Honeywell 2008 Annual Report Download - page 80

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)
for that financial asset is inactive. FSP 157-3 was effective upon issuance, including prior periods for which
financial statements had not been issued.
The implementation of SFAS No. 157 for financial assets and financial liabilities, effective January 1, 2008,
did not have a material impact on our consolidated financial position and results of operations. The
implementation of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, effective January 1, 2009 did
not have a material impact on our consolidated financial position and results of operations.
SFAS No. 157, defines fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date (exit price). SFAS No. 157
classifies the inputs used to measure fair value into the following hierarchy:
Level 1 Unadjusted quoted prices in active markets for identical assets or
liabilities
Level 2 Unadjusted quoted prices in active markets for similar assets or
liabilities, or
Unadjusted quoted prices for identical or similar assets or liabilities in
markets that are not active, or
Inputs other than quoted prices that are observable for the asset or
liability
Level 3 Unobservable inputs for the asset or liability
The Company utilizes the best available information in measuring fair value. Financial assets and liabilities
are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The Company has determined that our financial assets and liabilities are level 2 in the fair value hierarchy. The
following table sets forth the Company's financial assets and liabilities that were accounted for, at fair value on a
recurring basis as of December 31, 2008:
December 31,
2008
Assets:
Foreign currency exchange contracts $ 7
Available for sale investments $ 23
Forward commodity contracts —
Liabilities:
Foreign currency exchange contracts $ 34
Forward commodity contracts $ 4
As a result of our global operating and financing activities, the Company is 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. When deemed appropriate, we minimize our risks from interest and
foreign currency exchange rate and commodity price fluctuations through the use of derivative financial
instruments. Derivative financial instruments are used to manage risk and are not used for trading or other
speculative purposes and we do not use leveraged derivative financial instruments. The forward foreign currency
exchange contracts and forward commodity purchase agreements are valued using broker quotations, or market
transactions in either the listed or over-the counter markets. As such, these derivative instruments are classified
within level 2. The Company also holds investments in marketable equity securities that are designated as
available for sale and are valued using market transactions in over-the-counter markets. As such, these
investments are classified within level 2.
In February 2007, the FASB issued SFAS No. 159 "The Fair Value Option for Financial Assets and Financial
Liabilities" (SFAS No. 159). SFAS No. 159 permits entities to choose to measure many financial assets and
financial liabilities at fair value. Unrealized gains and losses on items for which the
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