Honeywell 2008 Annual Report Download - page 67

Automation and Control Solutions, Aerospace and Specialty Materials segments. These long-term contracts are
measured on the cost-to-cost basis for engineering-type contracts and the units-of-delivery basis for production-
type contracts. Accounting for these contracts involves management judgment in estimating total contract
revenue and cost. Contract revenues are largely determined by negotiated contract prices and quantities,
modified by our assumptions regarding contract options, change orders, incentive and award provisions
associated with technical performance and price adjustment clauses (such as inflation or index-based clauses).
Contract costs are incurred over a period of time, which can be several years, and the estimation of these costs
requires management judgment. Cost estimates are largely based on negotiated or estimated purchase contract
terms, historical performance trends and other economic projections. Significant factors that influence these
estimates include inflationary trends, technical and schedule risk, internal and subcontractor performance trends,
business volume assumptions, asset utilization, and anticipated labor agreements. Revenue and cost estimates
are regularly monitored and revised based on changes in circumstances. Anticipated losses on long-term
contracts are recognized when such losses become evident. We maintain financial controls over the customer
qualification, contract pricing and estimation processes to reduce the risk of contract losses.
OTHER MATTERS
Litigation
See Note 21 to the financial statements for a discussion of environmental, asbestos and other litigation
matters.
Recent Accounting Pronouncements
See Note 1 to the financial statements for a discussion of recent accounting pronouncements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Information relating to market risk is included in Item 7. Management Discussion and Analysis of Financial
Condition and Results of Operations under the caption "Financial Instruments".
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