Honeywell 2004 Annual Report Download - page 65

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Note 1—Summary of Significant Accounting Policies
Honeywell International Inc. is a diversified technology and manufacturing company, serving customers worldwide with
aerospace products and services, control, sensing and security technologies for buildings, homes and industry, turbochargers,
automotive products, specialty chemicals, fibers, and electronic and advanced materials. The following is a description of the
significant accounting policies of Honeywell International Inc.
Principles of Consolidation—The consolidated financial statements include the accounts of Honeywell International Inc. and all
of its subsidiaries and entities in which a controlling interest is maintained. Our consolidation policy requires the consolidation of
entities where a controlling financial interest is obtained as well as consolidation of variable interest entities in which we are
designated as the primary beneficiary in accordance with Financial Accounting Standards Board (FASB) Interpretation No. 46,
“Consolidation of Variable Interest Entities” (FIN 46), as amended. See Recent Accounting Pronouncements in this Note for further
discussion of FIN 46. All intercompany transactions and balances are eliminated in consolidation.
Cash and Cash Equivalents—Cash and cash equivalents include cash on hand and on deposit and highly liquid, temporary cash
investments with an original maturity of three months or less.
Inventories—Inventories are valued at the lower of cost or market using the first-in, first-out or the average cost method and the
last-in, first-out (LIFO) method for certain qualifying domestic inventories.
Investments—Investments in affiliates over which we have a significant influence, but not a controlling interest, are accounted for
using the equity method of accounting. Other investments are carried at market value, if readily determinable, or cost. All equity
investments are periodically reviewed to determine if declines in fair value below cost basis are other-than-temporary. Significant and
sustained decreases in quoted market prices and a series of historic and projected operating losses by investees are considered in the
review. If the decline in fair value is determined to be other-than-temporary, an impairment loss is recorded and the investment is
written down to a new carrying value.
Property, Plant and Equipment—Property, plant and equipment are recorded at cost less accumulated depreciation. For financial
reporting, the straight-line method of depreciation is used over the estimated useful lives of 10 to 40 years for buildings and
improvements and 3 to 15 years for machinery and equipment.
Goodwill and Indefinite-Lived Intangible Assets—Goodwill represents the excess of acquisition costs over the fair value of net
assets of businesses acquired. Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS
No. 142) requires that goodwill and certain other intangible assets having indefinite lives no longer be amortized to income, but
instead be periodically tested for impairment. Intangible assets determined to have definite lives will continue to be amortized over
their useful lives. When we adopted SFAS No. 142, we reassessed the useful lives and residual values of all acquired intangible assets
to make any necessary amortization period adjustments. Based on that assessment, an amount related to a trademark in our automotive
consumer products business was determined to be an indefinite-lived intangible asset because it is expected to generate cash flows
indefinitely. There were no other adjustments made to the amortization period or residual values of other intangible assets. We also
completed our goodwill impairment testing during the three months ended March 31, 2002 and determined that there was no
impairment as of January 1, 2002. This initial impairment assessment was updated as of March 31, 2004 and no impairment was
determined. Impairment tests for our reporting units are performed annually as of March 31 or when events or changes in
circumstances occur. See Note 13 for additional details.
Other Intangible Assets with Determinable Lives—Other intangible assets with determinable lives consist of Aerospace customer
incentives, patents and trademarks and other intangibles and are amortized over weighted average service periods of 25, 19 and 15
years, respectively.
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