Honeywell 2010 Annual Report Download - page 48

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 reasonably possible environmental loss in excess of our
recorded liabilities. 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, execution timeframe of projects, remedial techniques to be utilized and agreements with other parties.
Remedial response and voluntary cleanup payments were $266, $318 and $320 million in 2010, 2009 and 2008, respectively, and are currently
estimated to be approximately $325 million in 2011. We expect to fund such expenditures from operating cash flow.
Remedial response and voluntary cleanup costs charged against pretax earnings were $225, $151 and $466 million in 2010, 2009 and 2008,
respectively. At December 31, 2010 and 2009, the recorded liabilities for environmental matters was $753 and $779 million, respectively. In addition, in 2010
and 2009 we incurred operating costs for ongoing businesses of approximately $86 and $73 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 to the financial statements 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 derivative
financial instruments. A summary of our accounting policies for derivative financial instruments is included in Note 1 to the financial statements. We also
hold investments in marketable equity securities, which exposes us to market volatility, as discussed in Note 16 to the financial statements.
We conduct our business on a multinational basis in a wide variety of foreign currencies. Our exposure to market risk from changes in foreign currency
exchange rates arises from international financing activities between subsidiaries, foreign currency denominated monetary assets and liabilities and
anticipated transactions arising from international trade. Our objective is to preserve the economic value of non-functional currency cash flows. We attempt to
hedge transaction exposures with natural offsets to the fullest extent possible and, once these opportunities have been exhausted, through foreign currency
forward and option agreements with third parties. Our principal currency exposures relate to the U.S. dollar, Euro, British pound, Canadian dollar, Hong Kong
dollar, Mexican peso, Swiss franc, Czech koruna, Chinese renminbi, Indian rupee, Singapore dollar and Swedish krona.
Our exposure to market risk from changes in interest rates relates primarily to our net debt and pension obligations. As described in Notes 14 and 16 to
the financial statements, we issue both fixed and variable rate debt and use interest rate swaps to manage our exposure to interest rate movements and reduce
overall borrowing costs.
Financial instruments, including derivatives, expose us to counterparty credit risk for nonperformance and to market risk related to changes in interest
or currency exchange rates. We manage our exposure to counterparty credit risk through specific minimum credit standards, diversification of counterparties,
and procedures to monitor concentrations of credit risk. Our counterparties are substantial investment and commercial banks with significant experience using
such derivative instruments. We monitor the impact of market risk on the fair value and expected future cash flows of our derivative and other financial
instruments considering reasonably possible changes in interest and currency exchange rates and restrict the use of derivative financial instruments to hedging
activities.
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