Honeywell 2008 Annual Report Download - page 97

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)
We have state tax credit carryforwards of $57 million at December 31, 2008, including carryforwards of $31
million with various expiration dates through 2023 and tax credits of $26 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, 2008 with various expiration dates through 2013.
The valuation allowance against deferred tax assets decreased by $45 million and $26 million in 2008 and
2007, respectively, and increased by $39 in 2006. The 2008 decrease in the valuation allowance was primarily
due to a decrease in the valuation allowance related to federal and state capital loss carryforwards partially offset
by increased foreign net operating losses. 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.
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,
2008 Honeywell has not provided for U.S. federal income and foreign withholding taxes on approximately $4.7
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.
We had $671 million and $666 million of unrecognized tax benefits as of December 31, 2008 and 2007,
respectively. If recognized, $671 million would be recorded as a component of income tax expense as of
December 31, 2008. For the year ended December 31, 2008, the Company increased its unrecognized tax
benefits by $5 million due to additional reserves for various international and U.S. tax audit matters, partially
offset by a change in the foreign currency translation, the expiration of various statute of limitations, and the
settlement of audits.
The following table summarizes the activity related to our unrecognized tax benefits:
2008 2007
Change in unrecognized tax benefits:
Balance at beginning of year $ 666 $ 744
Gross increases related to current period tax positions 81 68
Gross increases related to prior periods tax positions 106 100
Gross decreases related to prior periods tax positions (54) (167)
Decrease related to settlements with tax authorities (42) (101)
Expiration of the statute of limitations for the assessment of taxes (64 ) —
Foreign currency translation (22) 22
Balance at end of year $ 671 $ 666
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