<PAGE>
1995
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                                   FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
 
(Mark One)
   [X]         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                SECURITIES EXCHANGE ACT OF 1934 [ FEE REQUIRED ]
 
                  For the fiscal year ended December 31, 1995
 
                                       OR
 
   [ ]         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                SECURITIES EXCHANGE ACT OF 1934 [ NO FEE REQUIRED ]
 
For the transition period from..........  to....................................
 
                          Commission file number 1-971
 
                                 HONEYWELL INC.
             (Exact name of registrant as specified in its charter)
 
                DELAWARE                               41-0415010
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)
 
HONEYWELL PLAZA, MINNEAPOLIS, MINNESOTA                  55408
(Address of principal executive offices)               (Zip Code)
 
        Registrant's telephone number, including area code 612-951-1000
 
          Securities registered pursuant to section 12(b) of the act:
 
                                          Name of each exchange
       Title of each class                 on which registered
Common Stock, par value $1.50            New York Stock Exchange
  per share
Preferred Stock Purchase Rights          New York Stock Exchange
 
    Indicate  by check  mark whether  the registrant  (1) has  filed all reports
required to be filed by  Section 13 or 15(d) of  the Securities Exchange Act  of
1934  during  the preceding  12  months (or  for  such shorter  period  that the
registrant was required to file such reports), and (2) has been subject to  such
filing requirements for the past 90 days. Yes _X_ No ___.
 
    Indicate  by check mark if disclosure  of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in  definitive
proxy  or information statements  incorporated by reference in  Part III of this
Form 10-K or any amendment to this Form 10-K.  / /
 
    Based on the closing sales price of $51.875 on March 1, 1996, the  aggregate
market  value of the  voting stock held  by nonaffiliates of  the registrant was
$6,569,271,238.
 
    As of March 1,  1996, the number of  shares outstanding of the  registrant's
common stock, par value $1.50 per share, was 127,223,965 shares.
 
                  DOCUMENTS INCORPORATED IN PART BY REFERENCE
 
Incorporated Documents                                    Location in Form 10-K
--------------------------------------------------------  ---------------------
Honeywell Notice of 1996 Annual Meeting and Proxy               Part III
Statement
 
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<PAGE>
                                     PART I
 
ITEM 1.  BUSINESS
 
    Honeywell   Inc.,  a  Delaware  corporation   incorporated  in  1927,  is  a
Minneapolis-based international  controls corporation  that supplies  automation
and  control systems, components, software, products  and services for homes and
buildings, industry, and space  and aviation. The purpose  of the company is  to
develop and apply advanced-technology products, systems and services to conserve
energy,  improve  productivity,  protect the  environment,  enhance  comfort and
increase safety. Development and modification occur continuously in  Honeywell's
business  as new or  improved products and services  are introduced, new markets
are created  or entered,  distribution  methods are  revised, and  products  and
services are discontinued.
 
                          INDUSTRY SEGMENT INFORMATION
 
    Honeywell's  products and services  are classified by  management into three
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 10.
 
HOME AND BUILDING CONTROL
 
    Honeywell's Home and Building Control business provides controls and systems
for building  automation,  energy management,  fire  and security,  as  well  as
thermostats,  air  cleaners and  other environmental  controls and  services for
buildings and homes.
 
    Honeywell  manufactures,   markets  and   installs  mechanical,   pneumatic,
electrical  and electronic control products and systems for heating, ventilation
and air conditioning in homes  and commercial, industrial and public  buildings.
The systems, which may be generic or specifically designed for each application,
may  include panels and control systems  to centralize mechanical and electrical
functions.
 
    Honeywell  also  produces   building  management   systems  for   commercial
buildings,  burner and boiler controls, lighting controls, thermostatic radiator
valves,  pressure  regulators   for  water   systems,  thermostats,   actuators,
humidistats,  relays,  contactors, transformers,  air-quality products,  and gas
valves and ignition controls for homes and commercial buildings. Sales of  these
products  are  made  directly  to  original  equipment  manufacturers, including
manufacturers of heating  and air conditioning  equipment; through  wholesalers,
distributors,  dealers, contractors, hardware stores  and home-care centers; and
also through the company's nationwide sales and service organization.
 
    Services  provided  include  indoor  air-quality  services,  central-station
burglary  and fire protection services for homes and commercial buildings, video
surveillance, access  control  and  entry  management  services  for  commercial
buildings,  contract maintenance services for commercial building mechanical and
control systems,  automated  management  of  building  operations  for  building
complexes, energy management services, energy retrofit services and training.
 
INDUSTRIAL CONTROL
 
    The  Industrial Control business serves the  automation and control needs of
its worldwide industrial customers as a major supplier of products, systems  and
services  ranging  from  sensors  to integrated  systems  designed  for specific
applications.
 
    Honeywell's Industrial Control segment supplies process control systems  and
associated  application  software  and  services  to  customers  in  the process
industries such as  refining, petrochemical,  bulk and fine  chemical, pulp  and
paper,  electric utility,  food and  consumer goods,  pharmaceutical, metals and
transportation markets, as well as other industries. Honeywell also designs  and
manufactures  process instruments, process  controllers, recorders, programmers,
programmable controllers, transmitters and other  field instruments that may  be
sold  as stand-alone  products or  integrated into  systems. These  products are
generally used in  indicating, recording and  automatically controlling  process
variables.
 
                                       1
<PAGE>
    Under the MICRO SWITCH trademark, Honeywell manufactures solid-state sensors
(including position, pressure, airflow, temperature and current sensors), sensor
interface  devices,  manual  controls,  explosion-proof  switches  and precision
snap-acting switches, as well as  proximity, photoelectric and mercury  switches
and  lighted/unlighted  pushbuttons.  These  products  are  used  in industrial,
commercial  and  business  equipment,  and  in  consumer,  medical,  automotive,
aerospace and computer applications.
 
    Other  products include solenoid valves, optoelectronic devices, fiber-optic
systems and  components,  as well  as  microcircuits, sensors,  transducers  and
high-accuracy,   noncontact  measurement  and  detection  products  for  factory
automation, quality inspection and robotics applications.
 
    Honeywell also furnishes services, including product and component  testing,
instrument maintenance, repair and calibration, contract services for industrial
control  equipment and third-party maintenance  for CAD/CAM and other industrial
control equipment,  training,  applications  service and  a  range  of  customer
support services.
 
    Services  are  generally  sold directly  to  users  on a  monthly  or annual
contract basis.  Products are  customarily  sold by  Honeywell on  a  delivered,
supervised  or installed basis directly to end users, to equipment manufacturers
and contractors,  or  through  third-party channels  such  as  distributors  and
systems houses.
 
SPACE AND AVIATION CONTROL
 
    Honeywell's  Space and Aviation  Control business supplies  avionics for the
commercial, military  and  space  markets. The  company  designs,  manufactures,
services  and markets a variety of  sophisticated electronic control systems and
components that are used on commercial and business aircraft, military  aircraft
and spacecraft.
 
    Products  manufactured  for  aircraft  use  include  ring  laser  gyro-based
inertial reference  systems, navigation  and  guidance systems,  flight  control
systems,  flight management systems, inertial sensors, air data computers, radar
altimeters,  automatic  test  equipment,  cockpit  display  systems  and   other
communication and flight instrumentation.
 
    Honeywell products and services have been involved in every major U.S. space
mission  since the mid-1960s.  Products include guidance  systems for launch and
re-entry vehicles, flight and engine control systems for manned spacecraft,  and
precision  components for strategic missiles and on-board data processing. Other
products include  spacecraft attitude  and  positioning systems,  and  precision
pointing and isolation systems.
 
    Space   and  Aviation  Control  products  are  sold  through  an  integrated
international marketing organization,  with customer  service centers  providing
international service for commercial and business aviation users.
 
OTHER PRODUCTS
 
    Products  and services not included in the foregoing segment information are
described below.
 
    The Honeywell  Technology  Center  provides  systems  analysis  and  applied
research  and  development  on  systems  and  products,  including,  application
software, sensors and advanced electronics.
 
    Solid State  Electronics  Center,  a semiconductor  facility  in  Minnesota,
designs   and  manufactures  integrated  circuits  and  sensors  for  Honeywell,
government customers and selected external customers.
 
    Honeywell, through its operations in Germany, develops, markets and sells to
European countries,  among other  things,  military avionics  and  electro-optic
devices for flight control and nautical systems, including sonar transducers and
echo sounders.
 
                                       2
<PAGE>
                              GENERAL INFORMATION
 
RAW MATERIALS
 
    Honeywell  experienced no significant or unusual problems in the purchase of
raw materials and commodities in 1995. 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 1996.
 
PATENTS, TRADEMARKS, LICENSES AND DISTRIBUTION RIGHTS
 
    Honeywell owns, or  is licensed  under, a  large number  of patents,  patent
applications  and trademarks acquired over a  period of many years, which relate
to many of its  products or improvements  thereon and are  of importance to  its
business. From time to time, new patents and trademarks are obtained, and patent
and  trademark  licenses  and  rights are  acquired  from  others.  In addition,
Honeywell has distribution rights of varying  terms in a number of products  and
services produced by other companies. In the judgment of management, such rights
are adequate for the conduct of the business being done by Honeywell. See Item 3
at  page 7  for information concerning  litigation relating to  patents in which
Honeywell is involved.
 
SEASONALITY
 
    Although Honeywell's  business is  not seasonal  in the  traditional  sense,
revenues  and earnings have tended  to concentrate to some  degree in the fourth
quarter of each calendar year, reflecting the tendency of customers to  increase
ordering and spending for capital goods late in the year.
 
MAJOR CUSTOMER
 
    Honeywell  provides products and services to the United States government as
a prime contractor or subcontractor, the  majority of which are described  under
the heading "Space and Aviation Control" on page 2. Such business is significant
because   of  its   volume  and   its  contribution   to  Honeywell's  technical
capabilities, but Honeywell's dependence  upon individual programs is  minimized
by  the  large  variety of  products  and  services it  provides.  Contracts and
subcontracts for  all of  such  sales are  subject  to the  standard  provisions
permitting the government to terminate for convenience or default.
 
BACKLOG
 
    The total dollar amount of backlog of Honeywell's orders believed to be firm
was  approximately $3,676  million at December  31, 1995, and  $3,340 million at
December 31, 1994.  All but approximately  $706 million of  the 1995 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 can  be canceled  at the customer's
option.
 
COMPETITION
 
    Honeywell is subject to active competition in substantially all products and
services. Competitors generally are  engaged in business on  a nationwide or  an
international  scale. Honeywell is  the largest producer  of control systems and
products used to regulate and control heating and air conditioning in commercial
buildings, and of systems to  control industrial processes worldwide.  Honeywell
is  also a leading supplier of  commercial aviation, space and avionics systems.
Honeywell's automation and control businesses compete worldwide, supported by  a
strong  distribution network  with manufacturing  and/or marketing capabilities,
for at least a portion of these businesses, in 95 countries.
 
    Competitive conditions  vary  widely among  the  thousands of  products  and
services  provided  by Honeywell,  and  vary as  well  from country  to country.
Markets, customers  and competitors  are becoming  more international  in  their
outlook.  In those areas of environmental and industrial components and controls
where sales  are  primarily  to equipment  manufacturers,  price/performance  is
probably  the  most significant  competitive  factor, but  customer  service and
applied technology are also important. Competition is increasingly being applied
to government procurements to improve price and product performance. In  service
businesses,  quality,  reliability  and  promptness  of  service  are  the  most
important competitive factors. Service must  be offered from many areas  because
of the localized
 
                                       3
<PAGE>
nature  of such business. In  engineering, construction, consulting and research
activities, technological  capability and  a record  of proven  reliability  are
generally  the  principal competitive  factors. Although  in  a small  number of
highly specialized  products  and services  Honeywell  may have  relatively  few
significant competitors, in most markets there are many competitors.
 
RESEARCH AND DEVELOPMENT
 
    During  1995 Honeywell  spent approximately  $659.8 million  on research and
development activities, including  $336.6 million  in customer-funded  research,
relating  to the development of new products  or services, or the improvement of
existing products or services. Honeywell spent $659.5 million in 1994 and $742.2
million in 1993 on research and development activities, including $340.5 million
and $404.8 million, respectively, in customer-funded research.
 
ENVIRONMENTAL PROTECTION
 
    Compliance with current federal, state  and local provisions regulating  the
discharge  of  materials  into the  environment,  or otherwise  relating  to the
protection of the  environment, has not  had, and in  the opinion of  management
will  not have, a material effect on Honeywell's financial position, net income,
capital expenditures or competitive position. See Item 7 at page 13 for  further
information concerning environmental matters.
 
EMPLOYEES
 
    Honeywell  employed approximately 50,100  persons in total  operations as of
December 31, 1995.
 
GEOGRAPHIC AREAS
 
    Honeywell engages  in  material operations  in  foreign countries.  A  large
majority  of Honeywell's foreign  business is in Western  Europe, Canada and the
Asian Pacific Rim.
 
    Although there are risks attendant to foreign operations, such as  potential
nationalization of facilities, currency fluctuation and restrictions on movement
of funds, Honeywell has taken action to mitigate such risks.
 
    Financial  information related to geographic areas is included in Note 19 to
the financial statements in Part II, Item 8 at page 37.
 
                                       4
<PAGE>
                      EXECUTIVE OFFICERS OF THE REGISTRANT
 
<TABLE>
<CAPTION>
                                                                                            POSITION        AGE AT
          NAME                                        OFFICE                               HELD SINCE       3/1/96
-------------------------  -------------------------------------------------------------  -------------  -------------
<S>                        <C>                                                            <C>            <C>
M. R. Bonsignore (1)       Chairman of the Board and Chief Executive Officer                     1993             54
D. L. Moore (2)            President and Chief Operating Officer                                 1993             59
J. R. Dewane (3)           President, Space & Aviation Control                                   1993             61
E. D. Grayson (4)          Vice President and General Counsel                                    1992             57
W. M. Hjerpe (5)           Vice President and Chief Financial Officer                            1994             44
B. M. McGourty (6)         President, Home and Building Control                                  1994             58
P. M. Palazzari (7)        Vice President and Controller                                         1994             48
M. I. Tambakeras (8)       President, Industrial Automation and Control                          1995             45
    Officers are elected by the  Board of Directors to terms  of one year and until  their successors are elected  and
  qualified.
</TABLE>
 
------------------------
(1)  Mr. Bonsignore was elected to this position on February 16, 1993, effective
    April 20, 1993. For more than five years prior thereto, he was an  executive
    officer of the company.
 
(2) Dr. Moore was elected to this position on February 16, 1993, effective April
    20,  1993. From November 1990 to April 1993, he was Executive Vice President
    and Chief Operating Officer, Space and Aviation, and Industrial.
 
(3) Mr. Dewane was elected to this  position on April 20, 1993, effective  March
    15,  1993. From  April 1989 to  March 1993,  he was Group  Vice President of
    Honeywell's Commercial Flight Systems Group.
 
(4) Mr. Grayson was elected to this position on April 21, 1992, effective  April
    1, 1992, when he joined the company. For more than five years prior thereto,
    he was Senior Vice President, General Counsel, Corporate Secretary and Clerk
    of Wang Laboratories.
 
(5)  Mr. Hjerpe was elected to this  position on October 16, 1994. From February
    1992 to October 1994, he was  Vice President and Controller of the  company.
    From  July 1990 to February 1992, he was Vice President and Treasurer of the
    company.
 
(6) Mr. McGourty was elected to this position on April 19, 1994, effective April
    1, 1994. From  December 1991  to April 1994,  he was  Vice President,  Field
    Operations  for Home  and Building  Control. From  January 1990  to December
    1991, he was Chairman,  President and Chief  Executive Officer of  Honeywell
    Limited, Canada.
 
(7)  Mr. Palazzari was  elected to this  position on October  16, 1994. From May
    1993 to October 1994, he was  Vice President, Finance for Home and  Building
    Control.  From March 1992 to April 1993, he was Vice President and Assistant
    Controller of  Operations for  the company.  From January  1990 to  February
    1992,  he was  Vice President for  Financial Planning and  Reporting for the
    company.
 
(8) Mr. Tambakeras was elected to this position on February 21, 1995,  effective
    March  1, 1995.  From January  1992 to  February 1995,  he was  President of
    Honeywell Asia Pacific.  From February 1988  to December 1991,  he was  Vice
    President of Business Operations for Industrial Automation Control.
 
ITEM 2.  PROPERTIES
 
    Honeywell  and  its  subsidiaries  operate  facilities  worldwide comprising
approximately 20,050,300 square feet of  space for use as manufacturing,  office
and  warehouse space, of which approximately 12,528,000 square feet is owned and
approximately 7,522,300 square feet  is leased. In  the judgment of  management,
the facilities used by Honeywell are adequate and suitable for the purposes they
serve.
 
                                       5
<PAGE>
    Facilities allocated for corporate use in the United States, including sales
offices,  comprise  approximately  3,380,300  square  feet  of  space,  of which
approximately 1,674,400 square feet is owned and approximately 1,705,900  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 533,400 square feet of space owned or  leased
by Honeywell's operations in the United States that has been leased or subleased
to third parties. In addition, approximately 4,138,100 square feet of previously
leased  space  in  the  United  States  is  under  assignment  to  third parties
(including 2,417,000 square feet,  441,100 square feet  and 102,600 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 2,619,300  square feet of
space for  operations in  the United  States, of  which approximately  1,887,900
square feet is owned and approximately 731,400 square feet is leased.
 
    Outside  the  United States,  Home  and Building  Control  operations occupy
approximately 4,450,800  square feet,  of which  approximately 1,665,800  square
feet  is  owned and  approximately 2,785,000  square  feet is  leased. Principal
facilities operated outside the  United States are  located in Canada,  Germany,
The Netherlands, the United Kingdom and Australia.
 
    Facilities  in the United States comprising  300,000 square feet or more are
listed below.
 
<TABLE>
<CAPTION>
                               MAJOR USE OF      APPROXIMATE   OWNED OR
         LOCATION                FACILITY        SQUARE FEET    LEASED
--------------------------  -------------------  ------------  ---------
<S>                         <C>                  <C>           <C>
Arlington Heights, Ill.     Manufacturing            494,600   Owned
Golden Valley, Minn.        Manufacturing          1,185,300   Owned
</TABLE>
 
INDUSTRIAL CONTROL
 
    Industrial Control occupies approximately 2,905,000 square feet of space for
operations in the United States, of which approximately 2,233,200 square feet is
owned and approximately 671,800 square feet is leased.
 
    Outside  the   United   States,   Industrial   Control   operations   occupy
approximately  2,277,700 square feet, of which approximately 846,900 square feet
is owned and approximately 1,430,800 square feet is leased. Principal facilities
operated outside the United States are located in the United Kingdom, Australia,
Canada, Switzerland, France, Germany, Belgium and The Netherlands.
 
    Facilities in the United States comprising  300,000 square feet or more  are
listed below.
 
<TABLE>
<CAPTION>
                               MAJOR USE OF      APPROXIMATE   OWNED OR
         LOCATION                FACILITY        SQUARE FEET    LEASED
--------------------------  -------------------  ------------  ---------
<S>                         <C>                  <C>           <C>
Freeport, Ill.              Manufacturing            316,000   Owned
Phoenix, Az.                Manufacturing            550,000   Owned
</TABLE>
 
SPACE AND AVIATION CONTROL
 
    Space  and Aviation Control occupies  approximately 5,130,400 square feet of
space for  operations in  the United  States, of  which approximately  3,819,100
square feet is owned and approximately 1,311,300 square feet is leased.
 
    Outside  the  United States,  Space and  Aviation Control  operations occupy
approximately 537,800 square feet, of which approximately 309,300 square feet is
owned and  approximately 228,500  square feet  is leased.  Principal  facilities
operated outside the United States are located in Canada, the United Kingdom and
Singapore.
 
                                       6
<PAGE>
    Facilities  in the United States comprising  300,000 square feet or more are
listed below.
 
<TABLE>
<CAPTION>
                               MAJOR USE OF      APPROXIMATE   OWNED OR
         LOCATION                FACILITY        SQUARE FEET    LEASED
--------------------------  -------------------  ------------  ---------
<S>                         <C>                  <C>           <C>
Phoenix, Ariz.              Manufacturing            939,000   Owned
St. Louis Park, Minn.       Manufacturing            559,000   Owned
Albuquerque, N.M.           Manufacturing            526,600   Owned
Minneapolis, Minn.          Manufacturing            525,100   Owned
Clearwater, Fla.            Manufacturing            914,800   Owned
St. Petersburg, Fla.        Manufacturing            304,000   Leased
</TABLE>
 
ITEM 3.  LEGAL PROCEEDINGS
 
    On March 13, 1990, Litton Systems, Inc. filed suit against Honeywell Inc. in
U.S. District Court, Central District  of California, alleging Honeywell  patent
infringement  relating  to  the  process  used  by  Honeywell  to  coat  mirrors
incorporated  in  its  ring  laser  gyroscopes;  attempted  monopolization   and
predatory   pricing  by  Honeywell  of  certain  alleged  markets  for  products
containing ring laser gyroscopes; and intentional interference by Honeywell with
Litton's prospective  advantage in  European markets  and with  its  contractual
relationships  with  Ojai Research,  Inc.,  a California  corporation. Honeywell
generally  denied  Litton's  allegations,   contested  both  the  validity   and
infringement  of the patent,  and alleged that  the patent had  been obtained by
Litton's inequitable  conduct  before the  United  States Patent  and  Trademark
Office.  Honeywell also filed counterclaims against Litton alleging, among other
things, that Litton's business and litigation conduct violated federal and state
laws, causing Honeywell considerable damage and expense.
 
    On January 9, 1995,  Judge Mariana Pfaelzer of  the U.S. District Court  set
aside  an August  1993 jury  verdict and  damage award  of $1.2  billion against
Honeywell in the patent  and interference with contract  case. She ruled,  among
other  things, that the Litton patent  was unenforceable because it was obtained
by inequitable conduct and invalid because  it was an invention that would  have
been  obvious from combining  existing processes. She further  ruled that if her
judgment were ever subsequently vacated  or reversed on appeal, Honeywell  would
be granted a new trial on the issue of damages because the jury's 1993 award was
inconsistent  with the clear weight  of the evidence and  permitting it to stand
would constitute a miscarriage of justice.  Litton has appealed to the Court  of
Appeals  for the  Federal Circuit, Washington,  D.C. Briefs for  the appeal have
been submitted by  the parties  and oral  arguments were  presented December  8,
1995. Honeywell believes that Judge Pfaelzer's rulings will be upheld on appeal.
As a result, no provision has been made in the financial statements with respect
to this contingent liability.
 
    The  trial for the antitrust  case began on November  20, 1995, before Judge
Pfaelzer and  a  different  jury.  Prior to  the  jury's  deliberations  in  the
antitrust trial, the court dismissed, for failure of proof, Litton's contentions
that  Honeywell engaged in below-cost predatory pricing, illegal tying, bundling
and illegally acquiring Sperry Avionics in  1986. The case was submitted to  the
jury  on two  claims, monopolization  and attempt  to monopolize,  both based on
Litton's allegations that Honeywell entered into certain exclusive dealings  and
penalty  arrangements with aircraft manufacturers and airlines to exclude Litton
from the commercial aircraft market. On  February 29, 1996, the jury returned  a
$234 million verdict against Honeywell for the monopolization claim. On March 1,
1996,  the jury indicated that  it was unable to reach  a verdict on damages for
the attempted monopolization claim, and a mistrial was declared on that claim.
 
    Honeywell continues to maintain that it competed vigorously and lawfully  in
the  inertial navigation  business and  will continue  to defend  itself against
Litton's allegations. Honeywell believes that the jury's partial verdict  should
be overturned because Litton (i) failed to prove essential elements of liability
and (ii) failed to submit competent evidence to support its claim for damages by
offering  only  a  speculative,  all-or-nothing  $298.5  million  damage  study.
Honeywell will  file  post-verdict motions  with  the trial  court  asking  that
judgment  be  granted in  favor  of Honeywell  as  a matter  of  law or,  in the
alternative, for a  new trial,  and will  argue important  procedural and  other
matters which could
 
                                       7
<PAGE>
dispose  of this case. If the  $234 million jury verdict withstands post-verdict
motions, in whole or in part, any dollar judgment will be trebled under  federal
antitrust  laws and will be  appealed by Honeywell. The  case will conclude only
when the trial and appellate courts resolve  all of the legal issues that  could
reduce or eliminate the jury verdict. As a result, no provision has been made in
the financial statements with respect to this contingent liability.
 
    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 1995.
 
                                    PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
    The principal U.S. market for Honeywell's common stock is the New York Stock
Exchange. The  high and  low  sales prices  for the  stock  as reported  by  the
consolidated  transaction reporting system, of the  two most recent fiscal years
is set forth in Note 23 to the  financial statements in Part II, Item 8 at  page
44.
 
    Information  regarding  the  frequency  and  amount  of  dividends  paid  by
Honeywell on its common stock during the  two most recent years is set forth  in
Note  23 to  the financial  statements in Part  II, Item  8 at  page 44. Further
information regarding the company's  payment of dividends is  set forth in  Part
II, Item 7 at page 17.
 
    Information  regarding Honeywell's  share repurchase  plans is  set forth in
Part II, Item 7 at page 17.
 
    Stockholders of record on March 1, 1996 totaled 32,392, excluding individual
participants in security position listings.
 
                                       8
<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA
 
                          HONEYWELL INC. AND SUBSIDIARIES
           (DOLLARS AND SHARES IN MILLIONS EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                1995        1994        1993        1992        1991        1990
                                                              --------    --------    --------    --------    --------    --------
<S>                                                           <C>         <C>         <C>         <C>         <C>         <C>
Results of Operations
  Sales...................................................    $6,731.3    $6,057.0    $5,963.0    $6,222.6    $6,192.9    $6,309.1
                                                              --------    --------    --------    --------    --------    --------
  Cost of sales...........................................     4,584.2     4,082.1     4,019.6     4,195.3     4,185.1     4,308.7
  Research and development................................       323.2       319.0       337.4       312.6       300.7       279.6
  Selling, general and administrative.....................     1,263.1     1,173.8     1,075.7     1,196.8     1,150.9     1,170.0
  Litigation settlements (1)..............................                               (32.6)     (287.9)
  Special charges.........................................                    62.7        51.2       128.4
  Interest -- net.........................................        68.9        60.2        51.0        58.5        61.4        67.6
  Gain on sale of assets..................................                                                                   (21.7)
  Equity income...........................................       (13.6)      (10.5)      (17.8)      (15.8)      (14.6)      (11.5)
                                                              --------    --------    --------    --------    --------    --------
                                                               6,225.8     5,687.3     5,484.5     5,587.9     5,683.5     5,792.7
                                                              --------    --------    --------    --------    --------    --------
  Income from continuing operations before income taxes...       505.5       369.7       478.5       634.7       509.4       516.4
  Provision for income taxes..............................       171.9        90.8       156.3       234.8       178.3       144.6
                                                              --------    --------    --------    --------    --------    --------
  Income from continuing operations.......................       333.6       278.9       322.2       399.9       331.1       371.8
  Income from discontinued operations.....................                                                                    10.1
  Extraordinary item (2)..................................                                            (8.6)
  Cumulative effect of accounting changes (3).............                                          (144.5)
                                                              --------    --------    --------    --------    --------    --------
  Net income..............................................    $  333.6    $  278.9    $  322.2    $  246.8    $  331.1    $  381.9
                                                              --------    --------    --------    --------    --------    --------
                                                              --------    --------    --------    --------    --------    --------
Earnings Per Common Share
  Continuing operations...................................    $   2.62    $   2.15    $   2.40    $   2.88    $   2.35    $   2.45
  Discontinued operations.................................                                                                    0.07
  Extraordinary item (2)..................................                                           (0.06)
  Cumulative effect of accounting changes (3).............                                           (1.04)
                                                              --------    --------    --------    --------    --------    --------
  Net income..............................................    $   2.62    $   2.15    $   2.40    $   1.78    $   2.35    $   2.52
                                                              --------    --------    --------    --------    --------    --------
                                                              --------    --------    --------    --------    --------    --------
Cash Dividends Per Common Share...........................    $   1.01    $   0.97    $   0.91    $   0.84    $   0.77    $   0.70
 
Financial Position
  Current assets..........................................    $2,766.9    $2,649.4    $2,550.2    $2,707.8    $2,698.9    $2,582.2
  Current liabilities.....................................     2,022.5     2,071.8     1,856.1     1,969.2     2,095.0     2,175.1
                                                              --------    --------    --------    --------    --------    --------
  Working capital.........................................    $  744.4    $  577.6    $  694.1    $  738.6    $  603.9    $  407.1
                                                              --------    --------    --------    --------    --------    --------
                                                              --------    --------    --------    --------    --------    --------
  Short-term debt.........................................    $  312.4    $  360.6    $  187.9    $  188.4    $  168.4    $  109.0
  Long-term debt..........................................       481.0       501.5       504.0       512.1       639.8       616.3
                                                              --------    --------    --------    --------    --------    --------
  Total debt..............................................       793.4       862.1       691.9       700.5       808.2       725.3
  Stockholders' equity....................................     2,040.1     1,854.7     1,773.0     1,790.4     1,850.8     1,696.9
                                                              --------    --------    --------    --------    --------    --------
  Capitalization..........................................    $2,833.5    $2,716.8    $2,464.9    $2,490.9    $2,659.0    $2,422.2
                                                              --------    --------    --------    --------    --------    --------
                                                              --------    --------    --------    --------    --------    --------
</TABLE>
 
--------------------------
(1) Litigation settlements  in 1992 are  one-time settlements, after  associated
    expenses,  reached  with  various  camera  manufacturers  for  their  use of
    Honeywell's patented  automatic  focus  camera technology  and  amounted  to
    $171.4 ($1.24 per share) after income taxes.
 
(2) Extraordinary item resulting from the loss on early redemption of debt.
 
(3)  The  cumulative effect  of  accounting changes  is  the result  of adopting
    Statement of  Financial Accounting  Standards  (SFAS) No.  106,  "Employers'
    Accounting  for Postretirement Benefits Other  Than Pensions," which reduced
    net income by $151.3 ($1.09 per share); SFAS No. 109, "Accounting for Income
    Taxes," which increased net income by $31.4 ($0.23 per share); and SFAS  No.
    112,  "Employers' Accounting for Postemployment Benefits," which reduced net
    income by $24.6 ($0.18 per share).
 
                                       9
<PAGE>
                        HONEYWELL INC. AND SUBSIDIARIES
           (DOLLARS AND SHARES IN MILLIONS EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                1995        1994        1993        1992        1991        1990
                                                              --------    --------    --------    --------    --------    --------
<S>                                                           <C>         <C>         <C>         <C>         <C>         <C>
Sales
  Home and Building Control...............................    $3,034.7    $2,664.5    $2,424.3    $2,393.6    $2,249.1    $2,196.7
  Industrial Control......................................     2,035.9     1,835.3     1,691.5     1,743.9     1,626.8     1,653.5
  Space and Aviation Control..............................     1,527.4     1,432.0     1,674.9     1,933.1     2,132.3     2,071.3
  Other...................................................       133.3       125.2       172.3       152.0       184.7       387.6
                                                              --------    --------    --------    --------    --------    --------
                                                              $6,731.3    $6,057.0    $5,963.0    $6,222.6    $6,192.9    $6,309.1
                                                              --------    --------    --------    --------    --------    --------
                                                              --------    --------    --------    --------    --------    --------
Operating Profit (1)(2)
  Home and Building Control...............................    $  308.6    $  236.5    $  232.7    $  193.4    $  229.1    $  237.0
  Industrial Control......................................       233.8       206.6       189.7       156.9       224.0       219.5
  Space and Aviation Control..............................       127.6        80.9       148.1       175.8       226.1       200.4
  Other...................................................         2.8                    (1.8)       (9.5)       (3.1)       18.8
                                                              --------    --------    --------    --------    --------    --------
  Total operating profit..................................       672.8       524.0       568.7       516.6       676.1       675.7
  Interest expense........................................       (83.3)      (75.5)      (68.0)      (89.9)      (89.4)     (106.0)
  Litigation settlements..................................                                32.6       287.9
  Gain on sale of assets..................................                                                                    21.7
  Equity income...........................................        13.6        10.5        17.8        15.8        14.6        11.5
  General corporate expense...............................       (97.6)      (89.3)      (72.6)      (95.7)      (91.9)      (86.5)
                                                              --------    --------    --------    --------    --------    --------
  Income before income taxes..............................    $  505.5    $  369.7    $  478.5    $  634.7    $  509.4    $  516.4
                                                              --------    --------    --------    --------    --------    --------
                                                              --------    --------    --------    --------    --------    --------
Assets
  Home and Building Control...............................    $1,727.2    $1,529.8    $1,327.3    $1,302.4    $1,282.8    $1,228.7
  Industrial Control......................................     1,307.2     1,273.3     1,059.8     1,057.5     1,001.7       955.3
  Space and Aviation Control..............................       971.1     1,174.9     1,219.6     1,403.6     1,594.5     1,684.7
  Corporate and Other.....................................     1,054.7       907.9       991.4     1,106.6       927.7       877.5
                                                              --------    --------    --------    --------    --------    --------
                                                              $5,060.2    $4,885.9    $4,598.1    $4,870.1    $4,806.7    $4,746.2
                                                              --------    --------    --------    --------    --------    --------
                                                              --------    --------    --------    --------    --------    --------
Additional information
  Average number of common shares outstanding.............       127.1       129.4       134.2       138.5       140.9       151.8
  Return on average stockholders' equity..................        17.1%       15.6%       18.4%       13.8%       19.2%       20.6%
  Stockholders' equity per common share...................    $  16.09    $  14.57    $  13.48    $  13.10    $  13.25    $  11.99
  Percent of debt to total capitalization.................          28%         32%         28%         28%         30%         30%
  Research and development
    Honeywell-funded......................................    $  323.2    $  319.0    $  337.4    $  312.6    $  300.7    $  279.6
    Customer-funded.......................................       336.6       340.5       404.8       390.5       373.5       417.5
  Capital expenditures....................................       238.1       262.4       232.1       244.1       240.2       251.5
  Depreciation............................................       236.1       235.3       235.3       242.8       238.5       236.1
  Employees at year end...................................      50,100      50,800      52,300      55,400      58,200      60,300
</TABLE>
 
--------------------------
(1) Operating profit is  net of special  charges amounting to  $62.7, $51.2  and
    $128.4  in  1994, 1993  and  1992, respectively,  (see  Note 4  to Financial
    Statements) as follows: Home  and Building Control,  $28.7, $9.9 and  $42.7;
    Industrial  Control,  $14.4, $9.0  and  $38.6; Space  and  Aviation Control,
    $19.6, $7.4 and  $34.9; Other, $--,  $16.4 and $2.6;  and General  Corporate
    Expense, $--, $8.5 and $9.6.
 
(2) Operating  profit  is  net of  the  additional operating  expense  impact of
    adopting SFAS 106 and SFAS 112 amounting to $16.4 and $3.8, respectively, in
    1992 as  follows:  Home and  Building  Control, $4.3  and  $1.0;  Industrial
    Control,  $4.0 and $0.9;  Space and Aviation Control,  $7.0 and $1.6; Other,
    $0.5 and $0.1; and General Corporate Expense, $0.6 and $0.2.
 
                                       10
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
                                   OPERATIONS
 
SALES
 
    Honeywell's  1995 sales were $6.731 billion, compared with $6.057 billion in
1994 and $5.963 billion in  1993. Sales in the  United States of $4.087  billion
were  up seven  percent, as a  result of  increased volume in  Home and Building
Control and  Industrial Control,  as  well as  an improved  commercial  aviation
market  for Space and Aviation Control.  International sales, which represent 39
percent of total sales,  increased 18 percent to  $2.644 billion in 1995.  Sales
were  particularly strong in Europe and  Asia Pacific, increasing 22 percent and
24 percent  respectively. The  international sales  increase was  the result  of
positive  sales  growth of  12 percent  measured in  local currency,  along with
positive currency effects as the U.S. dollar weakened an average of six  percent
against local currencies in countries where Honeywell does business. U.S. export
sales,  including  exports to  foreign affiliates,  were  $839 million  in 1995,
compared with $780 million in 1994 and $769 million in 1993.
 
COST OF SALES
 
    Cost of sales was $4.584 billion in 1995, or 68.1 percent of sales, compared
with $4.082 billion (67.4 percent) in 1994 and $4.020 billion (67.4 percent)  in
1993. Cost as a percentage of sales was higher in 1995 due to increased sales in
Space  and Aviation  Control at  lower gross  margins and  an increase  in lower
gross-margin service business in Industrial Control.
 
RESEARCH AND DEVELOPMENT
 
    Honeywell spent  $323 million,  or 4.8  percent of  sales, on  research  and
development  in 1995, compared with $319 million  (5.3 percent) in 1994 and $337
million (5.7 percent)  in 1993.  The higher  1993 and  1994 percentages  reflect
significant  investments in integrated avionics for the new Boeing 777 aircraft.
Honeywell expects  to  maintain  its  current rate  of  R&D  spending  in  1996.
Honeywell  also received $337 million in  funds for customer-funded research and
development in 1995,  compared with  $340 million in  1994 and  $405 million  in
1993.
 
OTHER EXPENSES AND INCOME
 
    Selling,  general and administrative  expenses were $1.263  billion, or 18.8
percent of sales in  1995, compared with $1.174  billion (19.4 percent) in  1994
and  $1.076 billion (18.0  percent) in 1993.  Excluding royalties from autofocus
licensees (see Note 3 to Financial Statements on page 27), the percent of  sales
would have been 19.5 percent and 18.6 percent in 1994 and 1993 respectively. The
higher percentage in 1994 was primarily due to increased legal costs.
 
    On  April  16,  1993, Honeywell  announced  the settlement  of  its lawsuits
against the Unisys Corporation and other parties in connection with  Honeywell's
1986  purchase of the Sperry Aerospace  Group. Honeywell received $70 million in
cash and notes, and recorded  a gain of $22 million,  or $14 million ($0.10  per
share) after income taxes (see Note 3 to Financial Statements on page 27).
 
    Honeywell  filed  suits  and  reached agreement  with  various  major camera
manufacturers for  their  use of  Honeywell's  patented automatic  focus  camera
technology.  The total of  all autofocus settlements  recorded, after associated
expenses, was $10 million, or $6  million ($0.05 per share) after income  taxes,
in 1993 (see Note 3 to Financial Statements on page 27).
 
    Honeywell remains committed to efforts to reduce operating costs and improve
margins.  As a result of identifying opportunities to restructure and streamline
operations, Honeywell recorded special  charges of $63  million, or $38  million
($0.29  per share) after income taxes in 1994. The actions undertaken included a
continuation of right-sizing the Space and Aviation Control business segment,  a
worldwide   consolidation   of  manufacturing   capacity,  a   streamlining  and
realignment of  the  overhead structure  and  reductions in  corporate  expense.
Special  charges of $51 million,  or $29 million ($0.22  per share) after income
taxes, were  recorded in  1993 for  productivity initiatives  to strengthen  the
company's competitiveness.
 
                                       11
<PAGE>
    Special   charges  include  costs  for   work  force  reductions,  worldwide
facilities consolidation and  other cost  accruals. Work  force reduction  costs
primarily  include severance  costs related to  involuntary termination programs
instituted to improve efficiency and reduce  costs. These costs amounted to  $53
million  in 1994  and $44  million in  1993. Facilities  consolidation costs are
primarily associated  with consolidations  of branch  office space  and  product
lines to restructure and streamline Honeywell's operations. These costs amounted
to $10 million in 1994 and $2 million in 1993. Other cost accruals include costs
of   exiting  several  product  lines  no  longer  considered  complementary  to
Honeywell's businesses, which amounted to $5 million in 1993.
 
    The estimated cost savings of the restructuring actions in 1994 will  exceed
$30  million annually, when fully realized. Special-charge accruals remaining to
be paid were $12 million, $74 million and $79 million at December 31, 1995, 1994
and 1993 respectively. Total expenditures amounted  to $54 million in 1995,  $50
million  in 1994 and $93  million in 1993. Cash  flows from operating activities
have funded and are  expected to fund all  special charges. Further  information
about special charges is provided in Note 4 to Financial Statements on page 27.
 
    Net  interest expense was $69  million in 1995, $60  million in 1994 and $51
million in 1993. Net interest  expense increased in 1995  as a result of  higher
average  debt.  Net  interest  expense  increased  in  1994  as  a  result  of a
combination of higher  market interest  rates and higher  average debt  compared
with  1993.  Information concerning  Honeywell's exposure  to and  management of
interest rate  risk  through the  use  of derivative  financial  instruments  is
provided  on page 18 and in Notes 14  and 15 to Financial Statements on pages 32
and 34 respectively.
 
    Earnings  of  companies   owned  20   percent  to   50  percent   (primarily
Yamatake-Honeywell  Co., Ltd), which are accounted  for using the equity method,
were $14 million  in 1995,  $11 million  in 1994 and  $18 million  in 1993.  The
decline  in 1994 primarily resulted from a decline in earnings, the writedown of
assets and a bad-debt reserve increase.
 
INCOME TAXES
 
    The provision for income taxes was  $172 million in 1995, compared with  $91
million  in 1994  and $156 million  in 1993.  The 1994 income  tax provision was
reduced by  $38  million ($0.29  per  share) as  a  result of  a  favorable  tax
settlement.  The enactment by Congress of  the Omnibus Budget Reconciliation Act
of  1993,  which  raised  the  U.S.  federal  statutory  income  tax  rate   for
corporations  from 34 percent to 35 percent  retroactive to January 1, 1993, did
not have  a  material impact  on  the 1993  provision,  but did  result  in  the
recognition  of a one-time gain of $9 million ($0.07 per share) in 1993 from the
revaluation of deferred tax  assets. Further information  about income taxes  is
provided in Note 5 to Financial Statements on page 28.
 
NET INCOME
 
    Honeywell's  net  income  increased 20  percent  in 1995,  primarily  due to
increased sales  volume and  improved  operating margins.  Net income  was  $334
million  ($2.62 per share) in 1995, compared with $279 million ($2.15 per share)
in 1994 and $322 million ($2.40 per share) in 1993. Net income in 1994  includes
an  after-tax provision for special charges of $38 million ($0.29 per share) and
a reduction of the provision for income  taxes of $38 million ($0.29 per  share)
from  a favorable tax settlement. Net income  in 1993 includes an after-tax gain
from litigation settlements,  after associated expenses,  of $20 million  ($0.15
per share); an after-tax provision for special charges of $29 million ($0.22 per
share);  and a  gain of  $9 million  ($0.07 per  share) from  the revaluation of
deferred tax assets.
 
RETURN ON EQUITY AND INVESTMENT
 
    Return on equity (ROE) was  17.1 percent in 1995,  15.6 percent in 1994  and
18.4  percent in 1993. Return on investment (ROI) was 13.5 percent in 1995, 12.3
percent in 1994 and 14.6 percent in 1993.
 
CURRENCY
 
    The U.S. dollar  weakened an average  of six percent  in 1995 compared  with
1994,  in  relation  to  the principal  foreign  currencies  in  countries where
Honeywell products are sold. A weaker dollar has a
 
                                       12
<PAGE>
positive effect on  international results  because foreign-exchange  denominated
profits   translate  into  more  U.S.   dollars  of  profit.  Information  about
Honeywell's exposure  to and  management of  currency risk  through the  use  of
derivative  financial instruments is provided on page  18 and in Notes 6, 14 and
15 to Financial Statements on pages 29, 32 and 34 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 50,100 people worldwide  at year-end 1995, compared with
50,800 people in 1994 and 52,300 people in 1993. Approximately 30,600  employees
work  in the United States, with  19,500 employed outside the country, primarily
in Europe. Total  compensation and  benefits in 1995  were $2.8  billion, or  45
percent  of total costs and expenses. Sales  per employee were $132,800 in 1995,
compared with $118,600 in 1994 and $110,900 in 1993.
 
ENVIRONMENTAL MATTERS
 
    Honeywell is committed to protecting the environment, a commitment evidenced
both by  Honeywell's  products  and its  manufacturing  operations.  Honeywell's
manufacturing  sites  generate  both  hazardous  and  nonhazardous  wastes,  the
treatment, storage, transportation and disposal of which are subject to  various
local,  state  and  federal  laws relating  to  protection  of  the environment.
Honeywell is in  varying stages  of investigation or  remediation of  potential,
alleged  or  acknowledged  contamination  at currently  or  previously  owned or
operated sites  and  at off-site  locations  where  its wastes  were  taken  for
treatment  or  disposal.  In connection  with  the cleanup  of  various off-site
locations, Honeywell, along  with a  large number  of other  entities, has  been
designated  a  potentially responsible  party  (PRP) by  the  U.S. Environmental
Protection Agency under the  Comprehensive Environmental Response,  Compensation
and  Liability Act  or by state  agencies under similar  state laws (Superfund),
which potentially subject PRPs to joint  and several liability for the costs  of
such   cleanup.  In   addition,  Honeywell   is  incurring   costs  relating  to
environmental remediation  pursuant to  the  federal Resource  Conservation  and
Recovery  Act. Based on Honeywell's assessment  of the costs associated with its
environmental responsibilities, compliance  with federal, state  and local  laws
regulating  the  discharge  of  materials  into  the  environment,  or otherwise
relating to the protection of the environment, has not had and in the opinion of
Honeywell management, will not have  a material effect on Honeywell's  financial
position,  net income, capital expenditures or competitive position. Honeywell's
opinion with  regard to  Superfund matters  is based  on its  assessment of  the
predicted investigation, remediation and associated costs, its expected share of
those  costs and  the availability of  legal defenses. Honeywell's  policy is to
record environmental liabilities when loss  amounts are probable and  reasonably
estimable.
 
NEW ACCOUNTING STANDARDS
 
    In  March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting  Standards  No.  121, "Accounting  for  the  Impairment  of
Long-Lived  Assets and for Long-Lived Assets  to Be Disposed Of." This Statement
requires that assets  to be held  and used be  reviewed for impairment  whenever
events or changes in circumstances indicate that the carrying amount of an asset
may  not  be  recoverable. An  impairment  loss  should be  recognized  when the
estimated future cash flows from the asset  are less than the carrying value  of
the  asset. Assets to  be disposed of should  be reported at  the lower of their
carrying amount  or their  fair value,  less  cost to  sell. This  Statement  is
effective for financial statements for fiscal years beginning after December 15,
1995,  and adoption  by Honeywell  in 1996  is not  expected to  have a material
impact on results of operations or financial position.
 
                                       13
<PAGE>
    In October 1995, the Financial  Accounting Standards Board issued  Statement
of   Financial  Accounting  Standards  No.   123  (SFAS  123),  "Accounting  for
Stock-Based Compensation." As permitted  by SFAS 123,  Honeywell has elected  to
continue  following the guidance of Accounting  Principles Board Opinion No. 25,
"Accounting for Stock Issued to  Employees," for measurement and recognition  of
stock-based  transactions with  employees. Honeywell  will adopt  the disclosure
provisions of SFAS 123 in 1996.
 
SAFE HARBOR STATEMENT
 
    Except for  the  historical information  contained  herein, certain  of  the
matters  discussed  in this  annual report  are "forward-looking  statements" as
defined in the Private Securities Litigation  Reform Act of 1995, which  involve
risks  and  uncertainties,  including  but  not  limited  to,  changing economic
conditions,  international  trade  factors  and  government  policies  affecting
Honeywell's operations, markets, products, services and prices.
 
    Economic  downturns  or recessionary  conditions  in the  United  States and
international markets served by  Honeywell can adversely  affect the demand  for
Honeywell's products and services. Changes in international policy may result in
unfavorable  conditions such as  trading sanctions or  increased tariffs between
various  countries  and  restrict  the  markets  for  Honeywell's  products  and
services.  Changes in  government spending and  budgetary policies,  both in the
United States  and in  other  countries, may  adversely  affect the  demand  for
Honeywell's products and services by government entities.
 
                       DISCUSSION AND ANALYSIS BY SEGMENT
 
HOME AND BUILDING CONTROL
 
    Sales  in Home  and Building Control  were $3.035 billion  in 1995, compared
with $2.665 billion in 1994 and $2.424 billion in 1993. Sales in 1995  benefited
from an improving economy in Europe and solid growth in the Asia Pacific region.
Home  Control experienced strong sales growth  from acquisitions and business in
the trade and retail channels, and  also broadened its product offerings in  gas
valves,  actuators and thermostats  in key markets.  The business introduced the
Perfect Climate Comfort  Control Center-TM-, a  low-cost, automated,  integrated
home  temperature  and  indoor  air  quality  control  system.  Building Control
experienced strong sales growth, fueled by strength overall in Europe and by its
comprehensive energy retrofit and service solutions business in U.S.  healthcare
and  government  markets;  and  there  was  a  strong  worldwide  acceptance  of
Honeywell's Excel Security Manager, an  access control system for buildings.  We
anticipate  that Home and  Building Control's large  worldwide installed product
and service base  and market strategies  will continue to  support future  sales
growth.
 
    Sales  in 1994 were up moderately as U.S. sales continued to benefit from an
improving economy  and growing  consumer  confidence. International  sales  were
aided  by the beginnings of economic recovery. Home Control continued to achieve
greater market penetration with  original equipment manufacturers worldwide  and
to  broaden its product offerings in key  markets such as burner boiler control.
Honeywell acquired  Metallwerke  Neheim  Goeke  & Co.  GmbH,  a  leading  German
manufacturer  of  water  heating  control products,  to  complement  its current
offerings  in  Europe.  In  addition,  there  were  a  number  of  new   product
introductions  which  included a  new line  of smart  gas valves  and integrated
boiler and furnace controls. Building Control experienced continued success with
its comprehensive energy  retrofit and  service solutions,  particularly in  the
schools and industrial markets in the United States.
 
    Home  and  Building  Control  operating profit  was  $309  million  in 1995,
compared with $236 million  in 1994 and $233  million in 1993. Operating  profit
included  special charges  of $29  million in  1994 and  $10 million  in 1993 to
consolidate  facilities,   streamline  operations   and  improve   productivity.
Excluding  the impact of special charges,  operating profit increased 16 percent
in 1995,  primarily  from strong  international  volume increases,  new  product
introductions and cost-reduction initiatives. Cost-
 
                                       14
<PAGE>
reduction  initiatives  included  the re-engineering  of  the  installed systems
business, transfer of an electric heat thermostat line from Canada to Mexico and
headcount reductions in the protection services business.
 
    Excluding  the  impact  of  special  charges,  operating  profit   increased
moderately  in  1994, benefiting  from increasing  volume  in an  improving U.S.
economy and growing consumer confidence.
 
    Both Home Control and Building  Control experienced strong orders growth  in
1995,  benefiting from international strength and new product introductions. The
backlog of orders increased moderately for 1995.
 
INDUSTRIAL CONTROL
 
    Industrial Control sales were $2.036  billion in 1995, compared with  $1.835
billion  in 1994 and  $1.692 billion in 1993.  Industrial Automation and Control
sales increased moderately in  1995. The business continued  to make inroads  in
key  markets such as  pulp and paper  and hydrocarbon processing  as a result of
increased domestic and international  demand for TotalPlant-TM- open  solutions,
as  industry continues to focus on  improving productivity and meeting stringent
environmental and  safety regulations.  The business  entered into  a  strategic
alliance with Sinopec, the world's third-largest petroleum refiner, representing
the  first major  application of  TotalPlant advanced  services in international
markets. The  business also  introduced  a major  new  release of  software  and
enhanced  hardware components for its TDC 3000x-Registered Trademark- industrial
automation system that will significantly increase customer productivity, safety
and regulatory compliance, SMV 3000,  the first multi-variable transmitter,  and
SCAN  3000 on the NT platform. Sensing and Control sales increased moderately in
1995, benefiting  from  strong international  sales  of commercial  sensors  and
switches,  particularly in Europe and Asia  Pacific. The business introduced the
Smart Distributed System, a revolutionary sensor network for distributed machine
control, into Europe and Asia Pacific. A new solenoid valve series, designed for
the process control market, was introduced globally and will help customers meet
stringent environmental and safety regulations.  We expect continued growth  for
both  Industrial Automation and Control's and  Sensing and Control's systems and
products in 1996.
 
    Excluding year-earlier results of the  Keyboard Division, which was sold  in
the  third  quarter  of 1993,  sales  increased moderately  in  1994. Industrial
Automation  and  Control  experienced   improving  sales  for  TotalPlant   open
solutions.  Sales to the hydrocarbon processing  market were strong as companies
invested to comply with the U.S. Environmental Protection Agency regulations for
reformulated fuels. Honeywell acquired  Allied Data Communications, the  systems
business  from  Pepperl +  Fuchs Systems,  and Profimatics  during the  year and
forged alliances with other  companies to expand  its TotalPlant open  solutions
portfolio  and provide more one-stop shopping and a broader range of services to
its  industrial  customers.  Sensing   and  Control  benefited  from   continued
improvements  in the U.S. durable goods  market, particularly in the automotive,
appliance and  information technology  industries. The  business introduced  the
Smart Distributed System in the United States.
 
    Industrial  Control operating profit was $234  million in 1995, $207 million
in 1994 and $190 million in  1993. Operating profit included special charges  of
$14 million in 1994 and $9 million in 1993 to consolidate facilities, streamline
operations  and improve productivity.  Excluding the impact  of special charges,
Industrial Automation and  Control operating profit  declined slightly in  1995,
reflecting  the timing of TotalPlant project  implementation and the current mix
of lower margin services.  Sensing and Control experienced  a sharp increase  in
operating profit as a result of improvement in solid state and electrical switch
margins  in  the United  States and  increased  international profits  driven by
volume and lower product costs in Europe.
 
    Excluding the  impact of  special charges,  1994 operating  profit showed  a
moderate  increase as a result of  volume increases in Industrial Automation and
Control, where environmental and safety regulations were key drivers of spending
around the  world,  particularly in  the  hydrocarbon processing  and  chemicals
markets;  and  volume  increases in  Sensing  and Control,  where  durable goods
markets continued  to  improve, particularly  in  the automotive  and  appliance
industries.
 
                                       15
<PAGE>
    In  1995, Industrial Automation and Control  experienced a solid increase in
order activity both domestically and internationally in such key markets as pulp
and paper  and  hydrocarbon processing.  Sensing  and Control  orders  increased
modestly,  driven by commercial and automative  sensors in Europe and the United
States. The backlog of orders was up moderately for the year.
 
SPACE AND AVIATION CONTROL
 
    Sales in Space and  Aviation Control were $1.527  billion in 1995,  compared
with  $1.432  billion  in  1994  and $1.675  billion  in  1993.  Sales increased
moderately in 1995,  driven by  the recovery in  the business  jet and  commuter
aircraft  market,  strength in  the retrofit  and  repair business  and improved
production efficiencies in the  air transport market,  and increased sales  from
the  International Space  Station program.  We anticipate  a modest  increase in
Space and Aviation Control sales  in 1996 and stronger  growth in 1997 with  the
cyclical  recovery of the  commercial aircraft industry and  onset of the volume
production phase on two large military contracts.
 
    Sales  in  1994  experienced   an  anticipated  decline,  reflecting   lower
commercial aircraft production rates and reduced government spending.
 
    Space  and  Aviation  Control operating  profit  was $127  million  in 1995,
compared with $81  million in 1994  and $148 million  in 1993. Operating  profit
included  special  charges of  $20 million  in 1994  and $7  million in  1993 to
consolidate  facilities,   streamline  operations   and  improve   productivity.
Excluding  the impact of  special charges, 1995 operating  profit increased as a
result of  the strong  performance in  Commercial Aviation  Systems.  Commercial
margins  improved  as  a  result  of increased  volume,  completion  of  a major
next-generation  technology  development  effort  and  the  benefit  of  earlier
restructuring  activities. Operating  profit was  down modestly  in the military
business and flat in the space business.
 
    Excluding the  impact of  special charges,  1994 operating  profit  declined
sharply  due to lower  sales volume and  continued investment in next-generation
technology. This  was partially  offset by  favorable warranty  performance  and
termination settlements in the military and space businesses.
 
    Space  and Aviation Control orders increased slightly in 1995. Adjusting for
Space  Systems'  1994   multi-year  contract   award  to   supply  command   and
data-handling  systems  for the  International  Space Station,  orders increased
modestly in  1995. The  increase was  aided by  a rebound  in the  business  jet
market,  a large multi-year military  award for an F-16  avionics upgrade, and a
strengthening in orders for military  retrofit and repair products. The  backlog
of orders increased modestly from 1994 levels.
 
OTHER
 
    Sales  from other operations  were $133 million in  1995, compared with $125
million in 1994 and $172 million in 1993. These sales included the activities of
various units such as the Solid  State Electronics and the Honeywell  Technology
research  and  development centers,  which  do not  correspond  with Honeywell's
primary business  segments.  Other operations  had  an operating  profit  of  $3
million in 1995, broke even in 1994 and incurred an operating loss of $2 million
in  1993. The 1993 loss  included special charges of  $16 million for work force
reductions.
 
                               FINANCIAL POSITION
 
FINANCIAL CONDITION
 
    At year-end 1995,  Honeywell's capital structure  comprised $312 million  of
short-term   debt,  $481  million  of  long-term  debt  and  $2.040  billion  of
stockholders' equity.  The  ratio  of  debt-to-total  capital  was  28  percent,
compared  with 32  percent at  year-end 1994.  Honeywell's debt-to-total capital
policy range is 30 to 40 percent.
 
    Total debt decreased $69 million during 1995, to $793 million. The  decrease
resulted  from  reduced  general  corporate  financing  requirements,  including
capital expenditures, working capital and acquisitions.
 
                                       16
<PAGE>
    Stockholders' equity increased $185 million  in 1995 to $2.040 billion.  The
increase  was primarily due to an increase  in retained earnings of $334 million
from net  income,  an $89  million  increase  from stock  option  exercises  and
employee stock plans, and a $33 million increase in accumulated foreign currency
translation, offset by dividends of $128 million, $129 million of treasury stock
purchases and a $14 million increase in the pension liability adjustment.
 
CASH GENERATION AND DEPLOYMENT
 
    In  1995,  $573 million  of cash  was  generated from  operating activities,
compared with $470 million  in 1994 and  $475 million in  1993. The increase  in
1995  was largely  due to  improved earnings compared  with 1994.  In 1995, cash
generated from  investing  and  financing activities  included  $19  million  of
proceeds from the sale of assets and $60 million of proceeds from employee stock
plans  and the exercise of Honeywell  Foundation stock options. These funds were
used to support $238 million of  capital expenditures, $128 million of  dividend
payments  and  $137 million  of payments  for  share repurchases.  Cash balances
increased $24 million in 1995.
 
CONTROLLED WORKING CAPITAL
 
    Cash generated from decreases in "controlled working capital" consisting  of
trade  and long-term receivables and inventories, offset by accounts payable and
customer advances, was $4 million in 1995. This portion of working capital as  a
percentage  of sales was  26 percent compared  with 28 percent  in 1994. The two
percentage point  improvement reflects  the continuing  effort by  Honeywell  to
reduce  "controlled  working capital"  as a  percent of  sales. The  increase in
receivable and payable  balances in  1995 was  consistent with  the increase  in
fourth-quarter sales.
 
CAPITAL EXPENDITURES AND ACQUISITIONS
 
    Capital  expenditures for property, plant and equipment were $238 million in
1995, compared with  $262 million in  1994 and  $232 million in  1993. The  1995
depreciation  charges were $236 million. Honeywell continues to invest at levels
believed to  be  adequate to  maintain  its technological  leadership  position.
During   1995,  Honeywell   invested  $38  million   in  complementary  business
acquisitions.
 
SHARE REPURCHASE PLANS
 
    In December 1994, the Board of Directors authorized a program to purchase up
to 2 million Honeywell shares; this  program was completed in the third  quarter
1995.  In July 1995, the Board of  Directors authorized an open-ended program to
repurchase $250 million of Honeywell shares,  of which $49 million was  utilized
in  the second  half of  1995. Honeywell repurchased  $240 million  of shares in
1993, $168 million of shares in 1994 and $129 million of shares in 1995.
 
    At year-end  1995, Honeywell  had  188 million  shares issued,  127  million
shares  outstanding  and  32,569  stockholders  of  record.  At  year-end  1994,
Honeywell had  188 million  shares issued,  127 million  shares outstanding  and
32,025 stockholders of record.
 
DIVIDENDS
 
    In  November 1994, the Board  of Directors approved a  4 percent increase in
the regular annual dividend to $1.00 per share, from $0.96 per share,  effective
in the fourth quarter 1994. In November 1995, the Board of Directors approved an
additional  4 percent increase in the regular annual dividend to $1.04 per share
effective in  the  fourth  quarter  1995. Honeywell  paid  $1.01  per  share  in
dividends in 1995, compared with $0.97 in 1994 and $0.9075 in 1993.
 
    Honeywell  has paid  a quarterly dividend  since 1932 and  has increased the
annual payout per share in each of the last 20 years.
 
EMPLOYEE STOCK PROGRAM
 
    In 1995, Honeywell contributed 571,905  shares of Honeywell common stock  to
employees under its U.S. employee stock match savings plan. The number of shares
contributed  under this program  depends on employee  savings levels and company
performance.
 
                                       17
<PAGE>
PENSION CONTRIBUTIONS
 
    Cash contributions to Honeywell's pension  and retirement plans amounted  to
$172 million in 1995, $141 million in 1994 and $154 million in 1993.
 
TAXES
 
    In  1995, taxes  paid were  $128 million.  Accrued income  taxes and related
interest decreased $29 million during 1995.
 
FUNDING SPECIAL CHARGES
 
    During 1994  and  1993,  Honeywell  established  reserves  for  productivity
initiatives  to strengthen the company's competitiveness (see page 11 and Note 4
to Financial Statements on page 27). Future cash flows from operating activities
are expected to be sufficient to fund these accrued costs.
 
LIQUIDITY
 
    Short-term debt at year-end 1995 was $312 million, consisting of $65 million
of commercial paper, $63  million of notes payable  and $184 million of  current
maturities  of long-term  debt. Short-term  debt at  year-end 1994  totaled $361
million, consisting of $125 million of  commercial paper, $102 million of  notes
payable and $134 million of current maturities of long-term debt.
 
    Through  its  banks,  Honeywell  has access  to  various  credit facilities,
including committed credit lines  for which Honeywell  pays commitment fees  and
uncommitted  lines  provided by  banks on  a non-committed,  best-efforts basis.
Available general-purpose  lines  of  credit at  year-end  1995  totaled  $1.089
billion.  This  consisted of  $725  million of  committed  credit lines  to meet
Honeywell's financing requirements,  including support of  commercial paper  and
bank  note borrowings, and $364 million of uncommitted credit lines available to
certain foreign subsidiaries.  This compared  with $1.076  billion of  available
credit  lines at year-end  1994, consisting of $737  million of committed credit
lines for general financing requirements and $339 million of uncommitted  credit
lines available to certain foreign subsidiaries.
 
    In  addition  to its  committed credit  lines, Honeywell  has access  to the
public debt markets as  evidenced by its $500  million medium-term note  program
initiated  in August  1994. The medium-term  note program  allows note issuances
with maturities ranging from nine months to 30 years. At December 31, 1995, $222
million of notes was outstanding  under this program. Long-term debt  maturities
consist of $185 million in 1996, $109 million in 1997 and $98 million in 1998.
 
    Cash  and short-term investments  totaled $301 million  at year-end 1995 and
$275 million at year-end 1994. Honeywell believes its available cash,  committed
credit lines and access to the public debt markets, through its medium-term note
and  commercial  paper  programs,  provide  adequate  short-term  and  long-term
liquidity.
 
DERIVATIVE FINANCIAL INSTRUMENTS
 
    Honeywell is  exposed to  market risk  from changes  in interest  rates  and
foreign  currency  exchange rates,  which may  adversely  affect its  results of
operations and financial condition. In seeking to minimize this risk,  Honeywell
manages exposure to changes in interest rates and foreign currency rates through
its  regular operating  and financing  activities and,  when deemed appropriate,
through the use of derivative financial instruments. Honeywell policy  prohibits
the  use of  derivative financial instruments  for trading  or other speculative
purposes and Honeywell is not a party to leveraged financial instruments.
 
    Honeywell has  entered  into  various foreign  currency  exchange  contracts
designed  to minimize its net exposure  to exchange rate fluctuations on foreign
currency transactions (see Notes 6, 14 and 15 to Financial Statements on  pages,
29,  32  and 34  respectively).  Foreign exchange  contracts  reduce Honeywell's
overall exposure to exchange rate movements, since the gains and losses on these
contracts offset losses and  gains on the  assets, liabilities and  transactions
being  hedged. Transactions that are hedged include foreign currency denominated
receivables and payables on the statement of financial
 
                                       18
<PAGE>
position, firm purchase orders and firm sales commitments. At year-end 1995, the
notional amount of outstanding  foreign exchange contracts, including  contracts
to hedge intercompany transactions, was $1.262 billion.
 
    It  is Honeywell's practice to manage  the relative proportions of its fixed
and floating rate  debt in  the context of  the interest  rate environment.  The
objective is to minimize the cost of Honeywell's debt financing over an extended
period  of time. To manage this mix in a cost efficient manner, Honeywell enters
into interest rate swap agreements, in which it agrees to exchange, at specified
intervals, the difference between fixed and variable interest amounts calculated
by reference to an agreed-upon notional principal amount (see Notes 14 and 15 to
Financial Statements on  pages 32 and  34 respectively). At  year-end 1995,  the
notional amount of outstanding interest rate swaps was $225 million.
 
LITIGATION
 
    On March 13, 1990, Litton Systems, Inc. filed suit against Honeywell Inc. in
U.S.  District Court, Central District  of California, alleging Honeywell patent
infringement  relating  to  the  process  used  by  Honeywell  to  coat  mirrors
incorporated   in  its  ring  laser  gyroscopes;  attempted  monopolization  and
predatory  pricing  by  Honeywell  of  certain  alleged  markets  for   products
containing ring laser gyroscopes; and intentional interference by Honeywell with
Litton's  prospective  advantage in  European markets  and with  its contractual
relationships with  Ojai Research,  Inc.,  a California  corporation.  Honeywell
generally   denied  Litton's  allegations,  contested   both  the  validity  and
infringement of the  patent, and alleged  that the patent  had been obtained  by
Litton's  inequitable  conduct before  the  United States  Patent  and Trademark
Office. Honeywell also filed counterclaims against Litton alleging, among  other
things, that Litton's business and litigation conduct violated federal and state
laws, causing Honeywell considerable damage and expense.
 
    On  January 9, 1995, Judge  Mariana Pfaelzer of the  U.S. District Court set
aside an  August 1993  jury verdict  and damage  award of  $1.2 billion  against
Honeywell  in the patent  and interference with contract  case. She ruled, among
other things, that the Litton patent  was unenforceable because it was  obtained
by  inequitable conduct and invalid because it  was an invention that would have
been obvious from combining  existing processes. She further  ruled that if  her
judgment  were ever subsequently vacated or  reversed on appeal, Honeywell would
be granted a new trial on the issue of damages because the jury's 1993 award was
inconsistent with the clear weight of  the evidence, and permitting it to  stand
would  constitute a miscarriage of justice. Litton  has appealed to the Court of
Appeals for the  Federal Circuit, Washington,  D.C. Briefs for  the appeal  have
been  submitted by  the parties  and oral  arguments were  presented December 8,
1995. Honeywell believes that Judge Pfaelzer's rulings will be upheld on appeal.
As a result, no provision has been made in the financial statements with respect
to this contingent liability.
 
    The trial for the  antitrust case began on  November 20, 1995, before  Judge
Pfaelzer  and  a  different  jury.  Prior to  the  jury's  deliberations  in the
antitrust trial, the court dismissed, for failure of proof, Litton's contentions
that Honeywell engaged in below-cost predatory pricing, illegal tying,  bundling
and  illegally acquiring Sperry Avionics in 1986.  The case was submitted to the
jury on two  claims, monopolization  and attempt  to monopolize,  both based  on
Litton's  allegations that Honeywell entered into certain exclusive dealings and
penalty arrangements with aircraft manufacturers and airlines to exclude  Litton
from  the commercial aircraft market. On February  29, 1996, the jury returned a
$234 million verdict against Honeywell for the monopolization claim. On March 1,
1996, the jury indicated that  it was unable to reach  a verdict on damages  for
the attempted monopolization claim, and a mistrial was declared on that claim.
 
    Honeywell  continues to maintain that it competed vigorously and lawfully in
the inertial  navigation business  and will  continue to  defend itself  against
Litton's  allegations. Honeywell believes that the jury's partial verdict should
be overturned because Litton (i) failed to prove essential elements of liability
and (ii) failed to submit competent evidence to support its claim for damages by
offering  only  a  speculative,  all-or-nothing  $298.5  million  damage  study.
Honeywell  will  file  post-verdict motions  with  the trial  court  asking that
judgment be  granted in  favor  of Honeywell  as  a matter  of  law or,  in  the
 
                                       19
<PAGE>
alternative,  for a  new trial,  and will  argue important  procedural and other
matters which  could dispose  of this  case. If  the $234  million jury  verdict
withstands  post-verdict motions, in whole or  in part, any dollar judgment will
be trebled under federal antitrust laws  and will be appealed by Honeywell.  The
case  will conclude only when the trial  and appellate courts resolve all of the
legal issues that could reduce  or eliminate the jury  verdict. As a result,  no
provision  has  been  made in  the  financial  statements with  respect  to this
contingent liability.
 
CREDIT RATINGS
 
    Honeywell's credit  ratings  remained  unchanged during  1995.  Ratings  for
long-term  and short-term debt  are, respectively, A/A-1  by Standard and Poor's
Corporation, A/Duff1  by  Duff and  Phelps  Corporation and  A3/P-2  by  Moody's
Investors Service, Inc.
 
STOCK PERFORMANCE
 
    The  market price of Honeywell stock ranged from $49 1/2 to $30 3/4 in 1995,
and was $48 5/8 at year end. Book value per common share at year end was  $16.09
in 1995 and $14.57 in 1994.
 
                                       20
<PAGE>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                          INDEPENDENT AUDITORS' REPORT
 
To the Stockholders of Honeywell Inc.:
 
    We  have audited the  statement of financial position  of Honeywell Inc. and
subsidiaries as of  December 31, 1995  and 1994, and  the related statements  of
income  and cash flows for each of the  three years in the period ended December
31, 1995. Our audits  also included the financial  statement schedule listed  at
Part  IV, Item 14(a)2. These financial  statements are the responsibility of the
Company's management.  Our responsibility  is  to express  an opinion  on  these
financial statements based on our audits.
 
    We  have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to  obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also  includes
assessing  the  accounting principles  used  and significant  estimates  made by
management, as well as evaluating the overall financial statement  presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    In  our opinion, such  financial statements present  fairly, in all material
respects, the financial position of Honeywell Inc. and subsidiaries at  December
31,  1995 and 1994, and the results of their operations and their cash flows for
each of the three  years in the  period ended December  31, 1995, 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 13, 1996
(February 29, 1996 and March 1, 1996
as to certain information included in
Note 22 and March 15, 1996 as to
certain information included in Note
24)
 
                                       21
<PAGE>
                                INCOME STATEMENT
                        HONEYWELL INC. AND SUBSIDIARIES
                        (DOLLARS AND SHARES IN MILLIONS
                           EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                                     YEARS ENDED DECEMBER 31
                                                                                ---------------------------------
                                                                                  1995        1994        1993
                                                                                ---------  ----------  ----------
<S>                                                                             <C>        <C>         <C>
Sales.........................................................................  $ 6,731.3  $  6,057.0  $  5,963.0
                                                                                ---------  ----------  ----------
Costs and Expenses
  Cost of sales...............................................................    4,584.2     4,082.1     4,019.6
  Research and development....................................................      323.2       319.0       337.4
  Selling, general and administrative.........................................    1,263.1     1,173.8     1,075.7
  Litigation settlements......................................................                              (32.6)
  Special charges.............................................................                   62.7        51.2
                                                                                ---------  ----------  ----------
                                                                                  6,170.5     5,637.6     5,451.3
                                                                                ---------  ----------  ----------
Interest
  Interest expense............................................................       83.3        75.5        68.0
  Interest income.............................................................       14.4        15.3        17.0
                                                                                ---------  ----------  ----------
                                                                                     68.9        60.2        51.0
                                                                                ---------  ----------  ----------
Equity Income.................................................................       13.6        10.5        17.8
                                                                                ---------  ----------  ----------
Income before Income Taxes....................................................      505.5       369.7       478.5
Provision for Income Taxes....................................................      171.9        90.8       156.3
                                                                                ---------  ----------  ----------
Net Income....................................................................  $   333.6  $    278.9  $    322.2
                                                                                ---------  ----------  ----------
                                                                                ---------  ----------  ----------
Earnings Per Common Share.....................................................  $    2.62  $     2.15  $     2.40
                                                                                ---------  ----------  ----------
                                                                                ---------  ----------  ----------
Average Number of Common Shares Outstanding...................................      127.1       129.4       134.2
</TABLE>
 
                See accompanying Notes to Financial Statements.
 
                                       22
<PAGE>
                        STATEMENT OF FINANCIAL POSITION
                        HONEYWELL INC. AND SUBSIDIARIES
                             (DOLLARS IN MILLIONS)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                                                DECEMBER 31
                                                                                          -----------------------
                                                                                             1995        1994
                                                                                          ----------  -----------
<S>                                                                                       <C>         <C>
Current Assets
  Cash and cash equivalents.............................................................  $    291.6  $     267.4
  Short-term investments................................................................         9.0          7.4
  Receivables...........................................................................     1,477.3      1,406.9
  Inventories...........................................................................       794.4        760.2
  Deferred income taxes.................................................................       194.6        207.5
                                                                                          ----------  -----------
                                                                                             2,766.9      2,649.4
Investments and Advances................................................................       244.8        242.8
Property, Plant and Equipment
  Property, plant and equipment.........................................................     2,857.1      2,716.8
  Less accumulated depreciation.........................................................     1,758.2      1,617.3
                                                                                          ----------  -----------
                                                                                             1,098.9      1,099.5
Other Assets
  Long-term receivables.................................................................        46.8         40.1
  Goodwill..............................................................................       240.7        209.8
  Patents, licenses and trademarks......................................................        43.4         66.1
  Software and other intangibles........................................................       340.1        290.3
  Deferred income taxes.................................................................        71.8         98.5
  Other.................................................................................       206.8        189.4
                                                                                          ----------  -----------
    Total Assets........................................................................  $  5,060.2  $   4,885.9
                                                                                          ----------  -----------
                                                                                          ----------  -----------
 
                                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
  Short-term debt.......................................................................  $    312.4  $     360.6
  Accounts payable......................................................................       491.5        429.6
  Customer advances.....................................................................        93.2         72.6
  Accrued compensation and benefit costs................................................       374.3        434.6
  Accrued income taxes..................................................................       274.8        309.6
  Deferred income taxes.................................................................        20.4
  Other accrued liabilities.............................................................       455.9        464.8
                                                                                          ----------  -----------
                                                                                             2,022.5      2,071.8
Long-Term Debt..........................................................................       481.0        501.5
Other Liabilities
  Accrued benefit costs.................................................................       416.3        359.0
  Deferred income taxes.................................................................        39.2         39.8
  Other.................................................................................        61.1         59.1
Stockholders' Equity
  Common stock -- $1.50 par value
  Authorized -- 250,000,000 shares
  Issued -- 1995 -- 188,126,704 shares..................................................       282.2
           1994 -- 188,286,000 shares...................................................                    282.4
  Additional paid-in capital............................................................       481.3        446.9
  Retained earnings.....................................................................     2,805.8      2,600.4
  Treasury stock -- 1995 -- 61,306,251 shares...........................................    (1,650.2)
                   1994 -- 61,030,565 shares............................................                 (1,576.5)
  Accumulated foreign currency translation..............................................       140.9        107.4
  Pension liability adjustment..........................................................       (19.9)        (5.9)
                                                                                          ----------  -----------
                                                                                             2,040.1      1,854.7
                                                                                          ----------  -----------
    Total Liabilities and Stockholders' Equity..........................................  $  5,060.2  $   4,885.9
                                                                                          ----------  -----------
                                                                                          ----------  -----------
</TABLE>
 
                See accompanying Notes to Financial Statements.
 
                                       23
<PAGE>
                            STATEMENT OF CASH FLOWS
                        HONEYWELL INC. AND SUBSIDIARIES
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                                       YEARS ENDED DECEMBER 31
                                                                                   -------------------------------
                                                                                     1995       1994       1993
                                                                                   ---------  ---------  ---------
<S>                                                                                <C>        <C>        <C>
Cash Flows from Operating Activities
  Net income.....................................................................  $   333.6  $   278.9  $   322.2
  Adjustments to reconcile net income to net cash flows from operating
   activities:
    Depreciation.................................................................      236.1      235.3      235.3
    Amortization of intangibles..................................................       56.8       52.1       49.6
    Deferred income taxes........................................................       67.2       14.0       28.8
    Equity income, net of dividends received.....................................      (11.0)      (7.6)     (14.5)
    Loss on sale of assets.......................................................        7.2        1.0        6.2
    Contributions to employee stock plans........................................       27.4       26.5       28.7
    Increase in receivables......................................................      (38.4)     (83.8)     (62.7)
    (Increase) decrease in inventories...........................................      (27.6)      20.9       54.2
    Increase in accounts payable.................................................       50.1       27.7       28.8
    Increase (decrease) in accrued income taxes and interest.....................      (35.4)      (4.6)       8.3
    Other changes in working capital, excluding short-term investments and
     short-term debt.............................................................      (99.1)     (93.9)    (146.6)
    Other noncurrent items -- net................................................        5.6        3.0      (63.5)
                                                                                   ---------  ---------  ---------
Net cash flows from operating activities.........................................      572.5      469.5      474.8
                                                                                   ---------  ---------  ---------
Cash Flows from Investing Activities
  Reduction of investment in Sperry Aerospace Group..............................                             20.0
  Proceeds from sale of assets...................................................       18.7       22.6       46.8
  Capital expenditures...........................................................     (238.1)    (262.4)    (232.1)
  Investment in acquisitions.....................................................      (37.7)    (104.6)     (14.2)
  (Increase) decrease in short-term investments..................................       (1.4)       6.7      (10.2)
  Other -- net...................................................................       (5.2)      10.5      (23.3)
                                                                                   ---------  ---------  ---------
Net cash flows from investing activities.........................................     (263.7)    (327.2)    (213.0)
                                                                                   ---------  ---------  ---------
Cash Flows from Financing Activities
  Net increase (decrease) in short-term debt.....................................     (101.0)      35.7        2.8
  Proceeds from issuance of long-term debt.......................................      167.5      126.5        0.6
  Repayment of long-term debt....................................................     (156.4)      (1.8)      (7.3)
  Purchase of treasury stock.....................................................     (137.3)    (162.5)    (241.2)
  Proceeds from exercise of stock options........................................       60.4        5.9       17.6
  Dividends paid.................................................................     (127.5)    (125.6)    (122.0)
                                                                                   ---------  ---------  ---------
Net cash flows from financing activities.........................................     (294.3)    (121.8)    (349.5)
                                                                                   ---------  ---------  ---------
Effect of exchange rate changes on cash..........................................        9.7        4.6      (12.4)
                                                                                   ---------  ---------  ---------
Increase (decrease) in cash and cash equivalents.................................       24.2       25.1     (100.1)
Cash and cash equivalents at beginning of year...................................      267.4      242.3      342.4
                                                                                   ---------  ---------  ---------
Cash and cash equivalents at end of year.........................................  $   291.6  $   267.4  $   242.3
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
</TABLE>
 
                See accompanying Notes to Financial Statements.
 
                                       24
<PAGE>
                         NOTES TO FINANCIAL STATEMENTS
                        HONEYWELL INC. AND SUBSIDIARIES
                 (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
 
NOTE 1 -- ACCOUNTING POLICIES
 
CONSOLIDATION
 
    The   consolidated  financial  statements  and  accompanying  data  comprise
Honeywell Inc.  and subsidiaries.  All  material intercompany  transactions  are
eliminated.
 
ESTIMATES
 
    The  preparation  of  financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  Honeywell  to  make  estimates   and
assumptions  that  affect the  reported amounts  of  assets and  liabilities and
disclosure of contingent assets  and liabilities at the  dates of the  financial
statements  and  the  reported  amounts  of  revenues  and  expenses  during the
reporting periods.
 
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 they become evident.
 
EARNINGS PER COMMON SHARE
 
    Earnings  per common share are based on  the average number of common shares
outstanding during the year.
 
STATEMENT OF CASH FLOWS
 
    Cash equivalents are all highly  liquid, temporary cash investments with  an
original maturity of three months or less.
 
    Cash  flows from purchases and maturities of held-to-maturity securities are
classified as cash flows  from investing activities.  Cash flows from  contracts
used to hedge cash dividend payments from subsidiaries are classified as part of
the effect of exchange rate changes on cash.
 
INVENTORIES
 
    Inventories  are valued at the  lower of cost or  market. Cost is determined
using the weighted-average method. Market is based on net realizable value.
 
    Payments received  from customers  relating to  the uncompleted  portion  of
contracts are deducted from applicable inventories.
 
INVESTMENTS
 
    Investments  in companies owned 20 to 50 percent are accounted for using the
equity method.
 
PROPERTY
 
    Property  is  carried   at  cost   and  depreciated   primarily  using   the
straight-line method over estimated useful lives of 10 to 40 years for buildings
and improvements, and three to 15 years for machinery and equipment.
 
INTANGIBLES
 
    Intangibles are carried at cost and amortized using the straight-line method
over  their estimated useful lives of not  more than 40 years for goodwill; four
to 17 years  for patents, licenses  and trademarks;  and three to  24 years  for
software  and other  intangibles. Intangibles  also include  the asset resulting
from recognition of the defined benefit pension plan minimum liability, which is
amortized as part of net periodic pension cost.
 
                                       25
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                        HONEYWELL INC. AND SUBSIDIARIES
                 (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
 
NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)
DERIVATIVES
 
    In 1994, Honeywell adopted Statement  of Financial Accounting Standards  No.
119,  "Disclosure  about  Derivative  Financial Instruments  and  Fair  Value of
Financial Instruments." Honeywell uses derivative financial instruments such  as
foreign  currency contracts (forwards, swaps and  options) to manage its foreign
currency exposure (see Notes 6, 14 and 15) and interest rate swaps to manage its
exposure to  interest  rate fluctuations  and  its  mix of  fixed  and  floating
interest rates (see Notes 14 and 15).
 
    The  carrying amounts of foreign currency  contracts purchased to hedge firm
foreign currency commitments are deferred and included in the measurement of the
related foreign  currency transactions.  These hedges  are scheduled  to  mature
coincident  with the timing  of the underlying  foreign currency commitments and
transactions. Gains  and losses  from other  foreign currency  transactions  are
included in selling, general and administrative expenses on the income statement
and were not material in any year.
 
    The  amount to be  paid or received  from interest rate  swaps is charged or
credited  to  interest  expense  over  the  lives  of  the  interest  rate  swap
agreements.  Any  gains  realized upon  the  termination of  interest  rate swap
agreements are deferred and  amortized as an adjustment  to interest expense  of
the  underlying liabilities  over the  original term  of the  interest rate swap
agreements.
 
FOREIGN CURRENCY
 
    Foreign currency assets and liabilities are generally translated into U.  S.
dollars  using  the  exchange rates  in  effect  at the  statement  of financial
position date. Results of operations are generally translated using the  average
exchange  rates throughout the period. The effects of exchange rate fluctuations
on translation of assets, liabilities and hedges of cash dividend payments  from
subsidiaries  are  reported  as  accumulated  foreign  currency  translation and
increased/(reduced) stockholders' equity $33.5 in 1995, $54.5 in 1994 and $(3.0)
in 1993.
 
POSTEMPLOYMENT BENEFITS
 
    The enactment by Congress of the Omnibus Budget Reconciliation Act of  1993,
which made Medicare the primary provider of medical benefits for disabled former
employees  after  29  months  of  disability,  reduced  the  accumulated benefit
obligation for postemployment benefits by $33.4 in 1993. This change in estimate
is included in cost of sales on the income statement.
 
NOTE 2 -- ACQUISITIONS AND SALE OF ASSETS
    Honeywell acquired nine companies  in 1995, 15 companies  in 1994 and  eight
companies  in  1993 for  $37.7, $104.6  and $14.2  in cash,  respectively. These
acquisitions were accounted for  as purchases, and  accordingly, the assets  and
liabilities  of the acquired entities have been recorded at their estimated fair
values at  the dates  of acquisition.  The  excess of  purchase price  over  the
estimated  fair values  of the net  assets acquired,  in the amount  of $32.4 in
1995, $87.4 in  1994 and $11.8  in 1993, has  been recorded as  goodwill and  is
amortized  over estimated useful lives. The pro forma results for 1995, 1994 and
1993, assuming these acquisitions  had been made at  the beginning of the  year,
would not be significantly different from reported results.
 
    In  1993, Honeywell sold its Keyboard Division to Key Tronic Corporation for
$29.7 in  cash,  notes  and  common stock.  Proceeds  from  other  asset  sales,
including  the collection  of notes receivable  and sale of  stock received from
asset sales made in previous years, amounted  to $8.1 in 1995, $8.6 in 1994  and
$22.9  in 1993. Gains and losses from asset  sales were not material in any year
and are included in selling, general  and administrative expenses on the  income
statement.
 
                                       26
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                        HONEYWELL INC. AND SUBSIDIARIES
                 (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
 
NOTE 3 -- LITIGATION SETTLEMENTS
    On  April  16,  1993, Honeywell  announced  the settlement  of  its lawsuits
against the Unisys Corporation and other parties in connection with  Honeywell's
1986  purchase of the  Sperry Aerospace Group. Honeywell  received $70.0 in cash
and notes and recorded  a gain of  $22.4 in 1993  to offset previously  incurred
costs associated with the matter. In addition, the portion of the purchase price
originally allocated to goodwill and other intangibles was reduced by $47.6.
 
    Honeywell  has reached agreement with various camera manufacturers for their
use of Honeywell's patented automatic focus camera technology. The total of  all
one-time  settlements  recorded  in these  matters,  after  associated expenses,
resulted in a gain of $10.2 in 1993. Several settlements also included licensing
agreements that require  the payment of  royalties to Honeywell  based upon  the
amount of product manufactured or sold by the licensee. Autofocus royalty income
from the licensing agreements amounted to $8.2 in 1994 and $31.4 in 1993, and is
included   in  selling,  general  and  administrative  expenses  on  the  income
statement. Autofocus royalty income from  licensing agreements was not  material
in 1995.
 
NOTE 4 -- SPECIAL CHARGES
    In  December 1994, Honeywell's management, with the approval of the board of
directors, committed itself to a plan of action and recorded special charges  of
$62.7.  The actions undertaken included a continuation of right-sizing the Space
and  Aviation   Control  business   segment,   a  worldwide   consolidation   of
manufacturing capacity, a streamlining and realignment of the overhead structure
and corporate expense reductions. Special charges of $51.2 were recorded in 1993
for  productivity  initiatives  to  strengthen  the  company's  competitiveness.
Special charges include  costs for work  force reductions, worldwide  facilities
consolidation and other cost accruals.
 
    Work  force  reduction costs  primarily include  severance costs  related to
involuntary termination  programs instituted  to improve  efficiency and  reduce
costs.  These costs amounted to $52.4 in 1994  and $43.7 in 1993. As a result of
the 1994 plan, approximately 1,200 employees were terminated. Total expenditures
of $42.9 in  1995 included $38.3,  $3.8 and  $0.8 related to  costs incurred  in
1994,  1993 and 1992, respectively. Total expenditures of $36.0 in 1994 included
$2.9, $26.4  and  $6.7  related  to  costs incurred  in  1994,  1993  and  1992,
respectively.  Total  expenditures  of $49.8  in  1993 included  $7.8  and $42.0
related to costs  incurred in 1993  and 1992, respectively.  Special charges  of
$8.0 from 1994 remain to be paid out as a result of longer-term agreements.
 
    Facilities  consolidation costs are primarily associated with consolidations
of  branch  office  space  and  product  lines  to  restructure  and  streamline
Honeywell's  operations. These costs amounted to $10.3 in 1994 and $2.0 in 1993.
Total expenditures of  $11.4 in  1995 included $6.9,  $0.4 and  $4.1 related  to
costs  incurred in 1994, 1993 and 1992, respectively. Total expenditures of $8.5
in 1994 included  $1.6 and  $6.9 related  to costs  incurred in  1993 and  1992,
respectively.  Total expenditures of $26.2 in  1993 related to costs incurred in
1992. Special charges of $2.6 from 1994 and $0.9 from 1992 remain to be paid out
as a result of lease costs associated with vacated facilities.
 
    Other cost accruals  include costs  of exiting several  product lines  which
were  no longer considered complementary  to Honeywell's businesses and amounted
to $5.5 in 1993. Total expenditures of $5.5 in 1994 related to costs incurred in
1993. Total expenditures of $17.0 in 1993 related to costs incurred in 1992.
 
    Cash flows from operating  activities have funded and  are expected to  fund
all special charges.
 
                                       27
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                        HONEYWELL INC. AND SUBSIDIARIES
                 (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
 
NOTE 5 -- INCOME TAXES
    The components of income before income taxes consist of the following:
 
<TABLE>
<CAPTION>
                                                1995    1994    1993
                                               ------  ------  ------
<S>                                            <C>     <C>     <C>
Domestic.....................................  $285.4  $208.4  $316.9
Foreign......................................   220.1   161.3   161.6
                                               ------  ------  ------
                                               $505.5  $369.7  $478.5
</TABLE>
 
    The provision for income taxes on that income is as follows:
 
<TABLE>
<CAPTION>
                                                1995    1994    1993
                                               ------  ------  ------
<S>                                            <C>     <C>     <C>
Current tax expense
  United States..............................  $ 39.8  $ 33.8  $ 81.7
  Foreign....................................    59.9    40.6    36.0
  State and local............................     8.9     2.9    11.3
                                               ------  ------  ------
  Total current..............................   108.6    77.3   129.0
                                               ------  ------  ------
Deferred tax expense
  United States..............................    41.7    13.0    17.9
  Foreign....................................    17.5    (0.8)    5.8
  State and local............................     4.1     1.3     3.6
                                               ------  ------  ------
  Total deferred.............................    63.3    13.5    27.3
                                               ------  ------  ------
Provision for income taxes...................  $171.9  $ 90.8  $156.3
</TABLE>
 
    A  favorable tax settlement  reduced the 1994 provision  for income taxes by
$37.6 ($0.29 per share).
 
    The enactment by Congress of the Omnibus Budget Reconciliation Act of  1993,
which raised the U.S. federal statutory income tax rate for corporations from 34
percent  to 35 percent retroactive  to January 1, 1993,  did not have a material
impact on the 1993  provision for income taxes;  however, the enactment of  this
legislation did result in a one-time gain of $9.2 ($0.07 per share) in 1993 from
the revaluation of deferred tax assets.
 
    A  reconciliation of the  provision for income taxes  to the amount computed
using U.S. federal statutory rates is as follows:
 
<TABLE>
<CAPTION>
                                                1995    1994    1993
                                               ------  ------  ------
<S>                                            <C>     <C>     <C>
Taxes on income at U.S. federal statutory
 rates.......................................  $176.9  $129.4  $167.5
Tax effects of foreign income................   (11.7)  (15.5)  (26.0)
State taxes..................................     9.9     4.2    10.9
Tax effect of settlement.....................           (37.6)
Adjustments to effective tax rates used in
 recording tax assets and liabilities........             2.7
Other........................................    (3.2)    7.6     3.9
                                               ------  ------  ------
Provision for income taxes...................  $171.9  $ 90.8  $156.3
</TABLE>
 
    Interest costs  related to  prior  years' tax  issues  are included  in  the
provision  for income taxes. Taxes  paid were $128.3 in  1995, $79.4 in 1994 and
$111.2 in 1993.
 
                                       28
<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>
                                                1995    1994
                                               ------  ------
<S>                                            <C>     <C>
Employee benefits............................  $101.6  $142.2
Miscellaneous accruals.......................    76.4    95.2
Excess of tax over book
 depreciation/amortization...................    (8.4)  (24.0)
Asset valuation reserves.....................    37.6    43.0
Long-term contracts..........................    16.0     4.2
State taxes..................................    24.3    28.5
Pension liability adjustment.................    12.7     3.7
Other........................................   (53.4)  (26.6)
                                               ------  ------
                                               $206.8  $266.2
</TABLE>
 
    The components of  net deferred taxes  shown on the  statement of  financial
position are:
 
<TABLE>
<CAPTION>
                                                1995    1994
                                               ------  ------
<S>                                            <C>     <C>
Deferred tax assets..........................  $463.7  $463.8
Deferred tax liabilities.....................   256.9   197.6
</TABLE>
 
    Provision  has not been made for U.S.  or additional foreign taxes on $585.2
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,  1995,  foreign   subsidiaries  had  tax  operating  loss
carryforwards of $13.6.
 
NOTE 6 -- FOREIGN CURRENCY
    Honeywell has  entered  into  various foreign  currency  exchange  contracts
(primarily  Belgian  francs, Deutsche  marks and  Canadian dollars)  designed to
minimize  its  exposure  to  exchange  rate  fluctuations  on  foreign  currency
transactions.  Honeywell only uses foreign  currency exchange contracts to hedge
underlying exposures such  as non-functional currency  receivables and  payables
and  foreign currency imports and  exports. Company policy prohibits speculation
in foreign currency contracts.
 
    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
intercompany  transactions.  The  notional  amount  of  Honeywell's  outstanding
foreign currency contracts, consisting of forwards, purchased options and  swaps
was  approximately  $1,262.2  and  $1,088.6  at  December  31,  1995,  and 1994,
respectively. These contracts generally have a term of less than one year.
 
NOTE 7 -- INVESTMENTS IN DEBT AND EQUITY SECURITIES
    In 1994, Honeywell adopted Statement  of Financial Accounting Standards  No.
115,  "Accounting for Certain Investments in  Debt and Equity Securities," which
specifies certain accounting and reporting for investments in equity  securities
that  have  readily determinable  fair values  and for  all investments  in debt
securities.
 
                                       29
<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 (CONTINUED)
    Honeywell's investments  in  held-to-maturity  securities  are  reported  at
amortized cost in the statement of financial position as follows:
 
<TABLE>
<CAPTION>
                                                1995    1994
                                               ------  ------
<S>                                            <C>     <C>
Cash equivalents.............................  $161.6  $124.9
Short-term investments.......................     9.0     6.6
Investments and advances.....................     6.9    12.9
                                               ------  ------
                                               $177.5  $144.4
</TABLE>
 
    Held-to-maturity securities generally mature within one year and include the
following:
 
<TABLE>
<CAPTION>
                                                1995    1994
                                               ------  ------
<S>                                            <C>     <C>
Time deposits with financial institutions....  $ 53.4  $ 85.8
Commercial paper.............................   109.3    42.4
Other........................................    14.8    16.2
                                               ------  ------
                                               $177.5  $144.4
</TABLE>
 
    Honeywell's  purchases of held-to-maturity  securities, consisting primarily
of commercial  paper  amounted  to  $3,528.0 and  $1,674.8  in  1995  and  1994,
respectively.  Proceeds from maturities  of held-to-maturity securities amounted
to $3,494.3  and $1,673.9  in  1995 and  1994,  respectively. 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>
                                                                                        1995         1994
                                                                                     -----------  -----------
<S>                                                                                  <C>          <C>
Receivables, current...............................................................   $    34.5    $    31.1
Long-term receivables..............................................................         0.7          0.7
</TABLE>
 
    Receivables  include approximately $20.1 in 1995 and $21.9 in 1994 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 $314.0  and
$295.9  at December 31, 1995, and 1994, 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 $1.8 in 1995 and $1.9 in 1994 to an amount
that approximates realizable value.
 
    In  1992,  Honeywell  entered  into a  three-year  agreement,  with  a large
international banking institution, whereby it can sell an undivided interest  in
a  designated pool of trade  accounts receivable up to a  maximum of $50.0 on an
ongoing basis and  without recourse. As  collections reduce accounts  receivable
sold,  Honeywell may sell an additional undivided interest in new receivables to
bring the amount sold up to the  $50.0 maximum. Proceeds received from the  sale
of  receivables  are included  in cash  flows from  operating activities  in the
statement of cash flows and amounted to $22.4 in 1995, $34.4 in 1994 and  $193.7
in  1993. The uncollected balance of receivables  sold amounted to $1.5 and $2.4
at December 31, 1995, and 1994, respectively, and averaged $2.7 and $4.2  during
those respective years. The discount recorded on sale of receivables is included
in selling, general and administrative
 
                                       30
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                        HONEYWELL INC. AND SUBSIDIARIES
                 (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
 
NOTE 8 -- RECEIVABLES (CONTINUED)
expenses  on the income statement  and amounted to $0.2,  $0.4 and $0.7 in 1995,
1994 and  1993, respectively.  Honeywell, as  agent for  the purchaser,  retains
collection  and administrative responsibilities  for the participating interests
sold.
 
NOTE 9 -- INVENTORIES
 
<TABLE>
<CAPTION>
                                                                          1995       1994
                                                                        ---------  ---------
<S>                                                                     <C>        <C>
Finished goods........................................................  $   356.6  $   297.4
Inventories related to long-term contracts............................       73.6       89.1
Work in process.......................................................      159.5      156.9
Raw materials and supplies............................................      204.7      216.8
                                                                        ---------  ---------
                                                                        $   794.4  $   760.2
</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 $56.4 and $32.5 at December 31, 1995, and 1994, respectively.
 
NOTE 10 -- PROPERTY, PLANT AND EQUIPMENT
 
<TABLE>
<CAPTION>
                                                                          1995        1994
                                                                        ---------  ----------
<S>                                                                     <C>        <C>
Land..................................................................  $    77.7  $     78.2
Buildings and improvements............................................      585.8       623.4
Machinery and equipment...............................................    2,100.3     1,937.3
Construction in progress..............................................       93.3        77.9
                                                                        ---------  ----------
                                                                        $ 2,857.1  $  2,716.8
</TABLE>
 
NOTE 11 -- FOREIGN SUBSIDIARIES
    The  following  is  a  summary  of  financial  data  pertaining  to  foreign
subsidiaries:
 
<TABLE>
<CAPTION>
                                                              1995        1994        1993
                                                            ---------  ----------  ----------
<S>                                                         <C>        <C>         <C>
Net income................................................  $   142.9  $    121.5  $    119.8
Assets....................................................  $ 1,849.4  $  1,742.3  $  1,546.5
Liabilities...............................................      802.8       726.4       620.5
                                                            ---------  ----------  ----------
Net assets................................................  $ 1,046.6  $  1,015.9  $    926.0
</TABLE>
 
    Insofar as  can be  reasonably  determined, there  are no  foreign  exchange
restrictions  that  materially affect  the financial  position or  the operating
results of Honeywell and its subsidiaries.
 
                                       31
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                        HONEYWELL INC. AND SUBSIDIARIES
                 (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
 
NOTE 12 -- INVESTMENTS IN OTHER COMPANIES
    Following is a summary  of financial data pertaining  to companies 20 to  50
percent  owned. The principal company  included is Yamatake-Honeywell Co., Ltd.,
of which  Honeywell owns  24.2 percent  of the  outstanding common  stock.  This
investment  had a market  value of $316.3  and $327.3 at  December 31, 1995, and
1994, respectively.
 
<TABLE>
<CAPTION>
                                                 1995      1994      1993
                                               --------  --------  --------
<S>                                            <C>       <C>       <C>
Sales........................................  $2,065.1  $1,877.0  $1,866.7
Gross profit.................................     743.5     680.7     682.4
Net income...................................      54.2      48.4      69.8
Equity in net income.........................      13.6      10.5      17.8
 
Current assets...............................  $1,400.6  $1,371.4  $1,297.0
Noncurrent assets............................     598.8     616.8     588.2
                                               --------  --------  --------
                                                1,999.4   1,988.2   1,885.2
                                               --------  --------  --------
Current liabilities..........................     742.6     841.6     704.5
Noncurrent liabilities.......................     327.8     225.8     359.3
                                               --------  --------  --------
                                                1,070.4   1,067.4   1,063.8
                                               --------  --------  --------
Net assets...................................  $  929.0  $  920.8  $  821.4
 
Equity in net assets.........................  $  236.8  $  225.5  $  200.3
</TABLE>
 
NOTE 13 -- INTANGIBLE ASSETS
    Intangible assets have been reduced by accumulated amortization as follows:
 
<TABLE>
<CAPTION>
                                                 1995      1994
                                               --------  --------
<S>                                            <C>       <C>
Goodwill.....................................  $   49.2  $   42.3
Patents, licenses and trademarks.............      75.8     175.4
Software and other intangibles...............     168.1     152.4
</TABLE>
 
NOTE 14 -- DEBT
 
SHORT-TERM DEBT
 
    Honeywell had general purpose lines of credit available totaling $1,089.2 at
December 31, 1995. Committed revolving credit lines with 21 banks total  $725.0,
which  management  believes  is  adequate to  meet  its  financing requirements,
including support of commercial paper and bank note borrowings. These lines have
commitment fee requirements. There were no borrowings on these lines at December
31, 1995.  The remaining  credit  facilities of  $364.2  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
$5.3  at December  31, 1995.  The weighted-average  interest rate  on short-term
borrowings outstanding  at December  31, 1995,  and 1994,  respectively, was  as
follows:  commercial paper, 6.0 percent and  5.7 percent; and notes payable, 6.5
percent and 5.8 percent.
 
    Short-term debt consists of the following:
 
<TABLE>
<CAPTION>
                                                 1995      1994
                                               --------  --------
<S>                                            <C>       <C>
Commercial paper.............................  $   65.0  $  125.0
Notes payable................................      62.8     102.2
Current maturities of long-term debt.........     184.6     133.4
                                               --------  --------
                                               $  312.4  $  360.6
</TABLE>
 
                                       32
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                        HONEYWELL INC. AND SUBSIDIARIES
                 (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
 
NOTE 14 -- DEBT (CONTINUED)
LONG-TERM DEBT
 
<TABLE>
<CAPTION>
                                                                              1995       1994
                                                                            ---------  ---------
<S>                                                                         <C>        <C>
Honeywell Inc.
  8% dual-currency yen/U.S. dollar notes due 1995.........................             $   120.2
  7 7/8% due 1996.........................................................  $   100.0      100.0
  6 1/4% Deutsche mark bonds due 1997.....................................      104.7       95.2
  7.15% to 7.71% medium-term notes due 1998...............................       50.0       30.0
  7.36% to 7.46% medium-term notes due 1999...............................       70.5       70.5
  7.35% medium-term notes due 2000........................................       75.0
  7.45% medium-term notes due 2001........................................       16.0
  7.48% medium-term notes due 2002........................................       10.0
  8 5/8% due 2006.........................................................      100.0      100.0
  9 1/2% to 10 1/2% due 2003 to 2010......................................        2.0       10.2
Subsidiaries
  9.6% Canadian dollar notes due 1996.....................................       84.4       82.0
  7.0% to 10.0% due 1996 to 2001, various currencies......................       53.0       26.8
                                                                            ---------  ---------
                                                                                665.6      634.9
  Less amount included in short-term debt.................................      184.6      133.4
                                                                            ---------  ---------
                                                                            $   481.0  $   501.5
</TABLE>
 
    The 8 percent dual-currency  yen/U.S. dollar notes  matured in August  1995.
These  notes were repaid at a fixed exchange  rate and were linked to a currency
exchange agreement that resulted  in a fixed U.S.  dollar interest cost of  10.5
percent.
 
    The  6 1/4  percent Deutsche mark  bonds due  1997 are linked  to a currency
exchange agreement that converts principal and interest payments into fixed U.S.
dollar obligations with an interest cost of 8.17 percent.
 
    In August  1994,  Honeywell  initiated a  $500.0  medium-term  note  program
whereby  it  may  issue  notes  with  maturities  of  nine  months  to  30 years
denominated in  U.S.  dollars  or  foreign currencies  with  fixed  or  variable
interest  rates. Honeywell  issued $121.0 and  $100.5 of  U.S. dollar fixed-rate
medium-term notes in 1995 and 1994, respectively.
 
    Honeywell utilizes interest rate swaps to manage its interest rate exposures
and its mix  of fixed and  floating interest rates.  In 1992, Honeywell  entered
into  interest rate swap  agreements effectively converting $100.0  of its 8 5/8
percent debentures due 2006 from fixed-rate debt to floating-rate debt based  on
six-month  LIBOR rates.  During 1993,  $50.0 of  the $100.0  swap was terminated
resulting in a gain of $0.9, which was amortized over the remaining life of  the
swap  agreement. In 1993,  Honeywell entered into  interest rate swap agreements
effectively converting  the  9.6  percent  Canadian dollar  notes  due  1996  to
floating-rate  debt based on  three-month Canadian bankers  acceptance rates. In
1994,  Honeywell  entered  into   interest  rate  swap  agreements   effectively
converting  $30.0 of medium-term  notes due 1998 and  $70.5 of medium-term notes
due 1999  to floating  rate debt  based  on three-month  LIBOR rates.  In  1995,
interest  rate swap  agreements were initiated  to effectively  convert $40.0 of
medium-term notes  back to  fixed-rate debt.  The swap  agreements for  the  9.6
percent  Canadian dollar notes  expire in December 1996  and for the medium-term
notes: $20.0 in December 1996, $20.0 in  July 1997, $20.0 in May 1998, $10.0  in
September  1998, $50.0  in August  1999 and  $20.5 in  September 1999.  The swap
agreement for 8 5/8 percent debentures expired in September 1995.
 
                                       33
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                        HONEYWELL INC. AND SUBSIDIARIES
                 (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
 
NOTE 14 -- DEBT (CONTINUED)
    Annual sinking-fund and  maturity requirements  for the next  five years  on
long-term debt outstanding at December 31, 1995, are as follows:
 
<TABLE>
<S>                                                 <C>
1996..............................................   $   184.6
1997..............................................       108.9
1998..............................................        97.5
1999..............................................        71.1
2000..............................................        75.1
</TABLE>
 
    Interest  paid amounted to  $86.0, $69.1 and  $63.9 in 1995,  1994 and 1993,
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  $665.6  and  $634.9  at  December  31,  1995,  and   1994,
respectively; and the fair value was $702.6 and $630.3 at December 31, 1995, and
1994, respectively.
 
    The carrying amount of interest rate swaps was zero at December 31, 1995 and
1994.  The gross unrealized market loss on interest rate swaps was $4.7 and $7.5
at December 31,  1995, and 1994,  respectively. The carrying  amount of  foreign
currency  contracts  was  $25.7  and  $18.3  at  December  31,  1995,  and 1994,
respectively. The gross unrealized market gain on foreign currency contracts was
$32.5 and $26.6  and the gross  unrealized market  loss was $27.8  and $28.3  at
December  31, 1995, and 1994, respectively. The estimated fair value of interest
rate swaps and foreign currency contracts, which is the gross unrealized  market
gain  or  loss, is  based primarily  on quotes  obtained from  various financial
institutions that deal in these types of instruments.
 
    Honeywell is exposed to credit risk  to the extent of nonperformance by  the
counterparties  to the  foreign currency contracts  and the  interest rate swaps
discussed above.  However,  the  credit ratings  of  the  counterparties,  which
consist  of  a  diversified  group  of  financial  institutions,  are  regularly
monitored and risk of default is considered remote.
 
NOTE 16 -- LEASING ARRANGEMENTS
    As lessee, Honeywell  has minimum  annual lease  commitments outstanding  at
December  31,  1995, 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>
1996...........................................................   $   105.6
1997...........................................................        82.5
1998...........................................................        60.7
1999...........................................................        44.5
2000...........................................................        34.2
2001 and beyond................................................       131.0
                                                                 -----------
                                                                  $   458.5
</TABLE>
 
    Rent  expense for operating  leases was $143.4  in 1995, $136.9  in 1994 and
$134.2 in 1993.
 
                                       34
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                        HONEYWELL INC. AND SUBSIDIARIES
                 (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
 
NOTE 16 -- LEASING ARRANGEMENTS (CONTINUED)
    Substantially  all  leases  are  for  plant,  warehouse,  office  space  and
automobiles.  A number of the leases contain renewal options ranging from one to
10 years.
 
NOTE 17 -- CAPITAL STOCK
 
<TABLE>
<CAPTION>
                                                                                   ADDITIONAL
                                                                        COMMON       PAID-IN     TREASURY
                                                                         STOCK       CAPITAL       STOCK
                                                                      -----------  -----------  -----------
<S>                                                                   <C>          <C>          <C>
Balance January 1, 1993.............................................   $   282.7    $   423.8   $  (1,219.0)
Purchase of treasury stock --
  6,916,868 shares..................................................                                 (240.0)
Issued for employee stock plans --
  1,907,165 treasury shares.........................................                      7.7          30.6
  110,934 shares canceled...........................................        (0.2)
                                                                      -----------  -----------  -----------
Balance December 31, 1993...........................................       282.5        431.5      (1,428.4)
Purchase of treasury stock --
  5,223,800 shares..................................................                                 (168.0)
Issued for employee stock plans --
  962,242 treasury shares...........................................                     15.4          19.9
  42,570 shares canceled............................................        (0.1)
                                                                      -----------  -----------  -----------
Balance December 31, 1994...........................................       282.4        446.9      (1,576.5)
Purchase of treasury stock --
  3,090,400 shares..................................................                                 (129.3)
Issued for Honeywell Foundation pledge
  1,000,000 treasury shares.........................................                     13.4          21.7
Issued for employee stock plans --
  1,814,714 treasury shares.........................................                     21.0          33.9
  159,296 shares canceled...........................................        (0.2)
                                                                      -----------  -----------  -----------
Balance December 31, 1995...........................................   $   282.2    $   481.3   $  (1,650.2)
</TABLE>
 
KEY EMPLOYEE PLANS
 
    In 1993, the Board of Directors adopted, and the stockholders approved,  the
1993 Honeywell Stock and Incentive Plan. The plan, which terminates December 31,
1998,  provides for  the award of  up to  7,500,000 shares of  common stock. The
purpose of the plan is to further the growth, development and financial  success
of  Honeywell and  its subsidiaries  by aligning  the personal  interests of key
employees, through the  ownership of shares  of common stock  and through  other
incentives,  to those of Honeywell stockholders. The plan is further intended to
provide flexibility to Honeywell in its ability to compensate key employees  and
to  motivate, attract and retain the services of such key employees who have the
ability to enhance  the value  of Honeywell  and its  subsidiaries. Awards  made
under  the plan may be  in the form of stock  options, restricted stock or other
stock-based awards.  The  plan  replaced  existing  similar  plans,  and  awards
currently  outstanding under those plans were not affected. There were 9,099,612
shares reserved for all key employee plans at December 31, 1995.
 
                                       35
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                        HONEYWELL INC. AND SUBSIDIARIES
                 (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
 
NOTE 17 -- CAPITAL STOCK (CONTINUED)
    Options to purchase common stock have  been granted to key employees at  100
percent  of the  market price on  date of grant.  The following is  a summary of
stock options under all plans:
 
<TABLE>
<CAPTION>
                                                           1995        1994         1993
                                                        ----------  -----------  -----------
<S>                                                     <C>         <C>          <C>
Granted --
  Number of shares....................................   1,891,333    1,001,250      969,173
  Price per share.....................................     $31-$48      $33-$36      $31-$38
Exercised --
  Number of shares....................................   1,248,457      320,337    1,020,769
  Price per share.....................................     $15-$38      $12-$33      $12-$33
Outstanding December 31 --
  Number of shares....................................   5,963,023    5,346,237    4,739,683
  Price per share.....................................     $15-$48      $15-$38      $12-$38
</TABLE>
 
    Options totaling 4,086,647  shares at prices  ranging from $16  to $38  were
exercisable at December 31, 1995.
 
    Restricted  shares of  common stock are  issued to certain  key employees as
compensation. Restricted shares  are awarded  with a  fixed restriction  period,
usually five years, or with a restriction period that may be shortened dependent
on  the achievement of performance goals  within a specified measurement period.
Participants have the  rights of  stockholders, 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 212,781 in 1995,  141,376
in  1994 and 533,995 in 1993. The cost  of restricted stock is charged to income
over the restriction period and amounted to $3.2 in 1995, $5.6 in 1994 and  $6.3
in  1993. At December 31, restricted shares outstanding pursuant to key employee
plans totaled 746,150 in 1995, 767,209 in 1994 and 775,861 in 1993.
 
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. Shares issued under the stock
match plans totaled 571,905 shares in  1995, 634,561 shares in 1994 and  643,913
shares  in 1993 at  a cost of  $24.2, $20.7 and  $22.3, respectively. There were
1,141,829 shares reserved for employee stock match plans at December 31, 1995.
 
STOCK PLEDGE
 
    In 1993, Honeywell pledged to the Honeywell Foundation a five-year option to
purchase 2,000,000  shares of  common stock  at $33  per share.  This option  is
transferable  to charitable organizations  and exercisable in  whole or in part,
subject to  certain  conditions, from  time  to  time during  its  term.  Shares
purchased  under the option totaled 1,000,000  in 1995. No shares were purchased
under this option in 1994 or 1993.
 
PREFERENCE STOCK
 
    Twenty-five million  preference shares  with a  par value  of $1  have  been
authorized. None have been issued at December 31, 1995.
 
                                       36
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                        HONEYWELL INC. AND SUBSIDIARIES
                 (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
 
NOTE 18 -- RETAINED EARNINGS
 
<TABLE>
<CAPTION>
                                                              1995        1994        1993
                                                            ---------  ----------  ----------
<S>                                                         <C>        <C>         <C>
Balance January 1.........................................  $ 2,600.4  $  2,447.3  $  2,247.0
Net income................................................      333.6       278.9       322.2
Dividends
  1995-$1.01 PER SHARE....................................     (128.2)
  1994-$0.97 per share....................................                 (125.8)
  1993-$0.9075 per share..................................                             (121.9)
                                                            ---------  ----------  ----------
Balance December 31.......................................  $ 2,805.8  $  2,600.4  $  2,447.3
</TABLE>
 
    Included  in retained earnings are undistributed earnings of companies 20 to
50 percent owned, amounting to $144.7 at December 31, 1995.
 
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.
 
    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; and
building management systems  and services. Customers  include building  managers
and   owners;  distributors  and  wholesalers;   heating,  ventilation  and  air
conditioning manufacturers; home builders;  home owners; and original  equipment
manufacturers.
 
    Industrial  Control  produces  systems  for the  automation  and  control of
process operations in  industries such as  oil refining, oil  and gas  drilling,
pulp  and paper manufacturing, food processing, chemical manufacturing and power
generation; solid-state sensors  for position, pressure,  air flow,  temperature
and  current;  precision electromechanical  switches; manual  controls; advanced
vision-based sensors; fiber-optic components; and solenoid valves used in  fluid
control  and processing  industries. Customers  include appliance manufacturers;
automotive companies; food processing companies; oil and gas producers; refining
and petrochemical  companies;  pharmaceutical companies;  paper  companies;  and
utilities.
 
    Space  and Aviation  Control is  a full-line  avionics supplier  and systems
integrator for commercial, military and space applications, providing  automatic
flight  control systems; electronic cockpit displays; flight management systems;
navigation, surveillance and warning systems; severe weather avoidance  systems;
and   flight  reference  sensors.   Customers  include  airframe  manufacturers;
international,  national  and  regional  airlines;  NASA;  prime  U.S.   defense
contractors; and the U.S. Department of Defense.
 
    The   "other"   category  comprises   primarily  research   and  development
operations, such  as Solid  State Electronics  Center and  Honeywell  Technology
Center,  that  are  not  a significant  part  of  Honeywell's  operations either
individually or in the aggregate.
 
    Information concerning Honeywell's sales, operating profit and  identifiable
assets  by industry segment can be found  on page 10. This information for 1995,
1994 and 1993 is an integral  part of these financial statements. Sales  include
external sales only. Intersegment sales are not significant. Corporate and other
assets  include the  assets of  the entities in  the "other"  category and cash,
short-term  investments,  investments,  property  and  deferred  taxes  held  by
corporate.
 
                                       37
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                        HONEYWELL INC. AND SUBSIDIARIES
                 (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
 
NOTE 19 -- SEGMENT INFORMATION (CONTINUED)
    Following is additional financial information relating to industry segments:
 
<TABLE>
<CAPTION>
                                                               1995         1994         1993
                                                            -----------  -----------  -----------
<S>                                                         <C>          <C>          <C>
Capital expenditures
  Home and Building Control...............................   $    87.2    $    95.6    $    73.6
  Industrial Control......................................        73.0         73.6         72.8
  Space and Aviation Control..............................        42.9         54.9         58.4
  Corporate and other.....................................        35.0         38.3         27.3
                                                            -----------  -----------  -----------
                                                             $   238.1    $   262.4    $   232.1
Depreciation and amortization
  Home and Building Control...............................   $    87.4    $    71.8    $    67.9
  Industrial Control......................................        69.3         67.1         59.9
  Space and Aviation Control..............................       109.7        120.0        127.0
  Corporate and other.....................................        26.5         28.5         30.1
                                                            -----------  -----------  -----------
                                                             $   292.9    $   287.4    $   284.9
</TABLE>
 
    Honeywell  engages in material operations in foreign countries, the majority
of which are  located in  Europe. Other  geographic areas  of operation  include
Canada, Latin America and Asia Pacific.
 
    Following is financial information relating to geographic areas:
 
<TABLE>
<CAPTION>
                                                              1995        1994        1993
                                                            ---------  ----------  ----------
<S>                                                         <C>        <C>         <C>
External sales
  United States...........................................  $ 4,087.5  $  3,824.7  $  3,895.1
  Europe..................................................    1,858.9     1,528.5     1,441.2
  Other areas.............................................      784.9       703.8       626.7
                                                            ---------  ----------  ----------
                                                            $ 6,731.3  $  6,057.0  $  5,963.0
Transfers between geographic areas
  United States...........................................  $   318.6  $    293.3  $    246.7
  Europe..................................................       67.1        46.3        36.9
  Other areas.............................................       61.5        54.3        47.6
                                                            ---------  ----------  ----------
                                                            $   447.2  $    393.9  $    331.2
Total sales
  United States...........................................  $ 4,406.1  $  4,118.0  $  4,141.8
  Europe..................................................    1,926.0     1,574.8     1,478.1
  Other areas.............................................      846.4       758.1       674.3
  Eliminations............................................     (447.2)     (393.9)     (331.2)
                                                            ---------  ----------  ----------
                                                            $ 6,731.3  $  6,057.0  $  5,963.0
</TABLE>
 
                                       38
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                        HONEYWELL INC. AND SUBSIDIARIES
                 (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
 
NOTE 19 -- SEGMENT INFORMATION (CONTINUED)
 
<TABLE>
<CAPTION>
                                                              1995        1994        1993
                                                            ---------  ----------  ----------
<S>                                                         <C>        <C>         <C>
Operating profit
  United States...........................................  $   425.4  $    343.7  $    384.1
  Europe..................................................      191.7       139.1       140.2
  Other areas.............................................       55.7        41.2        44.4
                                                            ---------  ----------  ----------
  Operating profit........................................      672.8       524.0       568.7
  Interest expense........................................      (83.3)      (75.5)      (68.0)
  Litigation settlements..................................                               32.6
  Equity income...........................................       13.6        10.5        17.8
  General corporate expense...............................      (97.6)      (89.3)      (72.6)
                                                            ---------  ----------  ----------
  Income before income taxes..............................  $   505.5  $    369.7  $    478.5
 
Identifiable assets
  United States...........................................  $ 2,331.1  $  2,356.2  $  2,337.5
  Europe..................................................    1,375.0     1,303.1     1,111.4
  Other areas.............................................      461.4       434.9       357.1
  Corporate...............................................      892.7       791.7       792.1
                                                            ---------  ----------  ----------
                                                            $ 5,060.2  $  4,885.9  $  4,598.1
</TABLE>
 
    Honeywell  transfers  products  from  one geographic  region  for  resale in
another. These transfers  are priced  to provide  both areas  with an  equitable
share of the overall profit.
 
    Operating profit is net of provisions for special charges amounting to $62.7
and  $51.2  in 1994  and 1993,  respectively,  (see Note  4) as  follows: United
States, $23.2 and  $22.4; Europe, $29.6  and $20.3; other  areas, $9.9 in  1994.
General corporate expense includes special charges of $8.5 in 1993.
 
    General corporate expense has been reduced by royalty income of $8.2 in 1994
and $31.4 in 1993 (see Note 3).
 
NOTE 20 -- PENSION PLANS
    Honeywell  and its subsidiaries have noncontributory defined benefit pension
plans that cover substantially  all of their U.S.  employees. The plan  covering
non-union employees provides pension benefits based on employee average earnings
during  the highest paid 60 consecutive calendar months of employment during the
10 years prior to retirement. The plan covering union employees provides pension
benefits of stated amounts for each year of credited service. Funding for  these
plans  is provided solely through contributions from Honeywell determined by the
Board of  Directors  after  consideration of  recommendations  from  the  plans'
independent  actuary. Such recommendations are  based on actuarial valuations of
benefits payable under the plans.
 
    The components of net periodic pension cost for U.S. defined benefit pension
plans are as follows:
 
<TABLE>
<CAPTION>
                                                               1995         1994         1993
                                                            -----------  -----------  -----------
<S>                                                         <C>          <C>          <C>
Service cost of benefits earned during the period.........   $    50.5    $    53.8    $    48.3
Interest cost of projected benefit obligation.............       222.8        201.5        198.9
Actual return on assets...................................      (400.8)       (73.3)      (225.7)
Net amortization and deferral.............................       228.9        (92.6)        69.3
                                                            -----------  -----------  -----------
                                                             $   101.4    $    89.4    $    90.8
</TABLE>
 
                                       39
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                        HONEYWELL INC. AND SUBSIDIARIES
                 (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
 
NOTE 20 -- PENSION PLANS (CONTINUED)
    Following is a summary  of assumptions used in  the accounting for the  U.S.
defined benefit plans.
 
<TABLE>
<CAPTION>
                                                                         1995           1994           1993
                                                                     -------------  -------------  -------------
<S>                                                                  <C>            <C>            <C>
Discount rate used in determining present values...................        7.5%           8.5%           7.5%
Annual increase in future compensation levels......................        3.5%           4.5%           4.0%
Expected long-term rate of return on assets........................        8.5%           8.5%           8.5%
</TABLE>
 
    Employees  in foreign  countries who  are not  U.S. citizens  are covered by
various retirement  benefit arrangements,  some of  which are  considered to  be
defined  benefit  pension plans  for accounting  purposes. The  net cost  of all
foreign pension plans  amounted to $(3.6)  in 1995,  $1.2 in 1994  and $14.2  in
1993.
 
    The  components of  net periodic  pension cost  for foreign  defined benefit
pension plans are as follows:
 
<TABLE>
<CAPTION>
                                                                          1995            1994           1993
                                                                     ---------------  -------------  -------------
<S>                                                                  <C>              <C>            <C>
Service cost of benefits earned during the period..................     $    31.2       $    30.3      $    25.8
Interest cost of projected benefit obligation......................          55.7            47.6           46.3
Actual return on assets............................................         (90.6)          (43.2)        (111.7)
Net amortization and deferral......................................          (3.2)          (37.1)          50.7
                                                                           ------     -------------  -------------
                                                                        $    (6.9)      $    (2.4)     $    11.1
</TABLE>
 
    Assumptions used in the accounting for foreign defined benefit plans were:
 
<TABLE>
<CAPTION>
                                                                         1995           1994           1993
                                                                     -------------  -------------  -------------
<S>                                                                  <C>            <C>            <C>
Discount rate used in determining present values...................     4.5-9.5%       4.5-9.0%       5.0-9.0%
Annual increase in future compensation levels......................    2.0-7.25%       2.0-8.0%       2.0-8.0%
Expected long-term rate of return on assets........................     5.5-9.0%       5.5-9.5%       6.0-9.5%
</TABLE>
 
    The plans'  funded status  as  of September  30  and amounts  recognized  in
Honeywell's statement of financial position for its pension plans are summarized
below.
 
<TABLE>
<CAPTION>
                                                                                      Plans Whose    Plans Whose
                                                                                     Assets Exceed   Accumulated
                                                                                      Accumulated     Benefits
1995 (U.S. AND FOREIGN)                                                                Benefits     Exceed Assets
-----------------------------------------------------------------------------------  -------------  -------------
<S>                                                                                  <C>            <C>
Actuarial present value of benefit obligations:
  Vested benefit obligation........................................................    $  (503.3)    $  (2,778.7)
  Accumulated benefit obligation...................................................    $  (506.5)    $  (2,988.4)
  Projected benefit obligation.....................................................    $  (631.4)    $  (3,236.0)
Plan assets at fair value..........................................................        809.2         2,740.5
                                                                                     -------------  -------------
Projected benefit obligation (in excess of) less than plan assets..................        177.8          (495.5)
Remaining unrecognized net transition obligation (asset)...........................        (68.6)           11.1
Unrecognized prior service cost....................................................          3.8           205.9
Unrecognized net (gain) loss.......................................................        (34.6)          259.8
Fourth-quarter 1995 contributions to plans.........................................                         36.1
Adjustment to recognize minimum liability..........................................                       (220.2)
                                                                                     -------------  -------------
Overfunded (unfunded) pension asset (liability) recognized in the statement of
 financial position................................................................    $    78.4     $    (202.8)
</TABLE>
 
                                       40
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                        HONEYWELL INC. AND SUBSIDIARIES
                 (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
 
NOTE 20 -- PENSION PLANS (CONTINUED)
 
<TABLE>
<CAPTION>
                                                                                      Plans Whose    Plans Whose
                                                                                     Assets Exceed   Accumulated
                                                                                      Accumulated     Benefits
1994 (U.S. and Foreign)                                                                Benefits     Exceed Assets
-----------------------------------------------------------------------------------  -------------  -------------
<S>                                                                                  <C>            <C>
Actuarial present value of benefit obligations:
  Vested benefit obligation........................................................    $  (409.2)    $  (2,412.7)
  Accumulated benefit obligation...................................................    $  (414.7)    $  (2,581.3)
  Projected benefit obligation.....................................................    $  (587.6)    $  (2,847.8)
Plan assets at fair value..........................................................        723.8         2,386.9
                                                                                     -------------  -------------
Projected benefit obligation (in excess of) less than plan assets..................        136.2          (460.9)
Remaining unrecognized net transition obligation (asset)...........................        (76.3)            5.2
Unrecognized prior service cost....................................................          1.7           233.4
Unrecognized net loss..............................................................         10.6           160.4
Fourth-quarter 1994 contributions to plans.........................................                         24.8
Adjustment to recognize minimum liability..........................................                       (129.4)
                                                                                     -------------  -------------
Overfunded (unfunded) pension asset (liability) recognized in the statement of
 financial position................................................................    $    72.2     $    (166.5)
</TABLE>
 
    Adjustments recorded to recognize the minimum liability required for defined
benefit  pension  plans whose  accumulated  benefits exceed  assets  amounted to
$220.2 in 1995 and $129.4 in 1994.  A corresponding amount was recognized as  an
intangible   asset  to  the  extent  of  unrecognized  prior  service  cost  and
unrecognized transition  obligation.  At  December 31,  1995,  $32.6  of  excess
minimum liability resulted in a reduction in stockholders' equity, net of income
taxes, of $19.9. At December 31, 1994, $9.6 of excess minimum liability resulted
in a reduction in stockholders' equity, net of income taxes, of $5.9.
 
    Plan  assets are held  by trust funds devoted  to servicing pension benefits
and are not  available to  Honeywell until  all covered  benefits are  satisfied
after  a plan  is terminated. The  assets held by  the trust funds  consist of a
diversified portfolio of fixed-income investments and equity securities.
 
NOTE 21 -- POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
    Substantially all of Honeywell's domestic and Canadian employees who  retire
from  Honeywell between the ages of  55 and 65 with 10  or more years of service
are eligible to receive health-care benefits,  until age 65, identical to  those
available  to  active employees.  Honeywell funds  postretirement benefits  on a
pay-as-you-go basis.
 
    The components of net periodic postretirement benefit cost are as follows:
 
<TABLE>
<CAPTION>
                                                                  1995         1994         1993
                                                                --------     --------     --------
<S>                                                             <C>          <C>          <C>
Service cost of benefits earned during the period...........    $ 11.5       $ 10.4       $ 11.5
Interest cost on accumulated postretirement benefit
 obligation.................................................      23.1         18.0         22.2
Net amortization............................................       1.1          0.5
                                                                --------     --------     --------
                                                                $ 35.7       $ 28.9       $ 33.7
</TABLE>
 
                                       41
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                        HONEYWELL INC. AND SUBSIDIARIES
                 (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
 
NOTE 21 -- POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
    The amounts recognized in Honeywell's statement of financial position are as
follows:
 
<TABLE>
<CAPTION>
                                                                 1995      1994
                                                                ------    ------
<S>                                                             <C>       <C>
Accumulated postretirement benefit obligation:
  Retirees..................................................    $ 90.4    $ 87.7
  Fully eligible active plan participants...................      63.8      58.7
  Other active plan participants............................     175.5     151.8
  Unrecognized prior service cost...........................      (6.9)     (7.7)
  Unrecognized net gain (loss)..............................     (14.8)      2.3
                                                                ------    ------
Accrued postretirement benefit cost.........................    $308.0    $292.8
</TABLE>
 
    The discount rate used in determining the  APBO was 7.0 percent in 1995  and
8.0  percent in 1994. The assumed health-care  cost trend rate used in measuring
the APBO was 8.2 percent in 1996, then  declining by 0.5 percent per year to  an
ultimate  rate of 5.5 percent. The health-care  cost trend rate assumption has a
significant effect on the amounts reported. For example, a one percent  increase
in  the  health-care trend  rate  would increase  the  APBO by  11.3  percent at
December 31, 1995,  and the  net periodic  postretirement benefit  cost by  13.6
percent for 1995.
 
NOTE 22 -- CONTINGENCIES
 
LITTON LITIGATION
 
    On March 13, 1990, Litton Systems, Inc. filed suit against Honeywell in U.S.
District  Court,  Central  District  of  California,  alleging  Honeywell patent
infringement  relating  to  the  process  used  by  Honeywell  to  coat  mirrors
incorporated   in  its  ring  laser  gyroscopes;  attempted  monopolization  and
predatory  pricing  by  Honeywell  of  certain  alleged  markets  for   products
containing ring laser gyroscopes; and intentional interference by Honeywell with
Litton's  prospective  advantage in  European markets  and with  its contractual
relationships with  Ojai Research,  Inc.,  a California  corporation.  Honeywell
generally   denied  Litton's  allegations,  contested   both  the  validity  and
infringement of the  patent, and alleged  that the patent  had been obtained  by
Litton's  inequitable  conduct before  the  United States  Patent  and Trademark
Office. Honeywell also filed counterclaims against Litton alleging, among  other
things, that Litton's business and litigation conduct violated federal and state
laws, causing Honeywell considerable damage and expense.
 
    On  January 9, 1995, Judge  Mariana Pfaelzer of the  U.S. District Court set
aside an August 1993 jury verdict and damage award of $1,200.0 against Honeywell
in the  patent and  interference  with contract  case.  She ruled,  among  other
things,  that the  Litton patent  was unenforceable  because it  was obtained by
inequitable conduct and invalid because it was an invention that would have been
obvious from  combining  existing  processes.  She further  ruled  that  if  her
judgment  were ever subsequently vacated or  reversed on appeal, Honeywell would
be granted a new trial on the issue of damages because the jury's 1993 award was
inconsistent with the clear  weight of the evidence  and permitting it to  stand
would  constitute a miscarriage of justice. Litton  has appealed to the Court of
Appeals for the  Federal Circuit, Washington,  D.C. Briefs for  the appeal  have
been  submitted by  the parties  and oral  arguments were  presented December 8,
1995. Honeywell believes that Judge Pfaelzer's rulings will be upheld on appeal.
As a result, no provision has been made in the financial statements with respect
to this contingent liability.
 
    The trial for the  antitrust case began on  November 20, 1995, before  Judge
Pfaelzer  and  a  different  jury.  Prior to  the  jury's  deliberations  in the
antitrust trial, the court dismissed, for failure of proof, Litton's contentions
that Honeywell engaged in below-cost predatory pricing, illegal tying,  bundling
and  illegally acquiring Sperry Avionics in 1986.  The case was submitted to the
jury on two claims,
 
                                       42
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                        HONEYWELL INC. AND SUBSIDIARIES
                 (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
 
NOTE 22 -- CONTINGENCIES (CONTINUED)
monopolization and attempt  to monopolize,  both based  on Litton's  allegations
that  Honeywell entered into certain exclusive dealings and penalty arrangements
with aircraft manufacturers and airlines  to exclude Litton from the  commercial
aircraft  market. On February 29, 1996, the jury returned a $234 million verdict
against Honeywell  for the  monopolization claim.  On March  1, 1996,  the  jury
indicated  that it was  unable to reach  a verdict on  damages for the attempted
monopolization claim, and a mistrial was declared on that claim.
 
    Honeywell continues to maintain that it competed vigorously and lawfully  in
the  inertial navigation  business and  will continue  to defend  itself against
Litton's allegations. Honeywell believes that the jury's partial verdict  should
be overturned because Litton (i) failed to prove essential elements of liability
and (ii) failed to submit competent evidence to support its claim for damages by
offering  only  a  speculative,  all-or-nothing  $298.5  million  damage  study.
Honeywell will  file  post-verdict motions  with  the trial  court  asking  that
judgment  be  granted in  favor  of Honeywell  as  a matter  of  law or,  in the
alternative, for a  new trial,  and will  argue important  procedural and  other
matters  which could  dispose of  this case.  If the  $234 million  jury verdict
withstands post-verdict motions, in whole or  in part, any dollar judgment  will
be  trebled under federal antitrust laws and  will be appealed by Honeywell. The
case will conclude only when the trial  and appellate courts resolve all of  the
legal  issues that could reduce  or eliminate the jury  verdict. As a result, no
provision has  been  made in  the  financial  statements with  respect  to  this
contingent liability.
 
ENVIRONMENTAL MATTERS
 
    Honeywell's  manufacturing  sites generate  both hazardous  and nonhazardous
wastes, the treatment, storage, transportation and disposal of which are subject
to various  local,  state  and  national laws  relating  to  protection  of  the
environment.  Honeywell is in varying stages  of investigation or remediation of
potential, alleged  or acknowledged  contamination  at currently  or  previously
owned  or operated sites and  at off-site locations where  its wastes were taken
for treatment or disposal.  In connection with the  cleanup of various  off-site
locations,  Honeywell, along  with a  large number  of other  entities, has been
designated a  potentially  responsible party  (PRP)  by the  U.S.  Environmental
Protection  Agency under the  Comprehensive Environmental Response, Compensation
and Liability Act  or by state  agencies under similar  state laws  (Superfund),
which  potentially subject PRPs to joint and  several liability for the costs of
such  cleanup.  In   addition,  Honeywell   is  incurring   costs  relating   to
environmental  remediation  pursuant to  the  federal Resource  Conservation and
Recovery Act. Based on Honeywell's assessment  of the costs associated with  its
environmental  responsibilities, compliance  with federal, state  and local laws
regulating the  discharge  of  materials  into  the  environment,  or  otherwise
relating  to the protection of the environment,  has not had, and in the opinion
of Honeywell  management,  will  not  have  a  material  effect  on  Honeywell's
financial  position, net  income, capital expenditures  or competitive position.
Honeywell's opinion with regard to Superfund matters is based on its  assessment
of  the predicted investigation, remediation  and associated costs, its expected
share of those costs and the availability of legal defenses. Honeywell's  policy
is  to  record  environmental liabilities  when  loss amounts  are  probable and
reasonably estimable.
 
OTHER MATTERS
 
    Honeywell is a party to a large  number of other legal proceedings, some  of
which  are for  substantial amounts.  It is the  opinion of  management that any
losses in  connection with  these matters  will not  have a  material effect  on
Honeywell's net income, financial position or liquidity.
 
    Honeywell  has  entered  into  letter  of  credit  agreements  with  various
financial institutions to  support certain financing  instruments and  insurance
policies aggregating approximately $135.0 at December 31, 1995.
 
                                       43
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                        HONEYWELL INC. AND SUBSIDIARIES
                 (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
 
NOTE 23 -- QUARTERLY DATA (UNAUDITED)
 
<TABLE>
<CAPTION>
1995                                                     1ST QTR.    2ND QTR.    3RD QTR.    4TH QTR.
------------------------------------------------------  ----------  ----------  ----------  ----------
<S>                                                     <C>         <C>         <C>         <C>
Sales.................................................   $1,478.7    $1,655.6    $1,680.3    $1,916.7
Cost of sales.........................................    1,013.2     1,137.8     1,148.1     1,285.1
Net income............................................       54.7        68.9        84.2       125.8
  Per share...........................................       0.43        0.54        0.66        0.99
</TABLE>
 
<TABLE>
<CAPTION>
1994                                                     1st Qtr.    2nd Qtr.    3rd Qtr.    4th Qtr.
------------------------------------------------------  ----------  ----------  ----------  ----------
<S>                                                     <C>         <C>         <C>         <C>
Sales.................................................    $1,347.9    $1,463.8    $1,507.6    $1,737.7
Cost of sales.........................................       917.3     1,001.8     1,011.9     1,151.1
Net income............................................        47.7        56.9        69.4       104.9
  Per share...........................................        0.36        0.44        0.54        0.81
</TABLE>
 
    The  fourth  quarter of  1994 includes  special charges  of $62.7,  or $37.6
($0.29 per share) after income  taxes (see Note 4).  The fourth quarter of  1994
also  includes a reduction of the provision for income taxes of $37.6 ($0.29 per
share) related to a favorable tax settlement (see Note 5).
 
<TABLE>
<CAPTION>
                                                                    Common Stock Price
                                                                     (New York Stock
                                                                         Exchange
                                                      Dividends         Composite)
                                                      Per Share      High        Low
                                                      ----------    -------    -------
<S>      <C>                                          <C>           <C>        <C>
1995     FIRST QUARTER................................ $.25         $38 1/2    $30 3/4
         SECOND QUARTER...............................  .25          44 3/4     36 3/4
         THIRD QUARTER................................  .25          46 1/2     40 5/8
         FOURTH QUARTER...............................  .26          49 1/2     39 1/4
 
1994     First Quarter................................ $.24         $35 1/2    $31 3/4
         Second Quarter...............................  .24          34 1/2     30 1/2
         Third Quarter................................  .24          36 7/8     31
         Fourth Quarter...............................  .25          35 5/8     28 1/4
</TABLE>
 
    Stockholders of record on February 2, 1996, totaled 32,529.
 
NOTE 24 -- SUBSEQUENT EVENT
    On February  12,  1996, Honeywell  announced  that  it had  entered  into  a
definitive  agreement  to acquire  Duracraft Corp.  for approximately  $283.0 in
cash. Under the terms  of the agreement, which  was unanimously approved by  the
boards  of  directors of  both companies,  a  Honeywell subsidiary  commenced an
all-cash tender offer for  all the shares of  Duracraft, which was concluded  on
March  15  with  approximately  93.4  percent  of  such  shares  being tendered.
Duracraft Corp. develops, manufactures  and markets consumer household  products
in  five major areas:  heaters, fans, humidifiers,  air cleaners and vaporizers.
The acquisition will be accounted for as a purchase and will be included in  the
Home and Building Control industry segment.
 
                                       44
<PAGE>
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
    No  report  on  Form  8-K  reporting  a  change  in  Honeywell's  certifying
independent accountants has been filed within the 24 months prior to the date of
the most recent financial statements.
 
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
    Pages 3 through 9 and page 25 of the Honeywell Notice of 1996 Annual Meeting
and Proxy Statement are incorporated herein by reference.
 
ITEM 11.  EXECUTIVE COMPENSATION
 
    Pages 14 through 22 of the Honeywell Notice of 1996 Annual Meeting and Proxy
Statement are incorporated herein by reference.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    Page 13 of the Honeywell Notice  of 1996 Annual Meeting and Proxy  Statement
are incorporated herein by reference.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
    None.
 
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
    (A) DOCUMENTS FILED AS A PART OF THIS REPORT
 
1.  FINANCIAL STATEMENTS
    The  financial statements required to be filed as part of this Annual Report
on Form 10-K are listed below with their location in this report.
 
<TABLE>
<CAPTION>
                                                                                         PAGE
                                                                                       ---------
<S>                                                                                    <C>
Honeywell Inc. and Subsidiaries:
  Independent Auditors' Report.......................................................         21
  Income Statement...................................................................         22
  Statement of Financial Position....................................................         23
  Statement of Cash Flows............................................................         24
  Notes to Financial Statements......................................................      25-44
</TABLE>
 
2.  FINANCIAL STATEMENT SCHEDULES
    The schedules required to  be filed as  part of this  Annual Report on  Form
10-K are listed below with their location in this report.
 
                                                                       PAGE
                                                                       ----
Honeywell Inc. and Subsidiaries:
  Independent Auditors' Report......................................    21
  Schedules for the Years Ended December 31, 1995, 1994 and 1993:
       II   --    Valuation Reserves................................    49
 
    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.
 
                                       45
<PAGE>
3.  EXHIBITS
    Documents Incorporated by Reference:
 
<TABLE>
<S>          <C>
 (3)(a)      Restated  Certificate  of Incorporation  of Honeywell  Inc. dated  June 18,
             1991.
 (4)(a)      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)(b)      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 1994.
(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 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 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 1994.*
(10)(iii)(d) 1993 Honeywell  Stock and  Incentive Plan,  as amended  is incorporated  by
             reference to Exhibit (10)(iii)(d) to Honeywell's Annual Report on Form 10-K
             for 1994.*
(10)(iii)(e) 1988  Honeywell Stock  and Incentive  Plan, as  amended is  incorporated by
             reference to Exhibit (10)(iii)(e) to Honeywell's Annual Report on Form 10-K
             for 1994.*
(10)(iii)(h) Honeywell Supplementary  Executive  Retirement  Plan  for  Compensation  in
             Excess  of $200,000,  as amended  is incorporated  by reference  to Exhibit
             (10)(iii)(h) to Honeywell's Annual Report on Form 10-K for 1994.*
(10)(iii)(i) Honeywell Supplementary Executive Retirement Plan for CECP Participants, as
             amended is incorporated by reference to Exhibit (10)(iii)(i) to Honeywell's
             Annual Report on Form 10-K for 1994.*
(10)(iii)(j) Honeywell Supplementary  Retirement Plan,  as  amended is  incorporated  by
             reference to Exhibit (10)(iii)(j) to Honeywell's Annual Report on Form 10-K
             for 1994.*
(10)(iii)(k) Honeywell Supplementary Executive Retirement Plan for Benefits in Excess of
             Limits  Under  Tax  Reform  Act  of 1986,  as  amended  is  incorporated by
             reference to Exhibit (10)(iii)(k) to Honeywell's Annual Report on Form 10-K
             for 1994.*
(10)(iii)(l) Honeywell Executive Life Insurance Agreement, is incorporated by  reference
             to Exhibit 10(iii)(m) to Honeywell's Annual Report on Form 10-K for 1993.*
(10)(iii)(m) Form  of  Executive Termination  Contract is  incorporated by  reference to
             Exhibit   to Honeywell's Annual Report on Form 10-K for 1994.*
(99)(ii)     Honeywell Notice of 1996 Annual Meeting and Proxy Statement.**
Exhibits submitted herewith:
 (3)(b)      By-laws of Honeywell Inc., as amended through September 19, 1995.
(10)(iii)(f) Restricted-Stock Retirement Plan for Non-Employee Directors, as amended.*
(10)(iii)(g) Honeywell Corporate Executive Compensation Plan, as amended*
(10)(iii)(n) Honeywell Inc. Compensation Plan for Outside Directors.*
(10)(iii)(o) Honeywell Senior Management Performance Incentive Plan.*
(11)         Computation of Earnings Per Share.
(12)         Computation of Ratios of Earnings to Fixed Charges.
(21)         Subsidiaries of Honeywell.
(23)         Consent of Independent Auditors.
(24)         Powers of Attorney.
</TABLE>
 
                                       46
<PAGE>
3.  EXHIBITS (CONTINUED)
<TABLE>
<S>          <C>
(27)         Financial Data Schedule.
(B)  REPORTS ON FORM 8-K
None
</TABLE>
 
------------------------
 *Management contract or compensatory plan or arrangement.
**Only the portions of Exhibit  (99)(ii) specifically incorporated by  reference
  are deemed filed with the Commission.
 
                                       47
<PAGE>
                                   SIGNATURES
 
    Pursuant  to  the requirements  of  Section 13  or  15(d) of  the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
                                          HONEYWELL INC.
 
                                          By:       /s/ SIGURD UELAND, JR.
                                            ____________________________________
                                             Sigurd Ueland, Jr., Vice President
 
Dated: March 25, 1996
 
    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.
 
     SIGNATURE                                   TITLE
--------------------    --------------------------------------------------------
 
M. R. BONSIGNORE        Chairman of the Board and Chief Executive Officer and
                          Director
 
W. M. HJERPE            Vice President and Chief Financial Officer
 
P. M. PALAZZARI         Vice President and Controller
 
A. J. BACIOCCO, JR.     Director
 
E. E. BAILEY            Director
 
E. H. CLARK, JR.        Director
 
W. H. DONALDSON         Director
 
R. D. FULLERTON         Director
 
C. M. HAPKA             Director
 
J. J. HOWARD            Director
 
B. E. KARATZ            Director
 
D. L. MOORE             Director
 
A. B. RAND              Director
 
S. G. ROTHMEIER         Director
 
M. W. WRIGHT            Director
 
                                          By:       /s/ SIGURD UELAND, JR.
                                            ____________________________________
                                                     Sigurd Ueland, Jr.,
                                                       ATTORNEY-IN-FACT
                                                       March 25, 1996
 
                                       48
<PAGE>
                                                                     SCHEDULE II
 
                        HONEYWELL INC. AND SUBSIDIARIES
                               VALUATION RESERVES
              FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
                             (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, 1995............................    $    31.1      $    10.4(1)     $     7.0(2)     $    34.5
                                                          -------------       ------          -------       -----------
                                                          -------------       ------          -------       -----------
Year ended December 31, 1994............................    $    24.3      $    12.5(1)     $     5.7(2)     $    31.1
                                                          -------------       ------          -------       -----------
                                                          -------------       ------          -------       -----------
Year ended December 31, 1993............................    $    26.7      $     9.1(1)     $    11.5(2)     $    24.3
                                                          -------------       ------          -------       -----------
                                                          -------------       ------          -------       -----------
        LONG-TERM RECEIVABLES
--------------------------------------------------------
Year ended December 31, 1995............................    $     0.7      $    --          $    --          $     0.7
                                                          -------------       ------          -------       -----------
                                                          -------------       ------          -------       -----------
Year ended December 31, 1994............................    $     0.5      $    --          $    (0.2)(2)    $     0.7
                                                          -------------       ------          -------       -----------
                                                          -------------       ------          -------       -----------
Year ended December 31, 1993............................    $     0.8      $    --          $     0.3(2)     $     0.5
                                                          -------------       ------          -------       -----------
                                                          -------------       ------          -------       -----------
Reserves deducted from assets to which they apply --
 valuation reserve:
 
         LONG-TERM RECEIVABLES
--------------------------------------------------------
Year ended December 31, 1995............................    $     1.9      $    (0.1)(1)    $    --          $     1.8
                                                          -------------       ------          -------       -----------
                                                          -------------       ------          -------       -----------
Year ended December 31, 1994............................    $     3.6      $    (1.7)(1)    $    --          $     1.9
                                                          -------------       ------          -------       -----------
                                                          -------------       ------          -------       -----------
Year ended December 31, 1993............................    $     2.9      $     0.7(1)     $    --          $     3.6
                                                          -------------       ------          -------       -----------
                                                          -------------       ------          -------       -----------
Reserves deducted from assets to which they apply --
 allowance for amortization of intangibles:
 
         GOODWILL
--------------------------------------------------------
Year ended December 31, 1995............................    $    42.3      $    12.6(3)     $     5.7(4)     $    49.2
                                                          -------------       ------          -------       -----------
                                                          -------------       ------          -------       -----------
Year ended December 31, 1994............................    $    34.3      $     8.6(3)     $     0.6(4)     $    42.3
                                                          -------------       ------          -------       -----------
                                                          -------------       ------          -------       -----------
Year ended December 31, 1993............................    $    30.4      $     6.7(3)     $     2.8(4)     $    34.3
                                                          -------------       ------          -------       -----------
                                                          -------------       ------          -------       -----------
        PATENTS, LICENSES AND TRADEMARKS
--------------------------------------------------------
Year ended December 31, 1995............................    $   175.4      $    24.0(3)     $   123.6(4)     $    75.8
                                                          -------------       ------          -------       -----------
                                                          -------------       ------          -------       -----------
Year ended December 31, 1994............................    $   170.0      $    24.2(3)     $    18.8(4)     $   175.4
                                                          -------------       ------          -------       -----------
                                                          -------------       ------          -------       -----------
Year ended December 31, 1993............................    $   144.2      $    25.8(3)     $    --          $   170.0
                                                          -------------       ------          -------       -----------
                                                          -------------       ------          -------       -----------
        SOFTWARE AND OTHER INTANGIBLES
--------------------------------------------------------
Year ended December 31, 1995............................    $   152.4      $    20.2(3)     $     4.5(4)     $   168.1
                                                          -------------       ------          -------       -----------
                                                          -------------       ------          -------       -----------
Year ended December 31, 1994............................    $   135.4      $    19.3(3)     $     2.3(4)     $   152.4
                                                          -------------       ------          -------       -----------
                                                          -------------       ------          -------       -----------
Year ended December 31, 1993............................    $   117.8      $    17.1(3)     $    (0.5)(4)    $   135.4
                                                          -------------       ------          -------       -----------
                                                          -------------       ------          -------       -----------
</TABLE>
 
--------------------------
Notes: (1) Represents  amounts included  in selling,  general and administrative
           expenses.
 
       (2) Represents uncollectible accounts  written off,  less recoveries  and
           translation adjustments.
 
       (3) Represents amounts included in cost of sales.
 
       (4) Represents   removal  of  fully  amortized  amounts  and  translation
           adjustments.
 
                                       49