Honeywell 2009 Annual Report Download - page 63

(1) Asset or (liability).
(2) Changes in the fair value of foreign currency exchange contracts are offset by changes in the fair value or
cash flows of underlying hedged foreign currency transactions.
(3) Changes in the fair value of forward commodity contracts are offset by changes in the cash flows of
underlying hedged commodity transactions.
The above discussion of our procedures to monitor market risk and the estimated changes in fair value
resulting from our sensitivity analyses are forward-looking statements of market risk assuming certain adverse
market conditions occur. Actual results in the future may differ materially from these estimated results due to
actual developments in the global financial markets. The methods used by us to assess and mitigate risk
discussed above should not be considered projections of future events.
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. New accounting
standards effective in 2009 which had a material impact on our 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 facts, 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. Regarding Bendix asbestos related claims, we accrue for the estimated value of
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