---------- ----------
$ 593.2 $ 515.1 $ 447.2

Total sales
United States........................................... $ 5,254.3 $ 4,842.3 $ 4,406.1
Europe.................................................. 2,215.7 2,054.9 1,926.0
Other areas............................................. 1,150.7 929.5 846.4
Eliminations............................................ (593.2) (515.1) (447.2)
--------- ---------- ----------
$ 8,027.5 $ 7,311.6 $ 6,731.3
</TABLE>

49
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

HONEYWELL INC. AND SUBSIDIARIES

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 19 -- SEGMENT INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ----------
<S> <C> <C> <C>
Operating profit
United States........................................... $ 528.5 $ 484.2 $ 425.4
Europe.................................................. 234.1 203.0 191.7
Other areas............................................. 111.3 83.0 55.7
--------- ---------- ----------
Operating profit........................................ 873.9 770.2 672.8
Interest expense........................................ (101.9) (81.4) (83.3)
Equity income........................................... 12.9 13.3 13.6
General corporate expense............................... (81.7) (91.9) (97.6)
--------- ---------- ----------
Income before income taxes.............................. $ 703.2 $ 610.2 $ 505.5

Identifiable Assets
United States........................................... $ 3,195.6 $ 2,828.3 $ 2,331.1
Europe.................................................. 1,542.8 1,479.9 1,375.0
Other areas............................................. 617.8 444.9 461.4
Corporate............................................... 1,055.2 740.2 892.7
--------- ---------- ----------
$ 6,411.4 $ 5,493.3 $ 5,060.2
</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 1997, Honeywell committed itself to a plan of action and recorded special
charges of $90.7 to reduce operating costs and improve margins. At December 31,
1997, $35.9 had been paid and was funded by cash flows from operations.
Operating profit is net of provisions for special charges amounting to $90.7 in
1997 as follows: United States, $61.3; Europe, $27.7; other areas, $1.7.

NOTE 20 -- PENSION PLANS

Honeywell and its subsidiaries have noncontributory defined benefit pension
plans that cover a substantial majority 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.

50
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

HONEYWELL INC. AND SUBSIDIARIES

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 20 -- PENSION PLANS (CONTINUED)
The components of net periodic pension cost for U.S. defined benefit pension
plans are as follows:

<TABLE>
<CAPTION>
U.S. Defined 1997 1996 1995
- ------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Service cost of benefits earned during the period............ $ 54.2 $ 55.6 $ 50.5
Interest cost of projected benefit obligation................ 236.9 226.3 222.8
Actual return on assets...................................... (721.0) (339.1) (400.8)
Net amortization and deferral................................ 489.8 130.6 228.9
--------- --------- ---------
$ 59.9 $ 73.4 $ 101.4
</TABLE>

Following is a summary of assumptions used in the accounting for the U.S.
defined benefit plans.

<TABLE>
<CAPTION>
U.S. Defined 1997 1996 1995
- --------------------------------------------------------------------- ---------- ----------- -----------
<S> <C> <C> <C>
Discount rate used in determining present values..................... 7.5% 7.8% 7.5%
Annual increase in future compensation levels........................ 4.4% 4.7% 4.4%
Expected long-term rate of return on assets.......................... 9.5% 9.5% 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 $15.7 in 1997, $10.9 in 1996, and $(3.6) in
1995.

The components of net periodic pension cost for foreign defined benefit
pension plans governed by Financial Accounting Standard No. 87 are as follows:

<TABLE>
<CAPTION>
Foreign Defined 1997 1996 1995
- -------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Service cost of benefits earned during the period............. $ 33.7 $ 33.6 $ 31.2
Interest cost of projected benefit obligation................. 58.0 58.3 55.7
Actual return on assets....................................... (127.9) (102.8) (90.6)
Net amortization and deferral................................. 50.4 19.6 (3.2)
--------- --------- ---------
$ 14.2 $ 8.7 $ (6.9)
</TABLE>

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

<TABLE>
<CAPTION>
Foreign Defined 1997 1996 1995
- -------------------------------------------------------- ---------- ----------- ------------
<S> <C> <C> <C>
Discount rate used in determining present values........ 4.5-8.5% 4.5-9.0% 4.5-9.5%
Annual increase in future compensation levels........... 2.0-6.8% 2.0-7.0% 2.0-7.25%
Expected long-term rate of return on assets............. 5.5-9.0% 5.5-9.0% 5.5-9.0%
</TABLE>

51
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

HONEYWELL INC. AND SUBSIDIARIES

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 20 -- 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
Assets Plans Whose
Exceed Accumulated
Accumulated Benefits
1997 (U.S. and Foreign) Benefits Exceed Assets
- ------------------------------------------------------------------------------------- ------------ -------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.......................................................... $ (3,318.6) $ (162.3)
Accumulated benefit obligation..................................................... $ (3,610.9) $ (182.6)
Projected benefit obligation....................................................... $ (3,973.1) $ (204.3)
Plan assets at fair value............................................................ 4,525.2 118.4
------------ -------------
Projected benefit obligation (in excess of) less than plan assets.................... 552.1 (85.9)
Remaining unrecognized net transition (asset) obligation............................. (63.0) 34.1
Unrecognized prior service cost...................................................... 206.9 7.9
Unrecognized net (gain) loss......................................................... (332.5) 30.2
Fourth-quarter 1997 contributions to plans........................................... 20.0 1.0
Adjustment to recognize maximum liability............................................ (50.5)
------------ -------------
Overfunded (unfunded) pension asset (liability) recognized in the statement of
financial position.................................................................. $ 383.5 $ (63.2)
</TABLE>

<TABLE>
<CAPTION>
Plans Whose Plans Whose
Assets Accumulated
Exceed Benefits
Accumulated Exceed
1996 (U.S. and Foreign) Benefits 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 (asset) obligation............................. (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>

Adjustments recorded to recognize the minimum liability required for defined
benefit pension plans whose accumulated benefits exceed assets amounted to $50.5
in 1997 and $17.8 in 1996.

52
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

HONEYWELL INC. AND SUBSIDIARIES

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 20 -- PENSION PLANS (CONTINUED)
A corresponding amount was recognized as an intangible asset to the extent of
unrecognized prior service cost and unrecognized transition obligation. At
December 31, 1997, $11.3 of excess minimum liability resulted in a reduction in
shareowners' equity, net of income taxes, of $6.9. At December 31, 1996, $8.0 of
excess minimum liability resulted in a reduction in shareowners' equity, net of
income taxes, of $4.9.

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 primarily
of a diversified portfolio of fixed-income investments and equity securities.

NOTE 21 -- 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 medical 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>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost of benefits earned during the period................... $ 8.2 $ 13.0 $ 11.5
Interest cost on accumulated postretirement benefit obligation...... 18.3 22.4 23.1
Net amortization.................................................... (7.1) 0.9 1.1
--------- --------- ---------
$ 19.4 $ 36.3 $ 35.7
</TABLE>

Unrecognized net gains or losses in excess of 10 percent of the accumulated
postretirement benefit obligation are amortized over ten years.

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

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................................ $ 72.9 $ 78.9
Fully eligible active plan participants................................. 46.4 60.2
Other active plan participants.......................................... 127.0 148.3
--------- ---------
Subtotal................................................................ 246.3 287.4
Unrecognized prior service cost......................................... (4.3) (6.0)
Unrecognized net gain................................................... 82.4 41.0
--------- ---------
Accrued postretirement benefit cost....................................... $ 324.4 $ 322.4
</TABLE>

The discount rate used in determining the APBO was 7.5 percent in 1997 and
1996. The assumed health-care cost trend rate used in measuring the APBO was 5.0
percent in 1997 and 1996. 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 9.2 percent at
September 30, 1997, and the service and interest cost components of the net
periodic benefit cost by 12.0 percent for 1997.

53
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

HONEYWELL INC. AND SUBSIDIARIES

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 22 -- CONTINGENCIES

LITTON LITIGATION

PATENT/TORT CASE

U.S. District Court Judge Mariana Pfaelzer presided over the patent
infringement and tortious interference trial and on August 31, 1993, a jury
returned a verdict in favor of Litton, awarding damages against Honeywell in the
amount of $1.2 billion. Honeywell filed post-trial motions contesting the
verdict and damage award. On January 9, 1995, the trial court set them aside,
ruling, among other things, that the Litton patent was invalid due to
obviousness, unenforceable because of Litton's inequitable conduct before the
Patent and Trademark Office, and in any case, not infringed by Honeywell's
current process. It further ruled that the state tort claims were not supported
by sufficient evidence. The trial court also held that if its rulings concerning
liability were vacated or reversed on appeal, Honeywell should be granted a new
trial on the issue of damages because the jury's award was inconsistent with the
clear weight of the evidence and based upon a speculative damage study.

54
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

HONEYWELL INC. AND SUBSIDIARIES

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 22 -- CONTINGENCIES (CONTINUED)
Supreme Court in the WARNER-JENKINSON V. HILTON DAVIS case, which refined the
law concerning patent infringement under the doctrine of equivalents. On March
21, 1997, Litton also filed a notice of appeal to the Federal Circuit of the
trial court's December 23, 1996 decision to deny injunctive relief, but the
Federal Circuit stayed any briefing or consideration of that matter until such
time as it completes the reconsideration of liability issues ordered by the U.S.
Supreme Court.

ANTITRUST CASE

Preparations for, and conduct of, the antitrust case have generally followed
the completion of comparable proceedings in the patent/tort case. Trial did not
begin in the antitrust case until November 20, 1995. Judge Pfaelzer also
presided over this trial, but it was held before a different jury. At the close
of evidence and before jury deliberations began, the trial court dismissed, for
failure of proof, Litton's contentions that Honeywell had illegally monopolized
and attempted to monopolize by engaging in below-cost predatory pricing; tying
and bundling product offerings under packaged pricing; misrepresenting its
products and disparaging Litton products; and acquiring the Sperry Avionics
business in 1986. On February 2, 1996, the case was submitted to the jury on the
remaining allegations that Honeywell had illegally monopolized and attempted to
monopolize by entering into certain long-term exclusive dealing and penalty
arrangements with aircraft manufacturers and airlines to exclude Litton from the
commercial aircraft market, and by failing to provide Litton with access to
proprietary software used in the cockpits of certain business jets. On February
29, 1996, the jury returned a $234 million single damages verdict against
Honeywell for illegal monopolization which verdict would have been automatically
trebled. On March 1, 1996, the jury indicated that it was unable to reach a
verdict on damages for attempted monopolization, and a mistrial was declared as
to that claim.

55
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

HONEYWELL INC. AND SUBSIDIARIES

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 22 -- CONTINGENCIES (CONTINUED)
competent evidence to support its speculative, all-or-nothing $298.5 million
damage claim. Litton filed a motion for entry of judgment and a motion for
injunctive relief. On July 24, 1996, the trial court denied Honeywell's
alternative motions for judgment as a matter of law or a complete new trial, but
concluded that Litton's damage study was seriously flawed and granted Honeywell
a retrial on damages only. The court also denied Litton's two motions. At that
time, Judge Pfaelzer was expected to conduct the retrial of antitrust damages
sometime following the retrial of patent/tort damages. These retrials will be
held before two new, and different, juries. However, after the U.S. Supreme
Court remanded the patent/tort case to the Federal Circuit in March 1997, Litton
moved to have the trial court expeditiously schedule the antitrust damages
retrial. In September 1997, the trial court rejected that motion, indicating
that it wished to know the outcome of the current patent/tort appeal before
scheduling retrials of any type.

In the fall of 1996, Litton and Honeywell commenced a court ordered
mediation of the patent, tort and antitrust claims. No claim was resolved or
settled, and the mediation is currently in recess.

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

56
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

HONEYWELL INC. AND SUBSIDIARIES

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

NOTE 22 -- CONTINGENCIES (CONTINUED)
on its assessment of the predicted investigation, remediation and associated
costs, its expected share of those costs, and the availability of legal
defenses. 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 were adopted by Honeywell in
1997 and the discounted liabilities were not materially different from the
undiscounted environmental liability.

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 $204.8 at December 31, 1997.

NOTE 23 -- QUARTERLY DATA (UNAUDITED)

<TABLE>
<CAPTION>
1997 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
- -------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales....................................... $ 1,685.7 $ 1,977.3 $ 2,038.7 $ 2,325.8
Cost of sales............................... 1,149.7 1,359.1 1,390.3 1,526.0
Net income.................................. 75.6 98.4 118.9 178.1
Basic earnings per share.................... 0.60 0.77 0.93 1.41
Diluted earnings per share.................. 0.59 0.76 0.92 1.38
</TABLE>

<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
Basic earnings per share.................... 0.51 0.66 0.80 1.21
Diluted earnings per share.................. 0.50 0.65 0.78 1.18
</TABLE>

Shareowners of record on January 30, 1998, totaled 30,819.

The fourth quarter of 1997 includes a $16.8 gain from the sale of businesses
($11.5 after-tax) and special charges of $30.3 ($20.8 after-tax).

57
<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 8 through 12 of the Honeywell Notice of 1998 Annual Meeting and Proxy
Statement are incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Pages 15 through 23 of the Honeywell Notice of 1998 Annual Meeting and Proxy
Statement are incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Page 14 of the Honeywell Notice of 1998 Annual Meeting and Proxy Statement
are incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

58
<PAGE>
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....................................................... 28
Income Statement................................................................... 29
Statement of Financial Position.................................................... 30
Statement of Cash Flows............................................................ 31
Notes to Financial Statements...................................................... 32
</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.................... 28
Schedules for the Years Ended December 31, 1997,
1996 and 1995:
II -- Valuation Reserves................ 63

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.

59
<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) Credit Agreement dated as of April 15, 1997 among Honeywell Inc., Morgan
Guaranty Trust Company of New York, as Documentation Agent, Citicorp USA,
Inc., Chase Securities Inc. and J.P. Morgan Securities Inc., as
Co-Arrangers and The Chase Manhattan Bank, as Administrative Agent is
incorporated by reference to Exhibit 99(ii) to Honeywell's Quarterly Report
on Form 10-Q for the fiscal quarter ended March 30, 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, 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, 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.*
(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.*
</TABLE>

60
<PAGE>
<TABLE>
<S> <C>
(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 1998 Annual Meeting and Proxy Statement.**

Exhibits submitted herewith:
(3)(ii) By-laws of Honeywell Inc., as amended through April 15, 1997.
(10)(iii)(f) Honeywell Non-Employee Directors Fee and Stock Unit Plan, as amended
through June 17, 1997.*
(10)(iii)(o) 1997 Honeywell Stock and Incentive 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.
</TABLE>

(B) REPORTS ON FORM 8-K

None

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

*Management contract or compensatory plan or arrangement.

**Only the portions of Exhibit (99)(ii) specifically incorporated by reference
are deemed filed with the Commission.

61
<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/ KATHLEEN M. GIBSON
-----------------------------------------
Kathleen M. Gibson, VICE PRESIDENT AND
CORPORATE SECRETARY

Dated: March 17, 1998

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

W. H. DONALDSON Director

G. FERRARI Director

R. D. FULLERTON Director

J. J. HOWARD Director

B. E. KARATZ Director

A. B. RAND Director

S. G. ROTHMEIER Director

M. W. WRIGHT Director
</TABLE>

By: /s/ KATHLEEN M. GIBSON
-------------------------
Kathleen M. Gibson,
ATTORNEY-IN-FACT
March 17, 1998

62
<PAGE>
SCHEDULE II

HONEYWELL INC. AND SUBSIDIARIES

VALUATION RESERVES

FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

(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, 1997.................................... $ 33.5 $ 14.1 (1) $ 9.1 (2) $ 38.5
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

LONG-TERM RECEIVABLES
Year ended December 31, 1997.................................... 0.7 2.0 -- 2.7
Year ended December 31, 1996.................................... 0.7 -- -- 0.7
Year ended December 31, 1995.................................... 0.7 -- -- 0.7

Reserves deducted from assets to which they apply -- valuation
reserve:

LONG-TERM NOTES RECEIVABLE
Year ended December 31, 1997.................................... 1.7 (0.2)(1) -- 1.5
Year ended December 31, 1996.................................... 1.8 (0.1)(1) -- 1.7
Year ended December 31, 1995.................................... 1.9 (0.1)(1) -- 1.8
</TABLE>

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

Notes:

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

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

<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 APRIL 15, 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. Shares.......................................................................... 31
Section 2. Certificates for Shares of Stocks............................................... 31
Section 3. Transfer of Shares.............................................................. 32
Section 4. Lost, Stolen, Destroyed,
or Mutilated Certificates...................................................... 33
Section 5. Transfer and Registry Agents.................................................... 33
Section 6. Regulations..................................................................... 34
Section 7. Statements Relating to Uncertificated Securities................................ 34
Section 8. Record Date..................................................................... 37
</TABLE>

<PAGE>
iv

<TABLE>
<C> <S> <C>
ARTICLE VII. OFFICES......................................................................... 38
Section 1. Registered Office............................................................... 38
Section 2. Other Offices................................................................... 39

ARTICLE VIII. DIVIDENDS, SURPLUS, ETC......................................................... 39

ARTICLE IX. SEAL............................................................................ 40

ARTICLE X. FISCAL YEAR AND AUDIT........................................................... 40
Section 1. Fiscal Year..................................................................... 40
Section 2. Audit of Books and Accounts..................................................... 40

ARTICLE XI. WAIVER OF NOTICES............................................................... 40

ARTICLE XII. NATIONAL EMERGENCY.............................................................. 41
Section 1. Definition and Application...................................................... 41
Section 2. Meetings, etc................................................................... 41
Section 3. Amendment....................................................................... 42
Section 4. Chief Executive Officer......................................................... 42
Section 5. Substitute Directors............................................................ 43

ARTICLE XIII. AMENDMENTS...................................................................... 43

CERTIFICATION.................................................................................... 44
</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 8 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 8 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 eleven, 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
<PAGE>
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.
<PAGE>
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. SHARES. The shares of the Corporation may be represented by
certificates or may be uncertificated. Each registered owner of shares, upon
request to the Corporation, shall be provided with a certificate of stock,
representing the number of shares owned by such owner. Absent a specific request
for such a certificate by the registered owner or transferee thereof, all shares
may be uncertificated upon the original issuance thereof by the Corporation or
upon the surrender of the certificate representing such shares to the
Corporation.

SECTION 2. CERTIFICATES FOR SHARES OF STOCK. The certificates for shares of
stock of the Corporation shall be in such
<PAGE>
32

form, not inconsistent with the Certificate of Incorporation, as shall be
approved by the Board of Directors. All certificates shall be signed by the
Chairman of the Board of Directors, the President or a Vice President and by the
Secretary or the Treasurer, or by any other proper officer of the Corporation
authorized by the Board of Directors, and shall not be valid unless so signed
and the seal of the Corporation affixed thereto, provided that the signatures of
the officer or officers of the Corporation and the seal 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 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.

In case any officer or officers who shall have signed any such certificate or
certificates shall cease to be an officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be issued and delivered as though the person or
persons who signed such certificate or certificates had not ceased to be an
officer or officers of the Corporation.

All certificates for shares of stock shall be consecutively numbered as the
same are issued. The name of the person owning the shares represented thereby,
with the number of such shares and the date of issue thereof, shall be entered
on the books of the Corporation.

Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be canceled and no
<PAGE>
33

new certificates or uncertificated shares shall be issued until former
certificates for the same number of shares have been surrendered or canceled.

SECTION 3. TRANSFER OF SHARES. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, the Corporation may issue or cause to be issued uncertificated shares
or, if requested by the appropriate person, a new certificate shall be issued to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Upon receipt of proper transfer instructions from
the registered owner of uncertificated shares, such uncertificated shares shall
be canceled and issuance of new equivalent uncertificated shares shall be made
to the person entitled thereto and the transaction shall be recorded upon the
books of the Corporation.

SECTION 4. LOST, STOLEN, DESTROYED, OR MUTILATED CERTIFICATES. Whenever a
person owning a certificate for shares of stock of the Corporation alleges that
it has been lost, stolen, destroyed or mutilated, he shall file in the office of
the Corporation an affidavit setting forth, to the best of his knowledge and
belief, the time, place and circumstances of the loss, theft, destruction or
mutilation, and, if required by the Board of Directors or the transfer agent of
the Corporation, a bond of indemnity or other indemnification sufficient in the
opinion of the Board of Directors or such transfer agent to indemnify the
Corporation, such transfer agent and their agents against any claim that may be
made against it or them on account of the alleged loss, theft, destruction or
mutilation of any such certificate or the issuance of a new, replacement
certificate. Thereupon the Corporation may cause to be issued to such person
uncertificated shares or, if requested by such person, a new certificate in
replacement for the certificate alleged to have been lost, stolen, destroyed or
mutilated. Upon the stub of
<PAGE>
34

every new certificate so issued shall be noted the fact of such issue and the
number, date and the name of the registered owner of the lost, stolen, destroyed
or mutilated certificate in lieu of which the new certificate is issued.
Uncertificated shares or a new certificate may be issued without requiring any
bond when, in the judgment of the Board of Directors, it is proper to do so.

SECTION 5. 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 uncertificated shares or certificates for shares of
the capital stock of the Corporation.

SECTION 6. REGULATIONS. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of uncertificated shares or certificates
for shares of stock of the Corporation.

SECTION 7. STATEMENTS RELATING TO UNCERTIFICATED SECURITIES. Within two
business days after an issuance, transfer, pledge or release from a pledge of
uncertificated shares has been registered, the Corporation shall send to the
registered owner thereof and, if shares are or were subject to a registered
pledge, to the registered pledgee, a written notice, signed in the same manner
as a certificate for shares may be signed in accordance with Section 2 of this
Article VI, stating (a) that the Corporation shall furnish to such person(s)
upon request
<PAGE>
35

and without charge a full statement of the designation, relative rights,
preferences and limitations of the shares of each class of the Corporation's
stock authorized to be issued and the designation, relative rights, preferences
and limitations of each series of preferred stock so far as the same has been
fixed and the authority of the Board of Directors to designate and fix the
relative rights, preferences and limitations of other series; (b) that the
Corporation is formed under the laws of the State of Delaware; (c) the number of
shares and a description of the issue of which such shares are a part, including
the class of shares, and the designation of the series, if any, which have been
issued, transferred, pledged or released from a pledge, as the case may be, (d)
the name, address and taxpayer identification number, if any, of the person or
persons to which such shares have been issued or transferred, and, in the case
of registration of a pledgee or a release from a pledge, of the registered owner
and the registered pledgee whose interest is being granted or released; (e) any
liens or restrictions of the Corporation, and any adverse claims, (i) which are
embodied in a restraining order, injunction or other legal process served upon
the Corporation at a time and in a manner which afforded it a reasonable
opportunity to act on it in accordance with applicable law, (ii) of which the
Corporation has received written notification from the registered owner or the
registered pledgee at a time and in a manner which afforded it a reasonable
opportunity to act on it in accordance with applicable law, (iii) to which the
registration of transfer to the present registered owner was subject and so
noted in a statement sent to such person under this paragraph, including
restrictions on transfer not imposed by the Corporation and (iv) of which the
Corporation is charged with notice from a controlling instrument which the
Corporation has elected to require as assurance that a necessary endorsement or
instruction is genuine and effective, to which the shares are subject, or a
statement that there are no such liens, restrictions or
<PAGE>
36

adverse claims; and (f) the date the issuance, transfer, pledge or release from
a pledge, as the case may be, was registered. The Corporation shall also
maintain a printed copy of the most recent statement sent to a person with
respect to uncertificated shares.

Within two business days after a transfer of uncertificated shares has been
registered, the Corporation shall send to the former registered owner and the
former registered pledgee, if any, a written notice stating (a) the number of
shares and a description of the issue of which such shares are a part, including
the class of shares, and the designation of the series, if any, which have been
transferred, (b) the name, address and taxpayer identification number, if any,
of the former registered owner and of the former registered pledgee, if any, and
(c) the date the transfer was registered.

The Corporation shall send to each registered holder and registered pledgee
of uncertificated shares, no less frequently than annually, and at any time upon
the reasonable written request of any such person, a dated written notice
stating (a) if such notice is to the registered owner, the number of shares and
a description of the issue of which such shares are a part, including the class
of shares, and the designation of the series, if any, registered in the name of
such registered owner on the date of the statement, (b) the name, address and
taxpayer identification number, if any, of the registered owner, (c) the name,
address and taxpayer identification number, if any, of any registered pledgee
and the number of shares subject to the pledge, and (d) any liens or
restrictions of the Corporation and any adverse claims (i) which are embodied in
a restraining order, injunction or other legal process served upon the
Corporation at a time and in a manner which afforded it a reasonable opportunity
to act on it in accordance with applicable law, (ii) of which the Corporation
has received written notification from the registered owner or the registered
pledgee at a time and in a manner which afforded it a reasonable opportunity to
<PAGE>
37

act on it in accordance with applicable law, (iii) to which the registration of
transfer to the present registered owner was subject and so noted in a statement
sent to such person under this paragraph, including restrictions on transfer not
imposed by the Corporation and (iv) of which the Corporation is charged with
notice from a controlling instrument which the Corporation has elected to
require as assurance that a necessary endorsement or instruction is genuine and
effective, to which the shares are subject, or a statement that there are no
such liens, restrictions or adverse claims.

Each notice sent pursuant to this Section 7 shall bear a conspicuous legend
reading substantially as follows: "This statement is merely a record of the
rights of the addressee as of the time of its issuance. Delivery of the
statement, of itself, confers no rights onto the recipient. This statement is
neither a negotiable instrument nor a security."

SECTION 8. RECORD DATE.

(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 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, as the case may be, the Board of Directors may fix, in
advance, a record date, which shall not be more than
<PAGE>
38

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.

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
<PAGE>
39

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 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
<PAGE>
40

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.

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
<PAGE>
41

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.

NATIONAL EMERGENCY

SECTION 1. DEFINITION AND APPLICATION. For the purposes of this Article XII
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 XII 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 XII 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 XII 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 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
<PAGE>
42

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.

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
<PAGE>
43

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 XII, 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 XIII.

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>

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>

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(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.

<PAGE>

-3-

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

"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.

<PAGE>

-4-

"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.

"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

<PAGE>

-5-

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.

(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 120% of the long-term Applicable Federal 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

<PAGE>

-6-

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:
(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.

<PAGE>

-7-

(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 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.

<PAGE>

-8-

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.

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>

1997 HONEYWELL STOCK AND INCENTIVE PLAN

ARTICLE 1. PURPOSE AND DURATION

1.1 PURPOSE. The purpose of the 1997 Honeywell Stock and Incentive Plan is
to further the growth, development and financial success of Honeywell and its
Subsidiaries by aligning the personal interests of key employees, through the
ownership of shares of the Honeywell common stock and through other incentives,
to those of its shareholders. The Plan is further intended to provide
flexibility to Honeywell in its ability to compensate key employees and to
motivate, attract and retain the services of those who have the ability to
contribute to the success of Honeywell and its Subsidiaries. The Plan also
provides for incentive awards to key employees of Affiliates in those cases
where the success of Honeywell or its Subsidiaries may be enhanced by the award
of incentives to such persons.

Stock Options, Stock Appreciation Rights and Other Stock Based Awards may be
granted under the Plan.

1.2 DURATION. Upon approval by the Board of Directors of Honeywell, subject
to ratification by an affirmative vote of a majority of the Shares present and
entitled to vote at the annual meeting of shareholders of Honeywell to be held
on April 15, 1997, or at any adjournment thereof, the Plan, if so approved,
shall become effective April 16, 1997, and shall remain in effect, subject to
the right of the Board of Directors to terminate the Plan at any time pursuant
to Article 10 herein, until April 15, 2002 (the "Termination Date").

ARTICLE 2. DEFINITIONS

2.1 DEFINITIONS. Capitalized terms used throughout the Plan shall have the
meanings set forth below unless otherwise defined elsewhere in the Plan:

(a) "AFFILIATE" means any corporation (other than a Subsidiary), partnership,
association, joint venture or other entity in which Honeywell or any
Subsidiary participates directly or indirectly in the decisions regarding
the management thereof or the production or marketing of products or
services.

(b) "AWARD" means, individually or collectively, the grant of a Stock Option,
Stock Appreciation Right or Other Stock Based Award under this Plan.

(c) "AWARD AGREEMENT" means the document which evidences an Award and which
sets forth the terms, conditions and limitations relating to such Award.

(d) "BOARD OF DIRECTORS" means the Board of Directors of Honeywell.

(e) "CHANGE IN CONTROL" shall have the meaning set forth in Article 9 herein.

(f) "CHANGE IN CONTROL VALUE" means the highest price paid for a Share by a
third party in connection with a Change in Control.

<PAGE>

(g) "CODE" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor Code thereto.

(h) "COMMITTEE" means the group of individuals administering the Plan, which
shall be the Personnel Committee of the Board or any other committee of
the Board performing similar functions as appointed from time to time by
the Board.

(i) "EFFECTIVE DATE" means April 16, 1997.

(j) "ELIGIBLE EMPLOYEE" means any executive, managerial, professional,
technical or administrative employee of Honeywell, any Subsidiary or any
Affiliate who is expected to contribute to its success.

(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor Act thereto.

(l) "FAIR MARKET VALUE" means, with respect to any particular date, the
average of the highest and lowest price of a Share as reported on the
consolidated tape for New York Stock Exchange listed securities (or other
principal reporting system, as determined by the Committee).

(m) "INCENTIVE STOCK OPTION" means a Stock Option, which is designated as an
Incentive Stock Option and meets the requirements of Section 422 of the
Code.

(n) "HONEYWELL" means Honeywell Inc., a Delaware corporation.

(o) "NONQUALIFIED STOCK OPTION" means a Stock Option, which is not an
Incentive Stock Option.

(p) "OTHER STOCK BASED AWARD" means an Award, granted under Article 6 herein,
other than a Stock Option or Stock Appreciation Right, that is paid with,
valued in whole or in part by reference to, or is otherwise based on
Shares.

(q) "PARTICIPANT" means an Eligible Employee selected by the Committee to
receive an Award under the Plan.

(r) "PLAN" means the 1997 Honeywell Stock and Incentive Plan.

(s) "SHARES" means the issued or unissued shares of the common stock, par
value $1.50 per share, of Honeywell.

(t) "STOCK APPRECIATION RIGHT" means the grant, under Article 6 herein, of a
right to receive a payment from Honeywell, in the form of Shares, cash or
a combination of both, equal to the difference between the Fair Market
Value of one or more Shares and the exercise price of such Shares under
the terms of such grant.

(u) "STOCK OPTION" means the grant, under Article 6 herein, of a right to
purchase a specified number of Shares during a specified period at a
designated price, which may be an Incentive Stock Option or a Nonqualified
Stock Option.

<PAGE>

(v) "SUBSIDIARY" means a corporation as defined in Section 425(f) of the Code
with Honeywell being treated as the employer corporation for purposes of
this definition.

(w) "TERMINATION DATE" means the earlier of: the date on which all Shares
subject to the Plan have been purchased or acquired according to the
Plan's provisions, the date the Plan is terminated pursuant to Article 10,
or April 15, 2002.

(x) "WITHHOLDING EVENT" means an event related to an Award which results in
the Participant being subject to taxation at the federal, state, local or
foreign level.

ARTICLE 3. ADMINISTRATION

3.1 AUTHORITY. The Committee shall administer the Plan and shall have full and
exclusive power, except as limited by law or by the Restated Certificate of
Incorporation or By-laws of Honeywell, and subject to the provisions herein,
to:

(a) select Eligible Employees to whom Awards are granted;

(b) determine the size and types of Awards and the terms and conditions
thereof in a manner consistent with the Plan;

(c) determine whether, to what extent and under what circumstances, Awards may
be: settled, paid or exercised in cash, Shares, other Awards, or other
property; or canceled, forfeited or suspended;

(d) construe and interpret the Plan and any agreement or instrument entered
into under the Plan;

(e) amend (subject to the provisions of Section 4.2(f) and Article 10 herein)
the terms and conditions, other than price, of any outstanding Award to
the extent such terms and conditions are within its discretion; and

(f) establish, amend or waive rules and regulations for the Plan's
administration and make all other determinations which may be necessary
or advisable for the administration of the Plan; provided, however, that
the Board of Directors may from time to time assume, in its sole
discretion, administration of the Plan.

All Awards shall be made by the Committee, provided however, that Awards may be
made by the Chief Executive Officer of Honeywell, or a designee approved by the
Committee other than during the normal period for granting Awards, subject to
ratification by the Committee or satisfaction of a six-month holding period
following the date of grant.

3.2 DECISIONS BINDING. All determinations and decisions made by the
Committee related to the Plan, and all related orders or resolutions of the
Board of Directors shall be final, conclusive and binding on all persons,
including Honeywell, its Subsidiaries and Affiliates, its shareholders,
Participants, and their estates and beneficiaries.

<PAGE>

ARTICLE 4. SHARES SUBJECT TO THE PLAN

4.1 NUMBER OF SHARES. Subject to adjustment as provided in Section 4.2
herein, no more than 7,500,000 Shares may be issued under the Plan, of which a
maximum of fifty percent (50%) of such Shares may be issued pursuant to Other
Stock Based Awards. These Shares may consist in whole or in part, of
authorized and unissued Shares, or of treasury Shares. No fractional Shares
shall be issued under the Plan; however, cash may be paid in lieu of any
fractional Shares in settlement of Awards under the Plan.

4.2 ADJUSTMENTS. For purposes of determining the number of Shares available
for issuance under the Plan:

(a) The grant of an Award shall reduce the authorized pool of Shares by the
number of Shares subject to such Award while such Award is outstanding.
If any Award granted under the Plan is canceled, terminates, expires or
lapses for any reason, any Shares subject to such Award shall be credited
to the authorized pool of Shares and again be available for the grant of
an Award under the Plan; except, however, to the extent that such Award
was granted in tandem with another Award, any Shares issued pursuant to
the exercise or settlement of such other Award shall not be credited back.

(b) Any Shares tendered, either actually or by attestation, in payment of the
price of a Stock Option or stock option exercised under any other
Honeywell plan shall be credited to the authorized pool of Shares.

(c) To the extent that any Shares covered by Stock Appreciation Rights are not
issued upon the exercise of such Stock Appreciation Rights, the authorized
pool of Shares shall be credited for such number of Shares.

(d) To the extent that an Award is settled in cash or any form other than
Shares, the authorized pool of Shares shall be credited with the
appropriate number of Shares represented by such settlement of the Award,
as determined at the sole discretion of the Committee.

(e) If Shares are used to pay dividends and dividend equivalents in
conjunction with outstanding Awards, an equivalent number of Shares shall
be deducted from the Shares available for issuance.

(f) Subject to Article 9 herein, in the event of any merger, reorganization,
consolidation, recapitalization, separation, spin-off, liquidation, stock
dividend, split-up, Share combination or other change in the corporate or
capital structure of Honeywell affecting the Shares, such adjustment shall
be made in the number and class of Shares which may be delivered under the
Plan, and in the number and class of and/or price of Shares subject to
outstanding Awards granted under the Plan, as may be determined to be
appropriate and equitable by the Committee, in its sole discretion, to
prevent dilution or enlargement of rights; provided that the number of
Shares subject to any Award shall always be a whole number.

<PAGE>

4.3 EFFECT OF ACQUISITION. The Committee may authorize Awards to be issued
under the Plan in substitution for awards or rights issued by a company whose
shares or assets are acquired by Honeywell or a Subsidiary. These Awards shall
not reduce the number of Shares available for grant under the Plan.

ARTICLE 5. PARTICIPATION

5.1 SELECTION OF PARTICIPANTS. The Committee may, from time to time, select
from all Eligible Employees, those to whom Awards shall be granted and shall
determine the nature and amount of each Award. Nothing herein shall confer
upon any Eligible Employee, the right to receive an Award under the Plan, or,
if selected to receive an Award, the right to continue to receive same.
Further, no Participant shall have any right, by reason of the grant of any
Award under the Plan, to continued employment by Honeywell or any Subsidiary or
Affiliate. There is no obligation for uniformity of treatment of Participants
under the Plan.

5.2 AWARD AGREEMENT. All Awards shall be evidenced by an Award Agreement
unless otherwise specified by the Committee. The Award Agreement shall specify
such terms, conditions, limitations, and other provisions applicable to the
Award as determined by the Committee.

ARTICLE 6. AWARDS

Awards may be granted as Stock Options, Stock Appreciation Rights or Other
Stock Based Awards, and except as otherwise provided for in Section 3.1 herein,
may be granted by the Committee to Eligible Employees at any time, and from
time to time as the Committee shall determine. The Committee shall have
complete discretion in determining the number of Awards to grant (subject to
the Share limitations set forth in Sections 4.1 and 6 herein) and, consistent
with the provisions of the Plan, the terms, conditions and limitations
pertaining to such Awards. No Participant may be granted Stock Options or
Stock Appreciation Rights representing in the aggregate, more than 500,000
Shares, in any given year.

No Award may be granted on or after the Termination Date, but Awards made prior
to the Termination Date may be exercised, vested or otherwise effectuated
beyond that date unless otherwise limited.

6.1 STOCK OPTIONS. Stock Options may be granted at an exercise price which
shall not be less than one hundred percent (100%) of the Fair Market Value of a
Share on the date the Stock Option is granted.

A Stock Option may be exercised at such times and subject to such conditions as
may be specified in an Award Agreement in whole or in installments, which may
be cumulative and shall expire at such time as the Committee shall determine at
the time of grant; provided that no Stock Option shall be exercisable later
than ten (10) years after the date it is granted. Prior to the exercise of a
Stock Option, the holder thereof shall not have any rights of a shareholder
with respect to any of the Shares covered by the Stock Option.

<PAGE>

A Stock Option shall be exercised by the delivery of a written notice of
exercise to the Director of Executive Compensation of Honeywell or such other
person specified by the Committee, setting forth the number of Shares with
respect to which the Stock Option is to be exercised, accompanied by full
payment of the total Stock Option price and any required withholding taxes.
Payment shall be made either (a) in cash or its equivalent, (b) by tendering,
either actually or by attestation, previously acquired Shares having a Fair
Market Value at the time of exercise equal to the total price of the Stock
Option, or (c) by a combination of (a) and (b). The Committee also may allow
exercises to be made with the delivery of payment as permitted under Federal
Reserve Board Regulation T, subject to applicable securities law restrictions,
or by any other means which the Committee determines to be consistent with the
Plan's purpose and applicable law. The Committee may provide that the exercise
of a Stock Option, by tendering previously acquired shares, will entitle the
exercising Participant to receive another Stock Option covering the same number
of shares tendered and with a price of no less than the Fair Market Value on
the date of grant of such other option.

6.2 STOCK APPRECIATION RIGHTS. Stock Appreciation Rights may be granted at
an exercise price which shall not be less than one hundred percent (100%) of
the Fair Market Value of a Share on the date the Stock Appreciation Right is
granted, in tandem with a Stock Option, such that the exercise of the Stock
Appreciation Right or related Stock Option will result in a forfeiture of the
right to exercise the related Stock Option for an equivalent number of shares,
or independently of any Stock Option.

A Stock Appreciation Right may be exercised at such times as may be specified
in an Award Agreement, in whole or in installments, which may be cumulative and
shall expire at such time as the Committee shall determine at the time of
grant; provided that no Stock Appreciation Right shall be exercisable later
than ten (10) years after the date it is granted.

Stock Appreciation Rights shall be exercised by the delivery of a written
notice of exercise to the Director of Executive Compensation of Honeywell or
such other person specified by the Committee, setting forth the number of
Shares with respect to which the Stock Appreciation Right is to be exercised.

6.3 OTHER STOCK BASED AWARDS. Other Stock Based Awards may be granted to
such Eligible Employees as the Committee may select, at any time and from time
to time as the Committee shall determine, in payment of amounts earned under
other incentive compensation plans of Honeywell, in satisfaction of performance
goals or for other consideration. The Committee shall have complete discretion
in determining the number of Shares subject to such Awards (consistent with the
Share limitations set forth in Sections 4.1 and 6 herein), the consideration
for such Awards and the terms, conditions and limitations pertaining to same
including, without limitation, restrictions based upon the achievement of
performance goals, and/or restrictions under applicable federal or state
securities laws, and conditions under which same will lapse. Performance goals
may include individual performance goals established by the Committee or
Honeywell's achievement goals established by the Committee based on certain
business criteria such as cash flow, debt to equity ratio, earnings per share,
economic value added, net income, operating ratio, return on assets, return on
equity, return on investment, revenue,

<PAGE>

shareholder return and working capital. The terms, restrictions and
conditions of the Award need not be the same with respect to each Participant.

The Committee may, in its sole discretion, direct Honeywell to issue Shares
subject to such restrictive legends and/or stop transfer instructions as the
Committee deems appropriate.

ARTICLE 7. DIVIDENDS AND DIVIDEND EQUIVALENTS

The Committee may provide that Awards earn dividends or dividend equivalents.
Such dividend equivalents may be paid currently or may be credited to an
account established by the Committee under the Plan in the name of the
Participant. In addition, dividends or dividend equivalents paid on
outstanding Awards or issued Shares may be credited to such account rather than
paid currently. Any crediting of dividends or dividend equivalents may be
subject to such restrictions and conditions as the Committee may establish,
including reinvestment in additional Shares or Share equivalents.

ARTICLE 8. DEFERRALS AND SETTLEMENTS

Payment of Awards may be in the form of cash, Shares, other Awards, or in such
combinations thereof as the Committee shall determine at the time of grant, and
with such restrictions as it may impose. Payment may be made in a lump sum or
in installments as prescribed by the Committee. The Committee may also require
or permit Participants to elect to defer the issuance of Shares or the
settlement of Awards in cash under such rules and procedures as it may
establish under the Plan. It may also provide that deferred settlements
include the payment or crediting of interest on the deferral amounts or the
payment or crediting of dividend equivalents on deferred settlements
denominated in Shares.

The Committee may provide that Shares may be utilized to pay all or any part of
the purchase price of the exercise of any Stock Option or option to acquire
Shares under any other Honeywell incentive compensation plan, if permitted
under such plan.

ARTICLE 9. CHANGE IN CONTROL

9.1 DEFINITION. For purposes of this Section 9.1, a Change in Control of
Honeywell shall be deemed to have occurred if the conditions set forth in any
one or more of the following paragraphs shall have been satisfied:

(a) Any "person", as such term is used in Sections 13(d) and 14(d) of the
Exchange Act (other than Honeywell, any subsidiary of Honeywell, any
"person" (as hereinabove defined) acting on behalf of Honeywell as
underwriter pursuant to an offering who is temporarily holding securities
in connection with such offering, any trustee or other fiduciary holding
securities under an employee benefit plan of Honeywell or any corporation
owned, directly or indirectly, by the shareholders of Honeywell in
substantially the same proportions as their ownership of stock of
Honeywell), is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of
Honeywell representing

<PAGE>

thirty percent (30%) or more of the combined voting power of Honeywell's
then outstanding securities; or

(b) During any period of not more than two consecutive years (not including
any period prior to the Effective Date of the Plan), individuals who at
the beginning of such period constitute the Board of Directors, and any
new director (other than a director designated by a person who has entered
into an agreement with Honeywell to effect a transaction described in
paragraphs (a), (c) or (d) of this Section 9.1) whose election by the
Board of Directors or nomination for election by Honeywell's shareholders
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;

(c) The shareholders of Honeywell approve a merger or consolidation of
Honeywell with any other person, other than (i) a merger or consolidation
which would result in the voting securities of Honeywell outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than fifty percent (50%) of the combined voting power of the
voting securities of Honeywell or such surviving entity outstanding
immediately after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of Honeywell (or
similar transaction) in which no "person" (as hereinabove defined)
acquires more than thirty percent (30%) of the combined voting power of
Honeywell's then outstanding securities; or

(d) The shareholders of Honeywell approve a plan of complete liquidation of
Honeywell or an agreement for the sale or disposition by Honeywell of all
or substantially all of Honeywell's assets (or any transaction having a
similar effect).

9.2 EFFECT. In the event of a Change in Control of Honeywell,, then, as of
the first date that the Change in Control has been deemed to have occurred, (i)
any Stock Options not previously exercisable and vested shall become fully
exercisable and vested, (ii) restrictions, if any, applicable to Other Stock
Based Awards shall lapse and the Shares subject thereto shall become fully
vested, and (iii) Other Stock Based Awards shall be paid as described in
Section 9.3.

9.3 PAYMENT UPON CHANGE IN CONTROL. Notwithstanding any other provision of
the Plan, a Participant shall receive, with respect to each performance period
for any Other Stock Based Award in progress at the time of the Change in
Control, a lump sum cash amount, within five days after the Change in Control,
equal to the "Change in Control Value" of the Other Stock Based Awards the
Participant would have earned if 100% of the relevant performance goals were
met, multiplied by a fraction, the numerator of which is the number of months
(rounded to the nearest whole month) of actual service in the relevant
performance period and the denominator being the number of months in the
relevant performance period.

<PAGE>

ARTICLE 10. AMENDMENT, MODIFICATION AND TERMINATION

10.1 AMENDMENT, MODIFICATION AND TERMINATION. Subject to the approval of the
Board of Directors, the Committee may terminate, amend or modify the Plan at
any time and from time to time, without shareholder approval, except to the
extent required by applicable law. The termination, amendment or modification
of the Plan may be in response to changes in the Code, the Exchange Act,
national securities exchange regulations or for other reasons deemed
appropriate by the Committee. However, without the approval of the
shareholders of Honeywell, no amendment or modification shall (i) materially
increase the total amount of Shares which may be issued under the Plan, except
as provided in Sections 4.2(f) and 4.3 herein, (ii) increase the limitation set
forth in Article 6 for the number of Stock Options or Stock Appreciation Rights
that may be granted to any individual, or (iii) change the minimum Stock Option
and Stock Appreciation Right exercise prices set forth in Sections 6.1 and 6.2
herein.

10.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment or modification of
the Plan shall in any manner adversely affect any Award previously granted
under the Plan, without the written consent of the Participant.

ARTICLE 11. WITHHOLDING

11.1 TAX WITHHOLDING. Honeywell shall have the power and the right to deduct
or withhold, or require a Participant or any person to whom an Award may be
transferred, if permitted by the Committee, to remit to Honeywell, an amount in
cash or Shares having a Fair Market Value sufficient to satisfy federal, state
and local taxes (including any FICA obligation) required by law to be withheld
with respect to any Withholding Event which occurs because of a grant of an
Award or exercise or payment made thereunder, or as a result of the Plan.

11.2 SHARE WITHHOLDING. Upon a Withholding Event, the Committee may require
one or more classes of Participants or any persons to whom an Award may be
transferred, if permitted by the Committee, to satisfy the withholding
requirement, in whole or in part, by having Honeywell withhold Shares having a
Fair Market Value, on the date the tax is to be determined, equal to the amount
of withholding (federal, FICA, state or local) which is required by law.
Absent such a mandate, the Committee may allow Participants or such persons to
elect Share withholding for tax purposes subject to such terms and conditions
as the Committee shall establish.

ARTICLE 12. INDEMNIFICATION

12.1 INDEMNIFICATION. Each person who is or shall have been a member of the
Committee, or of the Board of Directors, shall be indemnified and held harmless
by Honeywell from and against any loss, cost, liability or expense that may be
imposed upon or reasonably incurred by such person in connection with or
resulting from any claim, action, suit or proceeding to which such person may
be a party or in which such person may be involved by reason of any action
taken or failure to act under the Plan and against and from any and all amounts
paid by such person in settlement thereof with Honeywell's approval, or paid by
such person in satisfaction of any judgment in any such action, suit or
proceeding against such person, provided such person shall give Honeywell an

<PAGE>

opportunity, at its own expense, to handle and defend the same before such
person undertakes to handle and defend it on such person's own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights
of indemnification to which such persons may be entitled under Honeywell's
Restated Certificate of Incorporation or By-laws, as a matter of law, or
otherwise, or any power that Honeywell may have to indemnify them or hold them
harmless.

ARTICLE 13. UNFUNDED PLAN

13.1 UNFUNDED PLAN. The Plan shall be unfunded and Honeywell shall not be
required to segregate any assets that may at any time be represented by Awards
under the Plan. Any liability of Honeywell to any person with respect to any
Award under the Plan shall be based solely upon any contractual obligations
that may be effected pursuant to the Plan. No such obligation of Honeywell
shall be deemed to be secured by any pledge of, or other encumbrance on, any
property or assets of Honeywell.

ARTICLE 14. SUCCESSORS

14.1 SUCCESSORS. All obligations of Honeywell under the Plan, with respect to
any Awards granted hereunder, shall be binding on any successor to Honeywell,
whether the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation or otherwise, of all or substantially all of
the business and/or assets of Honeywell.

ARTICLE 15. REQUIREMENTS OF LAW

15.1 REQUIREMENTS OF LAW. The granting of Awards and the issuance of Shares
under the Plan shall be subject to all applicable laws, rules and regulations,
and to such approvals by any governmental agencies or national securities
exchanges as may be required. Further, each Award shall be subject to the
requirement that, if at any time the Committee shall determine, in its sole
discretion, that the listing, registration or qualification of any Shares
available for Awards or any Awards upon any securities exchange or under any
state or federal law, or the consent or approval of any government regulatory
body, is necessary or desirable as a condition of, or in connection with, the
issuance of Shares pursuant to an Award, or the granting of such Award or the
grant or settlement thereof, such Award may not be exercised or settled in
whole or in part unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Committee.

15.2 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.

15.3 GOVERNING LAW. To the extent not preempted by federal law, the Plan and
all Award Agreements, shall be construed in accordance with and governed by 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, 1997
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Income:
Income available to common shareowners.......... $ 471.0 $ 402.7 $ 333.6 $ 278.9 $ 322.2
Shares:
Weighted Average Shares Outstanding............. 127,051,613 126,632,082 127,138,774 129,440,052 134,242,394
Basic EPS......................................... $ 3.71 $ 3.18 $ 2.62 $ 2.15 $ 2.40

DILUTED EARNINGS PER SHARE:
Income:
Income available to common shareowners.......... $ 471.0 $ 402.7 $ 333.6 $ 278.9 $ 322.2
Shares:
Weighted Average Shares Outstanding............. 127,051,613 126,632,082 127,138,774 129,440,052 134,242,394
Dilutive shares issuable in connection with stock
plans less shares purchaseable with proceeds.... 2,140,609 2,848,697 2,364,352 541,811 1,069,901
----------- ----------- ----------- ----------- -----------
Total Shares.................................. 129,192,222 129,480,779 129,503,126 129,981,863 135,312,295
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Diluted EPS....................................... $ 3.65 $ 3.11 $ 2.58 $ 2.15 $ 2.38
</TABLE>

<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, 1997
(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income before income taxes................................ $ 703.26 $ 610.20 $ 505.50 $ 369.70 $ 478.50
Deduct:
Equity income........................................... 12.94 13.30 13.60 10.50 17.80
--------- --------- --------- --------- ---------
Subtotal................................................ 690.32 596.90 491.90 359.20 460.70
Add (Deduct):
Dividends from less than 50% owned companies............ 2.60 2.16 2.58 2.37 2.10
Proportional share of income (loss) before income taxes
of 50% owned companies................................. .06 (.93) .41 (2.83) .30
--------- --------- --------- --------- ---------
Adjusted income........................................... 692.98 598.13 494.89 358.74 463.10
--------- --------- --------- --------- ---------
Fixed charges
Interest on indebtedness:
Honeywell Inc. and subsidiaries......................... 101.93 76.81 79.66 72.89 65.46
50% owned companies..................................... .11 .05 -- -- --
--------- --------- --------- --------- ---------
Subtotal................................................ 102.04 76.86 79.66 72.89 65.46
Amortization of debt expense.............................. 1.50 4.55 3.66 2.61 2.54
Interest portion of rent expense.......................... 47.19 51.24 47.80 45.64 44.75
--------- --------- --------- --------- ---------
Total fixed charges....................................... 150.73 132.65 131.12 121.14 112.75
--------- --------- --------- --------- ---------
Total available income.................................... $ 843.71 $ 730.78 $ 626.01 $ 479.88 $ 575.85
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio of earnings to fixed charges........................ 5.60 5.51 4.77 3.96 5.11
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

<PAGE>

EXHIBIT 21

HONEYWELL INC.
AFFILIATES

<TABLE>
<CAPTION>
A %
I COUNTRY OWNED COMPANY*
- ------- ----- -------
- ------- ----- -------

<S> <C> <C> <C>
I UNITED STATES: 100 HONEYWELL ADVANCED SYSTEMS INC.
CALIF
A UNITED STATES: 100 HONEYWELL ASIA PACIFIC INC.
DEL
A CHINA 40 BEIJING HONEYWELL ENERGY SAVING EQUIPMENT
COMPANY LTD. [JOINT VENTURE]
A UNITED STATES: 100 HONEYWELL BUILDING MANAGEMENT SERVICES INC.
DEL
A UNITED STATES: 100 HONEYWELL CHINA INC.
DEL
I UNITED STATES: 100 HONEYWELL COMMUNICATIONS COMPANY
MINN
I UNITED STATES: 100 HONEYWELL DISC INC.
DEL
A UNITED STATES: 100 HONEYWELL EUROPE INC.
DEL
A UNITED STATES: 100 HONEYWELL FINANCE INC.
DEL
A UNITED STATES: 100 HONEYWELL FINANCE INTERNATIONAL INC.
DEL
I UNITED STATES: 100 HONEYWELL HIGH-TECH TRADING INC.
DEL
A BRAZIL 50 HONEYWELL DO BRASIL & CIA. (PARTNERSHIP)
[OTHER PARTNER IS HONEYWELL OVERSEAS FINANCE CO., OWNING 50%]
A UNITED STATES: 100 HONEYWELL OVERSEAS FINANCE COMPANY
DEL
A UNITED STATES: 100 HONEYWELL REALTY, INC.
DEL
A UNITED STATES: 100 HONEYWELL DMC SERVICES, INC.
MASS
A UNITED STATES: 100 HONEYWELL TCAS INC.
DEL
A UNITED STATES: 50 CONTROL SYSTEMS CONTRACTING AND CONSULTING LLC
DEL [OTHER 50% OWNERSHIP IS HELD BY MINNEAPOLIS-HONEYWELL REGULATOR COMPANY, INC.]
A UNITED STATES: 100 HONEYWELL CONSUMER PRODUCTS, INC.
A MASS
A UNITED STATES: 100 HONEYWELL CONSUMER PRODUCTS (CANADA) INC.
MASS
A AUSTRIA 100 HONEYWELL AUSTRIA HAUSTECHNIK GmbH
A ENGLAND 100 HONEYWELL CONSUMER PRODUCTS LIMITED
A GERMANY 100 HONEYWELL HAUSGERATE GmbH
A HONG KONG 100 HONEYWELL CONSUMER PRODUCTS (HONG KONG) LIMITED
A HONG KONG 100 HONEYWELL CONSUMER PRODUCTS REALTY LIMITED
A CHINA 100 DURACRAFT ELECTRICAL (SHENZHEN) CO. LTD.
A CHINA 100 DURACRAFT MOULDING (SHANGHAI) CO. LTD.
A PORTUGAL 74.3 HONEYWELL IBERICA - PRODUTOS DE CONSUMO, S.A. [ALSO HONEYWELL
CONSUMER PRODUCTS, INC. OWNS 25.7%]
A UNITED STATES: 100 HONEYWELL-MEASUREX CORPORATION
DEL
A UNITED STATES: 100 HONEYWELL-MEASUREX SYSTEMS, INC.
CALIF
A JAPAN 100 HONEYWELL-MEASUREX K.K.
I UNITED STATES: 100 MEASUREX AUTOMATION SYSTEMS, INC.
CALIF
A UNITED STATES: 100 HONEYWELL-MEASUREX DATA MEASUREMENT CORPORATION
DEL
A ENGLAND 100 DMC (UK) LIMITED
A UNITED STATES: 100 INDUSTRIAL GAUGING DISC
D.C.
A GERMANY 100 DMC MESS & REGELTECHNIK GmbH
A UNITED STATES: 100 HONEYWELL-MEASUREX INTERNATIONAL CORPORATION
CALIF
A UNITED STATES: 100 HONEYWELL-MEASUREX LATIN AMERICA
CALIF
A MEXICO 51 MEASUREX S.A. DE C.V. [OTHER 49% OWNERSHIP IS HELD BY MEASUREX
INTERNATIONAL CORPORATION.]
A BRAZIL 100 MEASUREX DO BRAZIL LTDA.
A VENEZUELA 100 MEASUREX DE VENEZUELA, C.A.

<PAGE>

A UNITED STATES: 100 HONEYWELL-MEASUREX ASIA, INC.
CALIF
A UNITED STATES: 100 HONEYWELL-MEASUREX KOREA, INC.
CALIF
A UNITED STATES: 100 MEASUREX TAIWAN, INC.
CALIF
A SINGAPORE 100 MAP RESULTS PTE. LTD.
A NEW ZEALAND 100 MEASUREX SYSTEMS N.Z. LTD.
A AUSTRALIA 100 MEASUREX PTY. LTD.
A IRELAND 100 HONEYWELL-MEASUREX (IRELAND) LTD.
A IRELAND 100 HONEYWELL-MEASUREX IRELAND FINANCE
A ENGLAND 100 HONEYWELL MEASUREX LIMITED
A AUSTRIA 100 MEASUREX INTERNATIONAL GmbH
A FRANCE 100 HONEYWELL-MEASUREX S.A.R.L.
A GERMANY 100 HONEYWELL-MEASUREX INTERNATIONAL GmbH
A AFRICA 100 MEASUREX AFRICA (PTY.) LTD.
A NETHERLANDS 100 MEASUREX B.V.
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.
A ITALY 97.8 HONEYWELL ITALIA S.R.L. [OTHER 2.2% OWNERSHIP IS HONEYWELL-MEASUREX CORPORATION]
A NORWAY 100 MEASUREX NORWAY A.S.
A TURKEY 100 HONEYWELL-MEASUREX OLCUM ALETLERI TICARET LIMITED SIRKETI
A UNITED STATES: 49 FOSTER/HONEYWELL JOINT VENTURE (PARTNERSHIP)
IL
A UNITED STATES: 100 HUGHEY & PHILLIPS INC.
CALIF
A UNITED STATES: 50 GE/MICRO SWITCH CONTROL INC. (JOINT VENTURE)
DEL
I UNITED STATES: 100 MINNEAPOLIS-HONEYWELL REGULATOR COMPANY, INC.
DEL
A UNITED STATES: 100 PHOENIX CONTROLS CORPORATION
MASS
A UNITED STATES: 100 PHOENIX CONTROLS INTERNATIONAL SALES CORPORATION
V.I.
A SWITZERLAND 100 PHOENIX CONTROLS AG
A GERMANY 100 PHOENIX CONTROLS GmbH
I UNITED STATES: 100 TETRA TECH SYSTEMS, INC.
CALIF
I UNITED STATES: 100 TETRA TECH MANAGEMENT SERVICES, INC.
I CALIF
I SAUDI ARABIA 75 SAUDI ARABIAN TETRA TECH LIMITED (JOINT VENTURE)
A UNITED STATES: 100 HONEYWELL ELECTRONICS CORPORATION
DEL
A UNITED STATES: 100 COEUR D'ALENE DEVELOPMENT INC.
DEL
A ENGLAND 100 HONEYWELL LIMITED
A ENGLAND 100 HONEYWELL CONTROL SYSTEMS LIMITED
A AFRICA 100 HONEYWELL SOUTHERN AFRICA (PROPRIETARY) LIMITED
A AFRICA 100 HONEYWELL BOTSWANA (PTY.) LIMITED
A ENGLAND 100 HONEYWELL LINCOLD HOLDINGS LIMITED
A ENGLAND 100 HONEYWELL LCL DESIGN & MANAGEMENT LIMITED
A ENGLAND 100 HONEYWELL LINCOLD REFRIGERATION SYSTEMS LIMITED
A ENGLAND 100 HONEYWELL AVIONICS SYSTEMS LIMITED
A ENGLAND 50 INTALOGIK LIMITED (JOINT VENTURE)
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 HI-SPEC SOLUTIONS LIMITED
A ENGLAND 100 HONEYWELL PENSION TRUSTEES LIMITED
I ENGLAND 100 HONEYWELL I.S. LIMITED
A ENGLAND 100 COMFORT COOLING PLC
A ENGLAND 100 HONEYWELL FM2 LIMITED
A ARGENTINA 100 HONEYWELL S.A.I.C.
A AUSTRALIA 100 HONEYWELL HOLDINGS PTY. LTD.
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 LIMITED

<PAGE>

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 CANADA 100 HONEYWELL-MEASUREX DEVRON INC.
A BARBADOS 99 HONEYWELL (BARBADOS) FINANCE AND DEVELOPMENT SRL
[OTHER 1% OWNERSHIP IS HELD BY HONEYWELL CANADA LIMITED-HONEYWELL
CANADA LIMITEE]
A CANADA HONEYWELL CANADA LIMITED-HONEYWELL CANADA LIMITEE
A CHILE 100 HONEYWELL CHILE S.A.
A CHINA 55 SINOPEC HONEYWELL (TIANJIN) LIMITED (JOINT VENTURE)
A CHINA 100 HONEYWELL (TIANJIN) LIMITED
A CHINA 100 HONEYWELL TECHNICAL SERVICES (SHANGHAI) CO. LTD.
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 100 HONEYWELL DOMINICANA C. POR A.
REPUBLIC
A ECUADOR 100 HONEYWELL S.A.
A FINLAND 100 HONEYWELL OY
A FINLAND 100 MEASUREX ROIBOX OY
A FINLAND 100 KIINTEISTOHUOLTO MERATEK OY
I FINLAND 100 VM-KIINTEISTOHUOLTO OY
A FINLAND 100 TULLINTORIN KIINTEISTOPALVELU OY
A FRANCE 100 HONEYWELL S.A.
A FRANCE 100 DAVILOR TECHNOLOGIE S.A.
A FRANCE 100 HONEYWELL AEROSPACE S.A.
A FRANCE 100 HONEYWELL TELESURVEILLANCE S.A.
A FRANCE 100 HONEYWELL SECURITE S.A.
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 HONEYWELL-MEASUREX 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.
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 NORD-ALARM GESELLSCHAFT FUER ALARM-UND SICHERHEITSANLAGEN mbH

<PAGE>

A GERMANY 100 WSD GEBAEUDETECHNISCHER SERVICE GmbH
A AUSTRIA 100 HONEYWELL AUSTRIA Ges.m.b.H.
A RUSSIA 70 HONEYWELL-STERCH INDUSTRIAL CONTROL (JOINT VENTURE)
A UKRAINE 100 HONEYWELL LIMITED
A HONG KONG 80 HONEYWELL LIMITED [OTHER 20% OWNED BY HONEYWELL
ELECTRONICS CORPORATION]
A INDIA 100 HONEYWELL INDIA SOFTWARE OPERATION PRIVATE
LIMITED
A INDIA 40.62 TATA HONEYWELL LIMITED (JOINT VENTURE)
I INDIA 40 HONEYWELL INDIA LIMITED
A INDONESIA 100 P.T. HONEYWELL INDONESIA
A ITALY 99.9995 HONEYWELL S.p.A. [OTHER .0005% OWNED BY
MINNEAPOLIS-HONEYWELL REGULATOR COMPANY, INC.]
A ITALY 100 DATING S.p.A.
A ITALY 100 HONEYWELL U.G.V. S.r.l.
A ITALY 100 HONEYWELL TECHNICAL SERVICES S.r.l.
A ITALY 25 SINTED S.p.A. (JOINT VENTURE)
A ITALY 40 SPACE CONTROLS ALENIA-HONEYWELL S.p.A. (JOINT VENTURE)
I JAPAN 50 NEC-HONEYWELL SPACE SYSTEMS LTD.
A JAPAN 21.7 YAMATAKE-HONEYWELL CO., LTD. (JOINT VENTURE)
A JAPAN 76.9 YAMATAKE & CO., LTD.
A JAPAN 50 TAISHIN CO., LTD.
A JAPAN 100 YAMATAKE KEISO CO., LTD.
A JAPAN 100 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 PHILIPPINES 100 YAMATAKE PHILIPPINES, INC.
A INDONESIA 55 PT. YAMATAKE BERCA INDONESIA
A UNITED STATES: 100 YCV CORPORATION
ARIZONA
A KOREA 40 LG-HONEYWELL CO., LTD. [ALSO, YAMATAKE-HONEYWELL CO., LTD. OWNS 10%]
(JOINT VENTURE)
A MALAYSIA 100 HONEYWELL AUTOMATION AND CONTROLS SDN. BHD.
A MALAYSIA 100 HONEYWELL ENGINEERING SDN. BHD.
A MALAYSIA 30 BERKAT HONEYWELL SDN. BHD. (JOINT VENTURE)
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 100 HONEYWELL CAPITAL N.V.
A NETHERLANDS 100 HONEYWELL MIDDLE EAST B.V.
A KUWAIT 40 HONEYWELL KUWAIT K.S.C. (JOINT VENTURE)
A EGYPT 98 HONEYWELL (EGYPT) [ALSO HONEYWELL S.P.A. OWNS 2%]
A OMAN 60 HONEYWELL & CO. OMAN LLC. (JOINT VENTURE)
A TURKEY 80 HONEYWELL OTOMASYON VE KONTROL SISTEMLERI SAN. VE TIC.A.S.
(JOINT VENTURE)
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.

<PAGE>

A NETHERLANDS 100 HONEYWELL FINANCE B.V.
A NORWAY 100 HONEYWELL 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 LATINOAMERICANA, S.A.
A VENEZUELA 100 INGENIERIA DE AUTOMATIZACION INDUSTRIAL, COMPANIA DE HONEYWELL
A PHILIPPINES 100 HONEYWELL SYSTEMS (PHILIPPINES), INC.
A POLAND 100 HONEYWELL ESCO POLSKA
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
A SPAIN 100 HONEYWELL S.A.
A SPAIN 99.8 INTERNACIONAL DE MANTENIMIENTO, S.A.[OTHER .2% OWNED BY MANTENIMIENTO Y CONTROL S.A]
A SPAIN 99.9 MANTENIMIENTO Y CONTROL S.A. [OTHER .1% OWNED BY INTERNACIONAL DE MANTENIMIENTO, S.A.]
A SPAIN 100 SINEL, S.A.
A SPAIN 100 HONEYWELL TECNOLOGIA Y CONTROL, S.A.
A SWEDEN 100 HONEYWELL AB
A SWEDEN 100 INUCONTROL AB
A DENMARK 100 INUCONTROL ApS
A SWITZERLAND 100 HONEYWELL HOLDING AG
A SWITZERLAND 100 HONEYWELL CENTRABUERKLE AG
A SWITZERLAND 100 HONEYWELL AG
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 SWITZERLAND 25 TECURIA ENGINEERING AG
A TAIWAN 100 HONEYWELL TAIWAN LIMITED
A TAIWAN 99.9 HONEYWELL CONSUMER PRODUCTS TAIWAN LTD.
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>

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>
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, 33-59359, 333-30121 and 333-30129 on Form S-8, and Nos. 33-57135 and
333-33895 on Form S-3, of our report dated February 10, 1998, appearing in this
Annual Report on Form 10-K of Honeywell Inc. for the year ended December 31,
1997.

Deloitte & Touche LLP
Minneapolis, Minnesota
March 16, 1998

<PAGE>

Exhibit (24)

POWERS OF ATTORNEY

The undersigned director of HONEYWELL INC., a Delaware corporation,
appoints KATHLEEN M. GIBSON and LAWRENCE W. STRANGHOENER, each of them with full
power to act without the other, as true and lawful attorneys-in-fact, to sign on
my behalf the Annual Report on Form 10-K to be filed for the fiscal year ended
December 31, 1997.

IN WITNESS WHEREOF, I have signed this Power of Attorney as of the 17th day
of March, 1998.

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

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

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

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

/s/ G. Ferrari
--------------
G. Ferrari
Director

<PAGE>

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

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

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

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

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

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

The undersigned officer of HONEYWELL INC., a Delaware corporation, appoints
KATHLEEN M. GIBSON and LAWRENCE W. STRANGHOENER, each of them with full power to
act without the other, as true and lawful attorneys-in-fact, to sign on my
behalf the Annual Report on Form 10-K to be filed for the fiscal year ended
December 31, 1997.

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

/s/ P. M. Palazzari
-------------------
P. M. Palazzari

<PAGE>

Vice President and Controller, and
Principal Accounting Officer

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INCOME
STATEMENT, STATEMENT OF FINANCIAL POSITION AND STATEMENT OF CASH FLOWS SET FORTH
AT PAGES 29, 30 AND 31 RESPECTIVELY, OF THIS REPORT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 134
<SECURITIES> 25
<RECEIVABLES> 1,876
<ALLOWANCES> 38
<INVENTORY> 1,028
<CURRENT-ASSETS> 3,258
<PP&E> 3,045
<DEPRECIATION> 1,916
<TOTAL-ASSETS> 6,411
<CURRENT-LIABILITIES> 2,319
<BONDS> 1,177
0
0
<COMMON> 282
<OTHER-SE> 2,108
<TOTAL-LIABILITY-AND-EQUITY> 6,411
<SALES> 8,028
<TOTAL-REVENUES> 8,028
<CGS> 5,425
<TOTAL-COSTS> 5,425
<OTHER-EXPENSES> 1,804
<LOSS-PROVISION> 16
<INTEREST-EXPENSE> 102
<INCOME-PRETAX> 703
<INCOME-TAX> 232
<INCOME-CONTINUING> 471
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 471
<EPS-PRIMARY> 3.71
<EPS-DILUTED> 3.65

</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, future contracts, 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 (e.g. the
adoption of the EURO currency by the European Monetary Union), 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.

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

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negative compensation trends are factors that can affect the availability of
such people or increase Honeywell's costs in attracting and retaining employees.
In certain foreign markets, local labor rates and practices may affect
Honeywell's operating costs or its ability to conduct business in such areas.

REGULATORY ORGANIZATIONS. In many of the domestic and foreign 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.

Also, certain other regulatory organizations such as the Fair Accounting
Standards Board and the American Institute of Certified Professional Accounts,
may from time to time, promulgate rules and regulations which may impact the
Honeywell's accounting policies in the U.S. and abroad.

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.

CHARGES RESULTING FROM ACQUISITIONS AND DIVESTITURES. Honeywell continually
evaluates the growth potential and profitability of its existing businesses, and
equity and other investments. When deemed appropriate, Honeywell will acquire
new businesses to expand its product offerings, increase or decrease its
investments, and divest assets (e.g., buildings, product lines, etc.) and
existing businesses which are no longer considered a strategic fit or do not
continue to create value consistent with company objectives. Decisions to sell
assets or divest businesses could result in future gains or charges depending on
the circumstances.

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.