Honeywell 2007 Annual Report Download - page 92

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)
Deferred tax assets (liabilities)
Deferred income taxes represent the future tax effects of transactions which are reported in different periods
for tax and financial reporting purposes. The tax effects of temporary differences and tax carryforwards which
give rise to future income tax benefits and payables are as follows:
December 31,
2007 2006
Property, plant and equipment basis differences $ (563) $ (608)
Postretirement benefits other than pensions and post employment benefits 770 747
Investment and other asset basis differences. (376) (396)
Other accrued items 1,025 1,567
Net operating and capital losses 783 786
Tax credits 33 315
Undistributed earnings of subsidiaries (40) (40)
All other items—net (21) 43
1,611 2,414
Valuation allowance (490) (516)
$ 1,121 $ 1,898
There were $32 million of U.S. federal tax net operating losses available for carryforward at December 31,
2007 which were generated by certain subsidiaries prior to their acquisition and have expiration dates through
2024. The use of pre-acquisition operating losses is subject to limitations imposed by the Internal Revenue Code.
We do not anticipate that these limitations will affect utilization of the carryforwards prior to their expiration.
Various subsidiaries have state tax net operating loss carryforwards of $3.3 billion at December 31, 2007 with
varying expiration dates through 2026. We have U.S. federal capital losses available for carryforward of $112
million which expire in 2011 and state capital losses available for carryforward of $286 million with varying
expiration dates. We do not anticipate using these capital losses before expiration. We also have foreign net
operating and capital losses of $2.6 billion which are available to reduce future income tax payments in several
countries, subject to varying expiration rules.
We have state tax credit carryforwards of $42 million at December 31, 2007, including carryforwards of $29
million with various expiration dates through 2027 and tax credits of $13 million which are not subject to
expiration. In addition, we have $5 million of foreign tax credits available for carryback or carryforward on the U.S.
federal tax return at December 31, 2007 with varying expiration dates through 2013.
The valuation allowance against deferred tax assets was decreased by $26 million in 2007 and increased by
$39 and $139 million in 2006 and 2005, respectively. The 2007 decrease in the valuation allowance was primarily
due to a decrease in valuation allowances related to state and foreign net operating losses partially offset by a
valuation allowance against U.S. capital losses. The 2006 increase in the valuation allowance was primarily due
to an increase in foreign net operating losses attributable to acquired businesses not expected to be realized and
a partial valuation allowance against a deferred tax asset established in connection with the adoption of SFAS
No. 158 partially offset by a decrease in state tax net operating loss carryforwards (net of federal impact).
Federal income taxes have not been provided on undistributed earnings of the majority of our international
subsidiaries as it is our intention to reinvest these earnings into the respective businesses. At December 31,
2007 Honeywell has not provided for U.S. federal income and foreign withholding taxes on approximately $4.1
billion of such earnings of our non-U.S. operations. 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.
64