Honeywell 2007 Annual Report Download - page 111

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HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)
The following table illustrates the effect on net income and earnings per share as if we had applied the fair
value recognition provisions of SFAS No. 123 in 2005, the year prior to the adoption of FAS No. 123R.
2005
Net income, as reported $ 1,638
Deduct: Total stock-based employee compensation cost determined under fair value method for stock
option plans, net of related tax effects (53)
Pro forma net income $ 1,585
Earnings per share of common stock:
Basic—as reported $ 1.93
Basic—pro forma $ 1.87
Earnings per share of common stock:
Assuming dilution—as reported $ 1.92
Assuming dilution—pro forma $ 1.86
The following table sets forth fair value per share information, including related weighted-average
assumptions, used to determine compensation cost consistent with the requirements of SFAS No. 123R in 2007
and 2006, and SFAS No. 123 in 2005.
Years Ended December 31,
2007 2006 2005
Weighted average fair value per share of options granted
during the year(1) $ 10.27 $ 9.44 $ 10.67
Assumptions:
Expected annual dividend yield 2.09% 2.15% 2.4%
Expected volatility 20.18% 22.32% 34.8%
Risk-free rate of return 4.66% 4.63% 3.7%
Expected option term (years) 5.3 5.0 5.0
(1) Estimated on date of grant using Black-Scholes option-pricing model.
77