Honeywell 2008 Annual Report Download - page 61

Face or
Notional
Amount Carrying
Value(1) Fair
Value(1)
Estimated
Increase
(Decrease)
In Fair
Value
(Dollars in millions)
December 31, 2008
Interest Rate Sensitive Instruments
Long-term debt (including current maturities) $ (6,888) $ (6,888) $ (7,082) $ (354)
Interest rate swap agreements — — — —
Foreign Exchange Rate Sensitive Instruments
Foreign currency exchange contracts(2) 3,030 (27) (27) 126
Commodity Price Sensitive Instruments
Forward commodity contracts(3) 8 (4) (4) (1)
December 31, 2007
Interest Rate Sensitive Instruments
Long-term debt (including current maturities) $ (5,817) $ (5,837) $ (5,928) $ (281)
Interest rate swap agreements 300 20 20 (45)
Foreign Exchange Rate Sensitive Instruments
Foreign currency exchange contracts(2) 3,295 4 4 12
Commodity Price Sensitive Instruments
Forward commodity contracts(3) 8 — — (1)
(1) Asset or (liability).
(2) Changes in the fair value of foreign currency exchange contracts are offset by changes in the fair value or
cash flows of underlying hedged foreign currency transactions.
(3) Changes in the fair value of forward commodity contracts are offset by changes in the cash flows of
underlying hedged commodity transactions.
The above discussion of our procedures to monitor market risk and the estimated changes in fair value
resulting from our sensitivity analyses are forward-looking statements of market risk assuming certain adverse
market conditions occur. Actual results in the future may differ materially from these estimated results due to
actual developments in the global financial markets. The methods used by us to assess and mitigate risk
discussed above should not be considered projections of future events.
CRITICAL ACCOUNTING POLICIES
The preparation of our consolidated financial statements in accordance with generally accepted accounting
principles is based on the selection and application of accounting policies that require us to make significant
estimates and assumptions about the effects of matters that are inherently uncertain. We consider the accounting
policies discussed below to be critical to the understanding of our financial statements. Actual results could differ
from our estimates and assumptions, and any such differences could be material to our consolidated financial
statements.
We have discussed the selection, application and disclosure of these critical accounting policies with the
Audit Committee of our Board of Directors and our Independent Registered Public Accountants. New accounting
standards effective in 2008 which had a material impact on our consolidated financial statements are described
in the Recent Accounting Pronouncements section in Note 1 to the financial statements.
Contingent Liabilities—We are subject to a number of lawsuits, investigations and claims (some of which
involve substantial dollar amounts) that arise out of the conduct of our global business operations or those of
previously owned entities. These contingencies primarily relate to product liabilities (including asbestos),
contractual matters, and environmental, health and safety matters. We recognize a liability for any contingency