Honeywell 2013 Annual Report Download - page 107

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Note 20. Stock-Based Compensation Plans
We have stock-based compensation plans available to grant non-qualified stock options, incentive
stock options, stock appreciation rights, restricted units and restricted stock to key employees. Under
the terms of the 2011 Stock Incentive Plan of Honeywell International Inc. and its Affiliates (the Plan)
there were 25,913,501 shares of Honeywell common stock available for future grants at December 31,
2013. Additionally, under the 2006 Stock Plan for Non-Employee Directors of Honeywell International
Inc. (the Directors Plan) there were 145,367 shares of Honeywell common stock available for future
grant at December 31, 2013.
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. Such model uses historical data to estimate option exercise activity and
post-vest termination behavior. The expected term represents an estimate of the time options are
expected to remain outstanding. 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 operating results
(included in selling, general and administrative expenses) in 2013, 2012 and 2011 was $70, $65 and
$59 million, respectively. The associated future income tax benefit recognized in 2013, 2012 and 2011
was $24, $23 and $19 million, respectively.
The following table sets forth fair value per share information, including related weighted-average
assumptions, used to determine compensation cost:
2013 2012 2011
Years Ended December 31,
Weighted average fair value per share of options granted
during the year(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11.85 $13.26 $12.56
Assumptions:
Expected annual dividend yield. . . . . . . . . . . . . . . . . . . . . . . . . 2.55% 2.57% 2.68%
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.73% 30.36% 27.60%
Risk-free rate of return. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.91% 1.16% 2.47%
Expected option term (years). . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5 5.8 5.8
(1) Estimated on date of grant using Black-Scholes option-pricing model.
95
HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)