E-Z-GO 1999 Annual Report Download - page 55

10. In 1996, a trust sponsored and wholly-owned by Textron issued preferred securities to the pub-
lic (for $500 million) and shares of its common securities to Textron (for $15.5 million), the
proceeds of which were invested by the trust in $515.5 million aggregate principal amount of
Textron’s newly issued 7.92% Junior Subordinated Deferrable Interest Debentures, due 2045.
The debentures are the sole asset of the trust. The proceeds from the issuance of the debentures
were used by Textron for the repayment of long-term borrowings and for general corporate
purposes. The amounts due to the trust under the debentures and the related income statement
amounts have been eliminated in Textron’s consolidated financial statements.
The preferred securities accrue and pay cash distributions quarterly at a rate of 7.92% per
annum. Textron has guaranteed, on a subordinated basis, distributions and other payments
due on the preferred securities. The guarantee, when taken together with Textron’s obliga-
tions under the debentures and in the indenture pursuant to which the debentures were
issued and Textron’s obligations under the Amended and Restated Declaration of Trust
governing the trust, provides a full and unconditional guarantee of amounts due on the
preferred securities. The preferred securities are mandatorily redeemable upon the maturity
of the debentures on March 31, 2045, or earlier to the extent of any redemption by Textron
of any debentures. The redemption price in either such case will be $25 per share plus
accrued and unpaid distributions to the date fixed for redemption.
11. Preferred stock
Textron has authorization for 15,000,000 shares of preferred stock. Each share of
$2.08 Preferred Stock ($23.63 approximate stated value) is convertible into 4.4 shares
of common stock and can be redeemed by Textron for $50 per share. Each share of
$1.40 Preferred Dividend Stock ($11.82 approximate stated value) is convertible into
3.6 shares of common stock and can be redeemed by Textron for $45 per share.
Common stock
Textron has authorization for 500,000,000 shares of 12.5 cent per share par value com-
mon stock. New shares in connection with a two-for-one stock split in the form of a stock
dividend were issued and distributed on May 30, 1997 to shareholders of record on the
close of business on May 9, 1997. Average shares outstanding, stock options, and per share
amounts were restated for all periods.
Performance share units and stock options
Textron’s 1999 Long-Term Incentive Plan (the “1999 Plan”) was approved by shareholders
in April 1999. The 1999 Plan authorizes awards to key employees of Textron and its related
companies in three forms: (a) options to purchase Textron shares; (b) performance share
units; and (c) restricted stock. The maximum number of share awards that are authorized
by the 1999 Plan are: (a) 8,000,000 options to purchase Textron shares; (b) 1,000,000
performance units; and (c) 500,000 shares of restricted stock.
Stock-based compensation awards to employees under the Plan are accounted for using the
intrinsic value method prescribed in APB 25, “Accounting for Stock Issued to Employees” and
related interpretations.
Compensation expense under Textron’s performance share program, measured under
the intrinsic value method, was approximately $25 million in 1999, $77 million in 1998,
and $65 million in 1997. To mitigate the impact of stock price increases on compensation
expense, Textron has a cash-settlement option program on Textron’s common stock. This
program generated income of approximately $5 million in 1999, $40 million in 1998, and
$37 million in 1997. Textron did not incur compensation expense related to common stock
options in 1999, 1998, or 1997.
Pro forma information regarding net income and earnings per share has been determined
using the fair value method. 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 diluted share in 1999, $9 million or $.06 per diluted
share in 1998, and $11 million or $.07 per diluted share in 1997.
The assumptions used to estimate the fair value of an option granted in 1999, 1998,
and 1997, respectively, are approximately as follows: dividend yield of 2%; expected
volatility of 22%, 18%, and 16%; risk-free interest rates of 6%, 4%, and 6%, and weighted
Shareholders’
Equity
Textron-Obligated
Mandatorily
Redeemable
Preferred
Securities of
Subsidiary Trust
Holding Solely
Textron Junior
Subordinated
Debt Securities
1999 Textron Annual Report 53