Tax expense (benefit)
			Years Ended December 31,
			2012		2011		2010

	United States	$	584	$	3	$	358
	Foreign		360		414		407
		$	944	$	417	$	765

			Years Ended December 31,
			2012		2011		2010
	Tax Expense consists of
	Current:
	United States	$	470	$	171	$	(501)
	State		10		13		3
	Foreign		380		564		385
		$	860	$	748	$	(113)

	Deferred:
	United States	$	85	$	(185)	$	784
	State		19		4		72
	Foreign		(20)		(150)		22
			84		(331)		878
		$	944	$	417	$	765


	Years Ended December 31,
	2012		2011		2010
The U.S. statutory federal income tax rate is reconciled to our effective income tax rate as follows:
Statutory U.S. federal income tax rate	35.0	%	35.0	%	35.0	%
Taxes on foreign earnings below U.S. tax rate⁽¹⁾	(7.4)		(10.4)		(7.3)
State income taxes⁽¹⁾	0.3		0.7		1.5
Manufacturing incentives	(1.6)		(1.7)		-
ESOP dividend tax benefit	(0.6)		(1.1)		(0.8)
Tax credits	(0.4)		(2.3)		(1.2)
Audit settlements	-		(2.0)		0.1
All other items—net	(0.9)		0.1		0.8
	24.4	%	18.3	%	28.1	%

(1) Net of changes in valuation allowance and tax reserves

The effective tax rate increased by 6.1 percentage points in 2012 compared with 2011 primarily due to a change in the mix of earnings taxed at higher rates (primarily driven by an approximate 6.1 percentage point impact from the decrease in pension mark-to-market expense), a decreased benefit from valuation allowances, a decreased benefit from the settlement of tax audits and the absence of the U.S. R&D tax credit, partially offset by a decreased expense related to tax reserves. The foreign effective tax rate was 17.0 percent, a decrease of approximately 4.1 percentage points which primarily consisted of a 10.0 percent impact related to a decrease in tax reserves, partially offset by a 5.2 percent impact from increased valuation allowances on net operating losses primarily due to a decrease in Luxembourg and French earnings available to be offset by net operating loss carry forwards and a 1.4 percent impact from tax expense related to foreign exchange. The effective tax rate was lower than the U.S. statutory rate of 35 percent primarily due to earnings taxed at lower foreign rates.

The effective tax rate decreased by 9.8 percentage points in 2011 compared to 2010 primarily due to a change in the mix of earnings between U.S. and foreign sources related to higher U.S. pension expense (primarily driven by an approximate 7.6 percentage point impact which resulted from the increase in pension mark-to-market expense), an increased benefit from manufacturing incentives, an increased benefit from the favorable settlement of tax audits and an increased benefit from a lower foreign effective tax rate. The foreign effective tax rate was 21.1 percent, a decrease of approximately 4.9 percentage points which primarily consisted of (i) a 5.1 percent impact from decreased valuation allowances on net operating losses primarily due to an increase in German earnings available to be offset by net operating loss carry forwards; (ii) a 2.4 percent impact from tax benefits related to foreign exchange and investment losses; (iii) a 1.2 percent impact from an increased benefit in tax credits and lower statutory tax rates and (iv) a 4.1 percent impact related to an increase in tax reserves. The effective tax rate was lower than the U.S. statutory rate of 35 percent primarily due to earnings taxed at lower foreign rates.

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,
	2012		2011
Property, plant and equipment basis differences……………………………..	$	(928)	$	(1,097)
Postretirement benefits other than pensions and post employment benefits		620		571
Investment and other asset basis differences…………………………………		(1,084)		(970)
Other accrued items………………………………………………………………		2,918		2,852
Net operating and capital losses………………………………………………..		820		810
Tax credits…………………………………………………………………………		232		379
Undistributed earnings of subsidiaries………………………………………….		(60)		(57)
All other items—net……………………………………………………………….		(45)		(67)
		2,473		2,421
Valuation allowance………………………………………………………………		(598)		(591)
	$	1,875	$	1,830

The Company has state tax net operating loss carryforwards of $3.0 billion at December 31, 2012 with various expiration dates through 2030. 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 U.S. federal tax credit carryforwards of $6 million at December 31, 2012 with various expiration dates through 2031. We also have state tax credit carryforwards of $55 million at December 31, 2012, including carryforwards of $33 million with various expiration dates through 2027 and tax credits of $22 million which are not subject to expiration.

The valuation allowance against deferred tax assets increased by $7 million in 2012 and decreased by $45 million and increased by $58 million in 2011 and 2010, respectively. The 2012 increase in the valuation allowance was primarily due to decreased earnings in France and Luxembourg, partially offset by a decrease in the valuation allowance related to purchase accounting for various acquisitions and audit settlements for various countries. The 2011 decrease in the valuation allowance was primarily due to decreased foreign net operating losses related to the Netherlands and Germany, partially offset by the increase in the valuation allowance of France, Luxembourg and Canada. The 2010 increase in the valuation allowance was primarily due to increased foreign net operating losses related to France, Luxembourg, and the Netherlands offset by the reversal of a valuation allowance related to Germany. The 2010 increase in valuation allowance also includes adjustments related to purchase accounting for various acquisitions.

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, 2012 Honeywell has not provided for U.S. federal income and foreign withholding taxes on approximately $11.6 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 the amount of foreign tax credits that would be available to reduce or eliminate the resulting U.S. income tax liability.

We had $722 million, $815 million and $757 million of unrecognized tax benefits as of December 31, 2012, 2011, and 2010 respectively. If recognized, $722 million would be recorded as a component of income tax expense as of December 31, 2012. For the year ended December 31, 2012, the Company decreased its unrecognized tax benefits by $93 million due to the expiration of various statute of limitations and settlements with tax authorities, partially offset by adjustments related to our ongoing assessment of the likelihood and amount of potential outcomes of current and future examinations. For the year ended December 31, 2011, the Company increased its unrecognized tax benefits by $58 million due to additional reserves for various international and U.S. tax audit matters, partially offset by adjustments related to our ongoing assessment 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:

	2012		2011		2010
Change in unrecognized tax benefits:
Balance at beginning of year	$	815	$	757	$	720
Gross increases related to current period tax positions		25		46		37
Gross increases related to prior periods tax positions		44		327		84
Gross decreases related to prior periods tax positions		(62)		(56)		(41)
Decrease related to settlements with tax authorities		(40)		(237)		(23)
Expiration of the statute of limitations for the assessment of
taxes		(64)		(12)		(8)
Foreign currency translation		4		(10)		(12)
Balance at end of year	$	722	$	815	$	757

Generally, our uncertain tax positions are related to tax years that remain subject to examination by the relevant tax authorities. The following table summarizes these open tax years by major jurisdiction as of December 31, 2012:

	Open Tax Year
Jurisdiction	Examination in	Examination not yet
Jurisdiction	progress	initiated
United States ⁽¹⁾	2001–2011	2005–2012
United Kingdom	N/A	2011-2012
Canada⁽¹⁾	2006-2010	2011-2012
Germany⁽¹⁾	2004-2009	2010-2012
France	2009-2011	2000–2008, 2012
Netherlands	2009	2010-2012
Australia	N/A	2009-2012
China	2009-2010	2006-2008, 2011-2012
India	2000–2010	2011-2012
Italy	2005-2011	2012

(1) includes federal as well as state, provincial or similar local jurisdictions, as applicable.

Based on the outcome of these examinations, or as a result of the expiration of statute of limitations for specific jurisdictions, it is reasonably possible that certain unrecognized tax benefits for tax positions taken on previously filed tax returns will materially change from those recorded as liabilities for uncertain tax positions in our financial statements. In addition, the outcome of these examinations may impact the valuation of certain deferred tax assets (such as net operating losses) in future periods. Based on the number of tax years currently under audit by the relevant U.S federal, state and foreign tax authorities, the Company anticipates that several of these audits may be finalized in the foreseeable future. However, based on the status of these examinations, the protocol of finalizing audits by the relevant taxing authorities, and the possibility that the Company might challenge certain audit findings (which could include formal legal proceedings), at this time it is not possible to estimate the impact of such changes, if any, to previously recorded uncertain tax positions.

Unrecognized tax benefits for examinations in progress were $443 million, $482 million and $274 million, as of December 31, 2012, 2011, and 2010, respectively. The decrease from 2011 to 2012 is primarily due to the expiration of various statute of limitations and settlements with tax authorities. The increase from 2010 to 2011 is primarily due to an increase in tax examinations. Estimated interest and penalties related to the underpayment of income taxes are classified as a component of Tax Expense in the Consolidated Statement of Operations and totaled $37 million, $63 million and $33 million for the years ended December 31, 2012, 2011, and 2010, respectively. Accrued interest and penalties were $284 million, $247 million and $183 million, as of December 31, 2012, 2011, and 2010, respectively.