Honeywell 2006 Annual Report Download - page 52

Off-Balance Sheet Arrangements
Following is a summary of our off-balance sheet arrangements:
Guarantees—We have issued or are a party to the following direct and indirect guarantees at December 31, 2006:
Maximum
Potential
Future
Payments
(Dollars in millions)
Operating lease residual values $ 38
Other third parties' financing 6
Unconsolidated affiliates' financing 9
Customer financing 22
$ 75
We do not expect that these guarantees will have a material adverse effect on our consolidated results of operations, financial
position or liquidity.
In connection with the disposition of certain businesses and facilities we have indemnified the purchasers for the expected cost of
remediation of environmental contamination, if any, existing on the date of disposition. Such expected costs are accrued when
environmental assessments are made or remedial efforts are probable and the costs can be reasonably estimated.
Retained Interests in Factored Pools of Trade Accounts Receivables—As a source of liquidity, we sell interests in designated
pools of trade accounts receivables to third parties. The sold receivables ($500 million at December 31, 2006) are over-collateralized
and we retain a subordinated interest in the pool of receivables representing that over-collateralization as well as an undivided interest
in the balance of the receivables pools. The over-collateralization provides credit support to the purchasers of the receivable interest by
limiting their losses in the event that a portion of the receivables sold becomes uncollectible. At December 31, 2006, our retained
subordinated and undivided interests at risk were $171 and $579 million, respectively. Based on the underlying credit quality of the
receivables placed into the designated pools of receivables being sold, we do not expect 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
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