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.
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 “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 since June 1, 2015, the custodian of the Plan is The
Northern Trust Company (the “Custodian”). Previously, State Street Bank and Trust company was the custodian.
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). The Employer does not match catch-up contributions. All
of the Employer’s matching contributions are initially invested in the Honeywell Common Stock Fund. Subsequently, vested
participants may direct such matching contributions into any investment option available within the Plan.
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
Honeywell Puerto Rico Savings and Ownership Plan
Notes to Financial Statements
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, 2015 and 2014 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.
Forfeitures
Forfeitures of the Employer’s
contributions and earnings thereon due to terminations and withdrawals reduce contributions otherwise due from the Employer. Employer
contributions due to the Plan were reduced by $6,000 for the year ended December 31, 2015, 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.
Honeywell Puerto Rico Savings and Ownership Plan
Notes to Financial Statements
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 less actual Plan distributions, and allocated investment losses.
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 participating Plan.
Recent Accounting Pronouncements
In July 2015, the Financial Accounting
Stanadards Board (“FASB”) issued ASU 2015-12, Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined
Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): (Part I) Fully Benefit-Responsive Investment
Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient. Part I eliminates the requirements
to measure the fair value of fully benefit-responsive investment contracts and provide certain disclosures. Contract value is
the only required measure for fully benefit-responsive investment contracts. Part II eliminates the requirements to disclose individual
investments that represent 5 percent or more of net assets available for benefits and the net appreciation or depreciation in
fair value of investments by general type. Part II also simplifies the level of disaggregation of investments that are measured
using fair value. Plans will continue to disaggregate investments that are measured using fair value by general type; however,
plans are no longer required to also disaggregate investments by nature, characteristics and risks. Further, the disclosure of
information about fair value measurements shall be provided by general type of plan asset. The Plan has elected to adopt Part
II of ASU 2015-12 effective with the December 31, 2015 financial statements, with retrospective application to all periods presented.
Parts I and III are not applicable to the Plan. The adoption had no effect on the Plan’s net assets available for benefits
or changes therein.
In May 2015, the FASB issued ASU
2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). ASU 2015-07
removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the
net asset value per share practical expedient. It also removes the requirement to make certain disclosures for all investments
that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures
are limited to investments for which the entity has elected to measure the fair value using that practical expedient. The Plan
has elected to adopt ASU 2015-07 effective with the December 31, 2015 financial statements, with retrospective application to
all periods presented. The adoption had no effect on the Plan’s net assets available for benefits or changes therein.
Honeywell Puerto Rico Savings and Ownership Plan
Notes to 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 31, 2015 and 2014, the Plan’s interest in the net assets of the Master Trust was 0.165% and 0.140%
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, 2015 and 2014:
|
|
2015
|
|
2014
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
Collective Trust Funds
|
|
$
|
5,994
|
|
|
$
|
5,641
|
|
Honeywell Common Stock
|
|
|
3,807
|
|
|
|
3,853
|
|
Short Term Investment Funds
|
|
|
-
|
|
|
|
800
|
|
Common Stocks (Separately Managed Portfolios)
|
|
|
1,100
|
|
|
|
1,073
|
|
Fixed Income Investments
|
|
|
2,031
|
|
|
|
1,606
|
|
Total Investments, at fair value
|
|
|
12,932
|
|
|
|
12,973
|
|
|
|
|
|
|
|
|
|
|
Due from broker on pending trades
|
|
|
40
|
|
|
|
-
|
|
Net assets of the Master Trust
|
|
$
|
12,972
|
|
|
$
|
12,973
|
|
The Master Trust’s investment
income and net appreciation for the year ended December 31 2015, is presented in the following table.
|
|
2015
|
|
|
(dollars in millions)
|
|
|
|
|
|
Net appreciation in fair value of investments:
|
|
$
|
104
|
|
Net appreciation
|
|
|
104
|
|
|
|
|
|
|
Dividend Income
|
|
|
93
|
|
Interest Income
|
|
|
3
|
|
Total investment income
|
|
$
|
200
|
|
Investment Valuation and
Income Recognition – Master Trust
Master Trust
investments are stated at fair value. Investments in collective trust funds and short term investment funds are valued at the
net asset value of units held at year-end. Common stocks, including Honeywell Common Stock, traded on a national securities exchange,
are valued at the last reported sales price or close price at the end of the year. Fixed income securities traded in the over-the-counter
market are valued at the evaluated bid.
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.
Honeywell Puerto Rico Savings and Ownership Plan
Notes to Financial Statements
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, 2015 and 2014.
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 above within – “Investment Valuation and Income Recognition
– Master Trust”. 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, 2015 and 2014.
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.
Honeywell Puerto Rico Savings and Ownership Plan
Notes to Financial Statements
Collective Trust Funds
and Short Term Investment Funds
Collective Trusts and Short
Term Investment funds are investment vehicles utilized as the target date funds, equity index funds, investment grade bond fund,
global REIT fund and short term investment 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.
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, Non U.S. government and federal agencies, municipal bonds, commercial paper, 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, 2015 and 2014, by the fair value hierarchy.
|
|
|
2015
|
|
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
|
|
(dollars in millions)
|
|
Common Stocks
|
|
$
|
4,907
|
|
|
$
|
-
|
|
|
$
|
4,907
|
|
|
Fixed Income Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Backed Securities
|
|
|
-
|
|
|
|
251
|
|
|
|
251
|
|
|
Commercial Mortgage Backed Securities
|
|
|
-
|
|
|
|
6
|
|
|
|
6
|
|
|
Corporate Bonds
|
|
|
-
|
|
|
|
780
|
|
|
|
780
|
|
|
U.S. Government and Federal Agencies
|
|
|
-
|
|
|
|
461
|
|
|
|
461
|
|
|
Municipal Bonds
|
|
|
-
|
|
|
|
156
|
|
|
|
156
|
|
|
Non US Government
|
|
|
-
|
|
|
|
141
|
|
|
|
141
|
|
|
Commercial Paper
|
|
|
-
|
|
|
|
236
|
|
|
|
236
|
|
|
|
|
$
|
4,907
|
|
|
$
|
2,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collective Trust Funds
|
|
|
|
|
|
|
|
|
|
|
5,994
|
|
|
Total Investments
|
|
|
|
|
|
|
|
|
|
$
|
12,932
|
|
Honeywell Puerto Rico Savings and Ownership Plan
Notes to Financial Statements
|
|
|
2014
|
|
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
|
|
(dollars in millions)
|
|
Common Stocks
|
|
$
|
4,926
|
|
|
$
|
-
|
|
|
$
|
4,926
|
|
|
Fixed Income Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Backed Securities
|
|
|
-
|
|
|
|
274
|
|
|
|
274
|
|
|
Commercial Mortgage Backed Securities
|
|
|
-
|
|
|
|
44
|
|
|
|
44
|
|
|
Corporate Bonds
|
|
|
-
|
|
|
|
781
|
|
|
|
781
|
|
|
U.S. Government and Federal Agencies
|
|
|
-
|
|
|
|
393
|
|
|
|
393
|
|
|
Municipal Bonds
|
|
|
-
|
|
|
|
114
|
|
|
|
114
|
|
|
|
|
$
|
4,926
|
|
|
$
|
1,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collective Trust Funds
|
|
|
|
|
|
|
|
|
|
|
5,641
|
|
|
Short Term Investment Funds
|
|
|
|
|
|
|
|
|
|
|
800
|
|
|
Total Investments
|
|
|
|
|
|
|
|
|
|
$
|
12,973
|
|
4.
|
Party-In-Interest Transactions
|
The Master Trust is invested in
the Company’s common stock and the Plan holds notes receivable from participants, both of which qualify as party-in-interest
transactions. During the year ended December 31, 2015, the Master Trust’s investment in the Company’s common stock
included purchases of approximately $664 million, sales of approximately $849 million, realized gains of approximately $89 million,
unrealized gains of approximately $63 million and dividend income of approximately $81 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 $6.6 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) 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-
Honeywell Puerto Rico Savings and Ownership Plan
Notes to Financial Statements
(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 1994 PR
Code and the 2011 PR Code. As of December 31, 2015 and 2014, 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 is no longer subject to tax examinations for years prior to 2012.
7.
|
Reconciliation of Financial Statements to Form 5500
|
The following is a reconciliation
of net assets available for benefits per the financial statements to Form 5500 at December 31, 2015 and 2014:
|
|
2015
|
|
2014
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
Net assets available for benefits per the financial statements
|
|
$
|
21,327
|
|
|
$
|
18,204
|
|
Amounts allocated to withdrawing participants
|
|
|
(9
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net assets available for benefits per the Form 5500
|
|
$
|
21,318
|
|
|
$
|
18,204
|
|
The following is a reconciliation of benefits paid
to participants per the financial statements to Form 5500 for the year ended December 31, 2015:
|
|
2015
|
|
|
(dollars in thousands)
|
Benefits paid to participants per the financial statements
|
|
$
|
1,074
|
|
Add: Amounts allocated to withdrawing participants at December 31, 2015
|
|
|
9
|
|
Benefits paid to participants per the Form 5500
|
|
$
|
1,083
|
|