Honeywell 2008 Annual Report Download - page 63

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. 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. We value
Bendix pending and future claims using the average resolution values for the previous three years. We will
continue to update 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, 2008, we have recorded insurance receivables of $877 million
that can be specifically allocated to NARCO related asbestos liabilities. We also have $1.9 billion in coverage
remaining for Bendix related asbestos liabilities although there are gaps in our coverage due to insurance
company insolvencies, certain uninsured periods and insurance settlements. Our insurance is with both the
domestic insurance market and the London excess market. While the substantial majority of our insurance
carriers are solvent, some of our individual carriers are insolvent, which has been considered in our analysis of
probable recoveries. Projecting future events is subject to various uncertainties that could cause the insurance
recovery on asbestos related liabilities to be higher or lower than that projected and recorded. Given the inherent
uncertainty in making future projections, we reevaluate our projections concerning our probable insurance
recoveries in light of any changes to the projected liability, our recovery experience or other relevant factors that
may impact future insurance recoveries. See Note 21 to the financial statements for a discussion of
management's judgments applied in the recognition and measurement of insurance recoveries for asbestos
related liabilities.
Defined Benefit Pension Plans—We maintain defined benefit pension plans covering a majority of our
employees and retirees. For financial reporting purposes, net periodic pension expense is calculated based upon
a number of actuarial assumptions, including a discount rate for plan obligations and an expected long-term rate
of return on plan assets. We determine the expected long-term rate of return on plan assets utilizing historic and
expected plan asset returns over varying long-term periods
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