E-Z-GO 2002 Annual Report Download - page 58

In 1996, a trust sponsored and wholly owned by Textron issued preferred securities to the public (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 deben-
tures and the related income statement amounts have been eliminated in Textron’s consolidated finan-
cial statements.
The preferred securities accrue and pay cash distributions quarterly at a rate of 7.92% per annum. Tex-
tron has guaranteed, on a subordinated basis, distributions and other payments due on the preferred
securities. The guarantee, when taken together with Textron’s obligations under the debentures and in
the indenture pursuant to which the debentures were issued and Textron’s obligations under the Amend-
ed 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.
Capital Stock
Textron has authorization for 15,000,000 shares of preferred stock and 500,000,000 shares of 12.5 cent
per share par value common 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.
Performance Share Units and Stock Options
Textron’s 1999 Long-Term Incentive Plan (the “1999 Plan”) authorizes awards to key employees of Tex-
tron in three forms: (a) options to purchase Textron shares; (b) performance share units and (c) restrict-
ed stock. In 2002, Textron’s shareholders approved an amendment to the 1999 Plan to revise the maxi-
mum number of share awards authorized as follows: (a) 14,000,000 options to purchase Textron shares;
(b) 2,000,000 performance units and (c) 500,000 shares of restricted stock.
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 grant-
ed after 1995 are estimated at the date of grant using the Black-Scholes option-pricing model. The esti-
mated fair values are amortized to expense over the options’ vesting period. Using this methodology,
net income would have been reduced by $31 million or $0.22 per diluted share in 2002, $26 million or
$0.18 per diluted share in 2001, and $25 million or $0.17 per diluted share in 2000.
The assumptions used to estimate the fair value of an option granted in 2002, 2001 and 2000, respec-
tively, are approximately as follows: dividend yield of 3%, 3% and 3%; expected volatility of 36%, 34%
and 27%; risk-free interest rates of 4%, 4% and 5%, and weighted average expected lives of 3.7 years in
2002 and 3.5 years in 2001 and 2000. Under these assumptions, the weighted-average fair value of an
option to purchase one share granted in 2002, 2001 and 2000 was approximately $10, $11 and $10,
respectively.
At the end of 2002, 3,636,000 stock options were available for future grant under the 1999 Plan as
amended. Stock option activity is summarized as follows:
2002 2001 2000
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
(Shares in thousands) Shares Price Shares Price Shares Price
Outstanding at beginning
of year 10,976 $ 53.50 12,631 $ 52.32 8,822 $ 55.26
Granted 5,135 41.29 315 50.93 4,618 46.31
Exercised (696) 34.25 (884) 30.20 (440) 30.67
Canceled (1,275) 57.89 (1,086) 58.01 (369) 76.41
Outstanding at end of year 14,140 $ 49.62 10,976 $ 53.50 12,631 $ 52.32
Exercisable at end of year 9,043 $ 54.08 8,653 $ 55.33 7,012 $ 53.25
Note 12
Shareholders’
Equity
Note 11
Textron -
Obligated
Mandatorily
Redeemable
Preferred
Securities of
Subsidiary Trust
Holding Solely
Textron Junior
Subordinated
Debt Securities
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