Honeywell 2007 Annual Report Download - page 75

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Note 1—Summary of Significant Accounting Policies
Accounting Principles—The financial statements and accompanying notes are prepared in accordance
with accounting principles generally accepted in the United States of America. 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 bear a majority of the risk to the entities' potential losses
or stand to gain from a majority of the entities' expected returns. 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 at 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 or
a series of historic and projected operating losses by investees are strong indicators of other-than-temporary
declines. 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, including any asset
retirement obligations, less accumulated depreciation. For financial reporting, the straight-line method of
depreciation is used over the estimated useful lives of 10 to 50 years for buildings and improvements and 2 to 15
years for machinery and equipment. Statement of Financial Accounting Standards No. 143, "Accounting for Asset
Retirement Obligations" (SFAS No. 143) and FASB Interpretation No. 47 ("FIN 47") require recognition of the fair
value of obligations associated with the retirement of tangible long-lived assets when there is a legal obligation to
incur such costs. Upon adoption of FIN 47 on December 31, 2005, we recorded an increase of $14 million to
property, plant and equipment and recognized an asset retirement obligation liability of $46 million. This resulted
in the recognition of a non-cash charge of $32 million ($21 million after tax) that was reported as a cumulative
effect of an accounting change. Upon initial recognition of a liability the cost is capitalized as part of the related
long-lived asset and depreciated over the corresponding asset's useful life. See Note 11 and Note 17 for
additional details.
Goodwill and Indefinite-Lived Intangible Assets—Goodwill represents the excess of acquisition costs
over the fair value of tangible net assets and identifiable intangible assets of businesses acquired. Goodwill and
certain other intangible assets deemed to have indefinite lives are not amortized. Intangible assets determined to
have definite lives are amortized over their useful lives. Goodwill and indefinite lived intangible assets are subject
to impairment testing annually as of March 31, or whenever events or changes in circumstances indicate that the
carrying amount may not be fully recoverable, using the guidance and criteria described in Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets". This testing compares carrying values to
fair values and, when appropriate, the carrying value of these assets is reduced to fair value. We completed our
annual goodwill impairment test as of March 31, 2007 and determined that there was no impairment as of that
date. See Note 12 for additional details on goodwill balances.
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