Honeywell 2014 Annual Report Download - page 61

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foreign currencies, principally the Euro, U.S. Dollar, Canadian Dollar, Mexican Peso, Chinese
Renminbi, Indian Rupee, British Pound, Czech Koruna and Swiss Franc.
Interest Rate Risk Management—We use a combination of financial instruments, including long-
term, medium-term and short-term financing, variable-rate commercial paper, and interest rate swaps
to manage the interest rate mix of our total debt portfolio and related overall cost of borrowing. At
December 31, 2014 and 2013, interest rate swap agreements designated as fair value hedges
effectively changed $1,100 million and $1,700 million, respectively, of fixed rate debt at rates of 4.00
and 3.96, respectively, to LIBOR based floating rate debt. Our interest rate swaps mature at various
dates through 2023.
Fair Value of Financial Instruments—The FASB’s accounting guidance 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). The FASB’s guidance 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
Financial and nonfinancial assets and liabilities are classified in their entirety based on the lowest
level of input that is significant to the fair value measurement. 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, 2014 and 2013:
2014 2013
December 31,
Assets:
Foreign currency exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20 $ 20
Available for sale investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,479 826
Interest rate swap agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 63
Liabilities:
Foreign currency exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10 $ 27
Interest rate swap agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 8
The foreign currency exchange contracts and interest rate swap 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 holds investments in
marketable equity securities that are designated as available for sale and are valued using quoted
market prices. As such, these investments are classified within level 1. The Company also holds
investments in commercial paper, certificates of deposits, and time deposits 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.
The carrying value of cash and cash equivalents, trade accounts and notes receivables, payables,
commercial paper and short-term borrowings contained in the Consolidated Balance Sheet
52
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)