Honeywell 2013 Annual Report Download - page 29

controls, data encryption, vulnerability assessments, continuous monitoring of our IT networks and
systems and maintenance of backup and protective systems), cybersecurity incidents, depending on
their nature and scope, could potentially result in the misappropriation, destruction, corruption or
unavailability of critical data and confidential or proprietary information (our own or that of third parties)
and the disruption of business operations. The potential consequences of a material cybersecurity
incident include reputational damage, litigation with third parties, diminution in the value of our
investment in research, development and engineering, and increased cybersecurity protection and
remediation costs, which in turn could adversely affect our competitiveness and results of operations.
An increasing percentage of our sales and operations is in non-U.S. jurisdictions and is
subject to the economic, political, regulatory and other risks of international operations.
Our international operations, including U.S. exports, comprise a growing proportion of our
operating results. Our strategy calls for increasing sales to and operations in overseas markets,
including developing markets such as China, India, the Middle East and other high growth regions.
In 2013, approximately 55 percent of our total sales (including products manufactured in the U.S.
and sold outside the U.S. as well as products manufactured in international locations) were outside of
the U.S. including approximately 29 percent in Europe and approximately 13 percent in Asia. Risks
related to international operations include exchange control regulations, wage and price controls,
employment regulations, foreign investment laws, import, export and other trade restrictions (such as
embargoes), changes in regulations regarding transactions with state-owned enterprises, nationaliza-
tion of private enterprises, government instability, acts of terrorism, and our ability to hire and maintain
qualified staff and maintain the safety of our employees in these regions. We are also subject to U.S.
laws prohibiting companies from doing business in certain countries, or restricting the type of business
that may be conducted in these countries. The cost of compliance with increasingly complex and often
conflicting regulations worldwide can also impair our flexibility in modifying product, marketing, pricing
or other strategies for growing our businesses, as well as our ability to improve productivity and
maintain acceptable operating margins.
With more than half of the Company’s sales generated internationally, global economic conditions
can have a significant impact on our total sales. Uncertain global economic conditions arising from a
tepid recovery in the Euro zone and varying rates of growth in emerging regions could reduce
customer confidence that results in decreased demand for our products and services, disruption in
payment patterns and higher default rates, a tightening of credit markets (see risk factor below
regarding volatility of credit markets for further discussion) and increased risk regarding supplier
performance. Volatility in exchange rates of emerging market currencies present uncertainties that
complicate planning and could unexpectedly impact our profitability, presenting increased counterparty
risk with respect to the financial institutions with whom we do business. While we employ
comprehensive controls regarding global cash management to guard against cash or investment loss
and to ensure our ability to fund our operations and commitments, a material disruption to the financial
institutions with whom we transact business could expose Honeywell to financial loss.
Sales and purchases in currencies other than the US dollar expose us to fluctuations in foreign
currencies relative to the US dollar and may adversely affect our results of operations. Currency
fluctuations may affect product demand and prices we pay for materials, as a result, our operating
margins may be negatively impacted. Fluctuations in exchange rates may give rise to translation gains
or losses when financial statements of our non-U.S. businesses are translated into U.S. dollars. While
we monitor our exchange rate exposures and seek to reduce the risk of volatility through hedging
activities, such activities bear a financial cost and may not always be available to us or successful in
significantly mitigating such volatility.
Volatility of credit markets or macro-economic factors could adversely affect our business.
Changes in U.S. and global financial and equity markets, including market disruptions, limited
liquidity, and interest rate volatility, may increase the cost of financing as well as the risks of refinancing
maturing debt. In addition, our borrowing costs can be affected by short and long-term ratings assigned
by independent rating agencies. A decrease in these ratings could increase our cost of borrowing.
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