Honeywell 2011 Annual Report Download - page 57

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assess the likelihood and amount of potential adjustments and adjust the income tax provision, the current tax liability and deferred taxes in the period in
which the facts that give rise to a revision become known.
Sales Recognition on Long-Term Contracts—In 2011, we recognized approximately 16 percent of our total net sales using the percentage-of-
completion method for long-term contracts in our Automation and Control Solutions, Aerospace and Performance Materials and Technologies 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.
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