Honeywell 2009 Annual Report Download - page 94

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)
December 31,
2009 2008
Property, plant and equipment basis differences $ (888) $ (605)
Postretirement benefits other than pensions and post employment benefits 785 876
Investment and other asset basis differences (758) (598)
Other accrued items 3,035 2,477
Net operating and capital losses 818 740
Tax credits 137 87
Undistributed earnings of subsidiaries (40) (40)
All other items—net (61) (175)
3,028 2,762
Valuation allowance (578) (445)
$ 2,450 $ 2,317
There were $1 million of U.S. federal tax net operating losses available for carryforward at December 31,
2009 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. The
Company has state tax net operating loss carryforwards of $2.8 billion at December 31, 2009 with varying
expiration dates through 2024. We also have foreign net operating and capital losses of $2.8 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 $58 million at December 31, 2009, including carryforwards of $32
million with various expiration dates through 2024 and tax credits of $26 million which are not subject to
expiration.
The valuation allowance against deferred tax assets increased by $133 million in 2009 and decreased by
$45 million and $26 million in 2008 and 2007, respectively. The 2009 increase in the valuation allowance was
primarily due to increased foreign net operating losses related to Germany, Luxembourg, and the Netherlands.
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 subsidiaries. At December 31,
2009 Honeywell has not provided for U.S. federal income and foreign withholding taxes on approximately $5.1
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 repatriated, and foreign tax credits would be available to
reduce or eliminate the resulting U.S. income tax liability.
We had $720 million, $671 million and $666 million of unrecognized tax benefits as of December 31, 2009,
2008, and 2007 respectively. If recognized, $720 million would be recorded as a component of income tax
expense as of December 31, 2009. For the years ended December 31, 2009 and 2008, the Company increased
its unrecognized tax benefits by $49 million and $5 million, respectively, due to additional reserves for various
international and U.S. tax audit matters, partially offset by adjustments related to our ongoing assessments of the
likelihood and amount of potential outcomes of current and future examinations, the expiration of various statute
of limitations, and settlements with tax authorities. The following table summarizes the activity related to our
unrecognized tax benefits:
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