Honeywell 2007 Annual Report Download - page 106

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HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)
designated as hedges. Market value gains and losses on these contracts are recognized in earnings when the
hedged transaction is recognized. All open forward contracts mature by December 31, 2008.
At December 31, 2007 and 2006, we had contracts with notional amounts of $3,295 and $2,572 million,
respectively, to exchange foreign currencies, principally the US dollar, Euro, British pound, Canadian dollar,
Hong Kong dollar, Mexican peso, Swiss franc, Czech koruna, Chinese renminbi, and Japanese yen.
Commodity Price Risk Management—Our exposure to market risk for commodity prices can result in
changes in our cost of production. We primarily mitigate our exposure to commodity price risk through the use of
long-term, fixed-price contracts with our suppliers and formula price agreements with suppliers and customers.
We also enter into forward commodity purchase agreements with third parties designated as hedges of
anticipated purchases of several commodities. Forward commodity purchase agreements are marked-to-market,
with the resulting gains and losses recognized in earnings when the hedged transaction is recognized.
Interest Rate Risk Management—We use a combination of financial instruments, including long-term,
medium-term and short-term financing, variable-rate commercial paper, and interest rate swaps to manage the
interest rate mix of our total debt portfolio and related overall cost of borrowing. At December 31, 2007 and 2006,
interest rate swap agreements designated as fair value hedges effectively changed $300 and $700 million,
respectively, of fixed rate debt at an average rate of 6.01 and 6.38 percent, respectively, to LIBOR based floating
rate debt. Our interest rate swaps mature through 2037.
Fair Value of Financial Instruments—The carrying value of cash and cash equivalents, trade accounts and
notes receivables, payables, commercial paper and short-term borrowings contained in the Consolidated
Balance Sheet approximates fair value. Summarized below are the carrying values and fair values of our other
financial instruments at December 31, 2007 and 2006. The fair values are based on the quoted market prices for
the issues (if traded), current rates offered to us for debt of the same remaining maturity and characteristics, or
other valuation techniques, as appropriate.
December 31, 2007 December 31, 2006
Carrying
Value Fair
Value Carrying
Value Fair
Value
Assets
Long-term receivables $ 460 $ 428 $ 333 $ 306
Interest rate swap agreements 20 20 3 3
Foreign currency exchange contracts 22 22 3 3
Forward commodity contracts — — — —
Liabilities
Long-term debt and related current
maturities $ (5,837) $ (5,928) $ (4,332) $ (4,521)
Foreign currency exchange contracts (18) (18) (3) (3)
Forward commodity contracts — — (9) (9)
73