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 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”).
Effective January 1, 2018, the Plan’s name was changed from Honeywell Puerto Rico Savings and Ownership Plan to Honeywell
Puerto Rico Savings Plan. 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 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 services for 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 annually.
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.
Prior to April 6, 2018, the Employer matching contributions were made to the eligible participants’ accounts each pay period
that employee contributions were 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.
Effective April 6, 2018, Honeywell enhanced
the match formula in the 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). There is no
longer a one year service
requirement.
|
Honeywell Puerto Rico Savings Plan
Notes to Financial
Statements - continued
Also effective April 6, 2018, employer
matching contributions are made annually in a lump sum by the end of the January following the calendar year-end. Participants
must be actively employed on December 15th, are disabled or are deceased to receive such match. There is no minimum service requirement
to receive the annual match. Accordingly, the Statement of Net Assets Available for Benefits at December 31, 2018 and Statement
of Changes in Net Assets Available for Benefits for the year ended December 31, 2018 both reflect $877 thousand for employer matching
contributions earned in 2018 and paid by the Employer to the Plan in January 2019.
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, 2018 and 2017 were approximately 4.25%.
Termination
Although it has not expressed any 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.
Honeywell Puerto Rico Savings Plan
Notes to Financial
Statements - continued
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 $30,950 for the year ended December 31, 2018, 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 401(k) Plan, 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, allocated investment income / (loss) less actual Plan distributions, and Plan expenses.
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 (“FASB”) 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.
In August 2018 the FASB released ASU 2018-13
Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which alters the disclosures related
to the fair value hierarchy. Under the guidance, entities will no longer be required to disclose the amount of and reasons for
transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range
and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidance is
effective for public entities for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years;
however, early adoption is permitted. Plan management is currently evaluating the impact of this guidance on the Plan’s
financial statements.
Honeywell Puerto Rico Savings Plan
Notes to Financial
Statements - continued
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 Honeywell 401(k) Plan, 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 31, 2018 and 2017, the Plan’s interest in the net assets of the Master Trust was 0.240%
and 0.225%, 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, 2018 and 2017:
|
|
2018
|
|
2017
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
Collective Trust Funds
|
|
$
|
6,825
|
|
|
$
|
7,926
|
|
Honeywell Common Stock
|
|
|
3,795
|
|
|
|
4,760
|
|
Common Stocks (Separately Managed Portfolios)
|
|
|
1,014
|
|
|
|
954
|
|
Fixed Income Investments (Separately Managed Portfolios)
|
|
|
2,016
|
|
|
|
2,021
|
|
Total Investments, at fair value
|
|
|
13,650
|
|
|
|
15,661
|
|
|
|
|
|
|
|
|
|
|
Due from (to) broker on pending trades
|
|
|
6
|
|
|
|
2
|
|
Net assets of the Master Trust
|
|
$
|
13,656
|
|
|
$
|
15,663
|
|
The Master Trust’s net depreciation
and investment income for the year-ended December 31, 2018 is as follows:
|
|
2018
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net depreciation in fair value of investments
|
|
$
|
(915
|
)
|
|
|
|
|
Dividend and interest income
|
|
|
89
|
|
|
|
|
|
Total investment income and net depreciation
|
|
$
|
(826
|
)
|
|
|
|
|
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
Honeywell Puerto Rico Savings Plan
Notes to Financial
Statements - continued
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, 2018 and 2017.
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.
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, 2018 and 2017.
Collective Trust Funds
Collective Trusts funds are investment
vehicles utilized as or within 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.
Honeywell Puerto Rico Savings Plan
Notes to Financial
Statements - continued
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.
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, 2018 and 2017, by the fair value hierarchy.
|
|
2018
|
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
|
(dollars in millions)
|
Common Stocks
|
|
$
|
4,809
|
|
|
$
|
-
|
|
|
$
|
4,809
|
|
Fixed Income Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Backed Securities
|
|
|
-
|
|
|
|
336
|
|
|
|
336
|
|
Bank Deposits
|
|
|
-
|
|
|
|
136
|
|
|
|
136
|
|
Commercial Mortgage Backed Securities
|
|
|
-
|
|
|
|
6
|
|
|
|
6
|
|
Corporate Bonds
|
|
|
-
|
|
|
|
676
|
|
|
|
676
|
|
U.S. Government and Federal Agencies
|
|
|
-
|
|
|
|
191
|
|
|
|
191
|
|
Municipal Bonds
|
|
|
-
|
|
|
|
46
|
|
|
|
46
|
|
Non US Government
|
|
|
-
|
|
|
|
239
|
|
|
|
239
|
|
Commercial Paper
|
|
|
-
|
|
|
|
386
|
|
|
|
386
|
|
|
|
$
|
4,809
|
|
|
$
|
2,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collective Trust Funds
|
|
|
|
|
|
|
|
|
|
|
6,825
|
|
Total Investments
|
|
|
|
|
|
|
|
|
|
$
|
13,650
|
|
Honeywell Puerto Rico Savings Plan
Notes to Financial
Statements - continued
|
|
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
|
|
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, 2018, the Master Trust’s
investment in the Company’s common stock included purchases of approximately $150 million, sales of approximately $447 million,
realized gains of approximately $251 million, unrealized losses of approximately $668 million and dividend income of approximately
$87 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 $9.6 million in the Company’s
common stock qualifies as a related party transaction, along with the dividend income of $217 thousand earned by the Plan on this
investment.
On October 1, 2018, Honeywell completed
the spin-off to Honeywell shareowners of its Transportation Systems business into a standalone publicly-traded company, Garrett
Motion Inc. On October 29, 2018, Honeywell completed the spin-off to Honeywell shareowners of its Homes and
Global Distribution business into a standalone publicly-traded company, Resideo Technologies Inc. Both spin-offs were
in the form of a tax-free distribution of stock to holders of Honeywell common stock. Each spinoff stock fund in the Plan will
be frozen to new contributions and will be removed from the Plan after the period ending on or after the date that is nine months
following each spin date (the “Sunset Period”).
Each spinoff stock fund is set up so that a participant may
sell the spinoff company units or take an in-kind distribution if the participant sees fit during the 9-month period while each
spinoff stock fund is available within the Plan. If a participant does not take action to liquidate the spinoff units prior to
the completion of each Sunset Period, then any assets remaining in the spinoff stock funds will be liquidated and proceeds will
be transferred to the Honeywell Common Stock Fund. Once the spinoff stock funds have a zero balance, they will be removed from
the Plan’s investment choices.
Honeywell Puerto Rico Savings Plan
Notes to Financial
Statements - continued
5.
|
Risks and Uncertainties
|
The Plan provides for various investment
options. Investment securities are exposed to certain risks, such as interest rate, market, liquidity 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
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) of
the 2011 PR Code, 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 Puerto Rico Treasury Department. As of December 31, 2018 and 2017, 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 2015.
Honeywell Puerto Rico Savings Plan
Schedule H, Line 4(i) –
Schedule of Assets (held at end of year)
As of December 31, 2018
Employer Identification Number: 22-2640650
Plan Number: 341
(Dollars in Thousands)
Identity of Issue
|
|
Description
|
|
Current Value
|
|
|
|
|
|
|
|
|
*Notes receivable from participants
|
|
(Interest rate 4.25% - maturing March 9, 2035)
|
|
$
|
1
|
|
* Party-in-interest.