NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share
amounts)
Note 1. Summary of Significant Accounting Policies
Accounting Principles
—The
financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United
States of America. The following is a description of Honeywell’s significant accounting policies.
Principles of
Consolidation
—The consolidated financial statements include the accounts of Honeywell International Inc. and all
of its subsidiaries and entities in which a controlling interest is maintained. Our consolidation policy requires equity investments
that we exercise significant influence over but do not control the investee and are not the primary beneficiary of the investee’s
activities to be accounted for using the equity method. Investments through which we are not able to exercise significant influence
over the investee and which we do not have readily determinable fair values are accounted for under the cost method. All intercompany
transactions and balances are eliminated in consolidation.
Redeemable noncontrolling
interest is considered to be temporary equity and is therefore reported outside of permanent equity on the Consolidated Balance
Sheet at the greater of the initial carrying amount adjusted for the noncontrolling interest’s share of net income (loss)
or its redemption value.
Property, Plant
and Equipment
—Property, plant and equipment are recorded at cost, including any asset retirement obligations, less
accumulated depreciation. For financial reporting, the straight-line method of depreciation is used over the estimated useful lives
of 10 to 50 years for buildings and improvements and 2 to 16 years for machinery and equipment. Recognition of the fair value of
obligations associated with the retirement of tangible long-lived assets is required when there is a legal obligation to incur
such costs. Upon initial recognition of a liability, the cost is capitalized as part of the related long-lived asset and depreciated
over the corresponding asset’s useful life.
Goodwill and Indefinite-Lived
Intangible Assets
—Goodwill and indefinite-lived intangible assets are subject to impairment testing annually as of
March 31, and whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. This
testing compares carrying values to fair values and, when appropriate, the carrying value of these assets is reduced to fair value.
We completed our annual goodwill impairment test as of March 31, 2016 and determined that there was no impairment as of that date.
Other Intangible
Assets with Determinable Lives
—Other intangible assets with determinable lives consist of customer lists, technology,
patents and trademarks and other intangibles and are amortized over their estimated useful lives, ranging from 2 to 24 years.
Sales Recognition
—Product
and service sales are recognized when persuasive evidence of an arrangement exists, product delivery has occurred or services have
been rendered, pricing is fixed or determinable, and collection is reasonably assured. Service sales, principally representing
repair, maintenance and engineering activities are recognized over the contractual period or as services are rendered. Sales under
long-term contracts are recorded on a percentage-of-completion method measured on the cost-to-cost basis for engineering-type contracts
and the units-of-delivery basis for production-type contracts. Provisions for anticipated losses on long-term contracts are recorded
in full when such losses become evident. Revenues from contracts with multiple element arrangements are recognized as each element
is earned based on the relative fair value of each element provided the delivered elements have value to customers on a standalone
basis. Amounts allocated to each element are based on its objectively determined fair value, such as the sales price for the product
or service when it is sold separately or competitor prices for similar products or services.
Environmental
—We
accrue costs related to environmental matters when it is probable that we have incurred a liability related to a contaminated site
and the amount can be reasonably estimated. For additional information, see Note 19 Commitments and Contingencies.
Asbestos Related
Contingencies and Insurance Recoveries
—We recognize a liability for any asbestos related contingency that is probable
of occurrence and reasonably estimable. In connection with the recognition of liabilities for asbestos related matters, we record
asbestos related insurance recoveries that are deemed probable. For additional information, see Note 19 Commitments and Contingencies.
Aerospace Sales
Incentives
—We provide sales incentives to commercial aircraft manufacturers and airlines in connection with their
selection of our aircraft equipment, predominately wheel and braking system hardware, avionics, and auxiliary power units, for
installation on commercial aircraft. These incentives consist of
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions, except per share
amounts)
free or deeply discounted products, credits for future
purchases of product and upfront cash payments. These costs are recognized in the period incurred as cost of products sold or
as a reduction to sales, as appropriate.
Research and Development
—Research
and development costs for company-sponsored research and development projects are expensed as incurred. Such costs are principally
included in cost of products sold and were $2,143 million, $1,856 million and $1,892 million in 2016, 2015 and 2014.
Stock-Based Compensation
Plans
—The principal awards issued under our stock-based compensation plans, which are described in Note 18 Stock-Based
Compensation Plans, are non-qualified stock options and restricted stock units. The cost for such awards is measured at the grant
date based on the fair value of the award. The value of the portion of the award that is ultimately expected to vest is recognized
as expense over the requisite service periods (generally the vesting period of the equity award) and is included in selling, general
and administrative expenses. Forfeitures are estimated at the time of grant to recognize expense for those awards that are expected
to vest and are based on our historical forfeiture rates.
Pension
Benefits
—
We recognize net actuarial gains or losses
in excess of 10% of the greater of the fair value of plan assets or the plans’ projected benefit obligation (the corridor)
annually in the fourth quarter each year (MTM Adjustment), and, if applicable, in any quarter in which an interim remeasurement
is triggered. The remaining components of pension (income) expense, primarily service and interest costs and assumed return on
plan assets, are recognized on a quarterly basis (Pension ongoing (income) expense).
Foreign Currency
Translation
— Assets and liabilities of subsidiaries operating outside the United States with a functional currency
other than U.S. Dollars are translated into U.S. Dollars using year-end exchange rates. Sales, costs and expenses are translated
at the average exchange rates in effect during the year. Foreign currency translation gains and losses are included as a component
of accumulated other comprehensive income (loss). For subsidiaries operating in highly inflationary environments, inventories and
property, plant and equipment, including related expenses, are remeasured at the exchange rate in effect on the date the assets
were acquired, while monetary assets and liabilities are remeasured at year-end exchange rates. Remeasurement adjustments for these
subsidiaries are included in earnings.
Derivative Financial
Instruments
— We minimize our risks from interest and foreign currency exchange rate fluctuations through our normal
operating and financing activities and, when deemed appropriate through the use of derivative financial instruments. Derivative
financial instruments are used to manage risk and are not used for trading or other speculative purposes and we do not use leveraged
derivative financial instruments. Derivative financial instruments that qualify for hedge accounting must be designated and effective
as a hedge of the identified risk exposure at the inception of the contract. Accordingly, changes in fair value of the derivative
contract must be highly correlated with changes in fair value of the underlying hedged item at inception of the hedge and over
the life of the hedge contract.
All derivatives are
recorded on the balance sheet as assets or liabilities and measured at fair value. For derivatives designated as hedges of the
fair value of assets or liabilities, the changes in fair values of both the derivatives and the hedged items are recorded in current
earnings. For derivatives designated as cash flow hedges, the effective portion of the changes in fair value of the derivatives
are recorded in accumulated other comprehensive income (loss) and subsequently recognized in earnings when the hedged items impact
earnings. Cash flows of such derivative financial instruments are classified consistent with the underlying hedged item.
Income Taxes
—
Significant judgment is required in evaluating tax positions. We establish 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, the Company and its subsidiaries are examined by various federal, state and foreign tax authorities. We regularly
assess the potential outcomes of these examinations and any future examinations for the current or prior years in determining
the adequacy of our provision for income taxes. We continually assess the likelihood and amount of potential adjustments and adjust
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.
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions, except per share
amounts)
Cash and cash equivalents
—
Cash and cash equivalents include cash on hand and highly liquid investments having an original maturity of three months or less.
Earnings Per Share
—Basic
earnings per share is based on the weighted average number of common shares outstanding. Diluted earnings per share is based on
the weighted average number of common shares outstanding and all dilutive potential common shares outstanding.
Reclassifications
—Certain
prior year amounts have been reclassified to conform to the current year presentation.
Recent Accounting
Pronouncements
—We consider the applicability and impact of all Accounting Standards Updates (ASUs). ASUs not listed
below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated results
of operations, financial position and cash flows (consolidated financial statements).
In May 2014, the FASB
issued guidance on revenue from contracts with customers that will supersede most current revenue recognition guidance, including
industry-specific guidance. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or
services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance
provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization
of certain contract costs, consideration of time value of money in the transaction price, and allowing estimates of variable consideration
to be recognized before contingencies are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding
the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The
effective date was deferred for one year to the interim and annual periods beginning on or after December 15, 2017. Early adoption
is permitted as of the original effective date – interim and annual periods beginning on or after December 15, 2016. The
guidance permits the use of either a retrospective or cumulative effect transition method. We have not yet selected a transition
method.
We are still finalizing
the analysis to quantify the adoption impact of the provisions of the new standard, but we do not currently expect it to have a
material impact on our consolidated financial position or results of operations. Based on the evaluation of our current contracts
and revenue streams, most will be recorded consistently under both the current and new standard. The FASB has issued, and may issue
in the future, interpretive guidance which may cause our evaluation to change. We believe we are following an appropriate timeline
to allow for proper recognition, presentation and disclosure upon adoption effective the beginning of fiscal year 2018.
In February 2016, the
FASB issued guidance on accounting for leases which requires lessees to recognize most leases on their balance sheets for the rights
and obligations created by those leases. The guidance requires enhanced disclosures regarding the amount, timing, and uncertainty
of cash flows arising from leases that will be effective for interim and annual periods beginning after December 15, 2018. Early
adoption is permitted. The guidance requires the use of a modified retrospective approach. We are currently evaluating the impact
of the guidance on our consolidated financial position, results of operations, and related notes to financial statements.
In March 2016, the FASB
issued amended guidance related to the employee share-based payment accounting. The guidance requires all income tax effect of
awards to be recognized in the income statement, which were previously presented as a component of Total shareowners’ equity,
on a prospective basis. The guidance also requires presentation of excess tax benefits as an operating activity on the statement
of cash flows rather than as a financing activity. We have elected to early adopt the standard in the quarter ended September
30, 2016, which requires adoption effective as of the beginning of the fiscal year. The adoption resulted in a diluted earnings
per share benefit of $0.14 and the recognition of excess tax benefits as a reduction in the provision for income taxes of $127
million for the year ended December 31, 2016. Refer to Note 24 Unaudited Quarterly Financial Information for the earnings per
share for the first and second quarters of 2016, recast to reflect the impact from adoption. Cash paid by the Company when directly
withholding shares for tax-withholding purposes are classified as a financing activity on a retrospective basis.
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions, except per share
amounts)
The guidance allows for
an accounting policy election to estimate the number of awards that are expected to vest or account for forfeitures when they occur.
We elected to maintain the current forfeitures policy and will continue to include an estimate of those forfeitures when recognizing
stock compensation expense. Classification of the excess tax benefits in the Consolidated Statement of Cash Flows are presented
on a prospective basis as of January 1, 2016.
In August 2016, the FASB
issued new guidance intended to reduce diversity in practice in how certain cash receipts and payments are classified in the statement
of cash flows, including debt prepayment or extinguishment costs, the settlement of contingent liabilities arising from a business
combination, proceeds from insurance settlements, and distributions from certain equity method investees. The guidance is effective
for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. The guidance requires application
on a retrospective basis. The Company is currently evaluating the impact of this guidance.
In October 2016, the
FASB issued an accounting standard update which requires an entity to recognize the income tax consequences of an intra-entity
transfer of an asset other than inventory when the transfer occurs. Under current GAAP, recognition of the income tax consequences
for asset transfers other than inventory could not be recognized until the asset was sold to a third party. The guidance is intended
to reduce diversity in practice related to the tax consequences of certain types of intra-entity asset transfers, particularly
those involving intellectual property. The guidance is effective for interim and annual periods beginning after December 15, 2017,
and early adoption is permitted. The guidance requires application on a modified retrospective basis. We are currently evaluating
the impact of this accounting standard update on our consolidated financial statements.
Note 2. Acquisitions and Divestitures
During 2016 and 2015,
we acquired businesses for an aggregate cost (net of cash and debt assumed) of $2,538 million and $5,244 million.
In August 2016, the Company
acquired Intelligrated, a leading provider of supply chain and warehouse automation technologies, for an aggregate value, net of
cash acquired, of $1,488 million. Intelligrated is part of Safety and Productivity Solutions. The preliminary determination of
the assets and liabilities acquired with Intelligrated have been included in the Consolidated Balance Sheet as of December 31,
2016, including $1,129 million allocated to goodwill, which is non-deductible for tax purposes.
In April 2016, the Company
completed the acquisition of Xtralis International Holdings Limited (Xtralis), a leading global provider of aspiration smoke detection
and perimeter security technologies, for an aggregate cost, net of cash acquired and debt assumed, of $515 million. Xtralis is
part of Home and Building Technologies.
In February 2016, the
Company acquired 100 percent of the issued and outstanding shares of COM DEV International (COM DEV), a leading satellite and space
components provider, for an aggregate value, net of cash acquired and debt assumed, of $347 million. COM DEV is part of Aerospace
and had reported 2015 fiscal year revenues of $159 million.
I
n
January 2016, the Company acquired the remaining 30 percent noncontrolling interest in UOP Russell LLC, which develops technology
and manufactures modular equipment to process natural gas, for $240 million. UOP Russell LLC is part of Performance Materials and
Technologies.
In December 2015, the
Company completed the acquisition of the Elster Division of Melrose Industries plc (Elster), for an aggregate value, net of cash
acquired, of $4,899 million. Elster had 2015 revenues of $1,670 million and has been integrated into Home and Building Technologies
and Performance Materials and Technologies. The following table summarizes the final fair value of the acquired Elster assets
and liabilities.
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions, except per share
amounts)
Current assets
|
|
|
$519
|
|
Intangible assets
|
|
|
2,163
|
|
Other noncurrent assets
|
|
|
193
|
|
Current liabilities
|
|
|
(566
|
)
|
Noncurrent liabilities
|
|
|
(973
|
)
|
Net assets acquired
|
|
|
1,336
|
|
Noncontrolling interest
|
|
|
(2
|
)
|
Goodwill
|
|
|
3,565
|
|
Purchase Price
|
|
|
$4,899
|
|
The Elster identifiable
intangible assets primarily include customer relationships, trade names and technology that are being amortized over their estimated
lives ranging from 1 to 20 years using straight line and accelerated amortization methods. The goodwill is non-deductible for
tax purposes.
As of December 31, 2016,
the purchase accounting for Intelligrated, Xtralis and COM DEV is subject to final adjustment, primarily for the valuation of
amounts allocated to intangible assets and goodwill, determination of useful lives for definite-lived intangible assets, tax balances
and for any pre-acquisition contingencies. Goodwill arising from these acquisitions is non-deductible for tax purposes. The results
of operations from date of acquisition through December 31, 2016 are included in the Consolidated Statement of Operations.
On October 1, 2016,
the Company completed the tax-free spin-off of its Resins and Chemicals business, part of Performance Materials and Technologies,
into a standalone, publicly-traded company (named AdvanSix Inc. or AdvanSix) to Honeywell shareowners. The assets and liabilities
associated with AdvanSix have been removed from the Company’s Consolidated Balance Sheet. The results of operations for
AdvanSix are included in the Consolidated Statement of Operations through the effective date of the spin-off.
Honeywell shareowners
of record as of the close of business on September 16, 2016 received one share of AdvanSix common stock for every 25 shares of
Honeywell common stock. Immediately prior to the effective date of the spin-off, AdvanSix incurred debt to make a cash distribution
of $269 million to the Company. At the same time, AdvanSix also incurred $38 million of borrowings in order to fund its post spin-off
working capital.
The Company entered
into certain agreements with AdvanSix to effect our legal and structural separation including a transition services agreement
with AdvanSix to provide certain administrative and other services for a limited time.
On September 16, 2016,
the Company completed the sale of Honeywell Technology Solutions Inc. for a sale price of $300 million. The Company recognized
a pre-tax gain of $176 million, which was recorded in Other (income) expense. The Honeywell Technology Solutions Inc. business
was part of Aerospace.
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions,
except per share amounts)
Note 3. Repositioning and Other Charges
A summary of repositioning and other charges
follows:
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Severance
|
|
$
|
283
|
|
|
$
|
197
|
|
|
$
|
156
|
|
Asset impairments
|
|
|
43
|
|
|
|
13
|
|
|
|
12
|
|
Exit costs
|
|
|
43
|
|
|
|
6
|
|
|
|
16
|
|
Reserve adjustments
|
|
|
(109
|
)
|
|
|
(53
|
)
|
|
|
(38
|
)
|
Total net repositioning charge
|
|
|
260
|
|
|
|
163
|
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asbestos related litigation charges, net of insurance
|
|
|
222
|
|
|
|
189
|
|
|
|
182
|
|
Probable and reasonably estimable environmental liabilities
|
|
|
195
|
|
|
|
194
|
|
|
|
268
|
|
Other
|
|
|
18
|
|
|
|
-
|
|
|
|
2
|
|
Total net repositioning and other charges
|
|
$
|
695
|
|
|
$
|
546
|
|
|
$
|
598
|
|
The following table summarizes the pretax distribution of total
net repositioning and other charges by income statement classification:
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Cost of products and services sold
|
|
$
|
522
|
|
|
$
|
483
|
|
|
$
|
525
|
|
Selling, general and administrative expenses
|
|
|
126
|
|
|
|
63
|
|
|
|
73
|
|
Other (income) expense
|
|
|
47
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
695
|
|
|
$
|
546
|
|
|
$
|
598
|
|
The following table summarizes the pretax impact of total net
repositioning and other charges by segment:
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Aerospace
|
|
$
|
298
|
|
|
$
|
211
|
|
|
$
|
193
|
|
Home and Building Technologies
|
|
|
35
|
|
|
|
43
|
|
|
|
52
|
|
Performance Materials and Technologies
|
|
|
94
|
|
|
|
40
|
|
|
|
33
|
|
Safety and Productivity Solutions
|
|
|
1
|
|
|
|
34
|
|
|
|
28
|
|
Corporate
|
|
|
267
|
|
|
|
218
|
|
|
|
292
|
|
|
|
$
|
695
|
|
|
$
|
546
|
|
|
$
|
598
|
|
In 2016, we recognized
repositioning charges totaling $369 million including severance costs of $283 million related to workforce reductions of 6,585
manufacturing and administrative positions across our segments. The workforce reductions were primarily related to cost savings
actions taken in connection with our productivity and ongoing functional transformation initiatives; the separation of the former
Automation and Control Solutions reporting segment into two new reporting segments; factory transitions in each of our reportable
operating segments to more cost-effective locations; and achieving acquisition-related synergies. The repositioning charge included
asset impairments of $43 million principally related to the write-off of certain intangible assets in connection with the sale
of a Performance Materials and Technologies business. The repositioning charge included exit costs of $43 million principally for
expenses related to the spin-off of our AdvanSix business and closure obligations associated with factory transitions. Also, $109
million of previously established accruals, primarily for severance, were returned to income as a result of higher attrition than
anticipated in prior severance programs resulting in lower required severance payments, lower than expected severance costs in
certain repositioning actions, and changes in scope of previously announced repositioning actions.
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions,
except per share amounts)
In 2015, we recognized
repositioning charges totaling $216 million including severance costs of $197 million related to workforce reductions of 6,405
manufacturing and administrative positions across our segments. The workforce reductions were primarily related to cost savings
actions taken in connection with our productivity and ongoing functional transformation initiatives. Also, $53 million of previously
established accruals, primarily for severance, were returned to income due principally to higher attrition than anticipated in
prior severance programs resulting in lower required severance payments, and changes in scope of previously announced repositioning
actions.
In 2014, we recognized
repositioning charges totaling $184 million including severance costs of $156 million related to workforce reductions of 2,975
manufacturing and administrative positions across our segments. The workforce reductions were primarily related to cost savings
actions taken in connection with our productivity and ongoing functional transformation initiatives; factory transitions in Home
and Building Technologies, Safety and Productivity Solutions and Aerospace to more cost-effective locations; and site consolidations
and organizational realignments of businesses in Home and Building Technologies, Safety and Productivity Solutions and Performance
Materials and Technologies. Also, $38 million of previously established accruals, primarily for severance, were returned to income
due principally to the change in scope of a previously announced repositioning action and higher attrition than anticipated in
prior severance programs resulting in lower required severance payments.
The following table summarizes the status of our total repositioning reserves:
|
|
Severance
|
|
Asset
|
|
Exit
|
|
|
|
|
Costs
|
|
Impairments
|
|
Costs
|
|
Total
|
Balance at December 31, 2013
|
|
$
|
302
|
|
|
$
|
-
|
|
|
$
|
45
|
|
|
$
|
347
|
|
2014 charges
|
|
|
156
|
|
|
|
12
|
|
|
|
16
|
|
|
|
184
|
|
2014 usage - cash
|
|
|
(135
|
)
|
|
|
-
|
|
|
|
(26
|
)
|
|
|
(161
|
)
|
2014 usage - noncash
|
|
|
-
|
|
|
|
(12
|
)
|
|
|
-
|
|
|
|
(12
|
)
|
Adjustments
|
|
|
(33
|
)
|
|
|
-
|
|
|
|
(5
|
)
|
|
|
(38
|
)
|
Foreign currency translation
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(5
|
)
|
Balance at December 31, 2014
|
|
|
285
|
|
|
|
-
|
|
|
|
30
|
|
|
|
315
|
|
2015 charges
|
|
|
197
|
|
|
|
13
|
|
|
|
6
|
|
|
|
216
|
|
2015 usage - cash
|
|
|
(109
|
)
|
|
|
-
|
|
|
|
(9
|
)
|
|
|
(118
|
)
|
2015 usage - noncash
|
|
|
-
|
|
|
|
(13
|
)
|
|
|
-
|
|
|
|
(13
|
)
|
Acquisitions
|
|
|
16
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
Adjustments
|
|
|
(49
|
)
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
(53
|
)
|
Foreign currency translation
|
|
|
(11
|
)
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
(13
|
)
|
Balance at December 31, 2015
|
|
|
329
|
|
|
|
-
|
|
|
|
21
|
|
|
|
350
|
|
2016 charges
|
|
|
283
|
|
|
|
43
|
|
|
|
43
|
|
|
|
369
|
|
2016 usage - cash
|
|
|
(203
|
)
|
|
|
-
|
|
|
|
(25
|
)
|
|
|
(228
|
)
|
2016 usage - noncash
|
|
|
(6
|
)
|
|
|
(43
|
)
|
|
|
-
|
|
|
|
(49
|
)
|
Adjustments
|
|
|
(106
|
)
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
(109
|
)
|
Foreign currency translation
|
|
|
1
|
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
(2
|
)
|
Balance at December 31, 2016
|
|
$
|
298
|
|
|
$
|
-
|
|
|
$
|
33
|
|
|
$
|
331
|
|
Certain repositioning
projects in each of our reportable operating segments in 2016, 2015 and 2014 included exit or disposal activities, the costs related
to which will be recognized in future periods when the actual liability is incurred. Such exit and disposal costs were not significant.
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions,
except per share amounts)
Note 4. Other (Income) Expense
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity (income) loss of affiliated companies
|
|
$
|
(31
|
)
|
|
$
|
(30
|
)
|
|
$
|
(36
|
)
|
Gain on sale of available for sale investments
|
|
|
-
|
|
|
|
-
|
|
|
|
(221
|
)
|
(Gain) Loss on sale of non-strategic businesses and assets
|
|
|
(178
|
)
|
|
|
1
|
|
|
|
11
|
|
Interest income
|
|
|
(106
|
)
|
|
|
(104
|
)
|
|
|
(102
|
)
|
Foreign exchange
|
|
|
12
|
|
|
|
43
|
|
|
|
34
|
|
Other, net
|
|
|
201
|
|
|
|
22
|
|
|
|
9
|
|
|
|
$
|
(102
|
)
|
|
$
|
(68
|
)
|
|
$
|
(305
|
)
|
Refer to Note 2 Acquisitions
and Divestitures and Note 12 Long-term Debt and Credit Agreements for further details of transactions recognized in 2016 within
Other (income) expense.
Note 5. Income Taxes
Income from continuing operations before taxes
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
U.S.
|
|
$
|
2,976
|
|
|
$
|
3,361
|
|
|
$
|
3,340
|
|
Non-U.S.
|
|
|
3,471
|
|
|
|
3,225
|
|
|
|
2,478
|
|
|
|
$
|
6,447
|
|
|
$
|
6,586
|
|
|
$
|
5,818
|
|
Tax expense (benefit)
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Tax expense (benefit) consists of
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
869
|
|
|
$
|
786
|
|
|
$
|
746
|
|
U.S. State
|
|
|
97
|
|
|
|
78
|
|
|
|
39
|
|
Non-U.S.
|
|
|
559
|
|
|
|
560
|
|
|
|
572
|
|
|
|
$
|
1,525
|
|
|
$
|
1,424
|
|
|
$
|
1,357
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
38
|
|
|
$
|
196
|
|
|
$
|
114
|
|
U.S. State
|
|
|
17
|
|
|
|
49
|
|
|
|
63
|
|
Non-U.S.
|
|
|
21
|
|
|
|
70
|
|
|
|
(45
|
)
|
|
|
|
76
|
|
|
|
315
|
|
|
|
132
|
|
|
|
$
|
1,601
|
|
|
$
|
1,739
|
|
|
$
|
1,489
|
|
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions, except per share
amounts)
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
The U.S. federal statutory income tax rate is reconciled to our effective income tax rate as follows:
|
|
|
|
|
|
|
U.S. federal statutory income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Taxes on non-U.S. earnings below U.S. tax rate
(1)
|
|
|
(8.0
|
)
|
|
|
(8.0
|
)
|
|
|
(7.0
|
)
|
U.S. state income taxes
(1)
|
|
|
1.1
|
|
|
|
1.2
|
|
|
|
1.2
|
|
Manufacturing incentives
|
|
|
(0.7
|
)
|
|
|
(1.5
|
)
|
|
|
(1.0
|
)
|
Employee stock ownership plan dividend tax benefit
|
|
|
(0.5
|
)
|
|
|
(0.4
|
)
|
|
|
(0.4
|
)
|
Tax credits
|
|
|
(0.7
|
)
|
|
|
(1.0
|
)
|
|
|
(1.0
|
)
|
Reserves for tax contingencies
|
|
|
1.2
|
|
|
|
0.7
|
|
|
|
(0.2
|
)
|
Employee share-based payments
|
|
|
(2.0
|
)
|
|
|
-
|
|
|
|
-
|
|
All other items—net
|
|
|
(0.6
|
)
|
|
|
0.4
|
|
|
|
(1.0
|
)
|
|
|
|
24.8
|
%
|
|
|
26.4
|
%
|
|
|
25.6
|
%
|
(1)
|
Net of changes in valuation allowance
|
The effective tax
rate decreased by 1.6 percentage points in 2016 compared to 2015. The decrease was primarily attributable to excess tax
benefits from employee share-based payments arising from adoption of the FASB’s amended guidance related to employee
share-based payment accounting, partially offset by increased tax reserves in various jurisdictions and lower tax benefits
from manufacturing incentives. The Company’s non-U.S. effective tax rate was 16.7%, a decrease of approximately 2.8
percentage points compared to 2015. The year-over-year decrease in the non-U.S. effective tax rate was primarily driven by
higher earnings in lower tax rate jurisdictions and a decrease in the tax impact of restructuring and divestitures. The
effective tax rate was lower than the U.S. federal statutory rate of 35% primarily due to overall non-U.S. earnings taxed at
lower rates.
The effective tax rate
increased by 0.8 percentage points in 2015 compared to 2014. The increase was primarily attributable to decreased tax benefits
from the resolution of tax audits, partially offset by increased tax benefits from manufacturing incentives, the impact of more
income in jurisdictions with lower tax rates and fewer reserves. The Company’s non-U.S. effective tax rate for 2015 was 19.5%,
a decrease of approximately 1.8 percentage points compared to 2014. The year-over-year decrease in the non-U.S. effective tax rate
was primarily attributable to higher earnings in lower tax rate jurisdictions coupled with lower expense related to reserves in
various jurisdictions, partially offset by an increase from the tax impact of restructuring and dispositions. The effective tax
rate was lower than the U.S. federal statutory rate of 35% primarily due to overall non-U.S. earnings taxed at lower rates.
Deferred tax assets (liabilities)
The tax effects of temporary
differences and tax carryforwards which give rise to future income tax benefits and payables are as follows:
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions, except per share
amounts)
|
|
December 31,
|
Deferred tax assets:
|
|
2016
|
|
2015
|
Pension
|
|
$
|
411
|
|
|
$
|
500
|
|
Postretirement benefits other than pensions
|
|
|
262
|
|
|
|
292
|
|
Asbestos and environmental
|
|
|
471
|
|
|
|
473
|
|
Employee compensation and benefits
|
|
|
418
|
|
|
|
387
|
|
Other accruals and reserves
|
|
|
765
|
|
|
|
626
|
|
Net operating and capital losses
|
|
|
669
|
|
|
|
620
|
|
Tax credit carryforwards
|
|
|
206
|
|
|
|
198
|
|
Gross deferred tax assets
|
|
|
3,202
|
|
|
|
3,096
|
|
Valuation allowance
|
|
|
(621
|
)
|
|
|
(589
|
)
|
Total deferred tax assets
|
|
$
|
2,581
|
|
|
$
|
2,507
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
$
|
(560
|
)
|
|
$
|
(661
|
)
|
Intangibles
|
|
|
(1,843
|
)
|
|
|
(1,797
|
)
|
Other asset basis differences
|
|
|
(274
|
)
|
|
|
(293
|
)
|
Other
|
|
|
(43
|
)
|
|
|
(31
|
)
|
Total deferred tax liabilities
|
|
|
(2,720
|
)
|
|
|
(2,782
|
)
|
Net deferred tax liability
|
|
$
|
(139
|
)
|
|
$
|
(275
|
)
|
The change in deferred
tax balance was primarily attributable to deferred tax liabilities transferred in connection with the AdvanSix spin-off. Our gross
deferred tax assets include $1,034 million related to non-U.S. operations comprised principally of net operating losses, capital
loss and tax credit carryforwards (mainly in Canada, France, Germany, Luxembourg and the United Kingdom) and deductible temporary
differences. We maintain a valuation allowance of $619 million against a portion of the non-U.S. gross deferred tax assets. The
change in the valuation allowance resulted in an increase of $69 million, increase of $114 million and decrease of $10 million
to income tax expense in 2016, 2015 and 2014. In the event we determine that we will not be able to realize our net deferred tax
assets in the future, we will reduce such amounts through an increase to income tax expense in the period such determination is
made. Conversely, if we determine that we will be able to realize net deferred tax assets in excess of the carrying amounts, we
will decrease the recorded valuation allowance through a reduction to income tax expense in the period that such determination
is made.
As of December 31, 2016,
our net operating loss, capital loss and tax credit carryforwards were as follows:
Jurisdiction
|
|
Expiration
Period
|
|
Net Operating
and Capital Loss
Carryforwards
|
|
Tax Credit
Carryforwards
|
U.S. Federal
|
|
2036
|
|
$
|
25
|
|
|
$
|
55
|
|
U.S. State
|
|
2036
|
|
|
720
|
|
|
|
26
|
|
Non-U.S.
|
|
2035
|
|
|
651
|
|
|
|
137
|
|
Non-U.S.
|
|
Indefinite
|
|
|
2,186
|
|
|
|
-
|
|
|
|
|
|
$
|
3,582
|
|
|
$
|
218
|
|
Many jurisdictions impose
limitations on the timing and utilization of net operating loss and tax credit carryforwards. In those instances whereby there
is an expected permanent limitation on the utilization of the net operating loss or tax credit carryforward the deferred tax asset
and amount of the carryforward have been reduced.
U.S. federal income taxes
have not been provided on undistributed earnings of the vast majority of our international subsidiaries as it is our intention
to reinvest these earnings into the respective subsidiaries. At
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions, except per share
amounts)
December 31, 2016 Honeywell has not provided
for U.S. federal income and non-U.S. withholding taxes on approximately $18.3 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.
|
|
2016
|
|
2015
|
|
2014
|
Change in unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
765
|
|
|
$
|
659
|
|
|
$
|
729
|
|
Gross increases related to current period tax positions
|
|
|
96
|
|
|
|
56
|
|
|
|
65
|
|
Gross increases related to prior periods tax positions
|
|
|
88
|
|
|
|
175
|
|
|
|
204
|
|
Gross decreases related to prior periods tax positions
|
|
|
(33
|
)
|
|
|
(72
|
)
|
|
|
(277
|
)
|
Decrease related to resolutions of audits with tax authorities
|
|
|
(3
|
)
|
|
|
(11
|
)
|
|
|
(32
|
)
|
Expiration of the statute of limitations for the assessment of taxes
|
|
|
(10
|
)
|
|
|
(13
|
)
|
|
|
(10
|
)
|
Foreign currency translation
|
|
|
(26
|
)
|
|
|
(29
|
)
|
|
|
(20
|
)
|
Balance at end of year
|
|
$
|
877
|
|
|
$
|
765
|
|
|
$
|
659
|
|
As of December 31, 2016, 2015, and 2014 there
were $877 million, $765 million and $659 million of unrecognized tax benefits that if recognized would be recorded as a component
of income tax expense.
The following table summarizes tax years that
remain subject to examination by major tax jurisdictions as of December 31, 2016:
|
Open Tax Years
|
|
Based on Originally Filed Returns
|
Jurisdiction
|
Examination in
|
|
Examination not yet
|
progress
|
initiated
|
U.S. Federal
|
2010 - 2012, 2014
|
|
2013 - 2016
|
U.S. State
|
2008 - 2014
|
|
2011 - 2016
|
Australia
|
2009 - 2015
|
|
2016
|
Canada
(1)
|
2010 - 2014
|
|
2015 - 2016
|
China
|
2003 - 2014
|
|
2015 - 2016
|
France
|
2012 - 2014
|
|
2005 - 2011, 2015 - 2016
|
Germany
(1)
|
2008 - 2012
|
|
2013 - 2016
|
India
|
1999 - 2014
|
|
2015 - 2016
|
Switzerland
(1)
|
2013 - 2014
|
|
2015 - 2016
|
United Kingdom
|
2013
|
|
2014 - 2016
|
(1) Includes 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 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.
Unrecognized tax benefits
for examinations in progress were $398 million, $349 million and $403 million, as of December 31, 2016, 2015, and 2014. 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 $18 million, $11 million and $24 million for the years ended December 31, 2016, 2015, and 2014.
Accrued interest and penalties were $395 million, $336 million and $325 million, as of December 31, 2016, 2015, and 2014.
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions, except per share
amounts)
Note 6. Earnings Per Share
The details of the earnings
per share calculations for the years ended December 31, 2016, 2015 and 2014 are as follows:
|
|
Years Ended December 31,
|
Basic
|
|
2016
|
|
2015
|
|
2014
|
Net income attributable to Honeywell
|
|
$
|
4,809
|
|
|
$
|
4,768
|
|
|
$
|
4,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
764.3
|
|
|
|
779.8
|
|
|
|
784.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share of common stock
|
|
$
|
6.29
|
|
|
$
|
6.11
|
|
|
$
|
5.40
|
|
|
|
Years Ended December 31,
|
Assuming Dilution
|
|
2016
|
|
2015
|
|
2014
|
Net income attributable to Honeywell
|
|
$
|
4,809
|
|
|
$
|
4,768
|
|
|
$
|
4,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
764.3
|
|
|
|
779.8
|
|
|
|
784.4
|
|
Dilutive securities issuable - stock plans
|
|
|
11.0
|
|
|
|
9.5
|
|
|
|
10.8
|
|
Total weighted average diluted shares outstanding
|
|
|
775.3
|
|
|
|
789.3
|
|
|
|
795.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share of common stock - assuming
dilution
|
|
$
|
6.20
|
|
|
$
|
6.04
|
|
|
$
|
5.33
|
|
The diluted earnings
per share calculations exclude the effect of stock options when the options’ assumed proceeds exceed the average market price
of the common shares during the period. In 2016, 2015, and 2014 the weighted number of stock options excluded from the computations
were 7.5 million, 7.1 million, and 4.7 million. These stock options were outstanding at the end of each of the respective periods.
Note 7. Accounts, Notes and Other Receivables
|
|
December
31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
Trade
|
|
$
|
8,449
|
|
|
$
|
7,901
|
|
Other
|
|
|
674
|
|
|
|
436
|
|
|
|
|
9,123
|
|
|
|
8,337
|
|
Less - Allowance for doubtful accounts
|
|
|
(305
|
)
|
|
|
(262
|
)
|
|
|
$
|
8,818
|
|
|
$
|
8,075
|
|
Trade Receivables
includes $1,626 million and $1,590 million of unbilled balances under long-term contracts as of December 31, 2016 and December
31, 2015. These amounts are billed in accordance with the terms of customer contracts to which they relate.
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions,
except per share amounts)
Note 8. Inventories
|
|
December 31,
|
|
|
2016
|
|
2015
|
Raw materials
|
|
$
|
1,104
|
|
|
$
|
1,120
|
|
Work in process
|
|
|
775
|
|
|
|
826
|
|
Finished products
|
|
|
2,552
|
|
|
|
2,590
|
|
|
|
|
4,431
|
|
|
|
4,536
|
|
Reduction to LIFO cost basis
|
|
|
(65
|
)
|
|
|
(116
|
)
|
|
|
$
|
4,366
|
|
|
$
|
4,420
|
|
Inventories valued at LIFO amounted to $296
million and $399 million at December 31, 2016 and 2015. Had such LIFO inventories been valued at current costs, their carrying
values would have been approximately $65 million and $116 million higher at December 31, 2016 and 2015.
Note 9. Property, Plant and Equipment - Net
|
|
December 31,
|
|
|
2016
|
|
2015
|
Land and improvements
|
|
$
|
363
|
|
|
$
|
367
|
|
Machinery and equipment
|
|
|
9,956
|
|
|
|
10,505
|
|
Buildings and improvements
|
|
|
3,248
|
|
|
|
3,188
|
|
Construction in progress
|
|
|
940
|
|
|
|
848
|
|
|
|
|
14,507
|
|
|
|
14,908
|
|
Less—Accumulated depreciation
|
|
|
(8,714
|
)
|
|
|
(9,119
|
)
|
|
|
$
|
5,793
|
|
|
$
|
5,789
|
|
Depreciation expense was $726 million, $672 million and $667
million in 2016, 2015 and 2014.
Note 10. Goodwill and Other Intangible Assets - Net
The change in the carrying amount of goodwill
for the years ended December 31, 2016 and 2015 by segment is as follows:
|
|
December 31,
2015
|
|
Acquisitions/
Divestitures
|
|
Currency
Translation
Adjustment
|
|
December 31,
2016
|
|
Aerospace
|
|
$
|
2,296
|
|
|
$
|
169
|
|
|
$
|
(24
|
)
|
|
$
|
2,441
|
|
|
Home and Building Technologies
|
|
|
6,438
|
|
|
|
820
|
|
|
|
(156
|
)
|
|
|
7,102
|
|
|
Performance Materials and Technologies
|
|
|
3,771
|
|
|
|
(110
|
)
|
|
|
(32
|
)
|
|
|
3,629
|
|
|
Safety and Productivity Solutions
|
|
|
3,390
|
|
|
|
1,182
|
|
|
|
(37
|
)
|
|
|
4,535
|
|
|
|
|
$
|
15,895
|
|
|
$
|
2,061
|
|
|
$
|
(249
|
)
|
|
$
|
17,707
|
|
|
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions,
except per share amounts)
Other intangible assets are comprised of:
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
Determinable life intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and technology
|
|
$
|
1,841
|
|
|
$
|
(1,141
|
)
|
|
$
|
700
|
|
|
$
|
1,688
|
|
|
$
|
(1,061
|
)
|
|
$
|
627
|
|
Customer relationships
|
|
|
3,816
|
|
|
|
(1,098
|
)
|
|
|
2,718
|
|
|
|
3,558
|
|
|
|
(942
|
)
|
|
|
2,616
|
|
Trademarks
|
|
|
284
|
|
|
|
(156
|
)
|
|
|
128
|
|
|
|
230
|
|
|
|
(131
|
)
|
|
|
99
|
|
Other
|
|
|
359
|
|
|
|
(284
|
)
|
|
|
75
|
|
|
|
323
|
|
|
|
(264
|
)
|
|
|
59
|
|
|
|
|
6,300
|
|
|
|
(2,679
|
)
|
|
|
3,621
|
|
|
|
5,799
|
|
|
|
(2,398
|
)
|
|
|
3,401
|
|
Indefinite life intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
1,013
|
|
|
|
-
|
|
|
|
1,013
|
|
|
|
1,176
|
|
|
|
-
|
|
|
|
1,176
|
|
|
|
$
|
7,313
|
|
|
$
|
(2,679
|
)
|
|
$
|
4,634
|
|
|
$
|
6,975
|
|
|
$
|
(2,398
|
)
|
|
$
|
4,577
|
|
Intangible assets amortization expense was
$304 million, $211 million, and $257 million in 2016, 2015, 2014. Estimated intangible asset amortization expense for each of the
next five years approximates $394 million in 2017, $400 million in 2018, $396 million in 2019, $353 million in 2020, and $300 million
in 2021.
Note 11. Accrued Liabilities
|
|
December 31,
|
|
|
2016
|
|
2015
|
Customer advances and deferred income
|
|
$
|
2,151
|
|
|
$
|
1,863
|
|
Compensation, benefit and other employee related
|
|
|
1,489
|
|
|
|
1,460
|
|
Asbestos related liabilities
|
|
|
546
|
|
|
|
292
|
|
Repositioning
|
|
|
322
|
|
|
|
335
|
|
Product warranties and performance guarantees
|
|
|
351
|
|
|
|
355
|
|
Environmental costs
|
|
|
252
|
|
|
|
253
|
|
Income taxes
|
|
|
430
|
|
|
|
201
|
|
Accrued interest
|
|
|
97
|
|
|
|
97
|
|
Other taxes
|
|
|
290
|
|
|
|
266
|
|
Insurance
|
|
|
172
|
|
|
|
205
|
|
Other (primarily operating expenses)
|
|
|
948
|
|
|
|
950
|
|
|
|
$
|
7,048
|
|
|
$
|
6,277
|
|
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions,
except per share amounts)
Note 12. Long-term Debt and Credit Agreements
|
|
December 31,
|
|
|
2016
|
|
2015
|
5.40% notes due 2016
|
|
$
|
-
|
|
|
$
|
400
|
|
5.30% notes due 2017
|
|
|
-
|
|
|
|
400
|
|
Floating rate Euro notes due 2018
|
|
|
1,054
|
|
|
|
-
|
|
5.30% notes due 2018
|
|
|
-
|
|
|
|
900
|
|
5.00% notes due 2019
|
|
|
-
|
|
|
|
900
|
|
1.40% notes due 2019
|
|
|
1,250
|
|
|
|
-
|
|
Floating rate notes due 2019
|
|
|
250
|
|
|
|
-
|
|
0.65% Euro notes due 2020
|
|
|
1,054
|
|
|
|
-
|
|
4.25% notes due 2021
|
|
|
800
|
|
|
|
800
|
|
1.85% notes due 2021
|
|
|
1,500
|
|
|
|
-
|
|
1.30% Euro notes due 2023
|
|
|
1,317
|
|
|
|
-
|
|
3.35% notes due 2023
|
|
|
300
|
|
|
|
300
|
|
2.50% notes due 2026
|
|
|
1,500
|
|
|
|
-
|
|
2.25% Euro notes due 2028
|
|
|
790
|
|
|
|
-
|
|
5.70% notes due 2036
|
|
|
550
|
|
|
|
550
|
|
5.70% notes due 2037
|
|
|
600
|
|
|
|
600
|
|
5.375% notes due 2041
|
|
|
600
|
|
|
|
600
|
|
Industrial development bond obligations, floating rate
maturing at various dates through 2037
|
|
|
30
|
|
|
|
30
|
|
6.625% debentures due 2028
|
|
|
216
|
|
|
|
216
|
|
9.065% debentures due 2033
|
|
|
51
|
|
|
|
51
|
|
Other (including capitalized leases and debt issuance costs),
0.7%-8.2% maturing at various dates through 2023
|
|
|
547
|
|
|
|
384
|
|
|
|
|
12,409
|
|
|
|
6,131
|
|
Less: current portion
|
|
|
(227
|
)
|
|
|
(577
|
)
|
|
|
$
|
12,182
|
|
|
$
|
5,554
|
|
The schedule of principal payments on long-term debt is as follows:
|
|
December 31,
2016
|
2017
|
|
$
|
227
|
|
2018
|
|
|
1,122
|
|
2019
|
|
|
1,550
|
|
2020
|
|
|
1,299
|
|
2021
|
|
|
2,312
|
|
Thereafter
|
|
|
5,899
|
|
|
|
|
12,409
|
|
Less-current portion
|
|
|
(227
|
)
|
|
|
$
|
12,182
|
|
In February 2016, the Company issued €1,000
million Floating Rate Senior Notes due 2018, €1,000 million 0.65% Senior Notes due 2020, €1,250 million 1.30% Senior
Notes due 2023 and €750 million 2.25% Senior Notes due 2028 (collectively, the “Euro Notes”). The Euro Notes
are senior unsecured and unsubordinated obligations of Honeywell and rank equally with all of Honeywell’s existing and future
senior unsecured debt and
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions,
except per share amounts)
senior to all of Honeywell’s subordinated
debt. The offering resulted in gross proceeds of $4,438 million, offset by $23 million in discount and closing costs related to
the offering.
In October 2016, the
Company issued $1,250 million 1.40% Senior Notes due 2019, $250 million Floating Rate Senior Notes due 2019, $1,500 million 1.85%
Senior Notes due 2021 and $1,500 million 2.50% Senior Notes due 2026 (collectively, the “Notes”). The Notes are senior
unsecured and unsubordinated obligations of Honeywell and rank equally with all of Honeywell’s existing and future senior
unsecured debt and senior to all of Honeywell’s subordinated debt. The offering resulted in gross proceeds of $4,500 million,
offset by $27 million in discount and closing costs related to the offering.
In the fourth quarter
of 2016, the Company repurchased the entire outstanding principal amount of its $400 million 5.30 % Senior Notes due 2017, $900
million 5.30% Senior Notes due 2018 and $900 million 5.00% Senior Notes due 2019. The cost related to the early redemption, including
the “make whole premium”, was $126 million which was recorded in Other (income) expense.
On April 29, 2016, the
Company entered into Amendment No. 2 (Amendment) to the Amended and Restated $4 billion Credit Agreement dated as of July 10, 2015,
as amended by the certain Amendment No. 1 dated as of September 30, 2015 (as so amended, the “Credit Agreement”), with
a syndicate of banks. The Credit Agreement is maintained for general corporate purposes. Commitments under the Credit Agreement
can be increased pursuant to the terms of the Credit Agreement to an aggregate amount not to exceed $4.5 billion. The Amendment,
among other things, extends the Credit Agreement’s termination date from July 10, 2020 to July 10, 2021.
On April 29, 2016, the
Company entered into a $1.5 billion 364-Day Credit Agreement (364-Day Credit Agreement) with a syndicate of banks. The 364-Day
Credit Agreement is maintained for general corporate purposes.
On April 29, 2016, the
Company terminated all commitments under the $3 billion credit agreement dated as of September 30, 2015, among the Company, the
lenders party thereto and Citibank, N.A., as administrative agent. A full description of the Credit Agreement and the 364-Day Credit
Agreement can be found in the Company’s Current Report on Form 8-K, dated April 29, 2016.
On August 5, 2016, the
Company entered into a $1.5 billion 364-Day Credit Agreement (Second 364-Day Credit Agreement) with a syndicate of banks. The Second
364-Day Credit Agreement is maintained for general corporate purposes. A full description of the Second 364-day Credit Agreement
can be found in the Company’s Current Report on Form 8-K, dated August 5, 2016.
On December 23, 2016,
the Company terminated all commitments under the Second 364-day credit agreement dated as of August 5, 2016, among the Company,
the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent.
There have been no borrowings under any of
the credit agreements previously described.
Note 13. Lease Commitments
Future minimum lease
payments under operating leases having initial or remaining noncancellable lease terms in excess of one year are as follows:
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions, except per share
amounts)
|
|
At December 31,
2016
|
2017
|
|
$
|
289
|
|
2018
|
|
|
216
|
|
2019
|
|
|
158
|
|
2020
|
|
|
110
|
|
2021
|
|
|
94
|
|
Thereafter
|
|
|
256
|
|
|
|
$
|
1,123
|
|
Rent expense was $387
million, $390 million and $420 million in 2016, 2015 and 2014.
Note 14. Financial Instruments and Fair Value Measures
Credit and Market
Risk—
Financial instruments, including derivatives, expose us to counterparty credit risk for nonperformance and to
market risk related to changes in interest and currency exchange rates. We manage our exposure to counterparty credit risk through
specific minimum credit standards, diversification of counterparties, and procedures to monitor concentrations of credit risk.
Our counterparties in derivative transactions are substantial investment and commercial banks with significant experience using
such derivative instruments. We monitor the impact of market risk on the fair value and cash flows of our derivative and other
financial instruments considering reasonably possible changes in interest rates and currency exchange rates and restrict the use
of derivative financial instruments to hedging activities.
We continually monitor
the creditworthiness of our customers to which we grant credit terms in the normal course of business. The terms and conditions
of our credit sales are designed to mitigate or eliminate concentrations of credit risk with any single customer. Our sales are
not materially dependent on a single customer or a small group of customers.
Foreign Currency
Risk Management—
We conduct our business on a multinational basis in a wide variety of foreign currencies. Our exposure
to market risk for changes in foreign currency exchange rates arises from international financing activities between subsidiaries,
foreign currency denominated monetary assets and liabilities and transactions arising from international trade. Our primary objective
is to preserve the U.S. Dollar value of foreign currency denominated cash flows and earnings. We attempt to hedge currency exposures
with natural offsets to the fullest extent possible and, once these opportunities have been exhausted, through foreign currency
exchange forward and option contracts (foreign currency exchange contracts) with third parties.
We hedge monetary assets
and liabilities denominated in non-functional currencies. Prior to conversion into U.S. dollars, these assets and liabilities are
remeasured at spot exchange rates in effect on the balance sheet date. The effects of changes in spot rates are recognized in earnings
and included in other (income) expense. We partially hedge forecasted sales and purchases, which occur in the next twelve months
and are denominated in non-functional currencies, with foreign currency exchange contracts. Changes in the forecasted non-functional
currency cash flows due to movements in exchange rates are substantially offset by changes in the fair value of the foreign currency
exchange contracts designated as hedges. Market value gains and losses on these contracts are recognized in earnings when the hedged
transaction is recognized. Open foreign currency exchange contracts mature in the next twelve months. At December 31, 2016 and
2015, we had contracts with notional amounts of $9,554 million and $10,538 million to exchange foreign currencies, principally
the U.S. Dollar, Euro, British Pound, Canadian Dollar, Chinese Renminbi, Indian Rupee, Mexican Peso, Singapore Dollar, U.A.E. Dirham
and Swiss Franc.
We have also
designated foreign currency debt as hedges against portions of our net investment in foreign operations during the year ended
December 31, 2016. Gains or losses on the effective portion of the foreign currency debt designated as a net investment hedge
are recorded in the same manner as foreign currency translation adjustments. The Company did not have ineffectiveness related
to net investment hedges during the year ended December 31, 2016.
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions, except per share
amounts)
Interest Rate Risk
Management—
We use a combination of financial instruments, including long-term, medium-term and short-term financing,
variable-rate commercial paper, and interest rate swaps to manage the interest rate mix of our total debt portfolio and related
overall cost of borrowing. At December 31, 2016 and 2015, interest rate swap agreements designated as fair value hedges effectively
changed $1,850 million and $1,100 million of fixed rate debt at rates of 3.39% and 4.00% to LIBOR based floating rate debt. Our interest
rate swaps mature at various dates through 2026.
Fair Value of Financial
Instruments
—
The FASB’s 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 (exit price).
Financial and nonfinancial
assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value
measurement. The following table sets forth the Company’s financial assets and liabilities that were accounted for at fair
value on a recurring basis as of December 31, 2016 and 2015:
|
|
December 31,
|
|
|
2016
|
|
2015
|
Assets:
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
$
|
152
|
|
|
$
|
28
|
|
Available for sale investments
|
|
|
1,670
|
|
|
|
1,501
|
|
Interest rate swap agreements
|
|
|
69
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
$
|
2
|
|
|
$
|
17
|
|
Interest rate swap agreements
|
|
|
48
|
|
|
|
-
|
|
The foreign currency
exchange contracts and interest rate swap agreements are valued using broker quotations, or market transactions in either the listed
or over-the-counter markets. As such, these derivative instruments are classified within level 2. The Company also holds investments
in commercial paper, certificates of deposits, and time deposits that are designated as available for sale and are valued using
published prices based off observable market data. As such, these investments are classified within level 2.
The carrying value of
cash and cash equivalents, trade accounts and notes receivables, payables, commercial paper and short-term borrowings contained
in the Consolidated Balance Sheet approximates fair value. The following table sets forth the Company’s financial assets
and liabilities that were not carried at fair value:
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term receivables
|
|
$
|
280
|
|
|
$
|
273
|
|
|
$
|
292
|
|
|
$
|
283
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and related current maturities
|
|
$
|
12,409
|
|
|
$
|
13,008
|
|
|
$
|
6,131
|
|
|
$
|
6,721
|
|
The Company determined
the fair value of the long-term receivables by discounting based upon the terms of the receivable and counterparty details including
credit quality. As such, the fair value of these receivables is considered level 2. The Company determined the fair value of the
long-term debt and related current maturities utilizing transactions in the listed markets for identical or similar liabilities.
As such, the fair value of the long-term debt and related current maturities is considered level 2 as well.
Interest rate swap agreements
are designated as hedge relationships with gains or losses on the derivative recognized in interest and other financial charges
offsetting the gains and losses on the underlying debt
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions, except per share
amounts)
being hedged. Losses on interest rate swap
agreements recognized in earnings were $71 million and $2 million in the years ended December 31, 2016 and 2015. Gains on interest
rate swap agreements recognized in earnings were $38 million in the year ended December 31, 2014. Gains and losses are fully offset
by losses and gains on the underlying debt being hedged.
We also economically
hedge our exposure to changes in foreign exchange rates principally with forward contracts. These contracts are marked-to-market
with the resulting gains and losses recognized in earnings offsetting the gains and losses on the non-functional currency denominated
monetary assets and liabilities being hedged. We recognized $232 million of income in other (income) expense in the year ended
December 31, 2016. We recognize $86 million and $181 million of expense in other (income) expense in the years ended December 31,
2015 and 2014. See Note 4 Other (Income) Expense for further details of the net impact of these economic foreign currency hedges.
Note 15. Other Liabilities
|
|
Years Ended
December 31,
|
|
|
2016
|
|
2015
|
Pension and other employee related
|
|
$
|
2,084
|
|
|
$
|
2,461
|
|
Income taxes
|
|
|
1,041
|
|
|
|
1,009
|
|
Environmental
|
|
|
259
|
|
|
|
265
|
|
Insurance
|
|
|
253
|
|
|
|
257
|
|
Asset retirement obligations
|
|
|
63
|
|
|
|
65
|
|
Deferred income
|
|
|
81
|
|
|
|
99
|
|
Other
|
|
|
329
|
|
|
|
192
|
|
|
|
$
|
4,110
|
|
|
$
|
4,348
|
|
Note 16. Capital Stock
We are authorized to
issue up to 2,000,000,000 shares of common stock, with a par value of $1. Common shareowners are entitled to receive such dividends
as may be declared by the Board of Directors, are entitled to one vote per share, and are entitled, in the event of liquidation,
to share ratably in all the assets of Honeywell which are available for distribution to the common shareowners. Common shareowners
do not have preemptive or conversion rights. Shares of common stock issued and outstanding or held in the treasury are not liable
to further calls or assessments. There are no restrictions on us relative to dividends or the repurchase or redemption of common
stock.
In April 2016, the Board
of Directors authorized the repurchase of up to $5 billion of Honeywell common stock and approximately $4.1 billion remained available
as of December 31, 2016. Under the Company’s previous share repurchase plan announced in December 2013 the Board of Directors
authorized the repurchase of up to $5 billion of Honeywell common stock and $2.2 billion remained available as of December 31,
2015.
We purchased approximately
19.3 million and 18.8 million shares of our common stock in 2016 and 2015, for $2,079 million and $1,884 million.
We are authorized to
issue up to 40,000,000 shares of preferred stock, without par value, and can determine the number of shares of each series, and
the rights, preferences and limitations of each series. At December 31, 2016, there was no preferred stock outstanding.
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS – (CONTINUED)
(Dollars in millions, except
per share amounts)
Note 17. Accumulated Other Comprehensive Income (Loss)
The changes in accumulated
other comprehensive income (loss) are provided in the tables below. Comprehensive income (loss) attributable to noncontrolling
interest consists predominantly of net income.
|
|
|
|
Pretax
|
|
|
|
Tax
|
|
|
|
After Tax
|
|
|
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation adjustment
|
|
$
|
(52
|
)
|
|
$
|
-
|
|
|
$
|
(52
|
)
|
|
Pensions and other postretirement benefit adjustments
|
|
|
(336
|
)
|
|
|
101
|
|
|
|
(235
|
)
|
|
Changes in fair value of effective cash flow hedges
|
|
|
134
|
|
|
|
(26
|
)
|
|
|
108
|
|
|
|
|
$
|
(254
|
)
|
|
$
|
75
|
|
|
$
|
(179
|
)
|
|
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation adjustment
|
|
$
|
(1,152
|
)
|
|
$
|
-
|
|
|
$
|
(1,152
|
)
|
|
Pensions and other postretirement benefit adjustments
|
|
|
129
|
|
|
|
(45
|
)
|
|
|
84
|
|
|
Changes in fair value of effective cash flow hedges
|
|
|
(11
|
)
|
|
|
3
|
|
|
|
(8
|
)
|
|
|
|
$
|
(1,034
|
)
|
|
$
|
(42
|
)
|
|
$
|
(1,076
|
)
|
|
Year Ended December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation adjustment
|
|
$
|
(1,044
|
)
|
|
$
|
-
|
|
|
$
|
(1,044
|
)
|
|
Pensions and other postretirement benefit adjustments
|
|
|
(1,707
|
)
|
|
|
624
|
|
|
|
(1,083
|
)
|
|
Changes in fair value of available for sale investments
|
|
|
(246
|
)
|
|
|
76
|
|
|
|
(170
|
)
|
|
Changes in fair value of effective cash flow hedges
|
|
|
24
|
|
|
|
(4
|
)
|
|
|
20
|
|
|
|
|
$
|
(2,973
|
)
|
|
$
|
696
|
|
|
$
|
(2,277
|
)
|
Components of Accumulated Other
Comprehensive Income (Loss)
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Cumulative foreign exchange translation adjustment
|
|
$
|
(1,944
|
)
|
|
$
|
(1,892
|
)
|
|
|
Pensions and other postretirement benefit adjustments
|
|
|
(879
|
)
|
|
|
(644
|
)
|
|
|
Fair value of available for sale investments
|
|
|
-
|
|
|
|
-
|
|
|
|
Fair value of effective cash flow hedges
|
|
|
109
|
|
|
|
1
|
|
|
|
|
|
$
|
(2,714
|
)
|
|
$
|
(2,535
|
)
|
|
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS – (CONTINUED)
(Dollars in millions, except
per share amounts)
Changes in Accumulated Other Comprehensive Income (Loss) by Component
|
|
|
Foreign
Exchange
Translation
Adjustment
|
|
|
|
Pension
and Other
Postretirement
Adjustments
|
|
|
|
Changes in
Fair Value of
Effective
Cash Flow
Hedges
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
$
|
(740
|
)
|
|
$
|
(728
|
)
|
|
$
|
9
|
|
|
$
|
(1,459
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
(1,152
|
)
|
|
|
23
|
|
|
|
91
|
|
|
|
(1,038
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
-
|
|
|
|
61
|
|
|
|
(99
|
)
|
|
|
(38
|
)
|
Net current period other comprehensive income (loss)
|
|
|
(1,152
|
)
|
|
|
84
|
|
|
|
(8
|
)
|
|
|
(1,076
|
)
|
Balance at December 31, 2015
|
|
$
|
(1,892
|
)
|
|
$
|
(644
|
)
|
|
$
|
1
|
|
|
$
|
(2,535
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
(52
|
)
|
|
|
(388
|
)
|
|
|
103
|
|
|
|
(337
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
-
|
|
|
|
153
|
|
|
|
5
|
|
|
|
158
|
|
Net current period other comprehensive income (loss)
|
|
|
(52
|
)
|
|
|
(235
|
)
|
|
|
108
|
|
|
|
(179
|
)
|
Balance at December 31, 2016
|
|
$
|
(1,944
|
)
|
|
$
|
(879
|
)
|
|
$
|
109
|
|
|
$
|
(2,714
|
)
|
Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
|
|
Year Ended December 31, 2016
Affected Line in the Consolidated Statement of Operations
|
|
|
|
|
|
|
|
Product
Sales
|
|
|
Cost of
Products
Sold
|
|
|
Cost of
Services
Sold
|
|
|
Selling, General
and
Administrative
Expenses
|
|
|
Total
|
|
Amortization of Pension and Other Postretirement Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial losses recognized
|
|
$
|
-
|
|
|
$
|
214
|
|
|
$
|
44
|
|
|
$
|
46
|
|
|
$
|
304
|
|
Prior service (credit) recognized
|
|
|
-
|
|
|
|
(87
|
)
|
|
|
(18
|
)
|
|
|
(18
|
)
|
|
|
(123
|
)
|
Settlements and curtailments
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(6
|
)
|
Losses (gains) on cash flow hedges
|
|
|
3
|
|
|
|
16
|
|
|
|
3
|
|
|
|
(5
|
)
|
|
|
17
|
|
Total before tax
|
|
$
|
3
|
|
|
$
|
139
|
|
|
$
|
28
|
|
|
$
|
22
|
|
|
$
|
192
|
|
Tax expense (benefit)
|
|
|
|
(34
|
)
|
Total reclassifications for the period, net of tax
|
|
|
$
|
158
|
|
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS – (CONTINUED)
(Dollars in millions, except
per share amounts)
|
|
Year
Ended December 31, 2015
Affected Line in the Consolidated Statement of Operations
|
|
|
|
|
|
|
|
Product
Sales
|
|
|
Cost of
Products
Sold
|
|
|
Cost of
Services
Sold
|
|
|
Selling, General
and
Administrative
Expenses
|
|
|
Total
|
|
Amortization of Pension and Other Postretirement Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial losses recognized
|
|
$
|
-
|
|
|
$
|
78
|
|
|
$
|
16
|
|
|
$
|
17
|
|
|
$
|
111
|
|
Prior service (credit) recognized
|
|
|
-
|
|
|
|
(14
|
)
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
(20
|
)
|
Settlements and curtailments
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
Losses (gains) on cash flow hedges
|
|
|
(17
|
)
|
|
|
(73
|
)
|
|
|
(17
|
)
|
|
|
(2
|
)
|
|
|
(109
|
)
|
Total before tax
|
|
$
|
(17
|
)
|
|
$
|
(7
|
)
|
|
$
|
(4
|
)
|
|
$
|
12
|
|
|
$
|
(16
|
)
|
Tax expense (benefit)
|
|
(22
|
)
|
Total reclassifications for the period, net of tax
|
$
|
(38
|
)
|
Note 18. Stock-Based Compensation Plans
The 2016 Stock Incentive
Plan of Honeywell International Inc. and its Affiliates (2016 Plan) and 2016 Stock Plan for Non-Employee Directors of Honeywell
International Inc. (2016 Directors Plan) were both approved by the shareowners at the Annual Meeting of Shareowners effective on
April 25, 2016. Following approval of both plans, we have not and will not grant any new awards under any previously existing stock-based
compensation plans. At December 31, 2016, there were 46,365,609, and 960,609 shares of Honeywell common stock available for future
grants under terms of the 2016 Plan and 2016 Directors Plan, respectively.
Stock Options
—
The
exercise price, term and other conditions applicable to each option granted under our stock plans are generally determined by the
Management Development and Compensation Committee of the Board. The exercise price of stock options is set on the grant date and
may not be less than the fair market value per share of our stock on that date. The fair value is recognized as an expense over
the employee’s requisite service period (generally the vesting period of the award). Options generally vest over a four-year
period and expire after ten years.
The fair value of each option
award is estimated on the date of grant using the Black-Scholes option-pricing model. Expected volatility is based on implied volatilities
from traded options on our common stock and historical volatility of our common stock. We used a Monte Carlo simulation model to
derive an expected term which represents an estimate of the time options are expected to remain outstanding. Such model uses historical
data to estimate option exercise activity and post-vest termination behavior. The risk-free rate for periods within the contractual
life of the option is based on the U.S. treasury yield curve in effect at the time of grant.
Compensation cost on a pre-tax
basis related to stock options recognized in selling, general and administrative expenses in 2016, 2015 and 2014 was $87 million,
$78 million and $85 million. The associated future income tax benefit recognized in 2016, 2015 and 2014 was $29 million, $26 million
and $31 million.
The following table sets
forth fair value per share information, including related weighted-average assumptions, used to determine compensation cost:
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS – (CONTINUED)
(Dollars in millions, except
per share amounts)
|
|
|
Years Ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Weighted average fair value per share of options
granted during the year
(1)
|
|
$
|
15.59
|
|
|
$
|
17.21
|
|
|
$
|
16.35
|
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected annual dividend yield
|
|
|
2.92
|
%
|
|
|
1.98
|
%
|
|
|
2.05
|
%
|
|
Expected volatility
|
|
|
23.07
|
%
|
|
|
21.55
|
%
|
|
|
23.06
|
%
|
|
Risk-free rate of return
|
|
|
1.29
|
%
|
|
|
1.61
|
%
|
|
|
1.48
|
%
|
|
Expected option term (years)
|
|
|
4.97
|
|
|
|
4.96
|
|
|
|
4.99
|
|
(1) Estimated on date of grant using Black-Scholes option-pricing model.
The following table summarizes
information about stock option activity for the three years ended December 31, 2016:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
Exercise
|
|
|
|
Options
|
|
Price
|
|
Outstanding at December 31, 2013
|
|
|
30,663,837
|
|
|
$
|
53.27
|
|
|
Granted
|
|
|
5,823,706
|
|
|
|
93.95
|
|
|
Exercised
|
|
|
(5,697,263
|
)
|
|
|
47.47
|
|
|
Lapsed or canceled
|
|
|
(1,294,668
|
)
|
|
|
67.70
|
|
|
Outstanding at December 31, 2014
|
|
|
29,495,612
|
|
|
|
61.80
|
|
|
Granted
|
|
|
5,967,256
|
|
|
|
103.87
|
|
|
Exercised
|
|
|
(4,190,298
|
)
|
|
|
53.40
|
|
|
Lapsed or canceled
|
|
|
(703,132
|
)
|
|
|
84.31
|
|
|
Outstanding at December 31, 2015
|
|
|
30,569,438
|
|
|
|
70.76
|
|
|
Granted
|
|
|
6,281,053
|
|
|
|
103.51
|
|
|
Exercised
|
|
|
(7,075,852
|
)
|
|
|
57.41
|
|
|
Lapsed or canceled
|
|
|
(1,107,339
|
)
|
|
|
96.81
|
|
|
Outstanding at December 31, 2016
|
|
|
28,667,300
|
|
|
$
|
79.57
|
|
|
Vested and expected to vest at December 31, 2016
(1)
|
|
|
27,067,969
|
|
|
$
|
78.14
|
|
|
Exercisable at December 31, 2016
|
|
|
15,536,961
|
|
|
$
|
63.39
|
|
(1) Represents the sum of vested options of 15.5 million and expected to vest options of 11.6 million. Expected to vest options are derived by applying the pre-vesting forfeiture rate assumption to total outstanding unvested options of 13.4 million.
The following table summarizes
information about stock options outstanding and exercisable at December 31, 2016:
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS – (CONTINUED)
(Dollars in millions, except
per share amounts)
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Average
|
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Average
|
|
|
|
Aggregate
|
|
|
Range of
|
|
|
|
Number
|
|
|
|
Average
|
|
|
|
Exercise
|
|
|
|
Intrinsic
|
|
|
|
Number
|
|
|
|
Exercise
|
|
|
|
Intrinsic
|
|
|
Exercise prices
|
|
|
|
Outstanding
|
|
|
|
Life
(1)
|
|
|
|
Price
|
|
|
|
Value
|
|
|
|
Exercisable
|
|
|
|
Price
|
|
|
|
Value
|
|
|
$28.19-$49.99
|
|
|
|
3,235,333
|
|
|
|
2.72
|
|
|
$
|
35.33
|
|
|
$
|
260
|
|
|
|
3,235,333
|
|
|
$
|
35.33
|
|
|
$
|
260
|
|
|
$50.00-$64.99
|
|
|
|
6,627,010
|
|
|
|
4.16
|
|
|
|
58.12
|
|
|
|
383
|
|
|
|
6,627,010
|
|
|
|
58.12
|
|
|
|
383
|
|
|
$65.00-$75.00
|
|
|
|
3,565,255
|
|
|
|
6.16
|
|
|
|
69.54
|
|
|
|
165
|
|
|
|
2,420,333
|
|
|
|
69.55
|
|
|
|
112
|
|
|
$90.00-$99.99
|
|
|
|
4,244,518
|
|
|
|
7.16
|
|
|
|
93.42
|
|
|
|
95
|
|
|
|
1,927,354
|
|
|
|
93.42
|
|
|
|
43
|
|
|
$100.00-$116.28
|
|
|
|
10,995,184
|
|
|
|
8.70
|
|
|
|
103.42
|
|
|
|
137
|
|
|
|
1,326,931
|
|
|
|
103.27
|
|
|
|
17
|
|
|
|
|
|
|
28,667,300
|
|
|
|
6.43
|
|
|
|
79.57
|
|
|
$
|
1,040
|
|
|
|
15,536,961
|
|
|
|
63.39
|
|
|
$
|
815
|
|
(1) Average remaining contractual life in years.
There were 17,202,377,
and 16,019,742 options exercisable at weighted average exercise prices of $55.11 and $49.40 at December 31, 2015 and 2014.
The following table
summarizes the financial statement impact from stock options exercised:
|
|
Years Ended December 31,
|
Options Exercised
|
|
2016
|
|
2015
|
|
2014
|
Intrinsic value
(1)
|
|
$
|
395
|
|
|
$
|
210
|
|
|
$
|
272
|
|
Tax benefit realized
|
|
|
137
|
|
|
|
73
|
|
|
|
96
|
|
(1) Represents the amount by which the stock price exceeded the exercise price of the options on the date of exercise.
At December 31, 2016 there
was $126 million of total unrecognized compensation cost related to non-vested stock option awards which is expected to be recognized
over a weighted-average period of 2.29 years. The total fair value of options vested during 2016, 2015 and 2014 was $76 million,
$73 million and $72 million.
Restricted Stock Units
—Restricted
stock unit (RSU) awards entitle the holder to receive one share of common stock for each unit when the units vest. RSUs are issued
to certain key employees and directors as compensation at fair market value at the date of grant. RSUs typically become fully vested
over periods ranging from three to seven years and are payable in Honeywell common stock upon vesting.
The following table summarizes
information about RSU activity for the three years ended December 31, 2016:
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS – (CONTINUED)
(Dollars in millions, except
per share amounts)
|
|
|
Number of
Restricted
Stock Units
|
|
Weighted
Average
Grant Date
Fair Value
Per Share
|
Non-vested at December 31, 2013
|
|
|
|
6,692,220
|
|
|
$
|
60.04
|
|
Granted
|
|
|
|
1,455,209
|
|
|
|
94.88
|
|
Vested
|
|
|
|
(1,787,894
|
)
|
|
|
53.63
|
|
Forfeited
|
|
|
|
(460,341
|
)
|
|
|
63.54
|
|
Non-vested at December 31, 2014
|
|
|
|
5,899,194
|
|
|
|
70.32
|
|
Granted
|
|
|
|
1,190,406
|
|
|
|
103.04
|
|
Vested
|
|
|
|
(1,681,342
|
)
|
|
|
56.38
|
|
Forfeited
|
|
|
|
(426,670
|
)
|
|
|
77.73
|
|
Non-vested at December 31, 2015
|
|
|
|
4,981,588
|
|
|
|
82.18
|
|
Granted
|
|
|
|
1,364,469
|
|
|
|
110.49
|
|
Vested
|
|
|
|
(1,486,173
|
)
|
|
|
68.58
|
|
Forfeited
|
|
|
|
(392,541
|
)
|
|
|
88.88
|
|
Non-vested at December 31, 2016
|
|
|
|
4,467,343
|
|
|
$
|
94.17
|
|
As of December 31,
2016, there was approximately $193 million of total unrecognized compensation cost related to non-vested RSUs granted under our
stock plans which is expected to be recognized over a weighted-average period of 3.57 years.
The following table summarizes information
about income statement impact from RSUs for the three years ended December 31, 2016:
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Compensation expense
|
|
$
|
97
|
|
|
$
|
97
|
|
|
$
|
102
|
|
Future income tax benefit recognized
|
|
|
30
|
|
|
|
29
|
|
|
|
37
|
|
Note 19. Commitments and Contingencies
Environmental Matters
We are subject to various
federal, state, local and foreign government requirements relating to the protection of the environment. We believe that, as a
general matter, our policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage
and personal injury and that our handling, manufacture, use and disposal of hazardous substances are in accordance with environmental
and safety laws and regulations. However, mainly because of past operations and operations of predecessor companies, we, like other
companies engaged in similar businesses, have incurred remedial response and voluntary cleanup costs for site contamination and
are a party to lawsuits and claims associated with environmental and safety matters, including past production of products containing
hazardous substances. Additional lawsuits, claims and costs involving environmental matters are likely to continue to arise in
the future.
With respect to environmental
matters involving site contamination, we continually conduct studies, individually or jointly with other potentially responsible
parties, to determine the feasibility of various remedial techniques. It is our policy to record appropriate liabilities for environmental
matters when remedial efforts or damage claim payments are probable and the costs can be reasonably estimated. Such liabilities
are based on our best estimate of the undiscounted future costs required to complete the remedial work. The recorded liabilities
are adjusted periodically as remediation efforts progress or as additional technical, regulatory or legal information becomes available.
Given the uncertainties regarding the status of laws, regulations, enforcement policies, the impact of other potentially responsible
parties, technology and information related to individual sites, we do not believe it is possible to develop an estimate of the
range of reasonably possible environmental loss in excess of
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS – (CONTINUED)
(Dollars in millions, except per share amounts)
our recorded liabilities. We expect to fund
expenditures for these matters from operating cash flow. The timing of cash expenditures depends on a number of factors, including
the timing of remedial investigations and feasibility studies, the timing of litigation and settlements of remediation liability,
personal injury and property damage claims, regulatory approval of cleanup projects, remedial techniques to be utilized and agreements
with other parties.
The following table summarizes information concerning
our recorded liabilities for environmental costs:
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Beginning of year
|
|
$
|
518
|
|
|
$
|
591
|
|
|
$
|
643
|
|
Accruals for environmental matters deemed probable and reasonably estimable
|
|
|
195
|
|
|
|
194
|
|
|
|
268
|
|
Environmental liability payments
|
|
|
(228
|
)
|
|
|
(273
|
)
|
|
|
(321
|
)
|
Other
|
|
|
26
|
|
|
|
6
|
|
|
|
1
|
|
End of year
|
|
$
|
511
|
|
|
$
|
518
|
|
|
$
|
591
|
|
Environmental liabilities are included in the
following balance sheet accounts:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
Accrued liabilities
|
|
$
|
252
|
|
|
$
|
253
|
|
Other liabilities
|
|
|
259
|
|
|
|
265
|
|
|
|
$
|
511
|
|
|
$
|
518
|
|
We do not currently possess
sufficient information to reasonably estimate the amounts of environmental liabilities to be recorded upon future completion of
studies, litigation or settlements, and neither the timing nor the amount of the ultimate costs associated with environmental matters
can be determined although they could be material to our consolidated results of operations and operating cash flows in the periods
recognized or paid. However, considering our past experience and existing reserves, we do not expect that environmental matters
will have a material adverse effect on our consolidated financial position.
Onondaga Lake, Syracuse,
NY
—In 2016, we largely completed a dredging/capping remedy of Onondaga Lake pursuant to a consent decree approved
by the United States District Court for the Northern District of New York in January 2007. Some additional long-term monitoring
and maintenance activities will continue, as required by the consent decree. Honeywell is also conducting remedial investigations
and activities at other sites in Syracuse. We have recorded reserves for these investigations and activities where appropriate,
consistent with the accounting policy described above.
Honeywell has entered into
a cooperative agreement with potential natural resource trustees to assess alleged natural resource damages relating to this site.
It is not possible to predict the outcome or duration of this assessment, or the amounts of, or responsibility for, any damages.
Asbestos Matters
Honeywell is a defendant
in asbestos related personal injury actions related to two predecessor companies:
|
·
|
North American Refractories Company (NARCO),
which was sold in 1986, produced refractory products (bricks and cement used in high temperature applications). Claimants consist
largely of individuals who allege exposure to NARCO asbestos-containing refractory products in an occupational setting.
|
|
·
|
Bendix Friction Materials (Bendix) business,
which was sold in 2014, manufactured automotive brake parts that contained chrysotile asbestos in an encapsulated form. Claimants
consist largely of individuals who allege exposure to asbestos from brakes from either performing or being in the vicinity of individuals
who performed brake replacements.
|
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS – (CONTINUED)
(Dollars in millions, except per share amounts)
The following tables summarize information concerning
NARCO and Bendix asbestos related balances:
Asbestos Related Liabilities
|
|
Year Ended December 31,
|
|
Year Ended December 31,
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
Bendix
|
|
NARCO
|
|
Total
|
|
Bendix
|
|
NARCO
|
|
Total
|
|
Bendix
|
|
NARCO
|
|
Total
|
Beginning of year
|
|
$
|
622
|
|
|
$
|
921
|
|
|
$
|
1,543
|
|
|
$
|
623
|
|
|
$
|
929
|
|
|
$
|
1,552
|
|
|
$
|
656
|
|
|
$
|
955
|
|
|
$
|
1,611
|
|
Accrual for update to estimated liability
|
|
|
203
|
|
|
|
9
|
|
|
|
212
|
|
|
|
180
|
|
|
|
8
|
|
|
|
188
|
|
|
|
195
|
|
|
|
4
|
|
|
|
199
|
|
Change in estimated cost of future claims
|
|
|
13
|
|
|
|
-
|
|
|
|
13
|
|
|
|
11
|
|
|
|
-
|
|
|
|
11
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
Update of expected resolution values for pending
claims
|
|
|
4
|
|
|
|
-
|
|
|
|
4
|
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
|
|
2
|
|
|
|
-
|
|
|
|
2
|
|
Asbestos related liability payments
|
|
|
(201
|
)
|
|
|
(11
|
)
|
|
|
(212
|
)
|
|
|
(193
|
)
|
|
|
(16
|
)
|
|
|
(209
|
)
|
|
|
(229
|
)
|
|
|
(30
|
)
|
|
|
(259
|
)
|
End of year
|
|
$
|
641
|
|
|
$
|
919
|
|
|
$
|
1,560
|
|
|
$
|
622
|
|
|
$
|
921
|
|
|
$
|
1,543
|
|
|
$
|
623
|
|
|
$
|
929
|
|
|
$
|
1,552
|
|
Insurance Recoveries for Asbestos Related Liabilities
|
|
Year Ended December 31,
|
|
Year Ended December 31,
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
Bendix
|
|
NARCO
|
|
Total
|
|
Bendix
|
|
NARCO
|
|
Total
|
|
Bendix
|
|
NARCO
|
|
Total
|
Beginning of year
|
|
$
|
124
|
|
|
$
|
325
|
|
|
$
|
449
|
|
|
$
|
135
|
|
|
$
|
350
|
|
|
$
|
485
|
|
|
$
|
141
|
|
|
$
|
531
|
|
|
$
|
672
|
|
Probable insurance recoveries related to estimated
liability
|
|
|
26
|
|
|
|
-
|
|
|
|
26
|
|
|
|
21
|
|
|
|
-
|
|
|
|
21
|
|
|
|
24
|
|
|
|
-
|
|
|
|
24
|
|
Insurance receipts for asbestos related liabilities
|
|
|
(37
|
)
|
|
|
(6
|
)
|
|
|
(43
|
)
|
|
|
(33
|
)
|
|
|
(30
|
)
|
|
|
(63
|
)
|
|
|
(24
|
)
|
|
|
(187
|
)
|
|
|
(211
|
)
|
Insurance receivables settlements and write offs
|
|
|
7
|
|
|
|
-
|
|
|
|
7
|
|
|
|
1
|
|
|
|
6
|
|
|
|
7
|
|
|
|
(6
|
)
|
|
|
7
|
|
|
|
1
|
|
Other
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
End of year
|
|
$
|
121
|
|
|
$
|
319
|
|
|
$
|
440
|
|
|
$
|
124
|
|
|
$
|
325
|
|
|
$
|
449
|
|
|
$
|
135
|
|
|
$
|
350
|
|
|
$
|
485
|
|
NARCO and Bendix asbestos related balances are
included in the following balance sheet accounts:
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
Other current assets
|
|
$
|
23
|
|
|
$
|
23
|
|
Insurance recoveries for asbestos related liabilities
|
|
|
417
|
|
|
|
426
|
|
|
|
$
|
440
|
|
|
$
|
449
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
546
|
|
|
$
|
292
|
|
Asbestos related liabilities
|
|
|
1,014
|
|
|
|
1,251
|
|
|
|
$
|
1,560
|
|
|
$
|
1,543
|
|
NARCO Products
–In connection with NARCO’s emergence from bankruptcy on April 30, 2013, a federally authorized 524(g) trust (NARCO
Trust) was established for the evaluation and resolution of all existing
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS – (CONTINUED)
(Dollars in millions, except per share amounts)
and future NARCO asbestos claims. Both Honeywell
and NARCO are protected by a permanent channeling injunction barring all present and future individual actions in state or federal
courts and requiring all asbestos related claims based on exposure to NARCO asbestos-containing products to be made against the
NARCO Trust. The NARCO Trust reviews submitted claims and determines award amounts in accordance with established Trust Distribution
Procedures approved by the Bankruptcy Court which set forth the criteria claimants must meet to qualify for compensation including,
among other things, exposure and medical criteria that determine the award amount. In addition, Honeywell provided, and continues
to provide, input to the design of control procedures for processing NARCO claims, and has on-going audit rights to review and
monitor the claims processors’ adherence to the established requirements of the Trust Distribution Procedures.
Honeywell is
obligated to fund NARCO asbestos claims submitted to the NARCO Trust which qualify for payment under the Trust Distribution
Procedures (Annual Contribution Claims), subject to annual caps of $140 million in the years 2017 and 2018 and $145 million
for each year thereafter. However, the initial $100 million of claims processed through the NARCO Trust (the Initial Claims
Amount) will not count against the annual cap and any unused portion of the Initial Claims Amount will roll over to
subsequent years until fully utilized. In 2015, Honeywell filed suit against the NARCO Trust in Bankruptcy Court alleging
breach of certain provisions of the Trust Agreement and Trust Distribution Procedures. The parties agreed to dismiss the
proceeding without prejudice pursuant to an 18 month Standstill Agreement that expires in October 2017. Claims processing will
continue during this period subject to a defined dispute resolution process. As of December 31, 2016, Honeywell has not made
any payments to the NARCO Trust for Annual Contribution Claims.
Honeywell is also responsible
for payments due to claimants pursuant to settlement agreements reached during the pendency of the NARCO bankruptcy proceedings
that provide for the right to submit claims to the NARCO Trust subject to qualification under the terms of the settlement agreements
and Trust Distribution Procedures criteria (Pre-established Unliquidated Claims), which amounts are estimated at $150 million and
are expected to be paid during the initial years of trust operations ($5 million of which has been paid since the effective date
of the NARCO Trust). Such payments are not subject to the annual cap described above.
Our consolidated financial
statements reflect an estimated liability for pre-established unliquidated claims ($145 million), unsettled claims pending as of
the time NARCO filed for bankruptcy protection ($31 million) and for the estimated value of future NARCO asbestos claims expected
to be asserted against the NARCO Trust ($743 million). The estimate of future NARCO claims is based on a commonly accepted methodology
used by numerous bankruptcy courts addressing 524(g) trusts and also reflects disputes concerning implementation of the Trust Distribution
Procedures by the NARCO Trust, a lack of sufficient trust claims processing experience, as well as the stay of all NARCO asbestos
claims which remained in place throughout NARCO’s Chapter 11 case. Some critical assumptions underlying this commonly accepted
methodology include claims filing rates, disease criteria and payment values contained in the Trust Distribution Procedures, estimated
approval rates of claims submitted to the NARCO Trust and epidemiological studies estimating disease instances. The estimated value
of future NARCO claims was originally established at the time of the NARCO Chapter 11 filing reflecting claims expected to be asserted
against NARCO over a fifteen year period. This projection resulted in a range of estimated liability of $743 million to $961 million.
We believe that no amount within this range is a better estimate than any other amount and accordingly, we have recorded the minimum
amount in the range.
Our insurance receivable
corresponding to the estimated liability for pending and future NARCO asbestos claims reflects coverage which reimburses Honeywell
for portions of NARCO-related indemnity and defense costs and is provided by a large number of insurance policies written by dozens
of insurance companies in both the domestic insurance market and the London excess market. We conduct analyses to estimate the
probable amount of insurance that is recoverable for asbestos claims. While the substantial majority of our insurance carriers
are solvent, some of our individual carriers are insolvent, which has been considered in our analysis of probable recoveries. We
made judgments concerning insurance coverage that we believe are reasonable and consistent with our historical dealings and our
knowledge of any pertinent solvency issues surrounding insurers.
Projecting future events
is subject to many uncertainties that could cause the NARCO-related asbestos liabilities or assets to be higher or lower than those
projected and recorded. Given the uncertainties, we review our estimates periodically, and update them based on our experience
and other relevant factors. Similarly, we will reevaluate our projections concerning our probable insurance recoveries in light
of any changes to the projected liability or other developments that may impact insurance recoveries.
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS – (CONTINUED)
(Dollars in millions, except per share amounts)
Bendix
Products
—
The following tables present information regarding Bendix
related asbestos claims activity
:
|
|
Years Ended
December 31,
|
Claims Activity
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
Claims Unresolved at the beginning of year
|
|
|
7,779
|
|
|
|
9,267
|
|
Claims Filed
|
|
|
2,830
|
|
|
|
2,862
|
|
Claims Resolved
|
|
|
(2,885
|
)
|
|
|
(4,350
|
)
|
Claims Unresolved at the end of year
|
|
|
7,724
|
|
|
|
7,779
|
|
|
|
|
December 31,
|
|
Disease Distribution of Unresolved Claims
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
Mesothelioma and Other Cancer Claims
|
|
|
3,490
|
|
|
|
3,772
|
|
|
Nonmalignant Claims
|
|
|
4,234
|
|
|
|
4,007
|
|
|
Total Claims
|
|
|
7,724
|
|
|
|
7,779
|
|
Honeywell has experienced average resolution values
per claim excluding legal costs as follows:
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in whole dollars)
|
|
Malignant claims
|
|
$
|
44,000
|
|
|
$
|
44,000
|
|
|
$
|
53,500
|
|
|
$
|
51,000
|
|
|
$
|
49,000
|
|
Nonmalignant claims
|
|
$
|
4,485
|
|
|
$
|
100
|
|
|
$
|
120
|
|
|
$
|
850
|
|
|
$
|
1,400
|
|
It is not possible to predict
whether resolution values for Bendix-related asbestos claims will increase, decrease or stabilize in the future.
Our consolidated financial
statements reflect an estimated liability for resolution of pending (claims actually filed as of the financial statement date)
and future Bendix-related asbestos claims. We have valued Bendix pending and future claims using average resolution values for
the previous five years. We update the resolution values used to estimate the cost of Bendix pending and future claims during the
fourth quarter each year.
The liability for future
claims represents the estimated value of future asbestos related bodily injury claims expected to be asserted against Bendix over
the next five years. Such estimated cost of future Bendix-related asbestos claims is based on historic claims filing experience
and dismissal rates, disease classifications, and resolution values in the tort system for the previous five years. In light of
the uncertainties inherent in making long-term projections, as well as certain factors unique to friction product asbestos claims,
we do not believe that we have a reasonable basis for estimating asbestos claims beyond the next five years. The methodology used
to estimate the liability for future claims is similar to that used to estimate the liability for future NARCO-related asbestos
claims.
Our insurance receivable
corresponding to the liability for settlement of pending and future Bendix asbestos claims reflects coverage which is provided
by a large number of insurance policies written by dozens of insurance companies in both the domestic insurance market and the
London excess market. Based on our ongoing analysis of the probable insurance recovery, insurance receivables are recorded in the
financial statements simultaneous with the recording of the estimated liability for the underlying asbestos claims. This determination
is based on our analysis of the underlying insurance policies, our historical experience with our insurers, our ongoing review
of the solvency of our insurers, judicial determinations relevant to our insurance programs, and our consideration of the impacts
of any settlements reached with our insurers.
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS – (CONTINUED)
(Dollars in millions, except per share amounts)
Honeywell
believes it has sufficient insurance coverage and reserves to cover all pending Bendix-related asbestos claims and Bendix-related
asbestos claims estimated to be filed within the next five years. Although it is impossible to predict the outcome of either pending
or future Bendix-related asbestos claims, we do not believe that such claims would have a material adverse effect on our consolidated
financial position in light of our insurance coverage and our prior experience in resolving such claims. If the rate and types
of claims filed, the average resolution value of such claims and the period of time over which claim settlements are paid (collectively,
the Variable Claims Factors) do not substantially change, Honeywell would not expect future Bendix-related asbestos claims to have
a material adverse effect on our results of operations or operating cash flows in any fiscal year. No assurances can be given,
however, that the Variable Claims Factors will not change
.
Other Matters
We are subject to a number
of other lawsuits, investigations and disputes (some of which involve substantial amounts claimed) arising out of the conduct of
our business, including matters relating to commercial transactions, government contracts, product liability, prior acquisitions
and divestitures, employee benefit plans, intellectual property, and environmental, health and safety matters. We recognize a liability
for any contingency that is probable of occurrence and reasonably estimable. We continually assess the likelihood of adverse judgments
of outcomes in these matters, as well as potential ranges of possible losses (taking into consideration any insurance recoveries),
based on a careful analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts. Included
in these other matters are the following:
Honeywell
v. United Auto Workers (UAW) et. al
—In July 2011, Honeywell filed an action in federal court (District of New Jersey)
against the UAW and all former employees who retired under a series of Master Collective Bargaining Agreements (MCBAs) between
Honeywell and the UAW seeking a declaratory judgment that certain express limitations on its obligation to contribute toward the
healthcare coverage of such retirees (the CAPS) set forth in the MCBAs may be implemented, effective January 1, 2012. The UAW and
certain retiree defendants filed a mirror suit in the Eastern District of Michigan alleging that the MCBAs do not provide for CAPS
on the Company’s liability for healthcare coverage. The New Jersey action was dismissed and Honeywell subsequently answered
the UAW’s complaint in Michigan and asserted counterclaims for fraudulent inducement, negligent misrepresentation and breach
of implied warranty. The UAW filed a motion to dismiss these counterclaims. The court dismissed Honeywell’s fraudulent inducement
and negligent misrepresentation claims, but let stand the claim for breach of implied warranty. In the second quarter of 2014,
the parties agreed to stay the proceedings with respect to those retirees who retired before the initial inclusions of the CAPS
in the 2003 MCBA until the Supreme Court decided the
M&G Polymers USA, LLC v. Tackett
case
.
In a ruling on January 26, 2015, the Supreme Court held that retiree health insurance benefits provided in collective bargaining
agreements do not carry an inference that they are vested or guaranteed to continue for life and that the “vesting”
issue must be decided pursuant to ordinary principles of contract law. The stay of the proceedings has been lifted and the case
is again proceeding. Based on the Supreme Court’s ruling, Honeywell is confident that the CAPS will be upheld and that its
liability for healthcare coverage premiums with respect to the putative class will be limited as negotiated and expressly set forth
in the applicable MCBAs. In the event of an adverse ruling, however, Honeywell’s other postretirement benefits for pre-2003
retirees would increase by approximately $129 million, reflecting the estimated value of these CAPS.
In December 2013, the UAW
and certain of the plaintiffs filed a motion for partial summary judgment with respect to those retirees who retired after the
initial inclusion of the CAPS in the 2003 MCBA. The UAW sought a ruling that the 2003 MCBA did not limit Honeywell’s obligation
to contribute to healthcare coverage for the post-2003 retirees. That motion remains pending. Honeywell is confident that the Court
will find that the 2003 MCBA does, in fact, limit Honeywell’s retiree healthcare obligation for post-2003 retirees. In the
event of an adverse ruling, however, Honeywell’s other postretirement benefits for post-2003 retirees would increase by approximately
$95 million, reflecting the estimated value of these CAPS.
Joint Strike Fighter
Investigation -
In 2013 the Company received subpoenas from the Department of Justice requesting information relating primarily
to parts manufactured in the United Kingdom and China used in the F-35 fighter jet. The Company is cooperating fully with the investigation.
While we believe that Honeywell has complied with all relevant U.S. laws and regulations regarding the manufacture of these sensors,
it is not possible
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS – (CONTINUED)
(Dollars in millions, except per share amounts)
to predict the outcome of the investigation
or what action, if any, may result from it.
Given the uncertainty inherent
in litigation and investigations (including the specific matters referenced above), we do not believe it is possible to develop
estimates of reasonably possible loss in excess of current accruals for these matters (other than as specifically set forth above).
Considering our past experience and existing accruals, we do not expect the outcome of these matters, either individually or in
the aggregate, to have a material adverse effect on our consolidated financial position. Because most contingencies are resolved
over long periods of time, potential liabilities are subject to change due to new developments, changes in settlement strategy
or the impact of evidentiary requirements, which could cause us to pay damage awards or settlements (or become subject to equitable
remedies) that could have a material adverse effect on our results of operations or operating cash flows in the periods recognized
or paid.
Warranties and Guarantees
In the normal course of business
we issue product warranties and product performance guarantees. We accrue for the estimated cost of product warranties and performance
guarantees based on contract terms and historical experience at the time of sale. Adjustments to initial obligations for warranties
and guarantees are made as changes to the obligations become reasonably estimable. The following table summarizes information concerning
our recorded obligations for product warranties and product performance guarantees.
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Beginning of year
|
|
$
|
416
|
|
|
$
|
403
|
|
|
$
|
405
|
|
Accruals for warranties/guarantees issued during the year
|
|
|
326
|
|
|
|
206
|
|
|
|
225
|
|
Adjustment of pre-existing warranties/guarantees
|
|
|
(40
|
)
|
|
|
13
|
|
|
|
(34
|
)
|
Settlement of warranty/guarantee claims
|
|
|
(215
|
)
|
|
|
(206
|
)
|
|
|
(193
|
)
|
End of year
|
|
$
|
487
|
|
|
$
|
416
|
|
|
$
|
403
|
|
Product warranties and product performance guarantees
are included in the following balance sheet accounts:
|
|
December 31,
|
|
|
2016
|
|
2015
|
Accrued liabilities
|
|
$
|
351
|
|
|
$
|
355
|
|
Other liabilities
|
|
|
136
|
|
|
|
61
|
|
|
|
$
|
487
|
|
|
$
|
416
|
|
Note 20. Pension and Other Postretirement Benefits
We sponsor both funded and
unfunded U.S. and non-U.S. defined benefit pension plans covering the majority of our employees and retirees. Pension benefits
for many of our U.S. employees are provided through non-contributory, qualified and non-qualified defined benefit plans. All non-union
hourly and salaried employees joining Honeywell for the first time after December 31, 2012, are not eligible to participate in
Honeywell’s U.S. defined benefit pension plans. We also sponsor defined benefit pension plans which cover non-U.S. employees
who are not U.S. citizens, in certain jurisdictions, principally the UK, Netherlands, Germany, and Canada. Other pension plans
outside of the U.S. are not material to the Company either individually or in the aggregate.
We also sponsor postretirement
benefit plans that provide health care benefits and life insurance coverage mainly to U.S. eligible retirees. None of Honeywell’s
U.S. employees are eligible for a retiree medical subsidy from the Company. In addition, more than 80% of Honeywell’s U.S.
retirees either have no Company subsidy or have a fixed-dollar subsidy amount. This significantly limits our exposure to the impact
of future health care cost increases. The retiree medical and life insurance plans are not funded. Claims and expenses are paid
from our operating cash flow.
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions, except per share
amounts)
The following tables
summarize the balance sheet impact, including the benefit obligations, assets and funded status associated with our significant
pension and other postretirement benefit plans.
|
|
Pension
Benefits
|
|
|
U.S.
Plans
|
|
Non-U.S.
Plans
|
|
|
2016
|
|
2015
|
|
2016
|
|
|
2015
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at
beginning of year
|
|
$
|
17,298
|
|
|
$
|
18,035
|
|
|
$
|
6,338
|
|
|
$
|
5,761
|
|
Service cost
|
|
|
191
|
|
|
|
223
|
|
|
|
47
|
|
|
|
51
|
|
Interest cost
|
|
|
600
|
|
|
|
696
|
|
|
|
179
|
|
|
|
177
|
|
Plan amendments
|
|
|
-
|
|
|
|
(429
|
)
|
|
|
-
|
|
|
|
-
|
|
Actuarial (gains) losses
|
|
|
448
|
|
|
|
(269
|
)
|
|
|
1,125
|
|
|
|
(178
|
)
|
Acquisitions
|
|
|
-
|
|
|
|
61
|
|
|
|
6
|
|
|
|
1,137
|
|
Benefits paid
|
|
|
(1,135
|
)
|
|
|
(1,027
|
)
|
|
|
(243
|
)
|
|
|
(199
|
)
|
Settlements and curtailments
|
|
|
-
|
|
|
|
-
|
|
|
|
(50
|
)
|
|
|
(11
|
)
|
Foreign currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
(930
|
)
|
|
|
(417
|
)
|
Other
|
|
|
12
|
|
|
|
8
|
|
|
|
11
|
|
|
|
17
|
|
Benefit obligation
at end of year
|
|
|
17,414
|
|
|
|
17,298
|
|
|
|
6,483
|
|
|
|
6,338
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning
of year
|
|
|
16,349
|
|
|
|
17,066
|
|
|
|
6,117
|
|
|
|
5,333
|
|
Actual return on plan assets
|
|
|
1,554
|
|
|
|
233
|
|
|
|
1,006
|
|
|
|
154
|
|
Company contributions
|
|
|
36
|
|
|
|
34
|
|
|
|
186
|
|
|
|
147
|
|
Acquisitions
|
|
|
-
|
|
|
|
43
|
|
|
|
-
|
|
|
|
1,036
|
|
Benefits paid
|
|
|
(1,135
|
)
|
|
|
(1,027
|
)
|
|
|
(243
|
)
|
|
|
(199
|
)
|
Foreign currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
(957
|
)
|
|
|
(361
|
)
|
Other
|
|
|
10
|
|
|
|
-
|
|
|
|
11
|
|
|
|
7
|
|
Fair value
of plan assets at end of year
|
|
|
16,814
|
|
|
|
16,349
|
|
|
|
6,120
|
|
|
|
6,117
|
|
Funded status of plans
|
|
$
|
(600
|
)
|
|
$
|
(949
|
)
|
|
$
|
(363
|
)
|
|
$
|
(221
|
)
|
Amounts recognized in Consolidated Balance Sheet consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid pension benefit cost
(1)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
380
|
|
|
$
|
427
|
|
Accrued pension liabilities - current
(2)
|
|
|
(106
|
)
|
|
|
(51
|
)
|
|
|
(11
|
)
|
|
|
(7
|
)
|
Accrued pension
liabilities - noncurrent
(3)
|
|
|
(494
|
)
|
|
|
(898
|
)
|
|
|
(732
|
)
|
|
|
(641
|
)
|
Net amount recognized
|
|
$
|
(600
|
)
|
|
$
|
(949
|
)
|
|
$
|
(363
|
)
|
|
$
|
(221
|
)
|
(1) Included in Other assets on Consolidated Balance Sheet
|
(2) Included in Accrued liabilities on Consolidated Balance Sheet
|
(3) Included in Other liabilities - noncurrent on Consolidated Balance Sheet
|
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions, except per share
amounts)
|
|
Other
Postretirement Benefits
|
|
|
2016
|
|
2015
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
569
|
|
|
$
|
973
|
|
Service cost
|
|
|
-
|
|
|
|
-
|
|
Interest cost
|
|
|
20
|
|
|
|
33
|
|
Plan amendments
(1)
|
|
|
27
|
|
|
|
(290
|
)
|
Actuarial (gains) losses
|
|
|
(31
|
)
|
|
|
(55
|
)
|
Benefits paid
|
|
|
(93
|
)
|
|
|
(92
|
)
|
Benefit obligation at end of year
|
|
|
492
|
|
|
|
569
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
-
|
|
|
|
-
|
|
Actual return on plan assets
|
|
|
-
|
|
|
|
-
|
|
Company contributions
|
|
|
-
|
|
|
|
-
|
|
Benefits paid
|
|
|
-
|
|
|
|
-
|
|
Fair value of plan assets at end of year
|
|
|
-
|
|
|
|
-
|
|
Funded status of plans
|
|
$
|
(492
|
)
|
|
$
|
(569
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in Consolidated Balance Sheet consist of:
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
(62
|
)
|
|
$
|
(85
|
)
|
Postretirement benefit obligations other than pensions
(2)
|
|
|
(430
|
)
|
|
|
(484
|
)
|
Net amount recognized
|
|
$
|
(492
|
)
|
|
$
|
(569
|
)
|
(1) In 2015, elimination of retiree medical insurance coverage for certain retirees. Amount recognized as part of net postretirement benefit cost over the expected future lifetime of the remaining participants in the plan.
|
(2) Excludes non-U.S. plans of $43 million and $42 million in 2016 and 2015.
|
|
Amounts recognized in accumulated other comprehensive
(income) loss associated with our significant pension and other postretirement benefit plans at December 31, 2016 and 2015 are
as follows:
|
|
Pension Benefits
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Prior service (credit)
|
|
$
|
(312
|
)
|
|
$
|
(355
|
)
|
|
$
|
(11
|
)
|
|
$
|
(22
|
)
|
Net actuarial loss
|
|
|
1,099
|
|
|
|
1,005
|
|
|
|
582
|
|
|
|
464
|
|
Net amount recognized
|
|
$
|
787
|
|
|
$
|
650
|
|
|
$
|
571
|
|
|
$
|
442
|
|
|
|
|
Other Postretirement Benefits
|
|
|
2016
|
|
2015
|
Prior service (credit)
|
|
$
|
(393
|
)
|
|
$
|
(496
|
)
|
Net actuarial loss
|
|
|
136
|
|
|
|
189
|
|
Net amount recognized
|
|
$
|
(257
|
)
|
|
$
|
(307
|
)
|
The components of net
periodic benefit (income) cost and other amounts recognized in other comprehensive (income) loss for our significant pension and
other postretirement benefit plans include the following components:
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions, except per share
amounts)
|
|
Pension
Benefits
|
|
|
U.S.
Plans
|
|
Non-U.S.
Plans
|
Net
Periodic Benefit Cost
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
Service cost
|
|
$
|
191
|
|
|
$
|
223
|
|
|
$
|
241
|
|
|
$
|
47
|
|
|
$
|
51
|
|
|
$
|
56
|
|
Interest cost
|
|
|
600
|
|
|
|
696
|
|
|
|
771
|
|
|
|
179
|
|
|
|
177
|
|
|
|
231
|
|
Expected return on plan assets
|
|
|
(1,226
|
)
|
|
|
(1,278
|
)
|
|
|
(1,257
|
)
|
|
|
(377
|
)
|
|
|
(358
|
)
|
|
|
(354
|
)
|
Amortization of transition obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
2
|
|
Amortization of prior service (credit) cost
|
|
|
(43
|
)
|
|
|
13
|
|
|
|
23
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
(2
|
)
|
Recognition of actuarial losses
|
|
|
27
|
|
|
|
52
|
|
|
|
26
|
|
|
|
246
|
|
|
|
15
|
|
|
|
223
|
|
Settlements and curtailments
|
|
|
-
|
|
|
|
8
|
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
2
|
|
|
|
-
|
|
Net periodic benefit (income) cost
|
|
$
|
(451
|
)
|
|
$
|
(286
|
)
|
|
$
|
(196
|
)
|
|
$
|
85
|
|
|
$
|
(115
|
)
|
|
$
|
156
|
|
Other
Changes in Plan Assets and
Benefits Obligations Recognized in
|
|
U.S.
Plans
|
|
Non-U.S.
Plans
|
Other
Comprehensive (Income) Loss
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
Actuarial losses
|
|
$
|
121
|
|
|
$
|
775
|
|
|
$
|
1,686
|
|
|
$
|
447
|
|
|
$
|
27
|
|
|
$
|
333
|
|
Prior service (credit)
|
|
|
-
|
|
|
|
(429
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(17
|
)
|
Transition obligation recognized during year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
Prior service (cost) credit recognized during year
|
|
|
43
|
|
|
|
(13
|
)
|
|
|
(23
|
)
|
|
|
10
|
|
|
|
3
|
|
|
|
2
|
|
Actuarial losses recognized during year
|
|
|
(27
|
)
|
|
|
(52
|
)
|
|
|
(26
|
)
|
|
|
(246
|
)
|
|
|
(17
|
)
|
|
|
(223
|
)
|
Foreign currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(83
|
)
|
|
|
(37
|
)
|
|
|
(50
|
)
|
Total recognized in other comprehensive (income) loss
|
|
$
|
137
|
|
|
$
|
281
|
|
|
$
|
1,637
|
|
|
$
|
128
|
|
|
$
|
(25
|
)
|
|
$
|
43
|
|
Total
recognized in net periodic benefit (income) cost and other comprehensive (income) loss
|
|
$
|
(314
|
)
|
|
$
|
(5
|
)
|
|
$
|
1,441
|
|
|
$
|
213
|
|
|
$
|
(140
|
)
|
|
$
|
199
|
|
The estimated prior service
(credit) for pension benefits that will be amortized from accumulated other comprehensive (income) loss into net periodic benefit
(income) cost in 2017 are expected to be ($43) million and ($1) million for U.S. and non-U.S. pension plans.
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions, except per share
amounts)
|
|
Other Postretirement Benefits
|
|
|
Years Ended December 31,
|
Net Periodic Benefit Cost
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
Service cost
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest cost
|
|
|
20
|
|
|
|
33
|
|
|
|
42
|
|
Amortization of prior service (credit)
|
|
|
(76
|
)
|
|
|
(30
|
)
|
|
|
(20
|
)
|
Recognition of actuarial losses
|
|
|
22
|
|
|
|
34
|
|
|
|
24
|
|
Net periodic benefit (income) cost
|
|
$
|
(34
|
)
|
|
$
|
37
|
|
|
$
|
46
|
|
|
|
Years Ended December 31,
|
Other Changes in Plan Assets and Benefits Obligations
|
|
2016
|
|
2015
|
|
2014
|
Recognized in Other Comprehensive (Income) Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial (gains) losses
|
|
$
|
(31
|
)
|
|
$
|
(55
|
)
|
|
$
|
46
|
|
Prior service cost (credit)
|
|
|
27
|
|
|
|
(290
|
)
|
|
|
(87
|
)
|
Prior service credit recognized during year
|
|
|
76
|
|
|
|
30
|
|
|
|
20
|
|
Actuarial losses recognized during year
|
|
|
(22
|
)
|
|
|
(34
|
)
|
|
|
(24
|
)
|
Total recognized in other comprehensive (income) loss
|
|
$
|
50
|
|
|
$
|
(349
|
)
|
|
$
|
(45
|
)
|
Total recognized in net periodic
benefit cost and other comprehensive (income) loss
|
|
$
|
16
|
|
|
$
|
(312
|
)
|
|
$
|
1
|
|
The estimated net loss
and prior service (credit) for other postretirement benefits that will be amortized from accumulated other comprehensive (income)
loss into net periodic benefit (income) in 2017 are expected to
be $14 million and ($70)
million
.
Major actuarial assumptions
used in determining the benefit obligations and net periodic benefit (income) cost for our significant benefit plans are presented
in the following table as weighted averages.
|
|
Pension Benefits
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Actuarial
assumptions used to determine benefit obligations as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.20
|
%
|
|
|
4.46
|
%
|
|
|
4.08
|
%
|
|
|
2.51
|
%
|
|
|
3.49
|
%
|
|
|
3.26
|
%
|
Expected annual rate of compensation increase
|
|
|
4.50
|
%
|
|
|
4.48
|
%
|
|
|
4.50
|
%
|
|
|
2.17
|
%
|
|
|
2.11
|
%
|
|
|
2.53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial assumptions used to determine net periodic benefit (income) cost for years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate - benefit obligation
|
|
|
4.46
|
%
|
|
|
4.08
|
%
|
|
|
4.89
|
%
|
|
|
3.49
|
%
|
|
|
3.26
|
%
|
|
|
4.29
|
%
|
Discount rate - service cost
|
|
|
4.69
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
2.92
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Discount rate - interest cost
|
|
|
3.59
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
3.07
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Expected rate of return on plan assets
|
|
|
7.75
|
%
|
|
|
7.75
|
%
|
|
|
7.75
|
%
|
|
|
6.65
|
%
|
|
|
6.94
|
%
|
|
|
6.96
|
%
|
Expected annual rate of compensation increase
|
|
|
4.48
|
%
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
|
|
2.11
|
%
|
|
|
2.53
|
%
|
|
|
2.81
|
%
|
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions, except per share
amounts)
|
|
Other
Postretirement Benefits
|
|
|
2016
|
|
|
|
2015
|
|
|
|
2014
|
|
Actuarial assumptions used to determine benefit obligations as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
3.65
|
%
|
|
|
3.80
|
%
|
|
|
3.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial
assumptions used to determine net periodic benefit cost for years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
3.80
|
%
|
|
|
3.45
|
%
|
|
|
4.05
|
%
|
|
The discount rate for
our U.S. pension and other postretirement benefits plans reflects the current rate at which the associated liabilities could be
settled at the measurement date of December 31. To determine discount rates for our U.S. pension and other postretirement benefit
plans, we use a modeling process that involves matching the expected cash outflows of our benefit plans to a yield curve constructed
from a portfolio of high quality, fixed-income debt instruments. We use the single weighted-average yield of this hypothetical
portfolio as a discount rate benchmark. The discount rate used to determine the other postretirement benefit obligation is lower
principally due to a shorter expected duration of other postretirement plan obligations as compared to pension plan obligations.
During the fourth quarter
of 2015 we changed the methodology used to estimate the service and interest cost components of net periodic benefit (income) cost
for our significant pension plans. Previously, we estimated such cost components utilizing a single weighted-average discount rate
derived from the yield curve used to measure the pension benefit obligation. The new methodology utilizes a full yield curve approach
in the estimation of these cost components by applying the specific spot rates along the yield curve used in the determination
of the pension benefit obligation to their underlying projected cash flows and provides a more precise measurement of service and
interest costs by improving the correlation between projected cash flows and their corresponding spot rates. The change did not
affect the measurement of our pension obligation and was applied prospectively as a change in estimate. For our U.S. pension plans,
the single weighted average spot rates used to determine service and interest costs for 2017 are 4.42% and 3.49%.
Our expected rate of
return on U.S. plan assets of 7.75% is a long-term rate based on historical plan asset returns over varying long-term periods combined
with current market conditions and broad asset mix considerations. We review the expected rate of return on an annual basis and
revise it as appropriate.
For non-U.S. benefit
plans actuarial assumptions reflect economic and market factors relevant to each country.
Pension Benefits
Included in the aggregate
data in the tables above are the amounts applicable to our pension plans with accumulated benefit obligations exceeding the fair
value of plan assets. Amounts related to such plans were as follows:
|
|
December 31,
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Projected benefit obligation
|
|
$
|
17,414
|
|
|
$
|
17,298
|
|
|
$
|
2,294
|
|
|
$
|
1,624
|
|
Accumulated benefit obligation
|
|
$
|
17,263
|
|
|
$
|
16,899
|
|
|
$
|
2,220
|
|
|
$
|
1,574
|
|
Fair value of plan assets
|
|
$
|
16,814
|
|
|
$
|
16,349
|
|
|
$
|
1,552
|
|
|
$
|
976
|
|
Accumulated benefit obligation
for our U.S. defined benefit pension plans were $17.3 billion and $16.9 billion and for our Non-U.S. defined benefit pension plans
were $6.4 billion and $6.2 billion at December 31, 2016 and 2015.
Our asset investment
strategy for our U.S. pension plans focuses on maintaining a diversified portfolio using various asset classes in order to achieve
our long-term investment objectives on a risk adjusted basis. Our
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions, except per share
amounts)
actual invested positions in various securities
change over time based on short and longer-term investment opportunities. To achieve our objectives, we have established long-term
target allocations as follows: 60%-70% equity securities, 10%-20% fixed income securities and cash, 5%-15% real estate investments,
and 10%-20% other types of investments. Equity securities include publicly-traded stock of companies located both inside and outside
the United States. Fixed income securities include corporate bonds of companies from diversified industries, mortgage-backed securities,
and U.S. Treasuries. Real estate investments include direct investments in commercial properties and investments in real estate
funds. Other types of investments include investments in private equity and hedge funds that follow several different strategies.
We review our assets on a regular basis to ensure that we are within the targeted asset allocation ranges and, if necessary, asset
balances are adjusted back within target allocations.
Our non-U.S. pension
assets are typically managed by decentralized fiduciary committees with the Honeywell Corporate Investments group providing funding
and investment guidance. Our non-U.S. investment policies are different for each country as local regulations, funding requirements,
and financial and tax considerations are part of the funding and investment allocation process in each country.
In accordance with ASU
2015-07, “Fair Value Measurement (Topic 820)”, certain investments that are measured at fair value using the net asset
value (NAV) per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value
amounts presented in the following tables are intended to permit reconciliation of the fair value hierarchy to the amounts presented
for the total pension benefits plan assets.
The fair values of both
our U.S. and non-U.S. pension plans assets by asset category are as follows:
|
|
U.S. Plans
|
|
|
December 31, 2016
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
|
Level 3
|
|
Equities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Honeywell common stock
|
|
$
|
2,140
|
|
|
$
|
2,140
|
|
|
$
|
-
|
|
|
$
|
-
|
|
U.S. equities
|
|
|
3,583
|
|
|
|
3,583
|
|
|
|
-
|
|
|
|
-
|
|
Non-U.S. equities
|
|
|
2,069
|
|
|
|
2,037
|
|
|
|
32
|
|
|
|
-
|
|
Real estate investment trusts
|
|
|
203
|
|
|
|
203
|
|
|
|
-
|
|
|
|
-
|
|
Fixed income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term investments
|
|
|
1,306
|
|
|
|
1,306
|
|
|
|
-
|
|
|
|
-
|
|
Government securities
|
|
|
305
|
|
|
|
-
|
|
|
|
305
|
|
|
|
-
|
|
Corporate bonds
|
|
|
4,366
|
|
|
|
-
|
|
|
|
4,366
|
|
|
|
-
|
|
Mortgage/Asset-backed securities
|
|
|
617
|
|
|
|
-
|
|
|
|
617
|
|
|
|
-
|
|
Insurance contracts
|
|
|
7
|
|
|
|
-
|
|
|
|
7
|
|
|
|
-
|
|
Direct investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct private investments
|
|
|
609
|
|
|
|
-
|
|
|
|
-
|
|
|
|
609
|
|
Real estate properties
|
|
|
664
|
|
|
|
-
|
|
|
|
-
|
|
|
|
664
|
|
Total
|
|
|
15,869
|
|
|
$
|
9,269
|
|
|
$
|
5,327
|
|
|
$
|
1,273
|
|
Investments measured at NAV:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private funds
|
|
|
815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate funds
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge funds
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
16,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions, except per share
amounts)
|
|
U.S.
Plans
|
|
|
December
31, 2015
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level
3
|
Equities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Honeywell common stock
|
|
$
|
1,916
|
|
|
$
|
1,916
|
|
|
$
|
-
|
|
|
$
|
-
|
|
U.S. equities
|
|
|
4,572
|
|
|
|
4,572
|
|
|
|
-
|
|
|
|
-
|
|
Non-U.S. equities
|
|
|
2,099
|
|
|
|
1,943
|
|
|
|
156
|
|
|
|
-
|
|
Real estate investment trusts
|
|
|
209
|
|
|
|
209
|
|
|
|
-
|
|
|
|
-
|
|
Fixed income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term investments
|
|
|
1,332
|
|
|
|
1,332
|
|
|
|
-
|
|
|
|
-
|
|
Government securities
|
|
|
425
|
|
|
|
-
|
|
|
|
425
|
|
|
|
-
|
|
Corporate bonds
|
|
|
3,003
|
|
|
|
-
|
|
|
|
3,003
|
|
|
|
-
|
|
Mortgage/Asset-backed securities
|
|
|
561
|
|
|
|
-
|
|
|
|
561
|
|
|
|
-
|
|
Insurance contracts
|
|
|
7
|
|
|
|
-
|
|
|
|
7
|
|
|
|
-
|
|
Direct investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct private investments
|
|
|
535
|
|
|
|
-
|
|
|
|
-
|
|
|
|
535
|
|
Real estate properties
|
|
|
626
|
|
|
|
-
|
|
|
|
-
|
|
|
|
626
|
|
Total
|
|
|
15,285
|
|
|
$
|
9,972
|
|
|
$
|
4,152
|
|
|
$
|
1,161
|
|
Investments measured at NAV:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private funds
|
|
|
889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate funds
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge funds
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
16,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
Plans
|
|
|
|
December 31, 2016
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Equities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. equities
|
|
$
|
650
|
|
|
$
|
525
|
|
|
$
|
125
|
|
|
$
|
-
|
|
Non-U.S. equities
|
|
|
2,153
|
|
|
|
219
|
|
|
|
1,934
|
|
|
|
-
|
|
Fixed income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
|
146
|
|
|
|
146
|
|
|
|
-
|
|
|
|
-
|
|
Government securities
|
|
|
1,530
|
|
|
|
-
|
|
|
|
1,530
|
|
|
|
-
|
|
Corporate bonds
|
|
|
1,220
|
|
|
|
-
|
|
|
|
1,220
|
|
|
|
-
|
|
Mortgage/Asset-backed securities
|
|
|
18
|
|
|
|
-
|
|
|
|
18
|
|
|
|
-
|
|
Insurance contracts
|
|
|
152
|
|
|
|
-
|
|
|
|
152
|
|
|
|
-
|
|
Investments in private funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private funds
|
|
|
42
|
|
|
|
-
|
|
|
|
19
|
|
|
|
23
|
|
Real estate
funds
|
|
|
124
|
|
|
|
-
|
|
|
|
-
|
|
|
|
124
|
|
Total
|
|
|
6,035
|
|
|
$
|
890
|
|
|
$
|
4,998
|
|
|
$
|
147
|
|
Investments measured at NAV:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private funds
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate funds
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
6,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
Plans
|
|
|
|
December
31,
2015
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Equities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. equities
|
|
$
|
569
|
|
|
$
|
479
|
|
|
$
|
90
|
|
|
$
|
-
|
|
Non-U.S. equities
|
|
|
2,200
|
|
|
|
228
|
|
|
|
1,972
|
|
|
|
-
|
|
Fixed income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
|
108
|
|
|
|
105
|
|
|
|
3
|
|
|
|
-
|
|
Government securities
|
|
|
1,621
|
|
|
|
-
|
|
|
|
1,621
|
|
|
|
-
|
|
Corporate bonds
|
|
|
1,073
|
|
|
|
-
|
|
|
|
1,073
|
|
|
|
-
|
|
Mortgage/Asset-backed securities
|
|
|
94
|
|
|
|
-
|
|
|
|
94
|
|
|
|
-
|
|
Insurance contracts
|
|
|
170
|
|
|
|
-
|
|
|
|
170
|
|
|
|
-
|
|
Investments in private funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private funds
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10
|
|
Real estate funds
|
|
|
152
|
|
|
|
-
|
|
|
|
-
|
|
|
|
152
|
|
Total
|
|
|
5,997
|
|
|
$
|
812
|
|
|
$
|
5,023
|
|
|
$
|
162
|
|
Investments measured at NAV:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private funds
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate funds
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
6,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions,
except per share amounts)
The following table summarizes changes in
the fair value of Level 3 assets for both U.S. and Non-U.S. plans:
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
|
Direct
|
|
|
|
|
|
|
|
|
Private
|
|
Real Estate
|
|
Private
|
|
Real Estate
|
|
|
Investments
|
|
Properties
|
|
Funds
|
|
Funds
|
Balance at December 31, 2014
|
|
$
|
301
|
|
|
$
|
600
|
|
|
$
|
4
|
|
|
$
|
100
|
|
Actual return on plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relating to assets still held
at year-end
|
|
|
47
|
|
|
|
16
|
|
|
|
-
|
|
|
|
5
|
|
Relating to
assets sold during the year
|
|
|
21
|
|
|
|
14
|
|
|
|
-
|
|
|
|
-
|
|
Purchases
|
|
|
242
|
|
|
|
16
|
|
|
|
10
|
|
|
|
51
|
|
Sales and settlements
|
|
|
(76
|
)
|
|
|
(20
|
)
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
535
|
|
|
|
626
|
|
|
|
10
|
|
|
|
152
|
|
Actual return on plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relating to assets still held
at year-end
|
|
|
(42
|
)
|
|
|
11
|
|
|
|
1
|
|
|
|
(22
|
)
|
Relating to
assets sold during the year
|
|
|
28
|
|
|
|
7
|
|
|
|
-
|
|
|
|
(1
|
)
|
Purchases
|
|
|
141
|
|
|
|
48
|
|
|
|
12
|
|
|
|
-
|
|
Sales and settlements
|
|
|
(53
|
)
|
|
|
(28
|
)
|
|
|
-
|
|
|
|
(5
|
)
|
Balance at December 31, 2016
|
|
$
|
609
|
|
|
$
|
664
|
|
|
$
|
23
|
|
|
$
|
124
|
|
The Company enters into
futures contracts to gain exposure to certain markets. Sufficient cash or cash equivalents are held by our pension plans to cover
the notional value of the futures contracts. At December 31, 2016 and 2015, our U.S. plans had contracts with notional amounts
of $3,775 million and $2,613 million. At December 31, 2016 and 2015, our non-U.S. plans had contracts with notional amounts of
$55 million and $54 million. In both our U.S. and non-U.S. pension plans, the notional derivative exposure is primarily related
to outstanding equity futures contracts.
Common stocks, preferred
stocks, real estate investment trusts, and short-term investments are valued at the closing price reported in the active market
in which the individual securities are traded. Corporate bonds, mortgages, asset-backed securities, and government securities are
valued either by using pricing models, bids provided by brokers or dealers, quoted prices of securities with similar characteristics
or discounted cash flows and as such include adjustments for certain risks that may not be observable such as credit and liquidity
risks. Certain securities are held in collective trust funds which are valued using net asset values provided by the administrators
of the funds. Investments in private equity, debt, real estate and hedge funds and direct private investments are valued at estimated
fair value based on quarterly financial information received from the investment advisor and/or general partner. Investments in
real estate properties are valued on a quarterly basis using the income approach. Valuation estimates are periodically supplemented
by third party appraisals.
Our general funding
policy for qualified defined benefit pension plans is to contribute amounts at least sufficient to satisfy regulatory funding standards.
In 2016, 2015 and 2014, we were not required to make contributions to our U.S. pension plans and no contributions were made. We
are not required to make any contributions to our U.S. pension plans in 2017. In 2016, contributions of $149 million were made
to our non-U.S. pension plans to satisfy regulatory funding requirements. In 2017, we expect to make contributions of cash and/or
marketable securities of approximately $130 million to our non-U.S. pension plans to satisfy regulatory funding standards. Contributions
for both our U.S. and non-U.S. pension plans do not reflect benefits paid directly from Company assets.
Benefit payments, including
amounts to be paid from Company assets, and reflecting expected future service, as appropriate, are expected to be paid as follows:
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions,
except per share amounts)
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
2017
|
|
$
|
1,217
|
|
|
$
|
223
|
|
2018
|
|
|
1,136
|
|
|
|
225
|
|
2019
|
|
|
1,147
|
|
|
|
231
|
|
2020
|
|
|
1,158
|
|
|
|
238
|
|
2021
|
|
|
1,167
|
|
|
|
244
|
|
2022-2026
|
|
|
5,838
|
|
|
|
1,323
|
|
Other Postretirement Benefits
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Assumed health care cost trend rate:
|
|
|
|
|
|
|
|
|
Health care cost trend rate assumed for next year
|
|
|
6.50
|
%
|
|
|
7.00
|
%
|
Rate that the cost trend rate gradually declines to
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
Year that the rate reaches the rate it is assumed to remain at
|
|
|
2023
|
|
|
|
2023
|
|
The assumed health care
cost trend rate has a significant effect on the amounts reported. A one-percentage-point change in the assumed health care cost
trend rate would have the following effects:
|
|
1 percentage point
|
|
|
Increase
|
|
Decrease
|
Effect on total of service and interest cost components
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
Effect on postretirement benefit obligation
|
|
$
|
25
|
|
|
$
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
Benefit payments reflecting expected future service, as appropriate, are expected to be paid as follows:
|
|
|
|
Without Impact of
|
|
Net of
|
|
|
Medicare Subsidy
|
|
Medicare Subsidy
|
2017
|
|
$
|
67
|
|
|
$
|
62
|
|
2018
|
|
|
62
|
|
|
|
57
|
|
2019
|
|
|
57
|
|
|
|
53
|
|
2020
|
|
|
52
|
|
|
|
48
|
|
2021
|
|
|
48
|
|
|
|
44
|
|
2022-2026
|
|
|
156
|
|
|
|
141
|
|
Note 21. Segment Financial Data
We globally manage our
business operations through four reportable operating segments. Segment information is consistent with how management reviews the
businesses, makes investing and resource allocation decisions and assesses operating performance.
Honeywell’s senior
management evaluates segment performance based on segment profit. Segment profit is measured as business unit income (loss) before
taxes excluding general corporate unallocated expense, other income (expense), interest and other financial charges, pension and
other postretirement benefits (expense), stock compensation expense and repositioning and other charges.
In July 2016, the Company
announced the realignment of
the business units comprising its Automation and Control Solutions
reporting segment by forming two new reportable operating segments: Home and Building Technologies and Safety and Productivity
Solutions.
Home and Building Technologies includes Environmental & Energy Solutions, Security and Fire, and Building
Solutions and Distribution. Additionally, the Industrial Combustion/Thermal business, previously part of Environmental & Energy
Solutions in Automation and Control Solutions, became part of Performance Materials and Technologies.
Safety
and Productivity Solutions
includes
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions,
except per share amounts)
Sensing & Productivity Solutions and
Industrial Safety, as well as the Intelligrated business.
Under the realigned segment reporting
structure, the Company’s reportable operating segments are Aerospace, Home and Building Technologies, Performance Materials
and Technologies and Safety and Productivity Solutions.
These realignments have
no impact on the Company’s historical consolidated financial position, results of operations or cash flows. Prior period
amounts have been reclassified to conform to current period segment presentation.
|
|
Years Ended December 31,
|
Net Sales
|
|
2016
|
|
2015
|
|
2014
|
Aerospace
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
9,926
|
|
|
$
|
10,379
|
|
|
$
|
10,773
|
|
Service
|
|
|
4,825
|
|
|
|
4,858
|
|
|
|
4,825
|
|
Total
|
|
|
14,751
|
|
|
|
15,237
|
|
|
|
15,598
|
|
Home and Building Technologies
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
9,374
|
|
|
|
7,985
|
|
|
|
8,267
|
|
Service
|
|
|
1,280
|
|
|
|
1,176
|
|
|
|
1,218
|
|
Total
|
|
|
10,654
|
|
|
|
9,161
|
|
|
|
9,485
|
|
Performance Materials and Technologies
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
7,601
|
|
|
|
7,674
|
|
|
|
8,662
|
|
Service
|
|
|
1,671
|
|
|
|
1,801
|
|
|
|
1,815
|
|
Total
|
|
|
9,272
|
|
|
|
9,475
|
|
|
|
10,477
|
|
Safety and Productivity Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
4,461
|
|
|
|
4,657
|
|
|
|
4,696
|
|
Service
|
|
|
164
|
|
|
|
51
|
|
|
|
50
|
|
Total
|
|
|
4,625
|
|
|
|
4,708
|
|
|
|
4,746
|
|
|
|
$
|
39,302
|
|
|
$
|
38,581
|
|
|
$
|
40,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
$
|
275
|
|
|
$
|
267
|
|
|
$
|
277
|
|
Home and Building Technologies
|
|
|
192
|
|
|
|
101
|
|
|
|
114
|
|
Performance Materials and Technologies
|
|
|
314
|
|
|
|
285
|
|
|
|
292
|
|
Safety and Productivity Solutions
|
|
|
188
|
|
|
|
173
|
|
|
|
184
|
|
Corporate
|
|
|
61
|
|
|
|
57
|
|
|
|
57
|
|
|
|
$
|
1,030
|
|
|
$
|
883
|
|
|
$
|
924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
$
|
2,991
|
|
|
$
|
3,218
|
|
|
$
|
2,915
|
|
Home and Building Technologies
|
|
|
1,683
|
|
|
|
1,512
|
|
|
|
1,455
|
|
Performance Materials and Technologies
|
|
|
2,050
|
|
|
|
1,990
|
|
|
|
1,876
|
|
Safety and Productivity Solutions
|
|
|
680
|
|
|
|
746
|
|
|
|
686
|
|
Corporate
|
|
|
(218
|
)
|
|
|
(210
|
)
|
|
|
(236
|
)
|
|
|
$
|
7,186
|
|
|
$
|
7,256
|
|
|
$
|
6,696
|
|
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions,
except per share amounts)
|
|
Years Ended December 31,
|
Capital expenditures
|
|
2016
|
|
2015
|
|
2014
|
Aerospace
|
|
$
|
331
|
|
|
$
|
314
|
|
|
$
|
315
|
|
Home and Building Technologies
|
|
|
110
|
|
|
|
103
|
|
|
|
83
|
|
Performance Materials and Technologies
|
|
|
455
|
|
|
|
481
|
|
|
|
538
|
|
Safety and Productivity Solutions
|
|
|
55
|
|
|
|
47
|
|
|
|
61
|
|
Corporate
|
|
|
144
|
|
|
|
128
|
|
|
|
97
|
|
|
|
$
|
1,095
|
|
|
$
|
1,073
|
|
|
$
|
1,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
Total Assets
|
|
2016
|
|
2015
|
|
2014
|
Aerospace
|
|
$
|
11,426
|
|
|
$
|
11,235
|
|
|
$
|
11,151
|
|
Home and Building Technologies
|
|
|
13,201
|
|
|
|
13,950
|
|
|
|
9,857
|
|
Performance Materials and Technologies
|
|
|
13,026
|
|
|
|
11,699
|
|
|
|
9,805
|
|
Safety and Productivity Solutions
|
|
|
8,951
|
|
|
|
7,006
|
|
|
|
7,228
|
|
Corporate
|
|
|
7,542
|
|
|
|
5,426
|
|
|
|
7,410
|
|
|
|
$
|
54,146
|
|
|
$
|
49,316
|
|
|
$
|
45,451
|
|
A reconciliation of segment profit to consolidated
income from continuing operations before taxes are as follows:
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Segment Profit
|
|
$
|
7,186
|
|
|
$
|
7,256
|
|
|
$
|
6,696
|
|
Other income (expense)
(1)
|
|
|
71
|
|
|
|
38
|
|
|
|
269
|
|
Interest and other financial charges
|
|
|
(338
|
)
|
|
|
(310
|
)
|
|
|
(318
|
)
|
Stock compensation expense
(2)
|
|
|
(184
|
)
|
|
|
(175
|
)
|
|
|
(187
|
)
|
Pension ongoing income (expense)
(2)
|
|
|
601
|
|
|
|
430
|
|
|
|
254
|
|
Pension mark-to-market expense
(2)
|
|
|
(273
|
)
|
|
|
(67
|
)
|
|
|
(249
|
)
|
Other postretirement income (expense)
(2)
|
|
|
32
|
|
|
|
(40
|
)
|
|
|
(49
|
)
|
Repositioning and other charges
(2)
|
|
|
(648
|
)
|
|
|
(546
|
)
|
|
|
(598
|
)
|
Income from continuing operations before taxes
|
|
$
|
6,447
|
|
|
$
|
6,586
|
|
|
$
|
5,818
|
|
(1)
|
Equity income (loss) of affiliated companies is included in Segment Profit.
|
(2)
|
Amounts included in cost of products and services sold and selling, general and administrative expenses.
|
Note 22. Geographic Areas - Financial Data
|
|
Net Sales
(1)
|
|
Long-lived Assets
(2)
|
|
|
Years Ended December 31,
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
United States
|
|
$
|
22,652
|
|
|
$
|
23,771
|
|
|
$
|
23,911
|
|
|
$
|
3,744
|
|
|
$
|
3,939
|
|
|
$
|
3,612
|
|
Europe
|
|
|
9,966
|
|
|
|
8,674
|
|
|
|
9,870
|
|
|
|
741
|
|
|
|
746
|
|
|
|
741
|
|
Other International
|
|
|
6,684
|
|
|
|
6,136
|
|
|
|
6,525
|
|
|
|
1,308
|
|
|
|
1,104
|
|
|
|
1,030
|
|
|
|
$
|
39,302
|
|
|
$
|
38,581
|
|
|
$
|
40,306
|
|
|
$
|
5,793
|
|
|
$
|
5,789
|
|
|
$
|
5,383
|
|
(1) Sales between geographic areas approximate market and are not significant. Net sales are classified according to their country of origin. Included in United States net sales are export sales of $5,290 million, $5,526 million and $5,647 million in 2016, 2015 and 2014.
(2) Long-lived assets are comprised of property, plant and equipment - net.
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS –
(CONTINUED)
(Dollars in millions,
except per share amounts)
Note 23. Supplemental Cash Flow Information
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Payments for repositioning and other charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and exit cost payments
|
|
$
|
(228
|
)
|
|
$
|
(118
|
)
|
|
$
|
(161
|
)
|
Environmental payments
|
|
|
(228
|
)
|
|
|
(273
|
)
|
|
|
(321
|
)
|
Insurance receipts for asbestos related liabilities
|
|
|
43
|
|
|
|
63
|
|
|
|
211
|
|
Asbestos related liability payments
|
|
|
(212
|
)
|
|
|
(209
|
)
|
|
|
(259
|
)
|
|
|
$
|
(625
|
)
|
|
$
|
(537
|
)
|
|
$
|
(530
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, net of amounts capitalized
|
|
$
|
329
|
|
|
$
|
310
|
|
|
$
|
312
|
|
Income taxes paid, net of refunds
|
|
|
1,142
|
|
|
|
1,192
|
|
|
|
1,142
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock contributed to savings plans
|
|
|
168
|
|
|
|
174
|
|
|
|
168
|
|
Marketable securities contributed to non-U.S. pension plans
|
|
|
106
|
|
|
|
109
|
|
|
|
117
|
|
Note 24. Unaudited Quarterly Financial Information
|
|
2016
|
|
|
Mar. 31
|
|
June 30
|
|
Sept. 30
|
|
Dec. 31
|
|
Year
|
Net Sales
|
|
$
|
9,522
|
|
|
$
|
9,991
|
|
|
$
|
9,804
|
|
|
$
|
9,985
|
|
|
$
|
39,302
|
|
Gross Profit
|
|
|
2,975
|
|
|
|
3,170
|
|
|
|
2,901
|
|
|
|
3,106
|
|
|
|
12,152
|
|
Net income attributable to Honeywell
|
|
|
1,216
|
|
|
|
1,319
|
|
|
|
1,240
|
|
|
|
1,034
|
|
|
|
4,809
|
|
Earnings per share - basic
|
|
|
1.58
|
|
|
|
1.73
|
|
|
|
1.62
|
|
|
|
1.36
|
|
|
|
6.29
|
|
Earnings per share - assuming dilution
|
|
|
1.56
|
|
|
|
1.70
|
|
|
|
1.60
|
|
|
|
1.34
|
|
|
|
6.20
|
|
Dividends paid per share
|
|
|
0.5950
|
|
|
|
0.5950
|
|
|
|
0.5950
|
|
|
|
0.6650
|
|
|
|
2.45
|
|
Market Price per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
113.23
|
|
|
|
117.32
|
|
|
|
119.88
|
|
|
|
118.09
|
|
|
|
119.88
|
|
Low
|
|
|
96.24
|
|
|
|
111.46
|
|
|
|
111.60
|
|
|
|
105.78
|
|
|
|
96.24
|
|
|
|
2015
|
|
|
Mar. 31
|
|
June 30
|
|
Sept. 30
|
|
Dec. 31
|
|
Year
|
Net Sales
|
|
$
|
9,213
|
|
|
$
|
9,775
|
|
|
$
|
9,611
|
|
|
$
|
9,982
|
|
|
$
|
38,581
|
|
Gross Profit
|
|
|
2,851
|
|
|
|
2,961
|
|
|
|
2,957
|
|
|
|
3,065
|
|
|
|
11,834
|
|
Net income attributable to Honeywell
|
|
|
1,116
|
|
|
|
1,194
|
|
|
|
1,264
|
|
|
|
1,194
|
|
|
|
4,768
|
|
Earnings per share - basic
|
|
|
1.42
|
|
|
|
1.52
|
|
|
|
1.62
|
|
|
|
1.55
|
|
|
|
6.11
|
|
Earnings per share - assuming dilution
|
|
|
1.41
|
|
|
|
1.51
|
|
|
|
1.60
|
|
|
|
1.53
|
|
|
|
6.04
|
|
Dividends paid per share
|
|
|
0.5175
|
|
|
|
0.5175
|
|
|
|
0.5175
|
|
|
|
0.5950
|
|
|
|
2.15
|
|
Market Price per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
101.76
|
|
|
|
104.17
|
|
|
|
104.29
|
|
|
|
101.65
|
|
|
|
104.29
|
|
Low
|
|
|
98.78
|
|
|
|
102.87
|
|
|
|
101.72
|
|
|
|
92.93
|
|
|
|
92.93
|
|