________________________________________________________________________________
________________________________________________________________________________
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-K
               [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
                  For the fiscal year ended December 31, 1994
                                       OR
 
             [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
                   For the transition period from     to
 
                         Commission file number 1-8974
 
                               ALLIEDSIGNAL INC.
 
             (Exact name of registrant as specified in its charter)

                                       
                DELAWARE                                   22-2640650
- ----------------------------------------  ---------------------------------------------
    (State or other jurisdiction of                     (I.R.S. Employer
     incorporation or organization)                    Identification No.)
 
           101 Columbia Road
             P.O. Box 4000
         Morristown, New Jersey                            07962-2497
- ----------------------------------------  ---------------------------------------------
(Address of principal executive offices)                   (Zip Code)

Registrant's telephone number, including area code (201)455-2000
 
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 per share*                New York Stock Exchange
                                                     Chicago  Stock Exchange
                                                     Pacific  Stock Exchange
Money Multiplier Notes due 1996-2000                 New York Stock Exchange
9 7/8% Debentures due June 1, 2002                   New York Stock Exchange
9.20% Debentures due February 15, 2003               New York Stock Exchange
Zero Coupon Serial Bonds due 1995-2009               New York Stock Exchange
9 1/2% Debentures due June 1, 2016                   New York Stock Exchange

- ------------
*  The  common  stock  is  also  listed for  trading  on  the  Amsterdam, Basle,
   Frankfurt, Geneva, London, Paris, Tokyo and Zurich stock exchanges.
 
Securities registered pursuant to Section 12(g) of the Act:  None
 
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 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 [ ]
 
The  aggregate market  value of  the voting stock  held by  nonaffiliates of the
Registrant was approximately $9.6 billion at December 31, 1994.
 
There were 283,131,846 shares of Common Stock outstanding at December 31, 1994.
 
                      Documents Incorporated by Reference
         Part I and II: Annual Report to Shareowners for the Year Ended December
31, 1994.
        Part III: Proxy Statement for Annual Meeting of Shareowners to be held
April 24, 1995.
 
________________________________________________________________________________
________________________________________________________________________________

                               ALLIEDSIGNAL INC.
 
                             CROSS REFERENCE SHEET

                                                                                                     Page(s) in
Form 10-K                                  Heading(s) in Annual Report to Shareowners for              Annual
Item No.                                            Year Ended December 31, 1994                       Report
- ----------------------------------  ------------------------------------------------------------    ------------

 1. Business                        Note 26. Segment Financial Data ............................         37
                                    Note 25. Geographic Areas -- Financial Data ................         37
                                    Management's Discussion and Analysis .......................         21
 3. Legal Proceedings               Note 20. Commitments and Contingencies .....................         34
 5. Market for the Regis-           Note 27. Unaudited Quarterly Financial
    trant's Common Equity           Information ................................................         38
    and Related Stock-              Selected Financial Data ....................................         39
    holder Matters
 6. Selected Financial Data         Selected Financial Data ....................................         39
 7. Management's Discussion and     Management's Discussion and Analysis .......................         19
    Analysis of Financial
    Condition and Results of
    Operations
 8. Financial Statements and        Report of Independent Accountants ..........................         38
    Supplementary Data              Consolidated Statement of Income ...........................         26
                                    Consolidated Statement of Retained Earnings ................         26
                                    Consolidated Balance Sheet .................................         27
                                    Consolidated Statement of Cash Flows .......................         28
                                    Notes to Financial Statements ..............................         29

                                                 Heading(s) in Proxy Statement for                   Page(s) in
                                                   Annual Meeting of Shareowners                       Proxy
                                                     to be held April 24, 1995                       Statement
                                    ------------------------------------------------------------    ------------
                                                                                              
10. Directors and Executive         Election of Directors; Voting Securities ...................         *
    Officers of the Registrant
11. Executive Compensation          Election of Directors -- Compensation of Directors;
                                    Executive Compensation .....................................         *
12. Security Ownership of Certain   Voting Securities ..........................................         *
    Beneficial Owners and
    Management

- ------------
 
*  To  be  included  in  a  definitive Proxy  Statement  to  be  filed  with the
   Securities and Exchange Commission not later than 120 days after December 31,
   1994.
 
                                       2

NOTE:    AlliedSignal  Inc. is  sometimes  referred  to in  this  Report  as the
Registrant and  as  the Company,  and  AlliedSignal Inc.  and  its  consolidated
subsidiaries  are sometimes  referred to  as the Company  as the  context may so
require.
 
                               TABLE OF CONTENTS

           ITEM                                                                                                  PAGE
           ----                                                                                                  ----
                                                                                                           
Part I.    1  Business........................................................................................     4
           2  Properties......................................................................................    14
           3  Legal Proceedings...............................................................................    15
           4  Submission of Matters to a Vote of Security Holders.............................................    15
           Executive Officers of the Registrant...............................................................    15
 
Part II.   5  Market for the Registrant's Common Equity and Related Stockholder Matters.......................    17
           6  Selected Financial Data.........................................................................    17
           7  Management's Discussion and Analysis of Financial Condition and Results of Operations...........    17
           8  Financial Statements and Supplementary Data.....................................................    17
           9  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............    17
 
Part III.  10  Directors and Executive Officers of the Registrant.............................................    17(a)
           11  Executive Compensation.........................................................................    17(a)
           12  Security Ownership of Certain Beneficial Owners and Management.................................    18(a)
           13  Certain Relationships and Related Transactions.................................................    18
 
Part IV.   14  Exhibits, Financial Statement Schedules and Reports on Form 8-K................................    18
 
Signatures....................................................................................................    19

- ------------
 
 (a) These items are omitted since the Registrant will file with the  Securities
     and Exchange Commission a definitive Proxy Statement pursuant to Regulation
     14A  involving  the election  of directors  not later  than 120  days after
     December 31,  1994. Certain  other information  relating to  the  Executive
     Officers of the Registrant appears at pages 15 and 16 of this Report.
 
                                       3

                                    PART I.
 
ITEM 1.   BUSINESS
 
     AlliedSignal Inc. with its consolidated subsidiaries (sometimes referred to
in  this Report as the Company) was organized  in the State of Delaware in 1985.
The Company is the successor to  Allied Corporation, which was organized in  the
State of New York in 1920.
 
     The  Company's  operations  are conducted  under  three  business segments:
aerospace, automotive and engineered materials.
 
     The Company's  products  are  used  by  many  major  industries,  including
textiles,   construction,  plastics,  electronics,  motor  vehicles,  chemicals,
housing,  telecommunications,  utilities,  packaging,  military  and  commercial
aviation and aerospace, and in the space program, and agriculture. The following
is  a description of  the Company's three business  segments and their principal
products and activities.
 
AEROSPACE
 
     The Aerospace  segment  is  among the  world's  largest  manufacturers  and
suppliers  of  advanced  technology  products  and  services  for  the military,
commercial and general aviation, and space markets.
 
     In  1994   the  Company   substantially  completed   a  restructuring   and
consolidation  of  Aerospace's 12  principal product  lines into  four strategic
business units:  Aerospace  Equipment Systems  (Equipment  Systems),  Commercial
Avionics   Systems  (Avionics  Systems),   AlliedSignal  Engines  (Engines)  and
Government Electronic Systems (Electronic Systems).
 
     The Company serves key  military and commercial  segments of the  aviation,
defense  and space markets with a broad array of systems, subsystems, components
and services. It designs, develops, manufactures, markets and services  hundreds
of  products  found  on  all types  of  aircraft,  from  single-engine executive
aircraft and wide-bodied 'jumbos' flown  by the world's commercial carriers,  to
trainers,  transports, bombers,  fighters and helicopters  used by  the U.S. and
other countries for  national defense.  The Company's  global business  consists
primarily  of original-equipment  sales and  an extensive  aftermarket business,
including spare  parts,  maintenance  and repair,  and  retrofitting.  Worldwide
customers  include all of the major airframe and engine manufacturers, including
Boeing,  McDonnell  Douglas,  Lockheed,   Airbus  Industrie  (Airbus),   British
Aerospace,  Fokker, Cessna, Fairchild, Dassault, Rockwell International, Pratt &
Whitney, General Electric (GE) and Rolls  Royce, as well as the world's  leading
airlines.
 
     Principal products, manufactured for military aircraft, civil air transport
and   general  aviation  markets,  include  primary  propulsion,  consisting  of
turboprop, turbofan, turbojet  and turboshaft engines,  and auxiliary power  gas
turbine  engines; environmental control systems, consisting of air conditioning,
cabin  pressure  and  temperature  controls;  airborne  weather  avoidance   and
collision  avoidance radar systems; forward-looking wind shear detection systems
and wing ice detection systems; aircraft communications -- both voice and  data;
microwave  landing systems; automatic flight  control systems; pneumatic control
systems; engine and  flight instruments;  motion sensing and  air data  systems;
navigation   and   identification   equipment,   including   identification   of
friend-or-foe  systems;  cockpit  data   recorders;  ground  proximity   warning
equipment;  electric power  generating systems;  fuel control  systems; aircraft
wheels and brakes;  test systems;  electromechanical and  hydraulic systems  and
components;  heat  transfer  equipment  and engine  oil  cooling  systems. Other
products include electronic cooling systems and infrared radiation suppressors.
 
     The Company  also manufactures  products for  missiles, spacecraft  defense
command,   control   communication   and  intelligence   programs   and  oceanic
applications, primarily  for  defense markets.  Products  include  cryptographic
equipment,  radar proximity fuzes, space-pointing  devices for deep space probes
and control  systems  for  spacecraft,  gyroscopes  for  tactical  missiles  and
military  aircraft, antisubmarine warfare  systems as well  as field engineering
management and technical support services to the National Aeronautics and  Space
Administration (NASA) and the U.S. Department of Energy (DOE).
 
                                       4

     In  June 1994 the Company  sold a portion of  its small aerospace actuation
business and all of  its general aviation repair  and overhaul hangar  business,
consisting of five airport-based hangar facilities.
 
     In  October 1994 the Company completed the purchase of the Lycoming Turbine
Engine Division of Textron Inc. for  $375 million and the assumption of  certain
liabilities.  The  acquisition  extended the  Company's  turbine  engine product
offerings into the 50- to 115-seat  regional aircraft market and in  helicopters
and other commercial and military applications.
 
     The  Company entered into  a number of alliances  and joint ventures during
the year, of which the following  were among the most significant. The  Company,
to  be more  responsive to its  Japanese customers, formed  a strategic alliance
with  Shimadzu  Corporation,  Kyoto,  Japan  covering  aerospace  equipment  and
controls  products in Japan  under which the Company  designated Shimadzu as its
first-preference company for all  future manufacturing and business  development
in  Japan. The agreement  covers environmental control  systems, engine controls
and  accessories  and  actuation  products.  Engines  selected  Kawasaki   Heavy
Industries of Kobe, Japan as its partner to manufacture the Company's 131-series
auxiliary  power units (APU) for the new  McDonnell Douglas MD-90 and Boeing 737
aircraft programs.  Kawasaki  is  also developing  and  building  the  accessory
gearbox  for Engines'  new RE220  APU. The  Company has  signed a  memorandum of
agreement to  form a  joint  venture with  TAECO,  a Hong  Kong-based  aerospace
company,  to start an aircraft maintenance center at TAECO's facility in Xiamen,
China. The joint venture  will provide repair and  overhaul services on all  the
Company's  products used by airline operators in China and the rest of Asia. The
Company also signed a letter of intent with China Eastern Airlines to  establish
a joint venture to provide aircraft wheel and brake repair and overhaul services
in Shanghai, China.
 
     The  Company is affected by the level of expenditures for defense and space
programs and  the  level  of  production  of  commercial  and  general  aviation
aircraft.  The  Company's  aerospace  products are  sold  directly  to  the U.S.
government, aircraft manufacturers and commercial  airlines, and to dealers  and
distributors of general aviation products.
 
     Moderate growth in the Company's commercial business for aerospace products
is  expected,  over the  long  term, to  mitigate  a reduction  in  U.S. defense
spending. Moreover, aerospace  sales are not  dependent on any  one key  defense
program   or  commercial   customer.  However,   contract  awards   by  aircraft
manufacturers, some of which are discussed below, can be cancelled or reduced if
aircraft orders are cut back. The products and services are sold in  competition
with  those of a large number of other companies, some of which have substantial
financial resources  and  significant technological  capabilities.  Among  those
companies  that  compete with  several of  the segment's  product areas  are GE,
Honeywell, Rockwell International, Sundstrand and United Technologies.
 
     Sales to the U.S.  government, acting through  its various departments  and
agencies  and through prime contractors, amounted to $1,886 million for 1994 and
$1,911 million  for 1993,  which  amounts include  sales  to the  Department  of
Defense  of $1,300 million in 1994 and $1,391 million in 1993. Approximately 59%
and 61% of sales  to the U.S.  government in 1994  and 1993, respectively,  were
made  under fixed-price  contracts in  which the  Company agrees  to perform the
contract for a fixed price and retains  for itself any benefits of cost  savings
or must bear the burden of cost overruns.
 
     Government  contracts are generally  terminable by the  government at will.
Upon termination,  the  contractor is  normally  entitled to  reimbursement  for
allowable  costs and  to an  allowance for profit.  However, if  the contract is
terminated because of the contractor's  default, the contractor may not  recover
all  of  its costs  and  may be  liable  for any  excess  costs incurred  by the
government in procuring undelivered items from another source.
 
     The Company, as are other government contractors, is subject to  government
investigations  of business practices and compliance with government procurement
regulations.  Although  such  regulations  provide  that  a  contractor  may  be
suspended or debarred from government contracts under certain circumstances, and
the  outcome  of  pending  government investigations  cannot  be  predicted with
certainty, management is not presently aware of any such investigation which  it
expects will have a material adverse effect on the Company.
 
     Orders  for  certain  products  sold  to  general  and  commercial aviation
customers  mainly  consist  of  relatively  short-term  and  frequently  renewed
commitments. Government procurement agencies
 
                                       5

generally  issue  contracts  covering  relatively long  periods  of  time. Total
backlog for products and services  for both government and commercial  contracts
was  $4,730 million at December 31, 1994 and $4,773 million at December 31, 1993
of which  U.S. and  foreign government  orders were  $1,803 million  and  $1,861
million  for the  respective years.  The Company  anticipates that approximately
$2,681 million of the total 1994 backlog will be filled during 1995.
 
     The Aerospace  segment's  international  operations  consist  primarily  of
exporting   U.S.  manufactured  products,  performance  of  services,  operating
aircraft repair and overhaul facilities and licensing activities. The  principal
manufacturing facility outside of the U.S. is in Canada.
 
     In 1994, as in the prior year, world defense spending continued to decline.
Furthermore,  most major U.S. and international airlines operated in a difficult
economic environment, with the modest turnarounds that began in the second  half
of  1993 continuing in  1994. While the regional  airlines showed some financial
strength, growth in the high end corporate aviation market remained slow.
 
     Aerospace was awarded  a number of  significant contracts in  1994 and  had
strong  success in booking new programs,  being awarded approximately 64% of the
programs bid.
 
     Aerospace was awarded several significant contracts related to Boeing's new
737-700 program totaling about  $3 billion in potential  sales over the life  of
the  program.  The  most  significant of  these  awards  included  the Company's
designation as the sole supplier  of APUs for this  new family of aircraft;  the
contract  has a sales  potential of $2 billion.  Equipment Systems won contracts
for the environmental control  and bleed air systems  with a sales potential  of
$370  million. GE's Aircraft Engines unit awarded contracts to Equipment Systems
for the main  fuel control  and the  air turbine  start system  for its  CFM56-7
engine  on the new 737 program with  a combined sales potential of $260 million.
Southwest Airlines awarded a contract with a sales potential of $225 million  to
Equipment  Systems  for  wheels and  brakes  on  its new  Boeing  737-700 fleet.
Equipment Systems was also awarded a contract for the engine nose cowl  anti-ice
valve with a sales potential of $22 million.
 
     The  Company  has  received  contracts for  the  proposed  MD-95, McDonnell
Douglas' newest  twin-engine aircraft  for the  100-passenger market.  Equipment
Systems  will supply the environmental control systems and Avionics Systems will
provide the communications and navigational systems on a
Supplier-Furnished-Equipment basis.  The combined  sales  potential of  the  two
contracts is more than $500 million.
 
     Aero  Vodochody  of Czechoslovakia  selected International  Turbine Engines
Corp., a joint venture between Engines and the Aero Industry Development  Center
of  the Republic of China (Taiwan), to  supply F124-GA-100 engines for its L-159
light attack/advanced trainer aircraft. The  sales potential of the contract  is
$290  million. Aero Vodochody also chose  a Rockwell-AlliedSignal team to supply
the avionics suite for its L-159 program; Electronic Systems is responsible  for
supplying  and  integrating  selected  avionics  subsystems.  Lockheed  Aircraft
Services awarded  a contract  to Electronic  Systems to  upgrade the  integrated
cockpits displays and mission avionics in A-4M SkyHawk tactical fighters sold by
the U.S. government to the Republic of Argentina's Air Force.
 
     Engines  received an order  to supply the  Garrett Turbine Compressor Power
180C engine for up to 750 ground carts for the U.S. Air Force (USAF) for the San
Antonio Air Logistics Center's Large Aircraft  Start System. The contract has  a
sales potential of $75 million.
 
     Electronic  Systems  received a  contract with  a  sales potential  of $200
million to  produce  an  inertial  measurement  unit  for  Northrop's  Brilliant
Anti-Tank Weapon.
 
     The  USAF's  Philips Laboratory  awarded  Equipment Systems  a  contract to
develop a turbopump. This contract has  sales potential of about $5 million  and
is  considered strategically significant because  it positions Equipment Systems
for entry into the turbopump market.
 
     Two important APU maintenance service agreements (MSA) were awarded  during
the  year. Southwest Airlines, for its fleet of 737 aircraft, awarded a contract
with a  sales potential  of $100  million  to the  Company and  Alaska  Airlines
selected the Company to service its APUs with a sales potential of $7.6 million.
 
                                       6

     The  Australian Civil Aviation Authority awarded  a contract for $9 million
to Electronic Systems to  provide a parallel approach  radar monitor (PARM)  for
Sydney's  airport;  it will  be the  third airport  in the  world and  the first
outside the U.S. with a PARM.
 
     The Company was  also awarded new  contracts in general  aviation in  1994.
Avionics Systems successfully penetrated the safety avionics market by winning a
contract  from Gulfstream to provide a  safety avionics suite for the Gulfstream
GV aircraft. The award included a  traffic alert and collision avoidance  system
(TCAS  II), ground  proximity warning  systems and  maintenance data acquisition
units. Israeli Aircraft Industries selected the Company for three contracts with
a combined  sales  potential exceeding  $30  million. The  TFE731-40  engine,  a
turbofan  from the Company's  new generation of TFE731  engines, was selected as
the propulsion system  for the  Astra SPX aircraft  and the  Company's APUs  and
environmental  control  systems  were  selected  for  the  Galaxy  business jet.
Dassault Aviation selected Engines to supply the most powerful of its new family
of turbofan engines,  the TFE731-60,  for Dassault's new  Falcon 900EX.  Engines
received  a contract for 69  TPE 331-13 turboprop engines  from Jetstream with a
sales potential of $220  million. Canadair selected Engines  to supply APUs  and
air  turbine  start systems  for its  fleet  of Global  Express aircraft  with a
combined sales potential of $50 million.
 
     NASA awarded AlliedSignal Technical  Services Corporation (ATSC) the  test,
evaluation  and maintenance  contract for its  White Sands Test  Facility in New
Mexico. The initial  three-year contract, plus  a two-year option,  will have  a
sales  potential of $163 million. In an award that secured a strong position for
future potential space station work, Equipment Systems received a contract  from
NASA's  Lewis Research Center to develop the first space flight demonstration of
a solar dynamic electric power generation  system with a sales potential of  $15
million.  Aerospace  was part  of four  industry  teams that  will share  in $98
million in technology  reinvestment project  grants from  the U.S.  government's
Advanced  Research Projects  Agency. Among  the projects  will be  a $42 million
award for the development of a radar system to be used in an Autonomous  Landing
Guidance System and a $43 million award to develop Fly-by-Light Advanced Systems
Hardware.  ATSC  will develop  and install  the ground  system for  Taiwan's new
satellite program under a contract with a sales potential, including options, of
$32 million.
 
     The Company was also awarded a number of significant contracts in 1993.
 
     Chalk Airlines  purchased Engine's  TPE331-14  turboprop to  re-engine  its
fleet of Albatross amphibian aircraft with a sales potential of $24 million. The
U.S.  Army  funded a  $73 million  contract  add-on under  which LHTEC,  a joint
venture with Allison Engines, will continue  development of a growth version  of
its  T-800  turboshaft engine  which has  been  selected for  use on  the RAH-66
Comanche helicopter.
 
     The Company received  new military avionics  contracts in 1993.  Electronic
Systems,  teamed with Chrysler Technology, was awarded a major contract from the
USAF for the update of autopilots and displays for the C-130 and C-141 aircraft.
The program  has a  sales potential  to the  Company of  $500 million.  Avionics
Systems  was awarded a $15 million contract  from Lockheed to supply TCAS II for
C-130 aircraft.  Electronic Systems  received an  order from  McDonnell  Douglas
Helicopter  Company to update the display processor for the AH-64 Longbow Apache
helicopter, a program with  a sales potential of  over $300 million.  Electronic
Systems received a significant contract from the USAF Special Operations Command
for  the  Multi-mission  Advanced  Tactical Terminal,  a  program  with  a sales
potential of $170 million. Electronic Systems led one of four winning teams  for
the Advanced Research Projects Agency's Small Low-cost Interceptor Device (SLID)
program  which is expected  to develop military  land vehicle protection through
the use of smart small projectiles. SLID has a sales potential of $110  million.
Electronic   Systems  was  also  awarded   several  contracts  for  its  APX-100
Identification Friend-or-Foe transponder from the U.S. Navy, Air National Guard,
U.K. Ministry of Defence  and Teledyne Ryan with  a combined sales potential  of
over $150 million.
 
     Other key military aircraft equipment awards included wheels and brakes for
the  F-18E/F (the  Navy's first-line  fighter) and  the integrated environmental
control system for the F-22, by Equipment Systems, together with more than  $340
million in sales potential. The latter was particularly notable because it began
as  a procurement for  a single component of  the environmental control systems,
but
 
                                       7

Equipment System's strong focus on systems integration turned it into a contract
for the complete system.
 
     ATSC was successful in booking  several technical services programs.  These
programs  included the NASA White Sands program, with $225 million in sales, the
U.S. Marine Corps' Maritime  Prepositioning Ship program,  with $125 million  in
sales,  and a number  of smaller NASA  programs with over  $130 million in sales
potential.
 
     In the commercial and general aviation aircraft market, in addition to  the
1994 awards previously mentioned, Equipment Systems was designated as one of two
wheel  and brake suppliers  for Boeing on  its new 737-700  transport, a program
with $1.3 billion in sales potential. On the new Gulfstream GV aircraft, Engines
was awarded  a contract  to supply  the APUs  and Equipment  Systems received  a
contract  for  the environmental  control  and cabin  pressure  control systems.
Together, the awards have a sales  potential of $130 million. Equipment  Systems
received  the engine  starting system  contract for  the BMW/Rolls  Royce BR-710
engine, the selected engine for both  the Gulfstream GV and the Canadair  Global
Express  aircraft.  Furthermore,  Equipment Systems  received  the environmental
control system contract for the new Learjet Model 45 general aviation  aircraft.
Equipment  Systems was  awarded contracts  for aircraft  wheels and  brakes from
Continental Airlines with a  sales potential of $170  million and from JAL,  Air
France and Egyptair with a combined sales potential of $140 million. Engines was
awarded an APU long-term maintenance service agreement from a major airline with
a sales potential of $135 million.
 
     In  the  spacecraft  market,  Lockheed  Missile  &  Space  Company  awarded
Electronic Systems the  ring laser  gyro and  momentum wheel  contracts for  its
IRIDIUM program and a ring laser gyro contract for its Frugal Satellite program.
The combined potential sales of these programs is $50 million.
 
     The  Company expects  that these programs  will require  only minimal fixed
capital spending.
 
AUTOMOTIVE
 
     The Automotive  segment designs,  engineers  and manufactures  systems  and
components  for worldwide  vehicle manufacturers and  aftermarket customers. The
segment's principal  business  areas  are braking  systems,  engine  components,
safety  restraint systems  and the  aftermarket. Within  each area,  the segment
offers a wide range of products for  passenger cars and light, medium and  heavy
trucks.
 
     For  manufacturers of passenger cars and light trucks, the Company provides
disc and  drum brakes,  power  brake boosters  and master  cylinders,  anti-lock
braking  systems  (ABS),  friction  materials,  spark  plugs,  turbochargers and
occupant protection systems (seat belts, air bags and related components).
 
     The Company's primary product offerings for the manufacturers of medium and
heavy trucks and  off-road vehicles  primarily include air  and hydraulic  brake
actuation  components, air and hydraulic drum and disc brakes, ABS, compressors,
air dryers, friction materials, turbochargers and charge-air intercoolers.
 
     The aftermarket business includes replacement  parts for most of the  above
items  as well as air, oil and fuel  filters, wire and cable products, and brake
sealants and fluids.
 
     Automotive operations are located in  the U.S., Australia, Brazil,  Canada,
China,   France,  Germany,  India,  Ireland,  Italy,  Japan,  Malaysia,  Mexico,
Portugal, South  Korea,  Spain  and  the U.K.  Distribution  and  marketing  are
conducted  in  these  and  numerous other  countries  as  well. Internationally,
products are  marketed  under the  Bendix,  Fram, Autolite,  Garrett  and  Jurid
trademarks.
 
     Worldwide  passenger car  and truck original-equipment  sales accounted for
approximately 74% in 1994  and 70% in  1993 of the net  sales of the  Automotive
segment  with aftermarket  sales accounting  for the  balance. In  1994 and 1993
Automotive operations outside the U.S. accounted for $2,217 and $2,002  million,
or 45% and 44%, respectively, of worldwide sales.
 
     In  1994  and  1993  sales  of  automotive  original-equipment  systems and
components were made to approximately 30  customers of which the Company's  five
largest  automotive manufacturing customers accounted  for approximately 62% and
60%,   respectively,    of   such    sales.   Total    worldwide   sales    (for
 
                                       8

original-equipment and aftermarket use) for 1994 and 1993 to the five automotive
manufacturers  amounted to  $2,063 and $1,886  million, including  sales to Ford
Motor Company (Ford), the segment's largest  customer, of $782 and $715  million
for the respective years.
 
     In  1994 the  Company established  two joint  ventures in  Europe, one with
Sogefi S.p.A. and the other with Gilardini, a subsidiary of Fiat, and Sequa. The
joint venture with  Sogefi S.p.A.,  a European manufacturer  and distributor  of
automotive  filters and  other automotive products,  is expected  to enable both
partners to penetrate new  markets through a joint  distribution network and  to
reduce  costs through consolidation of both warehouses and distribution centers.
The joint venture with  Gilardini and Sequa --  BAG, S.p.A. -- will  manufacture
and  supply  hybrid  inflators for  driver  and  passenger-side air  bags  to be
assembled by a Company plant in Italy. These operations will provide the Company
with an entry into the European air bag market. In January 1995 the Company  and
Jidosha  Kiki Co. of Japan  formed a joint venture  to supply brake boosters for
vehicles built in Europe by Japanese manufacturers. The venture will be based in
Pamplona, Spain.
 
     The Company acquired substantially all of the seat belt business of General
Safety,  a North American designer and manufacturer of safety restraint systems,
in 1994. The acquisition is expected to bolster growth potential for the Company
as a leading supplier of vehicle safety restraint systems in North America.
 
     In late December 1994 the Company acquired Ford's spark plug  manufacturing
plant  in  Treforest,  South  Wales.  The  acquisition  enhanced  the  Company's
relationship with Ford as its sole supplier of spark plugs in both North America
and Europe and is expected to provide a manufacturing base in Europe for  growth
in the aftermarket spark plug business.
 
     In  February  1995 the  Company reached  an agreement  to acquire  the Budd
Company's Wheel and Brake Division, whose products include: rotors, hubs,  drums
and  related assemblies for  passenger cars and light  trucks; steel disk wheels
for heavy trucks; and demountable rims  and hub and drum assemblies for  medium-
and  heavy-duty trucks.  The Wheel  and Brake Division  had sales  of about $250
million in the fiscal year ended September 30, 1994. The Company signed a letter
of intent to acquire  Fiat Auto Poland S.A.'s  braking business, whose  products
include  disc  and  drum  brakes,  master  cylinders  and  brake  boosters.  The
manufacturing facility of the business  is located in Twargodora, Poland.  Sales
of about $30 million are expected in 1995.
 
     Construction  of a new turbocharger plant in Shanghai, China began in 1994.
This facility is  expected to enable  the Company to  serve the rapidly  growing
diesel engine market in China and provide turbochargers to international markets
as  opportunities develop. In December 1994, as a temporary measure, the Company
began producing turbochargers in a leased facility in China.
 
     The  Company continues  to invest in  the ABS  and air bag  segments of the
automotive industry. New ABS product introductions and major awards on a  number
of car models continue to provide the Company with the synergies necessary to be
a  worldwide brake  system supplier.  The Company's  global air  bag position is
expected to continue to strengthen with the formation in 1994 of the BAG, S.p.A.
inflator joint venture and with the establishment of an air bag module  assembly
operation in Italy. The new air bag assembly operation has received sales awards
from European manufacturers.
 
     The Company initiated  facilities rationalization  plans in  1991 and  1992
which  will significantly  reduce the  number of  worldwide automotive locations
through 1995.  By  the  end  of  1994, 23  operating  plants  had  been  closed.
Rationalization  and consolidations of sales  offices, distribution centers, and
research and development facilities will continue throughout 1995.
 
     The segment's operations  outside the  U.S. are  conducted through  various
foreign  companies  in which  it has  interests ranging  from minor  to complete
control.  International   operations  also   include  the   exporting  of   U.S.
manufactured products and licensing activities.
 
     The Automotive segment's products are sold in highly competitive markets to
customers  who demand performance, quality and competitive prices. Virtually all
automotive components are sold in  competition with other independent  suppliers
or  with the captive component divisions of the vehicle manufacturers. While the
Company's competitive position varies among  its products, the Company  believes
it  is a  significant factor  in each  of its  major product  markets. The major
independent competitors in one or more major business areas include: ITT  Teves,
Lucas Girling, Rockwell-WABCO,
 
                                       9

Dana,  Autoliv, Cooper Industries, Schwitzer, Midland, Bosch, Kelsey Hayes, KKK,
TRW, Purolator, Delco, AM Brake, Raybestos, Takata and Morton.
 
ENGINEERED MATERIALS
 
     The Engineered  Materials  segment is  composed  of five  major  divisions:
Fibers, Fluorine Products, Performance Materials, Plastics and Laminate Systems.
Other  businesses not included  in these divisions are  the Paxon joint venture,
the Environmental Catalysts joint venture and Carbon Materials.
 
     Fibers. The Company is  a leading producer  of type 6  nylon and the  third
largest  producer of nylon in the U.S.  The Company is also the largest domestic
producer of caprolactam, the primary intermediate  for type 6 nylon, from  which
it  produces fine and heavy  denier nylon yarns and  molding compounds and film.
These yarns are sold under the  trademarks Anso'r', Anso X'r', Anso IV'r',  Anso
V'r', Worry-Free'r', CrushResister'tm' and Caprolan'r'. In addition, the Company
produces heavy denier polyester yarns. The Company primarily sells yarns to  the
carpet, textile, motor vehicle and industrial markets.
 
     In the carpet yarn markets, both continuous filament and staple nylon yarns
are  sold to yarn processors  and mills for the  manufacture of carpeting. Nylon
filament and staple are the dominant fiber yarns used in carpet production.  The
four  largest  producers,  including  the Company,  have  over  90%  of domestic
capacity.  The  Company  has  achieved  recognition  as  a  leader  in   product
development and has developed a strong customer base. Brand identity, service to
customers  and quality are important competitive factors in the market and there
is considerable  price competition.  The Company  strengthened its  position  in
Europe  through the acquisition  of carpet yarn  facilities from Akzo  NV in the
third quarter of 1993.
 
     In the motor vehicle and industrial markets, the Company's primary products
are nylon  and  polyester  yarns  for  use in  tire  cord,  seat  belts,  hoses,
tarpaulins  and  outdoor furniture.  In Europe  the Company  produces industrial
polyester yarn in a  $200 million facility in  Longlaville, France, which  began
operations  in the fourth  quarter of 1993. The  Company believes that polyester
yarn will become the primary reinforcement for passenger car radial tires in the
world in the late  1990s and is exploring  development opportunities in the  Far
East.
 
     The  textile fibers markets, where the Company sells Caprolan'r' nylon flat
yarns for warp knit and  weaving applications, include intimate apparel,  sports
outerwear,  jackets and such recreational products  as sleeping bags, back packs
and luggage. The industry is highly price competitive.
 
     Fluorine Products. The major fluorine products are hydrofluoric acid  (HF),
fluorocarbons, sulfur hexafluoride (SF6) and sterilant gases.
 
     The Company is the world's largest producer of HF and an industry leader in
the  production and sale  of products derived  from HF, including fluorocarbons,
SF6 and uranium hexafluoride (UF6).
 
     Genetron'r'   fluorocarbons   are   sold   mainly   as   refrigerants    to
original-equipment   and  replacement  manufacturers  of  air  conditioning  and
refrigeration equipment  and as  foam blowing  agents to  rigid foam  producers.
Genesolv'r'   fluorocarbons  are   sold  as   solvents  in   precision  cleaning
applications  such   as   electronics,  optics   and   aerospace   applications.
Approximately  one-third of  the Company's Genetron'r'  and Genesolv'r' products
are chlorofluorocarbons  (CFCs).  The  Montreal Protocol  (Protocol),  which  is
supported  by 87 countries, regulates  worldwide CFC production and consumption.
With few exceptions, the Protocol requires 100% elimination of fully halogenated
CFC production by  industrialized countries  by December 31,  1995. The  amended
U.S.  Clean Air Act  also regulates CFCs  and similarly requires  that most U.S.
production of CFCs be phased out by the  end of 1995. CFCs produced in the  U.S.
are   also  subject  to  the  Ozone   Depleting  Chemical  Tax  of  the  Revenue
Reconciliation Act of 1989.
 
     The Company  is continuing  its  efforts to  develop  environmentally-safer
fluorocarbon  products as it replaces the  current CFC product line. An existing
commercial plant  in  El  Segundo,  CA was  converted  in  1991  to  manufacture
hydrochlorofluorocarbon  (HCFC)-141b,  a key  substitute  for CFC-11,  a blowing
agent in urethane foams,  and as a replacement  for CFC-113 in critical  solvent
applications.  By 1994 the Company more than  tripled the plant's capacity to 60
million pounds per year. The Company has
 
                                       10

commercialized key CFC  substitute products in  various applications,  including
automotive   air  conditioning   and  residential,   commercial  and  industrial
refrigeration.   In   this   connection,   the   Company   began   manufacturing
environmentally-safer  alternatives to CFCs  at a new  $70 million multi-product
commercial facility in Geismar, LA targeted primarily at the substitute products
HCFC-123, HCFC-124,  hydrofluorocarbon (HFC)-125  and HFC-134a.  The Company  is
continuing  its  research  and  development  efforts  in  view  of  the changing
regulatory environment  in which  it operates.  The Company  does not  currently
expect  that the Protocol or the U.S. Clean Air Act will have a material adverse
effect on  the  Company. However,  the  Company  cannot predict  the  impact  of
possible future regulatory issues.
 
     The  Company acquired the CFC  business of Akzo NV,  with facilities in the
Netherlands, in  April 1994.  This  acquisition has  provided the  Company  with
access to new markets for its fluorocarbon products.
 
     The  Company is one of two domestic  producers of SF6, a gas primarily used
by  utilities  because  of  its  electrical  insulatory  properties  in  circuit
breakers, switches, transmission lines and electronic minisubstations.
 
     The Company also produces sterilant gases which primarily consist of blends
of  ethylene oxide and fluorocarbons that  are sold to hospitals, medical device
manufacturers and  contract  sterilizers.  The Company  holds  the  patents  for
selected sterilant gas blends using environmentally-safer fluorocarbons.
 
     Performance   Materials.   Businesses  included   are   A-C'r'  performance
additives, performance chemicals, advanced microelectronics materials, amorphous
metals, specialty films, nuclear services and the UOP joint venture.
 
     A-C'r' performance additives are low-molecular weight polyethylene  polymer
additives  which primarily serve the  textiles, plastics, adhesives and polishes
specialty markets worldwide.
 
     The performance chemicals  business is  the leading  supplier of  specialty
oxime   chemicals  for   use  in   the  agricultural,   coatings,  photographic,
pharmaceutical, adhesives and sealants, and  mining industries. The Company  has
some cost benefits from its captive source of hydroxylamine sulfate.
 
     The  advanced  microelectronics  materials business  designs,  develops and
manufactures materials for semiconductor companies  worldwide. The Company is  a
leader  in  technology that  smoothes  integrated circuits  under  the trademark
ACCUGLASS'r'.
 
     The Company manufactures  amorphous metals (METGLAS'r'  Alloys) that  offer
significant  efficiency  gains  in  electrical  distribution  transformers  over
conventional electrical steel which is currently used. Amorphous metals are also
a key component in theft deterrent systems used by retail companies.
 
     Major  products  in  the  specialty  films  business  include  cast   nylon
(Capran'r'),  biaxially  oriented nylon  film  (Biax'r') and  fluoropolymer film
(Aclar'r'). Specialty  film  markets  include food,  pharmaceutical,  and  other
packaging and industrial applications.
 
     The  Company's nuclear services business processes uranium ore concentrates
into UF6 which is an essential  intermediate in the production of fuel  elements
for  nuclear power reactors for domestic and foreign customers. In November 1992
a Company  subsidiary  entered  into  a  partnership  with  a  General  Atomics'
affiliate   to  market  UF6  conversion   services  supplied  by  the  Company's
Metropolis,  Illinois  manufacturing   facility.  The  partnership,   ConverDyn,
competes  for the open world market with four foreign processors that are either
government owned or controlled.
 
     UOP is an equally owned joint venture with Union Carbide Corporation  which
designs  and  licenses processes,  and produces  and  markets catalysts  for the
petroleum refining, gas processing, petrochemical and food industries.
 
     Plastics.  The  Plastics  business  manufactures  and  markets  engineering
resins.  The  Company  is  a  leading producer  of  nylon  6  engineering resins
(Capron'r') for  the  automotive,  electrical  and  electronic  component,  food
packaging,  lawn care and power tool markets. The Company completed an expansion
of the color compounding facility at Sparta, TN.
 
     Laminate Systems. This business  unit manufactures circuit board  laminates
for  the  electronic  and  electrical  industries.  The  Company's  product line
includes copper clad and unclad laminates used in
 
                                       11

computer,  telecommunication,   instrumentation   and   military   applications.
Approximately  50%  of  sales  are to  the  international  market,  primarily in
southeast Asia and throughout Europe. The industry is highly price  competitive.
The Company, in partnership with Mitsui Mining and Smelting Company, is backward
integrated  in electro deposited copper foil. The Company completed construction
of a new laminates plant in Thailand in the first quarter of 1994 and commercial
production commenced in the second quarter.
 
     Other Businesses. Businesses not  included in the  five major divisions  of
the  Engineered  Materials Segment  are the  Paxon joint  venture, Environmental
Catalysts joint venture and Carbon Materials.
 
     The Paxon joint venture is equally owned with Exxon Corporation. The  joint
venture  manufactures high-density polyethylene resins used in the production of
plastics for household and industrial products.
 
     The Environmental  Catalysts  business is  a  major worldwide  supplier  of
catalysts  used in  catalytic converters for  automobiles. In  November 1994 the
Company and General Motors  Corporation (GM) formed a  joint venture to  produce
coated  automotive catalytic  converter substrates. The  Company contributed its
environmental catalysts business and  GM contributed coating-related  technology
and a long-term supply contract to the joint venture.
 
     The  Carbon Materials business produces binder pitch for electrodes for the
aluminum and  carbon industries,  creosote oils  as preservatives  for the  wood
products   and  carbon  black   markets,  refined  naphthalene   as  a  chemical
intermediate, and driveway  sealer tar  and roofing pitch  for the  construction
industry.  All of the tar products are  distilled from coal tar, a by-product of
the steel industry's coking operations.
 
     The principal raw materials  used in the  Engineered Materials segment  are
generally   readily  available   and  include   cumene,  natural   gas,  sulfur,
terephthalic  acid,  ethylene  and   ethylene  glycol,  fluorspar,  HF,   carbon
tetrachloride,  chloroform,  nylon  resins, fiberglass,  copper  foil, platinum,
rhodium and coal tar pitch. The Company is producing virtually all of its HF and
nylon resin  requirements. Important  competitors are:  Du Pont,  GE,  Monsanto,
Hoechst/Celanese,  BASF Fibers,  Koppers, U.S.I., Phillips,  Soltex, Atochem and
Nan Ya.
 
SEGMENT FINANCIAL DATA
 
     Note 26 (Segment Financial  Data) of Notes to  Financial Statements in  the
Company's 1994 Annual Report to shareowners is incorporated herein by reference.
 
DOMESTIC AND FOREIGN FINANCIAL DATA
 
     Note  25  (Geographic  Areas  --  Financial  Data)  of  Notes  to Financial
Statements in the Company's  1994 Annual Report  to shareowners is  incorporated
herein by reference.
 
FOREIGN ACTIVITIES
 
     The  Company's foreign businesses are subject  to the usual risks attendant
upon investments in foreign countries, including nationalization, expropriation,
limitations on repatriation  of funds, restrictive  action by local  governments
and changes in foreign currency exchange rates.
 
     The Company's principal foreign manufacturing operations are in  Australia,
Brazil,  Canada, France, Germany, Ireland, Italy, Japan, Mexico, Portugal, South
Korea, Spain,  Singapore,  Taiwan, the  Netherlands  and the  U.K.  The  Company
maintains  sales  and business  offices in  these  and various  other countries,
including Austria,  Belgium,  China, Denmark,  Finland,  Hong Kong,  India,  New
Zealand,  Norway, Sweden  and Turkey  as well  as warehousing,  distribution and
aircraft repair and overhaul facilities to support foreign operations and export
sales. Further information about foreign activities is discussed in the  segment
narratives.
 
                                       12

RAW MATERIALS
 
     Among the principal raw materials used by the Company, in addition to those
previously discussed  for  the  Engineered Materials  segment,  are  electronic,
optical   and  mechanical   component  parts  and   assemblies,  electronic  and
electromechanical devices, metallic  products, magnetic  and induction  devices,
castings,  forgings,  steel  and  bar  stock,  copper,  aluminum,  platinum  and
titanium. The Company  believes that  sources of  supply for  raw materials  and
components are generally adequate.
 
PATENTS AND TRADEMARKS
 
     The   Company  owns   approximately  15,000   patents  or   pending  patent
applications and  is  licensed  under  other patents  covering  certain  of  its
products  and processes.  It believes that,  in the aggregate,  the rights under
such patents and licenses  are generally important to  its operations, but  does
not  consider that any patent or license or  group of them related to a specific
process or product is of material importance in relation to the Company's  total
business.
 
     The  Company also has  registered trademarks for a  number of its products.
Some of the  more significant  trademarks include:  AiResearch, Anso,  Autolite,
Bendix,  Bendix/King, Capron, Fram,  Garrett, Genetron, Jurid,  King and Norplex
Oak.
 
RESEARCH AND DEVELOPMENT
 
     The Company's research  activities are  directed toward  the discovery  and
development of new products and processes, improvements in existing products and
processes, and the development of new uses of existing products.
 
     Research and development expense totaled $318 million in 1994, $313 million
in  1993  and $320  million in  1992.  Customer-sponsored (principally  the U.S.
government) research and development activities amounted to an additional  $486,
$514 and $501 million in 1994, 1993 and 1992.
 
     The  Company's Research and Technology organization has research facilities
at Morris Township, New Jersey and Des Plaines, Illinois consisting of  research
and  development  laboratories where  special  emphasis is  placed  upon applied
research and upon development of new products and processes. In addition,  there
are  approximately 48 other  research laboratories and  facilities which provide
direct support to the operating segments.
 
ENVIRONMENT
 
     The Company is  subject to  various federal, state  and local  requirements
regulating the discharge of materials into the environment or otherwise relating
to  the protection of the environment. It is the Company's policy to comply with
these requirements  and the  Company believes  that, as  a general  matter,  its
policies, practices and procedures are properly designed to prevent unreasonable
risk   of  environmental  damage,  and  of  resulting  financial  liability,  in
connection with its  business. Some  risk of environmental  damage is,  however,
inherent  in particular operations  and products of  the Company, as  it is with
other companies  engaged in  similar  businesses. (See  the description  of  the
Engineered  Materials segment,  above, for  information regarding  regulation of
CFCs.)
 
     The Company is and  has been engaged in  the handling, manufacture, use  or
disposal of many substances which are classified as hazardous or toxic by one or
more  regulatory agencies. The  Company believes that, as  a general matter, its
handling, manufacture, use and  disposal of such substances  are in accord  with
environmental  laws  and  regulations.  It  is  possible,  however,  that future
knowledge  or  other  developments,  such  as  improved  capability  to   detect
substances  in  the  environment,  increasingly  strict  environmental  laws and
standards and enforcement  policies thereunder,  could bring  into question  the
Company's handling, manufacture, use or disposal of such substances.
 
     Among  other  environmental requirements,  the  Company is  subject  to the
federal Superfund law, and similar state laws, under which the Company has  been
designated  as a potentially  responsible party which may  be liable for cleanup
costs associated with various  hazardous waste sites, some  of which are on  the
U.S.  Environmental Protection Agency's Superfund priority list. Although, under
some
 
                                       13

court interpretations of these laws, there  is a possibility that a  responsible
party  might have to bear more than  its proportional share of the cleanup costs
if it  is  unable to  obtain  appropriate contribution  from  other  responsible
parties,   the  Company  has  not  had  to  bear  significantly  more  than  its
proportional share in multi-party situations taken as a whole.
 
     Capital expenditures  for  environmental  control  facilities  at  existing
operations  were $43 million in 1994. The  Company estimates that during each of
the years 1995  and 1996 such  capital expenditures will  be in the  $65 to  $70
million range. In addition to capital expenditures, the Company has incurred and
will continue to incur operating costs in connection with such facilities.
 
     Reference is made to Management's Discussion and Analysis at page 21 of the
Company's  1994 Annual Report to  shareowners, incorporated herein by reference,
for further information regarding environmental matters.
 
EMPLOYEES
 
     The Company had  an aggregate of  87,500 salaried and  hourly employees  at
December  31, 1994. Of the approximately  30,000 unionized employees, 16,300 are
employed in  the  Company's  U.S.  and Canadian  plants  and  other  facilities.
Unionized  employees are represented by local unions that are either independent
or affiliated with  the United  Auto Workers, the  International Association  of
Machinists,  the United Steel  Workers of America, the  Oil, Chemical and Atomic
Workers International Union, the International Brotherhood of Teamsters and many
other international unions. Relations between the Company and its employees  and
their  various representatives  have been  generally satisfactory,  although the
Company has experienced work stoppages from  time to time. Approximately 21%  of
the  Company's  U.S.  and  Canadian unionized  employees  are  covered  by labor
contracts scheduled to  expire in  1995. Major labor  negotiations will  include
locations in all of the segments.
 
ITEM 2.   PROPERTIES
 
     The  Company has 383 locations consisting of plants, research laboratories,
sales offices and other  facilities. The plants are  generally located to  serve
large  marketing areas and  to provide accessibility to  raw materials and labor
pools. The  properties are  generally maintained  in good  operating  condition.
Utilization of these plants may vary with government spending and other business
conditions;  however,  no major  operating facility  is significantly  idle. The
facilities, together with planned expansions, are expected to meet the Company's
needs for  the  foreseeable  future.  The Company  owns  or  leases  warehouses,
railroad cars, barges, automobiles, trucks, airplanes and materials handling and
data  processing equipment.  It also leases  space for  administrative and sales
staffs. The Company's  headquarters and  administrative complex  are located  at
Morris Township, New Jersey.
 
     The  principal plants, which  are owned in  fee unless otherwise indicated,
are as follows:
 
                                   AEROSPACE
 
Phoenix, AZ (4 plants, 3 fully leased, 1 partially leased)
Prescott, AZ
Tempe, AZ
Tucson, AZ (partially leased)
Sylmar, CA
Torrance, CA (partially leased)
Stratford, CT (owned by the U.S. Government and managed by the Company)
Fort Lauderdale, FL
South Bend, IN
Olathe, KS
Columbia, MD
Towson, MD
Kansas City, MO (owned by the U.S. Government and managed by the Company)
Eatontown, NJ
Teterboro, NJ
Rocky Mount, NC
South Montrose, PA
Redmond, WA (partially leased)
Rexdale, Ont., Canada (partially leased)
Montreal, Que., Canada
Raunheim, Germany
 
                                   AUTOMOTIVE
 
Greenville, AL
Torrance, CA
St. Joseph, MI
Fostoria, OH
Greenville, OH
Sumter, SC
Jackson, TN
Maryville, TN
Campinas, Brazil
Angers, France
Beauvais, France
Conde, France
Moulins, France
Thaon-Les-Vosges, France
Crema, Italy
Glinde, Germany
Carlisle, United Kingdom
Skelmersdale, United Kingdom
 
                                       14

                              ENGINEERED MATERIALS
 
Metropolis, IL
Baton Rouge, LA
Geismar, LA
Moncure, NC
Philadelphia, PA
Pottsville, PA
Columbia, SC
Chesterfield, VA
Hopewell, VA
Longlaville, France
 
ITEM 3.   LEGAL PROCEEDINGS
 
     The first and second paragraphs of Note 20 (Commitments and  Contingencies)
of Notes to Financial Statements at pages 34 and 35 of the Company's 1994 Annual
Report to shareowners are incorporated herein by reference.
 
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
                                 Not Applicable
 
EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The  executive officers of  the Registrant, listed  as follows, are elected
annually in April. There are no family relationships among them.

          NAME, AGE,
          DATE FIRST
      ELECTED AN OFFICER                                     BUSINESS EXPERIENCE
- -------------------------------  ----------------------------------------------------------------------------
                              
Lawrence A. Bossidy (a), 59      Chairman of the  Board since January  1992. Chief Executive  Officer of  the
                                   Company  since  July  1991. Vice  Chairman  and Executive  Officer  of the
              1991                 General Electric Company (diversified industrial corporation) from 1984 to
                                   June 1991.
John W. Barter, 48               Executive  Vice  President  and  President,  AlliedSignal  Automotive  since
                                   October  1994. Senior Vice President and Chief Financial Officer from July
              1985                 1988 to September 1994.
Daniel P. Burnham, 48            Executive Vice President and President, AlliedSignal Aerospace since January
                                   1992. Executive Vice President and President-Elect, AlliedSignal Aerospace
              1991                 Company from July 1991 to December 1991. President, AiResearch Group  from
                                   March 1990 to June 1991.
Frederic M. Poses, 52            Executive  Vice President  and President,  AlliedSignal Engineered Materials
                                   since April 1988.
              1988
Isaac R. Barpal, 55              Senior Vice President and Chief  Technology Officer since August 1993.  Vice
                                   President  -- Science  & Technology  of Westinghouse  Electric Corporation
              1993                 (electric equipment manufacturer) from June 1987 to July 1993.
Peter M. Kreindler, 49           Senior Vice President,  General Counsel and  Secretary since December  1994.
                                   Senior  Vice President  and General  Counsel from  March 1992  to November
              1992                 1994. Senior Vice President and General Counsel-Elect from January 1992 to
                                   February 1992. Partner, Arnold  & Porter (law firm)  from January 1990  to
                                   December 1991.
David G. Powell (b), 61          Senior Vice President -- Public Affairs since September 1985.
 
              1985

- ------------
 (a) Also a director.
 
 (b) Mr. Powell intends to retire on March 31, 1995.
 
                                                  (table continued on next page)
 
                                       15

(table continued from previous page)

          NAME, AGE,
          DATE FIRST
      ELECTED AN OFFICER                                     BUSINESS EXPERIENCE
- -------------------------------  ----------------------------------------------------------------------------
                              
Donald J. Redlinger, 50          Senior  Vice President -- Human  Resources and Communications since February
                                   1995. Senior  Vice  President --  Human  Resources from  January  1991  to
              1991                 January  1995. Staff Vice President --  Human Resources from March 1990 to
                                   December 1990.
Paul R. Schindler, 53            Senior Vice  President  --  International since  August  1993.  Chairman  of
                                   Imperial  Chemical  Industries Asia/Pacific  (chemical  manufacturer) from
              1993                 April 1991 to July  1993. Chairman of  Imperial Chemical Industries  China
                                   from July 1989 to March 1991.
James E. Sierk, 56               Senior  Vice President -- Quality and  Productivity since January 1991. Vice
                                   President --  Quality  Office,  Development  and  Manufacturing  of  Xerox
              1991                 Corporation  (business products  and systems and  financial services) from
                                   February 1990 to December 1990.
Hans B. Amell, 43                Vice   President  --  Marketing   since  August  1993.   Vice  President  --
                                   International Strategy  of  The  Dun &  Bradstreet  Corporation  (business
              1993                 information, publishing, marketing and television) from April 1991 to July
                                   1993. Vice President -- Corporate Marketing Programs of Unisys Corporation
                                   (business  information  systems,  data processing  and  aerospace products
                                   manufacturer) from September 1987 to March 1991.
Edward W. Callahan, 64           Vice President -- Health, Safety and Environmental Sciences since  September
                                   1985.
              1985
Kenneth W. Cole, 47              Vice President -- Government Relations since January 1989.

              1989
G. Peter D'Aloia, 50             Vice  President  and  Controller  since February  1994.  Vice  President and
                                   Treasurer from August 1988 to January 1994.
              1985
Nancy A. Garvey, 45              Vice   President   and   Treasurer   since   February   1994.   Staff   Vice
                                   President -- Investor Relations from November 1989 to January 1994.
              1994
Richard P. Schroeder, 43         Vice  President -- Manufacturing since June 1994. Vice President of Quality,
                                   Operations and Supply Management at Asea Brown Boveri Inc.  (international
              1994                 electrical  engineering company)  -- Industrial  Group and  North American
                                   operations from  August  1991 to  May  1994. Vice  President  and  General
                                   Manager  Customer Service, Corporate Quality, and Government Compliance of
                                   Codex (communications for  both voice and  data communications systems)  a
                                   unit of Motorola, Inc. from November 1986 to July 1991.
Raymond C. Stark, 52             Vice   President  --  Materials  Management  since  June  1994.  Staff  Vice
                                   President --  Materials  Management  from  May  1992  to  May  1994.  Vice
              1994                 President  -- Materials Management of  Xerox Corporation from January 1990
                                   to April 1992.

                                       16

                                    PART II.
 
ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
          MATTERS
 
     Market and  dividend  information  for the  Registrant's  common  stock  is
contained  in Note  27 (Unaudited Quarterly  Financial Information)  of Notes to
Financial Statements  at  page  38  of  the  Company's  1994  Annual  Report  to
shareowners, and such information is incorporated herein by reference.
 
     The  number of record holders of the Registrant's common stock is contained
in the statement  'Selected Financial  Data' at page  39 of  the Company's  1994
Annual  Report to  shareowners, and such  information is  incorporated herein by
reference.
 
ITEM 6.   SELECTED FINANCIAL DATA
 
     The information  included  under  the  captions  'For  the  Year'  and  'At
Year-End' in the statement 'Selected Financial Data' at page 39 of the Company's
1994 Annual Report to shareowners is incorporated herein by reference.
 
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS
 
     'Management's  Discussion  and  Analysis' on  pages  19 through  25  of the
Company's 1994 Annual Report to shareowners is incorporated herein by reference.
 
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     The Company's consolidated financial  statements, together with the  report
thereon  of Price Waterhouse  LLP dated February  1, 1995 appearing  on pages 26
through 38 of the Company's 1994 Annual Report to shareowners, are  incorporated
herein  by reference. With  the exception of  the aforementioned information and
the information incorporated by reference  in Items 1, 3, 5,  6 and 7, the  1994
Annual Report to shareowners is not to be deemed filed as part of this Form 10-K
Annual Report.
 
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE
 
                                 Not Applicable
 
                                   PART III.
 
ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     Information relating to directors of the Registrant, as well as information
relating  to compliance  with Section  16(a) of  the Securities  Exchange Act of
1934, will be contained in a  definitive Proxy Statement involving the  election
of  directors which  the Registrant will  file with the  Securities and Exchange
Commission pursuant to Regulation 14A not later than 120 days after December 31,
1994, and such information  is incorporated herein  by reference. Certain  other
information relating to Executive Officers of the Registrant appears at pages 15
and 16 of this Form 10-K Annual Report.
 
ITEM 11.   EXECUTIVE COMPENSATION
 
     Information  relating to executive  compensation is contained  in the Proxy
Statement referred to above in 'Item 10. Directors and Executive Officers of the
Registrant,' and such information is incorporated herein by reference.
 
                                       17

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     Information relating to security ownership of certain beneficial owners and
management is contained in  the Proxy Statement referred  to above in 'Item  10.
Directors  and Executive  Officers of the  Registrant,' and  such information is
incorporated herein by reference.
 
ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
                                 Not Applicable
 
                                    PART IV.
 
ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

                                                                                                      PAGE IN
                                                                                                  ANNUAL REPORT TO
                                                                                                    SHAREOWNERS
                                                                                                  ----------------
                                                                                               
(a)(1.) Index to Consolidated Financial Statements:
          Incorporated by reference to the 1994 Annual Report to shareowners:
          Report of Independent Accountants....................................................          38
          Consolidated Statement of  Income for  the years ended  December 31,  1994, 1993  and
           1992................................................................................          26
          Consolidated  Statement of Retained  Earnings for the years  ended December 31, 1994,
           1993 and 1992.......................................................................          26
          Consolidated Balance Sheet at December 31, 1994 and 1993.............................          27
          Consolidated Statement of Cash Flows for the years ended December 31, 1994, 1993  and
           1992................................................................................          28
          Notes to Financial Statements........................................................          29

(a)(2.) Consolidated Financial Statement Schedules
 
     The  two financial statement schedules applicable  to the Company have been
omitted because of the absence of the conditions under which they are required.
 
(a)(3.) Exhibits
 
     See the  Exhibit Index  to  this Form  10-K  Annual Report.  The  following
exhibits  listed  on the  Exhibit Index  are  filed with  this Form  10-K Annual
Report:

EXHIBIT NO.                                          DESCRIPTION
- -----------   -----------------------------------------------------------------------------------------
           
   13         Pages 19  through  39  (except  for  the data  included  under  the  captions  'Financial
                Statistics' on page 39) of the Company's 1994 Annual Report to shareowners
   21         Subsidiaries of the Registrant
   23         Consent of Independent Accountants
   24         Powers of Attorney
   27         Financial Data Schedule

     The  exhibits  identified  in the  Exhibit  Index with  an  asterisk(*) are
management contracts or compensatory plans or arrangements.
 
(b) Reports on Form 8-K
 
     No reports on Form 8-K were filed  for the three months ended December  31,
1994.
 
                                       18

                                   SIGNATURES
 
     Pursuant  to  the requirements  of Section  13 or  15(d) of  the Securities
Exchange Act of 1934, the  Registrant has duly caused  this annual report to  be
signed on its behalf by the undersigned, thereunto duly authorized.
 
                                             AlliedSignal Inc.
 
March 2, 1995                               By:           G. PETER D'ALOIA
                                                 -------------------------------
                                                          G. Peter D'Aloia
                                                  Vice President and Controller
 
     Pursuant  to the requirements of the  Securities Exchange Act of 1934, this
annual report has been signed  below by the following  persons on behalf of  the
Registrant and in the capacities and on the date indicated:

                         NAME                                                    NAME
                         ----                                                    ----
                                                               
                          *                                                                  *
- ------------------------------------------------------             ------------------------------------------------------
                 Lawrence A. Bossidy                                                 Russell E. Palmer
     Chairman of the Board and Chief Executive                                            Director
                Officer and Director
 
                          *                                                                  *
- ------------------------------------------------------             ------------------------------------------------------
                   Hans W. Becherer                                                 Ivan G. Seidenberg
                       Director                                                           Director
 
                          *                                                                  *
- ------------------------------------------------------             ------------------------------------------------------
                   Eugene E. Covert                                                   Andrew C. Sigler
                       Director                                                           Director
 
                          *                                                                  *
- ------------------------------------------------------             ------------------------------------------------------
                     Ann M. Fudge                                                     John R. Stafford
                       Director                                                           Director
 
                          *                                                                  *
- ------------------------------------------------------             ------------------------------------------------------
                 William R. Haselton                                                  Thomas P. Stafford
                       Director                                                           Director
 
                          *                                                                  *
- ------------------------------------------------------             ------------------------------------------------------
                   Paul X. Kelley                                                     Delbert C. Staley
                       Director                                                           Director
 
                          *                                                                  *
- ------------------------------------------------------             ------------------------------------------------------
                  Robert P. Luciano                                                   Robert C. Winters
                       Director                                                           Director
 
                  G. PETER D'ALOIA                                                     NANCY A. GARVEY
- ------------------------------------------------------             ------------------------------------------------------
                  G. Peter D'Aloia**                                                   Nancy A. Garvey**
             Vice President and Controller                                        Vice President and Treasurer
 
*By:               NANCY A. GARVEY
    --------------------------------------------------
                  (Nancy A. Garvey,
                  Attorney-in-fact)

** These  individuals  together  perform the  functions  of  principal financial
   officer.
 
March 2, 1995
 
                                       19

                                 EXHIBIT INDEX

EXHIBIT NO.                                       DESCRIPTION
- -----------   ---------------------------------------------------------------------------------------------
           
   3(i)       Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit
                99.1 to the Company's Form 10-Q for the quarter ended March 31, 1993)
   3(ii)      By-laws of the Company, as amended (incorporated by reference to Exhibit 99.2 to the
                Company's Form 10-Q for the quarter ended March 31, 1993)
   4          The Company is a party to several long-term debt instruments under which, in each case, the
                total amount of securities authorized does not exceed 10% of the total assets of the
                Company and its subsidiaries on a consolidated basis. Pursuant to paragraph 4(iii)(A) of
                Item 601(b) of Regulation S-K, the Company agrees to furnish a copy of such instruments to
                the Securities and Exchange Commission upon request.
   9          Omitted (Inapplicable)
  10.1        Master Support Agreement, dated as of February 26, 1986 as amended and restated as of January
                27, 1987, as further amended as of July 1, 1987 and as again amended and restated as of
                December 7, 1988, by and among the Company, Wheelabrator Technologies Inc., certain
                subsidiaries of Wheelabrator Technologies Inc., The Henley Group, Inc. and Henley Newco
                Inc. (incorporated by reference to Exhibit 10.1 to the Company's Form 10-K for the year
                ended December 31, 1988)
  10.2*       Deferred Compensation Plan for Non-Employee Directors of AlliedSignal Inc., as amended
                (incorporated by reference to Exhibit 10.2 to the Company's Form 10-K for the year ended
                December 31, 1993)
  10.3*       Retirement Plan for Non-Employee Directors of AlliedSignal Inc., as amended (incorporated by
                reference to Exhibit 19.2 to the Company's Form 10-Q for the quarter ended June 30, 1990)
  10.4*       Stock Plan for Non-Employee Directors of AlliedSignal Inc., as amended (incorporated by
                reference to Exhibit C to the Company's Proxy Statement, dated March 10, 1994, filed
                pursuant to Rule 14a-6 of the Securities Exchange Act of 1934)
  10.5*       1985 Stock Plan for Employees of Allied-Signal Inc. and its Subsidiaries, as amended
                (incorporated by reference to Exhibit 19.3 to the Company's Form 10-Q for the quarter ended
                September 30, 1991)
  10.6*       AlliedSignal  Inc. Incentive Compensation Plan  for Executive Employees, as amended
                (incorporated by reference to Exhibit B to the Company's Proxy Statement, dated March 10,
                1994, filed pursuant to Rule 14a-6 of the Securities Exchange Act of 1934)
  10.7*       Supplemental Non-Qualified Savings Plan for Highly Compensated Employees of AlliedSignal Inc.
                and its Subsidiaries, as amended (incorporated by reference to Exhibit 10.1 to the
                Company's Form 10-Q for the quarter ended June 30, 1993)
  10.8*       1982 Stock Option Plan for Executive Employees of Allied Corporation and its Subsidiaries, as
                amended (incorporated by reference to Exhibit 19.4 to the Company's Form 10-Q for the
                quarter ended September 30, 1991)
  10.9*       AlliedSignal Inc. Severance Plan for Senior Executives, as amended (incorporated by reference
                to Exhibit 10.1 to the Company's Form 10-Q for the quarter ended March 31, 1994)
  10.10*      Salary Deferral Plan for Selected Employees of AlliedSignal Inc. and its Affiliates
                (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q for the quarter ended
                March 31, 1994)

EXHIBIT NO.                                       DESCRIPTION
- -----------   ---------------------------------------------------------------------------------------------
           
  10.11*      1993 Stock Plan for Employees of AlliedSignal Inc. and its Affiliates (incorporated by
                reference to Exhibit A to the Company's Proxy Statement, dated March 10, 1994, filed
                pursuant to Rule 14a-6 of the Securities Exchange Act of 1934)
  10.12*      Amended and restated Agreement dated May 6, 1994 between the Company and Lawrence A. Bossidy
                (incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q for the quarter ended
                June 30, 1994)
  10.13       Revolving Credit Agreement, dated as of July 7, 1993, among the Company, certain banks,
                Citibank, N.A., as Administrative Agent for the banks, and ABN AMRO Bank N.V. and Morgan
                Guaranty Trust Company of New York, as Co-Agents (incorporated by reference to Exhibit 10.2
                to the Company's Form 10-Q for the quarter ended June 30, 1993)
  10.14       Letter Amendment, dated as of July 5, 1994, to the Revolving Credit Agreement, dated as of
                July 7, 1993, among the Company, certain banks, Citibank, N.A., as Administrative Agent for
                the banks, and ABN AMRO Bank N.V. and Morgan Guaranty Trust Company of New York, as
                Co-Agents (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q for the
                quarter ended June 30, 1994)
  10.15       364-Day Credit Agreement, dated as of July 7, 1993, among the Company, certain banks,
                Citibank, N.A., as Administrative Agent for the banks, and ABN AMRO Bank N.V. and Morgan
                Guaranty Trust Company of New York, as Co-Agents (incorporated by reference to Exhibit 10.3
                to the Company's Form 10-Q for the quarter ended June 30, 1993)
  10.16       Letter Amendment, dated as of July 5, 1994, to the 364-Day Credit Agreement, dated as of July
                7, 1993, among the Company, certain banks, Citibank, N.A., as Administrative Agent for the
                banks, and ABN AMRO Bank N.V. and Morgan Guaranty Trust Company of New York, as Co-Agents
                (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q for the quarter ended
                June 30, 1994)
  11          Omitted (Inapplicable)
  12          Omitted (Inapplicable)
  13          Pages 19 through 39 (except for the data included under the captions 'Financial Statistics'
                on page 39) of the Company's 1994 Annual Report to shareowners (filed herewith)
  16          Omitted (Inapplicable)
  18          Omitted (Inapplicable)
  21          Subsidiaries of the Registrant (filed herewith)
  22          Omitted (Inapplicable)
  23          Consent of Independent Accountants (filed herewith)
  24          Powers of Attorney (filed herewith)
  27          Financial Data Schedule (filed herewith)
  28          Omitted (Inapplicable)
  99          Omitted (Inapplicable)

- ------------
 
     The Exhibits identified above with an asterisk(*) are management  contracts
or compensatory plans or arrangements. 
 
                            STATEMENT OF DIFFERENCES

The registered trademark symbol shall be expressed as     'r' 
The trademark symbol shall be expressed as                'tm'

Subscript numerics in chemistry notation shall be expressed
as baseline numerics, e.g., sulfur hexafluoride would be expressed as SF6.

MANAGEMENT'S DISCUSSION AND ANALYSIS
AlliedSignal Inc.

1994 COMPARED WITH 1993

IN 1994  THE  COMPANY  DEVELOPED  NEW  INITIATIVES  TO  IMPROVE  EFFICIENCY  AND
ELIMINATE WASTE,  SHARPEN ITS FOCUS ON CUSTOMER  SATISFACTION AND TARGET FOREIGN
GROWTH  OPPORTUNITIES.  PRODUCTIVITY  PROGRAMS  STARTED SINCE 1991  CONTINUED TO
ENHANCE AND GROW THE BUSINESS.  One new initiative -- Operational  Excellence --
will enhance productivity  programs by redesigning the Company's basic processes
to remove variations and improve manufacturing yields as well as by implementing
measurement tools to monitor our progress. Scrap and rework will be reduced from
the  design  phase  to  the  customer's  acceptance  of  our  products.  Another
initiative  -- Customer  Partnerships  -- involves  customers in  designing  the
Company's  products.  This program  strengthens  customer  relationships,  while
reducing cycle times in  engineering,  manufacturing  and product  support.  The
Company will start training  employees in 1995 in Total Quality Leadership Phase
II to provide  natural work teams with  analytical  tools for achieving  process
improvements. Previous actions -- forming commodity purchasing teams, partnering
with  suppliers,  sharing common  services  throughout  the Company,  cycle time
reductions and  rationalizing  the  organization  -- continued to move ahead and
generated significant savings.  Mainly as a result of these actions, the Company
had significantly higher operating margins in 1994.

DURING 1994 THE COMPANY LAID THE FOUNDATION FOR GROWTH IN 1995 AND BEYOND:

  *  Aerospace  acquired Textron's  Lycoming Turbine  Engine  Division (Lycoming
Engine) in October 1994 for $375 million in cash and the  assumption  of certain
liabilities.  Lycoming  Engine is expected  to have 1995 sales of  approximately
$450 million.  This acquisition extends the Engines group's product offerings in
the  robust  regional  aircraft  market  as well as into  helicopter  and  other
commercial and military  applications for turbine  engines.  To reduce costs and
improve  competitiveness  in its core product lines,  Aerospace  consolidated 12
businesses  into  four  integrated  units  and  merged  its  sales  and  service
organizations  into a single group.  During the year  Aerospace  introduced  new
high-technology  products  to enhance  flight  safety and also  agreed to form a
number of strategic  alliances in Japan and China to better position itself as a
global  supplier  and to  secure  a share  of the  fast-growing  markets  in the
Asian-Pacific  region.  The Company had a strong bidding success rate during the
year; it was awarded 64% of new programs bid.

  *  Globalization is also a key  factor in  Automotive's growth  strategy.  The
Company  acquired Ford Motor Company's  spark plug plant in the U.K.,  which had
1993 sales of about $20 million, and a seat belt manufacturer in Italy, owned by
the Fiat Group, which had annual sales of approximately $34 million.  Automotive
began construction of a $27 million  turbocharger  plant in Shanghai,  China and
has entered into joint venture agreements to produce air bag inflators in Italy,
to  distribute  aftermarket  products  throughout  Europe  and to  supply  brake
boosters from Spain for vehicles built in Europe by Japanese  manufacturers.  In
November  1994 the Company  acquired  the seat belt  business of General  Safety
Corporation,  a supplier to General Motors  Corporation and Ford. General Safety
had 1994 sales of about $95 million.

  *  Engineered Materials began manufacturing environmentally-safer alternatives
to  chlorofluorocarbons  (CFCs)  at a  new  $70  million  facility  in  Geismar,
Louisiana and acquired the small CFC business of Akzo N.V. in the Netherlands. A
joint  venture  agreement  with  General  Motors to  produce  coated  automotive
catalytic  converter  substrates  was  signed  in  November  1994.  The  venture
strengthens the technology and manufacturing capacity of both companies.

THE BOARD OF DIRECTORS VOTED TO INCREASE THE REGULAR  QUARTERLY  DIVIDEND ON THE
COMMON  STOCK BY 16%,  FROM $0.1675 TO $0.195 PER SHARE.  The dividend  increase
will be  effective  in the first  quarter of 1995.  The Company  had  previously
increased its regular quarterly dividend by 16% in the second quarter of 1994.

RESULTS OF  OPERATIONS.  The  Company's  sales and  earnings  expanded to record
levels in 1994.  The Company  grew through new product  introductions  and niche
acquisitions  and by gaining  market  share in an expanding  worldwide  economy.
Internal   restructuring   and   productivity    improvements   drove   earnings
significantly higher.

NET SALES in 1994 were $12,817 million, an increase of 8% over last year. Of the
$990 million increase, $880 million was the result of strong volume gains by the
Automotive  and  Engineered   Materials  segments  and  $442  million  from  the
consolidation of recent acquisitions, offset in part by a $163 million reduction
for  disposed  businesses,  $131  million  due to lower  prices,  mainly  in the
Automotive  segment,  and  $38  million,  due to  unfavorable  foreign  exchange
fluctuations.

INCOME FROM  OPERATIONS of $1,152  million in 1994 improved by $198 million,  or
21%.  Excluding the nonrecurring items in 1993 (see Note 3 of Notes to Financial
Statements for information), income from operations improved by $214 million, or
23%.  Aerospace's income increased 12%; Automotive was 17% higher and Engineered
Materials had a 30% gain.  Profit margins increased from 7.9% in 1993 to 9.0% in
1994 and productivity (the constant dollar basis relationship of sales to costs)
increased by 6.2% over last year reflecting business consolidations,  cycle time
reductions,  materials management initiatives and unit sales increases.  See the
detailed discussion of net income below for information by industry segment.

                                                                              19

OTHER INCOME (EXPENSE),  a $27 million loss,  compares with a loss of $9 million
in 1993 reflecting higher minority interest as a result of the formation in late
1993 of a venture with a subsidiary of  Knorr-Bremse  AG  (Knorr-Bremse)  in the
U.S. and reduced  interest  income from  investments  in short-term  securities.
Reduced foreign exchange costs on forward contracts had a favorable impact.

INTEREST AND OTHER FINANCIAL  CHARGES of $143 million  decreased by $14 million,
or 9%, from 1993 because of refunding a number of debt issues at lower  interest
rates and a reduced level of outstanding debt. Higher interest rates on floating
rate borrowings partially offset such savings.

THE  EFFECTIVE TAX RATE in 1994 was 31.7%  compared with 27.9% in 1993.  The 3.8
percentage  point increase in 1994 was due to a higher level of earnings subject
to the U.S. statutory rate, additional  non-deductible  expenses in 1994 and the
absence   of  the   favorable   impact   of  a  rate   increase   on  the   1993
beginning-of-the-year deferred tax balances as a result of the 1993 Tax Act. See
Note 7 of Notes to Financial Statements for further information.

INCOME BEFORE THE  CUMULATIVE  EFFECT OF A CHANGE IN AN ACCOUNTING  PRINCIPLE of
$759 million,  or $2.68 a share,  in 1994 increased by $103 million,  or $0.37 a
share, compared with $656 million, or $2.31 a share, last year.

NET  INCOME  in 1994 was $759  million,  or $2.68 a share,  compared  with  $411
million,  or  $1.45 a  share,  for  1993.  However,  1993  was  impacted  by the
cumulative effect of adopting an accounting  change of $245 million,  or $0.86 a
share.  The  higher  income  in  1994  was  the  result  of a  strong  operating
performance by all segments.

A DISCUSSION OF THE OPERATIONS OF THE BUSINESS  SEGMENTS,  before the cumulative
impact of an  accounting  change on net  income,  follows.  Adjusted  net income
excludes the impact of the 1993 nonrecurring items. (Dollars in millions)

                                                  ADJUSTED
AEROSPACE       NET SALES       NET INCOME      NET INCOME
- ----------------------------------------------------------
                                           
1994              $ 4,623           $  260          $  260
1993                4,530              224             228
- ----------------------------------------------------------
Increase          $    93           $   36          $   32
- ----------------------------------------------------------

     Aerospace's  sales  increased 2% over last year.  The  acquisitions  of the
Lycoming Engine and Sundstrand Data Control operations and contract  settlements
with the U.S.  Air Force  contributed  significantly  to the higher  sales.  The
regional airline market continued to grow, but a reduction in military  spending
and weakness in the commercial  aircraft market continued to restrict sales. The
Engines group had lower sales of spares and repair and overhaul  services to the
aftermarket. Government Electronic Systems had lower sales of avionics equipment
to the military.  Equipment  Systems had reduced  commercial and military sales,
but sales from aircraft  landing  systems'  repair and overhaul  operations were
higher, in part reflecting new business.  Commercial  Avionics Systems had lower
sales  mainly of  traffic  alert and  collision  avoidance  systems  (TCAS  II),
reflecting the completion of the airline industry retrofit  program.  Sales were
reduced  by  the  mid-year  1994   dispositions  of  the  actuation  and  hangar
businesses.

[GRAPHIC   REPRESENTATION  of   Net  Sales*  (dollars  in  billions),  expressed
numerically below.]

                                                            1992    1993    1994
                                                            ----    ----    ----

                                                            12.0    11.8    12.8

- ------------
 
* Baseline is $10 billion.
 
[GRAPHIC REPRESENTATION  of  Capital  Expenditures/R&D  (dollars  in  millions),
expressed numerically below.]

                                                          1992     1993     1994
                                                          -----    -----    ----

Capital expenditures...................................     691      718     639
Company-funded R&D.....................................     320      313     318
                                                          -----    -----    ----
     Total.............................................   1,011    1,031     957
                                                          -----    -----    ----

     Overall,  the Company's 1994 sales to the Department of Defense (DOD), as a
prime contractor and  subcontractor,  declined by 7% compared to 1993 because of
reduced defense spending. Sales to the commercial and foreign government markets
increased   by  5%,  while  sales  to  the   National   Aeronautics   and  Space
Administration  (NASA) and other U.S.  government  agencies  increased by 13% in
1994. Sales to the DOD accounted for 28% of Aerospace's  total sales, a decrease
of 3 percentage points compared with 1993.

     Although sales were up only slightly,  Aerospace's net income  increased by
14% compared  with last year's  adjusted net income.  Cost savings from business
consolidations, materials management and other productivity programs, especially
in the Engines group,  contributed to significantly  higher income.  The Engines
group also had lower  engineering  expense on certain  major  programs that were
winding down.  Government  Electronic Systems had favorable contract settlements
and Equipment  Systems had higher income from  commercial  aftermarket  sales of
aircraft landing systems. The benefits from the productivity programs offset the
continued  contraction  of military  spending  and  softness  in the  commercial
aircraft market.

     The U.S.  defense budget is expected to continue to decline for a number of
years.  A number of the Company's  military and space  programs may be stretched
out, curtailed or canceled.  However, the Company does not expect that its sales
will decline as rapidly as the defense budget because of its strong  competitive
position on various programs.  The Company's ability to successfully  retain and
compete  for such  business is highly  dependent  on its  technical  excellence,
management proficiency, strategic alliances and cost-effective performance.

     The Company believes that the cyclical downturn for the commercial aircraft
industry  will reach  bottom in 1995 and may show a small  improvement  in 1996.
Regional  airline traffic grew  significantly  and new regional  aircraft orders
were higher in 1994.  Aftermarket  shipments to the major airlines were slightly
lower than last year,  in part  because the  airlines  have  continued to reduce
excess inventories.

     The Company continues to receive significant  contracts from the commercial
aviation industry, DOD and NASA and earnings are expected to remain strong.

20

     At December 31, 1994 and 1993 the Company had firm orders for its aerospace
products  from the U.S. and foreign  governments  of $1,803 and $1,861  million,
respectively.  Total backlog,  including commercial contracts,  at year-end 1994
and 1993 was $4,730 and $4,773 million,  respectively.  The Company  anticipates
that  approximately  $2,681  million  of the total 1994  backlog  will be filled
during 1995.

                                                     ADJUSTED
AUTOMOTIVE         NET SALES       NET INCOME      NET INCOME
- -------------------------------------------------------------
                                              
1994                 $ 4,922           $  223          $  223
1993                   4,506              226             184
- -------------------------------------------------------------
Increase/(Decrease)  $   416           $   (3)         $   39
- -------------------------------------------------------------

     Automotive's  sales were up 9% compared with 1993. Demand was substantially
higher for braking systems, turbochargers and safety restraints. Strong original
equipment (OE) markets and new product  introductions  increased sales for North
American and European  brakes and air bags.  Sales of anti-lock  braking systems
(ABS)  increased  in 1994,  reflecting  new  business  with  Ford  and  Chrysler
Corporation due in part to the introduction of the Company's  advanced  traction
control system. Hybrid inflator technology spurred significantly higher sales of
air bag systems.  Strong diesel truck sales in North America and greater  demand
for  diesel-powered  cars in Europe  led to  significantly  higher  turbocharger
sales.  Turbocharger  plants  operated at capacity to satisfy the heavy  demand.
North American truck brake  systems,  which  benefited from strong OE medium and
heavy truck demand,  had increased sales.  Sales of European truck brake systems
are no longer consolidated, following the 1993 venture with Knorr-Bremse.

     Automotive's  adjusted net income increased by 21%, reflecting higher sales
for  turbochargers,  braking  systems,  truck brakes and air bags. OE sales were
very strong in the North American market, and European  businesses  strengthened
due to the  economic  turnaround  occurring  mainly in France and Spain.  Income
growth  was  limited  by  temporary  capacity  constraints  in the  turbocharger
business.  The Company will be expanding a number of turbocharger  facilities in
1995  to  meet   the   customer   demand.   Productivity   improvements,   plant
rationalization and materials management throughout the segment also contributed
to the significantly higher earnings.

     Sales in 1995 are expected to be moderately  higher due to a modest rise in
North American OE sales volume, a stronger European economy,  continued strength
for  turbochargers,  air bags  and ABS,  acquisitions  and a  somewhat  improved
worldwide aftermarket volume.

                                                          ADJUSTED
ENGINEERED MATERIALS    NET SALES       NET INCOME      NET INCOME
- ------------------------------------------------------------------
                                                   
1994                      $ 3,272           $  331          $  331
1993                        2,791              269             272
- ------------------------------------------------------------------
Increase                  $   481           $   62          $   59
- ------------------------------------------------------------------

     Engineered  Materials'  sales  increased 17% because of strong  automotive,
housing,  industrial and electronics markets. Higher sales volumes of industrial
and carpet  fibers also reflect  shipments  from the new  polyester  facility in
France and the acquisition of a carpet nylon business in Europe.  Laminates grew
significantly  through continued  globalization and market share gains. Fluorine
products  had  improved  sales  of  environmentally-safer   CFC  substitutes  as
additional  capacity  was  added  during  the  year and as a  result  of  recent
acquisitions.  Environmental  catalysts  had strong  sales to the OE  automotive

[GRAPHIC  REPRESENTATION of Income* (dollars in millions), expressed numerically
below.]

                                                            1992    1993    1994
                                                            ----    ----    ----

                                                             535     656     759

- ------------
 
*   Before cumulative effect  of changes in  accounting principles. Baseline  is
   $400 million.
 
[GRAPHIC  REPRESENTATION of Earnings  Per Share* (dollars  per share), expressed
numerically below.]

                                                           1992     1993    1994
                                                           -----    ----    ----

                                                            1.90     2.31    2.68

- ------------
 
*   Before cumulative effect  of changes in  accounting principles.

industry. Plastics had higher sales to the automotive, packaging and distributor
markets.  Amorphous  metals  expanded  sales  to the  article  surveillance  and
transformer markets.

     Adjusted  net income for  Engineered  Materials  was up by 22%,  reflecting
higher sales volumes for all businesses as well as operating  efficiencies.  The
laminate  systems  business had strong earnings on  substantially  higher sales.
Fluorine products had higher income reflecting increased CFC substitute capacity
and cost  reductions,  although pricing  pressures  limited gains. The amorphous
metals,  performance chemicals and uranium hexafluoride businesses had increased
income on higher sales.  Carpet and industrial fibers had  substantially  higher
earnings on  increased  sales  volumes  and prices,  but these gains were mostly
offset by higher raw  material  costs and by start-up  costs at the  Longlaville
facility.  Higher  profit  contributions  were  also  realized  from  Engineered
Materials'  joint ventures -- Paxon  high-density  polyethylene  (Paxon) and UOP
process technology (UOP).

REGARDING  ENVIRONMENTAL  MATTERS,  the  Company is subject to various  federal,
state and local requirements relating to the protection of the environment.  The
Company  believes  that,  as a  general  matter,  its  policies,  practices  and
procedures are properly  designed to prevent  unreasonable risk of environmental
damage and that its  handling,  manufacture,  use and  disposal of  hazardous or
toxic substances are in accord with environmental laws and regulations. However,
mainly because of past operations and operations of predecessor  companies,  the
Company is a party to lawsuits and claims and has incurred remedial response and
voluntary  cleanup  costs  associated  with  environmental  matters.  Additional
lawsuits,  claims  and  costs  involving  environmental  matters  are  likely to
continue  to arise in the  future.  The Company  continually  conducts  studies,
individually at Company-owned  sites, and jointly as a member of industry groups
at non-owned sites, to determine the feasibility of various remedial  techniques
to  address  environmental  matters.  It  is  the  Company's  policy  to  record
appropriate liabilities for such matters when environmental assessments are made
or remedial efforts are probable and the costs can be reasonably estimated.  The
timing of these accruals is generally on the  completion of feasibility  studies
or the settlement of claims, but in no event later than the Company's commitment
to a plan of action.

                                                                              21

     Remedial  response  and  voluntary  cleanup  expenditures  were $66 and $65
million in 1994 and 1993, respectively,  and are currently estimated to increase
to approximately  $85 million in 1995. While annual  expenditures have generally
increased from year to year, and may continue to increase over time, the Company
expects  it will  be  able  to  fund  such  expenditures  from  cash  flow  from
operations. The timing of expenditures depends on a number of factors, including
regulatory approval of cleanup projects,  remedial techniques to be utilized and
agreements with other parties.

     During 1994 the  Company  charged $37  million  against  pretax  income for
remedial response and voluntary cleanup costs. At December 31, 1994 the recorded
liability for environmental  matters was $494 million. In addition,  the Company
incurred operating costs for ongoing businesses of approximately $80 million and
capital  expenditures of $43 million  relating to compliance with  environmental
regulations.

     Although the Company does not currently possess  sufficient  information to
reasonably  estimate  the  amounts of  liabilities  to be  recorded  upon future
completion of studies or  settlements,  and neither the timing nor the amount of
the ultimate costs associated with environmental matters can be determined, they
may  be  significant  to  the  Company's  consolidated  results  of  operations.
Management  does not  expect  that  environmental  matters  will have a material
adverse effect on the consolidated financial position of the Company.

     See  Note 20 of Notes  to  Financial  Statements  for a  discussion  of the
Company's   commitments   and   contingencies,   including   those   related  to
environmental matters.

REGARDING  FINANCIAL  INSTRUMENTS,  the Company,  with  operating  and financing
activities  in 40  countries  and sales  throughout  the  world,  is  exposed to
fluctuations in interest rates and foreign currency  exchange rates. The Company
manages exposure to changes in interest rates through its regular  borrowing and
investing  decisions and, when deemed  appropriate,  through the use of interest
rate swap  agreements.  The  objective  of such risk  management  activity is to
minimize the cost of the Company's  debt  financing  over an extended  period of
time.  The Company  manages  exposure  to foreign  currency  exchange  rates for
transactional  items by  matching  and  offsetting  assets and  liabilities  and
thereafter  through  financial hedge  contracts with third parties.  The Company
does not use financial  instruments for trading or other  speculative  purposes.
See  Note 16 of  Notes  to  Financial  Statements  for  further  information  on
financial instruments.

INFLATION  has not been a  significant  factor  for the  Company  in a number of
years.  Cost  increases for labor and material have  generally been low, and any
impact has been offset by productivity enhancement programs, including materials
management.

FINANCIAL CONDITION. Cash flow from operating activities exceeded $1 billion for
the third consecutive  year,  allowing the Company to continue to invest heavily
in  its  growth  initiatives  --  particularly  acquisitions  and  increases  in
capacity.   Additional  working  capital  investment  required  to  support  the
Company's sales growth during 1994 impacted further cash flow improvements. High
levels of operating cash flow, together with major debt repayments and increases
in retained earnings have resulted in a significant improvement in the Company's
financial position in recent years.

[GRAPHIC REPRESENTATION  of  Long-Term  Debt  as  a  Percent  of  Total  Capital
(percent), expressed numerically below.]

                                                            1992    1993    1994
                                                            ----    ----    ----

                                                            40.5    37.9*  30.4*

- ------------
 
* Includes impact of cumulative effect of 1993 accounting change.
 
[GRAPHIC  REPRESENTATION of  Return on Shareowners'  Equity (after-tax percent),
expressed numerically below.]

                                                            1992    1993    1994
                                                            ----    ----    ----

                                                            26.4    30.6*  28.9*

- ------------
 
* Includes impact of cumulative effect of 1993 accounting change.

TOTAL  ASSETS at December  31, 1994 were  $11,321  million,  an increase of $492
million from December 31, 1993. Cash and cash  equivalents at year-end 1994 were
$508 million, a decrease of $384 million compared with December 31, 1993, mainly
reflecting the  acquisitions of Lycoming  Engine and General Safety.  Cash flows
from operating  activities  decreased by $137 million because of higher accounts
receivable  reflecting the Company's increased sales level. The current ratio at
year-end  1994 was 1.4x,  compared with 1.3x last year.  The  Company's  working
capital turnover improved to 5.5x at December 31, 1994 from 4.8x a year earlier.

THE MAXIMUM AMOUNT OF BORROWING  available under the Company's  revolving credit
agreements (Credit  Agreements) was $900 million.  The Credit Agreements support
the issuance of commercial  paper as well as outstanding  floating rate Employee
Stock Ownership Plan (ESOP) notes.  There was no commercial paper outstanding at
year-end 1994 and $164 million at the end of 1993.  Commercial  paper  borrowing
reached a high of $516 million during 1994. Outstanding ESOP notes, at favorable
floating  interest  rates,  totaled  $217  million at December 31, 1994 and $259
million at December 31, 1993.

TOTAL DEBT at year-end  1994 was $1,687  million,  a decrease  of $273  million,
primarily  as a result of paying down  commercial  paper and a  redemption  of a
deutsche  mark bond  issue.  Long-term  debt was  reduced by $178  million.  The
Company's  total debt as a percent of capital  was 34.1% at December  31,  1994,
down from 42.7% at year-end  1993. The long-term debt to capital ratio was 30.4%
at  year-end  1994,  down from 37.9% at year-end  1993.  See Note 14 of Notes to
Financial  Statements  for details of  long-term  debt and a  discussion  of the
Credit Agreements.

THE COMPANY  REPURCHASED  2.9 MILLION SHARES OF COMMON STOCK for $103 million in
1994.  Common stock was  repurchased in 1994 to meet expected  requirements  for
shares  issued  under   employee   benefit  plans  and  a  shareowner   dividend
reinvestment  plan. At year-end,  the Company had 75.1 million  shares of common
stock held in  treasury  carried at $1,505  million.  As of year-end  1994,  the
Company was authorized to repurchase 13.6 million shares of common stock.

22

CAPITAL  EXPENDITURES  during 1994 were $639 million,  a decrease of $79 million
from the $718 million  spent in 1993.  Spending by the  segments  and  Corporate
since 1992 is shown in Note 26 of Notes to Financial  Statements.  The Company's
total  capital  expenditures  in 1995 are  currently  projected  at  about  $700
million.  These expenditures are expected to be financed by internally generated
funds.  Approximately  65% of the projected  1995  expenditures  are planned for
expansion and cost  reduction,  25% for  replacement and maintenance and 10% for
environmental projects.

1993 COMPARED WITH 1992

IN 1993 THE COMPANY INITIATED A NUMBER OF NEW PROGRAMS AND FURTHERED THOSE BEGUN
IN 1991 AND 1992. A number of growth  businesses were enhanced  through internal
product development,  strategic  acquisitions,  joint ventures and major capital
investments.  The Company is overhauling  its basic processes to increase market
penetration  and  forming  commodity  purchasing  teams  and  working  with  its
customers and suppliers to raise product quality and reduce production costs.

THE COMPANY STRENGTHENED A NUMBER OF MAJOR BUSINESSES IN 1993:

  *  To  become a more  broad-based  avionics  supplier,  the  Company  acquired
Sundstrand Data Control for $195 million.  The acquired business  manufactures a
variety of avionics  products  for data  management,  ground  hazard  avoidance,
general aviation  communications,  navigation and  instrumentation.  The Company
also acquired the aircraft wheel and brake repair and overhaul operations of Air
Treads, Inc.

  *  To  strengthen  the  Company's  position in air brake  controls and related
products  for the truck  industry,  the  Company  and  Knorr-Bremse  formed  two
ventures -- one in North America and one in Europe.  The Company owns 65% of the
North American  operation and 35% of the European  operations.  The Company also
acquired  Filtram  S.A.,  a  manufacturer  and  distributor  of its Fram  filter
products in Mexico.

  *  In the fibers business,  the Company, as the majority shareowner,  and Akzo
NV of Arnhem,  the  Netherlands  formed a new company to manufacture  and market
commercial carpet fibers in Europe. The Company also started up its $200 million
industrial polyester fiber plant in Longlaville, France.

  *  The Company expanded its  fluorocarbon  business through the acquisition of
the U.S. sterilant gas business of Praxair Inc. and by more than doubling,  from
20 to 50 million pounds per year, the Company's  hydrofluorocarbons  (HCFC)-141b
capacity  at its El Segundo,  California  facility.  HCFC-141b  is a new blowing
agent used in a variety of  commercial  and  residential  rigid-insulating  foam
applications.

THE COMPANY ADOPTED,  EFFECTIVE JANUARY 1, 1993, AN ACCOUNTING CHANGE RELATED TO
POSTEMPLOYMENT  BENEFITS. The Financial Accounting Standards Board (FASB) issued
Statement No. 112 -- Employers' Accounting for Postemployment Benefits (FASB No.
112) which  requires the accrual of cost over an employee's  service  life.  The
1993 impact of FASB No. 112 was an after-tax  provision of $11 million, or $0.04
a share. As part of the adoption,  the Company also recorded catch-up  after-tax
charges  totaling $245 million,  or $0.86 a share.  This one-time charge reduced
the Company's shareowners' equity by 11%.

RESULTS OF  OPERATIONS.  The  Company's  earnings  grew to record levels in 1993
benefiting from  productivity  actions and only a slowly recovering U.S. economy
which more than  offset  the  impact of a  depressed  aerospace  industry  and a
recession in Europe.

NET SALES in 1993 were  $11,827  million,  down 2% from last  year.  Of the $215
million  decrease,  $206  million  was the  effect  of the  stronger  dollar  on
Automotive  and $81 million was because of reduced sales volumes  reflecting the
recession in Europe and weakness in the  aerospace  industry,  offset in part by
$72 million of price increases.

COST OF GOODS SOLD, as a percent of sales, decreased from 82.4% in 1992 to 80.8%
in 1993.  The  improvement  was the  result  of  productivity  gains,  including
cycle-time  reductions  and  materials  management  initiatives  throughout  the
Company. Productivity grew by 5.8% over last year.

NONRECURRING  ITEMS  consist of a net gain of $16 million from the  formation of
the Knorr-Bremse venture offset mainly by the cost of several unusual items. See
Note 3 of Notes to Financial Statements for additional information.

INCOME  FROM  OPERATIONS  of $954  million  in 1993  improved  by $539  million.
Excluding  the  nonrecurring  items in 1993 and the  current  year's  impact  of
adopting FASB No. 112 as well as charges for streamlining  and  restructuring in
1992 (special  provisions),  income from operations improved by $173 million, or
22%,  reflecting  significant  earnings  gains  despite a  generally  slow world
economy. After excluding the special provisions, Aerospace's income increased 4%
and  Automotive's  and Engineered  Materials'  income both increased 32%. Profit
margins,  adjusted to exclude  nonrecurring  items in 1993 and  streamlining and
restructuring  charges in 1992,  increased from 6.5% in 1992 to 7.9% mainly as a
result of improved  productivity  throughout the Company.  See the discussion of
net income below for information by segment.

EQUITY  IN INCOME OF  AFFILIATED  COMPANIES  of $122  million  increased  by $19
million, or 18%, reflecting higher earnings for UOP. Paxon,  however,  had lower
income as industry overcapacity depressed prices.

EARNINGS FROM UNION TEXAS  INVESTMENT  reflects the disposition of the Company's
common  stock  holdings in 1992 as  discussed  in Note 22 of Notes to  Financial
Statements.

OTHER INCOME (EXPENSE), a $9 million loss, compares with a gain of $9 million in
1992 reflecting  increased  foreign  exchange losses in Europe and Brazil partly
offset by higher interest income from investments in short-term securities.

INTEREST AND OTHER FINANCIAL CHARGES of $157 million  decreased $63 million,  or
29%, from last year because of a lower  average level of total debt  outstanding
reflecting in part the redemption of three debt issues and lower interest rates.

THE EFFECTIVE TAX RATE in 1993 was 27.9% compared with 23.8% in 1992.  Excluding
the  impact  in 1992 of  streamlining  and  restructuring  charges  and the gain
relating to Union Texas Petroleum  Holdings,  Inc. (Union Texas),  the effective
tax rate for 1992 was 24.1%.  The 3.8  percentage  point  increase  was due to a
higher  level of earnings  taxed at the new higher U.S. tax rate and the absence
of preferentially taxed Union Texas dividends. A partial offset resulted from an
adjustment  to deferred  tax balances  because of the 1993 tax rate change.  Net
income for 1993 benefited by about $0.02 a share from the net effect of the 1993
tax law  changes.  See Note 7 of  Notes  to  Financial  Statements  for  further
information.

                                                                              23

INCOME BEFORE THE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING  PRINCIPLES of $656
million,  or $2.31 a share,  in 1993 increased  $121 million,  or $0.41 a share,
compared with $535 million, or $1.90 a share, last year.

NET INCOME (LOSS) in 1993 was income of $411 million,  or $1.45 a share. In 1992
the Company  reported a loss of $712 million,  or $2.52 a share.  However,  both
periods were affected by the cumulative  effects of adopting  accounting changes
as well as unusual  items.  The 1993 results  included the current year's charge
for adopting  FASB No. 112, a net  nonrecurring  gain and the impact of the U.S.
tax increase. Results in 1992 include streamlining and restructuring charges and
the gain on the  disposition  of Union  Texas.  Excluding  these items from both
years, the current year's net income was $659 million,  or $2.33 a share,  which
compares with net income of $541 million,  or $1.92 a share, in 1992. The higher
income was the result of  significant  increases for  Automotive  and Engineered
Materials.

A DISCUSSION OF THE OPERATIONS OF THE BUSINESS  SEGMENTS,  before the cumulative
impact of  accounting  changes  on net  income,  follows.  Adjusted  net  income
excludes the impact of the 1993 nonrecurring items and the 1992 streamlining and
restructuring provision. (Dollars in millions)

                                                     ADJUSTED
AEROSPACE          NET SALES       NET INCOME      NET INCOME
- -------------------------------------------------------------
                                              
1993                 $ 4,530           $  224          $  228
1992                   4,937              105             227
- -------------------------------------------------------------
Increase/(Decrease)  $  (407)          $  119          $    1
- -------------------------------------------------------------

     Aerospace  sales  decreased  8% because  of  continued  significant  volume
reductions  in  military,   commercial  and  general  aviation  markets.   Lower
production of general  aviation  aircraft  resulted in fewer  propulsion  engine
deliveries.  Aftermarket sales were  significantly  lower in the auxiliary power
unit (APU) product line. Mainly because of a reduction in the number of aircraft
built,  sales of controls and  accessories and fluid systems as well as avionics
and  communications  systems were materially lower.  Technical service contracts
awarded by various  government  agencies  and sales of ocean  systems  increased
moderately. Sales of aircraft landing systems increased slightly and aftermarket
sales related to propulsion  engines were higher.  The acquisition of Sundstrand
Data Control in the fourth quarter of 1993 contributed $24 million to sales.

     Overall,  the Company's  1993 sales to the DOD, as a prime  contractor  and
subcontractor,  declined by 11% compared  with 1992  because of reduced  defense
spending. Sales to the commercial and foreign government markets declined by 9%,
while sales to NASA and other U.S.  government agencies increased by 6% in 1993.
Sales to the DOD accounted for 31% of  Aerospace's  total sales, a decrease of 1
percentage point compared with 1992.

     Although  total sales were lower and 1993  results  included  an  after-tax
charge of $5 million reflecting the impact of adopting FASB No. 112, Aerospace's
adjusted  net  income  improved  slightly  compared  to  last  year.  Continuing
productivity  improvements and sales increases in several product lines were the
principal  offsets.  Significant  cost savings were realized at every  operating
business  unit.   Aerospace  Systems  and  Equipment  had  substantially  higher
earnings.   Higher  aftermarket  sales  related  to  aircraft  landing  systems,
propulsion  engines and guidance and control  systems as well as higher sales of
ocean systems and technical services also contributed to the favorable earnings.
Earnings were lower for avionics,  APUs and  communications  systems  because of
lower sales.

     At December 31, 1993 and 1992 the Company had firm orders for its aerospace
products  from the U.S. and foreign  governments  of $1,861 and $1,712  million,
respectively.  Total backlog,  including commercial contracts,  at year-end 1993
and 1992 was $4,773 and $4,859 million, respectively.

                                                     ADJUSTED
AUTOMOTIVE         NET SALES       NET INCOME      NET INCOME
- -------------------------------------------------------------
                                              
1993                 $ 4,506           $  226          $  184
1992                   4,499               76             141
- -------------------------------------------------------------
Increase             $     7           $  150          $   43
- -------------------------------------------------------------

     Automotive sales were essentially level with last year despite the negative
impact,   totaling  $206  million,   of  translating  mainly  weakened  European
currencies  to the U.S.  dollar.  Sales of all  products  in the North  American
market were higher.  OE sales for passenger cars,  light trucks and heavy trucks
rebounded.  Sales of passenger-side air bags were especially strong and sales of
seat belts,  aftermarket products,  turbocharging systems and ABS also improved.
Sales by the Company's Brazilian operations improved. OE and aftermarket product
sales were materially lower in Europe reflecting the impact of the recession.

     Automotive's adjusted net income increased significantly, reflecting higher
sales to the North  American OE  manufacturers  and the  aftermarket  and strong
productivity   gains.   Rationalization  and  enhanced   productivity   programs
continued,  mainly in Europe,  where sales are down  materially  due to the poor
economy.  In the North  American  market,  automotive  and truck brakes,  safety
restraints,  aftermarket  products and  turbochargers  had substantial  earnings
growth. Productivity improvements and higher sales volumes substantially reduced
prior year losses in Brazil.  The 1993 results include an after-tax charge of $3
million reflecting the impact of adopting FASB No. 112.

                                                           ADJUSTED
ENGINEERED MATERIALS     NET SALES       NET INCOME      NET INCOME
- -------------------------------------------------------------------
                                                    
1993                       $ 2,791           $  269          $  272
1992                         2,601              190             215
- -------------------------------------------------------------------
Increase                   $   190           $   79          $   57
- -------------------------------------------------------------------

     Engineered  Materials had a 7% sales increase.  Sales of fluorine products,
including  environmentally-safer  substitutes for CFCs, grew substantially,  and
sales of laminate systems,  oximes,  performance additives and tar products were
materially  higher.  Sales of carpet and industrial  fibers also  improved,  but
sales of intermediate  chemicals and environmental  catalysts were lower because
of weak market conditions.

     Engineered  Materials' adjusted net income was significantly higher in 1993
because  of  strong  productivity  gains  and  improved  revenues  for  fluorine
products,  industrial fibers,  performance  additives and tar products.  Results
also improved for UOP.  Partially  offsetting  these gains were higher operating
costs for laminate systems,  reduced demand for intermediate chemicals and lower
earnings for Paxon.  The 1993 results include an after-tax  charge of $2 million
reflecting the impact of adopting FASB No. 112.

24

REGARDING  ENVIRONMENTAL  MATTERS,   remedial  response  and  voluntary  cleanup
expenditures were $65 and $69 million in 1993 and 1992, respectively.

     During 1993 the Company  charged $41 million  against  income for  remedial
response  and  voluntary  cleanup  costs.  At  December  31,  1993 the  recorded
liability for environmental  matters was $480 million. In addition,  the Company
incurred ongoing operating costs, and made capital  expenditures of $39 million,
relating to compliance with environmental regulations.

FINANCIAL  CONDITION.  Cash flow from operating activities was materially higher
as a result of strong earnings  growth and a  strengthening  balance sheet which
reflects greatly improved  operating working capital and a significant  customer
advance.

TOTAL  ASSETS at December  31,  1993 were  $10,829  million,  an increase of $73
million from December 31, 1992. Cash and cash  equivalents at year-end 1993 were
$892 million, a decrease of $39 million, however, cash investments classified as
long-term  increased  $40 million,  to $90 million,  at December 31, 1993.  Cash
flows from operating activities, provided by significantly improved earnings for
1993 and a reduction in working capital,  increased by $111 million. The current
ratio at year-end  1993 was 1.3x,  down slightly from 1.4x at December 31, 1992.
Mainly through a reduction in accounts receivable and inventories, the Company's
working  capital  turnover was improved to 4.8x at December 31, 1993 from 4.5x a
year earlier.

THE MAXIMUM AMOUNT OF BORROWING  available under the Company's Credit Agreements
was  reduced  by the  Company in July 1993 from  $1.11  billion to $900  million
reflecting the Company's strong cash position, significantly higher earnings and
current  credit  requirements.  The Credit  Agreements  support the  issuance of
commercial  paper  and  outstanding  floating  rate ESOP  notes.  There was $164
million of commercial  paper  outstanding at year-end 1993 and $4 million at the
end of 1992.  Commercial  paper borrowing  reached a high of $484 million during
1993. Outstanding ESOP notes, at favorable floating interest rates, totaled $259
million at December 31, 1993 and 1992.

TOTAL DEBT at year-end  1993 was $1,960  million,  a decrease  of $153  million.
Long-term debt was reduced by $175 million mainly from the redemption of various
debt  issues.  The  Company's  total  debt as a percent  of  capital,  after the
adoption of FASB No. 112,  was 42.7% at December  31,  1993,  down from 44.7% at
year-end  1992.  The long-term debt to capital ratio was 37.9% at year-end 1993,
down from 40.5% at year-end 1992. In January 1993 Moody's upgraded the Company's
long-term  debt from A3 to A2 and its  commercial  paper  from P-2 to P-1.  This
followed a comparable upgrading from Standard & Poor's in December 1992.

THE COMPANY  REPURCHASED  6.7 MILLION SHARES OF COMMON STOCK for $220 million in
1993.  Common stock was repurchased in 1993 to offset the issuance of shares for
employee benefit plans and a shareowner dividend reinvestment plan.

CAPITAL  EXPENDITURES  during 1993 were $718 million, an increase of $27 million
from the $691 million  spent in 1992.  Spending by the segments and Corporate is
shown in Note 26 of Notes to Financial Statements.

                                                                              25

CONSOLIDATED STATEMENT OF INCOME
AlliedSignal Inc.

(dollars in millions except per share amounts)
Years ended December 31                                                            1994     1993     1992
                                                                                         
- ---------------------------------------------------------------------------------------------------------
Net sales                                                                       $12,817  $11,827  $12,042
- ---------------------------------------------------------------------------------------------------------
Cost of goods sold                                                               10,299    9,551    9,923
Selling, general and administrative expenses                                      1,366    1,338    1,336
Streamlining and restructuring                                                       --       --      368
Nonrecurring items                                                                   --      (16)      --
- ---------------------------------------------------------------------------------------------------------
Total costs and expenses                                                         11,665   10,873   11,627
- ---------------------------------------------------------------------------------------------------------
Income from operations                                                            1,152      954      415
Equity in income of affiliated companies                                            129      122      103
Earnings from Union Texas investment                                                 --       --      395
Other income (expense)                                                              (27)      (9)       9
Interest and other financial charges                                               (143)    (157)    (220)
- ---------------------------------------------------------------------------------------------------------
Income before taxes on income                                                     1,111      910      702
Taxes on income                                                                     352      254      167
- ---------------------------------------------------------------------------------------------------------
Income before cumulative effect of changes in accounting principles                 759      656      535
Cumulative effect of changes in accounting principles:
   Accounting for income taxes                                                       --       --     (148)
   Accounting for postemployment benefits, net of income taxes                       --     (245)      --
   Accounting for postretirement benefits other than pensions,
      net of income taxes                                                            --       --   (1,099)
- ---------------------------------------------------------------------------------------------------------
Net income (loss)                                                               $   759  $   411  $  (712)
- ---------------------------------------------------------------------------------------------------------
Earnings (loss) per share of common stock: (a)
Before cumulative effect of changes in accounting principles                    $  2.68  $  2.31  $  1.90
Cumulative effect of changes in accounting principles:
   Accounting for income taxes                                                       --       --     (.52)
   Accounting for postemployment benefits, net of income taxes                       --     (.86)      --
   Accounting for postretirement benefits other than pensions,
      net of income taxes                                                            --       --    (3.90)
- ---------------------------------------------------------------------------------------------------------
Net earnings (loss)                                                             $  2.68  $  1.45  $ (2.52)
- ---------------------------------------------------------------------------------------------------------

(a)  Earnings per share  of common stock  are based upon  the following weighted
average number of shares: 1994, 283,446,399 shares; 1993, 283,233,078 shares and
1992, 281,973,006  shares. No  dilution results  from outstanding  common  stock
equivalents.
 
CONSOLIDATED STATEMENT OF RETAINED EARNINGS

(dollars in millions except per share amounts)
Years ended December 31                                                            1994     1993     1992
                                                                                         
- ---------------------------------------------------------------------------------------------------------
Balance at beginning of year                                                    $ 1,023  $   747  $ 1,594
Net income (loss)                                                                   759      411     (712)
Other                                                                                11       27        8
Common stock dividends (1994 -- $.6475 per share;
   1993 -- $.58 per share; 1992 -- $.50 per share)                                 (180)    (162)    (143)
- ---------------------------------------------------------------------------------------------------------
Balance at end of year                                                          $ 1,613  $ 1,023  $   747
- ---------------------------------------------------------------------------------------------------------

The 'Notes to Financial Statements' are an integral part of these statements.
 
26

CONSOLIDATED BALANCE SHEET
AlliedSignal Inc.

(dollars in millions)
December 31                                                                                 1994     1993
                                                                                            
- ---------------------------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents                                                                $   508  $   892
Accounts and notes receivable                                                              1,697    1,343
Inventories                                                                                1,743    1,745
Other current assets                                                                         637      587
- ---------------------------------------------------------------------------------------------------------
Total current assets                                                                       4,585    4,567
 
Investments and long-term receivables                                                        475      553
Property, plant and equipment -- net                                                       4,260    4,094
Cost in excess of net assets of acquired companies -- net                                  1,349    1,087
Other assets                                                                                 652      528
- ---------------------------------------------------------------------------------------------------------
TOTAL ASSETS                                                                             $11,321  $10,829
- ---------------------------------------------------------------------------------------------------------
 
LIABILITIES
- ---------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable                                                                         $ 1,296  $ 1,207
Short-term borrowings                                                                        133       57
Commercial paper                                                                              --      164
Current maturities of long-term debt                                                         130      137
Accrued liabilities                                                                        1,832    1,924
- ---------------------------------------------------------------------------------------------------------
Total current liabilities                                                                  3,391    3,489
 
Long-term debt                                                                             1,424    1,602
Deferred income taxes                                                                        406      339
Postretirement benefit obligations other than pensions                                     1,790    1,689
Other liabilities                                                                          1,328    1,320
 
SHAREOWNERS' EQUITY
- ---------------------------------------------------------------------------------------------------------
Capital -- common stock -- Authorized 500,000,000 shares
       (par value $1 per share); issued: 358,228,742 shares                                  358      358
        -- additional paid-in capital                                                      2,458    2,453
Common stock held in treasury, at cost: 1994 -- 75,096,896 shares;
   1993 -- 74,395,236 shares                                                              (1,505)  (1,437)
Cumulative foreign exchange translation adjustment                                            18       (7)
Unrealized holding gain on equity securities                                                  40       --
Retained earnings                                                                          1,613    1,023
- ---------------------------------------------------------------------------------------------------------
Total shareowners' equity                                                                  2,982    2,390
- ---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY                                                $11,321  $10,829
- ---------------------------------------------------------------------------------------------------------

The 'Notes to Financial Statements' are an integral part of this statement.
 
                                                                              27

CONSOLIDATED STATEMENT OF CASH FLOWS
AlliedSignal Inc.

(dollars in millions)
Years ended December 31                                                              1994    1993    1992
                                                                                           
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
- ---------------------------------------------------------------------------------------------------------
Net income (loss)                                                                  $  759  $  411  $ (712)
Adjustments to reconcile net income (loss) to net cash flows from operating
   activities:
   Cumulative effect of change in accounting for:
      Income taxes                                                                     --      --     148
      Postemployment benefits                                                          --     245      --
      Postretirement benefits other than pensions                                      --      --   1,099
   Nonrecurring items                                                                  --     (59)     --
   Gain on disposition of Union Texas                                                  --      --    (357)
   Streamlining and restructuring                                                    (180)   (217)    133
   Depreciation and amortization (includes goodwill)                                  560     547     529
   Undistributed earnings of equity affiliates (includes Union Texas in 1992)         (10)    (34)    (47)
   Deferred taxes                                                                     180     110      83
   Decrease (increase) in accounts and notes receivable                              (195)     91    (104)
   Decrease in inventories                                                            134     123     130
   Decrease (increase) in other current assets                                        (65)     14      31
   Increase in accounts payable                                                       113      20     157
   Increase (decrease) in accrued liabilities                                         (56)    151     167
   Other                                                                             (197)   (222)   (188)
- ---------------------------------------------------------------------------------------------------------
Net cash flow provided by operating activities                                      1,043   1,180   1,069
 
CASH FLOWS FROM INVESTING ACTIVITIES
- ---------------------------------------------------------------------------------------------------------
Expenditures for property, plant and equipment                                       (639)   (718)   (691)
Proceeds from disposals of property, plant and equipment                               54      37      42
Decrease in investments and long-term receivables                                      32      48      59
(Increase) in other investments                                                        (8)    (31)    (18)
Cash paid for acquisitions                                                           (531)   (244)   (113)
Proceeds from sales of investments and businesses                                     130     129   1,044
Decrease (increase) in marketable securities                                           90     (40)    (50)
- ---------------------------------------------------------------------------------------------------------
Net cash flow provided by (used for) investing activities                            (872)   (819)    273
 
CASH FLOWS FROM FINANCING ACTIVITIES
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in commercial paper                                          (164)    160    (259)
Net increase (decrease) in short-term borrowings                                       64     (88)   (307)
Proceeds from issuance of common stock                                                 43     143     244
Proceeds from issuance of long-term debt                                                7     131     121
Repurchases of long-term debt (including current maturities)                         (215)   (355)   (163)
Repurchases of common stock                                                          (103)   (229)   (142)
Cash dividends on common stock                                                       (180)   (162)   (143)
Redemption of common stock purchase rights                                             (7)     --      --
- ---------------------------------------------------------------------------------------------------------
Net cash flow (used for) financing activities                                        (555)   (400)   (649)
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                                 (384)    (39)    693
Cash and cash equivalents at beginning of year                                        892     931     238
- ---------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                           $  508  $  892  $  931
- ---------------------------------------------------------------------------------------------------------

The 'Notes to Financial Statements' are an integral part of this statement.
 
28

NOTES TO FINANCIAL STATEMENTS
AlliedSignal Inc.
(dollars in millions except per share amounts)
 
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
 
CONSOLIDATED  FINANCIAL STATEMENTS include the accounts of AlliedSignal Inc. and
majority-owned subsidiaries.
 
INVENTORIES are  valued  at the  lower  of cost  or  market using  the  last-in,
first-out  (LIFO)  method for  certain qualifying  domestic inventories  and the
first-in, first-out (FIFO) or the average cost method for other inventories.
 
INVESTMENTS AND LONG-TERM  RECEIVABLES are  carried at market  value if  readily
determinable  or  cost  in  1994;  prior  to  1994,  investments  and  long-term
receivables were  carried  at  the  lower of  cost  or  market.  Investments  in
affiliates over which significant influence is exercised are accounted for using
the equity method of accounting.
 
PROPERTY,  PLANT AND EQUIPMENT are carried at cost and are generally depreciated
using estimated service lives, which range from 3 to 40 years. For the financial
statements, depreciation is computed principally on the straight-line method.
 
COST IN EXCESS  OF NET  ASSETS OF  ACQUIRED COMPANIES  is being  amortized on  a
straight-line  basis  over various  periods  ranging from  20  to 40  years. The
cumulative amount of goodwill  amortized at December 31,  1994 and December  31,
1993 is $358 and $315 million, respectively.
 
POSTEMPLOYMENT  BENEFITS for former or  inactive employees, excluding retirement
benefits, are  accounted  for  under  the  provisions  of  Financial  Accounting
Standards   Board  (FASB)  Statement  No.  112  --  'Employers'  Accounting  for
Postemployment Benefits' (FASB No. 112), effective January 1, 1993. FASB No. 112
requires  the  Company  to  accrue  the  cost  of  certain  benefits,  including
severance,  workers' compensation and  health care coverage,  over an employee's
service life. A one-time charge for the adoption of FASB No. 112 of $396 million
(after-tax $245 million,  or $0.86  a share)  was recognized  as the  cumulative
effect of a change in accounting principle in 1993. The 1993 ongoing expense was
$18  million (after-tax  $11 million,  or $0.04 a  share). The  Company uses the
services of an enrolled actuary  to calculate postemployment costs. The  Company
previously  expensed  the cost  of  such benefits  on  a pay-as-you-go  basis or
recognized the impact at the time of a specific event.
 
RECOGNITION OF  CONTRACT REVENUES  primarily  relates to  Aerospace  operations.
Under  fixed-price contracts, sales and related costs are recorded as deliveries
are made. Sales and related costs under cost-reimbursable contracts are recorded
as costs are  incurred. Anticipated future  losses on contracts  are charged  to
income  when identified. Contracts which are part  of a program are evaluated on
an overall program basis.
 
ENVIRONMENTAL expenditures that  relate to  current operations  are expensed  or
capitalized  as appropriate. Expenditures  that relate to  an existing condition
caused by past  operations, and  which do not  contribute to  current or  future
revenue  generation, are  expensed. Liabilities are  recorded when environmental
assessments are  made or  remedial efforts  are probable  and the  costs can  be
reasonably  estimated.  The  timing  of  these  accruals  is  generally  on  the
completion of feasibility studies or the  settlement of claims, but in no  event
later  than the Company's  commitment to a  plan of action.  The liabilities for
environmental costs recorded  in Accrued  Liabilities and  Other Liabilities  at
December  31, 1994 and 1993 were $78 and  $416 million and $66 and $414 million,
respectively.
 
INTEREST RATE  AND FOREIGN  CURRENCY  FORWARD, OPTION  AND SWAP  AGREEMENTS  are
accounted  for as a  hedge of the  related asset, liability,  firm commitment or
anticipated transaction when designated as a hedge of such items. Agreements not
qualifying for hedge accounting are reflected at fair value.
* Changes in  the  amount  to  be  received or  paid  under  interest  rate swap
  agreements are recognized in Interest and Other Financial Charges.
* Changes  in the  fair value  of foreign  currency agreements are recognized in
  Other Income (Expense) or  Cumulative Foreign Exchange Translation Adjustment,
  as appropriate.
 
INCOME  TAXES are  based on  the asset and  liability approach  embodied in FASB
Statement No. 109  -- 'Accounting for  Income Taxes' (FASB  No. 109),  effective
January  1, 1992. Under FASB No. 109, deferred tax liabilities or assets reflect
the impact of temporary  differences between amounts  of assets and  liabilities
for  financial and  tax reporting.  Such amounts  are subsequently  adjusted, as
appropriate, to reflect changes in tax rates  expected to be in effect when  the
temporary  differences  reverse. A  valuation allowance  is established  for any
deferred tax asset for  which realization is not  likely. Deferred income  taxes
have  not been provided on approximately  $177 million of undistributed earnings
of  foreign  affiliated  companies  which  are  considered  to  be   permanently
reinvested.  Any U.S. taxes  payable on foreign earnings  which may be remitted,
however, will be substantially offset by foreign tax credits.
 
NOTE 2. ACQUISITIONS
 
In 1994 the  Company acquired the  Lycoming Turbine Engine  Division of  Textron
Inc.  (Lycoming Engine) for $375  million in cash and  the assumption of certain
liabilities. The  business  had 1994  sales  of $550  million.  Lycoming  Engine
manufactures  turbofan  engines for  regional  airlines, helicopter  engines for
commercial, military  and utility  aircraft, military  tank engines  and  marine
propulsion  engines. The Company  also made a number  of smaller acquisitions in
1994.
   In 1993  the  Company  acquired  the  data  control  business  of  Sundstrand
Corporation  (Data Controls) for $195 million in cash. The business had sales of
$194 million in 1992. Data Controls  manufactures a wide range of avionics  such
as  ground  proximity  warning systems,  reactive  windshear  detection systems,
flight data and voice  recorders, general aviation  in-flight phone systems  and
aircraft condition monitoring systems. The Company also made a number of smaller
acquisitions in 1993.
 
NOTE 3. NONRECURRING ITEMS
 
The  1993 nonrecurring  items consist  of a gain  of $89  million (after-tax $50
million, or $0.17 a share)  from the formation of  an alliance of the  Company's
air-brake control and related
 
                                                                              29

product operations for heavy trucks with those of Knorr-Bremse AG, partly offset
by  a provision totaling $73  million (after-tax $49 million,  or $0.17 a share)
covering transaction  and other  costs, including  formation costs  relating  to
Knorr-Bremse  and other business ventures  as well as the  cost of several legal
actions.
 
NOTE 4. STREAMLINING AND RESTRUCTURING
 
The 1992 provision  reflects a  pretax charge  of $368  million (after-tax  $227
million,  or $0.80 a  share) covering programs to  improve the Company's overall
productivity. These  programs  include  the consolidation  of  facilities  ($187
million),  further streamlining of operations  and administration ($103 million)
and the  cost of  product modifications  to improve  customer satisfaction  ($78
million).  The various programs include the  elimination of about 900 hourly and
salaried employees. The  actions contemplated  in the 1992  provision have  been
essentially completed.
 
NOTE 5. OTHER INCOME (EXPENSE)

Years ended December 31                    1994   1993   1992
                                               
- -------------------------------------------------------------
Interest income and other                 $  29  $  41  $  24
Minority interests                          (30)    (7)    (8)
Foreign exchange (loss) (1)                 (26)   (43)    (7)
- -------------------------------------------------------------
                                          $ (27) $  (9) $   9
- -------------------------------------------------------------

(1)  Includes the amortization of premiums for foreign currency forward exchange
contracts of $(12), $(38) and $(28) million, in each of the respective years. In
part, the contracts, in conjunction  with domestic borrowings, were utilized  to
finance  certain  foreign operations  and contributed  to  lower expense  on the
'Interest and Other Financial Charges' line.
 
NOTE 6. INTEREST AND OTHER FINANCIAL CHARGES

Years ended December 31                    1994   1993   1992
                                               
- -------------------------------------------------------------
Total interest and other financial
   charges                                $ 166  $ 186  $ 247
Less -- Capitalized interest                (23)   (29)   (27)
- -------------------------------------------------------------
                                          $ 143  $ 157  $ 220
- -------------------------------------------------------------

NOTE 7. TAXES ON INCOME
INCOME BEFORE TAXES ON INCOME

Years ended December 31                    1994   1993   1992
                                               
- -------------------------------------------------------------
United States                            $  973  $ 799  $ 634
Foreign                                     138    111     68
- -------------------------------------------------------------
                                         $1,111  $ 910  $ 702
- -------------------------------------------------------------

TAXES ON INCOME

Years ended December 31                    1994   1993   1992
                                               
- -------------------------------------------------------------
United States                             $ 297  $ 244  $ 160
Foreign                                      55     10      7
- -------------------------------------------------------------
                                          $ 352  $ 254  $ 167
- -------------------------------------------------------------

Years ended December 31                    1994   1993   1992
                                               
- -------------------------------------------------------------
Taxes on income consist of:
Current:
   United States                          $  98  $  95  $  55
   State                                     34     25     15
   Foreign                                   40     24     14
- -------------------------------------------------------------
                                            172    144     84
- -------------------------------------------------------------
Deferred:
   United States                            129     99     92
   State                                     36     25     (2)
   Foreign                                   15    (14)    (7)
- -------------------------------------------------------------
                                            180    110     83
- -------------------------------------------------------------
                                          $ 352  $ 254  $ 167
- -------------------------------------------------------------

Years ended December 31                    1994   1993   1992
                                               
- -------------------------------------------------------------
The principal items accounting for the
   difference in taxes on income
   computed at the U.S. statutory rate
   and as recorded on an overall
   basis are as follows:
Statutory U.S. federal income tax rate     35.0%  35.0%  34.0%
Taxes on foreign earnings
   (under) U.S. tax rate                    (.6)  (2.4)  (3.6)
Asset basis differences                    (3.3)  (1.7)    --
Nondeductible amortization                  1.0    1.2    1.5
State income taxes                          3.9    3.3     .4
Tax benefits of Foreign Sales
   Corporation                             (1.4)  (1.9)  (2.9)
Dividends received deduction                (.1)   (.2)  (1.5)
ESOP dividend tax benefit                   (.9)   (.9)  (1.1)
Impact of rate change on beginning-
   of-the-year deferred tax balances         --   (1.5)    --
All other items -- net                     (1.9)  (3.0)  (3.0)
- -------------------------------------------------------------
                                           31.7%  27.9%  23.8%
- -------------------------------------------------------------

DEFERRED INCOME TAXES

December 31                                       1994   1993
                                                  
- -------------------------------------------------------------
Included in the following balance sheet
   accounts:
Other current assets                             $ 483  $ 468
Other assets                                       124    104
Deferred income taxes                             (406)  (339)
- -------------------------------------------------------------
                                                 $ 201  $ 233
- -------------------------------------------------------------

DEFERRED TAX ASSETS/(LIABILITIES)

December 31                                       1994   1993
                                                  
- -------------------------------------------------------------
The temporary differences and carryforwards
   which give rise to deferred tax assets and
   liabilities are as follows:
Property, plant and equipment basis differences  $(793) $(742)
Postretirement benefits other than pensions        741    716
Postemployment benefits                            106    158
Investment and other asset basis differences      (515)  (465)
Streamlining, restructuring and other
   nonrecurring items                              265    290
Other accrued items                                423    334
Other tax credits                                   31     41
Alternative minimum tax credit                      12     60
Foreign net operating losses                       181    118
U.S. capital loss                                   22     43
All other items -- net                            (199)  (239)
- -------------------------------------------------------------
                                                   274    314
Valuation allowance                                (73)   (81)
- -------------------------------------------------------------
                                                 $ 201  $ 233
- -------------------------------------------------------------

30

Other tax credits relate  primarily to U.S. general  business tax credits  which
are  available  to  reduce  income  tax  payments  through  the  year  2008. The
alternative minimum  tax  credit  is  available to  reduce  regular  income  tax
payments  for an  indefinite period  of time.  The foreign  net operating losses
relate to several  countries. Such  losses are  available to  reduce income  tax
payments  in the future,  subject to varying expiration  rules. The U.S. capital
loss is available to offset income tax payments on capital gains through 1997.
 
NOTE 8. ACCOUNTS AND NOTES RECEIVABLE

December 31                                      1994    1993
                                                 
- -------------------------------------------------------------
Trade                                          $1,526  $1,245
Other                                             204     126
- -------------------------------------------------------------
                                                1,730   1,371
Less -- Allowance for doubtful accounts and
   refunds                                        (33)    (28)
- -------------------------------------------------------------
                                               $1,697  $1,343
- -------------------------------------------------------------

The Company is a party to agreements under which it can sell undivided interests
in designated pools  of trade accounts  receivable up to  $500 million  (average
outstanding  was $500 and $492 million  during 1994 and 1993, respectively). New
receivables are sold  under the  agreements as previously  sold receivables  are
collected. During 1994, this represented an average collection period of 47 days
or  a replacement of receivables of  approximately eight times. At both December
31, 1994  and 1993,  customer accounts  receivable on  the Consolidated  Balance
Sheet have been reduced by $500 million, reflecting such sales. The Company acts
as  an agent  for the  purchasers in  the collection  and administration  of the
receivables.
 
NOTE 9. INVENTORIES

December 31                                      1994    1993
                                                 
- -------------------------------------------------------------
Raw materials                                  $  488  $  504
Work in process                                   706     635
Finished products                                 766     824
Supplies and containers                            70      51
- -------------------------------------------------------------
                                                2,030   2,014
Less --
Progress payments                                (160)   (154)
Reduction to LIFO cost basis                     (127)   (115)
- -------------------------------------------------------------
                                               $1,743  $1,745
- -------------------------------------------------------------

Inventories valued at  LIFO amounted to  $267 million at  December 31, 1994  and
$316   million  at  December  31,  1993,  which  amounts  were  below  estimated
replacement cost by $127 and $115 million, respectively.
 
NOTE 10. OTHER CURRENT ASSETS

December 31                                       1994   1993
                                                  
- -------------------------------------------------------------
Current - deferred taxes                         $ 483  $ 468
Other                                              154    119
- -------------------------------------------------------------
                                                 $ 637  $ 587
- -------------------------------------------------------------

NOTE 11. INVESTMENTS AND LONG-TERM RECEIVABLES

December 31                                      1994    1993
                                                 
- -------------------------------------------------------------
Affiliates (1)                                  $ 416   $ 395
Marketable securities                              --      90
Long-term receivables                              59      68
- -------------------------------------------------------------
                                                $ 475   $ 553
- -------------------------------------------------------------

(1) Includes  in  1994 an  unrealized  holding gain  of  $66 million  on  equity
securities  in  accordance with  FASB  No. 115.  The  cost basis  of  the equity
securities was $44 million at December 31, 1994.
 
The Company has  a 50% partnership  interest in two  significant joint  ventures
accounted  for under the  equity method, UOP and  Paxon Polymer Company (Paxon).
The UOP joint venture is in the process technology and catalyst business,  while
the Paxon joint venture manufactures and sells high-density polyethylene resins.
The  Company's share of  the equity of  the joint ventures  exceeds its carrying
value for these investments  by $84 million, which  is being amortized over  the
remaining useful lives of the related assets.
   Combined  selected financial  data for these  two entities  are summarized as
follows:

Years ended December 31                    1994       1993       1992
                                                   
- ---------------------------------------------------------------------
Net sales                             $   1,251  $   1,238  $   1,225
Income from operations                      165        151        142
Income before cumulative effect
   of changes in accounting
   principles (1)                           147        149        149
Net income (1) (2)                          132         90        149
- ---------------------------------------------------------------------

December 31                                      1994    1993
                                                 
- -------------------------------------------------------------
Current assets                                 $  854  $  819
Total assets                                    1,523   1,505
Current liabilities                               304     224
Noncurrent liabilities                            351     350
Equity                                            868     931
- -------------------------------------------------------------

(1) No U.S. taxes have been provided  by the entities on partnership income,  as
the  individual partners are  responsible for their  proportionate share of U.S.
taxes payable.
(2) Reflects in 1994 the adoption of FASB No. 106 ($15 million) and in 1993  the
adoptions of FASB No. 106 ($37 million) and FASB No. 112 ($22 million).
 
NOTE 12. PROPERTY, PLANT & EQUIPMENT

December 31                                      1994    1993
                                                 
- -------------------------------------------------------------
Land and land improvements                     $  333  $  321
Machinery and equipment                         5,862   5,296
Buildings                                       1,371   1,241
Office furniture and equipment                    702     634
Transportation equipment                          145     145
Construction in progress                          379     531
- -------------------------------------------------------------
                                                8,792   8,168
Less -- Accumulated depreciation and
   amortization                                (4,532) (4,074)
- -------------------------------------------------------------
                                               $4,260  $4,094
- -------------------------------------------------------------

                                                                              31

NOTE 13. ACCRUED LIABILITIES

December 31                                      1994    1993
                                                 
- -------------------------------------------------------------
Customer advance payments/deposits             $  235  $  244
Insurance                                         132     163
Postemployment benefits                            99     166
Retiree medical benefits                          128     125
Wages                                             304     296
Other                                             934     930
- -------------------------------------------------------------
                                               $1,832  $1,924
- -------------------------------------------------------------

NOTE 14. LONG-TERM DEBT AND CREDIT AGREEMENTS

December 31                                      1994    1993
                                                 
- -------------------------------------------------------------
Employee stock ownership plan refunding
   notes, 6.957% and 7.19%, due 1995 - 1997    $  120  $  200
Employee stock ownership plan floating rate
   notes, 2.876% - 5.32%, due 1995 - 1999         212     218
9 7/8% debentures due June 1, 2002                250     250
9.20% debentures due February 15, 2003            100     100
Medium term notes, 8.28% - 9.28%, due
   1995 - 2001                                    129     153
Zero coupon bonds and money multiplier notes,
   12.95% - 13.518%, due 1995 - 2009              278     257
9 1/2% debentures due June 1, 2016                100     100
Industrial development bond obligations,
   2.68% - 6.75%, maturing at various dates
   through 2026                                   105     112
Other (including capitalized leases), 2.0% -
   14.75%, maturing at various dates through
   2016                                           131     214
- -------------------------------------------------------------
                                                1,425   1,604
Less -- Unamortized discount                       (1)     (2)
- -------------------------------------------------------------
                                               $1,424  $1,602
- -------------------------------------------------------------

The schedule of principal payments on long-term debt is as follows:

                                                      LONG-TERM
                                                         DEBT
At December 31, 1994                                      (1)
                                                   
- -------------------------------------------------------------
1995                                                   $  130
1996                                                      179
1997                                                      121
1998                                                      205
1999                                                      161
Thereafter                                                758
- -------------------------------------------------------------
                                                        1,554
Less -- Current portion                                  (130)
- -------------------------------------------------------------
                                                       $1,424
- -------------------------------------------------------------

(1) Amounts are net of repurchases.

   The  Company has two credit  agreements with a group of  21 banks (3 Year and
364 Day Credit Agreements) with commitments aggregating $900 million. The  funds
available  under the  Credit Agreements may  be used for  any corporate purpose.
Loans under the $450 million 3 Year  Credit Agreement are required to be  repaid
no  later than July 7, 1997. Annually, the Company may request that the maturity
of the 3 Year Credit Agreement be extended by another year. The Company  intends
to request an extension of the agreement in 1995. The banks' commitments to lend
under  the $450 million 364  Day Credit Agreement terminate  on July 3, 1995 and
any loans then outstanding will be converted  to term loans maturing on July  3,
1996. The Company intends to renegotiate this agreement in 1995. The Company has
agreed  to pay  facility fees  of 0.10%  per annum  and 0.08%  per annum  on the
aggregate commitments for 3  Year and 364  Day Credit Agreements,  respectively,
subject  to  increase or  decrease  in the  event  of changes  in  the Company's
long-term debt  ratings. The  Credit Agreements  do not  restrict the  Company's
ability  to pay  dividends or  require the  Company to  maintain a  specific net
worth. However,  they  do  contain  other customary  conditions  and  events  of
default,  the failure to comply with, or  occurrence of, which would prevent any
further borrowings and would generally require the repayment of any  outstanding
borrowings under either Credit Agreement. Such conditions include the absence of
any  material  adverse  change  in  the  ability  of  the  Company  to  pay  its
indebtedness when due,  and such events  of default include  (a) non-payment  of
Credit Agreement debt and interest thereon, (b) non-compliance with the terms of
the  covenants, (c) cross-default with other  debt in certain circumstances, (d)
bankruptcy and  (e)  defaults upon  obligations  under the  Employee  Retirement
Income  Security Act. Additionally, each of the banks has the right to terminate
its commitment  to lend  under the  Credit  Agreements if  any person  or  group
acquires  beneficial ownership of 30%  or more of the  Company's voting stock or
during any 12-month period individuals who were directors of the Company at  the
beginning  of  the  period  cease  to constitute  a  majority  of  the  board of
directors.
   Interest on borrowings under  the Credit Agreements  would be determined,  at
the  Company's option, by (a)  an auction bidding procedure;  (b) the highest of
the average floating base rate of two reference banks, 0.5% above the average CD
rate, or 0.5% above the Federal funds rate; or (c) a spread (equal to 21.25  and
23.25  basis points for the 3 Year  and 364 Day Credit Agreements, respectively,
and if either  Credit Agreement  is drawn  down in excess  of 50%  of its  total
amount, 27.5 and 29.5 basis points for the 3 Year and 364 Day Credit Agreements,
respectively)  over the average LIBOR  or CD rate of  three reference banks. The
spreads over the LIBOR or  CD rates are subject to  increase or decrease if  the
Company's  long-term debt ratings change. The Company had no balance outstanding
under the Credit  Agreements at December  31, 1994. The  Credit Agreements  have
served  as support for the issuance of commercial paper and certain notes issued
under the Company's Employee Stock  Ownership Plan funding program. At  December
31,  1994, the Company  had outstanding $217  million of notes  supported by the
Credit Agreements.
 
NOTE 15. LEASE COMMITMENTS
 
Future minimum lease payments under operating leases having initial or remaining
noncancellable lease terms in excess of one year are as follows:

                                                           LEASE
At December 31, 1994                                    PAYMENTS
                                                 
- ----------------------------------------------------------------
1995                                                        $ 92
1996                                                          63
1997                                                          46
1998                                                          37
1999                                                          29
Thereafter                                                   193
- ----------------------------------------------------------------
Total                                                       $460
- ----------------------------------------------------------------

   Rent expense  of  $135, $128  and  $131 million  was  included in  costs  and
expenses for 1994, 1993 and 1992, respectively.
 
32

NOTE 16. FINANCIAL INSTRUMENTS
 
The  Company, as a result  of its global operating  and financing activities, is
exposed to changes in interest rates and foreign currency exchange rates,  which
may  adversely  affect its  results of  operations  and financial  condition. In
seeking to minimize the risks and/or costs associated with such activities,  the
Company  manages  exposure to  changes in  interest  rates and  foreign currency
exchange rates through its regular operating and financing activities and,  when
deemed  appropriate, through  the use  of derivative  financial instruments. The
instruments utilized include  forward, option and  swap agreements. The  Company
does  not use financial  instruments for trading  or other speculative purposes.
The Company had no leveraged financial instruments at December 31, 1994.
   At December 31, 1994 and 1993, the Company held interest rate swap agreements
maturing through  1999. At  December  31, 1994,  interest rate  swap  agreements
effectively  changed $82  million of London  Interbank Offer  Rate (LIBOR) based
floating rate debt (average  5.21%) to fixed rate  debt (average 7.12%)  thereby
reducing  the potential  impact of increasing  short-term interest  rates on the
Company's results  of  operations. At  December  31, 1993,  interest  rate  swap
agreements  effectively changed $373 million of  fixed rate debt (average 9.66%)
to LIBOR based  floating rate debt  (average 5.3%), $82  million of LIBOR  based
floating  rate debt (average 3.11%) to fixed rate debt (average 7.24%) and a $41
million fixed rate obligation (7.5%) to a LIBOR floating rate obligation (3.5%).
   The Company's exposure to changes  in foreign currency exchange rates  arises
from  inter-company loans utilized to finance foreign subsidiaries, receivables,
payables and  firm  commitments  arising from  international  transactions.  The
Company  attempts to  have all such  transaction exposures  hedged with internal
natural offsets to  the fullest  extent possible and,  once these  opportunities
have been exhausted, through derivative financial instruments with third parties
(i.e., forward or option agreements). The Company currently also uses derivative
financial  instruments to  hedge the  Company's exposure  to changes  in foreign
currency exchange rates for the translated  U.S. dollar value of the net  income
of  a number of  foreign subsidiaries. The  Company's principal foreign currency
exposures relate to  the French  franc, the  German deutsche  mark, the  British
pound  and the U.S. dollar.  At December 31, 1994 and  1993, the Company held or
had written foreign  currency forward  and option  agreements, maturing  through
1997.  The Company uses some of these  agreements to reduce exposures to changes
in foreign currency  exchange rates  and to reduce  the risk  that such  changes
would  adversely affect  its results  of operations  or financial  condition. In
addition, some of these instruments are hedges of firmly committed  transactions
and forecasted transactions that will or are expected to occur through 1995.
   The  Company's financial instrument counterparties are substantial investment
or commercial  banks  with significant  experience  with such  instruments.  The
Company  manages exposure to  counterparty credit risk  through specific minimum
credit  standards  and  diversification  of  counterparties.  The  Company   has
procedures to monitor the credit exposure amounts. The Company believes that the
credit  risks, in part  because of the  above practices and  procedures, are not
significant. At December 31, 1994 the  net market risk exposures from  financial
instruments were not significant.
   The  values of the Company's  outstanding derivative financial instruments at
December 31, 1994 and 1993 are as follows:

                                   NOTIONAL
                                  PRINCIPAL        FAIR     CARRYING
                                     AMOUNT       VALUE        VALUE
                                                
- --------------------------------------------------------------------
December 31, 1994
Interest rate swap agreements
   held                               $  82       $   6        $   1
Foreign currency forward
   agreements held                      953          21           18
Foreign currency forward
   agreements written                 1,130         (24)         (28)
Foreign currency options held           276           2            2
- --------------------------------------------------------------------
December 31, 1993
Interest rate swap agreements
   held                               $ 496       $   8        $  --
Foreign currency forward
   agreements held                      210           5            6
Foreign currency forward
   agreements written                   117          (1)           1
Foreign currency options held           117           1            1
- --------------------------------------------------------------------

   The only other material financial instruments that are  not  carried  in  the
Consolidated  Balance Sheet at amounts which approximate fair values are certain
debt instruments.  The carrying  value  of long-term  debt and  related  current
maturities (excluding capitalized leases of $47 and $52 million at year-end 1994
and  1993, respectively)  is $1,507  and $1,687  million and  the fair  value is
$1,590 and $1,945 million at December 31, 1994 and 1993, respectively. The  fair
values are estimated based on the quoted market price for the issues (if traded)
or  based on current rates offered to the Company for debt of the same remaining
maturity and characteristics.
 
NOTE 17. CAPITAL STOCK
 
The Company is authorized  to issue up to  20,000,000 shares of preferred  stock
without par value and may establish series of preferred stock having such number
of shares and such terms as it may determine.
   The  Company is authorized to issue up to 500,000,000 shares of common stock,
with a par value of one dollar. Common shareowners are entitled to receive  such
dividends as may be declared by the Board of Directors (the Board), are entitled
to  one vote per share, and are entitled,  in the event of liquidation, to share
ratably in all the assets of the Company which are available for distribution to
the common shareowners. Common shareowners do not have preemptive or  conversion
rights.  Shares of common stock  issued and outstanding or  held in the treasury
are not  liable to  further calls  or assessments.  There is  no restriction  on
dividends  or the repurchase or  redemption of common stock  by the Company. The
Company has  remaining authority  to repurchase  from time  to time  up to  13.6
million shares of common stock.
   The  Board determined on February 7, 1994 to redeem the share purchase rights
that accompanied each share of common stock outstanding on February 18, 1994  at
$0.05 a right.
 
                                                                              33

 

                                                  COMMON
                                      SHARES       STOCK/
                                 OUTSTANDING      PAID-IN     TREASURY
                               (IN MILLIONS)      CAPITAL        STOCK
                                                   
- -----------------------------------------------------------------------
Balance December 31, 1991              276.3       $ 2,747     $ (1,423)
Purchased under repurchase
   programs                             (5.3)           --         (152)
Used for Dividend
   Reinvestment Plan                      .2            --            3
Used for employee benefit plans
   (including related
   tax benefits)                        12.6            35          236
- -----------------------------------------------------------------------
Balance December 31, 1992              283.8         2,782       (1,336)
Purchased under repurchase
   programs                             (6.7)           --         (220)
Used for Dividend
   Reinvestment Plan                      .1            --            3
Used for employee benefit plans
   (including related
   tax benefits)                         6.6            29          116
- -----------------------------------------------------------------------
Balance December 31, 1993              283.8         2,811       (1,437)
Purchased under repurchase
   programs                             (2.9)           --         (103)
Used for Dividend
   Reinvestment Plan                      .2            --            3
Used for employee benefit plans
   (including related
   tax benefits)                         2.0            12           32
Redemption of common
   stock purchase rights                  --            (7)          --
- -----------------------------------------------------------------------
Balance December 31, 1994              283.1       $ 2,816     $ (1,505)
- -----------------------------------------------------------------------

NOTE 18. STOCK OPTIONS AND AWARDS
 
The  Company has  a 1993  Stock Plan and  a 1985  Stock Plan  available to grant
options and other related benefits to  employees. Under both plans, the  Company
may  grant incentive and non-qualified  stock options, stock appreciation rights
(SARs), restricted shares  and restricted  units (Units) to  officers and  other
employees.  SARs entitle an optionee to  surrender unexercised stock options for
cash or stock equal to  the excess of the fair  market value of the  surrendered
shares  over the option value  of such shares. The  1993 Stock Plan provides for
the annual grant  of awards  in an amount  not in  excess of 1.5%  of the  total
shares  issued (including shares  held in treasury)  on December 31  of the year
preceding the year of the award. Any  shares that are available for awards  that
are  not utilized in a given year will be available for use in subsequent years.
Units have  been granted  to  certain employees,  which  entitle the  holder  to
receive  shares of common stock. At December 31, 1994 there were 1,206,109 Units
outstanding, including 428,680 Units granted in 1994, the restrictions on  which
generally  lapse  over periods  not  exceeding nine  years  from date  of grant.
Incentive stock options have a term determined by the Management Development and
Compensation Committee of the  Board (the Committee), but  not in excess of  ten
years.  Non-qualified stock options  have been granted  with terms of  up to ten
years and one  day. An  option becomes  exercisable at  such times  and in  such
installments  as set by the Committee. Options generally become exercisable over
a three-year period.

                                                         NUMBER OF
STOCK OPTIONS                                               SHARES
                                                   
- ------------------------------------------------------------------
Outstanding at December 31, 1991                        22,276,124
Granted at $22.07 - $27.82 per share                     5,934,198
Less --
Exercised at $10.12 - $23.41 per share                   8,823,506
Lapsed or canceled                                         286,290
Surrendered upon exercise of SARs                          270,262
- ------------------------------------------------------------------
Outstanding at December 31, 1992                        18,830,264
Granted at $29.13 - $36.94 per share                     5,949,990
Less --
Exercised at $10.34 - $34.35 per share                   4,986,618
Lapsed or canceled                                         145,190
Surrendered upon exercise of SARs                           30,000
- ------------------------------------------------------------------
Outstanding at December 31, 1993                        19,618,446
Granted at $33.57 - $39.07 per share                     6,809,010
Less --
Exercised at $13.75 - $35.91 per share                   1,693,567
Lapsed or canceled                                         344,720
Surrendered upon exercise of SARs                           17,450
- ------------------------------------------------------------------
Outstanding at December 31, 1994,
$13.75 - $39.07 per share                               24,371,719
- ------------------------------------------------------------------
Exercisable at December 31, 1994                        12,659,343
- ------------------------------------------------------------------
Available for grant at December 31, 1993                 6,191,044
- ------------------------------------------------------------------
Available for grant at December 31, 1994                 4,739,240
- ------------------------------------------------------------------

   The Company  also has  a Stock  Plan for  Non-Employee Directors  (Directors)
under  which restricted shares and options are  granted. Prior to April 25, 1994
Directors received  one-time grants  of 3,000  shares of  common stock  and  new
Directors  after that date will receive grants  of 1,500 shares of common stock,
subject to certain restrictions. In addition,  each Director will be granted  an
option  to purchase 1,000  shares of common stock  each year on  the date of the
annual meeting of  shareowners. The  Company has  set aside  225,000 shares  for
issuance  under  the stock  plan. Options  generally  become exercisable  over a
three-year period and have a term of ten years.
   All options were  granted at  not less  than fair  market value  at dates  of
grant.
   Treasury  shares  of  common stock  have  been  used upon  exercise  of stock
options. Differences  between the  cost of  treasury stock  used and  the  total
option price of shares exercised have been reflected in retained earnings.
 
NOTE 19. CUMULATIVE FOREIGN EXCHANGE TRANSLATION ADJUSTMENT

December 31                            1994  1993  1992
                                          
- -------------------------------------------------------
Balance at beginning of year           $ (7) $ 58  $ 65
Translation adjustment and impact of
   hedges and intercompany balances      25   (65)   (7)
- -------------------------------------------------------
                                       $ 18  $ (7) $ 58
- -------------------------------------------------------

NOTE 20. COMMITMENTS AND CONTINGENCIES
 
The  Company is subject to a number of lawsuits, investigations and claims (some
of which  involve  substantial  amounts)  arising out  of  the  conduct  of  its
business,  including  those  relating  to  commercial  transactions,  government
contracts, product liability and environmental,  safety and health matters.  One
such  lawsuit was brought by  The B. F. Goodrich  Company (Goodrich) in the U.S.
District Court for Delaware alleging infringement by the Company of two  patents
relating
 
34

to  aircraft brakes  and seeking injunctive  relief and  damages. The allegation
against the Company related only  to brakes for the Boeing  777, which is to  be
introduced in 1995, and not to any other brake program of the Company. At trial,
Goodrich  claimed  damages of  approximately  $350 million  before  trebling. On
November 10, 1994, after a  full trial on the  merits, the District Court  ruled
the  Goodrich patents were invalid, turned down Goodrich's claim for damages and
denied its request  for an  injunction. On December  8, 1994,  Goodrich filed  a
notice  that it would  appeal this decision. The  Company believes that Goodrich
will not prevail on appeal.
   In accordance with  the Company's accounting  policy described in  Note 1  of
Notes  to  Financial  Statements,  liabilities  are  recorded  for environmental
matters generally on the completion of feasibility studies or the settlement  of
claims, but in no event later than the Company's commitment to a plan of action.
Although  the  Company  does  not currently  possess  sufficient  information to
reasonably estimate the amounts  of the liabilities to  be recorded upon  future
completion  of studies, they  may be significant to  the consolidated results of
operations, but  management does  not  expect that  they  will have  a  material
adverse  effect  on the  consolidated financial  position  of the  Company. With
respect to all  other matters,  while the  ultimate results  of these  lawsuits,
investigations  and claims cannot be determined, management does not expect that
these matters will have a material adverse effect on the consolidated results of
operations or financial position of the Company.
   The Company  has  issued  or  is  a party  to  various  direct  and  indirect
guarantees,  bank letters of credit and customer guarantees. Management does not
expect these guarantees will have a material adverse effect on the  consolidated
results of operations or financial position of the Company.
 
NOTE 21. SUPPLEMENTAL CASH FLOW AND OTHER INFORMATION
 
Cash and cash equivalents includes cash on hand and on deposit and highly liquid
debt  instruments  with  maturities  generally of  three  months  or  less. Cash
payments during the years  1994, 1993 and 1992  included interest of $121,  $180
and $241 million and income taxes of $164, $130 and $115 million, respectively.
   In  November 1994 the  Company and General Motors  Corporation formed a joint
venture to manufacture coated substrates  for catalytic converters. The  Company
contributed  its environmental catalysts business and General Motors contributed
other assets and a long-term sales contract to the venture. The transaction  had
the following non-cash impact on the Company's 1994 balance sheet:

                                                           AMOUNT
                                                       
- -----------------------------------------------------------------
Current assets                                              $ (24)
Property, plant and equipment -- net                          (20)
Investments and long-term receivables                         (23)
Other noncurrent assets                                        (3)
Current liabilities                                           102
Noncurrent liabilities                                        (32)
- -----------------------------------------------------------------

   In  October 1993 the Company and Knorr-Bremse  AG formed an alliance to which
both companies contributed  their European operations,  which provide  air-brake
controls  and related products to the heavy truck industry. The Company owns 35%
of the venture, and  Knorr-Bremse owns the balance  and manages the  operations.
The  transaction had the following non-cash impact on the Company's 1993 balance
sheet:

                                                           AMOUNT
                                                       
- -----------------------------------------------------------------
Current assets                                              $ (49)
Property, plant and equipment -- net                          (28)
Investments and long-term receivables                          51
Other noncurrent assets                                       (13)
Current liabilities                                            29
Noncurrent liabilities                                         10
- -----------------------------------------------------------------

   The weighted average  interest rate on  short-term borrowings and  commercial
paper  outstanding  at  December  31,  1994  and  1993  was  11.21%  and  9.12%,
respectively.
 
NOTE 22. OIL AND GAS INVESTMENT
 
During 1992 the  Company disposed of  its remaining investments  in Union  Texas
Petroleum  Holdings,  Inc. (Union  Texas)  resulting in  a  pretax gain  of $357
million (after-tax  $221  million,  or  $0.78 a  share).  The  Company  received
approximately  $585 million, after underwriters'  discount, from the disposition
of its approximate 39% interest in the common stock of Union Texas. In addition,
the Company received  $355 million  from the redemption  at face  value of  $200
million  of preferred shares  and $155 million  of warrants of  Union Texas. The
Company received dividends from its preferred  investment in Union Texas of  $30
million in 1992.
 
NOTE 23. POSTRETIREMENT BENEFITS OTHER
THAN PENSIONS
 
The  Company's U.S.  retiree medical  programs cover  employees who  retire with
pension eligibility  for  hospital,  professional  and  other  medical  services
(programs).  Most  of  the  programs  require  deductibles  and  copayments  and
virtually all are integrated with Medicare. Retiree contributions are  generally
required based on coverage type, plan and Medicare eligibility. The Company also
sponsors  retiree life insurance programs which generally provide a flat benefit
of at least two thousand dollars or a  benefit as a percent of pay. The  retiree
medical and life insurance programs are not funded. Claims and expenses are paid
from the general assets of the Company.
   For  most non-union  employees retiring after  July 1, 1992,  the Company has
implemented an  approach  which  bases the  Company's  contribution  to  retiree
medical  premiums on  years of  service and  also establishes  a maximum Company
contribution in the future at approximately twice the current level at the  date
of implementation.
   In  1994, 1993 and 1992 the Company's cost for providing other postretirement
benefits aggregated $150,  $153 and  $166 million,  respectively, excluding  the
cumulative  pretax impact  of adopting  FASB No. 106  in 1992  of $1,790 million
(after-tax $1,099 million, or $3.90 a  share). The Company uses the services  of
an enrolled actuary to calculate postretirement benefit costs.
   For  measurement purposes,  the assumed  annual rate  of increase  in the per
capita cost of covered health care benefits  was 11% for 1994, which reduces  to
6% in 2000 and remains at that level thereafter. The health care cost trend rate
assumption  has a  significant effect  on the  amounts reported.  To illustrate,
increasing the assumed  health care cost  trend rates by  1 percentage point  in
each year would increase the accumulated postretirement benefit obligation as of
December
 
                                                                              35

31,  1994 by  $116 million and  the aggregate  of the service  and interest cost
component of net periodic postretirement benefit cost for the year then ended by
$11  million.  The  weighted-average  discount  rate  used  in  determining  the
accumulated  postretirement benefit obligation  was 8.75% and  7.25% at December
31, 1994 and 1993, respectively.
 
   Net periodic postretirement benefit cost for 1994, 1993 and 1992 included the
following components:

Years ended December 31                    1994   1993   1992
                                               
- -------------------------------------------------------------
Service cost-benefits attributed to
   service during the period              $  27  $  23  $  22
Interest cost on accumulated post-
   retirement benefit obligation            133    137    143
Net amortization                            (10)    (7)    --
- -------------------------------------------------------------
                                            150    153    165
Foreign plans                                --     --      1
- -------------------------------------------------------------
Net periodic postretirement
   benefit cost                           $ 150  $ 153  $ 166
- -------------------------------------------------------------

   Presented below are the plans' status and amounts recognized in the Company's
Consolidated Balance Sheet at December 31, 1994 and 1993:

December 31                                      1994    1993
                                                 
- -------------------------------------------------------------
Accumulated postretirement benefit
   obligation:
   Retirees                                    $1,120  $1,279
   Fully eligible active plan participants        172     200
   Other active plan participants                 393     418
- -------------------------------------------------------------
                                                1,685   1,897
Unrecognized prior service cost                   139     132
Unrecognized net gain (loss)                       94    (215)
- -------------------------------------------------------------
Accrued postretirement benefit cost            $1,918  $1,814
- -------------------------------------------------------------

NOTE 24. PENSIONS
 
The Company's pension plans, most of which are defined benefit plans and  almost
all  of which are  noncontributory, cover substantially  all employees. Benefits
under the plans are generally provided based on years of service and  employees'
compensation  during the last years  of employment or as  a flat dollar benefit.
Benefits are generally paid from funds  previously provided to trustees. In  the
Company's  principal U.S. plans, funds are contributed to a trustee as necessary
to provide for current service and for any unfunded projected benefit obligation
over a  reasonable period.  To  the extent  that  these requirements  are  fully
covered  by assets  on hand  for a  plan, a  contribution may  not be  made in a
particular year. As  of year-end 1994  approximately 56% of  the assets of  U.S.
plans  were  held in  equity  securities, with  the  balance primarily  in fixed
income-type securities.
   Pension expense  in 1994,  1993 and  1992 was  $109, $104  and $102  million,
respectively.  The Company uses the services of an enrolled actuary to calculate
the amount  of pension  expense and  contributions to  trustees of  the  various
pension plans.
 
   Net  periodic pension  cost for  1994, 1993  and 1992  included the following
components:

Years ended December 31                    1994   1993   1992
                                               
- -------------------------------------------------------------
Service cost-benefits earned during the
   period                                 $ 132  $ 115  $ 113
Interest cost on projected benefit
   obligation                               363    369    360
Actual return on plan assets                (65)  (663)  (320)
Net amortization and deferral              (338)   269    (69)
- -------------------------------------------------------------
Net periodic pension cost for defined
   benefit plans                             92     90     84
Foreign plans and other                      17     14     18
- -------------------------------------------------------------
Net periodic pension cost                 $ 109  $ 104  $ 102
- -------------------------------------------------------------

   The assumed rate  of return for  the Company's U.S.  defined benefit  pension
plans  was  9%  in  1994, 1993  and  1992.  The assumed  discount  rate  used in
calculating the projected  benefit obligations  at December 31,  1994, 1993  and
1992  was 8.75%, 7.25% and 8.25%,  respectively. In addition, the assumed annual
increase in compensation over employees'  estimated remaining working lives  was
5% in 1994 and 5.5% for both 1993 and 1992.
 
   Presented  below are the  plans' funded status and  amounts recognized in the
Company's Consolidated  Balance Sheet  at December  31, 1994  and 1993  for  its
significant defined benefit pension plans:

December 31                                                                             1994                                 1993
                                                                                                        
- ---------------------------------------------------------------------------------------------------------------------------------
                                                              ASSETS EXCEED      ACCUMULATED       ASSETS EXCEED      ACCUMULATED
                                                                ACCUMULATED         BENEFITS         ACCUMULATED         BENEFITS
                                                                   BENEFITS    EXCEED ASSETS            BENEFITS    EXCEED ASSETS
- ---------------------------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligation:
   Vested                                                           $ 3,252           $  678             $ 3,471           $  731
   Nonvested                                                            228               82                 256               74
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation                                      $ 3,480           $  760             $ 3,727           $  805
- ---------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation                                        $ 3,911           $  802             $ 4,396           $  857
Less -- Fair value of assets                                          4,127              617               4,227              678
- ---------------------------------------------------------------------------------------------------------------------------------
Over (under) funded plans                                               216             (185)(a)            (169)            (179)
Unrecognized transition (asset) liability                                 8              (45)                (11)              (7)
Unrecognized net (gain) loss                                            (79)             (13)                360                2
Unrecognized prior service cost                                         (16)              93                  (2)              63
- ---------------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost                                      $   129           $ (150)            $   178           $ (121)
- ---------------------------------------------------------------------------------------------------------------------------------

(a)   Included  in  this  amount  is  $152  million  for  unfunded  foreign  and
supplemental domestic pension plans.
 
36

NOTE 25. GEOGRAPHIC AREAS --  FINANCIAL DATA

                                                                                                           ADJUSTMENTS
                                                         UNITED                                 OTHER              AND
                                                     STATES (1)      CANADA      EUROPE  INTERNATIONAL    ELIMINATIONS     TOTAL
                                                                                                   
- --------------------------------------------------------------------------------------------------------------------------------
Net sales (2)                           1994            $ 9,739      $  202     $ 2,283         $  593          $   --  $ 12,817
                                        1993              9,220         225       1,897            485              --    11,827
                                        1992              8,978         331       2,295            438              --    12,042
- --------------------------------------------------------------------------------------------------------------------------------
Income before cumulative                1994                654          23          65             17              --       759
effect of changes in                    1993                570          26          55              5              --       656
accounting principles (3)               1992                512          32           6            (15)             --       535
- --------------------------------------------------------------------------------------------------------------------------------
Assets (4)                              1994              8,977         205       2,295            543            (699)   11,321
                                        1993              8,517         199       1,967            548            (402)   10,829
                                        1992              8,677         177       1,940            501            (539)   10,756
- --------------------------------------------------------------------------------------------------------------------------------
Liabilities (4)                         1994              7,290          87       1,319            342            (699)    8,339
                                        1993              7,175          98       1,235            333            (402)    8,439
                                        1992              7,374         113       1,293            264            (539)    8,505
- --------------------------------------------------------------------------------------------------------------------------------

Sales between geographic areas approximate market and are not significant.
(1) Corporate Office income,  expenses, assets and  liabilities are included  in
the 'United States' column.
(2)  Included in United States net sales  are export sales of $1,818, $1,699 and
$1,810 million for each of the respective years.
(3) Includes  in 1993  after-tax nonrecurring  items of  a gain  for the  United
States  of $13 million and a loss for Europe of $12 million. Includes in 1992 an
after-tax provision  to cover  Streamlining and  Restructuring charges  for  the
United States of $163, Europe of $56 and Other International of $8 million. Also
included  in the  'United States' column  in 1992  is the after-tax  gain on the
disposition of the Union Texas common stock of $221 million.
(4) Reclassified for comparative purposes.

NOTE 26. SEGMENT FINANCIAL DATA

                                                                               ENGINEERED       CORPORATE AND
                                                 AEROSPACE       AUTOMOTIVE     MATERIALS     UNALLOCATED (1)            TOTAL
                                                                                             
- ------------------------------------------------------------------------------------------------------------------------------
Net sales (2)                        1994          $ 4,623          $ 4,922          $ 3,272           $   --         $ 12,817
                                     1993            4,530            4,506            2,791               --           11,827
                                     1992            4,937            4,499            2,601                5           12,042
- ------------------------------------------------------------------------------------------------------------------------------
Research and development             1994              126               73              110                9              318
expense                              1993              127               63              113               10              313
                                     1992              122               64              124               10              320
- ------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization        1994              183              148              171               21              523
                                     1993              184              156              153               21              514
                                     1992              186              162              135               13              496
- ------------------------------------------------------------------------------------------------------------------------------
Income from operations (3)           1994              458              411              409             (126)           1,152
                                     1993              402              432              309             (189)             954
                                     1992              187              174              201             (147)             415
- ------------------------------------------------------------------------------------------------------------------------------
Income before cumulative             1994              260              223              331              (55)             759
effect of changes in                 1993              224              226              269              (63)             656
accounting principles (3) (4)        1992              105               76              190              164              535
- ------------------------------------------------------------------------------------------------------------------------------
Capital expenditures                 1994              148              245              232               14              639
                                     1993              139              205              354               20              718
                                     1992              162              202              301               26              691
- ------------------------------------------------------------------------------------------------------------------------------
Identifiable assets                  1994            5,104            3,276            2,562              379           11,321
                                     1993            4,502            2,838            2,502              987           10,829
                                     1992            4,380            3,082            2,295              999           10,756
- ------------------------------------------------------------------------------------------------------------------------------

Intersegment sales approximate market and are not significant.
(1) The 'Corporate and Unallocated' column includes amounts for businesses  sold
and  Corporate items. Income  before cumulative effect  of changes in accounting
principles includes  amounts (including  preferred dividends)  for Union  Texas,
accounted  for on the equity basis, for  1992 of $261 million (includes the gain
on the disposition of the common stock of Union Texas of $221 million, or  $0.78
a share).
(2)  Sales to  the U.S.  Government and its  agencies, mainly  for the Aerospace
segment, were  $1,089, $1,096  and $1,170  million for  each of  the  respective
years.
(3)  Includes in 1993 a pre- and after-tax provision to cover the current year's
impact of the  adoption of  FASB No.  112 for Aerospace  of $8  and $5  million,
Automotive  of $5 and $3 million, Engineered  Materials of $4 and $2 million and
Corporate and Unallocated of $1 and  $1 million, respectively. Includes in  1993
pre-  and after-tax impact of nonrecurring items for Aerospace of a charge of $6
and $4 million, a gain of $81 and $42 million for Automotive, a charge of $5 and
$3 million for  Engineered Materials and  a charge  of $54 and  $34 million  for
Corporate  and Unallocated, respectively. Includes in  1992 a pre- and after-tax
provision to cover Streamlining and Restructuring charges for Aerospace of  $213
and $122 million, Automotive of $95 and $65 million, Engineered Materials of $40
and  $25  million  and  Corporate  and  Unallocated  of  $20  and  $15  million,
respectively. In 1993 a reclassification of the reported 1992 pre- and after-tax
provision for Streamlining  and Restructuring of  $48 and $30  million was  made
reducing Corporate and Unallocated and increasing Aerospace.
(4) A finance charge is made by Corporate Office to the segments on the basis of
relative  capitalization, taxes on income are generally included in the segments
which gave rise to the tax effects and equity in income of affiliated  companies
is included in the segments in which these companies operate.
 
                                                                              37

NOTE 27. UNAUDITED QUARTERLY FINANCIAL INFORMATION

                                                                         1994                                                   1993
                                                                                              
                         -----------------------------------------------------------------------------------------------------------
                          MAR. 31    JUNE 30    SEPT. 30    DEC. 31      YEAR    MAR. 31    JUNE 30    SEPT. 30    DEC. 31      YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales                 $ 2,986    $ 3,187     $ 3,110    $ 3,534  $ 12,817    $ 2,901    $ 3,055     $ 2,812    $ 3,059  $ 11,827
As originally reported: (a)
   Gross profit               584        646         607        681     2,518        548        590         555        585
   Net income                 169        196         189        205       759        149        170         168        178
   Per share                  .60        .69         .67        .73      2.68        .52        .60         .59        .63
1993 restatement of
change in accounting
principle: (a)
   Gross profit                                                                       (1)        (1)         --         --
   Cumulative after-tax
      effect                                                                        (245)        --          --         --
   Per share                                                                        (.86)        --          --         --
   Quarterly after-tax
      effect                                                                        (248)        (3)         (3)        --
   Per share                                                                        (.87)      (.01)       (.01)        --
As restated: (a)
   Gross profit               584        646         607        681     2,518        547        589         555        585     2,276
   Income before
      cumulative effect
      of change in
      accounting
      principle               169        196         189        205       759        146        167         165        178       656
   Per share                  .60        .69         .67        .73      2.68        .51        .59         .58        .63      2.31
   Net income (loss)          169        196         189        205       759        (99)       167         165        178       411
   Per share                  .60        .69         .67        .73      2.68       (.35)       .59         .58        .63      1.45
Dividends paid                .145       .1675       .1675      .1675     .6475      .145       .145        .145       .145      .58
Market price (b)
High                        40.75      37.63       38.75      36.00     40.75      34.63      35.25       37.50      40.13     40.13
Low                         34.25      33.13       33.63      30.38     30.38      28.75      30.88       32.13      34.88     28.75
- ------------------------------------------------------------------------------------------------------------------------------------

(a)  FASB No.  112 was adopted  in the fourth  quarter of 1993,  effective as of
January 1,  1993. As  a result,  the  first three  quarters were  restated.  For
further information see Note 1 of Notes to Financial Statements.
(b)  From composite  tape --  stock is  primarily traded  on the  New York Stock
Exchange.
 
REPORT OF INDEPENDENT ACCOUNTANTS
 
                                                                  Morristown, NJ
                                                                February 1, 1995
 
[Logo]
 
To the Shareowners and Directors
of AlliedSignal Inc.
 
In our  opinion, the  accompanying consolidated  balance sheet  and the  related
consolidated  statements  of  income, of  retained  earnings and  of  cash flows
present fairly, in all material respects, the financial position of AlliedSignal
Inc. and its  subsidiaries at December  31, 1994  and 1993, and  the results  of
their  operations and their cash flows for each of the three years in the period
ended December  31,  1994,  in conformity  with  generally  accepted  accounting
principles.  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 conducted  our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting  principles used and significant  estimates
made by management, and evaluating the overall financial statement presentation.
We  believe that our audits provide a reasonable basis for the opinion expressed
above.

As discussed in Notes 1 and 23 to the financial statements, the Company  changed
its  methods of  accounting for postemployment  benefits in 1993  and for income
taxes and postretirement benefits other than pensions in 1992.

PRICE WATERHOUSE LLP
____________________

PRICE WATERHOUSE LLP

38

SELECTED FINANCIAL DATA
AlliedSignal Inc.

(dollars in millions except per share amounts)
Years ended December 31                1994        1993         1992          1991          1990      1989      1988         1987
                                                                                                 
- ---------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR (a)
Net sales                          $ 12,817    $ 11,827     $ 12,042      $ 11,831      $ 12,343  $ 11,942  $ 11,909     $ 11,116
Income (loss) from continuing
   operations                           759         656          535(b)       (273)(b)       462       528       463(b)       515(b)
Net income (loss)                       759         411(c)      (712)(c)      (273)          462       528       463          656
Per share of common stock:
Earnings (loss) from continuing
   operations                          2.68        2.31         1.90         (1.00)         1.67      1.78      1.55         1.53
Net earnings (loss)                    2.68        1.45        (2.52)        (1.00)         1.67      1.78      1.55         1.95
Dividends                               .6475       .58          .50           .80           .90       .90       .90          .90
- ---------------------------------------------------------------------------------------------------------------------------------
AT YEAR-END (a)
Net working capital                $  1,194    $  1,078     $  1,414      $    526      $    892  $  1,065  $  1,040     $    722
Property, plant and equipment
    -- net                            4,260       4,094        3,897         3,638         3,584     3,321     3,214        3,330
Total assets                         11,321      10,829       10,756        10,382        10,456    10,342    10,069       10,321
Long-term debt                        1,424       1,602        1,777         1,914         2,051     1,903     2,044        2,017
Shareowners' equity                   2,982       2,390        2,251         2,983         3,380     3,412     3,268        3,129
Book value per share of common
   stock                              10.53        8.42         7.93         10.79         12.55     11.77     11.05        10.44
Average investment (d)                4,848       4,506        4,939         6,771         6,723     6,520     6,629        6,859
Common shares outstanding (in
   millions)                          283.1       283.8        283.8         276.3         269.4     290.0     295.9        299.9
Common shareowners of record         82,095      84,248       84,254        91,492        97,210   102,042   111,402      109,322
Employees (e)                        87,500      86,400       89,300        98,300       105,800   107,100   109,550      115,300
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATISTICS (f)
Return on sales (income from
   operations)                          9.0         8.1          3.4          (2.5)          5.9       8.0       5.7          6.8
Return on sales (after-tax)             5.9         5.5          4.4          (2.3)          3.7       4.4       3.9          4.6
Return on average investment
   (after-tax)                         17.5        16.6         13.8          (1.3)          9.6      11.0      10.3         10.1
Return on average shareowners'
   equity (after-tax)                  28.9        30.6         26.4          (8.4)         13.9      15.6      14.5         14.5
Interest coverage ratio                 6.8         5.1          3.3           (.9)          2.6       3.0       2.8          3.6
Long-term debt as a percent of
   total capital                       30.4        37.9         40.5          34.9          33.6      30.8      33.2         33.9
Total debt as a percent of total
   capital                             34.1        42.7         44.7          43.9          40.4      35.7      35.9         39.0
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATISTICS (f) (g)
Return on sales (income from
   operations)                          9.0         7.9          6.5           4.7           5.9       8.0       7.4          6.8
Return on sales (after-tax)             5.9         5.5          4.5           2.9           3.7       4.4       4.3          3.9
Return on average investment
   (after-tax)                         17.5        16.6         13.9           7.8           9.6      11.0      10.9          8.9
Return on average shareowners'
   equity (after-tax)                  28.9        30.5         26.7          10.5          13.9      15.6      15.9         12.2
Interest coverage ratio                 6.8         5.0          3.3           2.1           2.6       3.0       2.9          3.2
Long-term debt as a percent of
   total capital                       30.4        37.9         40.5          34.9          33.6      30.8      33.2         33.9
Total debt as a percent of total
   capital                             34.1        42.7         44.7          43.9          40.4      35.7      35.9         39.0
- ---------------------------------------------------------------------------------------------------------------------------------

(a)  Share and per share data for all periods reflect the March 1994 two-for-one
stock split.
(b)  Includes  in  1992  the  effect   of  a  provision  for  Streamlining   and
Restructuring  charges as well  as a gain on  the sale of  common stock of Union
Texas resulting in a net charge of $11 million (after-tax $6 million, or $0.02 a
share) as  discussed  in  Notes 4  and  22  of Notes  to  Financial  Statements,
respectively.  In 1991 includes  the effect of a  provision for Streamlining and
Restructuring charges as well as gains  on asset sales by Union Texas  resulting
in  a net charge of $838 million (after-tax  $615 million, or $2.25 a share). In
1988 includes an after-tax provision of $125 million, or $0.42 a share, to cover
Streamlining and Restructuring  charges, an  after-tax gain of  $36 million,  or
$0.12  a  share, from  the sale  of  the Company's  investment in  Akebono Brake
Industry Company Ltd. and an  after-tax gain of $81  million, or $0.27 a  share,
from nonrecurring items. Includes in 1987 the effect of the sale of common stock
by  Union Texas which resulted  in the Company recording  a gain of $108 million
(after-tax $82 million, or $0.24 a share), reflecting the Company's share of  an
increase in Union Texas' equity.
(c) Includes in 1993 the cumulative after-tax provision for the adoption of FASB
No.  112 of  $245 million,  or $0.86  a share.  Includes in  1992 the cumulative
after-tax provision for the adoption of FASB Nos. 106 and 109 of $1,247 million,
or $4.42 a share.  Such accounting changes  are discussed in Notes  1 and 23  of
Notes to Financial Statements.
(d)  Investment  is  defined  as shareowners'  equity  and  non-current deferred
taxes-net plus total debt.
(e) Includes employees at facilities operated for the U.S. Department of Energy.
(f) The returns and interest coverage ratio exclude the impact of the cumulative
effect of changes in accounting principles on income.
(g) The returns and interest coverage  ratio exclude the impact of  nonrecurring
items  in 1993, provisions  for Streamlining and  Restructuring charges in 1992,
1991 and 1988, gain  on sale of common  stock of Union Texas  in 1992, gains  on
asset sales by Union Texas in 1991, nonrecurring income in 1988 and Union Texas'
equity transaction in 1987.
 
                                                                              39

                                                                      EXHIBIT 21
 
                         SUBSIDIARIES OF THE REGISTRANT

                                                                                         SECURITIES OWNED
                                                                     COUNTRY OR      -------------------------
                                                                      STATE OF                        PERCENT
                              NAME                                  INCORPORATION       CLASS        OWNERSHIP
- -----------------------------------------------------------------   -------------    ------------    ---------

AlliedSignal International Finance Corporation...................    Delaware        Common Stock      100
     AlliedSignal Canada Inc.....................................    Canada          Common Stock      100
     AlliedSignal Automotive Europe S.A..........................    France          Common Stock       99.9
     AlliedSignal Laminate Systems Inc...........................    Delaware        Common Stock      100
EM Sector Holdings Inc...........................................    Delaware        Common Stock      100
HD Polymer Corporation...........................................    Delaware        Common Stock      100

- ----------------------------------------------------------
 
     The  names of the  Registrant's other consolidated  subsidiaries, which are
primarily totally-held  by  the Registrant,  are  not listed  because  all  such
subsidiaries,  considered in  the aggregate  as a  single subsidiary,  would not
constitute a significant subsidiary.

                                                                      EXHIBIT 23
 
                       CONSENT OF INDEPENDENT ACCOUNTANTS
 
     We  hereby consent  to the incorporation  by reference  in the Prospectuses
constituting part of  AlliedSignal Inc.'s Registration  Statements on Forms  S-8
(Nos.  33-09896, 33-50314, 33-51031, 33-51455,  33-55410 and 33-65792), on Forms
S-3 (Nos. 33-00631, 33-13211, 33-14071 and  33-55425) and on Form S-8 (filed  as
an  amendment to Form S-14, No. 2-99416-01) of our report dated February 1, 1995
appearing on page 38  of the 1994 Annual  Report to Shareowners of  AlliedSignal
Inc.,  which is incorporated by reference in this Annual Report on Form 10-K for
the year ended December 31, 1994.
 
PRICE WATERHOUSE LLP 
____________________

PRICE WATERHOUSE LLP
 
Morristown, New Jersey
March 2, 1995

                                                                      EXHIBIT 24

                               POWER OF ATTORNEY

     I, Lawrence A. Bossidy, Chairman and Chief Executive Officer and a director
of AlliedSignal  Inc. (the "Company"),  a Delaware  corporation,  hereby appoint
Peter M. Kreindler, G. Peter D'Aloia and Nancy A. Garvey, each with power to act
without  the other and with  power of  substitution  and  resubstitution,  as my
attorney-in-fact  and agent for me and in my name,  place and stead,  in any and
all capacities,

     (i) to sign the Company's  Annual Report on Form 10-K under the  Securities
and Exchange Act of 1934 for the year ended December 31, 1994,

     (ii) to sign any amendment to the Annual  Report  referred to in (i) above,
and

     (iii)  to file  the  documents  described  in (i) and  (ii)  above  and all
exhibits thereto and any and all other documents in connection therewith,

granting  unto each said  attorney and agent full power and  authority to do and
perform  every act and thing  requisite,  necessary  or  desirable to be done in
connection  therewith,  as fully to all intents and purposes as I might or could
do in person,  hereby  ratifying and confirming all that said  attorneys-in-fact
and agents,  or any of them, or their or his or her  substitutes  or substitute,
may lawfully do or cause to be done by virtue hereof.

                                                        LAWRENCE A. BOSSIDY
                                                  ______________________________
                                                        Lawrence A. Bossidy

Dated: February 3, 1995

                               POWER OF ATTORNEY

     I, Hans W. Becherer,  a director of AlliedSignal  Inc. (the  "Company"),  a
Delaware corporation, hereby appoint Lawrence A. Bossidy, Peter M. Kreindler, G.
Peter D'Aloia and Nancy A. Garvey,  each with power to act without the other and
with power of substitution and resubstitution,  as my attorney-in-fact and agent
for me and in my name, place and stead, in any and all capacities,

     (i) to sign the Company's  Annual Report on Form 10-K under the  Securities
and Exchange Act of 1934 for the year ended December 31, 1994,

     (ii) to sign any amendment to the Annual  Report  referred to in (i) above,
and

     (iii)  to file  the  documents  described  in (i) and  (ii)  above  and all
exhibits thereto and any and all other documents in connection therewith,

granting  unto each said  attorney and agent full power and  authority to do and
perform  every act and thing  requisite,  necessary  or  desirable to be done in
connection  therewith,  as fully to all intents and purposes as I might or could
do in person,  hereby  ratifying and confirming all that said  attorneys-in-fact
and agents,  or any of them, or their or his or her  substitutes  or substitute,
may lawfully do or cause to be done by virtue hereof.

                                                         HANS W. BECHERER
                                                  ______________________________
                                                         Hans W. Becherer

Dated: February 3, 1995

                               POWER OF ATTORNEY

     I, Eugene E. Covert,  a director of AlliedSignal  Inc. (the  "Company"),  a
Delaware corporation, hereby appoint Lawrence A. Bossidy, Peter M. Kreindler, G.
Peter D'Aloia and Nancy A. Garvey,  each with power to act without the other and
with power of substitution and resubstitution,  as my attorney-in-fact and agent
for me and in my name, place and stead, in any and all capacities,

     (i) to sign the Company's  Annual Report on Form 10-K under the  Securities
and Exchange Act of 1934 for the year ended December 31, 1994,

     (ii) to sign any amendment to the Annual  Report  referred to in (i) above,
and

     (iii)  to file  the  documents  described  in (i) and  (ii)  above  and all
exhibits thereto and any and all other documents in connection therewith,

granting  unto each said  attorney and agent full power and  authority to do and
perform  every act and thing  requisite,  necessary  or  desirable to be done in
connection  therewith,  as fully to all intents and purposes as I might or could
do in person,  hereby  ratifying and confirming all that said  attorneys-in-fact
and agents,  or any of them, or their or his or her  substitutes  or substitute,
may lawfully do or cause to be done by virtue hereof.

                                                          EUGENE E. COVERT
                                                  ______________________________
                                                          Eugene E. Covert

Dated: February 3, 1995

                               POWER OF ATTORNEY

     I, Ann  M. Fudge,  a director  of  AlliedSignal  Inc.  (the  "Company"),  a
Delaware corporation, hereby appoint Lawrence A. Bossidy, Peter M. Kreindler, G.
Peter D'Aloia and Nancy A. Garvey,  each with power to act without the other and
with power of substitution and resubstitution,  as my attorney-in-fact and agent
for me and in my name, place and stead, in any and all capacities,

     (i) to sign the Company's  Annual Report on Form 10-K under the  Securities
and Exchange Act of 1934 for the year ended December 31, 1994,

     (ii) to sign any amendment to the Annual  Report  referred to in (i) above,
and

     (iii)  to file  the  documents  described  in (i) and  (ii)  above  and all
exhibits thereto and any and all other documents in connection therewith,

granting  unto each said  attorney and agent full power and  authority to do and
perform  every act and thing  requisite,  necessary  or  desirable to be done in
connection  therewith,  as fully to all intents and purposes as I might or could
do in person,  hereby  ratifying and confirming all that said  attorneys-in-fact
and agents,  or any of them, or their or his or her  substitutes  or substitute,
may lawfully do or cause to be done by virtue hereof.

                                                          ANN M. FUDGE
                                                  ______________________________
                                                          Ann M. Fudge

Dated: February 3, 1995

                               POWER OF ATTORNEY

     I, William R. Haselton, a director of AlliedSignal Inc. (the "Company"),  a
Delaware corporation, hereby appoint Lawrence A. Bossidy, Peter M. Kreindler, G.
Peter D'Aloia and Nancy A. Garvey,  each with power to act without the other and
with power of substitution and resubstitution,  as my attorney-in-fact and agent
for me and in my name, place and stead, in any and all capacities,

     (i) to sign the Company's  Annual Report on Form 10-K under the  Securities
and Exchange Act of 1934 for the year ended December 31, 1994,

     (ii) to sign any amendment to the Annual  Report  referred to in (i) above,
and

     (iii)  to file  the  documents  described  in (i) and  (ii)  above  and all
exhibits thereto and any and all other documents in connection therewith,

granting  unto each said  attorney and agent full power and  authority to do and
perform  every act and thing  requisite,  necessary  or  desirable to be done in
connection  therewith,  as fully to all intents and purposes as I might or could
do in person,  hereby  ratifying and confirming all that said  attorneys-in-fact
and agents,  or any of them, or their or his or her  substitutes  or substitute,
may lawfully do or cause to be done by virtue hereof.

                                                       WILLIAM R. HASELTON
                                                  ______________________________
                                                       William R. Haselton

Dated: February 3, 1995

                               POWER OF ATTORNEY

     I, Paul X. Kelley,  a director of  AlliedSignal  Inc.  (the  "Company"),  a
Delaware corporation, hereby appoint Lawrence A. Bossidy, Peter M. Kreindler, G.
Peter D'Aloia and Nancy A. Garvey,  each with power to act without the other and
with power of substitution and resubstitution,  as my attorney-in-fact and agent
for me and in my name, place and stead, in any and all capacities,

     (i) to sign the Company's  Annual Report on Form 10-K under the  Securities
and Exchange Act of 1934 for the year ended December 31, 1994,

     (ii) to sign any amendment to the Annual  Report  referred to in (i) above,
and

     (iii)  to file  the  documents  described  in (i) and  (ii)  above  and all
exhibits thereto and any and all other documents in connection therewith,

granting  unto each said  attorney and agent full power and  authority to do and
perform  every act and thing  requisite,  necessary  or  desirable to be done in
connection  therewith,  as fully to all intents and purposes as I might or could
do in person,  hereby  ratifying and confirming all that said  attorneys-in-fact
and agents,  or any of them, or their or his or her  substitutes  or substitute,
may lawfully do or cause to be done by virtue hereof.

                                                          PAUL X. KELLEY
                                                  ______________________________
                                                          Paul X. Kelley

Dated: February 3, 1995

                               POWER OF ATTORNEY

     I, Robert P. Luciano,  a director of AlliedSignal  Inc. (the "Company"),  a
Delaware corporation, hereby appoint Lawrence A. Bossidy, Peter M. Kreindler, G.
Peter D'Aloia and Nancy A. Garvey,  each with power to act without the other and
with power of substitution and resubstitution,  as my attorney-in-fact and agent
for me and in my name, place and stead, in any and all capacities,

     (i) to sign the Company's  Annual Report on Form 10-K under the  Securities
and Exchange Act of 1934 for the year ended December 31, 1994,

     (ii) to sign any amendment to the Annual  Report  referred to in (i) above,
and

     (iii)  to file  the  documents  described  in (i) and  (ii)  above  and all
exhibits thereto and any and all other documents in connection therewith,

granting  unto each said  attorney and agent full power and  authority to do and
perform  every act and thing  requisite,  necessary  or  desirable to be done in
connection  therewith,  as fully to all intents and purposes as I might or could
do in person,  hereby  ratifying and confirming all that said  attorneys-in-fact
and agents,  or any of them, or their or his or her  substitutes  or substitute,
may lawfully do or cause to be done by virtue hereof.

                                                         ROBERT P. LUCIANO
                                                  ______________________________
                                                         Robert P. Luciano

Dated: February 3, 1995

                               POWER OF ATTORNEY

     I, Russell E. Palmer, a director of AlliedSignal  Inc. (the  "Company"),  a
Delaware corporation, hereby appoint Lawrence A. Bossidy, Peter M. Kreindler, G.
Peter D'Aloia and Nancy A. Garvey,  each with power to act without the other and
with power of substitution and resubstitution,  as my attorney-in-fact and agent
for me and in my name, place and stead, in any and all capacities,

     (i) to sign the Company's  Annual Report on Form 10-K under the  Securities
and Exchange Act of 1934 for the year ended December 31, 1994,

     (ii) to sign any amendment to the Annual  Report  referred to in (i) above,
and

     (iii)  to file  the  documents  described  in (i) and  (ii)  above  and all
exhibits thereto and any and all other documents in connection therewith,

granting  unto each said  attorney and agent full power and  authority to do and
perform  every act and thing  requisite,  necessary  or  desirable to be done in
connection  therewith,  as fully to all intents and purposes as I might or could
do in person,  hereby  ratifying and confirming all that said  attorneys-in-fact
and agents,  or any of them, or their or his or her  substitutes  or substitute,
may lawfully do or cause to be done by virtue hereof.

                                                        RUSSELL E. PALMER
                                                  ______________________________
                                                        Russell E. Palmer

Dated: February 3, 1995

                               POWER OF ATTORNEY

     I, Ivan G. Seidenberg,  a director of AlliedSignal Inc. (the "Company"),  a
Delaware corporation, hereby appoint Lawrence A. Bossidy, Peter M. Kreindler, G.
Peter D'Aloia and Nancy A. Garvey,  each with power to act without the other and
with power of substitution and resubstitution,  as my attorney-in-fact and agent
for me and in my name, place and stead, in any and all capacities,

     (i) to sign the Company's  Annual Report on Form 10-K under the  Securities
and Exchange Act of 1934 for the year ended December 31, 1994,

     (ii) to sign any amendment to the Annual  Report  referred to in (i) above,
and

     (iii)  to file  the  documents  described  in (i) and  (ii)  above  and all
exhibits thereto and any and all other documents in connection therewith,

granting  unto each said  attorney and agent full power and  authority to do and
perform  every act and thing  requisite,  necessary  or  desirable to be done in
connection  therewith,  as fully to all intents and purposes as I might or could
do in person,  hereby  ratifying and confirming all that said  attorneys-in-fact
and agents,  or any of them, or their or his or her  substitutes  or substitute,
may lawfully do or cause to be done by virtue hereof.

                                                        IVAN G. SEIDENBERG
                                                  ______________________________
                                                        Ivan G. Seidenberg

Dated: February 3, 1995

                               POWER OF ATTORNEY

     I, Andrew C. Sigler,  a director of AlliedSignal  Inc. (the  "Company"),  a
Delaware corporation, hereby appoint Lawrence A. Bossidy, Peter M. Kreindler, G.
Peter D'Aloia and Nancy A. Garvey,  each with power to act without the other and
with power of substitution and resubstitution,  as my attorney-in-fact and agent
for me and in my name, place and stead, in any and all capacities,

     (i) to sign the Company's  Annual Report on Form 10-K under the  Securities
and Exchange Act of 1934 for the year ended December 31, 1994,

     (ii) to sign any amendment to the Annual  Report  referred to in (i) above,
and

     (iii)  to file  the  documents  described  in (i) and  (ii)  above  and all
exhibits thereto and any and all other documents in connection therewith,

granting  unto each said  attorney and agent full power and  authority to do and
perform  every act and thing  requisite,  necessary  or  desirable to be done in
connection  therewith,  as fully to all intents and purposes as I might or could
do in person,  hereby  ratifying and confirming all that said  attorneys-in-fact
and agents,  or any of them, or their or his or her  substitutes  or substitute,
may lawfully do or cause to be done by virtue hereof.

                                                         ANDREW C. SIGLER
                                                  ______________________________
                                                         Andrew C. Sigler

Dated: February 3, 1995

                               POWER OF ATTORNEY

     I, John R. Stafford,  a director of AlliedSignal  Inc. (the  "Company"),  a
Delaware corporation, hereby appoint Lawrence A. Bossidy, Peter M. Kreindler, G.
Peter D'Aloia and Nancy A. Garvey,  each with power to act without the other and
with power of substitution and resubstitution,  as my attorney-in-fact and agent
for me and in my name, place and stead, in any and all capacities,

     (i) to sign the Company's  Annual Report on Form 10-K under the  Securities
and Exchange Act of 1934 for the year ended December 31, 1994,

     (ii) to sign any amendment to the Annual  Report  referred to in (i) above,
and

     (iii)  to file  the  documents  described  in (i) and  (ii)  above  and all
exhibits thereto and any and all other documents in connection therewith,

granting  unto each said  attorney and agent full power and  authority to do and
perform  every act and thing  requisite,  necessary  or  desirable to be done in
connection  therewith,  as fully to all intents and purposes as I might or could
do in person,  hereby  ratifying and confirming all that said  attorneys-in-fact
and agents,  or any of them, or their or his or her  substitutes  or substitute,
may lawfully do or cause to be done by virtue hereof.

                                                         JOHN R. STAFFORD
                                                  ______________________________
                                                         John R. Stafford

Dated: February 3, 1995

                               POWER OF ATTORNEY

     I, Thomas P. Stafford,  a director of AlliedSignal Inc. (the "Company"),  a
Delaware corporation, hereby appoint Lawrence A. Bossidy, Peter M. Kreindler, G.
Peter D'Aloia and Nancy A. Garvey,  each with power to act without the other and
with power of substitution and resubstitution,  as my attorney-in-fact and agent
for me and in my name, place and stead, in any and all capacities,

     (i) to sign the Company's  Annual Report on Form 10-K under the  Securities
and Exchange Act of 1934 for the year ended December 31, 1994,

     (ii) to sign any amendment to the Annual  Report  referred to in (i) above,
and

     (iii)  to file  the  documents  described  in (i) and  (ii)  above  and all
exhibits thereto and any and all other documents in connection therewith,

granting  unto each said  attorney and agent full power and  authority to do and
perform  every act and thing  requisite,  necessary  or  desirable to be done in
connection  therewith,  as fully to all intents and purposes as I might or could
do in person,  hereby  ratifying and confirming all that said  attorneys-in-fact
and agents,  or any of them, or their or his or her  substitutes  or substitute,
may lawfully do or cause to be done by virtue hereof.

                                                        THOMAS P. STAFFORD
                                                  ______________________________
                                                        Thomas P. Stafford

Dated: February 3, 1995

                               POWER OF ATTORNEY

     I, Delbert C. Staley, a director of AlliedSignal  Inc. (the  "Company"),  a
Delaware corporation, hereby appoint Lawrence A. Bossidy, Peter M. Kreindler, G.
Peter D'Aloia and Nancy A. Garvey,  each with power to act without the other and
with power of substitution and resubstitution,  as my attorney-in-fact and agent
for me and in my name, place and stead, in any and all capacities,

     (i) to sign the Company's  Annual Report on Form 10-K under the  Securities
and Exchange Act of 1934 for the year ended December 31, 1994,

     (ii) to sign any amendment to the Annual  Report  referred to in (i) above,
and

     (iii)  to file  the  documents  described  in (i) and  (ii)  above  and all
exhibits thereto and any and all other documents in connection therewith,

granting  unto each said  attorney and agent full power and  authority to do and
perform  every act and thing  requisite,  necessary  or  desirable to be done in
connection  therewith,  as fully to all intents and purposes as I might or could
do in person,  hereby  ratifying and confirming all that said  attorneys-in-fact
and agents,  or any of them, or their or his or her  substitutes  or substitute,
may lawfully do or cause to be done by virtue hereof.

                                                        DELBERT C. STALEY
                                                  ______________________________
                                                        Delbert C. Staley

Dated: February 3, 1995

                               POWER OF ATTORNEY

     I, Robert C. Winters,  a director of AlliedSignal  Inc. (the "Company"),  a
Delaware corporation, hereby appoint Lawrence A. Bossidy, Peter M. Kreindler, G.
Peter D'Aloia and Nancy A. Garvey,  each with power to act without the other and
with power of substitution and resubstitution,  as my attorney-in-fact and agent
for me and in my name, place and stead, in any and all capacities,

     (i) to sign the Company's  Annual Report on Form 10-K under the  Securities
and Exchange Act of 1934 for the year ended December 31, 1994,

     (ii) to sign any amendment to the Annual  Report  referred to in (i) above,
and

     (iii)  to file  the  documents  described  in (i) and  (ii)  above  and all
exhibits thereto and any and all other documents in connection therewith,

granting  unto each said  attorney and agent full power and  authority to do and
perform  every act and thing  requisite,  necessary  or  desirable to be done in
connection  therewith,  as fully to all intents and purposes as I might or could
do in person,  hereby  ratifying and confirming all that said  attorneys-in-fact
and agents,  or any of them, or their or his or her  substitutes  or substitute,
may lawfully do or cause to be done by virtue hereof.

                                                        ROBERT C. WINTERS
                                                  ______________________________
                                                        Robert C. Winters

Dated: February 3, 1995

  

 5

                                                                      EXHIBIT 27

     This schedule  contains summary  financial  information  extracted from the
consolidated  balance sheet at December 31, 1994 and the consolidated  statement
of income for the year ended  December 31, 1994 and is qualified in its entirety
by reference to such financial statements.

                                   1,000,000

                                 YEAR
                             DEC-31-1994
                                  DEC-31-1994
                                                508
                                            0
                                       1,526
                                           33
                                         1,743
                                    4,585
                                              8,792
                                      4,532
                                     11,321
                               3,391
                                             1,424
                                              358
                                   0
                                             0
                                          2,624
                       11,321
                                            12,817
                                   12,817
                                              10,299
                                      10,299
                                        0
                                        0
                                    143
                                     1,111
                                          352
                                   759
                                          0
                                         0
                                               0
                                          759
                                        2.68
                                           0