Honeywell 2005 Annual Report Download - page 56

that any losses related to our retained interests at risk will have a material adverse effect on our consolidated results of operations,
financial position or liquidity.
Environmental Matters
We are subject to various federal, state, local and foreign government requirements relating to the protection of the environment.
We believe that, as a general matter, our policies, practices and procedures are properly designed to prevent unreasonable risk of
environmental damage and personal injury and that our handling, manufacture, use and disposal of hazardous or toxic substances are
in accord with environmental and safety laws and regulations. However, mainly because of past operations and operations of
predecessor companies, we, like other companies engaged in similar businesses, have incurred remedial response and voluntary
cleanup costs for site contamination and are a party to lawsuits and claims associated with environmental and safety matters, including
past production of products containing toxic substances. Additional lawsuits, claims and costs involving environmental matters are
likely to continue to arise in the future.
With respect to environmental matters involving site contamination, we continually conduct studies, individually or jointly with
other responsible parties, to determine the feasibility of various remedial techniques to address environmental matters. It is our policy
(see Note 1 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data”) to record appropriate
liabilities for environmental matters when 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 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 reasonable possible environmental loss in excess of our accrual. We expect to fund expenditures for these matters from
operating cash flow. The timing of cash expenditures depends on a number of factors, including the timing of litigation and
settlements of remediation liability, personal injury and property damage claims, regulatory approval of cleanup projects, remedial
techniques to be utilized and agreements with other parties.
Remedial response and voluntary cleanup payments were $247, $248 and $77 million in 2005, 2004, and 2003, respectively, and
are currently estimated to be approximately $250 million in 2006. We expect to fund such expenditures from operating cash flow.
Remedial response and voluntary cleanup costs charged against pretax earnings were $186, $536 and $235 million in 2005, 2004
and 2003, respectively. At December 31, 2005 and 2004, the recorded liability for environmental matters was $879 and $895 million,
respectively. In addition, in 2005 and 2004 we incurred operating costs for ongoing businesses of approximately $87 and $75 million,
respectively, relating to compliance with environmental regulations.
Although we do not currently possess sufficient information to reasonably estimate the amounts of liabilities to be recorded upon
future completion of studies, litigation or settlements, and neither the timing nor the amount of the ultimate costs associated with
environmental matters can be determined, they could be material to our consolidated results of operations or operating cash flows in
the periods recognized or paid. However, considering our past experience and existing reserves, we do not expect that environmental
matters will have a material adverse effect on our consolidated financial position.
See Note 21 of Notes to Financial Statements in “Item 8. Financial Statements and Supplementary Data” for a discussion of our
commitments and contingencies, including those related to environmental matters and toxic tort litigation.
Financial Instruments
As a result of our global operating and financing activities, we are exposed to market risks from changes in interest and foreign
currency exchange rates and commodity prices, which may adversely affect our operating results and financial position. We minimize
our risks from interest and foreign currency exchange rate and commodity price fluctuations through our normal operating and
financing activities and, when deemed appropriate, through the use of derivative financial instruments. We do not use derivative
financial instruments for trading or other speculative purposes and do not use leveraged
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