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1998
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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
<TABLE>
<C> <S>
(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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
</TABLE>
For the transition period from ....................... to ......................
Commission file number 1-971
HONEYWELL INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
Registrant's telephone number, including area code 612-951-1000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
- --------------------------------------- -----------------------------------------
<S> <C>
Common Stock, par value $1.50 per share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Based on the closing sales price of $71.8125 on February 19, 1999, the
aggregate market value of the voting stock held by nonaffiliates of the
registrant was $9,033,816,021.
As of February 19, 1999, the number of shares outstanding of the
registrant's common stock, par value $1.50 per share, was 126,308,756 shares.
DOCUMENTS INCORPORATED IN PART BY REFERENCE
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<CAPTION>
Incorporated Documents Location in Form 10-K
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<S> <C>
Honeywell Notice of 1999 Annual Meeting and Proxy Statement Part III
</TABLE>
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PART I
ITEM 1. BUSINESS
Honeywell, Inc. is an international controls company that develops and
supplies advanced-technology products, systems and services to homes and
buildings, industry, and space and aviation. These products, systems and
services are designed to conserve energy, protect the environment, improve
productivity, enhance comfort and increase safety.
Honeywell was incorporated in the State of Delaware in 1927. Its principal
offices are located in Minneapolis, Minnesota.
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 14.
HOME AND BUILDING CONTROL
Home and Building Control provides products and services which, are intended
to create efficient, safe, comfortable environments, such as: 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 for heating, ventilation,
air conditioning and lighting in homes, and commercial, industrial and public
buildings. These controls are produced for a variety of applications and
products, including: burner and boiler control, lighting, thermostatic
radiators, pressure regulators for water systems, thermostats, valves and
actuators, ignition controls, humidistats, relays, contactors, transformers,
air-quality products and security products. Home and Building Control systems,
which may be generic or specifically designed for each application, may include
panels and control systems to centralize mechanical and electrical functions.
Through its Consumer Products business, Home and Building Control produces
standalone products such as fans, heaters, thermostats, humidifiers, and air and
water filtration products.
Home and Building Control's Solutions and Services business 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. This business also provides enterprise building
solutions designed to improve business outcomes, including building controls,
facility integration, critical environments, energy and process utilities,
integrated security and asset management, and building information services.
Most of Home and Building Control's products, systems and services are sold
directly to original equipment manufacturers, including manufacturers of heating
and air conditioning equipment, architects and developers, building managers and
owners, and consulting engineers; and through wholesalers, distributors,
dealers, contractors, hardware stores, home-care centers and Honeywell's
nationwide sales and service organization. Standalone consumer products are sold
primarily through retailers such as hardware stores and home-care centers.
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INDUSTRIAL CONTROL
Industrial Control 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.
Industrial Control's Automation and Control business provides process
control systems, and associated application software and services, to customers
to a broad range of markets, including process industries such as: refining oil
and gas, petrochemical, bulk and fine chemical, and pulp-and-paper, as well as
the electric utility, food and consumer goods, pharmaceutical, metals and
transportation industries. Industrial Control also designs and manufactures
process instruments, process controllers, recorders, programmers, programmable
controllers, transmitters and other field instruments, which 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.
Industrial Control's Sensing and Control business 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 Sensing and Control products include optoelectronic
devices, and fiber-optic systems and components, as well as transducers, and
high-accuracy noncontact measurement and detection products for factory
automation, quality inspection and robotics applications.
The Honeywell-Measurex organization within Industrial Control supplies
measurements, control and industrial automation systems that unify business and
control information for the pulp and paper and other continuous web producers.
Honeywell-Measurex serves the paper, plastics, metals, rubber, non-wovens and
printing industries worldwide with sensor-based quality control, distributed
control and cross-directional control systems, web inspection systems, paper
machine actuators and professional services including consulting, optimization,
engineering and installation.
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, and networking and optimization services; as well as training,
customized products for customer applications and a range of other customer
support services.
Industrial Control has an extensive customer base worldwide, including most
of the leading oil refiners, pulp and paper manufacturers, and chemical
companies. Its systems and services are generally sold directly to users on a
monthly or annual contract basis. Products are customarily sold directly to end
users, equipment manufacturers and contractors on a delivered, supervised or
installed basis, 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, and airports.
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
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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
also provides satellite landing systems, airfield lighting products for
airports, surface vehicle tracking systems, and other electronic systems,
including navigational and guidance systems for missiles and military land
vehicles.
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 and services include spacecraft attitude and positioning systems,
precision pointing and isolation systems, and communications services.
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
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.
These operations, as well as transactions involving businesses which have
been discontinued by Honeywell, are reported in the Financial Statements under
the "Other" category.
GENERAL INFORMATION
RAW MATERIALS
Honeywell experienced no significant or unusual problems in the purchase of
raw materials and commodities in 1998. 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 1999.
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PATENTS, TRADEMARKS, LICENSES AND DISTRIBUTION RIGHTS
Honeywell's business as a whole, and that of its segments and their
strategic business units, is not dependent upon any single patent or related
group of patents, or any licenses or 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. Honeywell also 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.
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. 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 $4,388.0 million at December 31, 1998, and $4,244 million at
December 31, 1997. All but approximately $849.6 million of the 1998 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 over 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
4
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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 Honeywell may have
relatively few significant competitors in the small number of the markets for
its highly specialized products and services, in most markets there are many
competitors.
RESEARCH AND DEVELOPMENT
During 1998, Honeywell spent approximately $482 million on research and
development activities, compared with $447 million in 1997 and $353 million in
1996. In 1998, Honeywell also received approximately $300 million, primarily
from the U.S. government, in customer-funded research relating to the
development of new products or services, or the improvement of existing products
or services. Honeywell received $323 million and $341 million, primarily from
the U.S. government, in customer-funded research, in 1997 and 1996 respectively.
ENVIRONMENTAL PROTECTION
Compliance with current federal, state and local provisions regulating the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, has not had, and in the opinion of management
will not have, a material effect on Honeywell's financial position, net income,
capital expenditures or competitive position. See Item 7 at page 18 for further
information concerning environmental matters.
EMPLOYEES
Honeywell employed approximately 57,000 persons in total operations as of
December 31, 1998.
GEOGRAPHIC AREAS
Honeywell engages in operations in over 95 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 limited exposure in high risk countries and 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 55.
5
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EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
POSITION HELD AGE AT
NAME OFFICE SINCE 3/1/99
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<S> <C> <C> <C>
Michael R. Bonsignore (1) Chairman of the Board and Chief Executive Officer 1993 57
Giannantonio Ferrari (2) President and Chief Operating Officer 1997 59
J. Kevin Gilligan (3) President, Solutions and Services Business, Home and 1997 44
Building Control
Edward D. Grayson (4) Vice President and General Counsel 1992 60
William M. Hjerpe (5) President, Honeywell Europe 1997 47
Philip M. Palazzari (6) Vice President and Controller 1994 51
James T. Porter (7) Vice President and Chief Administrative Officer 1996 47
Donald K. Schwanz (8) President, Space and Aviation Control 1997 54
Lawrence W. Stranghoener (9) Vice President and Chief Financial Officer 1997 44
Markos I. Tambakeras (10) President, Industrial Control 1997 47
Albrecht Weiss (11) President, Products Business, Home and Building Control 1997 47
</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.
(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.
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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 21,232,700 square feet of space for use as manufacturing, office
and warehouse space, of which approximately 10,959,400 square feet is owned and
approximately 10,273,300 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 2,611,800 square feet of space, of which
approximately 1,406,100 square feet is owned and approximately 1,205,700 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 726,800 square feet of space owned or leased
by Honeywell's operations in the United States that has been leased or subleased
to third parties. In addition, approximately 3,195,400 square feet of previously
leased space in the United States is under assignment to third parties
(including 1,499,100 square feet, 437,100 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 3,384,600 square feet of
space for operations in the United States, of which approximately 1,396,200
square feet is owned and approximately 1,988,400 square feet is leased.
Outside the United States, Home and Building Control operations occupy
approximately 3,961,600 square feet, of which approximately 1,326,100 square
feet is owned and approximately 2,635,500 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 600,000 Leased
</TABLE>
INDUSTRIAL CONTROL
Industrial Control occupies approximately 3,510,500 square feet of space for
operations in the United States, of which approximately 2,248,200 square feet is
owned and approximately 1,262,300 square feet is leased.
Outside the United States, Industrial Control operations occupy
approximately 2,766,000 square feet, of which approximately 1,077,500 square
feet is owned and approximately 1,688,500 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>
Freeport, Ill. Manufacturing 365,000 Owned
Freeport, Ill. Office 316,000 Owned
Phoenix, Ariz. Manufacturing 550,000 Owned
</TABLE>
SPACE AND AVIATION CONTROL
Space and Aviation Control occupies approximately 4,548,000 square feet of
space for operations in the United States, of which approximately 3,207,300
square feet is owned and approximately 1,340,700 square feet is leased.
Outside the United States, Space and Aviation Control operations occupy
approximately 259,200 square feet, of which approximately 107,000 square feet is
owned and approximately 152,200 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. Mex. Manufacturing 526,600 Owned
Clearwater, Fla. Manufacturing 914,800 Owned
Minneapolis, Minn. Manufacturing 550,000 Owned
Phoenix, Ariz. Manufacturing 939,000 Owned
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
LITTON 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
(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
U.S. District Court Judge Mariana Pfaelzer presided over a three month
patent infringement and tortious interference trial in 1993. On August 31, 1993
a jury returned a verdict in favor of Litton, awarding damages against Honeywell
in the amount of $1.2 billion on three claims. Honeywell filed post-trial
motions contesting the verdict and damage award. On January 9, 1995, the trial
court set them all 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
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any case, not infringed by Honeywell's current process. It further ruled that
Litton's 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 at least 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.
The trial court's rulings were 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 a rehearing of the panel's decision by
the full Federal Circuit appellate court, Honeywell filed a petition 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 against Honeywell's commercial ring laser gyroscope sales.
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 and vacated the July 3, 1996, Federal Circuit panel decision. The case
was remanded to the Federal Circuit panel for reconsideration in light of a
recent decision by the U.S. Supreme Court in the WARNER-JENKINSON VS. HILTON
DAVIS case, which refined the law concerning patent infringement under the
doctrine of equivalents. On March 21, 1997, Litton 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 completed its reconsideration of liability
issues ordered by the U.S. Supreme Court.
The liability issues were argued before the same three judge Federal Circuit
panel on September 30, 1997. On April 7, 1998, the panel issued its decision:
(i) affirming the trial court's ruling that Honeywell's hollow cathode
and RF ion-beam processes do not literally infringe the asserted claims of
Litton's '849 reissue patent ("Litton's patent");
(ii) vacating the trial court's ruling that Honeywell's RF ion-beam
process does not infringe the asserted claims of Litton's patent under the
doctrine of equivalents, but also vacating the jury's verdict on that issue
and remanding that issue to the trial court for further proceedings in
accordance with the WARNER-JENKINSON decision;
(iii) vacating the jury's verdict that Honeywell's hollow cathode process
infringes the asserted claims of Litton's patent under the doctrine of
equivalents and remanding that issue to the trial court for further
proceedings;
(iv) reversing the trial court's ruling with respect to the torts of
intentional interference with contractual relations and intentional
interference with prospective economic advantage, but also vacating the
jury's verdict on that issue, and remanding the issue to the trial court for
further proceedings in accordance with California state law;
(v) affirming the trial court's grant of a new trial to Honeywell on
damages for all claims, if necessary;
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(vi) affirming the trial court's order granting intervening rights to
Honeywell in the patent claim;
(vii) reversing the trial court's ruling that the asserted claims of
Litton's patent were invalid due to obviousness and reinstating the jury's
verdict on that issue; and
(viii) reversing the trial court's determination that Litton had obtained
its '849 reissue patent through inequitable conduct.
Litton's request for a rehearing of the panel's decision by the full Federal
Circuit court was denied and its appeal of the denial of an injunction was
dismissed. The case was remanded to the trial court for further legal and
perhaps factual review. A status conference was held on August 17, 1998 and the
review was held in abeyance during a retrial of damages in the antitrust case in
1998. Honeywell intends to file motions with the trial court to dispose of the
remanded issues as matters of law, but the review procedures remain to be
defined and scheduled by the trial court. If some of the remanded issues are not
disposed of by legal motions, a jury trial of the remaining issues may be
necessary.
When preparing for the patent/tort damages retrial that was scheduled for
May 1997, Litton had submitted a revised damage study to the trial court,
seeking damages as high as $1.9 billion. Honeywell believes that its ion-beam
processes do not infringe Litton's patent, and further, that Litton's damage
study remains flawed and speculative for a number of reasons. Based on the U.S.
Supreme Court's decision in the WARNER-JENKINSON VS. HILTON DAVIS case which
refined the law concerning patent infringement under the doctrine of
equivalents, and the Federal Circuit panel's recent decision remanding certain
issues in the patent/tort case to the trial court, Honeywell also believes that
it is reasonably possible that the trial court will conclude that Honeywell did
not infringe Litton's patent or interfere with its contractual relationships,
and that no damages will ultimately be awarded to Litton. Although is not
possible at this time to predict the outcome of the issues remanded to the trial
court or any further appeals in this case, some potential does remain for
adverse judgments which could be material to Honeywell's financial position or
results of operations. Honeywell believes however, that any potential award of
damages for an adverse judgment of 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. 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.
ANTITRUST CASE -- Preparations for, and conduct of, the trial in the
antitrust case have generally followed the completion of comparable proceedings
in the patent/tort case. The antitrust trial did not begin until November 20,
1995. Judge Pfaelzer also presided over the 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:
(i) engaging in below-cost predatory pricing;
(ii) tying and bundling product offerings under packaged pricing;
(iii) misrepresenting its products and disparaging Litton products; and
(iv) 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:
(i) entering into certain long-term exclusive dealing and penalty
arrangements with aircraft manufacturers and airlines to exclude Litton from
the commercial aircraft market, and
10
<PAGE>
(ii) 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 the attempt to monopolize claim, 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 motions for entry of judgment and 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. 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.
Following the April 7, 1998 Federal Circuit panel decision in the
patent/tort case, Litton again petitioned the trial court to schedule the
retrial of antitrust damages. The trial court tentatively scheduled the trial to
commence in the fourth quarter of 1998, and reopened limited discovery and other
pretrial preparations. Litton then filed another antitrust damage claim of
nearly $300 million.
The damages only retrial began October 29, 1998, before Judge Pfaelzer, but
a different jury. On December 9, 1998, the jury returned verdicts against
Honeywell totaling $250 million, $220 million of which is in favor of Litton
Systems Inc. and $30 million of which is in favor of its sister corporation LSL,
Canada.
On January 27, 1999, the court vacated its prior mistrial ruling with
respect to the attempt to monopolize claim and entered a treble damages judgment
in the total amount of $750 million for actual and attempted monopolization.
Honeywell believes that there was no factual or legal basis for the
magnitude of the jury's award in the damages retrial and that, as was the case
in the first trial, the jury's award should be overturned. Honeywell also
believes there are serious questions concerning the identity and nature of the
business arrangements and conduct which were found by the first antitrust jury
in 1996 to be anti-competitive and damaging to Litton, and there are very strong
grounds to overturn the verdict of liability as a matter of law. Honeywell is
now filing appropriate post-judgment motions with the trial court and Litton
will soon file motions seeking to add substantial attorney's fees and costs to
the judgment. Once the trial court has ruled on those motions, the parties 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. Execution of the
trial court's judgment will be stayed pending resolution of Honeywell's
post-judgment motions and the disposition of any appeals filed by the parties.
Although is not possible at this time to predict the outcome of the motions
before the trial court or any eventual appeals in this case, some potential
remains for adverse judgments which could be material to Honeywell's financial
position or results of operations. 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 also 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
11
<PAGE>
gyroscope-based inertial systems to OEMs and airline customers, under multiple
legal theories, claims, and cases, and that eventually any duplicative recovery
would be eliminated from the antitrust and patent/tort 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.
OTHER PROCEEDINGS
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 1998.
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<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>
1998 First Quarter...................... $ 84 3/4 $ 65 1/2 $ .28
Second Quarter..................... 96 3/8 77 1/2 .28
Third Quarter...................... 90 3/16 61 3/4 .28
Fourth Quarter..................... 84 3/8 58 5/8 .29
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
</TABLE>
Information regarding Honeywell's share repurchase programs is set forth in
Part II, Item 7 at page 24.
Shareowners of record on February 19, 1999 totaled 30,509, excluding
individual participants in security position listings.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS AND SHARES IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Results of Operations
Sales................................................ $8,426.7 $8,027.5 $7,311.6 $6,731.3 $6,057.0
Sales growth rate.................................. 5.0% 9.8% 8.6% 11.1% 1.6%
-------- -------- -------- -------- --------
Cost of sales........................................ 5,677.0 5,425.1 4,975.4 4,584.2 4,082.1
Research and development............................. 481.9 446.6 353.3 323.2 319.0
Selling, general and administrative.................. 1,317.9 1,359.4 1,313.1 1,263.1 1,173.8
Litigation settlements (1)........................... (23.6)
Special charges...................................... 53.7 90.7 62.7
Interest -- net...................................... 102.2 92.5 72.9 68.9 60.2
Gain on sale of businesses........................... (77.1)
Equity income........................................ (11.7) (12.9) (13.3) (13.6) (10.5)
-------- -------- -------- -------- --------
7,597.4 7,324.3 6,701.4 6,225.8 5,687.3
-------- -------- -------- -------- --------
Income from continuing operations before income
taxes............................................... 829.3 703.2 610.2 505.5 369.7
Provision for income taxes........................... 257.3 232.2 207.5 171.9 90.8
-------- -------- -------- -------- --------
Income from continuing operations.................... 572.0 471.0 402.7 333.6 278.9
-------- -------- -------- -------- --------
Net income........................................... $ 572.0 $ 471.0 $ 402.7 $ 333.6 $ 278.9
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net income growth rate............................. 21.4% 17.0% 20.7% 19.6% (13.4)%
Basic Earnings Per Common Share
Continuing operations................................ $ 4.54 $ 3.71 $ 3.18 $ 2.62 $ 2.15
-------- -------- -------- -------- --------
Net income........................................... $ 4.54 $ 3.71 $ 3.18 $ 2.62 $ 2.15
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Basic earnings per share growth rate............... 22.4% 16.7% 21.4% 21.9% (10.4)%
Diluted Earnings Per Common Share.................... $ 4.48 $ 3.65 $ 3.11 $ 2.58 $ 2.15
Diluted earnings per share growth rate............. 22.7% 17.4% 20.5% 20.0% (9.7)%
Cash Dividends Per Common Share...................... $ 1.13 $ 1.09 $ 1.06 $ 1.01 $ 0.97
Dividend growth rate............................... 3.7% 2.8% 5.0% 4.1% 6.6%
Financial Position
Total assets......................................... $7,170.4 $6,411.4 $5,493.3 $5,060.2 $4,885.9
Current assets....................................... $3,621.8 $3,258.2 $2,981.2 $2,766.9 $2,649.4
Current liabilities.................................. $2,452.7 $2,318.9 $2,066.9 $2,022.5 $2,071.8
-------- -------- -------- -------- --------
Working capital...................................... $1,169.1 $ 939.3 $ 914.3 $ 744.4 $ 577.6
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Current ratio........................................ 1.5 1.4 1.4 1.4 1.3
Short-term debt...................................... $ 178.9 $ 146.4 $ 252.4 $ 312.4 $ 360.6
Long-term debt....................................... $1,299.3 $1,176.8 $ 715.3 $ 481.0 $ 501.5
-------- -------- -------- -------- --------
Total debt........................................... $1,478.2 $1,323.2 $ 967.7 $ 793.4 $ 862.1
Shareowners' equity.................................. $2,785.5 $2,389.2 $2,204.9 $2,040.1 $1,854.7
-------- -------- -------- -------- --------
Capitalization....................................... $4,263.7 $3,712.4 $3,172.6 $2,833.5 $2,716.8
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
- ------------------------
(1) In 1998, the settlement of long-standing legal claims resulted in a gain on
$23.6.
14
<PAGE>
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS AND SHARES IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Sales
Home and Building Control............................ $ 3,440.5 $ 3,386.6 $ 3,327.1 $ 3,034.7 $ 2,664.5
Industrial Control................................... 2,516.3 2,547.1 2,199.6 2,035.9 1,835.3
Space and Aviation Control........................... 2,339.1 1,956.9 1,640.0 1,527.4 1,432.0
Other................................................ 130.8 136.9 144.9 133.3 125.2
--------- ---------- ---------- ---------- ----------
Total sales.......................................... $ 8,426.7 $ 8,027.5 $ 7,311.6 $ 6,731.3 $ 6,057.0
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
Operating Profit (1)(2)
Home and Building Control............................ $ 348.9 $ 290.2 $ 345.8 $ 308.6 $ 236.5
Industrial Control................................... 314.2 309.2 254.9 233.8 206.6
Space and Aviation Control........................... 334.0 255.7 163.3 127.6 80.9
Other................................................ 31.2 18.8 6.2 2.8
--------- ---------- ---------- ---------- ----------
Total operating profit............................... 1,028.3 873.9 770.2 672.8 524.0
Operating profit as a percent of sales............... 12.2% 10.9% 10.5% 10.0% 8.7%
Interest expense..................................... (113.0) (101.9) (81.4) (83.3) (75.5)
Equity income........................................ 11.7 12.9 13.3 13.6 10.5
General corporate expense............................ (97.7) (81.7) (91.9) (97.6) (89.3)
--------- ---------- ---------- ---------- ----------
Income before income taxes........................... $ 829.3 $ 703.2 $ 610.2 $ 505.5 $ 369.7
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
External sales by region
United States........................................ $ 5,201.6 $ 4,843.5 $ 4,477.9 $ 4,087.5 $ 3,824.7
Europe............................................... 2,246.0 2,136.1 1,981.7 1,858.9 1,528.5
Other areas.......................................... 979.1 1,047.9 852.0 784.9 703.8
--------- ---------- ---------- ---------- ----------
Total sales.......................................... $ 8,426.7 $ 8,027.5 $ 7,311.6 $ 6,731.3 $ 6,057.0
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
Additional information
Average number of common shares outstanding.......... 126.1 127.1 126.6 127.1 129.4
Return on average shareowners' equity................ 22.8% 20.8% 19.7% 17.1% 15.6%
Shareowners' equity per average common share......... $ 22.09 $ 18.80 $ 17.44 $ 16.09 $ 14.57
Price/Earnings ratio (3)............................. 16.6 18.5 20.7 18.6 14.7
Percent of debt to total capitalization.............. 35% 36% 31% 28% 32%
Research and development
Honeywell-funded................................... $ 481.9 $ 446.6 $ 353.3 $ 323.2 $ 319.0
Customer-funded.................................... $ 300.3 $ 322.5 $ 341.4 $ 336.6 $ 340.5
Capital expenditures................................. $ 353.0 $ 298.3 $ 296.5 $ 238.1 $ 262.4
Depreciation and amortization........................ $ 327.9 $ 319.6 $ 287.5 $ 292.9 $ 287.4
Employees at year-end................................ 57,000 57,500 53,000 50,100 50,800
</TABLE>
- ------------------------
(1) Operating profit in 1998 includes $23.6 gain on litigation settlements as
follows: Home and Building Control, $4.6; Industrial Control, $5.3; Space
and Aviation Control, $1.8; Other, $11.5; and General Corporate Expense,
$0.4. 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 $53.7, $90.7 and
$62.7 in 1998, 1997 and 1994, respectively, as follows: Home and Building
Control, $25.8, $46.9 and $28.7; Industrial Control, $25.8, $40.8 and $14.4;
Space and Aviation Control, $1.4, $0.0 and $19.6; Other, $0.0, $3.0 and
$0.0; and General Corporate Expense, $0.7, $0.0 and $0.0.
(3) Price/Earnings ratio calculated using basic earnings per common share from
continuing operations.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OPERATIONS
SALES
Honeywell's sales increased 5 percent to $8.427 billion in 1998, compared
with $8.028 billion in 1997 and $7.312 billion in 1996. The 1998 increase in
sales was driven by strong growth in Space and Aviation Control offset by
declines in Industrial Control and Home and Building Control's consumer products
business. Sales in the United States of $5.202 billion were up 7 percent,
primarily as a result of increased volume in Space and Aviation Control.
International sales of $3.225 billion increased 4 percent in local currency
terms, and 1 percent after consideration of the stronger U.S. dollar. U.S.
export sales, including exports to foreign affiliates, were $1.211 billion in
1998 compared with $1.165 billion in 1997 and $973 million in 1996.
In 1997, sales benefited from strong demand in Space and Aviation Control's
commercial aviation and commuter jet businesses and the acquisition of Measurex
Corporation. Sales growth in 1996 was the result of increased commercial OEM
business and the introduction of new products in all three businesses.
COST OF SALES
Cost of sales was $5.677 billion in 1998, or 67.4 percent of sales, compared
with $5.425 billion (67.6 percent) in 1997 and $4.975 billion (68.0 percent) in
1996. The decrease in the cost as a percent of sales in 1998 was due to
improvements in Industrial Control, offset by deterioration in Home and Building
Control's consumer products business driven by lower sales. In 1997, cost as a
percentage of sales decreased due to a mix of higher margin products, primarily
in the Space and Aviation Control business. Cost as a percentage of sales
decreased slightly in 1996 due to improved gross-margins in the commercial Space
and Aviation Control business.
RESEARCH AND DEVELOPMENT
Honeywell spent $482 million, or 5.7 percent of sales, on research and
development in 1998, compared with $447 million (5.6 percent) in 1997 and $353
million (4.8 percent) in 1996. The additional spending in 1998 was a result of
increased investment in Space and Aviation Control as it continues to invest in
market leading technology platforms. Honeywell expects to maintain or slightly
decrease its current rate of R&D spending in 1999 as a result of a strong
technology position in many core markets. Honeywell also received, primarily
from the U.S. government, $300 million in funds for customer-funded research and
development in 1998, compared with $323 million in 1997 and $341 million in
1996.
OTHER EXPENSES AND INCOME
Selling, general and administrative expenses were $1.318 billion, or 15.6
percent of sales in 1998, compared with $1.359 billion (16.9 percent) in 1997
and $1.313 billion (18.0 percent) in 1996. Selling, general and administrative
expenses have declined almost 320 basis points since 1995 as a result of the
continued emphasis on improving processes, investment in information systems,
productivity and continued consolidation of our selling, general and
administrative functions. Net interest expense was $102 million in 1998, $93
million in 1997 and $73 million in 1996. Interest expense was 7.8 percent of
average debt in 1998, compared with 7.8 and 8.3 percent in 1997 and 1996,
respectively. Information concerning Honeywell's exposure to, and management of,
interest rate risk through the use of derivative financial instruments is
provided on pages 26 and 27 and in Notes 6, 14 and 15 to the Financial
Statements on pages 44, 47 and 49, respectively.
16
<PAGE>
Earnings of companies owned 20 percent to 50 percent (primarily Yamatake
Corporation), which are accounted for using the equity method, were $12 million
in 1998, $13 million in 1997 and $13 million in 1996.
SPECIAL CHARGES
In 1998, Honeywell's management, with the approval of the Board of
Directors, committed itself to a plan of action and recorded special charges of
$53.7 million intended to reduce operating costs and improve margins. The
special charges by segment are as follows: $25.8 million in Home and Building
Control; $25.8 million in Industrial Control; $1.4 million in Space and Aviation
Control; and $0.7 million at corporate level. Special charges include costs for
work force reductions, worldwide facilities consolidations, reorganizations and
other cost reductions. The work force reduction costs of $45.5 million primarily
include severance costs related to involuntary termination programs instituted
to improve efficiency and reduce costs. Approximately 1,200 employees have been
or will be terminated. Facility consolidation costs amounting to $6.0 million
are primarily associated with combining field office locations, and other cost
reductions totaling $2.2 million. For more information on the special charges,
see Note 3 to the Financial Statements on page 41.
In the second half of 1997, Honeywell recorded special charges of $90.7
million. The actions taken included productivity initiatives and the
rationalization of the Honeywell and Measurex product lines. Special charges
were recorded by Home and Building Control ($46.9 million) and Industrial
Control ($40.8 million) with an additional $3.0 million of special charges
recorded by an operation included in the Other operating segment.
LITIGATION SETTLEMENTS
In December 1998, Honeywell was awarded a favorable settlement of
long-standing litigation claims. Proceeds, after expenses, resulted in a gain of
$23.6 million.
SALES OF BUSINESSES
On July 5, 1998, Honeywell sold Honeywell-Measurex Data Measurement
Corporation located in Gaithersburg, MD, to Metrika Systems Corporation for
$29.0 million in cash. The gain on the sale of this business and the impact on
the financial statements and results of operations were immaterial. In 1997,
Honeywell sold the net assets of Industrial Control's solenoid valve business
for approximately $102 million, resulting in a gain of $64.3 million.
Additionally in 1997, Honeywell 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 in cash and
receivables for a gain of $12.8 million.
INCOME TAXES
The provision for income taxes was $257 million in 1998 or 31 percent,
compared with $232 million in 1997 (33 percent) and $208 million in 1996 (34
percent). The 1998 effective income tax rate was reduced as a result of a
settlement with U.S. tax authorities on previously questioned items. Further
information about income taxes is provided in Note 5 to the Financial Statements
on page 42.
NET INCOME
Honeywell's net income increased 21 percent in 1998, primarily due to the
benefits of Honeywell Quality Value (HQV) Operational Excellence, focused on
reducing costs. Net income was $572 million in 1998, compared with $471 million
in 1997 and $403 million in 1996. Honeywell achieved a 22 percent increase in
its Basic Earnings Per Share in 1998 despite an after-tax provision for special
charges of $34.9 million ($0.28 per share). These special charges were mostly
offset by the after-tax gain on a
17
<PAGE>
litigation settlement of $14.2 million ($0.11 per share) and the favorable
impact of a settlement with U.S. tax authorities on previously questioned items
of $16.7 million ($0.13 per share). Basic and Diluted Earnings Per Share were
$4.54 and $4.48, respectively, in 1998, compared with $3.71 and $3.65 in 1997
and $3.18 and $3.11 in 1996.
RETURN MEASUREMENTS
Return on Equity (ROE) was 22.8 percent in 1998, 20.8 percent in 1997 and
19.7 percent in 1996. Return on Investment (ROI) was 16.2 percent in 1998, 14.6
percent in 1997 and 15.1 percent in 1996. Return on Investment increased
significantly in 1998 due to increased operating margin and more efficient use
of assets.
Economic Value Added (EVA), calculated by subtracting the cost of capital
from operating profits net of tax, continued to improve to $165 million in 1998,
compared to $95 million in 1997, and $92 million in 1996.
OTHER OPERATING SEGMENTS
The "Other" category, which generated revenues of $131 million, $137 million
and $145 million in 1998, 1997 and 1996, respectively, is primarily the result
of Honeywell's research operations. Operating profit for the Other operations
totaled $31 million in 1998, compared to $19 million in 1997 and $6 million in
1996. The 1998 increase was primarily the result of the applicable portion of
the favorable litigation settlement. The operating profit 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 3 percent in 1998 compared with 1997 based
on the weighted average of profits denominated in the principal foreign
currencies in countries where Honeywell products and services were sold. A
stronger dollar has a negative effect on international results because foreign
exchange denominated transactions translate into fewer U.S. dollars. Information
about Honeywell's exposure to, and management of, currency risk through the use
of derivative financial instruments is provided on pages 26 and 27 and in Notes
6, 14 and 15 to the Financial Statements on pages 44, 47 and 49, 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 57,000 people worldwide at year-end 1998, compared with
57,500 employees in 1997 and 53,000 employees in 1996. Approximately 30,750
employees work in the United States, with 26,250 employed in other regions,
primarily in Europe. Total compensation and benefits in 1998 were $3.2 billion,
or 43 percent of total costs and expenses. Sales per employee were $147,800 in
1998, compared with $139,600 in 1997 and $138,500 in 1996.
ENVIRONMENTAL MATTERS
Honeywell is committed to protecting the environment, both through its
products and in its manufacturing operations. A number of its products are
designed to reduce energy consumption and
18
<PAGE>
eliminate hazardous materials from the environment. The company has also
established effective internal programs to foster compliance with environmental
laws and regulations worldwide, and increase environmental awareness, health and
safety.
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; establishing company-wide environmental
health and safety goals targeting reductions in air emissions, hazardous waste
and energy consumption, and the recycling of solid wastes generated, while
decreasing the costs of managing wastes. For more information on these
environmental matters, see Note 20 to the Financial Statements on page 58.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income,"
which was adopted by Honeywell beginning January 1, 1998. SFAS No. 130 requires
the reporting of comprehensive income and its components in the general-purpose
financial statements. This Statement also requires that an entity classify items
of other comprehensive income by their nature in an annual financial statement.
Honeywell has disclosed this information through a Statement of Shareowners'
Equity on page 37.
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 was adopted by Honeywell beginning
January 1, 1998. SFAS 131 redefines how operating segments are determined and
requires disclosure of certain financial and descriptive information about a
company's operating segments. Honeywell has concluded that the current
reportable segments are consistent with the "management approach" methodology
outlined in SFAS 131. The additional disclosures can be found in Note 19 to the
Financial Statements on page 19.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which is effective for fiscal years
beginning after December 15, 1997. SFAS 132 revises and standardizes disclosures
required by SFAS 87, SFAS 88 and SFAS 106. Honeywell has adopted this standard
for its 1998 fiscal year and the required disclosures can be found in Note 21 to
the Financial Statements on page 63.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which is effective for Honeywell on January
1, 2000. SFAS 133 requires companies to record derivatives on the balance sheet
as assets or liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting.
Honeywell is currently reviewing the standard and its effect on the financial
statements.
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," which is effective for fiscal years
beginning after December 15, 1998. Honeywell has elected to adopt this SOP
effective January 1, 1998. The accounting change has a positive impact on Income
before Income Taxes and Net Income. The planned impact of the change to Income
before Income Taxes and Net Income for 1998 was $44.1 million and $29.5 million,
respectively. Basic and Diluted Earnings per share were planned to increase
$0.23 as a result of the change. Since the effect of the accounting change is to
account for software in a manner similar to other capital items such as
property, plant, and equipment, management chose to divert other capital
expenditures to software
19
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related expenditures in 1998. This accelerated the amount spent on capitalized
software from the planned level of $44.1 million to $52.2 million in 1998.
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. Honeywell has adopted this SOP
effective January 1, 1998, and the impact on results of operations and financial
position is immaterial.
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities," which is effective for fiscal years beginning after December 15,
1998. This SOP requires that companies expense start-up costs and organizational
costs as they are incurred. Honeywell has adopted this SOP effective January 1,
1999, and the impact on results of operations and financial position is expected
to be immaterial.
SAFE HARBOR CAUTIONARY STATEMENT
Any 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 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,
which may fluctuate adversely based on local currency valuations;
- changes in macroeconomic conditions in those regions throughout the world
in which Honeywell does business, such as those which have recently
occurred in Asia, Latin America and Eastern Europe, or changes in trade or
monetary policies, any of which may affect customer demand for the
company's products and services;
- 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 ability of material suppliers or key customers of the Company to
reduce or eliminate risks to their businesses or operations arising from
the year 2000 issue;
- 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.
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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, a large installed base and an unmatched distribution network that
supports our customer solutions worldwide.
THREE-YEAR SALES OVERVIEW
Sales in 1998 were $3.441 billion compared with $3.387 billion in 1997 and
$3.327 billion in 1996. Sales were driven by continued solid growth in the
Services business, with strong contributions from both North American and
European markets. This growth was moderated by a planned reduction in the lower
margin Solutions' business, reduced volume in Consumer Products and unusually
warm winters in North America and Europe.
In 1997, Home and Building Control products business experienced strong
sales growth from the international market, driven by demand in our water
products and combustion control businesses. Sales improvement in 1996 resulted
from growth in the retail business, new product introductions in Europe and the
introduction of small to mid-sized building management systems.
THREE-YEAR OPERATING PROFIT OVERVIEW
Home and Building Control's 1998 operating profit was $349 million including
$26 million in special charges compared with $290 million last year, which
includes $47 million in 1997 special charges. Excluding the planned impact of
software capitalization of $18 million, special charges and gains (see Note 19
to the Financial Statements on page 55), operating profits increased 6 percent.
The key drivers of the margin improvement were the strategic repositioning of
the Solutions and Services business, which included improving the quality and
margins of the Solutions business and growing the higher margin Services
business, and the emphasis placed on HQV Operational Excellence programs.
Despite the challenges posed by weather, the Products business also saw solid
profit growth in 1998, with strong growth from our residential products area.
In 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. Excluding the impact of the gain and special charges,
operating profit declined from 1996 due to the mix of lower margin Products
business and lower than expected volume in Solution and Services. In 1996,
profits from Home and Building Control Products improved through volume
increases and cost reductions while profits in Solutions and Services declined
due to a competitive energy retrofit business and investment in programs to
enhance productivity.
BUSINESS STRATEGIES
Our Home and Building Control business began a strategic repositioning at
the beginning of 1998, and the initiatives showed strong results throughout
1998. Growth initiatives in building security continued with key contract wins
around the globe and several strategic acquisitions, including VVE Security,
Inc., and ESD Electronics. Further acquisitions, including Flica, a German-based
company, and Elm, headquartered in Scotland, expanded our cooling and
refrigeration business, while Westinghouse Security Electronics, Inc., enhanced
our commercial component line.
We also showed strong success from the government vertical market. As part
of the U.S. government's policy to reduce energy use 30 percent by 2005,
Honeywell was selected to participate in contracts worth up to $1 billion to
upgrade federal facilities in the 11-state central region and U.S. Air Force
bases in nine western states.
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Operational improvements made in 1998 will enable our customers to decrease
their inventory levels. Working capital is also expected to improve in 1999,
with our build-to-order/build-to-stock program.
INDUSTRIAL CONTROL
Industrial Control is a global leader in automation solutions from sensors
to integrated solutions, and provides systems, products and services for process
industries such as hydrocarbon processing, chemicals and pulp and paper.
Additionally, Industrial 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.
THREE-YEAR SALES OVERVIEW
Industrial Control sales in 1998 were $2.516 billion, compared with $2.547
billion in 1997 and $2.200 billion in 1996. Sales in 1998 were down slightly;
however, after adjusting for divestitures and negative currency fluctuations due
to the stronger dollar, Industrial Control increased sales by 4 percent in a
tough external environment. Despite significant weakness in the pulp and paper,
refining and industrial components markets, Industrial Control remains well
positioned in the industry through the introduction of superior technologies,
leveraging of our installed base and increases in the number of our
market-leading strategic alliances.
In 1997, sales reflected strong demand for the TotalPlant Solution (TPS)
system, the introduction of over 80 new products and the successful acquisition
of Measurex Corporation. 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.
THREE-YEAR OPERATING PROFIT OVERVIEW
Industrial Control operating profit in 1998 was $314 million including
special charges of $26 million compared to $309 million in 1997, which included
special charges of $41 million. In 1998, excluding the planned impact of
software capitalization of $13 million, special charges and gains (see Note 19
to the Financial Statements on page 55), operating profits increased by 15
percent. The increase in profit was driven by substantial earnings improvement
from Honeywell Measurex, the contribution of higher margin services and software
growth and ongoing HQV Operational Excellence programs focused on reducing
overhead and product costs.
In 1997, operating profits were driven by higher volume and improvement in
ongoing productivity initiatives, which offset the negative impact of expenses
associated with the Measurex acquisition. 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.
BUSINESS STRATEGIES
Superior technologies and a focus on HQV Operational Excellence, coupled
with a balanced business model of sensors, systems solutions and services, are
enhancing Industrial Control's strong industry position. Superior technologies
like Industrial Control's Hi-Spec-TM- Software Solutions continue to demonstrate
its competitive position in the marketplace with many strategic contract wins.
In the fourth quarter, China's largest refiner, Sinopec, placed an order for 75
Profit Controller-TM- and Uniformance-TM- system licenses. Since the acquisition
of Measurex, Honeywell is the undisputed leader in the pulp and paper automation
market, and Sensing and Control's growth prospects were enhanced
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with the acquisition of Data Instruments Inc., a $50 million per year
manufacturer of precision sensing devices.
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 1998, including Mobil, CITGO, Exxon, Phillips and
Petrofina.
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 1998, Space and Aviation Control sales were $2.339 billion, compared with
$1.957 billion in 1997 and $1.640 billion in 1996. The 20 percent increase in
sales was driven by strong growth in commercial avionics and solid performance
from the military business. The growth in commercial avionics is the result of a
continued increase in air transport deliveries, collision avoidance systems,
satellite landing systems and business and commuter avionics shipments.
In 1997, strong commercial avionics and business and commuter jet markets
drove 19 percent sales growth from the prior year. Sales in 1996 increased 7
percent from the prior year led by increased commercial aviation OEM business
and our strategies to expand our GPS-based guidance products and systems, pursue
retrofit opportunities and extend our Boeing 777 technology to additional
markets of interest.
THREE-YEAR OPERATING PROFIT OVERVIEW
Space and Aviation Control's 1998 operating profit was $334 million compared
to $256 million in 1997 and $163 million in 1996. Excluding the planned impact
of software capitalization of $12 million, special charges and gains (see Note
19 to the Financial Statements on page 55), operating profits increased 26
percent, driven by the mix of higher margin commercial aviation business and
leverage from higher sales volumes.
Operating profit in 1997 and 1996 increased due to improved margins in
commercial aviation systems, lower development expenses and productivity
improvements.
BUSINESS STRATEGIES
Space and Aviation Control continued to make progress on its growth
initiatives: communication, navigation, surveillance (CNS)/air traffic
management (ATM); aviation services; airport systems; commercial space; tactical
guidance; surface vehicles electronics; and railway electronics. These
initiatives are expected to mitigate many of the cyclical characteristics of the
OEM aerospace business and provide new avenues for business growth. These growth
initiatives leverage Space and Aviation Control's core technologies in
navigation, control displays, flight management and communications. Already, we
are seeing the benefits of our key acquisitions -- Hughey and Phillips and DASA
Airports Systems -- with our first contracts integrating Honeywell's Satellite
Landing System and airfield lighting products. Our aviation services offerings
for business jets have been expanded with the introduction of OneLink-TM-
worldwide satellite communications services, and the OneView-TM- airborne
information system, which provides live video and internet service.
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FINANCIAL POSITION
FINANCIAL CONDITION
At year-end 1998, Honeywell's capital structure was comprised of $179
million of short-term debt, $1.299 billion of long-term debt and $2.786 billion
of shareowners' equity. The ratio of debt-to-total capital was 35 percent,
compared with 36 percent in 1997 and 31 percent at year-end 1996. Total debt
increased $155 million during 1998, to fund general operations.
Shareowners' equity increased $396 million in 1998 driven by net income of
$572 million, stock option exercises and employee stock plan issuances of $122
million and accumulated foreign currency translation of $15 million. The gross
increase of $709 million was offset by $143 million of dividends, $160 million
of treasury stock purchases, and a $10 million change in the pension liability
adjustment.
CASH GENERATION AND DEPLOYMENT
In 1998, $779 million of cash was generated from operating activities,
compared with $645 million in 1997, and $494 million in 1996. The increase in
1998 was largely due to additional net income. In 1998, cash generated from
investing and financing activities included $252 million from the issuance of
debt, $29 million of proceeds from the sale of a business, $68 million of
proceeds from the sale of other assets and $60 million of proceeds from the
exercise of stock options. In 1998, Free Cash Flow, which is cash generated from
operating and investing activities excluding acquisitions and the proceeds from
the sales of businesses, improved to $495 million. In 1998, these funds were
used to support $258 million of acquisitions, net of cash acquired and escrowed,
$143 million of dividend payments and $160 million of payments for share
repurchases. Cash balances increased $172 million in 1998.
CONTROLLED WORKING CAPITAL
Controlled working capital, which consists of trade and long-term
receivables and inventories, offset by accounts payable and customer advances,
consumed $6 million of cash in 1998, compared with a usage of $45 million in
1997. Average working capital as a percentage of sales improved 70 basis points
to 24.0 percent in 1998 compared with 24.7 percent in 1997 and 24.6 percent in
1996. The decrease in controlled working capital as a percent of sales in 1998
was primarily driven by additional customer advances and a decrease in
receivables.
INVESTMENT
Honeywell continues to invest in its businesses at levels it believes to be
necessary to enhance its technological leadership position. Capital expenditures
for property, plant, equipment and software were $353 million in 1998, compared
with $298 million in 1997 and $296 million in 1996, while depreciation charges
were $250 million in 1998. The increase in 1998 capital expenditures was
primarily driven by the adoption of SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which resulted in $52
million of capitalized software costs as described on page 19. During 1998,
Honeywell invested an additional $281 million in complementary business
acquisitions (see Note 2 to the Financial Statements on page 40). In addition,
Honeywell invested $482 million in research and development activities in 1998,
compared with $447 million in 1997 and $353 million in 1996.
SHARE REPURCHASE PROGRAMS
In October 1997, the Board of Directors authorized a program to repurchase
$350 million of Honeywell shares of which $160 million was used during 1998 and
$116 million in 1997. In October of 1998, the Board of Directors authorized a
new program to repurchase $400 million of Honeywell shares, of which none has
been used. The purpose of the repurchase program is to acquire shares to be
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issued as part of Honeywell's Stock and Incentive Plans and other issuances as
described in Note 17 to the Financial Statements on page 51. Honeywell
repurchased a total of $160 million of shares in 1998, $154 million in 1997 and
$163 million in 1996.
At year-end 1998, Honeywell had issued 188 million shares, of which 126
million were outstanding. On December 31, 1998, there were 30,533 shareowners of
record. At year-end 1997, Honeywell had 188 million shares issued, 126 million
shares outstanding and 30,821 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 23 years. In October 1997, the Board
of Directors approved an additional 4 percent increase in the dividend to $1.12
per share effective in the fourth quarter 1997. In October of 1998, the Board of
Directors approved an additional 4 percent increase in the dividend to $1.16 per
share effective in the fourth quarter of 1998. Honeywell paid $1.13 per share in
dividends in 1998, compared with $1.09 per share in 1997 and $1.06 in 1996.
EMPLOYEE STOCK PROGRAMS
In 1998, Honeywell contributed 555,746 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. Additionally in 1998, new stock purchase programs were
initiated in the U.S., Canada, and several European countries to increase
employee ownership of Honeywell Stock. Under these programs, employees who are
participants in the program can buy stock at a discount from market prices.
Employees purchased 290,959 shares of stock pursuant to the U.S. and
International Employee Stock Purchase Plans established in 1998. For more
information on these plans, see Note 17 to the Financial Statements on page 51.
STOCK PERFORMANCE
The market price of Honeywell stock ranged from $58 5/8 to $96 3/8 in 1998,
and was $75 5/16 at year-end. Book value per common share at year-end was $22.09
in 1998, $18.80 in 1997 and $17.44 in 1996.
PENSION CONTRIBUTIONS
Cash contributions to Honeywell's pension and retirement plans were $155
million in 1998, $215 million in 1997 and $201 million in 1996.
TAXES
In 1998, Honeywell paid $277 million in taxes compared to $204 million in
1997. The amount Honeywell accrued for income taxes and related interest
decreased $10 million from 1997.
LIQUIDITY
Short-term debt at year-end 1998 was $179 million, consisting of no
commercial paper, $53 million of notes payable and $126 million of current
maturities of long-term debt. Short-term debt at year-end 1997 totaled $146
million, consisting of $43 million of commercial paper, $39 million of notes
payable and $64 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 best-efforts basis. The interest rates
for Honeywell's material lines of credit are indexed to a rate, such as Prime,
LIBOR, or Commercial Paper. Available general-purpose lines of credit at
year-end 1998 were $1.771 billion. This consisted of $1.325 billion of committed
credit lines to meet Honeywell's financing
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requirements, including support of commercial paper and bank note borrowings,
and $446 million of uncommitted credit lines available to certain foreign
subsidiaries. This compared with $1.683 billion of available credit lines at
year-end 1997, consisting of $1.325 billion of committed credit lines and $358
million of uncommitted credit lines. 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. On June 15, 1998, Honeywell
issued $250 million in debentures with a coupon rate of 6 5/8 percent maturing
on June 15, 2028. At December 31, 1998, $250 million remained available for
issuance under the shelf registration. Long-term debt maturities consist of $126
million in 1999, $78 million in 2000 and $117 million in 2001. 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 $50 million
Canadian dollars on an ongoing basis for cash (see Note 8 to the Financial
Statements on page 45).
Cash and short-term investments totaled $313 million at year-end 1998 and
$159 million at year-end 1997. Honeywell believes its available cash, committed
credit lines, receivables program and access to the public debt markets, through
its debt securities and commercial paper programs, provide adequate short-term
and long-term liquidity.
CREDIT RATINGS
As of December 31, 1998, 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/D-1 by Duff and Phelps
Corporation.
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
to the Financial Statements on pages 44 and 49, respectively). Such exposures
have resulted from cross-border transactions principally in Belgian francs,
Deutsche marks and Great Britain pounds. 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, anticipated transactions, firm
purchase orders and firm sales commitments. At year-end 1998, the notional
amount of outstanding foreign exchange contracts were $1.072 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 management. 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 to the Financial
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Statements on pages 47 and 49, respectively). At year-end 1998, the notional
amount of outstanding interest rate swaps was $1.000 billion.
VALUE AT RISK:
To estimate the maximum potential loss in the fair market value of financial
instruments 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 and correlation of these rates in
the future. The calculated volatility is used to estimate the potential loss in
the fair market value of financial 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
in the fair market value of Honeywell's financial instruments 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, 1998.
The value at risk for the combined portfolio was $11.8 million at December
31, 1998. This amount 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 average value at risk
represents the simple average of the quarterly amounts for the past year. The
value at risk for the combined portfolio and the individual components are as
follows:
VALUE AT RISK
(IN MILLIONS)
<TABLE>
<CAPTION>
AVERAGE DECEMBER 31
----------- --------------------
1998 1998 1997
----------- --------- ---------
<S> <C> <C> <C>
Combined Portfolio.................................................. $ 9.5 $ 11.8 $ 6.8
Foreign Exchange.................................................. $ 4.4 $ 3.6 $ 6.1
Interest Rates.................................................... $ 6.8 $ 10.4 $ 2.3
</TABLE>
The increase in the value at risk associated with interest rates is
primarily due to the extended duration of Honeywell's debt portfolio from the
issuance of a 30-year bond in 1998. Value at risk measures the potential
decrease in the fair market value of financial instruments given estimated
changes in foreign exchange rates and interest rates. Long-term financial
instruments, which are price sensitive to interest rates, will result in a
higher calculation of value at risk. However, changes in value of debt
instruments used for financing operations do not affect the cash flows of
Honeywell. Consequently, the increase in the value at risk associated with
interest rates is not considered to be a material risk to the company.
The value at risk amounts presented above for foreign exchange and interest
rates 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 accounts receivable and accounts payable denominated in foreign
currencies, which certain of these instruments are intended to hedge, were
excluded from the model due to model limitations. Since Honeywell utilized
foreign exchange contracts to hedge foreign currency transactions, a loss in
fair value for these instruments is generally offset by increases in the value
of the underlying transaction. The quantitative information generated by the
value at risk model is limited by the parameters built into the model that rely
on historical results, which may not be representative of future events.
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.
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YEAR 2000 READINESS DISCLOSURES
BACKGROUND
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. This is generally referred to as the "year 2000
issue," which may affect the performance of computer programs, hardware,
software and other products with embedded computer technology that is date
sensitive. Unless corrective action is taken to ensure that such items are "year
2000 ready," which means that they will be able to process dates and times in
such a manner that their technical and functional requirements will continue to
be met without interruption for the year 2000, they may generate erroneous data
or cause systems, equipment or other products to fail.
HONEYWELL'S YEAR 2000 PROGRAM
In the fourth quarter of 1995, Honeywell initiated a program to determine
whether or not its business systems, operations and products are year 2000
ready. This program addresses the company's information technology systems and
other systems with embedded computer technology; products provided to customers;
products purchased from suppliers; and most recently, the year 2000 readiness of
its significant customers.
PRODUCT READINESS
Substantially all of Honeywell's current products have been tested
internally to ascertain if they are year 2000 ready. Approximately 99 percent of
these products are year 2000 ready and the remainder is expected to be so by the
end of first quarter 1999. The company expects to complete its tests by the end
of first quarter 1999. In some areas of its businesses, Honeywell is conducting
external integration tests of year 2000 ready products in existing customer
systems to verify that they are compatible with such systems.
Certain older products that are still in use by Honeywell customers and
subject to warranties or service contracts, may not be year 2000 ready.
Honeywell is formally communicating with distributors and direct customers to
make them aware of any potential problems that may result from the use of such
products and encouraging them to modify or replace same, or providing warranty
or contract service as appropriate. The process is complete except for some of
the security products, and communication related to these products is expected
to be completed during first quarter 1999. For older products which are not year
2000 ready, and were sold through distributors or are no longer under warranty
or service contracts, various means are being employed to raise the awareness of
any potential year 2000 problems, including advertising and contracting with
external service providers to help identify current owners.
Honeywell realizes that new year 2000 issues may arise, and if so, will
notify customers as appropriate.
SUPPLIER READINESS
Honeywell has sent questionnaires to substantially all suppliers who furnish
products or services to the company, to ascertain whether products or services
supplied are year 2000 ready, as well as the effect the year 2000 issue may have
on their ability to continue supplying same. At least 300 suppliers have been
identified by the company as critical to its business and the various business
units are investigating a greater number to verify that critical supplier
products or services will be year 2000 ready. Various methods are being used to
validate supplier readiness, including symposiums, site visits and telephone
interviews. The verification process is expected to be completed during the
third
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quarter of 1999 and contingency plans will be implemented for critical suppliers
identified to be at risk.
INTERNAL SYSTEMS READINESS
In 1993, prior to the commencement of the Honeywell year 2000 program, the
company implemented a program to upgrade most of its key information technology
(IT) systems to common applications software packages, with completion scheduled
prior to the year 2000. Recent revisions of these packages are marketed as year
2000 ready; however, Honeywell has decided it is necessary to validate this is
true in our environment. While Honeywell expects its critical internal business
systems to be year 2000 ready by third quarter 1999, integration testing of the
software packages may extend beyond that date. Critical business systems of
Honeywell Measurex Corporation, a company acquired in March 1997, are planned to
be year 2000 ready by the end of the third quarter of 1999. The remainder of
Honeywell's business systems which are considered to have a financial or
operational impact on its businesses, are expected to be year 2000 ready by the
end of 1999.
The company is still assessing the status of its non-IT systems and making
repairs or upgrades to such systems as necessary. It expects to conclude this
effort during the third quarter of 1999 for critical non-IT systems, and by the
end of 1999 for other non-IT systems which are considered to have a financial or
operational impact on its businesses. Honeywell does not expect the costs
associated with the remediation of non-IT systems to be material, and such costs
are included in the amounts forecasted for contingencies in 1999 as discussed
below under the caption "Costs."
CUSTOMER READINESS
Honeywell recently expanded its year 2000 program to evaluate the readiness
of its significant customers to deal with the year 2000 issue and the effect, if
any, that it may have on their requirements for Honeywell's products and
services. Though Honeywell does not foresee any significant problems in this
area, the information collected to date as part of this effort is not sufficient
to form a basis for any conclusions regarding customer readiness and its effect,
if any, on customer demand for the company's products and services. Honeywell
expects to complete its assessment of the readiness of significant customers by
July 1999, though no assurance can be given that all customers will respond to
its inquiries or that all responses will be accurate.
RISKS/CONTINGENCY PLANS
Honeywell's products are used in a wide variety of control applications
including, but not limited to, industrial processing control systems, home and
building products and automation control systems, and space and aviation control
systems. In a most likely worst case scenario, if Honeywell's products are not
year 2000 ready, a control application could be disrupted, which could affect
the ability of the system in which it is installed to function properly,
depending on other safeguards. Similarly, if customers are unable to conduct
adequate integration testing of Honeywell's year 2000 ready products within
their equipment or systems, they could experience temporary equipment or systems
failure if compatibility problems arise. While the company does not expect any
worst case scenario to occur, it is working closely with customers of critical
systems to advise them of potential problems and the need to complete systems
integration testing.
If a critical supplier cannot supply products or services to Honeywell that
are year 2000 ready, or if the supplier is adversely affected by the year 2000
issue, that source of supply could be interrupted. This could affect the ability
of Honeywell to supply other products or services, or disrupt a business
operation which is dependent thereon. Furthermore, if a year 2000 issue
affecting a component is not detected by a supplier, it could affect the
performance of the product or system of which it becomes a part and possibly
cause one or more of the scenarios discussed above to occur. To reduce the risk
of
29
<PAGE>
such occurrences, Honeywell is taking steps to verify the year 2000 readiness of
all critical suppliers as discussed above under the caption "Supplier
Readiness." In addition, each of Honeywell's business units is developing
contingency plans to identify substitute materials, services and alternate
suppliers.
Honeywell expects that all of its internal applications systems will be year
2000 ready by the end of 1999. However, if its strategies to replace its order
management systems in some European countries is not completely executed prior
to the year 2000, there may be difficulty in processing customer orders in such
countries. Contingency plans have been developed to mitigate such risks and will
be implemented if necessary.
Honeywell acquires other companies from time to time as part of its business
development strategy, and it anticipates that acquisitions will continue through
the year 2000. In the course of conducting due diligence investigations of
acquisition candidates, Honeywell endeavors to ascertain whether or not their
products or services, or those of their critical suppliers, are year 2000 ready,
and whether or not such suppliers and key customers, if any, will be adversely
affected by the year 2000 issue. While acquisition candidates may provide
certain information or make representations and warranties regarding year 2000
readiness, in some cases, Honeywell may be unable to verify same until the
acquisition is completed and the steps outlined herein as part of Honeywell's
year 2000 program are undertaken.
COSTS
Honeywell estimates that historical and future costs associated with its
year 2000 program will not exceed $60 million for fiscal years 1995 through
1999. Approximately $20 million in costs have been incurred in fiscal year 1998,
and $30 million has been forecasted for the 1999 fiscal year to cover additional
costs and contingencies. Funding for the 1998 and 1999 costs was previously
forecasted as part of Honeywell's operating expenditures and included in the
company's budgets. Management believes that 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.
The preceding "Year 2000 Readiness Disclosures" contain forward-looking
statements of Honeywell's expectations regarding the ability of its products and
systems to be year 2000 ready, as well as its ability to assess the readiness of
its suppliers and customers, and related risks. These statements relate to
future events, the outcome of which is uncertain, and should be read in
conjunction with the cautionary factors listed in Exhibit 99(i) to this report.
EURO CURRENCY
In January 1999, the European Monetary Union (EMU) entered into a three-year
transition phase during which a common currency called the Euro was introduced
in participating countries. Initially, this new currency is being 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.
UNCERTAINTIES RELATED TO THE EURO CONVERSION
In 1996, Honeywell began studying the ongoing process of European
integration, focussing on issues and opportunities created by the EMU. Task
teams were established to develop Honeywell's Euro strategies and policies. The
findings of these teams have been integrated into our strategic and operational
plans. At this time, there are no significant remaining uncertainties related to
the Euro conversion and no material impact has been identified.
30
<PAGE>
COMPETITIVE IMPLICATIONS
Making a broader European market requires product lines to become more
international and less local. In 1993, Honeywell restructured and its market
focus was changed from a country basis to a European line-of-business approach.
Today, our pricing strategies are largely European, except in those instances
where technical or cultural market characteristics warrant price
differentiation. The expectations of our customers, with respect to the currency
to be used in the transition period have been reflected in our changeover
strategies, resulting in a pro-active dual currency capability since January 1,
1999. The same approach with our suppliers will allow us to benefit from the
increased price transparency on the cost side. Plans are in place, including
shared service centers and consolidation of operations, to pursue the economies
of scale offered by the single European market. We believe converting to the
Euro has no material impact on Honeywell's competitive position.
INFORMATION TECHNOLOGY AND OTHER SYSTEMS
Compliance with European Commission regulations concerning conversion,
triangulation and rounding rules related to the Euro introduction, have been
addressed in detailed action plans involving all information systems in all
Honeywell units, both for in-house and purchased systems. The cost of
modification is insignificant, as the action plan builds on new systems
implementation required for shared services and Year 2000 readiness. Timelines
for implementation have been established, adequate resources are available and
contingency plans are in place. We believe converting the information technology
and other systems to the Euro has no material impact on Honeywell.
CURRENCY RISK
With the convergence of short-term interest rates in the EMU countries,
observed during the last two years, the foreign exchange exposure between the
currencies of these countries has diminished considerably. Our foreign exchange
exposure management has systematically been adapted to this evolution, thereby
benefiting from reduced hedging cost. The definitive fixing of the exchange
rates will only make this benefit permanent without creating any other issue or
opportunity other than eliminating the spread on the spot exchange. All balance
sheet exposures between EMU currencies and non-EMU currencies are systematically
hedged from month to month. The functional currency will not change to Euro in
1999 in any of the Honeywell units concerned. Current plans call for functional
currency conversion by year-end 2001. We do not anticipate this change will have
a material impact on Honeywell. We believe converting to the Euro has no
material impact on Honeywell's currency exchange cost and/or risk exposure.
DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS, CONTINUITY OF CONTRACT AND
TAXATION
We believe converting to the Euro has no material impact on outstanding
derivatives, other financial instruments, continuity of contract or taxation.
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
31
<PAGE>
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.
In 1993 and 1995, trials were held in each case and juries initially awarded
Litton significant monetary damages. However, those verdicts were set aside by
the trial court judge who ordered at minimum, new trials on the issue of damages
in each case.
Following cross-appeals by the parties of various issues to the Federal
Circuit and the U.S. Supreme Court in the patent/tort case, it has been remanded
to the trial court for further legal and perhaps factual review with respect to
both liability and damages. This review was held in abeyance during a retrial of
the anti-trust damages in 1998 and its procedures remain to be defined and
scheduled by the trial court.
The retrial of damages in the antitrust case commenced October 29, 1998 and
on December 9, 1998, a jury returned a verdict against Honeywell for actual
damages in the amount of $250 million. On January 27, 1999, trial court entered
a treble damages judgment in the total amount of $750 million for actual and
attempted monopolization. Honeywell believes that there is no factual or legal
basis for the magnitude of the jury's award and believes that it should be
overturned. Honeywell intends to file appropriate post-judgment motions with the
trial court and Litton will move to add substantial attorneys fees and costs to
the judgment. Honeywell also believes it has very strong arguments that the
liability portion of the jury verdict in the first antitrust trial was
erroneous. Once the trial court rules on those motions, the parties 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.
For a detailed discussion of this litigation, see Note 20 to the Financial
Statements on page 58.
32
<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, 1998 and 1997, and the related statements of
income, shareowners' equity and cash flows for each of the three years in the
period ended December 31, 1998. Our audits also included the financial statement
schedule listed at Part IV, Item 14(a). These financial statements and financial
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statements and financial statement
schedule based on our audits.
We 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, 1998 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Deloitte & Touche LLP
Minneapolis, Minnesota
February 10, 1999
33
<PAGE>
INCOME STATEMENT
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS AND SHARES IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- ---------- ----------
Sales......................................................................... $ 8,426.7 $ 8,027.5 $ 7,311.6
Costs and Expenses
Cost of sales............................................................... 5,677.0 5,425.1 4,975.4
Research and development.................................................... 481.9 446.6 353.3
Selling, general and administrative......................................... 1,317.9 1,359.4 1,313.1
Gain on sale of businesses.................................................. (77.1)
Litigation settlements...................................................... (23.6)
Special charges............................................................. 53.7 90.7
--------- ---------- ----------
Total Costs and Expenses...................................................... 7,506.9 7,244.7 6,641.8
--------- ---------- ----------
Interest
Interest expense............................................................ 113.0 101.9 81.4
Interest income............................................................. 10.8 9.4 8.5
--------- ---------- ----------
Net Interest.................................................................. 102.2 92.5 72.9
--------- ---------- ----------
Equity Income................................................................. 11.7 12.9 13.3
--------- ---------- ----------
Income before Income Taxes.................................................... 829.3 703.2 610.2
Provision for Income Taxes.................................................... 257.3 232.2 207.5
--------- ---------- ----------
Net Income.................................................................... $ 572.0 $ 471.0 $ 402.7
--------- ---------- ----------
--------- ---------- ----------
Basic Earnings Per Common Share............................................... $ 4.54 $ 3.71 $ 3.18
--------- ---------- ----------
--------- ---------- ----------
Average Number of Basic Common Shares Outstanding............................. 126.1 127.1 126.6
--------- ---------- ----------
--------- ---------- ----------
Diluted Earnings Per Common Share............................................. $ 4.48 $ 3.65 $ 3.11
--------- ---------- ----------
--------- ---------- ----------
Average Number of Diluted Common Shares Outstanding........................... 127.8 129.2 129.5
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
See accompanying Notes to Financial Statements.
34
<PAGE>
STATEMENT OF FINANCIAL POSITION
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Current Assets
Cash and cash equivalents................................................................... $ 306.0 $ 134.3
Short-term investments...................................................................... 7.2 24.9
Receivables................................................................................. 1,906.7 1,837.8
Inventories................................................................................. 1,116.0 1,028.0
Deferred income taxes....................................................................... 285.9 233.2
--------- ---------
Total Current Assets...................................................................... 3,621.8 3,258.2
Investments and Advances...................................................................... 269.9 243.8
Property, Plant and Equipment
Property, plant and equipment............................................................... 3,355.8 3,045.0
Less accumulated depreciation............................................................... (2,097.4) 1,916.3
--------- ---------
Net Property, Plant and Equipment......................................................... 1,258.4 1,128.7
Other Assets
Long-term receivables....................................................................... 34.0 39.2
Goodwill.................................................................................... 952.2 786.0
Intangibles................................................................................. 343.0 376.0
Deferred income taxes....................................................................... 18.9 41.7
Other....................................................................................... 672.2 537.8
--------- ---------
Total Assets.............................................................................. $ 7,170.4 $ 6,411.4
--------- ---------
--------- ---------
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities
Short-term debt............................................................................. $ 178.9 $ 146.4
Accounts payable............................................................................ 676.6 634.2
Customer advances........................................................................... 340.2 269.7
Accrued compensation and benefit costs...................................................... 280.0 271.2
Accrued income taxes........................................................................ 334.4 344.2
Deferred income taxes....................................................................... 18.0 11.3
Other accrued liabilities................................................................... 624.6 641.9
--------- ---------
Total Current Liabilities................................................................. 2,452.7 2,318.9
Long-Term Debt................................................................................ 1,299.3 1,176.8
Other Liabilities
Accrued benefit costs....................................................................... 457.3 435.9
Deferred income taxes....................................................................... 66.2 51.4
Other....................................................................................... 109.4 39.2
--------- ---------
Total Liabilities......................................................................... 4,384.9 4,022.2
Shareowners' Equity
Common stock -- $1.50 par value
Authorized -- 250,000,000 shares
Issued -- 1998 -- 187,536,597 shares........................................................ 281.3
1997 -- 187,633,023 shares......................................................... 281.5
Additional paid-in capital.................................................................. 697.6 608.4
Retained earnings........................................................................... 3,835.9 3,407.0
Treasury Stock -- 1998 -- 61,206,715 shares................................................. (2,005.5)
1997 -- 61,433,075 shares................................................... (1,879.3)
Other comprehensive income.................................................................. (23.8) (28.4)
--------- ---------
Total Shareowners' Equity................................................................... 2,785.5 2,389.2
--------- ---------
Total Liabilities and Shareowners' Equity................................................... $ 7,170.4 $ 6,411.4
--------- ---------
--------- ---------
</TABLE>
See accompanying Notes to Financial Statements.
35
<PAGE>
STATEMENT OF CASH FLOWS
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income........................................................................ $ 572.0 $ 471.0 $ 402.7
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation.................................................................... 249.6 246.0 236.1
Amortization of intangibles..................................................... 78.3 73.6 51.4
Deferred income taxes........................................................... (2.6) (19.5) 38.5
Equity income, net of dividends received........................................ (9.6) (10.3) (10.8)
Gain on sale of businesses...................................................... (77.1)
Gain on sale of assets.......................................................... (9.1) (7.3) (12.0)
Contributions to employee stock plans........................................... 59.9 48.9 38.2
Increase in receivables......................................................... (10.8) (60.7) (203.0)
Increase in inventories......................................................... (38.5) (67.1) (89.9)
Increase (decrease) in accounts payable......................................... (1.6) 38.3 51.8
Increase in customer advances................................................... 45.1 45.0 45.9
Increase in accrued income taxes and interest................................... 3.9 49.7 57.4
Increase (decrease) in accrued liabilities...................................... (72.0) 113.2 35.5
Other noncurrent items -- net................................................... (85.3) (199.1) (148.0)
--------- --------- ---------
Net Cash Flows from Operating Activities............................................ 779.3 644.6 493.8
--------- --------- ---------
Cash Flows from Investing Activities
Proceeds from sale of assets...................................................... 68.0 77.2 90.3
Proceeds from sale of business.................................................... 29.0 100.6
Capital expenditures.............................................................. (353.0) (298.3) (296.5)
Investment in acquisitions........................................................ (258.2) (598.4) (376.2)
(Increase) decrease in short-term investments..................................... 1.0 0.4 (0.2)
Other -- net...................................................................... (0.7) 5.6 0.4
--------- --------- ---------
Net Cash Flows from Investing Activities............................................ (513.9) (712.9) (582.2)
--------- --------- ---------
Cash Flows from Financing Activities
Net increase (decrease) in short-term debt........................................ (32.1) (73.4) 18.8
Proceeds from issuance of long-term debt.......................................... 252.2 597.7 340.4
Repayment of long-term debt....................................................... (70.7) (182.3) (188.8)
Purchase of treasury stock........................................................ (159.6) (154.3) (163.2)
Proceeds from exercise of stock options........................................... 60.2 44.7 57.3
Dividends paid.................................................................... (143.2) (140.1) (133.5)
--------- --------- ---------
Net Cash Flows from Financing Activities............................................ (93.2) 92.3 (69.0)
--------- --------- ---------
Effect of Exchange Rate Changes on Cash............................................. (0.5) (16.8) (7.1)
--------- --------- ---------
Increase (Decrease) in Cash and Cash Equivalents.................................... 171.7 7.2 (164.5)
Cash and Cash Equivalents at Beginning of Year...................................... 134.3 127.1 291.6
--------- --------- ---------
Cash and Cash Equivalents at End of Year............................................ $ 306.0 $ 134.3 $ 127.1
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying Notes to Financial Statements.
36
<PAGE>
STATEMENT OF SHAREOWNERS' EQUITY
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
ACCUMULATED
RETAINED OTHER
EARNINGS COMPREHENSIVE COMMON TREASURY PAID-IN
TOTAL (2) INCOME (1) STOCK STOCK CAPITAL
--------- ----------- --------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Beginning Balance 1/1/96..................... $ 2,040.1 $ 2,805.8 $ 121.0 $ 282.2 $(1,650.2) $ 481.3
Comprehensive Income
Net income................................. 402.7 402.7
Other comprehensive income (1)
Currency translation adjustments......... (52.7) (52.7)
Pension liability adjustment (1)......... 14.9 14.9
--------- ----------- ------- ----------- --------- -----------
Other comprehensive income................. (37.8) (37.8)
--------- ----------- ------- ----------- --------- -----------
Comprehensive Income......................... 364.9
Common Stock Issued.......................... 96.9 (0.5) 49.9 47.5
Treasury Stock Acquired...................... (163.2) (163.2)
Dividends Declared on Common Stock........... (133.8) (133.8)
--------- ----------- ------- ----------- --------- -----------
Ending Balance 12/31/96...................... $ 2,204.9 $ 3,074.7 $ 83.2 $ 281.7 $(1,763.5) $ 528.8
--------- ----------- ------- ----------- --------- -----------
--------- ----------- ------- ----------- --------- -----------
Comprehensive Income
Net income................................. 471.0 471.0
Other comprehensive income (1)
Currency translation adjustments......... (109.6) (109.6)
Pension liability adjustment (1)......... (2.0) (2.0)
--------- ----------- ------- ----------- --------- -----------
Other comprehensive income................. (111.6) (111.6)
--------- ----------- ------- ----------- --------- -----------
Comprehensive Income......................... 359.4
Common Stock Issued.......................... 117.9 (0.2) 38.5 79.6
Treasury Stock Acquired...................... (154.3) (154.3)
Dividends Declared on Common Stock........... (138.7) (138.7)
--------- ----------- ------- ----------- --------- -----------
Ending Balance 12/31/97...................... $ 2,389.2 $ 3,407.0 $ (28.4) $ 281.5 $(1,879.3) $ 608.4
--------- ----------- ------- ----------- --------- -----------
--------- ----------- ------- ----------- --------- -----------
Comprehensive Income
Net income................................. 572.0 572.0
Other comprehensive income (1)
Currency translation adjustments......... 14.5 14.5
Pension liability adjustment (1)......... (9.9) (9.9)
--------- ----------- ------- ----------- --------- -----------
Other comprehensive income................. 4.6 4.6
--------- ----------- ------- ----------- --------- -----------
Comprehensive Income......................... 576.6
Common Stock Issued.......................... 122.4 (0.2) 33.4 89.2
Treasury Stock Acquired...................... (159.6) (159.6)
Dividends Declared on Common Stock........... (143.1) (143.1)
--------- ----------- ------- ----------- --------- -----------
Ending Balance 12/31/98...................... $ 2,785.5 $ 3,835.9 $ (23.8) $ 281.3 $(2,005.5) $ 697.6
--------- ----------- ------- ----------- --------- -----------
--------- ----------- ------- ----------- --------- -----------
</TABLE>
- ------------------------------
(1) All items included in other comprehensive income are shown net of income
taxes. The tax effect for the pension liability adjustment was $(6.2),
$(1.3) and $9.4 for 1998, 1997 and 1996, respectively.
(2) Included in retained earnings are undistributed earnings of companies 20 to
50 percent owned, amounting to $175.1, $165.5, and $155.2 at December 31,
1998, 1997 and 1996, respectively.
(3) Accumulated other comprehensive income is comprised of accumulated currency
translation of $(6.9), $(21.4) and $88.2; and pension liability adjustment
of $(16.9), $(7.0) and $(5.0) at December 31, 1998, 1997 and 1996,
respectively.
See accompanying Notes to Financial Statements.
37
<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 could differ from these 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
Basic Earnings Per Share (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 purchasable from the proceeds of the
options assumed to be exercised. See Note 4 on page 42 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 that are not considered cash
equivalents are classified as cash flows from investing activities.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
using the weighted-average method. Market is based on net realizable value.
Payments received from customers relating to the uncompleted portion of
contracts are deducted from applicable inventories.
INVESTMENTS
Investments in companies owned 20 to 50 percent are accounted for using the
equity method.
38
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)
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, up to 5 years for software and 3 to 15 years for machinery and
equipment.
In 1998, Honeywell adopted Statement of Position (SOP) 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use," and
began to capitalize the costs of developing software for internal use. Honeywell
previously only capitalized purchased software when costs exceeded $250
thousand. The amount of software capitalized in 1998 was $52.2.
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, 4 to 17 years
for patents, licenses and trademarks and 3 to 24 years for 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. Derivatives used
for hedging purposes must be designated as, and effective as, a hedge of an
identified risk exposure at the inception of the contract. Accordingly, changes
in the fair market value of the derivative contract must be highly correlated
with the changes in the fair market value of the underlying hedged item both at
the inception of the hedge and over the life of the hedge contract.
Foreign exchange contracts are accounted for as hedges to the extent they
are designated as, and are effective as, hedges of firm or anticipated foreign
currency commitments. Any foreign exchange contracts designated but no longer
effective as a hedge are marked to market and the related gains and losses are
recognized in earnings.
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. Cash
flows from such terminations are classified according to the underlying
financial instrument the contract was designated to hedge. Open interest rate
contracts are reviewed regularly to ensure that they remain effective as hedges
of interest rate exposure.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which is effective for Honeywell on January
1, 2000. SFAS 133 requires companies to record derivatives on the balance sheet
as assets or liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the
39
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)
derivative and whether it qualifies for hedge accounting. Honeywell is currently
reviewing the standard and its effect on the financial statements.
FOREIGN CURRENCY
Foreign currency assets and liabilities are translated into U. S. dollars
using the exchange rates in effect at the statement of financial position date.
Results of operations are translated generally 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/(decreased) shareowners' equity: $14.5 in 1998, $(109.6) in 1997 and
$(52.7) in 1996.
LONG-LIVED ASSETS
Honeywell evaluates the recoverability of long-lived assets using discounted
cash flows when events and circumstances warrant such a review.
STOCK-BASED COMPENSATION
Honeywell uses the recognition and measurement principles of Accounting
Principles Board (APB) No. 25 to record 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 recording stock-based
awards had been applied can be found in Note 17 to the Financial Statements on
page 51.
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 14 companies in 1998, 7 companies in 1997 and 17
companies in 1996 for $281.4, $650.2 and $411.2, 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. Cash acquired through acquisitions was $7.0,
$51.7 and $35.0 in 1998, 1997 and 1996, respectively. The excess of purchase
price over the estimated fair values of the net assets acquired, in the amount
of $213.3 in 1998, $323.7 in 1997 and $294.7 in 1996, 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. 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.
The pro forma results for 1998, 1997 and 1996, assuming these acquisitions
had been made at the beginning of the year, would not be materially different
from reported results.
40
<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)
On July 5, 1998, Honeywell sold Honeywell-Measurex Data Measurement
Corporation located in Gaithersburg, MD, to Metrika Systems Corporation for
$29.0 in cash. The gain on the sale of this business and the impact on the
financial statements and results of operations are immaterial. In 1997,
Honeywell sold the net assets of Industrial Control's solenoid valve business
for approximately $102 in cash, resulting in a gain of $64.3. Additionally in
1997, Honeywell 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 in cash and receivables for a gain of
$12.8.
Proceeds from the sale of other assets amounted to $68.0 in 1998, $77.2 in
1997 and $90.3 in 1996. In June 1998, Honeywell entered into a sale/leaseback
agreement on a facility in Cupertino, CA, which generated cash proceeds of
$50.4. A gain of $5.6 was recognized in the second quarter of 1998. The
remaining gain was deferred and is being recognized over the term of the lease.
The annual impact of the deferred gain on the results of operations will be
immaterial. Gains and losses from other 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 1998, Honeywell's management, with the approval of the board of
directors, committed itself to a plan of action and recorded special charges of
$53.7. 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
reductions. The Home and Building Control business segment recorded special
charges of $25.8 as a result of a rapidly changing marketplace by consolidating
field office locations. Industrial Control recorded $25.8 to rationalize product
lines, restructure the organization, and complete other activities associated
with the integration of Measurex. Space and Aviation Control recorded special
charges of $1.4 to strengthen the competitive position of it's cost structure
through workforce reductions and field office consolidations. A total of $0.7
was recorded at the corporate level, which is related to work force reductions
in administration. As of December 31, 1998, Honeywell had a total of $48.2 of
remaining reserves related to the 1998 special charges.
Work force reduction costs primarily include severance costs related to
involuntary termination programs instituted to improve efficiency and reduce
costs. These costs amounted to $45.5 in 1998, and approximately 1,200 employees,
consisting largely of sales, marketing, factory and other administrative
personnel who have been or will be terminated. Facility consolidation costs are
primarily associated with combining field office locations and rationalizing
product lines to streamline Honeywell's operations, and amounted to $6.0 in
1998. Other cost accruals totaling $2.2 in 1998 include costs associated with
the integration of product lines. The charges are included as special charges on
the income statement. The remaining expenditures, to be paid in cash, for
special charges in 1999 will be $40.1 for workforce reductions, $5.1 for
facilities and $1.1 for other expenses.
In 1997, Honeywell's management committed itself to a cost reduction plan
and recorded special charges of $90.7. Costs amounted to $74.2 for workforce
reductions, $8.3 for facility consolidations and $8.2 for other costs
reductions. As of December 31, 1998, Honeywell had a total of $18.6 of reserves
remaining related to the 1997 special charges. The balances of the 1997 special
charges are primarily related to terminated employees who continue to receive
pay.
41
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 3 -- SPECIAL CHARGES (CONTINUED)
Adjustments to the estimated plan's costs have not been material and the
remaining reserves will be funded with cash generated from operations.
NOTE 4 -- EARNINGS PER SHARE
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ---------------- ----------------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Income:
Income available to common shareowners............ $ 572.0 $ 471.0 $ 402.7
Shares:
Weighted average shares outstanding............... 126,086,121 127,051,613 126,632,082
Basic Earnings per Share............................ $ 4.54 $ 3.71 $ 3.18
DILUTED EARNINGS PER SHARE:
Income:
Income available to common shareowners............ $ 572.0 $ 471.0 $ 402.7
Shares:
Weighted average shares outstanding............... 126,086,121 127,051,613 126,632,082
Dilutive shares issuable in connection with stock
plans.............................................. 4,828,865 4,767,393 6,286,392
Less: Shares purchasable with proceeds.............. (3,116,255) (2,626,784) (3,437,695)
-------------- ---------------- ----------------
Total Shares.................................... 127,798,731 129,192,222 129,480,779
-------------- ---------------- ----------------
-------------- ---------------- ----------------
Diluted Earnings per Share.......................... $ 4.48 $ 3.65 $ 3.11
</TABLE>
Options to purchase 1.2 million shares of common stock ranging from $67.13
to $94.47 were outstanding during 1998 but were not included in the computation
of the Diluted Earnings Per Share (EPS) because the options' exercise prices
were greater than the average market price of the common shares. Options to
purchase 1.4 million shares ranging from $69.43 to $78.91 were outstanding
during 1997 but were not included in the computation of 1997 Diluted EPS. In
1996, an immaterial amount of options was excluded from the Diluted EPS
calculation since most of the option prices were less than the average market
price for the period.
NOTE 5 -- INCOME TAXES
The components of income before income taxes consist of the following:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Domestic.................................................................. $ 485.1 $ 377.3 $ 349.4
Foreign................................................................... 344.2 325.9 260.8
--------- --------- ---------
$ 829.3 $ 703.2 $ 610.2
</TABLE>
42
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 5 -- INCOME TAXES (CONTINUED)
The provision for income taxes on that income is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Current tax expense
United States........................................................... $ 125.5 $ 124.9 $ 60.8
Foreign................................................................. 110.5 101.6 84.7
State and local......................................................... 33.3 27.1 27.2
--------- --------- ---------
Total current........................................................... 269.3 253.6 172.7
--------- --------- ---------
Deferred tax expense
United States........................................................... (18.8) (13.9) 27.4
Foreign................................................................. 8.9 (5.6) 4.0
State and local......................................................... (2.1) (1.9) 3.4
--------- --------- ---------
Total deferred.......................................................... (12.0) (21.4) 34.8
--------- --------- ---------
Provision for income taxes................................................ $ 257.3 $ 232.2 $ 207.5
</TABLE>
A reconciliation of the provision for income taxes to the amount computed
using U.S. federal statutory rates is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Taxes on income at U.S. federal statutory rates........................... $ 290.3 $ 246.1 $ 213.6
Tax effects of foreign income............................................. (1.3) (17.6) (15.9)
State taxes............................................................... 19.4 15.7 21.1
Goodwill.................................................................. 11.3 10.6 4.3
Tax effect of settlements................................................. (26.5) (6.8) 0.0
Other..................................................................... (35.9) (15.8) (15.6)
--------- --------- ---------
Provision for income taxes................................................ $ 257.3 $ 232.2 $ 207.5
</TABLE>
Interest costs related to prior years' tax issues are included in the
provision for income taxes. Taxes paid were $258.9 in 1998, $203.7 in 1997 and
$113.1 in 1996.
43
<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>
1998 1997
--------- ---------
<S> <C> <C>
Employee benefits................................................................... $ 30.8 $ 54.7
Miscellaneous accruals.............................................................. 132.5 107.0
Asset valuation reserves............................................................ 52.3 44.0
Long-term contracts................................................................. 12.3 12.0
State taxes......................................................................... 27.1 24.9
Pension liability adjustment........................................................ 10.6 4.4
Other............................................................................... (45.0) (34.8)
--------- ---------
$ 220.6 $ 212.2
</TABLE>
The components of net deferred taxes shown in the statement of financial
position are:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets................................................................. $ 642.3 $ 506.8
Deferred tax liabilities............................................................ 421.7 294.6
</TABLE>
Provision has not been made for U.S. or additional foreign taxes on $882.4
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, 1998, foreign subsidiaries had tax operating loss
carryforwards of $29.2.
NOTE 6 -- FOREIGN CURRENCY
Honeywell has entered into various foreign currency exchange contracts
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 $1,071.6 and $1,213.7 at December 31, 1998,
and 1997, respectively. At December 31, 1998, these contracts generally have a
term of less than one year and are primarily denominated in Belgian francs
($366.8), Deutsche marks ($253.3), Great Britain pounds ($129.9) and Canadian
dollars ($89.3).
44
<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>
1998 1997
--------- ---------
<S> <C> <C>
Cash equivalents..................................................................... $ 171.1 $ 27.7
Short-term investments............................................................... 7.2 8.0
Investments and advances............................................................. 3.5 5.7
--------- ---------
$ 181.8 $ 41.4
</TABLE>
Held-to-maturity securities generally mature within one year and include the
following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Time deposits with financial institutions............................................ $ 13.8 $ 34.8
Commercial paper..................................................................... 157.2 0.1
Other................................................................................ 10.8 6.5
--------- ---------
$ 181.8 $ 41.4
</TABLE>
Honeywell's purchases of held-to-maturity securities, consisting primarily
of commercial paper, amounted to $2,212.0 and $1,809.0 in 1998 and 1997,
respectively. Proceeds from maturities of held-to-maturity securities amounted
to $2,058.4 in 1998 and $1,812.5 in 1997. The majority of the held-to-maturity
securities that were purchased and had matured during the year are considered
cash equivalents since the duration was less than 3 months. 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>
1998 1997
--------- ---------
<S> <C> <C>
Receivables, current................................................................... $ 41.1 $ 38.5
Long-term receivables.................................................................. 1.8 2.7
</TABLE>
Receivables include approximately $24.9 in 1998 and $16.5 in 1997 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 $345.6 and
$331.0 at December 31, 1998, and 1997, 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 $1.3 in 1998 and $1.5 in 1997 to an amount
that approximates realizable value.
45
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 8 -- RECEIVABLES (CONTINUED)
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 $32.3 and $34.8 U.S.
dollars at December 31, 1998 and 1997, 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 $243.3 in 1998 and $292.6 in 1997. Honeywell retains the right to
repurchase transferred receivables under the program, and therefore, the
transaction does not qualify as a sale under the terms of Statement of Financial
Accounting Standard No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." Included on the statement
of financial position as receivables are at year-end are $18.0 and $27.7 in 1998
and 1997, respectively, of uncollected receivables held in trust.
NOTE 9 -- INVENTORIES
<TABLE>
<CAPTION>
1998 1997
--------- ----------
<S> <C> <C>
Finished goods.................................................................. $ 373.2 $ 379.3
Inventories related to long-term contracts...................................... 186.1 151.4
Work in process................................................................. 224.9 211.3
Raw materials and supplies...................................................... 331.8 286.0
--------- ----------
$ 1,116.0 $ 1,028.0
</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 $28.7 and $43.5 at December 31, 1998 and 1997, respectively.
NOTE 10 -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1998 1997
--------- ----------
<S> <C> <C>
Land............................................................................ $ 71.2 $ 68.7
Building and improvements....................................................... 602.9 557.4
Machinery and equipment......................................................... 2,525.1 2,336.4
Construction in progress........................................................ 156.6 82.5
--------- ----------
$ 3,355.8 $ 3,045.0
</TABLE>
NOTE 11 -- FOREIGN SUBSIDIARIES
The following is a summary of financial data pertaining to foreign
subsidiaries:
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
Net income.................................................................... $ 245.0 $ 235.6 $ 172.9
Assets........................................................................ $ 2,662.1 $ 2,114.8 $ 1,847.8
Liabilities................................................................... 1,548.6 1,019.0 838.5
--------- ---------- ----------
Net assets.................................................................... $ 1,113.5 $ 1,095.8 $ 1,009.3
</TABLE>
46
<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 Corporation, located
in Japan, of which Honeywell owned 21.7 percent of the outstanding common stock
at December 31, 1998 and 1997. This investment had a market value of $191.1 and
$216.9 at December 31, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
Sales............................................................... $ 1,717.8 $ 1,971.5 $ 1,949.2
Gross profit........................................................ 577.9 662.7 688.8
Net income.......................................................... 46.9 58.7 51.8
Equity in net income................................................ 11.7 12.9 13.3
Current assets...................................................... $ 1,454.2 $ 1,427.8 $ 1,576.9
Noncurrent assets................................................... 297.5 332.8 421.1
--------- ---------- ----------
1,751.7 1,760.6 1,998.0
--------- ---------- ----------
Current liabilities................................................. 647.7 706.7 853.5
Noncurrent liabilities.............................................. 116.7 123.2 181.4
--------- ---------- ----------
764.4 829.9 1,034.9
--------- ---------- ----------
Net assets.......................................................... $ 987.3 $ 930.7 $ 963.1
Equity in net assets................................................ $ 259.3 $ 238.0 $ 241.0
</TABLE>
NOTE 13 -- INTANGIBLE ASSETS
Intangible assets have been reduced by accumulated amortization as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Goodwill............................................................................ $ 163.7 $ 134.8
Intangibles......................................................................... 337.2 305.3
</TABLE>
NOTE 14 -- DEBT
SHORT-TERM DEBT
At December 31, 1998, Honeywell had general-purpose lines of credit
available totaling $1,770.6, which management believes is adequate to meet its
financing requirements, including support of commercial paper and bank note
borrowings. Committed revolving credit lines with 17 banks totaled $1,325.0.
These lines have commitment fee requirements. There were no borrowings on these
lines at December 31, 1998. The remaining credit facilities of $445.6 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 $19.8 at December 31, 1998. The interest rates for Honeywell's
material lines of credit are indexed to a rate, such as Prime, LIBOR, or
Commercial
47
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 14 -- DEBT (CONTINUED)
Paper. The weighted average interest rates on short-term borrowings outstanding
at December 31, 1998 and 1997, respectively, were as follows: commercial paper,
0.0 percent and 6.8 percent; and notes payable, 5.0 percent and 5.2 percent.
Short-term debt consists of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Commercial paper.................................................................... $ -- $ 43.0
Notes payable....................................................................... 52.7 38.9
--------- ---------
Current maturities of long-term debt................................................ 126.2 64.5
$ 178.9 $ 146.4
</TABLE>
LONG-TERM DEBT
<TABLE>
<CAPTION>
1998 1997
--------- ----------
<S> <C> <C>
Honeywell Inc.
7.15% to 7.71% due 1998....................................................... $ 0.0 $ 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................................................................ 200.0 200.0
8.63% due 2006................................................................ 100.0 100.0
7.00% due 2007................................................................ 350.0 350.0
7.13% due 2008................................................................ 200.0 200.0
7.45% to 9.50% due 2001 to 2010............................................... 27.0 27.0
6.63% due 2028................................................................ 250.0 0.0
Unamortized premiums and discounts............................................ (6.0) (2.6)
Subsidiaries
3.00% to 7.50% due 1999 to 2002, various currencies........................... 59.0 71.4
--------- ----------
1,425.5 1,241.3
Less amount included in short-term debt......................................... 126.2 64.5
--------- ----------
$ 1,299.3 $ 1,176.8
</TABLE>
Debt in the amount of $50.0 with interest rates ranging from 7.15 percent to
7.71 percent matured between March and May 1998. In August 1997, Honeywell filed
a shelf registration statement, which provides for the issuance of up to $500.0
of debt securities. On June 15, 1998, Honeywell issued $250.0 in debentures, to
fund general operations, with a coupon rate of 6 5/8 percent maturing on June
15, 2028. At December 31, 1998, $250.0 remained available for issuance under the
shelf registration statement.
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-
48
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 14 -- DEBT (CONTINUED)
month LIBOR rates. 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 $550.0 of new 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 at an average fixed rate of 6.18
percent. In 1998, $200.0 of interest rate swaps due in 2008 were terminated. The
swap agreements outstanding at December 31, 1998 expire as follows: $100.0 in
1999, $250.0 in 2000, $100.0 in 2001, $200.0 in 2002 and $350.0 in 2007.
Annual sinking-fund and maturity requirements for the next five years on
long-term debt outstanding at December 31, 1998, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999.............................................................................. $ 126.2
2000.............................................................................. 77.6
2001.............................................................................. 116.5
2002.............................................................................. 210.3
2003.............................................................................. 0.0
2004 and beyond................................................................... 900.9
Unamortized premiums/discounts.................................................... (6.0)
----------
Total long-term debt.............................................................. $ 1,425.5
</TABLE>
Interest paid amounted to $109.2, $95.0 and $77.3 in 1998, 1997 and 1996,
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 $1,425.5 and $1,241.3 at December 31, 1998 and 1997,
respectively; and the fair value was $1,510.8 and $1,291.3 at December 31, 1998
and 1997, 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 notional value,
carrying value and fair value of Honeywell's derivative financial instruments.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998 AT DECEMBER 31, 1997
----------------------------------- ----------------------------------
NOTIONAL CARRYING FAIR NOTIONAL CARRYING FAIR
VALUE VALUE VALUE VALUE VALUE VALUE
--------- ----------- ----- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest rate swaps....................... $ 1,000.0 $ 0.0 $ 6.0 $ 1,340.0 $ 0.0 $ 38.5
Currency contracts........................ 1,071.6 0.0 (4.1) 1,213.7 0.0 6.7
--------- --- --- ---------- --- ---------
Total..................................... $ 2,071.6 $ 0.0 $ 1.9 $ 2,553.7 $ 0.0 $ 45.2
--------- --- --- ---------- --- ---------
--------- --- --- ---------- --- ---------
</TABLE>
49
<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)
The counterparties to the foreign currency contracts and the interest rate
swaps shown above expose Honeywell to credit risk to the extent of
non-performance. 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, 1998, 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>
1999..................................................................... $ 140.1
2000..................................................................... 109.2
2001..................................................................... 80.8
2002..................................................................... 55.9
2003..................................................................... 41.6
2004 and beyond.......................................................... 142.1
-----------
$ 569.7
</TABLE>
Rent expense for operating leases was $141.8 in 1998, $141.6 in 1997 and
$153.7 in 1996.
Substantially all leases are for plant, warehouse, office space, personal
computers and automobiles. A number of the leases contain renewal options
ranging from one to 10 years.
50
<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 at 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 at 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 at December 31, 1997.............................. $ 281.5 $ 608.4 $ (1,879.3)
Purchase of treasury stock --
2,054,500 shares........................................ (159.6)
Issued for Honeywell Foundation Pledge --
264,300 treasury shares................................. 7.2 5.3
Issued for employee stock plans --
2,016,560 shares........................................ 89.8 28.1
96,426 shares canceled.................................. (0.2) (7.8)
----------- ----------- -----------
Balance at December 31, 1998.............................. $ 281.3 $ 697.6 $ (2,005.5)
</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 replaced 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.
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.
51
<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, 1998,
there were 12,405,731 shares reserved for all employee plans.
In 1996, Honeywell adopted Statement of Financial Accounting Standard (SFAS)
No. 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 38). The compensation cost that has been charged against income for
the restricted stock and other stock-based awards, including directors' stock
compensation, was $16.7, $11.2 and $12.2 in 1998, 1997 and 1996, respectively.
No compensation cost has been recognized for the awards made in the form of
stock options or from the Employee Stock Purchase Plans. 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 SFAS 123, Honeywell's net income and basic earnings per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C> <C>
Net income............................ As reported $ 572.0 $ 471.0 $ 402.7
Pro forma 551.3 456.2 392.6
Basic earnings per share.............. As reported $ 4.54 $ 3.71 $ 3.18
Pro forma 4.37 3.59 3.10
</TABLE>
FIXED STOCK OPTIONS
Stock option grants for executive officers are reviewed and approved by the
Personnel Committee of the Board of Directors and for non-executive officers by
the chief executive officer. 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 in
the United Kingdom. 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 is 148,000 and has been included
in the fixed options numbers below.
52
<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, 1998,
1997 and 1996, and changes during the years ending on those dates is presented
below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ------------------------ ------------------------
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................ 5,483 $ 51 4,507 $ 39 5,963 $ 35
Granted......................................... 2,088 54 1,784 73 423 54
Assumed......................................... 671 52
Exercised....................................... 1,354 52 1,287 37 1,821 31
Forfeited....................................... 126 64 192 67 58 42
Outstanding at end of year...................... 6,091 60 5,483 51 4,507 39
Options exercisable at year-end................. 3,801 53 3,820 41 4,088 37
Weighted average fair value of options granted
during the year................................ $ 16.77 $ 18.91 $ 14.19
</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 1998, 1997 and 1996,
respectively: dividend yield of 1.4, 1.5 and 1.5 percent; expected volatility of
24, 24 and 27 percent; risk-free interest rates of 4.7, 5.6 and 6.3 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 1997 acquisition of Measurex and converted to
options to purchase Honeywell shares.
The following table summarizes information about fixed stock options
outstanding at December 31, 1998. The fixed options outstanding include options
issued under the 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 OUTSTANDING SHARES EXERCISABLE
AT DECEMBER 31, REMAINING AT DECEMBER 31,
RANGE OF 1998 CONTRACTUAL WEIGHTED AVERAGE 1998 WEIGHTED AVERAGE
EXERCISE PRICES (000) LIFE EXERCISE PRICE (000) EXERCISE PRICE
- --------------------- ------------------- ----------- ----------------- ------------------- -----------------
<S> <C> <C> <C> <C> <C>
$16-$24 55 1.2 years $ 22 55 $ 22
$25-$36 719 3.7 years 32 719 32
$37-$54 1,766 5.2 years 45 1,568 44
$55-$80 3,448 7.8 years 74 1,459 74
$81-$96 103 8.6 years 87 -- --
</TABLE>
RESTRICTED STOCK AWARDS
Restricted shares of common stock are issued to certain key employees as
compensation and as incentives, some of which are 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
53
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 17 -- CAPITAL STOCK (CONTINUED)
issued and tied to performance goals which restricted the shares until the
earlier to occur of: (i) the achievement of performance goals within a specified
measurement period, not more than three years, or (ii) nine years. The vesting
of performance shares awarded in 1996 to senior executives was established at
not more than two years. Owners of restricted shares have the rights of
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 352,625 in 1998, 237,009 in 1997 and 371,917 in 1996. At
December 31, restricted shares outstanding under key employee plans totaled
867,301 in 1998, 913,667 in 1997 and 835,443 in 1996, with a weighted average
grant date fair value of $63, $55 and $46 in 1998, 1997 and 1996, respectively.
EMPLOYEE STOCK PURCHASE PLANS
In July 1998, Honeywell introduced an Employee Stock Purchase Plan in the
U.S. and Canada. Employees may contribute from 1 percent to 10 percent of their
eligible pay on an after-tax basis. The plan allows employees to purchase
Honeywell stock quarterly at the end of each purchase period at 85 percent of
the fair market value on the grant date (the first day of the purchase period)
or the exercise date (the last day of the purchase period), whichever is lower.
During 1998, 276,812 shares were issued under this plan. Also in 1998,
International Employee Stock Purchase Plans were introduced in Austria, Belgium,
France, Germany, Italy and Switzerland. These plans allowed employees to
purchase stock at discount. Belgium, Italy and France have quarterly purchase
windows and Austria, Germany and Switzerland have December purchase windows. In
1998, 14,147 shares were issued under the International Employee Stock Purchase
Plans.
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 555,746 in 1998, 542,406 in 1997 and 394,534 in 1996 at a cost of
$42.4, $37.9, and $23.4, respectively.
STOCK PLEDGE
In 1993, Honeywell pledged to the Honeywell Foundation a five-year option to
purchase 2,000,000 shares of common stock at $33.00 per share. The Honeywell
Foundation exercised all options to purchase the 2,000,000 shares with 264,300
purchased in 1998, 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 $1.00 have been
authorized. None have been issued at December 31, 1998.
54
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 18 -- QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1998 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
- -------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales....................................... $ 1,923.3 $ 2,035.2 $ 2,119.5 $ 2,348.7
Cost of sales............................... 1,326.8 1,383.0 1,412.0 1,555.2
Special charges............................. -- -- -- 53.7
Litigation settlements...................... -- -- -- (23.6)
Net income.................................. 96.3 125.8 145.4 204.5
Basic earnings per share.................... 0.76 1.00 1.15 1.63
Diluted earnings per share.................. 0.75 0.98 1.14 1.61
</TABLE>
<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
Special charges............................. -- -- 60.4 30.3
Gain on sale of businesses.................. -- -- 60.3 16.8
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>
Shareowners of record on February 1, 1999, totaled 30,571.
The fourth quarter of 1998 includes $53.7 of special charges ($0.27 per
diluted share), $23.6 gain from the settlement of long-standing litigation
claims ($0.11 per diluted share) and $16.7 resulting from the favorable
resolution of certain prior-year research and development tax claims ($0.13 per
diluted share). 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).
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
control products, systems, and services provide solutions worldwide as our
customers look to improve productivity, energy efficiency and environmental
protection, increase safety, and enhance comfort. Honeywell's reportable
segments are strategic business units that offer different products and
services. They are managed separately as each business requires different
products, services and marketing strategies.
Honeywell adopted Statement of Financial Accounting Standards (SFAS) No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
during 1998. Operating segments are defined by SFAS 131 as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or decision making
group, in deciding how to allocate resources and in assessing performance (the
"management approach"). Honeywell's chief operating decision making group that
determines the allocation of resources and
55
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 19 -- SEGMENT INFORMATION (CONTINUED)
assesses the performance of the operating segments is the Chief Executive
Officer and the Board of Directors.
Honeywell's reportable operating segments include Home and Building Control,
Industrial Control and Space and Aviation Control. The Other segment includes
two research and development operations that promote technology and products to
both external customers and operating units.
The accounting policies of the segments are the same as those described in
Note 1. Honeywell evaluates performance based on profit or loss from operations
before income taxes excluding interest expense, equity income and other indirect
general corporate expenses. Honeywell accounts for intersegment sales and
transfers on negotiated transfer prices and all intersegment profit or loss is
eliminated in consolidation.
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; homebuilders; 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, airport 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; airports;
NASA; prime U.S. defense contractors; and the U.S. Department of Defense.
Following is financial information relating to the industry segments:
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
External sales
Home and Building Control............................... $ 3,440.5 $ 3,386.6 $ 3,327.1
Industrial Control...................................... 2,516.3 2,547.1 2,199.6
Space and Aviation Control.............................. 2,339.1 1,956.9 1,640.0
Other................................................... 130.8 136.9 144.9
--------- ---------- ----------
Total external sales................................ $ 8,426.7 $ 8,027.5 $ 7,311.6
</TABLE>
56
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
NOTE 19 -- SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
Sales between segments
Home and Building Control............................... $ 24.8 $ 23.6 $ 29.8
Industrial Control...................................... 38.1 49.3 32.8
Space and Aviation Control.............................. 2.6 0.8 3.2
Other................................................... 62.4 57.9 41.1
--------- ---------- ----------
Total sales between segments........................ $ 127.9 $ 131.6 $ 106.9
Operating profit
Home and Building Control............................... $ 348.9 $ 290.2 $ 345.8
Industrial Control...................................... 314.2 309.2 254.9
Space and Aviation Control.............................. 334.0 255.7 163.3
Other................................................... 31.2 18.8 6.2
--------- ---------- ----------
Total operating profit.............................. $ 1,028.3 $ 873.9 $ 770.2
Interest expense.......................................... (113.0) (101.9) (81.4)
Equity income............................................. 11.7 12.9 13.3
General corporate expense................................. (97.7) (81.7) (91.9)
--------- ---------- ----------
Income before income taxes................................ $ 829.3 $ 703.2 $ 610.2
Special charges
Home and Building Control............................... $ 25.8 $ 46.9 --
Industrial Control...................................... 25.8 40.8 --
Space and Aviation Control.............................. 1.4 -- --
Corporate and Other..................................... 0.7 3.0 --
--------- ---------- ----------
Total special charges............................... $ 53.7 $ 90.7 --
Gain on sale of businesses and litigation settlement
Home and Building Control............................... $ 4.6 $ 5.7 --
Industrial Control...................................... 5.3 71.4 --
Space and Aviation Control.............................. 1.8 -- --
Corporate and Other..................................... 11.9 -- --
--------- ---------- ----------
Total gains......................................... $ 23.6 $ 77.1 --
Depreciation and amortization
Home and Building Control............................... $ 116.8 $ 108.0 $ 98.4
Industrial Control...................................... 94.5 99.4 72.3
Space and Aviation Control.............................. 84.0 79.2 84.0
Corporate and Other..................................... 32.6 33.0 32.8
--------- ---------- ----------
Total depreciation and amortization................. $ 327.9 $ 319.6 $ 287.5
</TABLE>
57
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS)
NOTE 19 -- SEGMENT INFORMATION (CONTINUED)
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>
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
External Sales
United States........................................... $ 5,201.6 $ 4,843.5 $ 4,477.9
Other areas............................................. 3,225.1 3,184.0 2,833.7
--------- ---------- ----------
Total sales........................................... $ 8,426.7 $ 8,027.5 $ 7,311.6
Long-lived Assets
United States........................................... $ 1,990.4 $ 1,830.9 $ 1,355.9
Other areas............................................. 563.2 459.8 469.3
--------- ---------- ----------
Total long-lived assets............................... $ 2,553.6 $ 2,290.7 $ 1,825.2
</TABLE>
External sales are attributed to countries based on the location of the
affiliate responsible for the sale. 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. Long-lived assets are
comprised of property, plant and equipment, goodwill and intangible assets. No
customers exceeded 10 percent of total Honeywell sales in 1998, 1997 or 1996.
NOTE 20 -- CONTINGENCIES
LITTON 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
(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
U.S. District Court Judge Mariana Pfaelzer presided over a three month
patent infringement and tortious interference trial in 1993. On August 31, 1993
a jury returned a verdict in favor of Litton, awarding damages against Honeywell
in the amount of $1.2 billion on three claims. Honeywell filed post-trial
motions contesting the verdict and damage award. On January 9, 1995, the trial
court set them all aside, ruling, among other things, that the Litton patent was
invalid due to obviousness,
58
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS)
NOTE 20 -- CONTINGENCIES (CONTINUED)
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 Litton's 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 at least 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.
The trial court's rulings were 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 a rehearing of the panel's decision by
the full Federal Circuit appellate court, Honeywell filed a petition 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 against Honeywell's commercial ring laser gyroscope sales.
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 and vacated the July 3, 1996, Federal Circuit panel decision. The case
was remanded to the Federal Circuit panel for reconsideration in light of a
recent decision by the U.S. Supreme Court in the WARNER-JENKINSON VS. HILTON
DAVIS case, which refined the law concerning patent infringement under the
doctrine of equivalents. On March 21, 1997, Litton 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 completed its reconsideration of liability
issues ordered by the U.S. Supreme Court.
The liability issues were argued before the same three judge Federal Circuit
panel on September 30, 1997. On April 7, 1998, the panel issued its decision:
(i) affirming the trial court's ruling that Honeywell's hollow cathode and
RF ion-beam processes do not literally infringe the asserted claims of
Litton's "849 reissue patent ("Litton's patent");
(ii) vacating the trial court's ruling that Honeywell's RF ion-beam process
does not infringe the asserted claims of Litton's patent under the
doctrine of equivalents, but also vacating the jury's verdict on that
issue and remanding that issue to the trial court for further
proceedings in accordance with the WARNER-JENKINSON decision;
(iii) vacating the jury's verdict that Honeywell's hollow cathode process
infringes the asserted claims of Litton's patent under the doctrine of
equivalents and remanding that issue to the trial court for further
proceedings;
59
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS)
NOTE 20 -- CONTINGENCIES (CONTINUED)
(iv) reversing the trial court's ruling with respect to the torts of
intentional interference with contractual relations and intentional
interference with prospective economic advantage, but also vacating the
jury's verdict on that issue, and remanding the issue to the trial court
for further proceedings in accordance with California state law;
(v) affirming the trial court's grant of a new trial to Honeywell on damages
for all claims, if necessary;
(vi) affirming the trial court's order granting intervening rights to
Honeywell in the patent claim;
(vii) reversing the trial court's ruling that the asserted claims of Litton's
patent were invalid due to obviousness and reinstating the jury's
verdict on that issue; and
(viii) reversing the trial court's determination that Litton had obtained its
"849 reissue patent through inequitable conduct.
Litton's request for a rehearing of the panel's decision by the full Federal
Circuit court was denied and its appeal of the denial of an injunction was
dismissed. The case was remanded to the trial court for further legal and
perhaps factual review. A status conference was held on August 17, 1998 and the
review was held in abeyance during a retrial of damages in the antitrust case in
1998. Honeywell intends to file motions with the trial court to dispose of the
remanded issues as matters of law, but the review procedures remain to be
defined and scheduled by the trial court. If some of the remanded issues are not
disposed of by legal motions, a jury trial of the remaining issues may be
necessary.
When preparing for the patent/tort damages retrial that was scheduled for
May 1997, Litton had submitted a revised damage study to the trial court,
seeking damages as high as $1.9 billion. Honeywell believes that its ion-beam
processes do not infringe Litton's patent, and further, that Litton's damage
study remains flawed and speculative for a number of reasons. Based on the U.S.
Supreme Court's decision in the WARNER-JENKINSON VS. HILTON DAVIS case which
refined the law concerning patent infringement under the doctrine of
equivalents, and the Federal Circuit panel's recent decision remanding certain
issues in the patent/tort case to the trial court, Honeywell also believes that
it is reasonably possible that the trial court will conclude that Honeywell did
not infringe Litton's patent or interfere with its contractual relationships,
and that no damages will ultimately be awarded to Litton. Although is not
possible at this time to predict the outcome of the issues remanded to the trial
court or any further appeals in this case, some potential does remain for
adverse judgments which could be material to Honeywell's financial position or
results of operations. Honeywell believes however, that any potential award of
damages for an adverse judgment of 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. 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.
ANTITRUST CASE
Preparations for, and conduct of, the trial in the antitrust case have
generally followed the completion of comparable proceedings in the patent/tort
case. The antitrust trial did not begin until
60
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS)
NOTE 20 -- CONTINGENCIES (CONTINUED)
November 20, 1995. Judge Pfaelzer also presided over the 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:
(i) engaging in below-cost predatory pricing;
(ii) tying and bundling product offerings under packaged pricing;
(iii) misrepresenting its products and disparaging Litton products; and
(iv) 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:
(i) entering into certain long-term exclusive dealing and penalty
arrangements with aircraft manufacturers and airlines to exclude Litton
from the commercial aircraft market, and
(ii) 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 the attempt to monopolize claim, 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 motions for entry of judgment and 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. 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.
Following the April 7, 1998 Federal Circuit panel decision in the
patent/tort case, Litton again petitioned the trial court to schedule the
retrial of antitrust damages. The trial court tentatively scheduled the trial to
commence in the fourth quarter of 1998, and reopened limited discovery and other
pretrial preparations. Litton then filed another antitrust damage claim of
nearly $300 million.
The damages only retrial began October 29, 1998, before Judge Pfaelzer, but
a different jury. On December 9, 1998, the jury returned verdicts against
Honeywell totaling $250 million, $220 million of which is in favor of Litton
Systems Inc. and $30 million of which is in favor of its sister corporation LSL,
Canada.
61
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS)
NOTE 20 -- CONTINGENCIES (CONTINUED)
On January 27, 1999, the court vacated its prior mistrial ruling with
respect to the attempt to monopolize claim and entered a treble damages judgment
in the total amount of $750 million for actual and attempted monopolization.
Honeywell believes that there was no factual or legal basis for the
magnitude of the jury's award in the damages retrial and that, as was the case
in the first trial, the jury's award should be overturned. Honeywell also
believes there are serious questions concerning the identity and nature of the
business arrangements and conduct which were found by the first antitrust jury
in 1996 to be anti-competitive and damaging to Litton, and there are very strong
grounds to overturn the verdict of liability as a matter of law. Honeywell is
now filing appropriate post-judgment motions with the trial court and Litton
will soon file motions seeking to add substantial attorney's fees and costs to
the judgment. Once the trial court has ruled on those motions, the parties 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. Execution of the
trial court's judgment will be stayed pending resolution of Honeywell's
post-judgment motions and the disposition of any appeals filed by the parties.
Although it is not possible at this time to predict the outcome of the
motions before the trial court or any eventual appeals in this case, some
potential remains for adverse judgments which could be material to Honeywell's
financial position or results of operations. 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 also
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, claims, and cases, and that eventually any duplicative recovery
would be eliminated from the antitrust and patent/tort 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.
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 on-site locations (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.
Since Honeywell's first Superfund case in 1980, Honeywell has received
notice regarding 119 Superfund sites and on-sites. Of these sites, 67 have been
settled or Honeywell expects no further involvement.
62
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS)
NOTE 20 -- CONTINGENCIES (CONTINUED)
At most of the Superfund sites where it is named as a PRP, Honeywell is a
de-minimis party or minor player. Honeywell has maintained records of waste
taken to or disposed of at many sites, and most sites have records kept by site
owners or waste haulers. Honeywell's records and site records indicate that most
of its disposals at these sites involve small quantities of materials relative
to other PRPs. Based on Honeywell's experience, the amounts contributed by PRPs
to the settlement or resolution of Superfund matters has been directly
proportionate to the waste attributed to a PRP at a site relative to the waste
attributed to other PRPs. Therefore, this information enables Honeywell to
fairly accurately assess its exposure as a PRP with respect to each site. In
addition, most Superfund site proceedings to which Honeywell is a PRP, are in
the advanced stages of investigation or remediation, and in many cases a "Record
of Decision" has been made by the Federal Environmental Protection Agency
determining the potential aggregate exposure of the PRPs involved.
At on-sites, assessments are conducted by outside environmental consulting
firms hired by Honeywell specifically for such purpose, and involve field
studies of soil samples, water samples and other testing procedures as
appropriate. On-site investigations have proceeded to the point where Honeywell
has determined its exposure and in many cases, implemented remediation.
Honeywell works closely with applicable local, state or federal regulatory
agencies to request or secure approval of its investigatory and remediation
efforts.
Honeywell has assessed its potential exposure with respect to all Superfund
and on-site matters, including, predicted investigation, remediation and
associated costs, Honeywell's expected share of those costs, the financial
viability of other PRPs with which it is involved at these Superfund sites and
the availability of legal defenses, and has determined that there is not a
reasonable possibility that a loss materially exceeding amounts already
recognized will occur. 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, it is the opinion of
Honeywell's management, that such costs have not had and will not have a
material effect on Honeywell's financial position, net income, capital
expenditures or competitive position.
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 $227.9 at December 31, 1998.
NOTE 21 -- PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
Honeywell and its subsidiaries sponsor a number of retirement programs
covering its employees throughout the world.
PENSIONS: Noncontributory defined benefit pension plans cover a substantial
majority of Honeywell's U.S. employees. The plan covering U.S. non-union
employees is based on the employee's highest
63
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS)
NOTE 21 -- PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (CONTINUED)
five years of earnings during their last 10 years of employment. The plans
covering U.S. union employees provides pension benefits based on a stated amount
for each year of service. 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.
These foreign programs represent about 20 percent of Honeywell's total benefit
obligation.
OTHER POSTRETIREMENT BENEFITS: Substantially all of Honeywell's domestic and
Canadian employees are eligible to receive medical benefits upon retirement
after age 55. The eligibility requirements are 10 years of service for U.S.
employees and 2 years of service for Canadian employees. These medical benefits
are identical to those provided to active employees, and continue to age 65. For
Canadian employees, the medical benefits are limited and coverage can continue
for life as long as the employee shares in the cost. These benefits are funded
on a pay-as-you-go basis.
The cost of these programs are as follows:
<TABLE>
<CAPTION>
Other
Pension Postretirement
Benefits Benefits
------------------------------- -------------------------------
1998 1997 1996 1998 1997 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Periodic Cost
Service cost.......................................... $ 93.9 $ 87.9 $ 89.2 $ 9.0 $ 8.2 $ 13.0
Interest cost......................................... 298.7 294.9 284.6 18.4 18.3 22.4
Expected return on assets............................. (370.6) (329.9) (342.0) 0.0 0.0 0.0
Prior service cost amortization....................... 32.7 32.3 31.5 0.8 0.8 0.8
Actuarial (gain)/loss................................. 1.8 (0.7) 28.9 (6.1) (7.1) 0.1
Transition amount amortization........................ (9.7) (10.4) (10.1) 0.0 0.0 0.0
Curtailment gain...................................... 0.7 0.0 0.0 0.0 (0.8) 0.0
--------- --------- --------- --------- --------- ---------
Net periodic benefit cost............................. $ 47.5 $ 74.1 $ 82.1 $ 22.1 $ 19.4 $ 36.3
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
The plans' funded status is shown below, along with a description of how the
status changed during the past two years. 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. For defined benefit pension plans, the
benefit obligation is the projected benefit obligation -- the actuarial present
value as of a date of all benefits attributed by the pension benefit formula to
employee service rendered prior to that date. For defined benefit postretirement
64
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS)
NOTE 21 -- PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (CONTINUED)
plans, the benefit obligation is the accumulated postretirement benefit
obligation -- the actuarial present value of benefits attributed to employee
service rendered to a particular date.
<TABLE>
<CAPTION>
OTHER
PENSION POSTRETIREMENT
BENEFITS BENEFITS
--------------------- --------------------
1998 1997 1998 1997
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation, October 1 prior year............................ $ 4,177.4 $ 4,010.2 $ 246.2 $ 287.4
Service cost........................................................ 93.9 87.9 9.0 8.2
Interest cost....................................................... 298.7 294.9 18.4 18.3
Participant contributions........................................... 7.5 7.0 3.0 3.0
Plan amendments..................................................... 73.5 0.0 0.0 0.0
Actuarial loss (gain)............................................... 269.1 145.5 34.8 (49.1)
Acquisition......................................................... 0.0 5.0 0.0 0.0
Divestiture......................................................... (0.5)
Foreign currency translation adjustment............................. 2.2 1.0 0.0 0.0
Benefits paid....................................................... (275.8) (374.1) (21.3) (21.0)
--------- ---------- --------- ---------
Benefits obligation, September 30................................... $ 4,646.5 $ 4,177.4 $ 290.1 $ 246.3
--------- ---------- --------- ---------
--------- ---------- --------- ---------
Change in plan assets
Fair value of plan assets, October 1 prior year..................... $ 4,643.6 $ 3,963.9 $ 0.0 $ 0.0
Actual return on plan assets........................................ 163.1 848.9 0.0 0.0
Company contributions............................................... 136.8 192.9 18.3 18.0
Participant contributions........................................... 7.5 7.0 3.0 3.0
Acquisition......................................................... 0.0 5.0 0.0 0.0
Benefits paid....................................................... (275.8) (374.1) (21.3) (21.0)
--------- ---------- --------- ---------
Fair value of plan assets, September 30............................. $ 4,675.2 $ 4,643.6 $ 0.0 $ 0.0
--------- ---------- --------- ---------
--------- ---------- --------- ---------
Funded status of plan............................................... $ 28.7 $ 466.2 $ (290.1) $ (246.3)
Unrecognized actuarial loss......................................... 166.3 (302.3) (48.4) (82.4)
Unrecognized prior service cost..................................... 257.6 214.8 3.6 4.3
Unrecognized net transition obligation.............................. (14.6) (28.9) 0.0 0.0
Fourth quarter contributions........................................ 1.1 21.0 4.6 0.0
--------- ---------- --------- ---------
Recognized amount................................................... $ 439.1 $ 370.8 $ (330.3) $ (324.4)
--------- ---------- --------- ---------
--------- ---------- --------- ---------
</TABLE>
65
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
HONEYWELL INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS)
NOTE 21 -- PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (CONTINUED)
The amount recognized in the statement of financial position consists of the
following:
<TABLE>
<CAPTION>
OTHER
PENSION POSTRETIREMENT
BENEFITS BENEFITS
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Prepaid benefit cost.................................................... $ 497.1 $ 415.9 $ 0.0 $ 0.0
Accrued benefit liability............................................... (58.0) (45.1) (330.3) (324.4)
Additional minimum liability............................................ (68.7) (50.5) N/A N/A
Intangible asset........................................................ 41.4 39.2 N/A N/A
Accumulated other comprehensive income.................................. 27.3 11.3 N/A N/A
Recognized amount....................................................... $ 439.1 $ 370.8 $ (330.3) $ (324.4)
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for pension plans with accumulated benefit obligations in
excess of plan assets were $294.7, $258.7 and $173.4, respectively, as of
December 31, 1998 and $204.3, $182.6 and $118.4, respectively, as of December
31, 1997.
<TABLE>
<CAPTION>
PENSION OTHER
BENEFIT POSTRETIREMENT
PLANS BENEFITS
------------------------------- -------------------------------
1998 1997 1996 1998 1997 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Weighted Average Assumptions as of September 30:
Discount rate............................................... 6.75% 7.50% 7.75% 6.75% 7.50% 7.50%
Expected return on plan assets.............................. 9.50% 9.50% 9.50% N/A N/A N/A
Rate of compensation increase............................... 4.00% 4.40% 4.65% N/A N/A N/A
</TABLE>
The Company has assumed a health-care cost trend rate of 5 percent for 1999
and beyond. The health-care trend rate assumption has a significant effect on
the amounts reported. A 1 percentage point change in the health-care trend rate
would have the following effects on 1998 service and interest cost and the
accumulated postretirement benefit obligation at December 31, 1998:
<TABLE>
<CAPTION>
1 PERCENTAGE POINT
------------------------
<S> <C> <C>
INCREASE DECREASE
----------- -----------
Effect on service and interest components on net periodic cost........... 14.3% (10.9)%
Effect on accumulated postretirement benefit obligation.................. 9.8% (7.4)%
</TABLE>
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.
66
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pages 9 through 14 of the Honeywell Notice of 1999 Annual Meeting and Proxy
Statement are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Pages 18 through 27 of the Honeywell Notice of 1999 Annual Meeting and Proxy
Statement are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pages 16 through 17 of the Honeywell Notice of 1999 Annual Meeting and Proxy
Statement are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
67
<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....................................................... 33
Income Statement................................................................... 34
Statement of Financial Position.................................................... 35
Statement of Cash Flows............................................................ 36
Statement of Shareowners' Equity................................................... 37
Notes to Financial Statements...................................................... 38
</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, 1998,
1997 and 1996:
II -- Valuation Reserves................ 72
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.
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.
</TABLE>
68
<PAGE>
<TABLE>
<S> <C>
(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)(i) 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)(j) 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)(k) 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.*
(10)(iii)(l) 1997 Honeywell Stock and 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 December 31, 1997.*
</TABLE>
69
<PAGE>
<TABLE>
<S> <C>
(99)(ii) Honeywell Notice of 1999 Annual Meeting and Proxy Statement.**
Exhibits submitted herewith:
(3)(ii) By-laws of Honeywell Inc., as amended through January 19, 1999.
(10)(iii)(f) Honeywell Non-Employee Directors Fee and Stock Unit Plan, as amended
through July 21, 1998.*
(10)(iii)(h) Honeywell Supplemental Defined Benefit Retirement Plan (1998 Restatement)
(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
On December 9, 1998, Honeywell filed a report on Form 8-K regarding recent
developments in the litigation with Litton Systems, Inc. which is described in
Note 20 to the Financial Statements set forth in Item 8 above.
- ------------------------
*Management contract or compensatory plan or arrangement.
**Only the portions of Exhibit (99)(ii) specifically incorporated by reference
are deemed filed with the Commission.
70
<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 10, 1999
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>
MICHAEL R. BONSIGNORE Chairman of the Board and Chief Executive Officer, and
Director
LAWRENCE W. STRANGHOENER Vice President and Chief Financial Officer
PHILIP M. PALAZZARI Vice President and Controller, and Principal Accounting
Officer
ALBERT J. BACIOCCO, JR. Director
ELIZABETH E. BAILEY Director
GIANNANTONIO FERRARI Director
R. DONALD FULLERTON Director
JAMES J. HOWARD III Director
KATHERINE M. HUDSON Director
BRUCE E. KARATZ Director
JAIME CHICO PARDO Director
STEVEN G. ROTHMEIER Director
MICHAEL W. WRIGHT Director
</TABLE>
By: /s/ KATHLEEN M. GIBSON
-------------------------
Kathleen M. Gibson,
ATTORNEY-IN-FACT
March 10, 1999
71
<PAGE>
SCHEDULE II
HONEYWELL INC. AND SUBSIDIARIES
VALUATION RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(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, 1998.................................... $ 38.5 $ 14.4 (1) $ 11.8 (2) $ 41.1
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
LONG-TERM RECEIVABLES
Year ended December 31, 1998.................................... 2.7 .3 1.2 1.8
Year ended December 31, 1997.................................... 0.7 2.0 -- 2.7
Year ended December 31, 1996.................................... 0.7 -- -- 0.7
Reserves deducted from assets to which they apply valuation
reserve:
LONG-TERM NOTES RECEIVABLE
Year ended December 31, 1998.................................... 1.5 (0.2)(1) -- 1.3
Year ended December 31, 1997.................................... 1.7 (0.2)(1) -- 1.5
Year ended December 31, 1996.................................... 1.8 (0.1)(1) -- 1.7
Establishment and utilization of special charges were:..........
SPECIAL CHARGES
Year ended December 31, 1998.................................... 72.4 53.7 59.3 66.8
Year ended December 31, 1997.................................... -- 90.7 18.3 72.4
Year ended December 31, 1996.................................... -- -- -- --
</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.
72
<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 JANUARY 19, 1999
----------------------------------------------------
----------------------------------------------------
<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 Business and Nominations.......................... 1
Section 3. Special Meetings................................................................ 5
Section 4. Place of Meeting................................................................ 6
Section 5. Notices of Meetings............................................................. 6
Section 6. Quorum.......................................................................... 7
Section 7. Organization.................................................................... 7
Section 8. Order of Business............................................................... 8
Section 9. Voting.......................................................................... 8
Section 10. List of Stockholders............................................................ 10
Section 11. Inspectors of Election.......................................................... 11
ARTICLE II. CONSENTS TO CORPORATE ACTION.................................................... 11
Section 1. Consent of Stockholders in Lieu of Meeting...................................... 11
Section 2. Record Date..................................................................... 12
Section 3. Procedures...................................................................... 13
ARTICLE III. BOARD OF DIRECTORS.............................................................. 14
Section 1. General Powers.................................................................. 14
Section 2. Number, Qualifications and
Term of Office................................................................. 14
Section 3. Nominations of Directors........................................................ 14
Section 4. Election of Directors........................................................... 14
Section 5. Organization.................................................................... 14
Section 6. Resignations.................................................................... 15
Section 7. Qualifications and Retirement................................................... 15
Section 8. Vacancies....................................................................... 16
Section 9. Place of Meeting, etc........................................................... 17
Section 10. First Meeting................................................................... 17
Section 11. Regular Meetings................................................................ 17
Section 12. Special Meetings; Notice........................................................ 18
Section 13. Quorum and Manner of Acting..................................................... 18
Section 14. Removal of Directors............................................................ 19
Section 15. Compensation.................................................................... 19
Section 16. Committees...................................................................... 19
Section 17. Indemnification of Employees, Officers and Directors............................ 20
Section 18. Action Without Meeting.......................................................... 23
Section 19. Presence at Meetings............................................................ 23
</TABLE>
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ii
<TABLE>
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ARTICLE IV. OFFICERS........................................................................ 23
Section 1. Number.......................................................................... 23
Section 2. Election, Term of Office and Qualifications..................................... 24
Section 3. Removal......................................................................... 25
Section 4. Resignations.................................................................... 25
Section 5. Vacancies....................................................................... 25
Section 6. The Chairman of the
Board of Directors............................................................. 25
Section 7. The Vice Chairman of the
Board of Directors............................................................. 26
Section 8. The President of the Corporation................................................ 26
Section 9. Authority and Duties of the Business Presidents, Executive Vice Presidents,
Senior Vice Presidents, and Vice Presidents.................................... 27
Section 10. The Treasurer................................................................... 27
Section 11. The Secretary................................................................... 28
Section 12. Assistant Treasurers, Assistant Secretaries and Attesting Secretaries........... 30
Section 13. Salaries........................................................................ 30
Section 14. Subordinate Positions, etc...................................................... 30
ARTICLE V. CONTRACTS, LOANS, CHECKS, DEPOSITS, ETC......................................... 31
Section 1. Contracts, etc. How Executed.................................................... 31
Section 2. Loans........................................................................... 31
Section 3. Checks, Drafts, etc............................................................. 32
Section 4. Deposits........................................................................ 32
Section 5. General and Special Bank Accounts............................................... 33
ARTICLE VI. SHARES AND THEIR TRANSFER....................................................... 33
Section 1. Shares.......................................................................... 33
Section 2. Certificates for Shares of Stocks............................................... 33
Section 3. Transfer of Shares.............................................................. 34
Section 4. Lost, Stolen, Destroyed,
or Mutilated Certificates...................................................... 35
Section 5. Transfer and Registry Agents.................................................... 35
Section 6. Regulations..................................................................... 36
Section 7. Statements Relating to Uncertificated Securities................................ 36
Section 8. Record Date..................................................................... 39
</TABLE>
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iii
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ARTICLE VII. OFFICES......................................................................... 40
Section 1. Registered Office............................................................... 40
Section 2. Other Offices................................................................... 40
ARTICLE VIII. DIVIDENDS, SURPLUS, ETC......................................................... 40
ARTICLE IX. SEAL............................................................................ 41
ARTICLE X. FISCAL YEAR AND AUDIT........................................................... 42
Section 1. Fiscal Year..................................................................... 42
Section 2. Audit of Books and Accounts..................................................... 42
ARTICLE XI. WAIVER OF NOTICES............................................................... 42
ARTICLE XII. NATIONAL EMERGENCY.............................................................. 42
Section 1. Definition and Application...................................................... 42
Section 2. Meetings, etc................................................................... 43
Section 3. Amendment....................................................................... 44
Section 4. Chief Executive Officer......................................................... 44
Section 5. Substitute Directors............................................................ 44
ARTICLE XIII. AMENDMENTS...................................................................... 45
CERTIFICATION.................................................................................... 45
</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 BUSINESS AND NOMINATIONS.
(a) ANNUAL MEETING OF STOCKHOLDERS.
(i)
Nominations of persons for election to the Board
of Directors of the Corporation and the proposal of business to be considered
by the stockholders may be made at an annual meeting of stockholders as
follows:
(a) pursuant to the Corporation's notice of
meeting;
(b) by or at the direction of the Board of
Directors; or
(c) by any stockholder of the Corporation who
was a stockholder of record at the time of giving notice
<PAGE>
2
provided for in this by-law, who is entitled to vote at the meeting and
who complied with the notice procedures set forth in this by-law.
(ii)
For nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to clause c) of
paragraph (a)(i) of this by-law, the stockholder must have given timely
notice thereof in writing to the Secretary, of Honeywell Inc., and such other
business must be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on
the 90th day nor earlier than the close of business on the 120th day prior to
the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is more than
30 days before or more than 60 days after such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the close
of business on the 120th day prior to such annual meeting and not later than
the close of business on the later of the 90th day prior to such annual
meeting or the 10th day following the day on which public announcement of the
date of such meeting is first made. In no event shall the public announcement
of an adjournment of an annual meeting commence a new time period for the
giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth:
(a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director, all information
relating to such person that is required to be disclosed in solicitations
of proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule
14a-11
<PAGE>
3
thereunder (including such person's written consent to be named in the
proxy statement as a nominee and to serve as a director if elected);
(b) as to any other business that the stockholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business of
such stockholder and the beneficial owner, if any, on whose behalf the
proposal is made; and
(c) as to the stockholder giving notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is
made i) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and ii) the class and
number of shares of the Corporation which are owned beneficially and of
record by such stockholder and such beneficial owner.
(iii)
Notwithstanding anything in the second sentence
of paragraph (a)(ii) of this by-law to the contrary, in the event that the
number of directors to be elected to the Board of Directors of the
Corporation is increased and there is no public announcement naming all of
the nominees for director or specifying the size of the increased Board of
Directors made by the Corporation at least 100 days prior to the first
anniversary of the preceding year's annual meeting, a stockholder's notice
required by this by-law shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it
shall be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 10th day following
the day on which such public announcement is first made by the Corporation.
<PAGE>
4
(b) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be conducted
at a special meeting of stockholders as shall have been brought before the
meeting pursuant to the Corporation's notice of meeting. Nominations of persons
for election to the Board of Directors may be made at a special meeting of
stockholders at which directors are to be elected pursuant to the Corporation's
notice of meeting (i) by or at the direction of the Board of Directors or (ii)
by any stockholder of the Corporation who is a stockholder of record at the time
of giving of notice provided for in this by-law, who shall be entitled to vote
at the meeting and who complies with the notice procedures set forth in this
by-law. In the event the Corporation calls a special meeting of stockholders for
the purpose of electing one or more directors to the Board of Directors, any
such stockholder may nominate a person or persons (as the case may be), for
election to such position(s) as specified in the Corporation's notice of
meeting, if the stockholder's notice required by paragraph (a)(iii) of this by-
law shall be delivered to the Secretary at the principal executive offices of
the Corporation not earlier than the close of business on the 120th day prior to
such special meeting and not later than the close of business on the later of
the 90th day prior to such special meeting or the 10th day following the day on
which public announcement is first made of the date of the special meeting and
of the nominees proposed by the Board of Directors to be elected at such
meeting. In no event shall the public announcement of an adjournment of a
special meeting commence a new time period for the giving of a stockholder's
notice as described above.
(c) GENERAL.
(i)
Only such persons who are nominated in
accordance with the procedures set forth in this by-law shall be eligible to
serve as directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the
<PAGE>
5
procedures set forth in this by-law. Except as otherwise provided by law or
the by-laws of the Corporation, the Chairman of the meeting shall have the
power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made, or proposed, as the case may be, in
accordance with the procedures set forth in this by-law and, if any proposed
nomination or business is not in compliance with this by-law, to declare that
such defective proposal or nomination shall be disregarded.
(ii)
For purposes of this by-law, "public
announcement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or in a
document publicly filed by the corporation with the Securities and Exchange
commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(iii)
Notwithstanding the foregoing provisions of this
by-law, a stockholder shall also comply with all applicable requirements of
the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this by-law. Nothing in this by-law shall be deemed to
affect any rights of a) stockholders to request inclusion in proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act
or b) the holders of any series of preferred stock to elect directors under
specified circumstances.
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 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.
<PAGE>
6
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 meeting of stockholders shall state the place, date and hour
of
<PAGE>
7
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.
SECTION 7. ORGANIZATION. At each meeting of the stockholders the Chairman of
the Board of Directors, or in his
<PAGE>
8
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
(b)if no such record date shall have been so affixed,
then as provided by the provisions of Subsection (b) of Section 8 of Article
VI of these by-laws.
<PAGE>
9
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 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
<PAGE>
10
and delivered to the secretary of the meeting, or may be given in accordance
with voting instructions provided by telephone, via the Internet, Intranet, or
by other electronic means as permitted by statute; 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 such meeting. The stock ledger shall be the only evidence as to
<PAGE>
11
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>
12
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>
13
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>
14
ARTICLE III.
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The property, affairs and business of the
Corporation shall be managed by the Board of Directors.
SECTION 2. NUMBER, QUALIFICATIONS AND TERM OF OFFICE. The number of
directors shall be twelve, but the number may be increased, or diminished to not
less than three, by amendment of these by-laws. Directors need not be
stockholders. Each of the directors of the Corporation shall hold office until
the annual meeting held next after his election and shall qualify, or until his
earlier death or his earlier resignation or removal in the manner hereinafter
provided.
SECTION 3. NOMINATIONS OF DIRECTORS. Only persons who are nominated in
accordance with the procedures set forth in Section 2 of Article I of these
by-laws shall be eligible for election as directors.
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 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,
<PAGE>
15
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 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
<PAGE>
16
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 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
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17
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.
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
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18
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.
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
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19
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.
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,
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20
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.
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,
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21
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 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
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22
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 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
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23
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.
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
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24
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.
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
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25
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, 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
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26
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.
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
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27
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.
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
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28
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 2 of Article VI of these by-laws; and
(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;
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(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 2 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;
(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 2 of Article VI of these by-laws;
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30
(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 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
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31
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 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,
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32
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 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.
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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 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
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34
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 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.
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35
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 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
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36
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 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
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37
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 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,
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38
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
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.
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39
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 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.
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40
(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
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.
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41
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 property or business of the
Corporation, or for any other purpose it may think conducive to the best
interests of the Corporation.
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42
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 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.
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43
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 waived any requirement, of law or otherwise, that any other notice of
such special meeting be given. At any such special
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44
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
unavailable to perform the duties of his office, the Vice Chairman of the Board
of Directors of the Corporation is hereby
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45
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.
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46
CERTIFICATION
I, ________________________________________________ the undersigned,
________________ Secretary of HONEYWELL INC., a Delaware corporation, DO HEREBY
CERTIFY that the foregoing is a full, true and correct copy of the by-laws of
said Corporation as now in effect.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of said
Corporation, this ___ day of _____________, _____.
--------------------------
Secretary
<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
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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 securities; 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 those officers of the Company who hold the following
positions: the Vice President and Corporate Secretary (chair), the Vice
President, Executive Human Resources, the Vice President and Treasurer, and the
Vice President, Taxes, or such other committee as may be designated by the
Board.
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"Company" shall mean Honeywell Inc.
"Company Restricted Stock" shall mean Restricted Stock (as defined in the
Prior Plans) of the Company.
"Deferred Account" shall mean the account established and maintained by the
Company for specified deferrals by a Director in accordance with Section 5(c).
"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.
"Disability" shall mean an illness, disease or injury that lasts at least
six months, and is expected to be permanent and continuous and shall include the
incapacity of a Director. The Committee shall determine whether such disability
has occurred based on medical evidence satisfactory to it that such disability
will not allow a Director to carry out his/her duties.
"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.
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"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.
"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 Vice President and Corporate Secretary of the Company no later than
December 31 of the calendar year immediately preceding the calendar
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year to which the election relates, or in the case of an individual who
becomes a Director after the first day of the calendar year, within 30 days
after the date such individual becomes a Director. (The Annual Election
shall be irrevocable after December 31, and the last filed Annual Election
shall be operative for all payments under the Plan in connection with a
Director's Termination Date.) The Annual Election shall specify the
applicable percentage of the Annual Retainer and Meeting Fees that such
Director elects to receive in cash, Stock Units, or to defer, and the form
of payment elected by such Director.
(b) If a Director elects to receive Fees in cash, cash payment for the
Annual Retainer shall be paid as soon as practicable after the beginning of
a Director Year, and cash payment for Meeting Fees shall be paid as soon as
practicable after a meeting. If a Director elects to receive Stock Units
in lieu of all or a portion of the Annual Retainer, the Director shall
receive Stock Units (including fractional Stock Units) with respect to
Stock having a Fair Market Value (on the date of the Company's Annual
Meeting) equal to 110% of the portion of the Annual Retainer payable in
Stock Units. If a Director elects to receive Stock Units in lieu of all or
a portion of the Meeting Fees, then with respect to all meetings occurring
within a calendar quarter, the Director shall receive Stock Units
(including fractional Stock Units) with respect to Stock having a Fair
Market Value (determined as of the last trading day for such quarter)
equal to 110% of the portion of such Meetings Fees payable in Stock Units.
(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
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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
canceled. Each Director who, immediately prior to the Effective Date, holds
Company Restricted Stock or Alliant Restricted Stock, which shall be canceled 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
canceled Company Restricted Stock and (ii) the total value, as of the Effective
Date, of the stock underlying such Director's Alliant Restricted Stock divided
by the Fair Market Value per share of Stock on the Effective Date. Prior to the
Effective Date (but in no event later than the tenth day preceding the Effective
Date), each Director may elect to cancel, as of the Effective Date, all or a
portion of such Director's Fees then held in the Director's deferred
compensation account under the Prior Plans in exchange for an Award of Stock
Units with respect to the number of shares of Stock equal to the amount so
canceled 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
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dividend payment date, had such shares been owned as of the record date for such
dividend.
8. TIME OF PAYMENT. Unless otherwise provided herein, all payments in
respect of a Director's Stock Units and in settlement of a Director's Deferred
Account shall be made as soon as practicable after the earlier of:
(I) the occurrence of a Change in Control; and
(II) the Termination Date;
provided, however, that no payment in respect of a Canadian Director's Stock
Units and in settlement of a Canadian Director's Deferred Account shall be made
prior to such Canadian Director's Termination Date.
9. FORM OF PAYMENT.
(a) Except as described in Section 9 (c), payment in respect of Stock
Units shall be made in Stock.
(b) Payment in settlement of the Director's Deferred Account shall be
made in cash.
(c) Any payment made upon an occurrence of a Change in Control,
whether in respect of Stock Units or in settlement of the Deferred Account
(including Stock Units of Deferred Accounts with respect to which one or
more installment payments have previously been made), shall be made in a
single lump sum cash payment. For purposes of the preceding sentence, the
amount of cash delivered in full or partial payment of Stock Units shall
equal the Change in Control Price of the number of shares of Stock relating
to the Stock Units with respect to which such cash payment is being made.
(d) Except as described in Sections 9(c) 17 or 18, payments with
respect to stock units or in settlement of Deferred Accounts shall be paid
as follows: (a) a lump sum payable on a date elected by a Director but not
to exceed ten years from the Termination Date, (b) up to three
installments over a period not to exceed ten years from the Termination
Date, as elected by a Director, or (c) in annual installments over a period
not to exceed ten years from a Director's Termination Date, as elected by
the Director; provided that no such election, change or revocation will be
given
<PAGE>
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effect if it is made after December 31 of the year preceding a 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 Director's
Termination Date.
(e) The Company shall not issue fractions of shares. Whenever under
the terms of the Plan, a fractional share would otherwise be required to be
issued, the Director shall be paid in cash for such fractional share.
10. STATEMENT OF ACCOUNT. Each director shall receive an annual statement
showing the number of Stock Units that have been awarded to the director under
the Plan.
11. CHANGE IN CAPITAL STRUCTURE. In the event of any change in the Stock
by reason of any stock dividend, split, combination of shares, exchange of
shares, warrants or rights offering to purchase Stock at a price below its fair
market value, reclassification, recapitalization, merger, consolidation or other
change in capitalization, appropriate adjustment shall be made by the Committee
in the number and kind of shares subject to the Plan and any other relevant
provisions of the Plan, whose determination shall be binding and conclusive on
all persons.
12. NONTRANSFERABILITY. Unless determined otherwise by the Committee,
Stock Units shall not be transferable by a Director except by will or the laws
of descent and distribution.
13. RIGHTS. Except to the extent otherwise set forth herein, the
Directors shall not have any of the rights of a stockholder with respect to the
Stock Units.
14. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Committee. The Committee shall have full power, discretion and authority to
interpret and administer the Plan, except that the Committee shall have no power
to (a) determine the eligibility for Awards or the number of Stock Units or
timing or value of Awards to be granted to any Director, or (b) take any action
specifically delegated to the Board under the Plan. The Committee's
interpretations and actions shall, except as otherwise determined by the Board,
be final, conclusive and binding on all persons for all purposes.
<PAGE>
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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. PAYMENTS IN THE EVENT OF DISABILITY. In the event of a Director's
disability at the time of payment, or in the judgment of the Committee the
Director is mentally or legally incapable of receiving payment, payment 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), in order of priority, to the
Director's legal guardian or conservator (in the event of incapacity), or other
legal representative of the Director, or if no legal representative has been
appointed for the Director, the Committee may make the payment to the person or
institution entrusted with the care or maintenance of the incompetent or
disabled Director, or the Director's designated beneficiary (which beneficiary,
for any Canadian Director, must be a relative or a dependent of the Canadian
Director), spouse, children, parents, or other relatives by blood or marriage.
Any payment made to any of the above persons shall constitute a complete
discharge of any liability or obligation of the Company.
19. 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>
HONEYWELL
SUPPLEMENTAL DEFINED BENEFIT RETIREMENT PLAN
(1998 RESTATEMENT)
First Effective April 20, 1976 (SRP) and
January 1, 1985 (CECP SERP)
July 1, 1989 ($200K SERP)
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<PAGE>
HONEYWELL
SUPPLEMENTAL DEFINED BENEFIT RETIREMENT PLAN
(1998 RESTATEMENT)
TABLE OF CONTENTS
Page
SECTION 1. INTRODUCTION................................. 1
1.1 Preambles
1.2 Definitions
1.2.1 Base Plan
1.2.2 Benefit Starting Date
1.2.3 Effective Date
1.2.4 Employer
1.2.5 Participant
1.2.6 Personnel Committee
1.2.7 Plan
1.2.8 Plan Statement
1.2.9 Plan Year
1.2.10 Prior Plan Statements
1.3 Rules of Interpretation
SECTION 2. ELIGIBILITY AND PARTICIPATION................ 4
2.1 Participation
2.2 Duration
SECTION 3. BENEFITS..................................... 5
3.1 Participant Benefit
3.2 Survivor Benefit
3.2.1 Death Before Benefits Commence
3.2.2 Death After Benefits Commence
3.3 Special 1993 Vesting
SECTION 4. DISTRIBUTIONS................................ 7
4.1 Forms of Payment
4.2 Lump Sum Payment
4.2.1 Election and Amount
4.2.2 Death Within 13 Month Period
4.2.3 Acceleration of Benefits with Forfeiture
4.3 Timing
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<PAGE>
4.4 Change in Control
4.4.1 Immediate Vesting
4.4.2 Definition
4.4.3 Payment After Change in Control
4.5 Taxes
4.6 Incompetency
SECTION 5. GENERAL MATTERS.............................. 11
5.1 Funding
5.2 Status of Participant
5.3 Spendthrift Provision
5.4 No Employment Contract
SECTION 6. AMENDMENT AND TERMINATION.................... 12
6.1 Amendment
6.2 Change in Control
6.3 Amendments to Base Plan
SECTION 7. DETERMINATIONS AND CLAIMS.................... 13
7.1 Determinations
7.2 Claims Procedure
7.2.1 Original Claim
7.2.2 Claims Review Procedure
7.2.3 General Rules
SECTION 8. PLAN ADMINISTRATION.......................... 15
8.1 Employer
8.2 Personnel Committee
8.3 Method of Executing Instruments
8.4 Conflict of Interest
8.5 Plan Administrator
8.6 Service of Process
8.7 Construction
TABLE I..................................................... 17
TABLE II.................................................... 18
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<PAGE>
HONEYWELL
SUPPLEMENTAL DEFINED BENEFIT RETIREMENT PLAN
(1998 RESTATEMENT)
SECTION 1
INTRODUCTION
1.1. PREAMBLES. Honeywell Inc. ("Honeywell"), a Delaware corporation,
maintains a tax-qualified defined benefit plan known as the Honeywell Retirement
Benefit Plan (the "Base Plan"). Benefits in the Base Plan are restricted by
sections 415 and 401(a)(17) of the Internal Revenue Code, as amended, (the
"Code") and by the nonrecognition of certain types of compensation.
Section 3(36) and section 4(b)(5) of the Employee Retirement Income Security Act
of 1974, as amended, ("ERISA") recognize and authorize the establishment of an
unfunded, nonqualified plan of deferred compensation maintained by an employer
solely for the purpose of providing benefits for employees in excess of the
limitations on benefits imposed under section 415 of the Code. Sections 201,
301 and 401 of ERISA also recognize the creation of an unfunded, nonqualified
plan maintained by an employer primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees.
On April 20, 1976, Honeywell established the Honeywell Supplementary Retirement
Plan for the purpose of providing the full benefits promised to employees under
the Base Plan without regard to the limitation on benefits imposed by section
415 of the Code. On July 1, 1989, Honeywell established the Honeywell
Supplementary Executive Retirement Plan For Compensation In Excess Of $200,000
for the purpose of providing the full benefits promised to employees under the
Base Plan without regard to the limitation on compensation imposed by section
401(a)(17) of the Code. On January 1, 1985, Honeywell established the Honeywell
Supplementary Retirement Plan For CECP Participants for the purpose of providing
the full benefits promised to employees under the Base Plan without regard to
the exclusion from earnings of deferred incentive awards paid under the
Honeywell Corporate Executive Compensation Plan. (collectively, "the SERPs.")
Each of the SERPs was amended and restated effective September 20, 1994. This
document further amends, completely restates, and consolidates the SERPs into
one plan and is intended to completely supersede each Prior Plan Statement
effective for persons who terminate employment on or after December 31, 1997,
and commence benefits in the Base Plan as of January 1, 1998, or any date
thereafter. The consolidated plan shall be known as the Honeywell Supplemental
Defined Benefit Retirement Plan (the "Plan") and is intended to be, in part, an
unfunded excess benefit plan within the meaning of section 3(36) ERISA and, in
part, an unfunded plan maintained primarily for the purpose of providing
deferred compensation for a select group of management or highly compensated
employees as provided in sections 201(2), 301(3) and 401(a)(1) of ERISA.
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<PAGE>
1.2. DEFINITIONS. When used herein with initial capital letters, the
following words have the following meanings:
1.2.1. BASE PLAN -- the tax-qualified defined benefit pension plan known
as the Honeywell Retirement Benefit Plan as the same is existing and amended
from time to time.
1.2.2. BENEFIT STARTING DATE -- the date as of which a benefit is
commenced in the Base Plan.
1.2.3. EFFECTIVE DATE -- January 1, 1998, and applied to employees who
terminate employment on or after December 31, 1997, and commence benefits in the
Base Plan as of January 1, 1998, or any date thereafter.
1.2.4. EMPLOYER -- Honeywell and any business entity that, with the
approval of Honeywell, adopts the Plan.
1.2.5. PARTICIPANT -- an employee of the Employer who becomes a
Participant in the Plan in accordance with the provisions of Section 2 (or any
comparable provision of the Prior Plan Statements).
1.2.6. PERSONNEL COMMITTEE -- such committee (or successor committee)
of the Board of Directors of Honeywell. If no such committee exists at any
relevant time, the duties allocated to such committee under this Plan shall be
discharged by the Board of Directors of Honeywell or a person or committee to
whom such duties may be delegated by the Board of Directors.
1.2.7. PLAN -- this excess benefit and nonqualified deferred
compensation plan of the Employer established for the benefit of employees
eligible to participate therein, as first set forth in the Prior Plan Statements
and as amended and restated in this Plan Statement. (As used herein, "Plan"
refers to the legal entity established by the Employer and not to the documents
pursuant to which the Plan is maintained. Those documents are referred to
herein as the "Prior Plan Statement" and the "Plan Statement.") The Plan shall
be referred to as the Honeywell Supplemental Defined Benefit Retirement Plan.
1.2.8. PLAN STATEMENT -- this document entitled "Honeywell Supplemental
Defined Benefit Retirement Plan (1998 Restatement)," as adopted by Honeywell
effective as of January 1, 1998, as the same may be amended from time to time
thereafter.
1.2.9. PLAN YEAR -- the plan year for this Plan shall be the twelve (12)
month period ending on December 31.
1.2.10. PRIOR PLAN STATEMENTS -- the series of documents pursuant to
which components of this Plan were established and operated thereafter until
December 31, 1997.
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<PAGE>
1.3. RULES OF INTERPRETATION. Whenever appropriate, words used herein in the
singular may be read in the plural, or words used herein in the plural may be
read in the singular; the masculine may include the feminine; and the words
"hereof," "herein" or "hereunder" or other similar compounds of the word "here"
shall mean and refer to the entire Plan Statement and not to any particular
paragraph or Section of this Plan Statement unless the context clearly indicates
to the contrary. The titles given to the various Sections of this Plan
Statement are inserted for convenience of reference only and are not part of
this Plan Statement, and they shall not be considered in determining the
purpose, meaning or intent of any provision hereof. Any reference in this Plan
Statement to a statute or regulation shall be considered also to mean and refer
to any subsequent amendment or replacement of that statute or regulation. This
instrument has been executed and delivered in the State of Minnesota and has
been drawn in conformity to the laws of that State and shall, except to the
extent that federal law is controlling and except for its law respecting choice
of law, be construed and enforced in accordance with the laws of the State of
Minnesota.
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<PAGE>
SECTION 2
ELIGIBILITY AND PARTICIPATION
2.1. PARTICIPATION. An employee is eligible to participate in and receive
benefits under this Plan if the employee:
(a) (i) is eligible to commence a normal or early retirement benefit
under the Base Plan when employment terminates, or (ii) dies
while still actively employed by Honeywell with a vested benefit
in the Base Plan, or (iii) has been granted a vested benefit in
this Plan, or (iv) has been specifically selected by the
Personnel Committee to participate in this Plan; and
(b) has a benefit in the Base Plan that is reduced on account of (i)
the benefit limitation under section 415 of the Code or (ii) the
compensation limitation under section 401(a)(17) of the Code or
(iii) the provision in the Base Plan excluding from earnings any
deferred incentive awards paid under the Honeywell Corporate
Executive Compensation Plan.
Notwithstanding anything apparently to the contrary in this Plan or in any
written communication, summary, resolution or document or oral communication,
unless an individual is a member of a select group of management or highly
compensated employees (as that expression is used in ERISA), the individual
shall not be a Participant in this Plan, develop benefits under this Plan or be
entitled to receive benefits under this Plan (either for the Participant or the
Participant's survivors) except to the extent that the individual's benefits in
Base Plan are reduced on account of Code section 415 limits.
If a court of competent jurisdiction, any representative of the U.S. Department
of Labor or any other governmental, regulatory or similar body makes any direct
or indirect, formal or informal, determination that an individual is not a
member of a select group of management or highly compensated employees (as that
expression is used in ERISA), such individual shall not be (and shall not have
ever been) a Participant in this Plan at any time except to the extent that the
individual's benefits in Base Plan are reduced on account of Code section 415
limits. If any person not so defined has been erroneously treated as a
Participant in this Plan, upon discovery of such error such person's erroneous
participation shall immediately terminate AB INITIO and upon demand such person
shall be obligated to reimburse Honeywell for all amounts erroneously paid to
him or her.
2.2. DURATION. Any employee who has become a Participant in this Plan shall
continue as a Participant until all benefits due under this Plan have been paid
(or forfeited) without regard to whether he or she continues as a participant in
the Base Plan.
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<PAGE>
SECTION 3
BENEFITS
3.1. PARTICIPANT BENEFIT. Commencing as of the Benefit Starting Date, a
Participant shall receive a benefit in this Plan which shall be the excess, if
any, of:
(a) the amount that would be payable under the formula and rules of
the Base Plan (as the Base Plan exists on the date as of which
such amount is determined) if determined:
(i) without regard to the benefit limitation under section
415 of the Code, and
(ii) without regard to the compensation limitation under
section 401(a)(17) of the Code, and
(iii) without regard to the exclusion from the definition of
Earnings under the Base Plan of deferred incentive
payments under Honeywell Corporate Executive Compensation
Plan, over
(b) the amount actually paid from the Base Plan.
A Participant's benefit in this Plan may be limited in the manner and to the
extent to which the Participant has agreed in writing.
3.2. SURVIVOR BENEFIT.
3.2.1. DEATH BEFORE BENEFITS COMMENCE. If a Participant dies before the
commencement of benefit payments from this Plan, satisfies the eligibility
requirements of Section 2 on the date of death, and is eligible for a
pre-retirement survivor benefit in the Base Plan, a benefit shall be payable to
the Participant's survivor commencing as of the last day of the month of the
Participant's death or, if later, the last day of the month of the Participant's
earliest Benefit Starting Date. The survivor shall be the individual, if any,
that is entitled to the pre-retirement survivor benefit in the Base Plan. The
benefit shall be the amount the survivor would have received under this Plan if
the Participant had terminated employment on the day before death, had commenced
benefit payments on the last day of the month of death or, if later, the last
day of the month of the Participant's earliest Benefit Starting Date in the same
form as the pre-retirement survivor benefit that is payable under the Base Plan,
and had died immediately thereafter.
3.2.2. DEATH AFTER BENEFITS COMMENCE. If a Participant dies after the
commencement of benefit payments from this Plan, the benefit payable shall be
unpaid installments of annuity, if any, which are to be continued for a joint
annuitant or beneficiary under the form of payment elected by the Participant
under Section 4.
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<PAGE>
3.3. SPECIAL 1993 VESTING. As specified in the Prior Plan Statement, accrued
benefits were determined and vested for certain employees as of specified dates
in 1993 and, to the extent a vested benefit was attributable to service after
December 31, 1983, but before January 1, 1994, the present value of that benefit
was treated as "wages" for such employee for purposes of the Federal Insurance
Contribution Act (FICA) and the Federal Unemployment Act (FUTA). The amount of
the vested benefit of individuals who were named in the Prior Plan Statement and
have not commenced benefits in the Plan as of the Effective Date are specified
on Table II.
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<PAGE>
SECTION 4
DISTRIBUTIONS
4.1. FORMS OF PAYMENT. Except as provided in 4.2 and 4.4 below, the payment
forms available to a Participant shall be a 100% Joint and Survivor Annuity, a
50% Joint and Survivor Annuity, a Single Life Annuity, and a 10 Year Period
Certain and Life Annuity, as those payment forms are defined in the Base Plan,
with the designation of joint annuitant or beneficiary that is effective for the
Participant in the Base Plan. The Participant's election of a payment form and
designation of a joint annuitant or beneficiary shall be made in the form and
manner prescribed by the Personnel Committee and may be revoked by the
Participant at any time prior to the Benefit Starting Date. A Participant who
is married on the Benefit Starting Date must obtain the written consent of the
Participant's spouse in the form and manner prescribed by the Personnel
Committee to the election of any form other than a 100% Joint and Survivor
Annuity with the Participant's spouse designated as the joint annuitant.
4.2 LUMP SUM PAYMENT.
4.2.1. ELECTION AND AMOUNT. A Participant may receive payment of
benefits in the form of a single lump sum if the Participant makes an
irrevocable election in the form and manner prescribed by the Personnel
Committee. If the Participant is married when the election is made, the
Participant's spouse must consent to the election in writing and acknowledge the
effect of such election. An election shall not be considered made until it is
actually received by the Personnel Committee and unless such actual receipt
occurs prior to the Participant's death. The amount of the lump sum payment
shall be the present value of the Participant's benefit determined under Section
3.1 using the interest rate and mortality assumptions set forth in Table I, and
if the election is made less than thirteen (13) months before the Participant's
termination of employment for reasons other than death, the lump sum payment
shall be reduced by 10% which shall be forfeited.
4.2.2. DEATH WITHIN 13 MONTH PERIOD. If a Participant dies less than
thirteen (13) months after making an election to receive a lump sum payment,
payment to the Participant's survivor shall be made in the form of a single lump
sum. The amount of the lump sum payment shall be the present value of the
survivor's benefit determined under Section 3.2.1 using the interest rate and
mortality assumptions set forth in Table I.
4.2.3. ACCELERATION OF BENEFITS WITH FORFEITURE. A Participant,
survivor, joint annuitant or beneficiary who is receiving benefit payments
under this Plan may at any time elect to receive the remaining benefit in a
lump sum payment. The amount of the lump sum shall be the present value of
the remaining benefit determined as of the last day of the month in which the
election is received by the Personnel Committee using the interest rate and
mortality assumptions set forth on Table I less 10% which shall be forfeited.
4.3. TIMING. Actual distribution of benefits from the Plan shall begin on or
as soon as administratively feasible after the last day of the month in which
the Benefit Starting Date
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<PAGE>
occurs; provided, however, that lump sum payments pursuant to an election under
Section 4.2.3 shall be made on or as soon as administratively feasible after the
last day of the month following the month in which the request to accelerate
benefits is received by the Personnel Committee, and lump sum payments pursuant
to Section 6.1 shall be made as soon as administratively feasible after the Plan
termination.
4.4. CHANGE IN CONTROL
4.4.1. IMMEDIATE VESTING. In the event of a Change in Control as
defined in this Section, each employee who satisfies the eligibility
requirements of Section 2 on the day before the Change in Control shall be
immediately and fully vested in the benefit that would have been payable if the
employee had terminated employment on the day before the Change in Control and
in any additional benefit the employee accrues in this Plan following the Change
in Control.
4.4.2. DEFINITION. For all purposes of this Plan, a "Change in Control"
shall have occurred if:
(a) any "person" as such term is used in section 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (other than Honeywell, any subsidiary of Honeywell, any
"person" (as herein 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 stockholders 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, or securities of
Honeywell representing thirty percent (30%) or more of the
combined voting power of Honeywell's then outstanding securities;
(b) during any period of not more than two consecutive years
(including any period prior to the Effective Date), individuals
who at the beginning of such period constitute the Board of
Directors of Honeywell, 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
Section 4.4.2 (a), (c) or (d)) whose election by the Board of
Directors of Honeywell or nomination for election by Honeywell's
stockholders was approved by a vote of at least two-thirds 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 stockholders of Honeywell approve a merger or consolidation
of Honeywell with any other corporation, other than (i) a merger
or
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<PAGE>
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 capitalization 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 stockholders 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).
4.4.3. PAYMENTS AFTER CHANGE IN CONTROL. Notwithstanding any provision
of this Plan to the contrary, during the period that begins on the date of a
Change in Control and ends on the last day of the thirty-sixth month that begins
after the month in which the Change in Control occurs, an employee who
terminates employment for "Good Reason" or is terminated by Honeywell without
"Cause" (as those terms are then defined in the Honeywell Key Employee Severance
Plan or its successor plan) or has a termination of employment due to Permanent
and Total Disability (as defined in the Base Plan) and who satisfies the
eligibility requirements of Section 2 on the date of such termination or would
have satisfied such requirements on or before the last day of such period but
for such termination shall receive a lump sum payment of benefits in this Plan
as soon as administratively feasible after such termination. The lump sum shall
be the present value of the employee's benefit determined under Section 3.1 as
of such termination using the applicable interest rate and mortality assumptions
set forth in Table I. Each Participant, survivor or beneficiary who is
receiving benefit payments from this Plan at the time of a Change in Control
shall receive a lump sum payment of remaining benefits as soon as
administratively feasible after the Change in Control. Such lump sum shall be
the present value of the individual's remaining benefit determined as of the
date of the Change in Control using the applicable interest rate and mortality
assumptions set forth in Table I.
4.5. TAXES. All taxes which may be due with respect to any payments or
benefits under this Plan are the obligation of the Participant and not the
obligation of the Employer. Notwithstanding any provision in this Plan to the
contrary, if all or a portion of a benefit in this Plan is determined to be
includable in an individual's gross income and subject to income tax at any time
prior to the time such benefit would otherwise be paid, that benefit or that
portion of a benefit shall be distributed to the individual. For this purpose,
an amount is determined to be includable in an individual's gross income upon
the earliest of: (a) a final determination by the Internal Revenue Service
addressed to the individual which is not appealed, (b) a final determination of
by the United States Tax Court or any other federal court affirming an IRS
determination, or (c) an opinion addressed to Honeywell by the tax counsel for
Honeywell that,
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<PAGE>
by reason of the Code, Treasury Regulations, published IRS rulings, court
decisions or other substantial precedent, the amount is subject to federal
income tax prior to payment.
4.6. INCOMPETENCY. When the Personnel Committee determines that an individual
to whom benefits are payable is unable to manage his or her financial affairs,
the Personnel Committee may pay such individual's benefits to a duly appointed
conservator or other legal representative of such individual or, if no prior
claim has been made by such a conservator or legal representative, to a person
or institution entrusted with the care or maintenance of the incompetent or
disabled individual if the Personnel Committee is satisfied that the payments
will be used for the best interest of such individual. Any payment made in
accordance with this Section shall constitute a complete discharge or any
liability or obligation of the Employer and Plan.
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<PAGE>
SECTION 5
GENERAL MATTERS
5.1. FUNDING. All benefits under this Plan shall be paid exclusively from the
general assets of Honeywell. No fund or trust shall be established apart from
the general assets of Honeywell for the purpose of this Plan and no assets or
property shall be segregated, pledged or set apart from the general assets of
Honeywell for the purposes of funding this Plan. Any person entitled to
benefits under this Plan shall be a general, unsecured creditor of Honeywell.
The foregoing shall not preclude the establishment by Honeywell of a "rabbi
trust".
Notwithstanding the preceding paragraph, the Personnel Committee is authorized
(but not required) to cause Honeywell to fund all or a part of the benefits for
such Participant or Participants as it may select in its sole discretion from
time to time. The Personnel Committee is authorized to select, appoint and
remove trustees, to enter into, amend and terminate trust agreements, to create
trust funds, to cause Honeywell to make contributions to such trust funds in
such amounts as the Personnel Committee may determine from time to time and to
take all other actions that it may determine to be necessary or helpful in
implementing the funding.
5.2. STATUS OF PARTICIPANT. A Participant shall have no right, title, or
interest in or to any investments which Honeywell may make to aid it in meeting
the obligations of this Plan. Nothing contained in this Plan, and no action
taken pursuant to its provisions shall create or be construed to create a trust
of any kind, or a fiduciary relationship between Honeywell and a Participant or
any beneficiary. To the extent that any person acquires a right to receive
payments from Honeywell, such right shall be no greater than the right of an
unsecured creditor.
5.3. SPENDTHRIFT PROVISION. No Participant, surviving spouse, joint annuitant
or beneficiary shall have the power to transmit, assign, alienate, dispose of,
pledge or encumber any benefit payable under this Plan before its actual payment
to such person. Honeywell shall not recognize any such effort to convey any
interest under this Plan. No benefit payable under this Plan shall be subject
to attachment, garnishment, execution following judgment or other legal process
before actual payment to such person.
5.4. NO EMPLOYMENT CONTRACT. This Plan shall not give any employee the right
to be retained in the employment of the Employer, shall not enlarge or diminish
any person's employment rights or rights or obligations under the Base Plan, and
shall not affect the right of the Employer to deal with any employees or
participants in employment respects, including, without limitation, their
hiring, discharge, compensation, and conditions of employment.
-11-
<PAGE>
SECTION 6
AMENDMENT AND TERMINATION
6.1. AMENDMENT. The Personnel Committee shall have the right to amend or
terminate the Plan at any time, for any reason, and without notice to any
affected person; provided, however, that, except with respect to automatic lump
sum payments and interest rate assumptions, the Plan may not be amended in any
manner that would adversely affect the benefit which would have been payable to
an employee if the employee had terminated employment on the day before the
amendment or that would reduce the benefit that is being paid to any person at
the time of the amendment. If this Plan is terminated, each employee who
satisfies the eligibility requirements of Section 2 on the date the Plan is
terminated and each Participant, joint annuitant or beneficiary who is receiving
benefits under this Plan shall receive a lump sum payment of the accrued benefit
or remaining benefit, as applicable, in this Plan as soon as administratively
feasible after such Plan termination. The lump sum shall be the present value
of the person's accrued benefit or remaining benefit as of the date the Plan is
terminated using the interest rate and mortality assumptions set forth in Table
I.
6.2. CHANGE IN CONTROL. Notwithstanding Section 6.1, for a period that begins
on the date of a Change in Control (as defined in Section 4) and ends on the
last day of the thirty-sixth month that begins after the month in which the
Change in Control occurs, the Plan may not be terminated or amended in any
manner whatsoever that would adversely affect the amount and form of benefits
payable under this Plan to an employee without the employee's consent.
6.3. AMENDMENTS TO BASE PLAN. It is specifically contemplated that the Base
Plan will, from time to time, be amended and possibly terminated. All such
amendments and termination shall be given effect under this Plan as it is
expressly intended that this Plan shall not be restricted by the provisions of
the Base Plan as they exist on the Effective Date but shall be controlled by the
provisions of the Base Plan as of the date a benefit is determined under this
Plan.
-12-
<PAGE>
SECTION 7
DETERMINATIONS AND CLAIMS
7.1. DETERMINATIONS. The Personnel Committee or any person to whom such
authority has been delegated pursuant to Section 8 shall interpret and
administer the terms and conditions of the Plan, decide all questions concerning
the eligibility of any persons to participate in the Plan, grant or deny
benefits under the Plan, construe any ambiguous provision of the Plan, correct
any defect, supply any omission, or reconcile any inconsistency as the Personnel
Committee or its delegatee, in its sole discretion, may determine. The
determinations of the Personnel Committee or any authorized person shall,
subject only to the Plan's claims procedures, be final and binding on all
persons.
7.2. CLAIMS PROCEDURE.
7.2.1. ORIGINAL CLAIM. Any employee, former employee, joint or
contingent annuitant or beneficiary of the Participant may file with the
Personnel Committee a written claim for benefits under this Plan. Within sixty
(60) days after the filing of such a claim, the Personnel Committee shall notify
the claimant in writing whether his claim is upheld or denied in whole or in
part or shall furnish the claimant a written notice describing specific special
circumstances requiring a specified amount of additional time (but not more than
one hundred twenty days from the date the claim was filed) to reach a decision
on the claim. If the claim is denied in whole or in part, the Personnel
Committee shall state in writing:
(a) the specific reasons for the denial;
(b) the specific references to the pertinent provisions of this Plan
on which the denial is based;
(c) a description of any additional material or information necessary
for the claimant to perfect the claim and an explanation of why
such material or information is necessary; and
(d) an explanation of the claims review procedure set forth in this
section.
7.3.2. CLAIMS REVIEW PROCEDURE. Within sixty (60) days after receipt of
notice that his or her claim has been denied in whole or in part, the claimant
may file with the Personnel Committee a written request for a review and may, in
conjunction therewith, submit written issues and comments. Within sixty (60)
days after the filing of such a request for review, the Personnel Committee
shall notify the claimant in writing whether, upon review, the claim was upheld
or denied in whole or in part or shall furnish the claimant a written notice
describing specific special circumstances requiring a specified amount of
additional time (but not more than one hundred twenty days from the date the
request for review was filed) to reach a decision on the request for review.
-13-
<PAGE>
7.3.3. GENERAL RULES.
(a) No inquiry or question shall be deemed to be a claim or a request
for a review of a denied claim unless made in accordance with the
claims procedure. The Personnel Committee may require that any
claim for benefits and any request for a review of a denied claim
be filed on forms to be furnished by the Personnel Committee upon
request.
(b) All decision on claims and on requests for a review of denied
claims shall be made by the Personnel Committee.
(c) The Personnel Committee may, in its discretion, hold one or more
hearings on a claim or a request for a review of a denied claim.
(d) Claimants may be represented by a lawyer or other representative
(at their own expense), but the Personnel Committee reserves the
right to require the claimant to furnish written authorization.
A claimant's representative shall be entitled to receive copies
of notices sent to the claimant.
(e) The decision of the Personnel Committee on a claim and on a
request for a review of a denied claim shall be served on the
claimant in writing. If a decision or notice is not received by
a claimant within the time specified, the claim or request for a
review of a denied claim shall be deemed to have been denied.
(f) Prior to filing a claim or a request for a review of a denied
claim, the claimant or his representative shall have a reasonable
opportunity to review a copy of this Plan statement and all other
pertinent documents in the possession of Honeywell and the
Personnel Committee.
-14-
<PAGE>
SECTION 8
PLAN ADMINISTRATION
8.1. EMPLOYER. Functions generally assigned to the Employer shall be
discharged by the officers of Honeywell or delegated and allocated as provided
herein. Honeywell may, by action of the Personnel Committee, delegate or
redelegate and allocate and reallocate to one or more persons or to a committee
of persons jointly or severally, and whether or not such persons are directors,
officers or employees, such functions assigned to the Employer hereunder as it
may from time to time deem advisable.
8.2. PERSONNEL COMMITTEE. The general administration and operation of this
Plan shall be by the Personnel Committee, which shall consist of such members as
may be determined and appointed from time to time by the Honeywell's Board of
Directors, and who shall serve at the pleasure of the Board of Directors. The
Personnel Committee may delegate or redelegate to one or more persons, jointly
or severally, and whether or not such persons are members of the Personnel
Committee or employees of Honeywell, such functions assigned to the Personnel
Committee hereunder as it may from time to time deem advisable.
8.3. METHOD OF EXECUTING INSTRUMENTS. Information to be supplied or written
notices to be made or consents to be given by the Employer or the Personnel
Committee, as applicable, pursuant to any provision of this Plan may be signed
in the name of the Employer or the Personnel Committee by any officer or by any
employee or any member of any committee who has been authorized to make such
certification and to give such notices or consents.
8.4. CONFLICT OF INTEREST. If any officer or employee of Honeywell, any
member of the Board of Directors of Honeywell or any member of the Personnel
Committee to whom authority has been delegated or redelegated hereunder shall
also be a Participant in this Plan, he or she shall have no authority as such
officer, employee or member with respect to any matter specially affecting his
or her individual interest hereunder (as distinguished from the interests of all
Participants and or a broad class of Participants), all such authority being
reserved exclusively to the other officers, employees or members, as the case
may be, to the exclusion of such Participant, and such Participant shall act
only in his or her individual capacity in connection with any such matter.
8.5. PLAN ADMINISTRATOR. The Personnel Committee shall be the administrator
for purposes of section 3(16)(A) of ERISA.
8.6. SERVICE OF PROCESS. In the absence of any designation to the contrary by
the Personnel Committee, Keith D. Ross, Associate General Counsel, Honeywell
Inc. is designated as the appropriate and exclusive agent for the receipt of
service or process directed to the Plan in any legal proceeding, including
arbitration, involving the Plan.
8.7. CONSTRUCTION. This Plan is intended to be a nonqualified deferred
compensation arrangement. The rules of section 401(a) ET. SEQ. of the Code
shall not apply to this Plan. This
-15-
<PAGE>
Plan is adopted with the understanding that it is in part an unfunded excess
benefit plan within the meaning of section 3(36) ERISA and is in part an
unfunded plan maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees as
provided in sections 201(2), 301(3) and 401(a)(1) of ERISA. Each provision
hereof shall be interpreted and administered accordingly. This Plan shall not
provide any benefits with respect to any defined contribution plan. This Plan
shall be construed to prevent the duplication of benefits provided under any
other plan or arrangement, whether qualified or nonqualified, funded or
unfunded, to the extent that such other benefits are provided directly or
indirectly by the Honeywell.
-16-
<PAGE>
TABLE I
ACTUARIAL ASSUMPTIONS FOR LUMP SUM PAYMENTS
Before a Change in Control (as defined in Section 4.4.2), the assumptions shall
be:
<TABLE>
<S> <C>
Interest: 8 1/2 % per annum discount rate
Mortality: 1983 Group Annuity Mortality Table for Healthy
Males
</TABLE>
Upon and after a Change in Control, for individuals who receive an automatic
lump sum payments under Section 4.4.3, the assumptions shall be whichever of the
following results in the greater benefit: (i) the assumptions stated above which
applied before the Change in Control, or (ii) the interest rate and mortality
assumptions being used in the Base Plan at such time to determine lump sum
payments. For all other individuals, the assumptions shall be the assumptions
which applied before the Change in Control.
-17-
<PAGE>
TABLE II
VESTED ACCRUED BENEFITS
For purposes of Section 3.3, the accrued benefits of the following individuals
are vested to the extent shown below:
<TABLE>
<CAPTION>
NAME LIFE ANNUITY
<S> <C>
Bonsignore, Michael R. $ 12,338.72 per month payable at age 66
Rosso, Jean Pierre P. $ 2,771.88 per month payable at age 66
</TABLE>
-18-
<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, 1998
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income before income taxes................................ $ 829.33 $ 703.26 $ 610.20 $ 505.50 $ 369.70
Deduct:
Equity income........................................... 11.75 12.94 13.30 13.60 10.50
--------- --------- --------- --------- ---------
Subtotal................................................ 817.58 690.32 596.90 491.90 359.20
Add (Deduct):
Dividends from less than 50% owned companies............ 2.05 2.60 2.16 2.58 2.37
Proportional share of income (loss) before income taxes
of 50% owned companies................................ .35 .06 (.93) .41 (2.83)
--------- --------- --------- --------- ---------
Adjusted income........................................... 819.98 692.98 598.13 494.89 358.74
--------- --------- --------- --------- ---------
Fixed charges
Interest on indebtedness:
Honeywell Inc. and subsidiaries......................... 113.04 101.93 76.81 79.66 72.89
50% owned companies..................................... 2.79 .11 .05 -- --
--------- --------- --------- --------- ---------
Subtotal................................................ 115.83 102.04 76.86 79.66 72.89
Amortization of debt expense.............................. 1.67 1.50 4.55 3.66 2.61
Interest portion of rent expense.......................... 47.28 47.19 51.24 47.80 45.64
--------- --------- --------- --------- ---------
Total fixed charges....................................... 164.78 150.73 132.65 131.12 121.14
--------- --------- --------- --------- ---------
Total available income.................................... $ 984.76 $ 843.71 $ 730.78 $ 626.01 $ 479.88
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio of earnings to fixed charges........................ 5.98 5.60 5.51 4.77 3.96
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
73
<PAGE>
Ownership Percentages
AS OF: December 21, 1998
HONEYWELL INC.
AFFILIATES
<TABLE>
<CAPTION>
A %
I COUNTRY OWNED COMPANY*
- - ------- ----- -------
<S> <C> <C> <C>
I UNITED STATES: CALIF 100 HONEYWELL ADVANCED SYSTEMS INC.
A UNITED STATES: DEL 100 HONEYWELL ASIA PACIFIC INC.
A KOREA 50 LG-HONEYWELL CO., LTD. (JOINT VENTURE)
A CHINA 40 BEIJING HONEYWELL ENERGY SAVING EQUIPMENT COMPANY LTD.
(JOINT VENTURE)
A INDIA 40.62 TATA HONEYWELL LIMITED (JOINT VENTURE)
A JAPAN 21.7 YAMATAKE CORPORATION (JOINT VENTURE)
A JAPAN 76.9 YAMATAKE & CO., LTD.
A JAPAN 50 TAISHIN CO., LTD.
A JAPAN 100 YAMATAKE BUILDING SYSTEMS CO., LTD.
A JAPAN 100 YAMATAKE INDUSTRIAL SYSTEMS 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 SINGAPORE 100 YAMATAKE CONTROLS SINGAPORE PTE. LTD.
A PHILIPPINES 100 YAMATAKE PHILIPPINES, INC.
A INDONESIA 55 PT. YAMATAKE BERCA INDONESIA
A UNITED STATES: ARIZONA 100 YCV CORPORATION
A UNITED STATES: DEL 100 HONEYWELL BUILDING MANAGEMENT SERVICES INC.
A UNITED STATES: DEL 100 HONEYWELL CHINA INC.
I UNITED STATES: MINN 100 HONEYWELL COMMUNICATIONS COMPANY
I UNITED STATES: DEL 100 HONEYWELL DISC INC.
A UNITED STATES: DEL 100 HONEYWELL EUROPE INC.
A UNITED STATES: DEL 100 HONEYWELL FINANCE INC.
A UNITED STATES: DEL 100 HONEYWELL FINANCE INTERNATIONAL INC.
I UNITED STATES: DEL 100 HONEYWELL HIGH-TECH TRADING INC.
A BRAZIL 50 HONEYWELL DO BRASIL & CIA. (PARTNERSHIP)
[OTHER PARTNER IS HONEYWELL OVERSEAS FINANCE CO., OWNING 50%]
A UNITED STATES: DEL 100 HONEYWELL OVERSEAS FINANCE COMPANY
A UNITED STATES: DEL 100 HONEYWELL REALTY, INC.
A UNITED STATES: MASS 100 HONEYWELL DMC SERVICES, INC.
A UNITED STATES: DEL 100 HONEYWELL TCAS INC.
A UNITED STATES: DEL 50 CONTROL SYSTEMS CONTRACTING AND CONSULTING L.L.C.
[OTHER 50% OWNERSHIP IS HELD BY MINNEAPOLIS-HONEYWELL
REGULATOR COMPANY, INC.]
A UNITED STATES: MASS 100 HONEYWELL CONSUMER PRODUCTS, INC.
A UNITED STATES: MASS 100 HONEYWELL CONSUMER PRODUCTS (CANADA) INC.
A AUSTRIA 100 HONEYWELL AUSTRIA HAUSTECHNIK GmbH
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 HONEYWELL 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: DEL 100 HONEYWELL DATA INSTRUMENTS, INC.
A UNITED STATES: CALIF 100 DATA INSTUMENTS ADVANCED SILICON GROUP, INC.
A UNITED STATES: MASS 50 DATA INSTRUMENTS CRITICAL FLUID GROUP LLC
A UNITED STATES: MASS 100 DATA INSTRUMENTS INTERNATIONAL, INC.
A UNITED STATES: MASS 100 DATA INSTRUMENTS SECURITIES CORP.
A UNITED STATES: DEL 51 STAMPING SUPPORT SYSTEMS, INC. (JOINT VENTURE)
A UNITED STATES: MASS 100 WS INDUSTRIES, INC.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
A %
I COUNTRY OWNED COMPANY*
- - ------- ----- -------
<S> <C> <C> <C>
A UNITED STATES: V.I. 100 DATA INSTRUMENTS INTERNATIONAL, INC.
I ENGLAND 100 DATA INSTRUMENTS UK LTD.
A FRANCE 99.4 DATA INSTRUMENTS FRANCE SA
A GERMANY 100 DATA INSTRUMENTS GmbH
A JAPAN 100 NIPPON DATA INSTRUMENTS KK
A UNITED STATES: DEL 100 HONEYWELL-MEASUREX CORPORATION
A UNITED STATES: CALIF 100 HONEYWELL-MEASUREX SYSTEMS, INC.
A JAPAN 100 HONEYWELL-MEASUREX K.K.
I UNITED STATES: CALIF 100 MEASUREX AUTOMATION SYSTEMS, INC.
A ENGLAND 100 DMC (UK) LIMITED
A UNITED STATES: CALIF 100 HONEYWELL-MEASUREX INTERNATIONAL CORPORATION
A UNITED STATES: CALIF 100 HONEYWELL-MEASUREX LATIN AMERICA
A MEXICO 51 MEASUREX S.A. DE C.V. [OTHER 49% OWNERSHIP IS HELD BY HONEYWELL-
MEASUREX INTERNATIONAL CORPORATION.]
A BRAZIL 100 HONEYWELL-MEASUREX DO BRAZIL LTDA.
A VENEZUELA 100 MEASUREX DE VENEZUELA, C.A.
A UNITED STATES: CALIF 100 HONEYWELL-MEASUREX ASIA, INC.
A UNITED STATES: CALIF 100 HONEYWELL-MEASUREX KOREA, INC.
A UNITED STATES: CALIF 100 MEASUREX TAIWAN, INC.
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 FRANCE 100 HONEYWELL-MEASUREX S.A.R.L.
A AFRICA 100 MEASUREX AFRICA (PTY.) LTD.
A NETHERLANDS 100 MEASUREX B.V.
A PORTUGAL 100 HONEYWELL PORTUGAL AUTOMACAO E CONTROLE, LDA.
A PORTUGAL 100 ARCLASSE, SERVICO TOTAL DE CLIMATIZACAO S.A.
A TURKEY 100 HONEYWELL-MEASUREX OLCUM ALETLERI TICARET LIMITED SIRKETI
A UNITED STATES: IL 49 FOSTER/HONEYWELL JOINT VENTURE (PARTNERSHIP)
A UNITED STATES: CALIF 100 HUGHEY & PHILLIPS, INC.
A UNITED STATES: DEL 50 GE/MICRO SWITCH CONTROL INC. (JOINT VENTURE)
I UNITED STATES: DEL 100 MINNEAPOLIS-HONEYWELL REGULATOR COMPANY, INC.
A UNITED STATES: MASS 100 PHOENIX CONTROLS CORPORATION
A UNITED STATES: V.I. 100 PHOENIX CONTROLS INTERNATIONAL SALES CORPORATION
A SWITZERLAND 100 PHOENIX CONTROLS AG
A GERMANY 100 PHOENIX CONTROLS GmbH
I UNITED STATES: CALIF 100 TETRA TECH SYSTEMS, INC.
I UNITED STATES: CALIF 100 TETRA TECH MANAGEMENT SERVICES, INC.
I SAUDI ARABIA 75 SAUDI ARABIAN TETRA TECH LIMITED
A UNITED STATES: TEXAS 100 THERMAL CONTROL INC.
A UNITED STATES: CALIF 100 WESTINGHOUSE SECURITY ELECTRONICS, INC.
A NETHERLANDS 100 WESTINGHOUSE SECURITY ELECTRONICS EUROPE B.V.
A UNITED STATES: DEL 100 HONEYWELL ELECTRONICS CORPORATION
A UNITED STATES: DEL 100 COEUR D'ALENE DEVELOPMENT INC.
A ENGLAND 100 HONEYWELL HOLDINGS LIMITED
A ENGLAND 100 HONEYWELL CONSUMER PRODUCTS LIMITED
A ENGLAND 100 HONEYWELL MEASUREX LIMITED
A ENGLAND 99.999 HONEYWELL LIMITED [OTHER .001% OWNERSHIP IS HELD BY MINNEAPOLIS-
HONEYWELL REGULATOR COMPANY, INC.]
A ENGLAND 100 HONEYWELL CONTROL SYSTEMS LIMITED
A AFRICA 100 HONEYWELL SOUTHERN AFRICA (PROPRIETARY) LIMITED
A BOTSWANA 100 HONEYWELL BOTSWANA (PTY.) LIMITED
A ENGLAND 100 ELM HOLDINGS LTD.
A ENGLAND 100 ELM LTD.
A ENGLAND 29 GLOBAL PANELS LTD.
A IRELAND 60 ELM ELECTRONIC CONTROLS LIMITED
A UNITED STATES: DEL 100 ELM CONTROLS INC.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
A %
I COUNTRY OWNED COMPANY*
- - ------- ----- -------
<S> <C> <C> <C>
A FRANCE 100 ORME S.A.
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 99.98 A.C.N. 000 371 184 PTY. LIMITED [ALSO, HONEYWELL LIMITED (AUSTRALIA)
OWNS .02%]
A AUSTRALIA 80 HONEYWELL LIMITED [ALSO, A.C.N. 000 371 184 PTY. LIMITED (AUSTRALIA)
OWNS 20%]
A NEW ZEALAND 100 HONEYWELL HOLDINGS LIMITED
A NEW ZEALAND 100 HONEYWELL LIMITED
A BELGIUM 100 HONEYWELL S.A.
A BELGIUM 99.97 HONEYWELL EUROPE S.A. [OTHER .03% OWNED BY HONEYWELL INC.]
A BERMUDA 100 HONEYWELL ASSURANCE LIMITED
I BRAZIL 49 EMBRASID S.A.
A CANADA 100 HONEYWELL LIMITED-HONEYWELL LIMITEE [ALSO HONEYWELL-MEASUREX CORPORATION OWNS 3
PREFERENCE SHARES]
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 100 HONEYWELL CANADA LIMITED-HONEYWELL CANADA LIMITEE
A CHILE 99 HONEYWELL CHILE S.A. [OTHER 1% OWNER IS MINNEAPOLIS-HONEYWELL
REGULATOR COMPANY, INC.]
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 ROMANIA 100 HONEYWELL CONTROLS S.R.L.
A DENMARK 100 HONEYWELL A/S
A DENMARK 100 HONEYWELL EJENDOMSVIRKE A/S
I DOMINICAN REPUBLIC 100 HONEYWELL DOMINICANA C. POR A.
A ECUADOR 100 HONEYWELL S.A.
A FINLAND 100 HONEYWELL OY
A FINLAND 100 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.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
A %
I COUNTRY OWNED COMPANY*
- - ------- ----- -------
<S> <C> <C> <C>
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 AIRPORT SYSTEMS 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 HONEYWELL FACILITY MANAGEMENT GmbH
GERMANY 100 NORD-ALARM GESELLSCHAFT FUER ALARM-UND
A GERMANY 100 SICHERHEITSANLAGEN mbH
A GERMANY 100 WSD GEBAEUDETECHNISCHER SERVICE GmbH
A AUSTRIA 100 HONEYWELL AUSTRIA Ges.m.b.H.
A RUSSIA 100 HONEYWELL-STERCH INDUSTRIAL CONTROLS (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
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)
I JAPAN 50 NEC-HONEYWELL SPACE SYSTEMS LTD.
A KAZAKHSTAN 100 HONEYWELL AUTOMATION CONTROLS LLP
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 MAURITIUS 100 HONEYWELL HOLDING LTD.
A MEXICO 99.9999973 HONEYWELL S.A. DE C.V. [OTHER OWNER IS MINNEAPOLIS-HONEYWELL
REGULATOR COMPANY, INC. .(0000027%)]
A MEXICO 100 HONEYWELL OPTOELECTRONICA, S.A. DE C.V.
A MEXICO 100 MEXHON S.A. DE C.V.
A MEXICO 99.9948 HONEYWELL MANUFACTURAS DE CHIHUAHUA, S.A. DE C.V. HONEYWELL S.A.
DE C.V. [OTHER OWNERSHIP .0052% BY MINNEAPOLIS-HONEYWELL REGULATOR
COMPANY, INC.]
A NETHERLANDS ANTILLES 100 HONEYWELL CAPITAL N.V.
A NETHERLANDS 100 HONEYWELL FINANCE B.V.
A ITALY 100 HONEYWELL COMBUSTION CONTROLS S.r.l.
A ITALY 100 INVAL S.r.l.
A ITALY 100 INECO S.r.l.
A ITALY 100 Acp S.r.l.
A NETHERLANDS 100 HONEYWELL MIDDLE EAST B.V.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
A %
I COUNTRY OWNED COMPANY*
- - ------- ----- -------
<S> <C> <C> <C>
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 L.L.C. (JOINT VENTURE)
A TURKEY 80 HONEYWELL OTOMASYON VE KONTROL SISTEMLERI SAN. VE TIC.A.S.
(JOINT VENTURE)
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 NETHERLANDS 100 ESD ELECTRONICS B.V.
A NETHERLANDS 100 HONEYWELL FOREIGN SALES CORPORATION 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 NORWAY 100 MEASUREX NORWAY 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 PERU 99.9 HONEYWELL PERU S.A. [OTHER .01% OWNERSHIP BY HONEYWELL C.A. (VENEZUELA)]
A PHILIPPINES 100 HONEYWELL SYSTEMS (PHILIPPINES), INC.
A POLAND 65 HONEYWELL ESCO POLSKA
A SAUDI ARABIA 50 HONEYWELL TURKI-ARABIA LIMITED (JOINT VENTURE)
A SINGAPORE 100 HONEYWELL PTE. LTD.
A SINGAPORE 100 HONEYWELL AEROSPACE PTE. LTD.
A SINGAPORE 100 HONEYWELL SAFETY MANAGEMENT SYSTEMS PRIVATE LIMITED
A SINGAPORE 51 HONEYWELL ROTARY PTE. LTD. (JOINT VENTURE)
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 99.99 SINEL, S.A. [1 SHARE OWNED BY INTERNACIONAL DE MANTENIMIENTO, S.A. (.01%)]
A SPAIN 99.995 HONEYWELL TECNOLOGIA Y SEGURIDAD, S.A. [1 SHARE OWNED BY
INTERNACIONAL DE MANTENIMIENTO, S.A. (.005%)]
A SWEDEN 100 HONEYWELL AB
A SWEDEN 100 INUCONTROL AB
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 SATRONIC GmbH
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 100 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
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
A %
I COUNTRY OWNED COMPANY*
- - ------- ----- -------
<S> <C> <C> <C>
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.
6
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS CONSENT
We consent to the incorporation by reference in Registration Statements Nos.
2-64351, 2-98660, 33-29442, 33-44282, 33-44283, 33-44284, 33-49819, 33-59355,
33-59357, 33-59359, 333-30121, 333-30129, 33-51129, 333-52939 and 333-53497 of
Honeywell Inc. on Form S-8, and No. 333-33895 of Honeywell Inc. on Form S-3, of
our report dated February 10, 1999, appearing in this Annual Report on Form 10-K
of Honeywell Inc. for the year ended December 31, 1998.
Deloitte & Touche LLP
Minneapolis, Minnesota
March 10, 1999
74
<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, 1998.
IN WITNESS WHEREOF, I have signed this Power of Attorney as of the 5th
day of March, 1999.
/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/ G. Ferrari
--------------
G. Ferrari
Director
<PAGE>
/s/ R. D. Fullerton
-------------------
R. D. Fullerton
Director
/s/ J. J. Howard
----------------
J. J. Howard
Director
/s/ K. M. Hudson
----------------
K. M. Hudson
Director
/s/ B. E. Karatz
----------------
B. E. Karatz
Director
/s/ J. C. Pardo
---------------
J. C. Pardo
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, 1998.
<PAGE>
/s/ L. W. Stranghoener
----------------------
L. W. Stranghoener
Vice President and
Chief Financial Officer
/s/ P. M. Palazzari
-------------------
P. M. Palazzari
Vice President and Controller, and
Principal Accounting Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 306
<SECURITIES> 7
<RECEIVABLES> 1948
<ALLOWANCES> 41
<INVENTORY> 1116
<CURRENT-ASSETS> 3622
<PP&E> 3356
<DEPRECIATION> 2097
<TOTAL-ASSETS> 7170
<CURRENT-LIABILITIES> 2453
<BONDS> 1299
0
0
<COMMON> 281
<OTHER-SE> 2504
<TOTAL-LIABILITY-AND-EQUITY> 7170
<SALES> 8427
<TOTAL-REVENUES> 8427
<CGS> 5677
<TOTAL-COSTS> 5677
<OTHER-EXPENSES> 1815
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 113
<INCOME-PRETAX> 829
<INCOME-TAX> 257
<INCOME-CONTINUING> 572
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 572
<EPS-PRIMARY> 4.54
<EPS-DILUTED> 4.48
</TABLE>
<PAGE>
EXHIBIT 99(i)
CAUTIONARY STATEMENTS
FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Honeywell Inc. ("Honeywell" or the "Company") 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 are
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
75
<PAGE>
depends, in part, on its ability to attract and retain such people. Shortages of
skilled personnel or negative compensation trends are factors that can affect
the availability of such people or increase Honeywell's costs in attracting and
retaining 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 organizations such as the Financial Accounting Standards
Board and the American Institute of Certified Public Accountants, may from time
to time, promulgate rules and regulations which may impact 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.
YEAR 2000 READINESS DISCLOSURES. Honeywell has established a year 2000
program to evaluate and deal with issues which may arise and affect its
products, services, businesses and operations as a result of the year 2000
issue. To the extent Honeywell is unable to successfully execute the strategies
set forth in that program, or if one or more of such efforts fail, the Company
could face product liability claims from certain customers, or disruption of its
businesses or operations. Similarly, if a critical supplier is unable to remedy
its year 2000 issues, that source of supply for a product or service critical to
a particular Honeywell business, could be disrupted and affect the ability of
that business to conduct its operations or provide certain products or services
to customers. Please refer to the information set forth under the caption "Year
2000 Readiness Disclosures" in Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, for a more in-depth discussion of
year 2000 risks and uncertainties which could affect 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, or unseasonable weather patterns 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.
Adverse fluctuations in the prices of commodities produced or used by the
Honeywell's customers in their operations, as well as the availability of credit
markets in the United States and other regions of the world to the Company's
customers, may affect their ability to purchase Honeywell's products and
services. The Company endeavors to forecast such trends, but unforeseen general
economic conditions in the United States and internationally, such as those
which have recently occurred in Asia, Latin America and eastern Europe, as well
as industry specific factors, may affect such forecasts.
To the extent a key customer of Honeywell is affected by the year 2000
issue, that customer's demand for the products or services of Honeywell could
also be affected.
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
76
<PAGE>
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 the Company's 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.
77
