Honeywell 2003 Annual Report Download - page 375

relative fair values of the interests retained and sold. The carrying value of
the retained interests approximates fair value due to the short-term nature of
the collection period for the receivables.
Income Taxes
Deferred tax liabilities or assets reflect temporary differences between amounts
of assets and liabilities for financial and tax reporting. Such amounts are
adjusted, as appropriate, to reflect changes in tax rates expected to be in
effect when the temporary differences reverse. A valuation allowance is
established to offset any deferred tax assets if, based upon the available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized.
Earnings Per Share
Basic earnings per share is based on the weighted average number of common
shares outstanding. Diluted earnings per share is based on the weighted average
number of common shares outstanding and all dilutive potential common
shares outstanding.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts in the financial statements and
related disclosures in the accompanying notes. Actual results could differ from
those estimates. Estimates and assumptions are periodically reviewed and the
effects of revisions are reflected in the consolidated financial statements in
the period they are determined to be necessary.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current
year presentation.
Recent Accounting Pronouncements
In December 2003, the FASB issued Statement of Financial Accounting Standards
No. 132 (Revised 2003), "Employers' Disclosures about Pensions and Other
Postretirement Benefits, an amendment of FASB Statements No. 87, 88, and 106"
(SFAS No. 132-Revised 2003) which revises employers' disclosures about pension
plans and other postretirement benefit plans. The provisions of this statement
are effective for the year ended December 31, 2003, except for disclosures of
certain information about foreign plans and estimated future benefit payments.
See Note 22 for further information.
In January 2003, the FASB issued FIN 46, which provides guidance on
consolidation of variable interest entities. In December 2003, the FASB deferred
the effective date of FIN 46 for certain variable interest entities (i.e.,
non-special purpose entities) until the first interim or annual period ending
after March 31, 2004. The partial adoption of the provisions of FIN 46 did not
have a material effect on our consolidated results of operations or financial
position in 2003 and we do not expect that the full adoption of the provisions
of FIN 46 will have a material effect on our consolidated results of operations
or financial position.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45), which requires us to recognize a
liability for the fair value of an obligation assumed by issuing a guarantee.
FIN 45 was effective for guarantees issued or modified on or after January 1,
2003. The adoption of FIN 45 did not have a material effect on our consolidated
results of operations or financial position. See Note 21 for further
information.
In November 2002, the Emerging Issues Task Force (EITF) reached a consensus on
EITF Issue No. 00-21, "Accounting for Revenue Arrangements with Multiple
Deliverables". EITF Issue No. 00-21 provides guidance on when and how to
separate elements of an arrangement that may involve the delivery or performance
of multiple products, services and rights to use assets into separate units of
accounting. The guidance in the consensus was effective for revenue arrangements
entered into in fiscal periods beginning after June 15, 2003. We adopted EITF
Issue No. 00-21 prospectively in the quarter beginning July 1, 2003. The
adoption of EITF Issue No. 00-21 did not have a material effect on our
consolidated results of operations or financial position.
In June 2002, the FASB issued Statement of Financial Accounting Standards No.
146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS
No. 146), the provisions of which were effective for any exit or disposal
activities initiated by us after December 31, 2002. SFAS No. 146 provides
guidance on the recognition and measurement of liabilities associated with exit
or disposal activities and requires that such liabilities be recognized when