E-Z-GO 2009 Annual Report Download - page 82

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Textron Inc.
receivables that were classified as held for sale due to this exit plan based on our estimate of the fair value of these receivables at that time. In
addition, based on market conditions and the plan to downsize the Finance segment, we recorded a $169 million impairment charge to eliminate
all goodwill in the Finance segment.
Note 13. Share-Based Compensation
Our 2007 Long-Term Incentive Plan (the “Plan”) succeeds the 1999 Long-Term Incentive Plan and authorizes awards to our key employees in the
form of options to purchase our shares, restricted stock, restricted stock units, stock appreciation rights, performance stock awards and other
awards. Options to purchase our shares have a maximum term of 10 years and generally vest ratably over a three-year period. Restricted stock
unit awards generally vest one-third each in the third, fourth and fifth year following the year of grant. These awards generally were paid in shares
of common stock until the first quarter of 2009, when we began issuing restricted stock units settled in cash only; these awards vest in equal
installments over five years. Since 2008, all restricted stock units have been issued with the right to receive dividend equivalents. A maximum of
12 million shares is authorized for issuance for all purposes under the Plan plus any shares that become available upon cancellation, forfeiture or
expiration of awards granted under the 1999 Long-Term Incentive Plan. No more than 12 million shares may be awarded pursuant to incentive
stock options, and no more than 3 million shares may be awarded pursuant to restricted stock or other “full value” awards intended to be paid in
shares. The Plan also authorizes performance share units paid in cash based upon the value of our common stock. Payouts under performance
share units vary based on certain performance criteria generally measured over a three-year period. The performance share units vest at the end of
three years.
Through our Deferred Income Plan for Textron Executives (the “DIP”), we provide participants the opportunity to voluntarily defer up to 25% of
their base salary and up to 100% of annual, long-term incentive and other compensation. Effective January 1, 2008, the maximum amount
deferred for annual, long-term incentive and other compensation decreased to 80%. Elective deferrals may be put into either a stock unit account
or an interest bearing account. We generally contribute a 10% premium on amounts deferred into the stock unit account. Executives who are
eligible to participate in the DIP who have not achieved and/or maintained the required minimum stock ownership level are required to defer
annual incentive compensation in excess of 100% of the executive’s annual target into a deferred stock unit account and are not entitled to the
10% premium contribution on the amount deferred. Participants cannot move amounts between the two accounts while actively employed by us
and cannot receive distributions until termination of employment.
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.
The compensation expense that has been recorded in net income for our share-based compensation plans is as follows:
(In millions) 2009 2008 2007
Compensation (income) expense $ 81 $ (78) $ 150
Hedge expense (income) on forward contracts 2 100 (53)
Income tax expense (benefit) (30) 29 (51)
Total net compensation cost included in net income $ 53 $ 51 $ 46
Less net compensation costs included in discontinued operations — — 1
Net compensation costs included in continuing operations $ 53 $ 51 $ 45
Share-based compensation costs are reflected primarily in selling and administrative expenses. Compensation expense includes approximately
$9 million, $20 million and $23 million in 2009, 2008 and 2007, respectively, representing the attribution of the fair value of options issued and
the portion of previously granted options for which the requisite service has been rendered.
Stock Options
The stock option compensation cost calculated under the fair value approach is recognized over the vesting period of the stock options. The
weighted-average fair value of options granted per share was $2, $14 and $14 for 2009, 2008 and 2007, respectively. We estimate the fair value of
options granted on the date of grant using the Black-Scholes option-pricing model. Expected volatilities are based on implied volatilities from
traded options on our common stock, historical volatilities and other factors. We use historical data to estimate option exercise behavior, adjusted
to reflect anticipated increases in expected life.
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