Honeywell 2005 Annual Report Download - page 32

(Prestone®), filters (Fram®), spark plugs (Autolite®), and cleaners, waxes and additives (Holts®); and brake hard parts and other
friction materials (Bendix® and Jurid®). Transportation Systems sells its products to OE automotive and truck manufacturers (e.g.,
BMW, Caterpillar, Daimler-Chrysler, Ford, Volkswagen), wholesalers and distributors and through the retail aftermarket.
Economic and Other Factors—Transportation Systems' operating results are principally driven by worldwide automobile and
truck production, demand for automotive aftermarket and car care products and the global demand for automobiles and trucks
equipped with turbochargers.
Areas of Focus—Transportation Systems' primary areas of focus include:
• Sustaining superior turbocharger technology.
• Increasing global market penetration and share of diesel and gasoline turbocharger OEM demand.
• Expanding and strengthening established strong product brands in our Consumer Products Group business, including
expansion into new geographic and demographic segments.
CRITICAL ACCOUNTING POLICIES
The preparation of our consolidated financial statements in accordance with generally accepted accounting principles is based on
the selection and application of accounting policies that require us to make significant estimates and assumptions about the effects of
matters that are inherently uncertain. We consider the accounting policies discussed below to be critical to the understanding of our
financial statements. Actual results could differ from our estimates and assumptions, and any such differences could be material to our
consolidated financial statements.
We have discussed the selection, application and disclosure of these critical accounting policies with the Audit Committee of our
Board of Directors and our Independent Registered Public Accountants. There were no new accounting standards effective in 2005
which had a material impact on our consolidated financial statements other than those described in the Recent Accounting
Pronouncements section in Note 1 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data”.
Contingent Liabilities—We are subject to a number of lawsuits, investigations and claims (some of which involve substantial
dollar amounts) that arise out of the conduct of our global business operations or those of previously owned entities. These
contingencies relate to product liabilities, including asbestos, commercial transactions, government contracts and environmental health
and safety matters. We recognize a liability for any contingency that is probable of occurrence and reasonably estimable. We
continually assess the likelihood of any adverse judgments or outcomes to our contingencies, as well as potential amounts or ranges of
probable losses, and recognize a liability, if any, for these contingencies based on a careful analysis of each matter with the assistance
of outside legal counsel and, if applicable, other experts. Such analysis includes making judgments concerning matters such as the
costs associated with environmental matters, the outcome of negotiations, the number and cost of pending and future (where
estimable) asbestos claims, and the impact of evidentiary requirements. Because most contingencies are resolved over long periods of
time, liabilities may change in the future due to new developments or changes in our settlement strategy. For a discussion of our
contingencies related to environmental, asbestos and other matters, including management's judgment applied in the recognition and
measurement of specific liabilities, see Notes 1 and 21 of Notes to Financial Statements in “Item 8. Financial Statements and
Supplementary Data”.
Insurance for Asbestos Related Liabilities—In connection with recognition of liabilities for asbestos related matters, we record
asbestos related insurance recoveries that are deemed probable. In assessing the probability of insurance recovery, we make judgments
concerning insurance coverage that we believe are reasonable and consistent with our historical experience with our insurers, our
knowledge of any pertinent solvency issues surrounding insurers, various judicial determinations relevant to our insurance programs
and our consideration of the impacts of any settlements with our insurers. We have approximately $1.2 billion in insurance coverage
remaining that can be specifically allocated to North American Refractories Company (NARCO) related asbestos liabilities. We also
have
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