E-Z-GO 2000 Annual Report Download - page 51

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.
Textron’s performance share program, measured under the intrinsic value method, generated
income of approximately $36 million in 2000, and expense of approximately $25 million and $77 million
in 1999 and 1998, respectively. To mitigate the impact of stock price fluctuations on compensation
expense, Textron has entered cash settlement forward contracts on its common stock. These contracts
generated expense of approximately $69 million for 2000 and income of approximately $5 million and
$40 million in 1999 and 1998, respectively.
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 $25 million or $.17 per diluted share in
2000 and $9 million or $.06 per diluted share in both 1999 and 1998.
The assumptions used to estimate the fair value of an option granted in 2000, 1999, and 1998,
respectively, are approximately as follows: dividend yield of approximately 3%, 2% and 2%; expected
volatility of 27%, 22% and 18%; risk-free interest rates of 5%, 6% and 4%, 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 2000, 1999 and 1998 was approximately $10, $15 and $12, respectively.
At year-end 2000, 1,434,000 stock options were available for future grant under the 1999 Plan. Stock
option transactions during the last three years are summarized as follows:
2000 1999 1998
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
(Shares in thousands) Shares Price Shares Price Shares Price
Options outstanding
at beginning of year 8,822 $55.26 8,342 $47.23 9,001 $36.74
Options granted 4,618 $46.31 2,176 $73.75 1,909 $74.08
Options exercised (440) $30.67 (1,451) $34.86 (2,465) $29.52
Options canceled (369) $76.41 (245) $67.06 (103) $51.48
Options outstanding
at end of year 12,631 $52.32 8,822 $55.26 8,342 $47.23
Options exercisable
at end of year 7,012 $53.25 5,815 $45.60 5,818 $36.80
Stock options outstanding at the end of 2000 are summarized as follows:
Weighted
Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
(Shares in thousands) Outstanding Life Price Exercisable Price
December 30, 2000:
$17 – $37 2,238 3.7 $28.37 2,238 $28.37
$38 – $59 5,712 9.1 $45.87 1,195 $45.71
$60 – $94 4,681 8.2 $71.42 3,579 $71.01
Reserved Shares of Common Stock
At year-end 2000, common stock reserved for the subsequent conversion of preferred stock and
shares reserved for the exercise of stock options were 2,927,000 and 12,631,000, respectively.
Preferred Stock Purchase Rights
Each outstanding share of Textron common stock has attached to it one-half of a preferred stock pur-
chase right. One preferred stock purchase right entitles the holder to buy one one-hundredth of a
share of Series C Junior Participating Preferred Stock at an exercise price of $250. The rights become
exercisable only under certain circumstances related to a person or group acquiring or offering to
acquire a substantial block of Textron’s common stock. In certain circumstances, holders may acquire
Textron stock, or in some cases the stock of an acquiring entity, with a value equal to twice the exer-
cise price. The rights expire in September 2005 but may be redeemed earlier for $.05 per right.
49 TEXTRON 2000 ANNUAL REPORT