E-Z-GO 2011 Annual Report Download - page 83

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Share-based compensation costs are reflected primarily in selling and administrative expenses. The compensation expense that has
been recorded in net income for our share-based compensation plans is as follows:
(In millions)
2011
2010
2009
Compensation expense
$ 50
$ 85
$ 83
Income tax benefit
(18)
(32)
(30)
Total net compensation cost included in net income
$ 32
$ 53
$ 53
Compensation expense includes approximately $17 million, $7 million and $9 million in 2011, 2010 and 2009, 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
Options to purchase our shares have a maximum term of 10 years and generally vest ratably over a three-year period. 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 $10, $7, and $2 for 2011, 2010 and 2009, 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. 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 vested on July 30, 2011 or, if later, on the original vesting date of the eligible stock option for which it was
exchanged. The new options were treated as a modification under the accounting guidance for equity-based compensation.
Accordingly, since we discounted the fair value of the new options by 15% of the fair value of the options exchanged, we did not
incur any incremental expense associated with the modification.
The weighted-average assumptions used in our Black-Scholes option-pricing model for awards issued during the respective
periods are as follows:
2011
2010
2009
Dividend yield
0.3%
0.4%
1.4%
Expected volatility
38.0%
37.0%
50.0%
Risk-free interest rate
2.4%
2.6%
2.0%
Expected term (in years)
5.5
5.5
5.0
The stock option activity under the Plan in 2011 is provided below:
(Options in thousands)
Number of
Options
Weighted-
Average
Exercise
Price
Outstanding at beginning of year
6,926
$ 28.15
Granted
2,995
25.84
Exercised
(177)
15.35
Canceled, expired or forfeited
(884)
27.94
Outstanding at end of year
8,860
$ 27.68
Exercisable at end of year
5,091
$ 30.14
At December 31, 2011, our outstanding options had an aggregate intrinsic value of $8 million and a weighted-average remaining
contractual life of six years. Our exercisable options had an aggregate intrinsic value of $5 million and a weighted-average
remaining contractual life of three years at December 31, 2011.
72
72 Textron Inc. Annual Report • 2011