E-Z-GO 2003 Annual Report Download - page 58

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.
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 2003, 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) 2,000,000 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 $15 million or $0.11 per diluted share in 2003, $31 million or
$0.22 per diluted share in 2002, and $26 million or $0.18 per diluted share in 2001.
The assumptions used to estimate the fair value of an option granted in 2003, 2002 and 2001, respec-
tively, are approximately as follows: dividend yield of 3%, 3% and 3%; expected volatility of 38%, 36%
and 34%; risk-free interest rates of 3%, 4% and 4%; and weighted average expected lives of 3.6 years,
3.7 years and 3.5 years. Under these assumptions, the weighted average fair value of an option to pur-
chase one share granted in 2003, 2002 and 2001 was approximately $10, $10 and $11, respectively.
At the end of 2003, 2,491,739 stock options were available for future grant under the 1999 Plan as
amended. Stock option activity is summarized as follows:
2002 2001
Weighted Weighted
Average Average
Exercise Exercise
(Shares in thousands) Shares Price Shares Price
Outstanding at beginning of year 14,140 49.62 10,976 $ 53.50 12,631 $ 52.32
Granted 1,905 39.67 5,135 41.29 315 50.93
Exercised (1,797) 39.59 (696) 34.25 (884) 30.20
Canceled (1,090) 53.29 (1,275) 57.89 (1,086) 58.01
Outstanding at end of year 13,158 49.24 14,140 $ 49.62 10,976 $ 53.50
Exercisable at end of year 9,115 53.02 9,043 $ 54.08 8,653 $ 55.33
Stock options outstanding at the end of 2003 are summarized as follows (shares in thousands):
$24 - $41 6,067 7.71 $ 39.44 2,405 $ 38.60
$42 - $64 4,642 6.12 $ 48.74 4,261 $ 49.09
$65 - $94 2,449 5.45 $ 74.01 2,449 $ 74.01
At the end of 2003, common stock reserved for the subsequent conversion of preferred stock and
shares reserved for the exercise of stock options were 2,740,000 and 13,158,000, respectively.
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