Honeywell 2011 Annual Report Download - page 52

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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.
The following table illustrates the potential change in fair value for interest rate sensitive instruments based on a hypothetical immediate one-
percentage-point increase in interest rates across all maturities, the potential change in fair value for foreign exchange rate sensitive instruments based on a 10
percent weakening of the U.S. dollar versus local currency exchange rates across all maturities, and the potential change in fair value of contracts hedging
commodity purchases based on a 20 percent decrease in the price of the underlying commodity across all maturities at December 31, 2011 and 2010.
Face or
Notional
Amount Carrying
Value(1) Fair
Value(1)
Estimated
Increase
(Decrease)
in Fair
Value
December 31, 2011
Interest Rate Sensitive Instruments
Long-term debt (including current maturities) $ 6,896 $ (6,896) $ (7,896) $ (578)
Interest rate swap agreements 1,400 134 134 (74)
Foreign Exchange Rate Sensitive Instruments
Foreign currency exchange contracts(2) 7,108 (26) (26) 274
Commodity Price Sensitive Instruments
Forward commodity contracts(3) 59 (9) (9) (10)
December 31, 2010
Interest Rate Sensitive Instruments
Long-term debt (including current maturities) $ 6,278 $ (6,278) $ (6,835) $ (399)
Interest rate swap agreements 600 22 22 (18)
Foreign Exchange Rate Sensitive Instruments
Foreign currency exchange contracts(2) 5,733 2 2 102
Commodity Price Sensitive Instruments
Forward commodity contracts(3) 23 — — (4)
(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.
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