Honeywell 2006 Annual Report Download - page 68

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)
Long-Lived Assets—We periodically evaluate the recoverability of the carrying amount of long-lived assets (including property,
plant and equipment, and intangible assets with determinable lives) whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be fully recoverable. We evaluate events or changes in circumstances based on a number of
factors including operating results, business plans and forecasts, general and industry trends and, economic projections and anticipated
cash flows. An impairment is assessed when the undiscounted expected future cash flows derived from an asset are less than its
carrying amount. Impairment losses are measured as the amount by which the carrying value of an asset exceeds its fair value and are
recognized in earnings. We also continually evaluate the estimated useful lives of all long-lived assets and periodically revise such
estimates based on current events.
Sales Recognition—Product and service sales are recognized when persuasive evidence of an arrangement exists, product delivery
has occurred or services have been rendered, pricing is fixed or determinable, and collection is reasonably assured. Service sales,
principally representing repair, maintenance and engineering activities in our Aerospace and Automation and Control Solutions
reportable segments, are recognized over the contractual period or as services are rendered. Sales under long-term contracts in the
Aerospace, Automation and Control Solutions and Specialty Materials reportable segments are recorded on a percentage-of-
completion method measured on the cost-to-cost basis for engineering-type contracts and the units-of-delivery basis for production-
type contracts. Provisions for anticipated losses on long-term contracts are recorded in full when such losses become evident.
Revenues from contracts with multiple element arrangements are recognized as each element is earned based on the relative fair value
of each element provided the delivered elements have value to customers on a standalone basis. Amounts allocated to each element
are based on its objectively determined fair value, such as the sales price for the product or service when it is sold separately or
competitor prices for similar products or services.
Environmental Expenditures—Environmental expenditures that relate to current operations are expensed or capitalized as
appropriate. Expenditures that relate to an existing condition caused by past operations, and that do not provide future benefits, are
expensed as incurred. Liabilities are recorded when environmental remedial efforts or damage claim payments are probable and the
costs can be reasonably estimated. Such liabilities are based on our best estimate of the undiscounted future costs required to complete
the remedial work. The recorded liabilities are adjusted periodically as remediation efforts progress or as additional technical or legal
information becomes available. Given the uncertainties regarding the status of laws, regulations, enforcement policies, the impact of
other potentially responsible parties, technology and information related to individual sites, we do not believe it is possible to develop
an estimate of the range of reasonably possible environmental loss in excess of our accruals.
Asbestos Related Contingencies and Insurance Recoveries—Honeywell is a defendant in personal injury actions related to
asbestos containing products (refractory products and friction products). We recognize a liability for any asbestos related contingency
that is probable of occurrence and reasonably estimable. Regarding North American Refractories Company (NARCO) asbestos related
claims, we accrue for pending claims based on terms and conditions, including evidentiary requirements, in definitive agreements or
agreements in principle with current claimants. We also accrued for the probable value of future NARCO asbestos related claims
through 2018 based on the disease criteria and payment values contained in the NARCO trust as described in Note 21. In light of the
inherent uncertainties in making long term projections regarding claims filing rates and disease manifestation, we do not believe that
we have a reasonable basis for estimating NARCO asbestos claims beyond 2018 under Statement of Financial Accounting Standards
No. 5, “Accounting for Contingencies” (SFAS No. 5). Regarding Bendix asbestos related claims, we accrue for the estimated value of
pending claims based on expected claim resolution values and dismissal rates. In the fourth
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