Honeywell 2007 Annual Report Download - page 62

consolidated financial statements are described in the Recent Accounting Pronouncements section in Note 1 to
the financial statements.
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 primarily relate to product liabilities (including asbestos),
contractual matters, 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 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 (including new discovery of fact, changes in legislation and outcomes of similar cases through the
judicial system), changes in assumptions 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 to the financial statements.
Asbestos Related Contingencies and Insurance Recoveries—We are a defendant in personal injury
actions related to products containing asbestos (refractory 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 to
the financial statements. 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 historic dismissal rates. Since the fourth quarter
of 2006, we also accrue for the estimated cost of future anticipated claims related to Bendix for the next five
years based on our assessment of additional claims that may be brought against us and anticipated resolution
values in the tort system. In December 2006, we also changed our methodology for valuing Bendix pending and
future claims from using average resolution values for the previous five years to using average resolution values
for the previous two years. The claims filing experience and resolution data for Bendix related claims has become
more reliable over the past several years. Accordingly, in the fourth quarter of 2007, we updated our
methodology for valuing Bendix pending and future claims using the average resolution values for the past three
years. We will continue to updated the expected resolution values used to estimate the cost of pending and
future Bendix claims during the fourth quarter each year. For additional information see Note 21 to the financial
statements. We continually assess the likelihood of any adverse judgments or outcomes to our contingencies, as
well as potential ranges of probable losses and recognize a liability, if any, for these contingencies based on an
analysis of each individual issue with the assistance of outside legal counsel and, if applicable, other experts.
In connection with the 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. At December 31, 2007, we have recorded insurance receivables of $939 million
that can be specifically allocated to NARCO related asbestos liabilities. We also have $1.9 billion in coverage
remaining for Bendix related asbestos
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