Honeywell 2010 Annual Report Download - page 61

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)
the contractual period or as services are rendered. Sales under long-term contracts in the Aerospace and Automation and Control Solutions 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.
Allowance for Doubtful Accounts—We maintain allowances for doubtful accounts for estimated losses as a result of customer's inability to make
required payments. We estimate anticipated losses from doubtful accounts based on days past due, as measured from the contractual due date, historical
collection history and incorporate changes in economic conditions that may not be reflected in historical trends for example, customers in bankruptcy,
liquidation or reorganization. Receivables are written-off against the allowance for doubtful accounts when they are determined uncollectible. Such
determination includes analysis and consideration of the particular conditions of the account, including time intervals since last collection, success of outside
collection agencies activity, solvency of customer and any bankruptcy proceedings.
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, regulatory 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 recorded liabilities.
Asbestos Related Contingencies and Insurance Recoveries—Honeywell is 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 accrue 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. 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 five 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,
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