E-Z-GO 2014 Annual Report Download - page 68

Note 10. Share-Based Compensation
Our 2007 Long-Term Incentive Plan (Plan) 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. 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 units
or other awards intended to be paid in shares. The Plan also authorizes performance share units to be paid in cash based upon the
value of our common stock.
Through our Deferred Income Plan for Textron Executives, we provide certain executives the opportunity to voluntarily defer up
to 80% of their base salary, along with incentive and other compensation. Elective deferrals may be put into either a stock unit
account or an interest-bearing account. Participants cannot move amounts between the two accounts while actively employed by us
and cannot receive distributions until termination of employment. The intrinsic value of amounts paid under this deferred income
plan totaled $3 million, $1 million and $1 million in 2014, 2013 and 2012, respectively.
Share-based compensation costs are reflected primarily in selling and administrative expenses. Compensation expense included in
net income for our share-based compensation plans is as follows:
(In millions)
2014
2013
2012
Compensation expense
$ 85
$ 86
$ 71
Income tax benefit
(32)
(32)
(26)
Total net compensation cost included in net income
$ 53
$ 54
$ 45
Compensation expense included approximately $21 million, $26 million and $23 million in 2014, 2013 and 2012, respectively, for
a portion of the fair value of options issued and the portion of previously granted options for which the requisite service has been
rendered.
Compensation cost for awards subject only to 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. As of January 3, 2015, we had not recognized $54 million
of total compensation costs associated with unvested awards subject only to service conditions. We expect to recognize
compensation expense for these awards over a weighted-average period of approximately two years.
Stock Options
Options to purchase our shares have a maximum term of ten 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. 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. The expected
term is based on historical option exercise data, which is adjusted to reflect any anticipated changes in expected behavior.
The weighted-average fair value of options granted during the past three years and the assumptions used in our option-pricing
model for such grants are as follows:
2014
2013
2012
Fair value of options at grant date
$ 12.72
$ 9.69
$ 10.19
Dividend yield
0.2%
0.3%
0.3%
Expected volatility
34.5%
37.0%
40.0%
Risk-free interest rate
1.5%
0.9%
0.9%
Expected term (in years)
5.0
5.5
5.5
62 Textron Inc. Annual Report • 2014