STOCK-BASED COMPENSATION PLANS

12 Months Ended

Dec. 31, 2018

Stock Based Compensation Plans [Abstract]

Note 19. 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, 2018, there were 40,270,690, and 893,809 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.

The following table summarizes the impact to the Consolidated Statement of Operations from stock options:

		Years Ended December 31,
		2018		2017		2016
Compensation expense	$	64	$	79	$	87
Future income tax benefit recognized		13		17		29

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

		Years Ended December 31,
		2018			2017			2016
Weighted average fair value per share of options
granted during the year⁽¹⁾	$	23.63		$	16.68		$	15.59
Assumptions:
Expected annual dividend yield		2.49	%		2.81	%		2.92	%
Expected volatility		18.93	%		18.96	%		23.07	%
Risk-free rate of return		2.71	%		2.02	%		1.29	%
Expected option term (years)		4.95			5.04			4.97

(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, 2018:

		Weighted
		Average
	Number of	Exercise
	Options	Price
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
Granted	5,098,569		125.16
Exercised	(8,840,019)		62.34
Lapsed or canceled	(1,516,557)		109.04
Outstanding at December 31, 2017	23,409,293		94.16
Spin related adjustment⁽¹⁾	989,158
Granted	3,303,722		148.48
Exercised	(3,399,375)		78.29
Lapsed or canceled	(1,824,217)		123.01
Outstanding at December 31, 2018	22,478,581	$	97.83
Vested and expected to vest at December 31, 2018⁽²⁾	21,590,740	$	96.27
Exercisable at December 31, 2018	14,073,120	$	83.42

(1) Additional options granted to offset the dilutive impact of the spin-offs on outstanding options.
(2) Represents the sum of vested options of 14.1 million and expected to vest options of 7.5 million. Expected to vest options are derived by applying the pre-vesting forfeiture rate assumption to total outstanding unvested options of 8.6 million.

The following table summarizes information about stock options outstanding and exercisable at December 31, 2018:

	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
$27.00-$64.99	3,225,142	2.47	$	53.34	$	254	3,225,142	$	53.34	$	254
$65.00-$89.99	4,788,204	4.72		79.22		253	4,788,204		79.22		253
$90.00-$99.99	7,614,190	6.69		98.80		254	4,885,314		98.82		163
$100.00-$134.99	4,155,389	8.12		119.20		54	1,155,376		118.67		16
$135.00-$156.00	2,695,656	9.17		148.45		-	19,084		148.79		-
	22,478,581	6.23		97.83	$	815	14,073,120	$	83.42	$	686

(1) Average remaining contractual life in years.

There were 12,288,854, and 15,536,961 options exercisable at weighted average exercise prices of $78.35 and $63.39 at December 31, 2017 and 2016.

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

		Years Ended December 31,
Options Exercised		2018		2017		2016
Intrinsic value⁽¹⁾	$	238	$	620	$	395
Tax benefit realized		47		221		137

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

At December 31, 2018 there was $89 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 2.43 years. The total fair value of options vested during 2018, 2017 and 2016 was $73 million, $87 million and $76 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, 2018:

		Weighted
		Average
	Number of	Grant Date
	Restricted	Fair Value
	Stock Units	Per Share
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
Granted	1,274,791		129.71
Vested	(1,289,892)		81.37
Forfeited	(505,415)		103.06
Non-vested at December 31, 2017	3,946,827		108.60
Spin related adjustment ⁽¹⁾	154,346
Granted	1,360,338		153.46
Vested	(988,787)		91.68
Forfeited	(814,851)		117.40
Non-vested at December 31, 2018	3,657,873	$	125.35
(1) Additional RSU grants to offset the dilutive impact of the spin-offs on non-vested RSUs.

As of December 31, 2018, there was approximately $218 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 3.05 years.

The following table summarizes the impact to the Consolidated Statement of Operations from RSUs:

		Years Ended December 31,
		2018		2017		2016
Compensation expense	$	111	$	97	$	97
Future income tax benefit recognized		21		19		30