United Technologies 2008 Annual Report Download - page 83

Assumed health care cost trend rates are as follows:
2008 2007
Health care cost trend rate assumed for next year 8.5% 9.0%
Rate that the cost trend rate gradually declines to 5.0% 5.0%
Year that the rate reaches the rate it is assumed to remain at 2016 2016
Assumed health care cost trend rates have a significant effect on the amounts reported for the
health care plans. A one-percentage-point change in assumed health care cost trend rates
would have the following effects:
2008
One-Percentage-Point
(in millions of dollars) Increase Decrease
Effect on total service and interest cost $3 $(2)
Effect on postretirement benefit obligation $43 $(38)
Estimated Future Benefit Payments
Benefit payments, including net amounts to be paid from corporate assets, and reflecting
expected future service, as appropriate, are expected to be paid as follows: $90 million in 2009,
$88 million in 2010, $86 million in 2011, $83 million in 2012, $80 million in 2013, and $336
million from 2014 through 2018.
Stock-based Compensation. We have long-term incentive plans authorizing various types of
market and performance-based incentive awards that may be granted to officers and
employees. Prior to April 13, 2005, our long-term incentive plan provided for the annual grant
of awards in an amount not to exceed 2% of the aggregate number of shares of outstanding
common stock, treasury shares and potential common stock (as determined by us in the
calculation of earnings per share on a diluted basis) for the preceding year. On April 9, 2008,
the shareowners approved an amendment to the 2005 Long Term Incentive Plan (LTIP) which
authorized the delivery of up to an additional 33 million shares of common stock pursuant to
awards under the LTIP. The amendment increased the maximum number of shares of
common stock that may be awarded under the LTIP to 71 million shares. As of December 31,
2008, approximately 43 million shares remain available for awards under the LTIP. The LTIP
does not contain an annual award limit. We expect that the shares awarded on an annual basis
will range from 1% to 1.5% of shares outstanding. The LTIP will expire after all shares have
been awarded or April 30, 2014, whichever is sooner. Following initial approval of the LTIP on
April 13, 2005, we may not grant any new awards under previously existing equity
compensation plans. Under all long-term incentive plans, the exercise price of awards is set on
the grant date and may not be less than the fair market value per share on that date. Generally,
awards have a term of ten years and a minimum three-year vesting schedule. In the event of
retirement, awards held for more than one year shall immediately become vested and
exercisable. In addition, under the LTIP, awards with performance-based vesting will also
generally be subject to a three-year performance measurement period. In the event of
retirement before completion of the three-year performance measurement period, awards may
remain eligible to vest. We have historically repurchased shares in an amount at least equal to
the number of shares issued under our equity compensation arrangements and expect to
continue this policy.
We measure the cost of all share-based payments, including stock options, at fair value on the
grant date and recognize this cost in the statement of operations. For the years ended
December 31, 2008, 2007 and 2006, $211 million, $198 million and $180 million, respectively,
of compensation cost was recognized in operating results. The associated future income tax
benefit recognized was $72 million, $67 million and $58 million for the years ended
December 31, 2008, 2007 and 2006, respectively.
For the years ended December 31, 2008, 2007 and 2006, the amount of cash received from the
exercise of stock options was $163 million, $415 million and $346 million, respectively, with an
associated tax benefit realized of $49 million, $174 million and $137 million, respectively. Also,
in accordance with SFAS No. 123(R), for the years ended December 31, 2008, 2007 and 2006,
$32 million, $130 million and $101 million, respectively, of certain tax benefits have been
reported as operating cash outflows with corresponding cash inflows from financing activities.
At December 31, 2008, there was $151 million of total unrecognized compensation cost related
to non-vested equity awards granted under long-term incentive plans. This cost is expected to
be recognized ratably over a weighted-average period of 1.5 years.
2008 Annual Report 81