Honeywell 2014 Annual Report Download - page 38

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management’s judgment applied in the recognition and measurement of our environmental and
asbestos liabilities which represent our most significant contingencies.
Asbestos Related Contingencies and Insurance Recoveries—Honeywell’s involvement in
asbestos related personal injury actions relates to two predecessor companies. Regarding
North American Refractories Company (NARCO) asbestos related claims, we accrued for pending
claims based on terms and conditions in agreements with NARCO, its former parent company, and
certain asbestos claimants, and an estimate of the unsettled claims pending as of the time NARCO
filed for bankruptcy protection. We also accrued for the estimated value of future NARCO asbestos
related claims expected to be asserted against the NARCO Trust through 2018. In light of the inherent
uncertainties in making long term projections and in connection with the initial operation of a 524(g)
trust, as well as the stay of all NARCO asbestos claims from January 2002 through the effective date
of the NARCO Trust on April 30, 2013, we do not believe that we have a reasonable basis for
estimating NARCO asbestos claims beyond 2018. Regarding Bendix asbestos related claims, we
accrued for the estimated value of pending claims using average resolution values for the previous five
years. We also accrued for the estimated value of future anticipated claims related to Bendix for the
next five years based on historic claims filing experience and dismissal rates, disease classifications,
and average resolution values in the tort system for the previous five years. In light of the uncertainties
inherent in making long-term projections, as well as certain factors unique to friction product asbestos
claims, we do not believe that we have a reasonable basis for estimating asbestos claims beyond the
next five years.
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 dealings and our knowledge of any pertinent solvency issues surrounding
insurers. 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 19 Commitments and Contingencies of Notes to Financial Statements for a discussion
of management’s judgments applied in the recognition and measurement of our asbestos-related
liabilities and related insurance recoveries.
Defined Benefit Pension Plans—We sponsor both funded and unfunded U.S. and non-U.S.
defined benefit pension plans. For financial reporting purposes, net periodic pension (income) expense
is calculated annually 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. Changes in the discount rate and
expected long-term rate of return on plan assets could materially affect the annual pension (income)
expense amount. Annual pension (income) expense is comprised of a potential mark-to-market
adjustment (MTM Adjustment) and service and interest cost, assumed return on plan assets and prior
service amortization (Pension Ongoing (Income) Expense).
The key assumptions used in developing our 2014, 2013 and 2012 net periodic pension (income)
expense for our U.S. plans included the following:
2014 2013 2012
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.89% 4.06% 4.89%
Assets:
Expected rate of return. . . . . . . . . . . . . . . . . . . . . . . . . . 7.75% 7.75% 8%
Actual rate of return. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8% 23% 13%
Actual 10 year average annual compounded rate
of return. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8% 8% 8%
The MTM Adjustment represents the recognition of net actuarial gains or losses in excess of the
corridor. Net actuarial gains and losses occur when the actual experience differs from any of the
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