Honeywell 2012 Annual Report Download - page 62

The discount rate can be volatile from year to year because it is determined based upon prevailing
interest rates as of the measurement date. We will use a 4.06 percent discount rate in 2013, reflecting
the decrease in the market interest rate environment since December 31, 2011. We will use an
expected rate of return on plan assets of 7.75 percent for 2013 down from 8 percent in 2012 due to
lower future expected market returns.
In addition to the potential for MTM Adjustments, changes in our expected rate of return on plan
assets and discount rate resulting from economic events also affects future pension ongoing expense.
The following table highlights the sensitivity of our U.S. pension obligations and ongoing expense to
changes in these assumptions, assuming all other assumptions remain constant. These estimates
exclude any potential MTM Adjustment:
Change in Assumption
Impact on 2013
Pension Ongoing
Expense Impact on PBO
0.25 percentage point decrease in discount rate . . Decrease $9 million Increase $565 million
0.25 percentage point increase in discount rate . . . Increase $7 million Decrease $545 million
0.25 percentage point decrease in expected rate
of return on assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase $35 million —
0.25 percentage point increase in expected rate
of return on assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease $35 million —
Pension ongoing income for all of our pension plans is expected to range from $50 to $75 million
in 2013 compared with ongoing pension expense of $36 million in 2012. The increase in pension
ongoing income in 2013 compared with 2012 results primarily from an increase in the plans’ assets at
December 31, 2012 compared with December 31, 2011 due to contributions and strong asset returns
in 2012. Also, if required, an MTM Adjustment will be recorded in the fourth quarter of 2013 in
accordance with our pension accounting method as previously described. It is difficult to reliably
forecast or predict whether there will be a MTM Adjustment in 2013, and if one is required what the
magnitude of such adjustment will be. MTM Adjustments are primarily driven by events and
circumstances beyond the control of the Company such as changes in interest rates and the
performance of the financial markets.
In 2012, 2011 and 2010, we were not required to make contributions to satisfy minimum statutory
funding requirements in our U.S. pension plans. However, we made voluntary contributions of $792,
$1,650 and $1,000 million to our U.S. pension plans in 2012, 2011 and 2010, respectively, primarily to
improve the funded status of our plans which has been adversely impacted by relatively low discount
rates and asset losses in 2011 and 2008 resulting from the poor performance of the equity markets. In
2013, we are not required to make contributions to our U.S. pension plans, however, we plan to make
cash contributions of approximately $150 million ($113 million was made in January 2013) to our non-
U.S. plans to satisfy regulatory funding standards. The timing and amount of contributions to both our
U.S. and non-U.S. plans may be impacted by a number of factors, including the funded status of the
plans.
Long-Lived Assets (including Tangible and Definite-Lived Intangible Assets)—To conduct
our global business operations and execute our business strategy, we acquire tangible and intangible
assets, including property, plant and equipment and definite-lived intangible assets. At December 31,
2012, the net carrying amount of these long-lived assets totaled approximately $6.7 billion. The
determination of useful lives (for depreciation/amortization purposes) and whether or not these assets
are impaired involves the use of accounting estimates and assumptions, changes in which could
materially impact our financial condition or operating performance if actual results differ from such
estimates and assumptions. We periodically evaluate the recoverability of the carrying amount of our
long-lived assets whenever events or changes in circumstances indicate that the carrying amount of a
long-lived asset group may not be fully recoverable. The principal factors we consider in deciding when
to perform an impairment review are as follows:
•Significant under-performance (i.e., declines in sales, earnings or cash flows) of a business or
product line in relation to expectations;
•Annual operating plans or five-year strategic plans that indicate an unfavorable trend in
operating performance of a business or product line;
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