E-Z-GO 1998 Annual Report Download - page 51

Download and view the complete annual report

Please find page 51 of the 1998 E-Z-GO annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 68

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68

Performance share units and employee stock option grants are accounted for in
accordance with APB 25, “Accounting for Stock Issued to Employees.” Under APB 25,
because the exercise price of employee stock options equals the market price on the date
of grant, no compensation expense is recognized for stock option awards. Compensation
expense for performance share units is measured based on the value of Textron stock
underlying the awards.
Compensation expense under Textron’s performance share program was approximately
$77 million in 1998, $65 million in 1997, and $45 million in 1996. To mitigate the impact of
stock price increases on compensation expense, Textron has a cash-settlement option pro-
gram on Textron’s common stock. This program generated income of approximately $40
million in 1998, $37 million in 1997 and $21 million in 1996.
Pro forma information regarding net income and earnings per share is required by FAS
123, “Accounting for Stock-Based Compensation” and has been determined under the fair
value method of that Statement. For the purpose of developing the pro forma information,
the fair values of options granted after 1995 are estimated at the date of grant using the
Black-Scholes option-pricing model. The estimated fair values are amortized to expense
over the options’ vesting period. Using this methodology, net income would have been
reduced by $9 million or $.06 per share in 1998, $11 million or $.07 per share in 1997, and
$8 million or $.04 per share in 1996.
The assumptions used to estimate the fair value of an option granted in 1998, 1997, and
1996, respectively, are approximately as follows: dividend yield of 2%; expected volatility
of 18%, 16%, and 16%; risk-free interest rates of 4%, 6%, and 6%; and weighted average
expected lives of 3.5 years. Under these assumptions, the weighted-average fair value of
an option to purchase one share granted in 1998, 1997, and 1996, respectively, was approxi-
mately $12, $10, and $8.
Stock option transactions during the last three years are summarized as follows:
1998 1997 1996
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
(Shares in thousands) Shares Price Shares Price Shares Price
Shares under option at
beginning of year 9,001 $36.74 9,290 $31.08 9,116 $26.05
Options granted 1,909 74.08 1,333 62.54 2,136 45.37
Options exercised (2,465) 29.52 (1,541) 24.56 (1,846) 22.89
Options canceled (103) 51.48 (81) 43.40 (116) 29.38
Shares under option at
end of year 8,342 47.23 9,001 36.74 9,290 31.08
Shares exercisable at
end of year 5,818 36.80 6,641 30.21 6,128 25.26
Stock options outstanding at the end of 1998 and 1997 are summarized as follows:
Weighted
Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
(Shares in thousands) Outstanding Life Price Exerciseable Price
January 2, 1999:
$12 – $37 3,521 5.4 $27.94 3,521 $27.94
$38 – $50 1,675 7.9 45.61 1,661 45.59
$51 – $80 3,146 9.5 69.70 636 62.98
January 3, 1998:
$11 – $32 3,952 5.6 $23.44 3,952 $23.44
$33 – $50 3,745 8.5 41.67 2,689 40.15
$51 – $68 1,304 9.9 62.87 – –
1998 TEXTRON ANNUAL REPORT 47