Honeywell 2011 Annual Report Download - page 19

Changes in U.S. and global financial and equity markets, including market disruptions, limited liquidity, and interest rate volatility, may increase the
cost of financing as well as the risks of refinancing maturing debt. In addition, our borrowing costs can be affected by short and long-term ratings assigned by
independent rating agencies. A decrease in these ratings could increase our cost of borrowing.
Delays in our customers' ability to obtain financing, or the unavailability of financing to our customers, could adversely affect our results of operations
and cash flow. The inability of our suppliers to obtain financing could result in the need to transition to alternate suppliers, which could result in significant
incremental cost and delay, as discussed above. Lastly, disruptions in the U.S. and global financial markets could impact the financial institutions with which
we do business.
We may be required to recognize impairment charges for our long-lived assets or available for sale investments.
At December 31, 2011, the net carrying value of long-lived assets (property, plant and equipment, goodwill and other intangible assets) and available
for sale securities totaled approximately $19.1 billion and $0.4 billion, respectively. In accordance with generally accepted accounting principles, we
periodically assess these assets to determine if they are impaired. Significant negative industry or economic trends, disruptions to our business, unexpected
significant changes or planned changes in use of the assets, divestitures and market capitalization declines may result in impairments to goodwill and other
long-lived assets. An other than temporary decline in the market value of our available for sale securities may also result in an impairment charge. Future
impairment charges could significantly affect our results of operations in the periods recognized. Impairment charges would also reduce our consolidated
shareowners' equity and increase our debt-to-total-capitalization ratio, which could negatively impact our credit rating and access to the public debt and equity
markets.
A change in the level of U.S. Government defense and space funding or the mix of programs to which such funding is allocated could adversely impact
Aerospace's defense and space sales and results of operations.
Sales of our defense and space-related products and services are largely dependent upon government budgets, particularly the U.S. defense budget.
Sales as a prime contractor and subcontractor to the U.S. Department of Defense comprised approximately 29 and 9 percent of Aerospace and total sales,
respectively, for the year ended December 31, 2011. We cannot predict the extent to which total funding and/or funding for individual programs will be
included, increased or reduced as part of the 2012 and subsequent budgets ultimately approved by Congress, or be included in the scope of separate
supplemental appropriations. We also cannot predict the impact of potential changes in priorities due to military transformation and planning and/or the nature
of war-related activity on existing, follow-on or replacement programs. A shift in defense or space spending to programs in which we do not participate and/or
reductions in funding for or termination of existing programs could adversely impact our results of operations.
As a supplier of military and other equipment to the U.S. Government, we are subject to unusual risks, such as the right of the U.S. Government to
terminate contracts for convenience and to conduct audits and investigations of our operations and performance.
In addition to normal business risks, companies like Honeywell that supply military and other equipment to the U.S. Government are subject to unusual
risks, including dependence on Congressional appropriations and administrative allotment of funds, changes in governmental procurement legislation and
regulations and other policies that reflect military and political developments, significant changes in contract requirements, complexity of designs and the
rapidity with which they become obsolete, necessity for frequent design improvements, intense competition for U.S. Government business necessitating
increases in time and investment for design and development, difficulty of forecasting costs and schedules when bidding on developmental and highly
sophisticated technical work, and other factors characteristic of the industry, such as contract award protests and delays in the timing of contract approvals.
Changes are customary over the life of U.S. Government contracts, particularly development contracts, and generally result in adjustments to contract prices
and schedules.
Our contracts with the U.S. Government are also subject to various government audits. Like many other government contractors, we have received audit
reports that recommend downward price adjustments to certain contracts or changes to certain accounting systems or controls to comply with various
government regulations. When appropriate and prudent, we have made adjustments and paid voluntary refunds in the past and may do so in the future.
U.S. Government contracts are subject to termination by the government, either for the convenience of the government or for our failure to perform
consistent with the terms of the applicable contract. In the case of a termination for convenience, we are typically entitled to reimbursement for our allowable
costs incurred, plus
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