Honeywell 2010 Annual Report Download - page 81

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)
At December
31,
2010
2011 $ 318
2012 245
2013 192
2014 145
2015 121
Thereafter 332
$ 1,353
We have entered into agreements to lease land, equipment and buildings. Principally all our operating leases have initial terms of up to 25 years, and
some contain renewal options subject to customary conditions. At any time during the terms of some of our leases, we may at our option purchase the leased
assets for amounts that approximate fair value. We do not expect that any of our commitments under the lease agreements will have a material adverse effect
on our consolidated results of operations, financial position or liquidity.
Rent expense was $373, $371 and $383 million in 2010, 2009 and 2008, respectively.
Note 16—Financial Instruments and Fair Value Measures
Credit and Market Risk—Financial instruments, including derivatives, expose us to counterparty credit risk for nonperformance and to market risk
related to changes in interest and currency exchange rates and commodity prices. 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 in derivative
transactions 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 cash flows of our derivative and other financial instruments considering reasonably possible changes in interest rates, currency
exchange rates and commodity prices and restrict the use of derivative financial instruments to hedging activities.
We continually monitor the creditworthiness of our customers to which we grant credit terms in the normal course of business. The terms and
conditions of our credit sales are designed to mitigate or eliminate concentrations of credit risk with any single customer. Our sales are not materially
dependent on a single customer or a small group of customers.
Foreign Currency Risk Management—We conduct our business on a multinational basis in a wide variety of foreign currencies. Our exposure to market
risk for changes in foreign currency exchange rates arises from international financing activities between subsidiaries, foreign currency denominated monetary
assets and liabilities and transactions arising from international trade. Our objective is to preserve the economic value of non-functional currency denominated
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 exchange forward and option contracts with third parties.
We hedge monetary assets and liabilities denominated in non-functional currencies. Prior to conversion into U.S. dollars, these assets and liabilities are
remeasured at spot exchange rates in effect on the balance sheet date. The effects of changes in spot rates are recognized in earnings and included in Other
(Income) Expense. We partially hedge forecasted sales and purchases, which predominantly occur in the next twelve months and are denominated in non-
functional currencies, with currency forward contracts. Changes in the forecasted non-functional currency cash flows due to movements in exchange rates are
substantially offset by changes in the fair value of the currency forward contracts designated as hedges. Market value gains and losses on these contracts are
recognized in earnings when the hedged transaction is recognized. Open foreign currency exchange forward contracts mature predominantly in the next
twelve months. At December 31, 2010 and 2009, we had contracts with notional amounts of $5,733 million and $2,959 million respectively to exchange
foreign currencies, principally 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.
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.
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