Honeywell 2005 Annual Report Download - page 85

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)
and $27 million, respectively, offset by a decrease of $30 million for foreign tax credits which we now believe will be utilized due to
the extension of the foreign tax credit carryforward period from five to 10 years under the American Jobs Creation Act of 2004 (Act).
The increase in 2003 was primarily due to an increase in foreign net operating losses that are not expected to be utilized.
The Act, signed into law in October 2004, provides for a variety of changes in the tax law including incentives to repatriate
undistributed earnings of foreign subsidiaries, a phased elimination of the extra-territorial income exclusion, and a domestic
manufacturing benefit. More specifically, the Act creates a temporary incentive for U.S. corporations to repatriate accumulated
income earned outside the U.S. by providing an 85 percent dividends received deduction for certain dividends from controlled foreign
corporations. In May 2005, the U.S. Treasury issued guidance clarifying certain provisions of the Act and, accordingly, during the
second quarter of 2005 we were able to finalize our assessment of the Act and its impact on Honeywell. We repatriated approximately
$2.7 billion of foreign earnings during the remainder of 2005, of which $2.2 billion receives the benefit under the Act, with an income
tax provision of $155 million. As of December 31, 2005, Honeywell has not provided for U.S. federal income and foreign withholding
taxes on $2.1 billion of undistributed earnings from non-U.S. operations. Such earnings are currently intended to be reinvested
indefinitely. It is not practicable to estimate the amount of tax that might be payable if some or all of such earnings were to be
remitted, and foreign tax credits would be available to reduce or eliminate the resulting U.S. income tax liability.
The extra-territorial income exclusion for foreign sales will be phased-out over two years beginning in 2005. The deduction for
income from qualified domestic production activities will be phased-in from 2005 through 2010. We do not expect that this legislation
will have a material effect on our consolidated tax accruals or effective tax rate.
Note 8—Earnings (Loss) Per Share
The following table sets forth the computations of basic and diluted earnings (loss) per share:
2005 2004 2003
Basic Assuming
Dilution Basic Assuming Dilution Basic Assuming Dilution
Income
Income from continuing operations $ 1,581 $ 1,581 $ 1,281 $ 1,281 $ 1,344 $ 1,344
Income from discontinued operations, net of taxes 95 95 — — — —
Cumulative effect of accounting change, net of taxes (21) (21) — — (20) (20)
Net income $ 1,655 $ 1,655 $ 1,281 $ 1,281 $ 1,324 $ 1,324
Average shares
Average shares outstanding 848,740,395 848,740,395 858,857,721 858,857,721 860,671,264 860,671,264
Dilutive securities issuable in connection with stock
plans — 3,594,592 — 3,475,613 — 1,423,992
Total average shares 848,740,395 852,334,987 858,857,721 862,333,334 860,671,264 862,095,256
Earnings (loss) per share of common stock
Income from continuing operations $ 1.87 $ 1.86 $ 1.49 $ 1.49 $ 1.56 $ 1.56
Income from discontinued operations, net of taxes 0.11 0.11 — — — —
Cumulative effect of accounting change, net of taxes (0.03) (0.03) — — (0.02) (0.02)
Net income $ 1.95 $ 1.94 $ 1.49 $ 1.49 $ 1.54 $ 1.54
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