E-Z-GO 2010 Annual Report Download - page 81

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In the fourth quarter of 2009, we recorded a goodwill impairment charge of $80 million for the Golf and Turf Care reporting unit,
which is part of our Industrial segment. See Note 9 for more information on this charge.
In connection with our 2008 decision to exit the non-captive portion of the commercial finance business of our Finance segment, we
recorded a pre-tax mark-to-market adjustment of $293 million against owned 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 12. Share-Based Compensation
Our 2007 Long-Term Incentive Plan (Plan) supersedes 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 were payable in shares of common stock (vesting one-third each in the third,
fourth and fifth year following the year of the grant), until the first quarter of 2009, when we began issuing restricted stock units
settled in cash only (vesting 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 Key Executives (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.
The compensation expense that has been recorded in net income for our share-based compensation plans is as follows:
(In millions)
2010
2009
2008
Compensation (income) expense
$ 86
$ 81
$ (78)
Hedge expense (income) on forward contracts
(1)
2
100
Income tax expense (benefit)
(32)
(30)
29
Total net compensation cost included in net income
$ 53
$ 53
$ 51
Share-based compensation costs are reflected primarily in selling and administrative expenses. Compensation expense includes
approximately $7 million, $9 million and $20 million in 2010, 2009 and 2008, 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 $7, $2 and $14 for 2010, 2009 and 2008, 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.
During 2010, we executed a one-time stock option exchange program, which provided eligible employees, other than executive
officers, an opportunity to exchange certain outstanding stock options with exercise prices substantially above the current market price
of our common stock for a lesser number of stock options with an exercise price set at current market value and a fair value that was
approximately 15% lower than the fair value of the “out of the money” options that they replaced. The program commenced on July
2, 2010 and expired on July 30, 2010. As a result of this program, 2.6 million outstanding eligible stock options were exchanged for
1.0 million new options at an exercise price of $20.76. The new options will vest on July 30, 2011 or, if later, on the original vesting