E-Z-GO 2005 Annual Report Download - page 80

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and prospectively, compensation costs for awards with only service conditions that vest ratably are recognized on a straight-line basis over the
requisite service period for each separately vesting portion of the award. Compensation costs for awards granted prior to 2005 are recognized
using the attribution methods required under SFAS No. 123. Upon adoption, Textron re-measured its share-based compensation awards that are
accounted for as liabilities at fair value. The cumulative effect of adoption upon this re-measurement resulted in an increase to net income of
approximately $1 million in the first quarter of 2005, which is not considered to be material and is recorded in selling and administrative expense.
SFAS No. 123-R requires that the excess tax benefits received related to stock option exercises be presented as financing cash inflows. For 2005,
$14 million of these excess tax benefits have been presented as cash provided by financing activities in the Consolidated Statement of Cash Flows.
The compensation expense that has been recorded in net income for Textron’s share-based compensation plans is as follows:
(In millions)
2005 2004 2003
Compensation expense, net of hedge income or expense $ 64 $ 31 $ 21
Income tax benefit (24) (11) (7)
Net compensation cost $ 40 $ 20 $ 14
Included in the table above are net compensation costs recorded in discontinued operations of $2 million in 2005 and $1 million in 2004. Share-
based compensation costs have been reflected primarily in selling and administrative expenses. For 2005, the expense includes attribution of the
fair value of options issued, as well as the portion of previously granted options for which the requisite service was rendered, totaling approximately
$17 million. Of this amount, approximately $15 million has been recorded in continuing operations and $2 million in discontinued operations.
The net impact of the adoption is as follows for the year ended December 31, 2005:
Upon If SFAS
Adoption No. 123-R
of SFAS Had Not Been
(In millions, except per share data)
No. 123-R Adopted
Income from continuing operations before income taxes $ 739 $ 755
Net income $ 203 $ 214
Basic earnings per share $ 1.52 $ 1.60
Diluted earnings per share $ 1.49 $ 1.57
Impact of SFAS No. 123-R Adoption on Prior Periods
No compensation expense related to stock option grants has been recorded in the Consolidated Statements of Operations for the years ended
January 1, 2005 and January 3, 2004, as all of the options granted had an exercise price equal to the market value of the underlying stock on the
date of grant. Results for prior periods have not been restated.
The following table illustrates the effect on net income and earnings per share if Textron had applied the fair value recognition provisions required
by SFAS No. 123-R prior to January 2, 2005:
(In millions, except per share data)
2004 2003
Net income, as reported $ 365 $ 259
Add back: Share-based employee compensation expense included in reported net income* 20 14
Deduct: Total share-based employee compensation expense
determined under fair value based method for all awards* (26) (29)
Pro forma net income $ 359 $ 244
Income per share:
Basic - as reported $ 2.66 $ 1.91
Basic - pro forma $ 2.61 $ 1.80
Diluted - as reported $ 2.61 $ 1.89
Diluted - pro forma $ 2.56 $ 1.78
* Net of related taxes and hedge income or expense
60
Textron Inc.