WASHINGTON, D.C. 20549
* Other schedules required by Section 2520.103-10
of the Department of Labor Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act
of 1974 have been omitted as the conditions under which they are required are not present.
The accompanying notes are an integral part of these financial
statements.
The accompanying notes are an integral part of these financial
statements.
Notes to Financial Statements
1.
|
Description of the Plan
|
General
The Honeywell Puerto Rico Savings
and Ownership Plan (the “Plan”) is a defined contribution plan for certain employees of Honeywell International Inc.
(the “Company”), ADI of Puerto Rico, Inc. and Honeywell Aerospace de Puerto Rico, Inc. (together with the Company,
the “Employer”). It is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended,
(“ERISA”) and the Puerto Rico Internal Revenue Code. The following represents a summary of key provisions of the Plan
but does not purport to be complete and is qualified in its entirety by the terms of the Plan. Participants should refer to the
Plan document for a more complete description of the Plan’s provisions.
Administration
The Company’s Vice President
of Compensation and Benefits is the Plan Administrator and has full discretionary authority to manage and control the operation
and administration of the Plan, including the power to interpret provisions of the Plan and to promulgate policies and procedures
for the Plan’s administration and to delegate administration of the Plan. The Savings Plan Investment Committee has the power
and authority to enter into agreements with the trustee to provide for the investment of Plan assets and to appoint investment
managers to direct such trustee, as appropriate. The day to day administration of the Plan is handled by Voya Financial. The trustee
of the Plan is Banco Popular de Puerto Rico (the “Trustee”) and the custodian of the Plan is The Northern Trust Company
(the “Custodian”).
Effective April 1, 2018, the day
to day administration of the Plan moved from Voya Financial to Fidelity Investments Institutional Operations Company.
Contributions and Vesting
Participants may elect to contribute
from 1 percent to 20 percent of their “base pay” as defined in the Plan during each pay period, subject to certain
restrictions for “highly compensated employees”, as defined in the Plan. Contributions are permitted to be made either
on a before-tax or after-tax basis, or a combination of both, and may be directed into any investment option available within the
Plan. In addition to regular before-tax or after-tax contributions, eligible participants may also contribute up to $1,000 per
year in catch-up contributions if they are or will attain age 50 by December 31
st
and are contributing at least 10 percent
on a before-tax basis to the Plan, or have contributed the maximum regular before-tax contributions to the Plan of $10,000.
Generally, the Employer matching
contribution does not begin until the first pay period following the employee’s completion of one year of service with the
Employer. The Employer matching contributions are made to the eligible participants’ accounts each pay period that employee
contributions are made to the Plan. The Employer matches 37.5 percent of the first 6 percent of base pay that the participant contributes
to the Plan (excluding rollover and catch-up contributions) following one year vesting service. The Employer does not match catch-up
contributions. All of the Employer’s matching contributions are initially invested in the Honeywell Common Stock Fund. Vested
participants may subsequently direct such matching contributions into any investment option available within the Plan.
5
Honeywell Puerto Rico Savings and Ownership Plan
Notes to Financial Statements
Effective on or about April 6,
2018, Honeywell enhanced the standard match formula in Plan for eligible participants to the following:
|
·
|
For those currently at 37.5 percent of
the first 6 percent of eligible pay (maximum 3 percent match), the match will increase to 43.75 percent of the first 6 percent
(maximum 3.5 percent match).
|
In addition, effective on or about
April 6, 2018 employer matching contributions will be made annually in a lump sum by the end of the January following the calendar
year-end. Participants must be actively employed on December 15
th
, are disabled or are deceased to receive such match.
There is no minimum service requirement to receive the annual match.
Participants have a full and immediate
vested interest in the portion of their accounts contributed by them and the earnings on such contributions. A participant will
become 100 percent vested in any Employer contributions upon completion of three years of vesting service or upon attainment of
age 65 while an employee of the Employer or an affiliated company. In addition, a participant’s account will become 100 percent
vested if the participant’s termination with the Employer or an affiliated company was due to any one of the following (i)
retirement under the terms of an Employer pension plan in which the participant participates; (ii) disability (as defined under
the plan provisions); (iii) death; (iv) a reduction in force or layoff (as determined by the Employer); or (v) a participant’s
business unit is sold or divested. A participant will also become 100 percent vested in any Employer contributions in the event
the Employer permanently discontinues contributions to or terminates the Plan.
Participant Accounts
Each participant’s account
is credited with the participant’s contribution and allocations of (1) the Employer’s matching contribution, if applicable,
and (2) investment earnings, and charged with an allocation of investment losses and certain administrative expenses that are not
paid by the Company. The allocation is based on participants’ account balances as defined in the Plan document. The benefit
to which a participant is entitled is the benefit that can be provided from the participant’s vested account.
Notes Receivable from Participants
No new loans are permitted from
the Plan. Interest rates for loans outstanding at December 31, 2017 and 2016 were approximately 4.25%.
Termination
Although it has not expressed intent
to do so, the Employer has the right under the Plan document to discontinue its contributions at any time and to terminate the
Plan subject to the provisions of ERISA. In the event of a partial or full Plan termination, all Plan funds must be used in accordance
with the terms of the Plan.
Distribution of Benefits
Upon termination of service
with the Employer, if a participant’s vested account balance is $1,000 or less (including any rollover contributions),
the entire vested amount in the participant’s account can be distributed to the participant in a single payment,
without his or her consent, unless the participant affirmatively elects to have the benefit rolled over to an eligible
retirement plan. If the participant’s vested account balance exceeds $1,000 (excluding any rollover contributions), the
balance in the account will remain in the Plan and shall be distributed (1) at the participant’s request, or (2) upon
the participant’s death, whichever is earlier. When a participant dies, if his or her spouse is the beneficiary, the
spouse may remain in the Plan until December 31 of the calendar year following the calendar year of the participant’s
death. If the value of the participant’s account is $1,000 or less, the entire amount in the participant’s
account is distributed in a single payment to the participant’s beneficiary(ies) according to the terms of the
Plan.
6
Honeywell Puerto Rico Savings and Ownership Plan
Notes to Financial Statements
Forfeitures
Forfeitures of the Employer’s
contributions and earnings thereon due to terminations and withdrawals reduce contributions otherwise due from the Employer. Employer
contributions made to the Plan were reduced by $19,950 for the year ended December 31, 2017, due to forfeited nonvested accounts.
2.
|
Significant Accounting Policies
|
Basis of Accounting
The financial
statements of the Plan are prepared in accordance with accounting principles generally accepted in the United States of America
(“U.S. GAAP”) using the accrual basis of accounting.
Use of Estimates
The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
Investment
Valuation
For investment
and administrative purposes, the Plan’s assets are held in the Honeywell Savings and Ownership Plan Master Trust (“Master
Trust”) along with the assets of the Honeywell Savings and Ownership Plan (the “HSOP”), the Honeywell Secured
Benefit Plan and the Intermec FSSP Spinoff Plan. The Plan’s investment in the Master Trust represents the Plan’s interest
in the net assets of the Master Trust. The Plan’s investment is stated at fair value and is based on the beginning of year
value of the Plan’s interest in the Master Trust plus actual Plan contributions and allocated investment income / (loss)
less actual Plan distributions.
Notes Receivable
from Participants
Notes receivable
from participants are valued at cost plus accrued unpaid interest.
Payment of
Benefits
Withdrawals and
distributions to participants are recorded when paid.
Expenses
Certain expenses relating to the
administration of the Master Trust and managing the investment funds established thereunder are borne by certain businesses of
the Employer, not by the participating Plan.
Recent Accounting Pronouncements
In February 2017, the Financial
Accounting Standards Board issued Accounting Standard Update 2017-06 that clarifies presentation requirements for a plan’s
interest in a master trust and requires more detailed disclosures of the plan’s interest in the master trust. Under the new
guidance, a plan’s interest in master trust balances and activities needs to be presented on the face of the plan’s
financial statements. Balances in the statement of net assets and activities in the statement of changes in net assets should be
shown net, as a single line item for each interest in a master trust. The guidance is effective for fiscal years beginning after
December 15, 2018; however, early adoption is permitted. Plan management is currently evaluating the impact of this guidance on
the Plan’s financial statements.
3.
|
Interest in Honeywell Savings and Ownership Plan Master Trust
|
The Plan’s investment is
held in the Master Trust, which is commingled with the assets of the HSOP, the Honeywell Secured Benefit Plan and the Intermec
FSSP Spinoff Plan. Each participating plan’s interest in the Master Trust is divided based on the participants’ investment
elections. At December
7
Honeywell Puerto Rico Savings and Ownership Plan
Notes to Financial Statements
31, 2017 and 2016, the Plan’s
interest in the net assets of the Master Trust was 0.225% and 0.196% respectively. The allocation of income and expenses is based
upon each plan’s specific interests in the underlying plan investments, which are based upon participant-direction and Company
direction of the investments.
The Master Trust is comprised of
the following types of investments, at fair value, as of December 31, 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
Collective Trust Funds
|
|
$
|
7,926
|
|
|
$
|
6,220
|
|
|
Honeywell Common Stock
|
|
|
4,760
|
|
|
|
3,813
|
|
|
Common Stocks (Separately Managed Portfolios)
|
|
|
954
|
|
|
|
1,165
|
|
|
Fixed Income Investments (Separately Managed Portfolios)
|
|
|
2,021
|
|
|
|
2,248
|
|
|
Total Investments, at fair value
|
|
|
15,661
|
|
|
|
13,446
|
|
|
|
|
|
|
|
|
|
|
|
|
Due from (to) broker on pending trades
|
|
|
2
|
|
|
|
(10
|
)
|
|
Net assets of the Master Trust
|
|
$
|
15,663
|
|
|
$
|
13,436
|
|
The Master Trust’s net
appreciation and investment income for the year ended December 31 2017, is as follows:
|
|
2017
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
Net appreciation in fair value of investments
|
|
$
|
2,585
|
|
Dividend and interest income
|
|
|
70
|
|
Total investment income and net appreciation
|
|
$
|
2,655
|
|
Investment Valuation and Income
Recognition – Master Trust
Master Trust
investments are stated at fair value. Interest income is recorded on the accrual basis, and dividend income is recorded on the
ex-dividend date. Purchases and sales of securities are recorded on a trade-date basis. Net appreciation/(depreciation) consists
of both realized gains/ (losses) on investments bought, sold and matured, as well as the change in unrealized gains/ (losses) on
investments held during the year.
From time to time, investment
managers may use derivative financial instruments including foreign exchange forward and futures contracts. Derivative instruments
are used primarily to mitigate exposure to foreign exchange rate and interest rate fluctuations as well as manage the investment
composition in the portfolio. The Master Trust held no derivative instruments as of December 31, 2017 and 2016.
Determination of Fair Value
The accounting guidance defines
fair value
as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date, and establishes a framework for measuring fair value.
8
Honeywell Puerto Rico Savings and Ownership Plan
Notes to Financial Statements
The Master Trust valuation methodologies
for assets and liabilities measured at fair value are described below. The methods described as follows may produce a fair value
calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Master
Trust believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies
or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value
at the reporting date.
Valuation Hierarchy
The accounting guidance establishes
a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency
of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
·
Level
1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
·
Level
2 — inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, and inputs
that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial
instrument.
·
Level
3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement.
A financial instrument’s
categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements)
and the lowest priority to unobservable inputs (level 3 measurements).
The following is a description
of the valuation methodologies used for financial instruments measured at fair value. There have been no changes in the methodologies
used at December 31, 2017 and 2016.
Honeywell International Inc. common stock and
other common stocks
Honeywell International Inc.
common stock is valued at the closing price reported on the New York Stock Exchange Composite Transaction Tape. Other common stocks
are valued at the closing price reported on the principal market on which the respective securities are traded. Honeywell International
Inc. common stock and other common stocks are all classified within level 1 of the valuation hierarchy.
Collective Trust Funds
Collective Trusts funds are investment
vehicles utilized as the target date funds, equity index funds, investment grade bond fund, and global REIT fund. These funds permit
daily subscriptions and redemption of units. These investments are valued using net asset values (“NAV”) provided by
the administrator of the underlying fund. The NAV is based on the value of the underlying assets owned by the fund, less its liabilities,
divided by the number of units outstanding.
Collective Trust funds measured
at fair value using net asset value per share (or its equivalent) as a practical expedient have not been classified in the fair
value hierarchy. The fair value amounts presented in the hierarchy tables for Collective Trust funds are intended to permit reconciliation
of the Master Trust’s total investments, at fair value presented in Note 3.
9
Honeywell Puerto Rico Savings and Ownership Plan
Notes to Financial Statements
Fixed Income Investments
Fixed income securities
(other than commercial mortgage backed Securities) are valued at the regular close of trading on each valuation date at the
evaluated bid prices supplied by pricing vendors or brokers, if any, whose prices reflect broker/dealer supplied valuations
and electronic data processing techniques. Commercial mortgage backed securities are valued using pool-specific pricing. The
pool specific pricing is provided by the pricing vendors and typically they use Interactive Data for these investments. Fixed
income securities, including corporate bonds, U.S. government and federal agencies, Non U.S. government, municipal bonds,
commercial paper, bank deposits, asset-backed securities and commercial mortgage backed securities are classified within
Level 2 of the valuation hierarchy.
The following tables present the Master Trust’s
assets measured at fair value as of December 31, 2017 and 2016, by the fair value hierarchy.
|
|
|
|
|
2017
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
|
|
(dollars in millions)
|
Common Stocks
|
|
$
|
5,714
|
|
|
$
|
-
|
|
|
$
|
5,714
|
|
Fixed Income Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Backed Securities
|
|
|
-
|
|
|
|
336
|
|
|
|
336
|
|
Bank Deposits
|
|
|
-
|
|
|
|
69
|
|
|
|
69
|
|
Commercial Mortgage Backed Securities
|
|
|
-
|
|
|
|
6
|
|
|
|
6
|
|
Corporate Bonds
|
|
|
-
|
|
|
|
744
|
|
|
|
744
|
|
U.S. Government and Federal Agencies
|
|
|
-
|
|
|
|
363
|
|
|
|
363
|
|
Municipal Bonds
|
|
|
-
|
|
|
|
135
|
|
|
|
135
|
|
Non US Government
|
|
|
-
|
|
|
|
96
|
|
|
|
96
|
|
Commercial Paper
|
|
|
-
|
|
|
|
272
|
|
|
|
272
|
|
|
|
$
|
5,714
|
|
|
$
|
2,021
|
|
|
|
|
|
Collective Trust Funds
|
|
|
|
|
|
|
|
|
|
|
7,926
|
|
Total Investments
|
|
|
|
|
|
|
|
|
|
$
|
15,661
|
|
10
Honeywell Puerto Rico Savings and Ownership Plan
Notes to Financial Statements
|
|
|
|
|
2016
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
|
|
(dollars in millions)
|
Common Stocks
|
|
$
|
4,978
|
|
|
$
|
-
|
|
|
$
|
4,978
|
|
Fixed Income Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Backed Securities
|
|
|
-
|
|
|
|
295
|
|
|
|
295
|
|
Bank Deposits
|
|
|
-
|
|
|
|
171
|
|
|
|
171
|
|
Commercial Mortgage Backed Securities
|
|
|
-
|
|
|
|
4
|
|
|
|
4
|
|
Corporate Bonds
|
|
|
-
|
|
|
|
745
|
|
|
|
745
|
|
U.S. Government and Federal Agencies
|
|
|
-
|
|
|
|
553
|
|
|
|
553
|
|
Municipal Bonds
|
|
|
-
|
|
|
|
205
|
|
|
|
205
|
|
Non US Government
|
|
|
-
|
|
|
|
122
|
|
|
|
122
|
|
Commercial Paper
|
|
|
-
|
|
|
|
153
|
|
|
|
153
|
|
|
|
$
|
4,978
|
|
|
$
|
2,248
|
|
|
|
|
|
Collective Trust Funds
|
|
|
|
|
|
|
|
|
|
|
6,220
|
|
Total Investments
|
|
|
|
|
|
|
|
|
|
$
|
13,446
|
|
4.
|
Party-In-Interest Transactions
|
The Master Trust is invested in
the Company’s common stock, which qualifies as a party-in-interest transaction. During the year ended December 31, 2017,
the Master Trust’s investment in the Company’s common stock included purchases of approximately $159 million, sales
of approximately $475 million, realized gains of approximately $254 million, unrealized gains of approximately $1,016 million and
dividend income of approximately $70 million. The Master Trust invests in short term investment funds managed by the Custodian.
These investments qualify as party-in-interest transactions.
The Company is both the plan sponsor
and a party to the Master Trust, therefore the Master Trust investment and the Plan’s interest of $11.1 million in the Company’s
common stock qualifies as a related party transaction.
5.
|
Risks and Uncertainties
|
The Plan provides for various investment
options. Investment securities are exposed to various risks, such as interest rate, market and credit risks. Due to the level of
risk associated with certain investment securities, it is at least reasonably possible that changes in the value of investment
securities will occur in the near term and that such changes could materially affect participants’ account balances and the
amounts reported in the statements of net assets available for benefits and the statement of changes in net assets available for
benefits.
The Plan is designed and
intended to be qualified under Section 1165 of the Puerto Rico Internal Revenue Code of 1994, as amended (the “1994 PR
Code”), and Section 1081.01(a) of the Internal Revenue Code for a New Puerto Rico, Act No. 1 of January 31, 2011, as
amended from time to time (the “2011 PR Code”). The Plan has received a favorable determination letter from the
Puerto Rico Treasury Department (the “PR Treasury”) as to its qualified status under the 1994 PR Code and the
2011 PR Code. The Trust associated with the Plan is intended to be exempt from Puerto Rico income taxation pursuant to the
provisions of Section 1165(a) of the 1994 PR Code and Section 1081.01(a)
11
Honeywell Puerto Rico Savings and Ownership Plan
Notes to Financial Statements
of the 2011 PR Code, and
pursuant to Section 1022(i)(1) of ERISA, for United States income tax purposes, the Plan’s Master Trust is to be
considered as an organization as described in Section 401 (a) of the U.S. Internal Revenue Code of 1986, as amended (the
“U.S. Code”) and exempt under Section 501(a) of the U.S. Code. Accordingly, no provision for income taxes has
been made.
U.S. GAAP requires plan
management to evaluate tax positions taken by the Plan and recognize a tax liability if the Plan has taken an uncertain
position that more likely than not would not be sustained upon examination by the PR Treasury. As of December 31, 2017 and
2016, the Plan Administrator has analyzed the tax positions by the Plan, and has concluded that there are no uncertain
positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the
financial statements. The plan administrator believes it is no longer subject to income tax examinations for years prior to
2014.
12
Honeywell Puerto Rico Savings and Ownership Plan
Schedule H, Line 4(i) –
Schedule of Assets (held at end of year)
As of December 31, 2017
Employer Identification Number: 22-2640650
Plan Number: 341
(Dollars in Thousands)
Identity of Issue
|
|
Description
|
|
Current Value
|
|
|
|
|
|
|
|
|
*Notes receivable from participants
|
|
(Interest rates approximate 4.25%, maturing through March 9, 2035)
|
|
$
|
1
|
|
* Party-in-interest.
13