Honeywell 2008 Annual Report Download - page 77

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)
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 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. 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.
Aerospace Sales Incentives—We provide sales incentives to commercial aircraft manufacturers and
airlines in connection with their selection of our aircraft equipment, predominately wheel and braking system
hardware and auxiliary power units, for installation on commercial aircraft. These incentives principally consist of
free or deeply discounted products, but also include credits for future purchases of product and upfront cash
payments. These costs are recognized in the period incurred as cost of products sold or as a reduction to sales,
as appropriate. For aircraft manufacturers, incentives are recorded when the products are delivered; for airlines,
incentives are recorded when the associated aircraft are delivered by the aircraft manufacturer to the airline.
Research and Development—Research and development costs for company-sponsored research and
development projects are expensed as incurred. Such costs are principally included in Cost of Products Sold and
were $1,543, $1,459 and $1,411 million in 2008, 2007 and 2006, respectively.
Stock-Based Compensation Plans—The principal awards issued under our stock-based compensation
plans, which are described in Note 20, include non-qualified stock options and restricted stock units (RSUs). The
cost for such awards is measured at the grant date based on the fair value of the award. The value of the portion
of the award that is ultimately expected to vest is recognized as expense over the requisite service periods
(generally the vesting period of the equity award) and is included in selling, general and administrative expense
in our Consolidated Statement of Operations. SFAS No. 123 (revised 2004), "Share-Based Payment" (SFAS No.
123R) requires forfeitures to be estimated at the time of grant in order to estimate the portion of the award that
will ultimately vest. The estimate is based on our historical rates of forfeiture.
Pension and Other Postretirement Benefits—We sponsor both funded and unfunded U.S. and non-U.S.
defined benefit pension plans covering the majority of our employees and retirees. We also sponsor
postretirement benefit plans that provide health care benefits and life insurance coverage to eligible retirees. For
our U.S. defined benefit pension plans we use the market-related value of plan assets reflecting changes in the
fair value of plan assets over a three-year period. Further, net actuarial (gains) or losses in excess of 10 percent
of the greater of the market-related value of plan assets or the plans' projected benefit obligation (the corridor)
are recognized over a six-year period. We adopted
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