Microsoft Excel LibreOffice Calc

Analysis of Income Taxes

Difficulty: Advanced


Income Tax Accounting Policy

Significant judgment is required in evaluating tax positions. Honeywell establishes additional reserves for income taxes when, despite the belief that tax positions are fully supportable, there remain certain positions that do not meet the minimum recognition threshold. The approach for evaluating certain and uncertain tax positions is defined by the authoritative guidance which determines when a tax position is more likely than not to be sustained upon examination by the applicable taxing authority. In the normal course of business, Honeywell and its subsidiaries are examined by various federal, state and foreign tax authorities. Honeywell regularly assesses the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of the provision for income taxes. Honeywell continually assesses the likelihood and amount of potential adjustments and adjusts the income tax provision, the current tax liability and deferred taxes in the period in which the facts that give rise to a change in estimate become known.

Source: 10-K (filing date: 2019-02-08).


Income Tax Expense (Benefit)

Honeywell International Inc., income tax expense (benefit), continuing operations

USD $ in millions

Microsoft Excel LibreOffice Calc
12 months ended Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
U.S. Federal (21) 2,061  869  786  746 
U.S. State 89  62  97  78  39 
Non-U.S. 1,177  787  559  560  572 
Current 1,245  2,910  1,525  1,424  1,357 
U.S. Federal 396  39  38  196  114 
U.S. State 132  17  49  63 
Non-U.S. (990) 2,123  21  70  (45)
Deferred (586) 2,294  76  315  132 
Tax expense 659  5,204  1,601  1,739  1,489 

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

Item Description The company
Current Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations. Honeywell International Inc.’s current increased from 2016 to 2017 but then declined significantly from 2017 to 2018.
Deferred Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations. Honeywell International Inc.’s deferred increased from 2016 to 2017 but then declined significantly from 2017 to 2018.
Tax expense Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. Honeywell International Inc.’s tax expense increased from 2016 to 2017 but then declined significantly from 2017 to 2018.

Effective Income Tax Rate (EITR)

Honeywell International Inc., effective income tax rate (EITR) reconciliation

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
U.S. federal statutory income tax rate 21.00% 35.00% 35.00% 35.00% 35.00%
Taxes on non-U.S. earnings 0.20% -12.90% -8.00% -8.00% -7.00%
U.S. state income taxes 1.60% 1.40% 1.10% 1.20% 1.20%
Reserves for tax contingencies 0.30% 1.60% 1.20% 0.70% -0.20%
Employee share-based payments -0.70% -2.90% -2.00% 0.00% 0.00%
Reduction of taxes on unremitted earnings -14.20% 0.00% 0.00% 0.00% 0.00%
Separation tax costs 5.50% 0.00% 0.00% 0.00% 0.00%
All other items, net 0.90% -1.20% -2.50% -2.50% -3.40%
Effective income tax rate, before U.S. Tax Reform 14.60% 21.00% 24.80% 26.40% 25.60%
U.S. Tax Reform -5.80% 54.40% 0.00% 0.00% 0.00%
Effective income tax rate 8.80% 75.40% 24.80% 26.40% 25.60%

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

Item Description The company
Effective income tax rate, before U.S. Tax Reform Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. Honeywell International Inc.’s effective income tax rate, before U.S. Tax Reform declined from 2016 to 2017 and from 2017 to 2018.

Components of Deferred Tax Assets and Liabilities

Honeywell International Inc., components of deferred tax assets and liabilities

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Pension –  –  411  500  573 
Postretirement benefits other than pensions 120  177  262  292  441 
Asbestos and environmental 589  325  471  473  477 
Employee compensation and benefits 262  218  418  387  387 
Other accruals and reserves 336  376  765  626  672 
Net operating and capital losses 688  632  669  620  639 
Tax credit carryforwards 154  510  206  198  199 
Gross deferred tax assets 2,149  2,238  3,202  3,096  3,388 
Valuation allowance (689) (663) (621) (589) (560)
Deferred tax assets 1,460  1,575  2,581  2,507  2,828 
Pension (40) (40) –  –  – 
Property, plant and equipment (422) (439) (560) (661) (612)
Intangibles (1,553) (1,326) (1,843) (1,797) (1,060)
Unremitted earnings of foreign subsidiaries (616) (2,151) (43) –  – 
Other asset basis differences (110) (210) (231) (293) (286)
Other (50) (67) (43) (31) (7)
Deferred tax liabilities (2,791) (4,233) (2,720) (2,782) (1,965)
Net deferred tax asset (liability) (1,331) (2,658) (139) (275) 863 

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

Item Description The company
Gross deferred tax assets Amount before allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. Honeywell International Inc.’s gross deferred tax assets declined from 2016 to 2017 and from 2017 to 2018.
Deferred tax assets Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. Honeywell International Inc.’s deferred tax assets declined from 2016 to 2017 and from 2017 to 2018.
Net deferred tax asset (liability) Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, without jurisdictional netting. Honeywell International Inc.’s net deferred tax asset (liability) declined from 2016 to 2017 but then increased from 2017 to 2018 not reaching 2016 level.

Deferred Tax Assets and Liabilities, Classification

Honeywell International Inc., deferred tax assets and liabilities, classification

USD $ in millions

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Current deferred tax assets –  –  –  –  722 
Non-current deferred tax assets 382  236  347  283  404 
Current deferred tax liabilities (included in accrued liabilities) –  –  –  –  27 
Non-current deferred tax liabilities 1,713  2,894  486  558  236 

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

Item Description The company
Non-current deferred tax assets Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, with jurisdictional netting and classified as noncurrent. Honeywell International Inc.’s non-current deferred tax assets declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.
Non-current deferred tax liabilities Amount, after deferred tax asset, of deferred tax liability attributable to taxable differences, with jurisdictional netting and classified as noncurrent. Honeywell International Inc.’s non-current deferred tax liabilities increased from 2016 to 2017 but then slightly declined from 2017 to 2018.

Analyst Adjustments: Removal of Deferred Taxes

Honeywell International Inc., adjustments to financial data

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Adjustment to Current Assets
Current assets (as reported) 24,362  26,002  23,058  20,053  22,191 
Less: Current deferred tax assets, net –  –  –  –  722 
Current assets (adjusted) 24,362  26,002  23,058  20,053  21,469 
Adjustment to Total Assets
Total assets (as reported) 57,773  59,387  54,146  49,316  45,451 
Less: Current deferred tax assets, net –  –  –  –  722 
Less: Noncurrent deferred tax assets, net 382  236  347  283  404 
Total assets (adjusted) 57,391  59,151  53,799  49,033  44,325 
Adjustment to Current Liabilities
Current liabilities (as reported) 18,924  18,861  16,331  18,371  14,773 
Less: Current deferred tax liabilities, net –  –  –  –  27 
Current liabilities (adjusted) 18,924  18,861  16,331  18,371  14,746 
Adjustment to Total Liabilities
Total liabilities (as reported) 39,408  41,943  34,596  30,608  27,448 
Less: Current deferred tax liabilities, net –  –  –  –  27 
Less: Noncurrent deferred tax liabilities, net 1,713  2,894  486  558  236 
Total liabilities (adjusted) 37,695  39,049  34,110  30,050  27,185 
Adjustment to Total Honeywell Shareowners’ Equity
Total Honeywell shareowners’ equity (as reported) 18,180  17,276  19,369  18,283  17,657 
Less: Net deferred tax assets (liabilities) (1,331) (2,658) (139) (275) 863 
Total Honeywell shareowners’ equity (adjusted) 19,511  19,934  19,508  18,558  16,794 
Adjustment to Net Income Attributable To Honeywell
Net income attributable to Honeywell (as reported) 6,765  1,655  4,809  4,768  4,239 
Add: Deferred income tax expense (benefit) (586) 2,294  76  315  132 
Net income attributable to Honeywell (adjusted) 6,179  3,949  4,885  5,083  4,371 

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).


Honeywell International Inc., Financial Data: Reported vs. Adjusted


Adjusted Ratios: Removal of Deferred Taxes (Summary)

Honeywell International Inc., adjusted ratios

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Current Ratio
Reported current ratio 1.29 1.38 1.41 1.09 1.50
Adjusted current ratio 1.29 1.38 1.41 1.09 1.46
Net Profit Margin
Reported net profit margin 16.18% 4.08% 12.24% 12.36% 10.52%
Adjusted net profit margin 14.78% 9.74% 12.43% 13.17% 10.84%
Total Asset Turnover
Reported total asset turnover 0.72 0.68 0.73 0.78 0.89
Adjusted total asset turnover 0.73 0.69 0.73 0.79 0.91
Financial Leverage
Reported financial leverage 3.18 3.44 2.80 2.70 2.57
Adjusted financial leverage 2.94 2.97 2.76 2.64 2.64
Return on Equity (ROE)
Reported ROE 37.21% 9.58% 24.83% 26.08% 24.01%
Adjusted ROE 31.67% 19.81% 25.04% 27.39% 26.03%
Return on Assets (ROA)
Reported ROA 11.71% 2.79% 8.88% 9.67% 9.33%
Adjusted ROA 10.77% 6.68% 9.08% 10.37% 9.86%

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. Honeywell International Inc.’s adjusted current ratio deteriorated from 2016 to 2017 and from 2017 to 2018.
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Honeywell International Inc.’s adjusted net profit margin deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Honeywell International Inc.’s adjusted total asset turnover deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Honeywell International Inc.’s adjusted financial leverage increased from 2016 to 2017 but then slightly declined from 2017 to 2018.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Honeywell International Inc.’s adjusted ROE deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Honeywell International Inc.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Honeywell International Inc., Ratios: Reported vs. Adjusted


Adjusted Current Ratio

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Current assets 24,362  26,002  23,058  20,053  22,191 
Current liabilities 18,924  18,861  16,331  18,371  14,773 
Ratio
Current ratio1 1.29 1.38 1.41 1.09 1.50
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted current assets 24,362  26,002  23,058  20,053  21,469 
Adjusted current liabilities 18,924  18,861  16,331  18,371  14,746 
Ratio
Adjusted current ratio2 1.29 1.38 1.41 1.09 1.46

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

1 Current ratio = Current assets ÷ Current liabilities
= 24,362 ÷ 18,924 = 1.29

2 Adjusted current ratio = Adjusted current assets ÷ Adjusted current liabilities
= 24,362 ÷ 18,924 = 1.29

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. Honeywell International Inc.’s adjusted current ratio deteriorated from 2016 to 2017 and from 2017 to 2018.

Adjusted Net Profit Margin

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net income attributable to Honeywell 6,765  1,655  4,809  4,768  4,239 
Net sales 41,802  40,534  39,302  38,581  40,306 
Ratio
Net profit margin1 16.18% 4.08% 12.24% 12.36% 10.52%
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted net income attributable to Honeywell 6,179  3,949  4,885  5,083  4,371 
Net sales 41,802  40,534  39,302  38,581  40,306 
Ratio
Adjusted net profit margin2 14.78% 9.74% 12.43% 13.17% 10.84%

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

1 Net profit margin = 100 × Net income attributable to Honeywell ÷ Net sales
= 100 × 6,765 ÷ 41,802 = 16.18%

2 Adjusted net profit margin = 100 × Adjusted net income attributable to Honeywell ÷ Net sales
= 100 × 6,179 ÷ 41,802 = 14.78%

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Honeywell International Inc.’s adjusted net profit margin deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net sales 41,802  40,534  39,302  38,581  40,306 
Total assets 57,773  59,387  54,146  49,316  45,451 
Ratio
Total asset turnover1 0.72 0.68 0.73 0.78 0.89
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Net sales 41,802  40,534  39,302  38,581  40,306 
Adjusted total assets 57,391  59,151  53,799  49,033  44,325 
Ratio
Adjusted total asset turnover2 0.73 0.69 0.73 0.79 0.91

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

1 Total asset turnover = Net sales ÷ Total assets
= 41,802 ÷ 57,773 = 0.72

2 Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= 41,802 ÷ 57,391 = 0.73

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Honeywell International Inc.’s adjusted total asset turnover deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Total assets 57,773  59,387  54,146  49,316  45,451 
Total Honeywell shareowners’ equity 18,180  17,276  19,369  18,283  17,657 
Ratio
Financial leverage1 3.18 3.44 2.80 2.70 2.57
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted total assets 57,391  59,151  53,799  49,033  44,325 
Adjusted total Honeywell shareowners’ equity 19,511  19,934  19,508  18,558  16,794 
Ratio
Adjusted financial leverage2 2.94 2.97 2.76 2.64 2.64

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

1 Financial leverage = Total assets ÷ Total Honeywell shareowners’ equity
= 57,773 ÷ 18,180 = 3.18

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Honeywell shareowners’ equity
= 57,391 ÷ 19,511 = 2.94

Ratio Description The company
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Honeywell International Inc.’s adjusted financial leverage increased from 2016 to 2017 but then slightly declined from 2017 to 2018.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net income attributable to Honeywell 6,765  1,655  4,809  4,768  4,239 
Total Honeywell shareowners’ equity 18,180  17,276  19,369  18,283  17,657 
Ratio
ROE1 37.21% 9.58% 24.83% 26.08% 24.01%
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted net income attributable to Honeywell 6,179  3,949  4,885  5,083  4,371 
Adjusted total Honeywell shareowners’ equity 19,511  19,934  19,508  18,558  16,794 
Ratio
Adjusted ROE2 31.67% 19.81% 25.04% 27.39% 26.03%

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

1 ROE = 100 × Net income attributable to Honeywell ÷ Total Honeywell shareowners’ equity
= 100 × 6,765 ÷ 18,180 = 37.21%

2 Adjusted ROE = 100 × Adjusted net income attributable to Honeywell ÷ Adjusted total Honeywell shareowners’ equity
= 100 × 6,179 ÷ 19,511 = 31.67%

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Honeywell International Inc.’s adjusted ROE deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net income attributable to Honeywell 6,765  1,655  4,809  4,768  4,239 
Total assets 57,773  59,387  54,146  49,316  45,451 
Ratio
ROA1 11.71% 2.79% 8.88% 9.67% 9.33%
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted net income attributable to Honeywell 6,179  3,949  4,885  5,083  4,371 
Adjusted total assets 57,391  59,151  53,799  49,033  44,325 
Ratio
Adjusted ROA2 10.77% 6.68% 9.08% 10.37% 9.86%

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

1 ROA = 100 × Net income attributable to Honeywell ÷ Total assets
= 100 × 6,765 ÷ 57,773 = 11.71%

2 Adjusted ROA = 100 × Adjusted net income attributable to Honeywell ÷ Adjusted total assets
= 100 × 6,179 ÷ 57,391 = 10.77%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Honeywell International Inc.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.