Honeywell 2013 Annual Report Download - page 30

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, 2013, the net carrying value of long-lived assets (property, plant and equipment,
goodwill and other intangible assets) and available for sale securities totaled approximately $20.8
billion and $0.8 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 25 percent and 8 percent
of Aerospace and total sales, respectively, for the year ended December 31, 2013. 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 2014 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
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