STOCK-BASED COMPENSATION PLANS

12 Months Ended

Dec. 31, 2015

Stock Based Compensation Plans [Abstract]

Note 18. Stock-Based Compensation Plans

Under the terms of the 2011 Stock Incentive Plan of Honeywell International Inc. and its Affiliates (2011 Plan) there were 14,050,760 shares of Honeywell common stock available for future grants at December 31, 2015. Additionally, the 2006 Stock Plan for Non-Employee Directors of Honeywell International Inc. (2006 Directors Plan) expires on April 24, 2016 and it is expected that no future grants will be made under the 2006 Directors Plan prior to expiration. In 2016, the Company is seeking shareowner approval of a new employee stock plan and non-employee director plan and, upon approval, no additional grants will be permitted under the 2011 Plan or the 2006 Directors Plan.

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 2015, 2014 and 2013 was $78 million, $85 million and $70 million. The associated future income tax benefit recognized in 2015, 2014 and 2013 was $26 million, $31 million and $24 million.

The following table sets forth fair value per share information, including related weighted-average assumptions, used to determine compensation cost:

		Years Ended December 31,
		2015			2014			2013
Weighted average fair value per share of options
granted during the year⁽¹⁾	$	17.21		$	16.35		$	11.85
Assumptions:
Expected annual dividend yield		1.98	%		2.05	%		2.55	%
Expected volatility		21.55	%		23.06	%		24.73	%
Risk-free rate of return		1.61	%		1.48	%		0.91	%
Expected option term (years)		5.0			5.0			5.5

(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, 2015:

		Weighted
		Average
	Number of	Exercise
	Options	Price
Outstanding at December 31, 2012	35,569,021	$	47.13
Granted	6,041,422		69.89
Exercised	(10,329,611)		41.91
Lapsed or canceled	(616,995)		53.84
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
Vested and expected to vest at December 31, 2015⁽¹⁾	28,852,696	$	68.96
Exercisable at December 31, 2015	17,202,377	$	55.11

(1) Represents the sum of vested options of 17.2 million and expected to vest options of 11.7 million. Expected to vest options are derived by applying the pre-vesting forfeiture rate assumption to total outstanding unvested options of 13.6 million.

The following table summarizes information about stock options outstanding and exercisable at December 31, 2015:

	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
$28.35-$49.99	6,176,777	3.31	$	38.45	$	402	6,176,777	$	38.45	$	402
$50.00-$64.99	8,884,587	5.11		58.43		401	7,731,362		58.21		351
$65.00-$75.00	4,490,514	7.16		69.92		151	2,048,042		69.92		69
$90.00-$103.90	11,017,560	8.70		99.17		50	1,246,196		94.07		12
	30,569,438	6.34		70.76	$	1,004	17,202,377		55.11	$	834

(1) Average remaining contractual life in years.

There were 16,019,742 and 15,594,410 options exercisable at weighted average exercise prices of $49.40 and $45.76 at December 31, 2014 and 2013.

The following table summarizes the financial statement impact from stock options exercised:

		Years Ended December 31,
Options Exercised		2015		2014		2013
Intrinsic value⁽¹⁾	$	210	$	272	$	367
Tax benefit realized		73		96		129
Operating cash inflow		137		172		333
Financing cash inflow		57		77		99
Total cash received		194		249		432

(1) Represents the amount by which the stock price exceeded the exercise price of the options on the date of exercise.

At December 31, 2015 there was $140 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 2.36 years. The total fair value of options vested during 2015, 2014 and 2013 was $73 million, $72 million and $67 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 at fair market value at the date of grant as compensation. 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, 2015:

		Weighted
		Average
	Number of	Grant Date
	Restricted	Fair Value
	Stock Units	Per Share
Non-vested at December 31, 2012	8,095,739	$	49.91
Granted	1,904,504		75.73
Vested	(2,995,553)		42.17
Forfeited	(312,470)		56.58
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

As of December 31, 2015, there was approximately $185 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 3.37 years.

The following table summarizes information about income statement impact from RSUs for the three years ended December 31, 2015:

		Years Ended December 31,
		2015		2014		2013
Compensation expense	$	97	$	102	$	100
Future income tax benefit recognized		29		37		35