SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
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[ ] Confidential, for Use of the Commission Only (as permitted by Rule
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Textron Inc.
(Name of Registrant as Specified In Its Charter)
Textron Inc.
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[Textron Logo]
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NOTICE OF ANNUAL MEETING
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To the Shareholders of Textron Inc.:
The 2003 annual meeting of shareholders of Textron Inc. will be held on
Wednesday, April 23, 2003, at 10:30 a.m. at the Rhode Island Convention Center,
One Sabin Street, Providence, Rhode Island for the following purposes:
1. To elect four directors in Class I for a term of three years in
accordance with Textron's By-Laws (Item 1 on the proxy card).
2. To approve an amendment to the Textron 1999 Long-Term Incentive
Plan, which is RECOMMENDED by the Board of Directors (Item 2 on the proxy
card).
3. To ratify the appointment of Ernst & Young LLP as Textron's
independent auditors for 2003, which is RECOMMENDED by the Board of
Directors (Item 3 on the proxy card).
4. To consider and act upon the shareholder proposal set forth in the
accompanying proxy statement, which is OPPOSED by the Board of Directors
(Item 4 on the proxy card).
5. To transact any other business as may properly come before the
meeting.
You are entitled to vote all shares of common and preferred stock
registered in your name at the close of business on February 28, 2003. If you
attend the meeting and desire to vote in person, your proxy will not be used. If
your shares are held in the name of your broker or bank and you wish to attend
the meeting in person, you should request your broker or bank to issue you a
proxy covering your shares.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, WE URGE YOU TO COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ACCOMPANYING
POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE SO THAT YOUR SHARES MAY BE REPRESENTED
AT THE MEETING. SHAREHOLDERS OF RECORD ALSO HAVE THE OPTION OF VOTING THEIR
SHARES VIA THE INTERNET OR BY USING A TOLL-FREE TELEPHONE NUMBER. INSTRUCTIONS
TO VOTE EITHER VIA THE INTERNET OR BY TELEPHONE ARE INCLUDED ON THE PROXY CARD.
A list of shareholders entitled to vote at the 2003 annual meeting will be
open to examination by any shareholder, for any purpose germane to the meeting,
for ten days prior to the meeting at Textron's principal executive office, 40
Westminster Street, Providence, Rhode Island 02903.
Sincerely,
/s/ Lewis B. Campbell
Lewis B. Campbell
Chairman, President and Chief
Executive Officer
Providence, Rhode Island
March 13, 2003
CONTENTS
PAGE
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Proxy Statement............................................. 1
General................................................ 1
Shareholders Who May Vote.............................. 1
Voting................................................. 1
Savings Plan Participants.............................. 1
Revoking a Proxy....................................... 2
Required Vote.......................................... 2
Costs of Proxy Solicitation............................ 2
Confidential Voting Policy............................. 2
Attending the Meeting.................................. 2
Election of Directors (ITEM 1 ON THE PROXY CARD)............ 3
Security Ownership of Certain Beneficial Holders............ 9
Security Ownership of Management............................ 10
Report of the Audit Committee............................... 11
Report of the Organization and Compensation Committee on
Executive Compensation.................................... 12
Executive Compensation...................................... 16
Summary Compensation Table............................. 16
Stock Option/SAR Grants in Last Fiscal Year............ 18
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option
and SAR Values....................................... 19
Long-Term Incentive Plan Awards in Last Fiscal Year.... 19
Pension Plan Table..................................... 20
Performance Graph........................................... 23
Amendment to Textron 1999 Long-Term Incentive Plan (ITEM 2
ON THE PROXY CARD)........................................ 23
Ratification of Appointment of Independent Auditors (ITEM 3
ON THE PROXY CARD)........................................ 28
Shareholder Proposal (ITEM 4 ON THE PROXY CARD)............. 28
Other Matters to Come Before the Meeting.................... 30
Shareholder Proposals and Other Matters for 2004 Annual
Meeting................................................... 30
YOUR VOTE IS IMPORTANT
If you are a shareholder of record you can now vote your shares via the
Internet or by using a toll-free telephone number by following the instructions
on your proxy card. If voting by mail, please complete, date and sign your proxy
card and return it as soon as possible in the enclosed postage-paid envelope.
TEXTRON INC.
PROXY STATEMENT
GENERAL
This proxy statement, which is being mailed on or about March 13, 2003, to
each person entitled to receive the accompanying notice of annual meeting, is
furnished in connection with the solicitation by the Board of Directors of
Textron Inc. of proxies to be voted at the annual meeting of shareholders to be
held on April 23, 2003, and at any adjournments thereof. Textron's principal
executive office is located at 40 Westminster Street, Providence, Rhode Island
02903.
SHAREHOLDERS WHO MAY VOTE
All shareholders of record at the close of business on February 28, 2003,
will be entitled to vote. As of February 28, 2003, Textron had outstanding
136,011,718 shares of Common Stock; 119,064 shares of $2.08 Cumulative
Convertible Preferred Stock, Series A; and 55,814 shares of $1.40 Convertible
Preferred Dividend Stock, Series B (preferred only as to dividends), each of
which is entitled to one vote with respect to each matter to be voted upon at
the meeting. Proxies are solicited to give all shareholders who are entitled to
vote on the matters that come before the meeting the opportunity to do so
whether or not they attend the meeting in person.
VOTING
All shareholders may vote by mail. Shareholders of record can also vote via
the Internet or by using the toll-free telephone number listed on the proxy
card. Internet and telephone voting information is provided on the proxy card. A
control number, located on the lower right of the proxy card, is designated to
verify a shareholders's identity and allow the shareholder to vote the shares
and confirm that the voting instructions have been recorded properly. If you
vote via the Internet or by telephone, please do not return a signed proxy card.
Shareholders who hold their shares through a bank or broker can vote via the
Internet or by telephone if these options are offered by the bank or broker.
If voting by mail, please complete, sign, date and return your proxy card
enclosed with the proxy statement in the accompanying postage-paid envelope. You
can specify how you want your shares voted on each proposal by marking the
appropriate boxes on the proxy card. If your proxy card is signed and returned
without specifying a vote or an abstention on any proposal, it will be voted
according to the recommendation of the Board of Directors on that proposal. That
recommendation is shown for each proposal on the proxy card.
If your shares are held in the name of your broker or bank and you wish to
vote in person at the meeting, you should request your broker or bank to issue
you a proxy covering your shares.
SAVINGS PLAN PARTICIPANTS
If you are a participant in a Textron savings plan with a Textron stock
fund as an investment option, the accompanying proxy card shows the number of
shares allocated to your account under the plan. When you vote via the Internet
or by telephone or your proxy card is returned properly signed, the plan trustee
will vote your proportionate interest in the plan shares in the manner you
direct, or if you vote by mail and make no direction, in proportion to
directions received from the other plan participants (except for any shares
allocated to your Tax Credit Account under the Textron Savings Plan, which will
be voted only as you direct). All directions will be held in confidence.
1
REVOKING A PROXY
Whether you vote by mail, via the Internet or by telephone, you may revoke
your proxy at any time before it is voted by submitting a new proxy with a later
date, voting via the Internet or by telephone at a later time, delivering a
written notice of revocation to Textron's corporate secretary, or voting in
person at the meeting.
REQUIRED VOTE
A quorum is required to conduct business at the meeting. A quorum requires
the presence, in person or by proxy, of the holders of a majority of the votes
entitled to be cast at the meeting. Abstentions and broker "non-votes" are
counted as present and entitled to vote for purposes of determining a quorum. A
broker non-vote occurs when you fail to provide voting instructions to your
broker for shares owned by you but held in the name of your broker. Under those
circumstances, your broker may be authorized to vote for you on some routine
items but is prohibited from voting on other items. Those items for which your
broker cannot vote result in broker non-votes.
The four nominees for director receiving the greatest number of votes at
the meeting will be elected. Abstentions and broker non-votes are not counted
for this purpose and will have no effect on the outcome of the election.
Approval of the amendment to the Long-Term Incentive Plan, the ratification
of the appointment of auditors and the shareholder proposal requires the
affirmative vote of a majority of shares present in person or represented by
proxy, and entitled to vote on the matter. For this purpose, if you vote to
"abstain" on a proposal, your shares will be treated as present and will have
the same effect as if you voted against the proposal. Broker non-votes, however,
are not counted for this purpose and have no effect on the outcome of the vote.
All shareholders vote as one class.
COSTS OF PROXY SOLICITATION
Textron pays all the cost of this solicitation of proxies. Textron will
request that persons who hold shares for others, such as banks and brokers,
solicit the owners of those shares and will reimburse them for their reasonable
out-of-pocket expenses for those solicitations. In addition to solicitation by
mail, Textron employees may solicit proxies by telephone, by electronic means
and in person, without additional compensation for these services. Textron has
hired D.F. King & Co., Inc., of New York, New York, a proxy solicitation
organization, to assist in this solicitation process for a fee of $14,000, plus
reasonable out-of-pocket expenses.
CONFIDENTIAL VOTING POLICY
Under Textron's policy on confidential voting, individual votes of
shareholders are kept confidential from Textron's directors, officers and
employees, except for certain specific and limited exceptions. Comments of
shareholders written on proxies or ballots are transcribed and provided to
Textron's corporate secretary. Votes are counted by employees of Wachovia Bank,
N.A., Textron's independent transfer agent and registrar, and certified by
Inspectors of Election who are employees of Wachovia.
ATTENDING THE MEETING
If your shares are held in the name of your bank or broker and you plan to
attend the meeting, please bring proof of ownership with you to the meeting. A
bank or brokerage account statement showing that you owned voting stock of
Textron on February 28, 2003, is acceptable proof. If you are a shareholder of
record, no proof is required.
2
ELECTION OF DIRECTORS
The Board of Directors is composed of three classes of directors,
designated Class I, Class II and Class III. One class of directors is elected
each year to hold office for a three-year term and until successors of such
class are duly elected and qualified. It is the intention of the persons named
in the accompanying proxy card, unless otherwise instructed, to vote to elect
Teresa Beck, Lewis B. Campbell, Lawrence K. Fish and Joe T. Ford to Class I.
Each nominee presently serves as a director of Textron. Information is furnished
below with respect to each nominee for election and each director continuing in
office.
NOMINEES FOR DIRECTOR
CLASS I -- NOMINEES FOR TERMS EXPIRING IN 2006
[Photo of Teresa Beck]
TERESA BECK DIRECTOR SINCE 1996
Ms. Beck, 48, is the former President of American Stores
Company, one of the nation's largest food and drug retailers.
She joined American Stores Company in 1982, became Senior Vice
President of Finance and Assistant Secretary in 1989,
Executive Vice President, Administration in 1992, Executive
Vice President, Finance in 1994 and Chief Financial Officer in
1995 and served as President from 1998 until leaving the
company in June 1999. Ms. Beck is a director of Albertson's,
Inc., Lexmark International, Inc. and Questar Corporation.
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[Photo of Lewis B. Campbell]
LEWIS B. CAMPBELL DIRECTOR SINCE 1994
Mr. Campbell, 56, is Chairman, President and Chief Executive Officer of
Textron. He joined Textron in 1992 as Executive Vice President
and Chief Operating Officer, became President and Chief
Operating Officer in 1994, assumed the title of Chief
Executive Officer and relinquished the title of Chief
Operating Officer in July 1998, assumed the title of Chairman
and relinquished the title of President in February 1999, and
reassumed the title of President in September 2001. Prior to
joining Textron he was a Vice President of General Motors
Corporation and General Manager of its GMC Truck Division. Mr.
Campbell is a director of Bristol Myers Squibb Co. and
Allegheny Energy, Inc., and Chairman of the Business
Roundtable's Health and Retirement Task Force.
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[Photo of Lawrence K. Fish]
LAWRENCE K. FISH DIRECTOR SINCE 1999
Mr. Fish, 58, is Chairman, President and Chief Executive Officer of
Citizens Financial Group, Inc., a multi-state bank holding
company headquartered in Providence, Rhode Island, a position
he has held since joining the bank in 1992. He is a director
of the Royal Bank of Scotland Group, a member of the Board of
Trustees of The Brookings Institution and a director of the
Federal Reserve Bank of Boston. He was the founding Chairman
of the Rhode Island Commission for National and Community
Service and is an overseer of the Boston Symphony Orchestra, a
director of Boston's Dimock Community Health Center, and a
trustee of Drake University.
3
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[Photo of Joe T. Ford]
JOE T. FORD DIRECTOR SINCE 1998
Mr. Ford, 65, is Chairman of the Board of ALLTEL Corporation, a
telecommunications and information services company. He was
named President of ALLTEL upon its formation in 1983 from a
merger between Allied Telephone Company and Mid-Continent
Telephone Corporation, became Chief Executive Officer in 1987,
assumed the title of Chairman in 1991 and retired as the Chief
Executive Officer in July 2002. Mr. Ford is a director of The
Dial Corporation and the Stephens Group, Inc.
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CLASS II -- TERMS EXPIRE IN 2004
[Photo of R. Stuart
Dickson]
R. STUART DICKSON DIRECTOR SINCE 1984
Mr. Dickson, 73, was Chairman of the Board of Ruddick Corporation, a
diversified holding company with interests in industrial
sewing thread and regional supermarkets, from 1968 until 1994.
Mr. Dickson currently serves as Chairman of the Ruddick
Executive Committee. Mr. Dickson is a director of Ruddick
Corporation and Dimon Incorporated. He is Chairman Emeritus of
the Charlotte-Mecklenburg Hospital Authority.
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[Photo of John D. Macomber]
JOHN D. MACOMBER DIRECTOR SINCE 1993
Mr. Macomber, 75, is Principal of JDM Investment Group, a
private investment firm. He joined the firm as Principal in
1992. He served as Chairman and President of the Export-Import
Bank of the United States from 1989 to 1992. Mr. Macomber was
Chairman and Chief Executive Officer of Celanese Corporation,
a diversified chemical company, from 1973 to 1986. He was
Senior Partner of McKinsey & Co. from 1954 to 1973. Mr.
Macomber is a director of Lehman Brothers Holdings Inc.,
Mettler-Toledo International Inc. and Sovereign Specialty
Chemicals. Mr. Macomber is Chairman of the Council for
Excellence in Government, Vice Chairman of The Atlantic
Council of the United States and a trustee of the Carnegie
Institute of Washington and The Folger Library. He is a
director of the National Campaign to Prevent Teen Pregnancy
and the Smithsonian National Board.
4
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[Photo of Lord Powell]
LORD POWELL OF BAYSWATER KCMG DIRECTOR SINCE 2001
Lord Powell, 61, was Private Secretary and advisor on
foreign affairs and defence to British Prime Ministers Lady
Margaret Thatcher and John Major from 1983 to 1991, and from
1992 until the end of 2000 served as a member of the Board of
Jardine Matheson Holdings, Ltd. and associated companies.
Since then, he has been non-executive Chairman of Sagitta
Asset Management and of LVMH (UK). He is President of the
China-Britain Business Council, Chairman of the Trustees of
the Oxford University Business School and a Trustee of the
British Museum. He is a director of Louis-Vuitton Moet
Hennessy (LVMH), Caterpillar Inc., Mandarin Oriental Hotel
Group, Sagitta Asset Management Ltd., Yell Group and British
Mediterranean Airways. He is a member of the Textron
International Advisory Council, the International Advisory
Council of GEMS Oriental and General Fund, the Advisory Board
of Barrick Gold, the European Advisory Board of Hicks, Muse,
Tate & Furst, the European Strategy Board of Rolls-Royce, and
International Advisory Council of Magna and the International
Advisory Board of HCL Technologies.
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[Photo of Sam F. Segnar]
SAM F. SEGNAR DIRECTOR SINCE 1982
Mr. Segnar, 75, is the retired Chairman and Chief
Executive Officer of Enron Corporation and former Chairman of
the Board of Vista Chemical Co. and Collecting Bank, N.A.,
Houston, Texas. Mr. Segnar is a director of Gulf States
Utilities Company. He is a trustee of the Texas A&M Institute
of Bio-Science and Technology and the Texas A&M School of
Business Administration.
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DIRECTORS CONTINUING IN OFFICE
CLASS III -- TERMS EXPIRE IN 2005
[Photo of H. Jesse Arnelle]
H. JESSE ARNELLE DIRECTOR SINCE 1993
Mr. Arnelle, 69, was a senior partner in the law firm of Arnelle & Hastie,
San Francisco, which later became Arnelle, Hastie, McGee,
Willis & Greene, with which he had been associated from 1985
through his retirement in 1996. Following his retirement, he
became Of Counsel to the North Carolina law firm of Womble,
Carlyle, Sandridge & Rice. Mr. Arnelle is a director of FPL
Group, Inc., Waste Management, Inc., Eastman Chemical
Corporation, Armstrong World Industries, Gannett Corporation
and Metropolitan Life Series Fund. Mr. Arnelle is the past
Chairman of the Board of Trustees of Pennsylvania State
University and a director of the National Football Foundation
and College Hall of Fame.
5
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[Photo of Paul E. Gagne]
PAUL E. GAGNE DIRECTOR SINCE 1995
Mr. Gagne, 56, was President and Chief Executive Officer of Avenor Inc., a
Canadian forest products company. He joined Avenor in 1976,
became President and Chief Operating Officer in 1990 and
assumed the additional position of Chief Executive Officer in
1991, serving in that capacity until November 1997, when he
left the company. In 1998, Mr. Gagne joined Kruger Inc., a
major Canadian privately held producer of paper and tissue, as
a consultant in corporate strategic planning, serving in that
capacity until December 2002. He is a director of Inmet Mining
Corporation, Wajax Limited, and Asalco Inc.
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[Photo of Brian H. Rowe]
BRIAN H. ROWE DIRECTOR SINCE 1995
Mr. Rowe, 71, is the retired Chairman and now a consultant of GE Aircraft
Engines, General Electric Company, a manufacturer of
combustion turbine engines for aircraft, marine and industrial
applications. He joined General Electric in 1957, became
President and Chief Executive Officer of GEAE in 1979 and
Chairman in 1993, serving in that capacity until his
retirement in 1994. Mr. Rowe is Chairman, Atlas Air Worldwide
Holdings, Inc. and Chairman, AeroEquity, Inc. He is a director
of Atlas Air Worldwide Holdings, Inc., B/E Aerospace, Inc. and
Acterna Corporation.
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[Photo of Martin D. Walker]
MARTIN D. WALKER DIRECTOR SINCE 1986
Mr. Walker, 70, was Chairman and Chief Executive Officer
of M. A. Hanna Company, an international specialty chemicals
company, from October 1998 until December 1999. He served
previously in that capacity from 1986 until 1996 and as
Chairman from 1996 to June 1997, when he retired. Mr. Walker
is currently Principal of Morwal Investments, a private
investment firm. Mr. Walker is a director of Arvin Meritor,
Inc., Comerica, Inc., The Timken Company, The Goodyear Tire &
Rubber Co. and Lexmark International, Inc.
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[Photo of Thomas B. Wheeler]
THOMAS B. WHEELER DIRECTOR SINCE 1993
Mr. Wheeler, 66, is the Chairman and Chief Executive
Officer retired of Massachusetts Mutual Life Insurance
Company, presently known as MassMutual Financial Group. He was
a member of the Massachusetts Mutual field sales force from
1962 to 1983, served as Executive Vice President of
Massachusetts Mutual's insurance and financial management line
from 1983 to 1986, became President and Chief Operating
Officer in 1987, President and Chief Executive Officer in 1988
and Chairman and Chief Executive Officer in 1996. He
relinquished the title of Chief Executive Officer in January
1999 and retired as Chairman in January 2000. Mr. Wheeler is a
trustee of the Basketball Hall of Fame, Conservancy of S.W.
Florida and the Woods Hole Oceanographic Institution and a
director of PassingData.com.
6
THE BOARD OF DIRECTORS
Meetings and Organization
During 2002, the Board of Directors met nine times and the Executive
Committee of the Board did not meet. The Board has standing Audit, Nominating
and Corporate Governance, and Organization and Compensation committees.
Compensation of Directors
For their service on the Board, non-employee directors are paid an annual
retainer of $90,000 plus $1,500 for each meeting of the Board attended.
Non-employee directors who serve on the Executive Committee or one of the
standing committees, other than the Audit Committee, receive $1,500 for each
committee meeting attended, and the chairman of each such standing committee
receives an additional $5,000 per year. Non-employee directors who serve on the
Audit Committee receive $2,500 for each committee meeting attended, and the
chairman of the Audit Committee receives an additional $15,000 per year.
Textron maintains a deferred income plan for non-employee directors under
which they may defer all or part of their cash compensation until retirement
from the Board. Deferrals are made either into an interest bearing account or
into an account consisting of Textron stock units, which are equivalent in value
to Textron common stock. Directors must defer a minimum of $60,000 of their
annual retainer into the stock unit account. At the end of each calendar
quarter, Textron will contribute to the stock unit account an additional amount
equal to 10% of the amount deferred by the director into this account during the
quarter in excess of the minimum deferral amount. One half of this additional
amount will vest on December 31 of the year in which payment was deferred and
one half on the next December 31. Textron also credits dividend equivalents to
the stock unit account. In addition, once a year, on April 30, Textron will
contribute to the stock unit account an amount equal to 20% of the then current
annual retainer for each director who is serving as a director on the date of
Textron's annual meeting of shareholders and has been a director for more than
three months.
Each non-employee director received 1,000 restricted shares of Textron
common stock upon joining the Board. Except in the case of the director's death
or disability, or a change in control of Textron (as described below under the
heading "Employment Contracts and Change In Control Arrangements" on page 21),
the director may not sell or transfer the shares until he or she has completed
all of his or her successive terms as a director and at least five years of
Board service.
Employee directors do not receive fees or other compensation for their
service on the Board or its committees. Each member of the Board is reimbursed
for expenses incurred in connection with each Board or committee meeting
attended.
As part of Textron's support for charitable institutions and to provide an
additional source of funding for the Textron Charitable Trust, Textron
established a program under which it contributes up to $1,000,000 to the trust
on behalf of each director upon his or her death, and the trust donates 50% of
that amount in accordance with the director's recommendation among up to five
charitable organizations. Payment of the contributions ultimately are recovered
from life insurance policies that Textron maintains on the lives of directors
for this purpose. The directors do not receive any financial benefit from this
program since the insurance proceeds and charitable deductions accrue solely to
Textron. The program does not result in a material cost to Textron. Non-employee
directors also participate in the CitationShares Director's Evaluation Program
established by Textron to evaluate the performance of the CitationShares
fractional ownership program, a joint venture between Cessna Aircraft Company, a
wholly-owned subsidiary of Textron, and TAG Aviation USA. Under the evaluation
program, Textron purchased two one-eighth ownership shares of a Cessna Citation
aircraft from CitationShares and makes flight time available to the non-employee
directors for personal use. Following each flight, a participating director is
expected to complete an evaluation of his or
7
her travel experience to assist Textron in ensuring that CitationShares
maintains its customer service focus. Directors are not charged for their
participation in the program or use of the aircraft. To further align the non-
employee directors' interests with the long-term interests of the shareholders,
non-employee directors are also eligible to receive grants of options to
purchase Textron common stock under the 1999 Textron Long-Term Incentive Plan.
Audit Committee
The Audit Committee selects the independent auditors to conduct the audit
and quarterly reviews of Textron's financial statements; reviews the scope and
costs of the audit plans of the independent auditors and internal auditors, and
the scope and costs of non-audit services provided by the independent auditors
and considers their effect on the auditors independence; reviews with management
and the independent auditors Textron's quarterly and annual financial
statements; reviews Textron's compliance programs; and reviews with management,
the independent auditors and the internal auditors, Textron's internal
accounting controls. The committee is available to meet privately and separately
with the independent auditors and the internal auditors without management being
present. The Board of Directors has adopted a written charter for the committee.
The following six non-employee directors presently comprise the committee: Mr.
Gagne (Chairman), Mr. Arnelle, Ms. Beck, Mr. Rowe, Mr. Segnar and Mr. Walker.
Each member of the committee is an independent director as defined by New York
Stock Exchange rules. During 2002, the committee met five times. Various members
of management are regularly invited to be present at Audit Committee meetings.
The Vice President Audit Services has direct access to the Audit Committee and
to Textron's Chief Executive Officer.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee reviews the
qualifications of, and recommends to the Board, individuals for nomination by
the Board as directors of Textron. Textron's By-Laws contain a provision which
imposes certain requirements upon nominations for directors other than those
made by the Board. In making its recommendations to the Board, the committee
will consider suggestions regarding possible candidates from a variety of
sources, including shareholders. Shareholders wishing to recommend individuals
as candidates for nomination by the Board must submit timely notice of
nomination within the time limits described below under the heading "Shareholder
Proposals and Other Matters for 2004 Annual Meeting" on page 30, to the
committee, c/o Textron's corporate secretary, along with a description of the
proposed candidate's qualifications and other pertinent biographical
information, as well as a written consent from the proposed candidate. In
addition, the committee conducts reviews and makes recommendations to the Board
on the organization of the Board, Board compensation, the overall performance of
the Board and other matters of corporate governance. The following seven
non-employee directors presently comprise the committee: Mr. Dickson (Chairman),
Ms. Beck, Mr. Fish, Mr. Ford, Lord Powell, Mr. Walker and Mr. Wheeler. During
2002, the committee met three times.
Organization and Compensation Committee
The Organization and Compensation Committee recommends to the Board
compensation arrangements for the officers named in the Summary Compensation
Table on page 16 and approves compensation arrangements for other executive
officers. In addition, the committee reviews the responsibilities and
performance of executive officers, plans for their succession, and approves
changes in executive officers. The following eight non-employee directors
presently comprise the committee: Mr. Macomber (Chairman), Mr. Arnelle, Mr.
Fish, Mr. Ford, Lord Powell, Mr. Rowe, Mr. Segnar and Mr. Wheeler. During 2002,
the committee met four times.
8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS
The following table lists all shareholders known by Textron to own
beneficially more than 5% of any class of Textron's voting stock as of December
31, 2002:
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS
-------------- ------------------- ----------------- --------
Common Stock............... Putnam Fiduciary Trust Company 20,336,172 shares(1) 15%
859 Willard Street
Quincy, Massachusetts 02169
---------------
(1) Putnam Fiduciary Trust Company has informed Textron that it shares voting
and investment power over the shares and that it holds the shares as Trustee
under the Textron Savings Plan and disclaims any beneficial interest. The
shares will be voted at the annual meeting in accordance with instructions
from the participants in the plan, or in the absence of instructions, by
Putnam Fiduciary Trust Company as Trustee in accordance with the plan.
9
SECURITY OWNERSHIP OF MANAGEMENT
The column headed "Number of Shares of Common Stock" includes all shares of
Textron stock beneficially owned by directors and executive officers of Textron,
shares held for the officers by the trustee under the Textron Savings Plan,
shares obtainable upon the exercise of stock options exercisable within 60 days
of December 31, 2002, and shares held jointly. No director or executive officer
beneficially owned in excess of 1% of the outstanding shares of common stock.
Directors and executive officers as a group beneficially owned 1% of the
outstanding shares of common stock. Ownership indicated is as of December 31,
2002.
Each director and executive officer has sole voting and investment power
over his or her shares, except in those cases in which the voting or investment
power is shared with the trustee or as otherwise noted. An objective of
Textron's director and executive compensation programs is to align the financial
interests of the directors and the executive officers with that of shareholders.
Accordingly, the value of a significant portion of the directors' and the
executive officers' total compensation is dependent upon the value they generate
on behalf of shareholders. The column headed "Total Common Stock-Based Holdings"
includes the common stock from the "Number of Shares of Common Stock" column
along with other common stock-based holdings in the form of stock units,
performance share units, unvested stock awards and cash equivalent share awards
(the value of which will increase or decrease in relation to the increase or
decrease in the price of common stock).
TOTAL
NUMBER OF SHARES COMMON STOCK-
NAME OF COMMON STOCK(1)(2) BASED HOLDINGS
---- --------------------- --------------
H. Jesse Arnelle........................................... 2,351 14,141
Teresa Beck................................................ 2,100 14,918
John D. Butler............................................. 150,787 267,355
Lewis B. Campbell.......................................... 758,007 1,271,057
R. Stuart Dickson.......................................... 41,404 59,531
Lawrence K. Fish........................................... 1,000 10,478
Joe T. Ford................................................ 2,000 12,046
Theodore R. French......................................... 112,612 236,843
Paul E. Gagne.............................................. 2,263 13,321
Mary L. Howell............................................. 182,691 307,890
John D. Macomber........................................... 11,264 29,919
Terrence O'Donnell......................................... 81,415 167,758
Lord Powell of Bayswater KCMG.............................. 1,000 3,638
Brian H. Rowe.............................................. 11,910 21,464
Sam F. Segnar.............................................. 4,514 32,483
Martin D. Walker........................................... 3,877 32,855
Thomas B. Wheeler.......................................... 2,462 26,923
All current directors and executive officers as a group (18
persons)................................................. 1,371,721 2,682,684
---------------
(1) Includes the following shares as to which voting and investment powers are
shared: Mr. Dickson -- 34,000 and Mr. Segnar -- 1,000.
(2) Includes the following shares obtainable upon the exercise of stock options
exercisable within 60 days of December 31, 2002: Mr. Campbell -- 726,609;
Mr. French -- 100,000; Mr. Butler -- 149,000; Mrs. Howell -- 173,598; Mr.
O'Donnell -- 80,000; and all current directors and executive officers as a
group -- 1,229,207.
10
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors has furnished the following
report on its activities:
The committee reviewed the audited financial statements in the Annual
Report with management. The committee also reviewed with management and the
independent auditors the reasonableness of significant judgements and the
clarity of disclosures in the financial statements, the quality, not just the
acceptability, of the company's accounting principles and such other matters as
are required to be discussed with the committee under generally accepted
auditing standards. In addition, the committee discussed with the independent
auditors the auditors' independence from management and the company including
the matters in the written disclosures required by the Independence Standards
Board and considered whether the independent auditors' provision of non-audit
services is compatible with the auditors' independence.
AUDIT FEES; AUDIT RELATED FEES; TAX SERVICES; OTHER SERVICES
The aggregate fees for professional services rendered by Ernst & Young LLP
during 2002 and 2001 were as follows:
Audit Fees. Fees for the audit of Textron's annual financial
statements, the reviews of the financial statements in Textron's Forms
10-Q, and other services in connection with statutory and regulatory
filings and engagements were $8.8 million and $9.7 million, in 2002 and
2001, respectively.
Audit Related Fees. Audit related services include employee benefit
plan audits, due diligence relating to acquisitions and dispositions,
attest services not required by statute or regulation, and consultations
concerning financial accounting and reporting matters not classified as
audit. Fees were $1.5 million and $3.7 million in 2002 and 2001,
respectively.
Tax Services. Fees for tax services relating to consultations,
compliance, dispositions, and expatriate services were $2.3 million and
$4.8 million in 2002 and 2001, respectively.
Other Services. Other services fees relating to government contract
and miscellaneous services were $87 thousand and $359 thousand in 2002 and
2001, respectively.
No fees were paid to Ernst & Young LLP for financial information systems
design and implementation services during 2002 or 2001.
The committee discussed with the company's internal and independent
auditors the overall scope and plans for their respective audits and met with
the auditors, with and without management present, to discuss the results of
their examinations, their evaluations of the company's internal controls, and
the overall quality of the company's financial reporting. The committee also
reviewed the company's compliance program. Five committee meetings were held
during the year.
In reliance on the reviews and discussions referred to above, the committee
recommended to the Board of Directors that the audited financial statements be
included in the Annual Report on Form 10-K for the year ended December 28, 2002,
to be filed with the Securities and Exchange Commission. The committee also
reported to the Board that it had selected Ernst & Young LLP as the company's
independent auditors for 2003, and that this selection will be submitted to the
shareholders for ratification. The Committee also reported that, in compliance
with E&Y's auditor rotation policy, a new coordinating partner has been assigned
to the company.
PAUL E. GAGNE, CHAIRMAN
H. JESSE ARNELLE
TERESA BECK
BRIAN H. ROWE
SAM F. SEGNAR
MARTIN D. WALKER
11
REPORT OF THE ORGANIZATION AND COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Organization and Compensation Committee of the Board of Directors has
furnished the following report on executive compensation:
EXECUTIVE COMPENSATION PHILOSOPHY
The objective of Textron's executive compensation program is to attract and
retain the most qualified executives to lead our diversified corporation and to
motivate them to produce strong financial performance for the benefit of our
shareholders. The committee is committed to establishing a total compensation
program that is not only very competitive by industry standards but also
demonstrates a very heavy bias towards performance and encouraging stock
ownership. To meet this objective, the total compensation program is designed to
be competitive with the total compensation programs provided by other
corporations of comparable revenue size in industries in which we compete for
customers and/or executives.
EXECUTIVE COMPENSATION PROGRAM
Each year the committee, which is comprised entirely of non-employee
directors, recommends to the Board compensation arrangements for the officers
named in the Summary Compensation Table on page 16 and approves compensation
arrangements for other executive officers. These compensation arrangements
include annual salary levels, salary grade ranges, annual and long-term
incentive plan design, participation and grants thereunder, standards of
performance for new grants, and payouts from past grants.
Textron's executive compensation program is comprised of three principal
components: salary, annual incentive compensation and long-term incentive
compensation.
SALARY
Salary ranges for Textron's executive officers were increased by 3.2% for
2002. Individual salaries are considered for adjustment periodically, based on
position in salary range, individual performance and potential, and/or change in
duties or level of responsibility. The base salaries of the officers named in
the Summary Compensation Table are reported in the "Salary" column of that
table.
ANNUAL INCENTIVE COMPENSATION
All executive officers participate in Textron's Annual Incentive
Compensation Plan. Annual incentive payments are generally limited to twice the
target award level, but the committee can make payments above these levels if it
deems performance warrants. The factors considered by the committee in
recommending 2002 incentive compensation payments for executive officers
included the degree to which certain overall corporate and individual
performance objectives were achieved or not achieved. The objectives for 2002
reflected an emphasis on transformation, including the execution of a
restructuring plan and the implementation of Textron Six Sigma and
enterprise-wide supply chain management. The progress made in these areas, which
helped drive increased performance, favorably impacted 2002 annual bonuses. The
annual incentive compensation earned by the officers named in the Summary
Compensation Table is reported in the "Bonus" column of that table.
LONG-TERM INCENTIVE COMPENSATION
Under the Textron 1999 Long-Term Incentive Plan, executive officers may be
granted awards of stock options, performance share units and restricted stock.
12
2002 Grants of Stock Options
Pursuant to the 1999 plan, the committee recommended to the Board the
number of stock options to be granted based on the executive officer's functions
and responsibilities, past and expected future performance, potential
contributions to Textron's profitability and growth, and prior options grants.
Overall past corporate performance was not considered in determining the number
of stock options to be granted. In accordance with the 1999 plan, stock options
granted in January 2002 were at a purchase price equal to 100% of the fair
market value of Textron common stock at the time of the option grant and become
exercisable in two installments, the first half after one year and the other
half after two years from date of grant. Information on the stock options
granted during fiscal year 2002 to the officers named in the Summary
Compensation Table appears in the table on page 16.
2002 Payouts of Previously Granted Performance Share Units
The 2002 payouts to executive officers were, with one exception, for
performance share units granted for the three-year performance cycle ending
December 28, 2002. The payout for one executive officer was for a special
two-year performance cycle ending December 28, 2002. The payouts were based (1)
50% on aggregate earnings per share, (2) 40% on discretionary performance
measures, including the execution of a restructuring plan, increased cost
savings throughout the supply chain, the implementation of Textron Six Sigma and
improved talent base and, (3) 10% on return on invested capital (ROIC). In
addition, the executive officers had the opportunity to earn up to an additional
30% for achieving ROIC stretch targets. The committee recommended and the Board
approved payouts at 76% (53% for one executive officer) of the performance share
units granted. The payouts reflected the fact that earnings per share, the
discretionary performance targets and ROIC were not fully achieved. Information
on the 2002 payouts to the officers named in the Summary Compensation Table of
previously granted performance share units is reported in the "LTIP Payouts"
column of that table.
2002 Performance Share Unit Grants
For the three-year performance cycle starting at the beginning of 2002,
each performance share unit granted and earned under the 1999 plan will be
valued for payment purposes at the market value of Textron common stock at the
end of the three-year performance period. The number of performance share units
granted to executive officers for the 2002-2004 performance cycle was based on
the functions and responsibilities of the executive officer and the executive
officer's potential contributions to Textron's profitability and growth. The
number of performance share units granted in prior years, competitive practice,
as well as the stock price at the time of grant were taken into consideration in
making the new grants, but past corporate performance was not specifically taken
into consideration. Information on the 2002 grants of performance share units
appears in the "Long-Term Incentive Plan Awards in Last Fiscal Year" table on
page 19.
STOCK OWNERSHIP
An objective of Textron's executive compensation program is to align the
financial interests of the executive officers with the best interests of
shareholders. The committee also seeks to promote stock ownership and base a
substantial component of the executive officers' total compensation on the value
they generate on behalf of Textron's shareholders. The following minimum levels
have been established: five times base salary for the chief executive officer,
three times base salary for other officers named in the Summary Compensation
Table and either two or three times base salary for other officers. Newly named
officers have five years to bring their holdings up to the minimum levels.
The Deferred Income Plan for Textron Key Executives, in which all executive
officers participate, provides that annual incentive compensation earned in
excess of 100% of target must be deferred in stock
13
units, which are equivalent in value to shares of Textron common stock, if the
officer has not maintained a minimum stock ownership level. The committee
suspended the mandatory deferral provision during 2002 as it thought the
depressed stock market, reflecting a weakened economy, artificially skewed stock
ownership levels. The suspension has been lifted for 2003. The deferred income
plan also provides participants the opportunity to defer up to 25% of base
salary and up to 100% of annual and long-term incentive compensation and other
compensation. Elective deferrals may be invested in either an interest bearing
account or in a stock unit account. Textron contributes a 10% premium on amounts
the officers elect to defer in the stock unit account.
CEO COMPENSATION
As in the past, in determining the overall level of Mr. Campbell's
compensation and each component thereof, the committee took into consideration
information provided by independent, professional compensation consultants.
After taking into consideration that Mr. Campbell's salary had remained at
$1,000,000 since July 1, 1998 and his base salary was below the 50(th)
percentile of base salary paid to chief executive officers at the surveyed
companies, the committee recommended, and the Board approved, a salary increase
of $100,000 for Mr. Campbell, effective January 1, 2003.
The committee recommended, and the Board approved, a 2002 annual incentive
compensation award of $1,600,000, compared to an award of $1,500,000 for 2001.
In determining the level of the award the committee took into consideration the
significant progress made during a difficult business environment on specific
transformation objectives, including restructuring, Textron Six Sigma, supply
chain and organizational design, which was the catalyst in achieving improved
financial results.
The performance share units granted to Mr. Campbell for the 2000-2002
performance cycle were based 50% on aggregate earnings per share, 40% on
discretionary performance measures and 10% on return on invested capital. The
committee recommended, and the Board approved, an award of $1,339,757, which
represented an award of 76% of target. The award reflected less than fully
achieved EPS, discretionary performance objectives and return on invested
capital.
In January 2002, Mr. Campbell was granted 150,000 stock options and 120,000
performance share units for the 2002-2004 performance cycle.
Mr. Campbell also received compensation under various Textron benefit and
compensation plans including restricted stock retention awards (see footnotes
(4) and (5) of the Summary Compensation Table).
TAX CONSIDERATIONS
Section 162(m) of the Internal Revenue Code provides that no U.S. income
tax deduction is allowable to a publicly held corporation for compensation in
excess of $1 million paid to the chief executive officer or any other employee
whose compensation is required to be reported in the Summary Compensation Table,
if those individuals are employed by the corporation at year end.
"Performance-Based Compensation" is exempt from the $1 million limitation.
Performance-Based Compensation must be based upon meeting pre-established and
objective performance goals under a plan approved by shareholders. Performance
goals are not objective if the committee has any discretion to pay amounts in
excess of those earned in accordance with the achievement of pre-established
performance criteria or to pay such compensation when the performance criteria
are not met. Compensation deferred under the deferred income plan is not subject
to the $1 million limitation.
Textron's policy has been to preserve committee discretion in determining
awards earned under Textron's annual and long-term incentive plans. Textron
stock options granted under the 1999 Long-Term Incentive Plan do qualify as
Performance-Based Compensation. Textron will continue to preserve committee
discretion under the annual incentive compensation plan and a portion of the
1999 Long-Term Incentive Plan.
14
Textron's deferred income plan encourages individuals, including those
whose income might otherwise be subject to the $1 million limitation, to defer
incentive compensation amounts until the individual's employment with Textron
ends, at which time the deductibility of such compensation will not be subject
to Section 162(m). Consequently, with the opportunity to defer compensation,
Textron believes that the $1 million limitation of Section 162(m) of the
Internal Revenue Code will not have a material effect on Textron's income tax
expense in the near term. The committee will continue to assess the effect of
these tax rules on Textron.
AMENDMENT TO THE 1999 LONG-TERM INCENTIVE PLAN
The committee recommends to the shareholders that they approve the
amendment to the 1999 plan as described on pages 23 through 28.
This report is submitted by the Organization and Compensation Committee.
JOHN D. MACOMBER, CHAIRMAN
H. JESSE ARNELLE
LAWRENCE K. FISH
JOE T. FORD
LORD POWELL OF BAYSWATER KCMG
BRIAN H. ROWE
SAM F. SEGNAR
THOMAS B. WHEELER
15
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth information concerning
compensation of (i) Textron's chief executive officer at the end of 2002 and
(ii) the four most highly compensated executive officers of Textron, other than
the chief executive officer, who were serving as executive officers at the end
of 2002 for Textron's 2000, 2001 and 2002 fiscal years. Compensation which was
deferred by these officers under the Deferred Income Plan is included below as
compensation paid.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------- --------------------------------------------
AWARDS PAYOUTS
------------------------------- -------
SECURITIES
RESTRICTED UNDERLYING LTIP
NAME AND PRINCIPAL OTHER ANNUAL STOCK AWARDS OPTIONS/ PAYOUTS
POSITION(1) YEAR SALARY ($) BONUS ($)(2) COMPENSATION(3) ($)(4) SARS (#) ($)
----------------------- ---- ---------- ------------ --------------- ------------ ---------- -------
L.B. Campbell 2002 $1,000,000 $1,600,000 $174,683 $ 0 150,000 1,339,757
Chairman, President and 2001 1,000,000 1,500,000 176,605 4,650,000 0 319,275
Chief Executive Officer 2000 1,000,000 1,937,500 119,529 0 75,000 1,517,760
T. R. French 2002 566,667 500,000 100,248 0 60,000 163,611
Executive Vice 2001 550,000 336,302 113,852 4,656,302 0 102,168
President
and Chief Financial 2000 13,099 100,000 0 0 70,000 0
Officer
J.D. Butler 2002 460,000 350,000 0 1,036,500 50,000 267,951
Executive Vice 2001 460,000 327,537 0 51,537 0 119,196
President
Administration and 2000 440,000 520,547 0 80,972 35,000 342,720
Chief Human Resources
Officer
M.L. Howell 2002 440,000 350,000 0 1,036,500 50,000 251,204
Executive Vice 2001 440,000 264,000 70,187 0 0 110,682
President Government, 2000 406,250 429,703 76,345 12,500 35,000 318,240
Strategy Development
and International,
Communications and
Investor Relations
T. O'Donnell 2002 440,000 363,909 0 1,050,408 50,000 251,204
Executive Vice 2001 440,000 287,896 0 23,896 0 102,168
President
and General Counsel 2000 344,904 646,703 73,117 29,500 55,000 220,000
ALL OTHER
NAME AND PRINCIPAL COMPENSATION
POSITION(1) ($)(5)
----------------------- ------------
L.B. Campbell 50,000
Chairman, President and 50,000
Chief Executive Officer 50,000
T. R. French 28,333
Executive Vice 27,500
President
and Chief Financial 0
Officer
J.D. Butler 23,000
Executive Vice 23,000
President
Administration and 22,000
Chief Human Resources
Officer
M.L. Howell 22,000
Executive Vice 22,000
President Government, 20,312
Strategy Development
and International,
Communications and
Investor Relations
T. O'Donnell 22,000
Executive Vice 22,000
President
and General Counsel 17,245
---------------
(1) Mr. French joined Textron in December 2000 as Executive Vice President and
Chief Financial Officer. Mrs. Howell, previously Executive Vice President
Government and International, became Executive Vice President Government,
International, Communications and Investor Relations in January 1999 and
Executive Vice President Government, Strategy Development and International,
Communications and Investor Relations in September 2000. Mr. O'Donnell
joined Textron in March 2000 as Executive Vice President and General
Counsel.
(2) The amount listed as paid to Mr. O'Donnell for 2002 includes vested
contributions made by Textron in the amount of $13,909 as a result of his
election to defer compensation into the stock unit fund of the Deferred
Income Plan. The amount for 2000 for Mr. French represents a hiring bonus.
The amount for Mr. O'Donnell for 2000 also includes a hiring bonus of
$200,000.
(3) The amounts listed for 2002 include $104,730 for personal use of Textron
aircraft for security reasons for Mr. Campbell and $70,873 for temporary
living, transportation on Textron aircraft and related tax assistance for
Mr. French.
(4) The amount listed for Mr. Campbell in 2001 is the market value at the time
of grant of an award of 100,000 shares of restricted stock. The shares were
granted on January 1, 2001 and the restriction on the shares will lapse,
provided he is still employed by Textron, or in certain cases if his
employment ends
(footnotes continued on following page)
16
(footnotes continued from preceding page)
earlier, in accordance with the following schedule: 50,000 shares in May
2002, 20,000 shares in May 2004 and 30,000 shares in May 2007.
In May 2002, Mr. Campbell received $2,484,052, representing the payment of
50,000 share equivalents plus dividends. The share equivalents were granted
on January 1, 2001 and vested on May 18, 2002.
As of December 28, 2002, the market value of the 250,000 outstanding
restricted shares granted to Mr. Campbell was $10,540,000.
The Board approved the conversion of the restricted stock awards granted to
Mr. Campbell to restricted stock units provided Mr. Campbell maintains his
stock ownership guideline. A restricted stock unit represents the cash
equivalent of a share of Textron common stock.
The amount listed for Mr. French in 2001 includes $4,650,000, which is the
market value at the time of grant of an award of 100,000 shares of
restricted stock and the restriction on the shares will lapse provided he
is still employed by Textron, or in certain cases if his employment ends
earlier, in accordance with the following schedule: 20,000 shares in
January 2002, 2003, 2004, 2005 and 2006. The 20,000 shares that vested in
January 2002 had a market value of $842,100 at the time of vesting. In
addition, Mr. French received a payment of $23,130 representing the cash
value of dividend equivalents associated with the 20,000 vested shares.
As of December 28, 2002, the market value of the 80,000 outstanding
restricted shares granted to Mr. French was $3,372,800.
The amount listed for Mr. Butler and Mrs. Howell in 2002 is the market
value at the time of grant of a restricted stock unit award of 25,000
restricted stock units granted in January 2002. The amount listed for Mr.
O'Donnell in 2002 includes the same $1,036,500 for a similar restricted
stock unit award. The restriction on the units will lapse, provided the
executive is still employed by Textron, or in certain cases if the
executive's employment ends earlier, in accordance with the following
schedule: 5,000 units in August 2003, 2004, 2005, 2006 and 2007 for Mr.
Butler; 5,000 units in July 2003, 2004, 2005, 2006 and 2007 for Mrs. Howell
and 10,000 units in March 2003 and 5,000 units in March 2004, 2005 and 2006
for Mr. O'Donnell.
As of December 28, 2002, the market value of the 25,000 restricted stock
units granted to each of Mr. Butler, Mrs. Howell and Mr. O'Donnell was
$1,054,000.
All other amounts listed are unvested contributions made by Textron under
the Deferred Income Plan as a result of the officers' elections to defer
compensation into the stock unit fund of the Deferred Income Plan. These
contributions are credited in the form of stock units, which are not actual
shares of stock but are units paid in cash with a value that varies with
the price of Textron common stock. As of December 28, 2002, 326 unvested
stock units with a market value of $13,744 were credited to the accounts of
Mr. O'Donnell.
(5) The amounts listed for 2002 are Textron's contributions under the Textron
Savings Plan and the Savings Plan component of the Supplemental Benefits
Plan.
------------------------
17
STOCK OPTION GRANTS
The following table sets forth information on grants of stock options under
the Textron 1999 Long-Term Incentive Plan during Textron's 2002 fiscal year to
the officers named in the Summary Compensation Table. The number of stock
options granted to these officers during Textron's 2002 fiscal year is also
listed in the Summary Compensation Table in the column entitled "Securities
Underlying Options/SARs."
STOCK OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
-------------------------------------------------------- STOCK PRICE
NUMBER PERCENT OF APPRECIATION
OF TOTAL FOR OPTION/SARS
SECURITIES OPTIONS/SARS EXERCISE TERM($)(2)
UNDERLYING GRANTED TO OR --------------------
OPTIONS/SARS EMPLOYEES BASE PRICE EXPIRATION FIVE TEN
NAME GRANTED(#)(1) IN FISCAL YEAR ($/SHARE) DATE PERCENT PERCENT
---- ------------- -------------- ---------- ---------- ------- -------
L.B. Campbell............... 150,000 3.0% $40.95 1/15/12 $3,862,500 $9,789,000
T.R. French................. 60,000 1.2% 40.95 1/15/12 1,545,000 3,915,600
J.D. Butler................. 50,000 1.0% 40.95 1/15/12 1,287,000 3,263,000
M.L. Howell................. 50,000 1.0% 40.95 1/15/12 1,287,000 3,263,000
T. O'Donnell................ 50,000 1.0% 40.95 1/15/12 1,287,000 3,263,000
---------------
(1) Fifty percent of the options granted may be exercised not earlier than one
year from the date of grant and the balance of the options granted may be
exercised not earlier than two years from the date of grant. All options
were granted on January 15, 2002. All options were granted at a purchase
price per share of 100% of the fair market value of Textron common stock on
the date of grant. Outstanding options will be exercisable immediately and
in full in the event of a change in control of Textron as defined in the
Textron 1999 Long-Term Incentive Plan.
(2) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates set by the Securities and Exchange Commission and,
therefore, are not intended to forecast possible future appreciation, if
any, of the price of Textron common stock. At a 5% and 10% annual rate of
stock price appreciation, the stock price would be approximately $66.70 and
$106.21 at the end of the ten-year term.
------------------------
AGGREGATED OPTION AND STOCK APPRECIATION RIGHTS EXERCISES AND FISCAL YEAR-END
VALUES
The following table sets forth information, with respect to the officers
named in the Summary Compensation Table, concerning: (i) the exercise during
Textron's 2002 fiscal year of stock options and stock appreciation rights and
(ii) unexercised options and stock appreciation rights held as of the end of
Textron's 2002 fiscal year, which were granted to these officers during 2002 and
in prior fiscal years under either the Textron 1999 Long-Term Incentive Plan or
a predecessor plan.
18
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION AND SAR VALUES
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS
SHARES FISCAL YEAR-END(#) AT FISCAL YEAR-END($)
ACQUIRED VALUE ---------------------------- -----------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ----------- ----------- ------------- ----------- -------------
L.B. Campbell........ 30,000 $569,400 651,609 150,000 $3,200,744 $181,500
T.R. French.......... -0- -0- 70,000 60,000 -0- 72,600
J.D. Butler.......... -0- -0- 124,000 50,000 -0- 60,500
M.L. Howell.......... 35,762 515,657 148,598 50,000 250,115 60,500
T. O'Donnell......... -0- -0- 55,000 50,000 -0- 60,500
LONG-TERM INCENTIVE PLAN
The following table provides information concerning performance share unit
awards made during Textron's 2002 fiscal year to the officers named in the
Summary Compensation Table pursuant to the Textron 1999 Long-Term Incentive Plan
for the 2002-2004 performance cycle.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
PERFORMANCE OR
NUMBER OF OTHER PERIOD ESTIMATED FUTURE PAYOUTS
PERFORMANCE UNTIL MATURATION UNDER NON-STOCK
NAME SHARE UNITS(#) OR PAYOUT PRICE BASED PLANS
---- -------------- ---------------- ------------------------
TARGET NUMBER OF
PERFORMANCE SHARE UNITS(#)
L.B. Campbell.............................. 120,000 3 years 120,000
T.R. French................................ 20,000 3 years 20,000
J.D. Butler................................ 20,000 3 years 20,000
M.L. Howell................................ 20,000 3 years 20,000
T. O'Donnell............................... 20,000 3 years 20,000
The number of performance share units earned by the officers named in the
Summary Compensation Table at the end of the three-year performance cycle will
be determined by the Board of Directors upon the recommendation of the
Organization and Compensation Committee and will be based 50% on aggregate
earnings per share (EPS), 40% on discretionary performance measures including
the execution of a restructuring plan, increased cost savings throughout the
supply chain, the implementation of Textron Six Sigma and improved talent base,
and 10% on return on invested capital (ROIC). In addition, these officers have
an opportunity to earn up to an additional 30% for achieving ROIC stretch
targets. Attainment of the maximum EPS payout level will result in earning 100%
of the value of the performance share units related to that target. Failure to
attain the minimum EPS target (20% payout level) will result in the failure to
earn any performance units related to that EPS target. Attainment between the
maximum and minimum EPS targets will result in earning a portion of the
performance share units related to those EPS targets determined by a
pre-established mathematical formula. The committee may determine an award less
than that determined by the formula but may not, however, determine an award
more than that derived by the formula. With respect to the ROIC target, if
enterprise-wide ROIC averages 1% or more above weighted average cost of capital
over the performance period, then this portion of the award will be earned.
Performance share units based on discretionary performance measures do not
qualify as Performance-Based Compensation under Section 162(m) of the Internal
Revenue Code. Performance share units related to one or more performance
measures shall be earned only as determined by the Organization and Compensation
Committee and may not exceed more than 100% of the value of such units. Payouts,
which are made in cash, will be determined by multiplying the number of
performance share units earned by the then current market value of Textron
common stock at the end of the performance period.
19
PENSION PLAN
The following table sets forth the estimated annual pension benefits
payable upon retirement under the Textron Master Retirement Plan formula to
persons in the specified remuneration and years of service classifications.
PENSION PLAN TABLE
YEARS OF SERVICE
-------------------------------------------------------------------------
REMUNERATION(1) 10 15 20 25 30 35
--------------- -- -- -- -- -- --
$ 500,000 $ 73,279 $ 109,919 $ 146,559 $ 183,199 $ 219,838 $ 256,478
600,000 88,279 132,419 176,559 220,699 264,838 308,978
750,000 110,779 166,169 221,559 276,949 332,338 387,728
1,000,000 148,279 222,419 296,559 370,699 444,838 518,978
1,250,000 185,779 278,669 371,559 464,449 557,338 650,228
1,500,000 223,279 334,919 446,559 558,199 669,838 781,478
1,750,000 260,779 391,169 521,559 651,949 782,338 912,728
2,000,000 298,279 447,419 596,559 745,699 894,838 1,043,978
2,250,000 335,779 503,669 671,559 839,449 1,007,338 1,175,228
2,500,000 373,279 559,919 746,559 933,199 1,119,838 1,306,478
2,750,000 410,779 616,169 821,559 1,026,949 1,232,338 1,437,728
3,000,000 448,279 672,419 896,559 1,120,699 1,344,838 1,568,978
3,250,000 485,779 728,669 971,559 1,214,449 1,457,338 1,700,228
3,500,000 523,279 784,919 1,046,559 1,308,199 1,569,838 1,831,478
3,750,000 560,779 841,169 1,121,559 1,401,949 1,682,338 1,962,728
4,000,000 598,279 897,419 1,196,559 1,495,699 1,794,838 2,093,978
4,250,000 635,779 953,669 1,271,559 1,589,449 1,907,338 2,225,228
4,500,000 673,279 1,009,919 1,346,559 1,683,199 2,019,838 2,356,478
4,750,000 710,779 1,066,169 1,421,559 1,776,949 2,132,338 2,487,728
5,000,000 748,279 1,122,419 1,496,559 1,870,699 2,244,838 2,618,978
---------------
(1) Based on highest consecutive five-year average compensation
Benefits under the formula are based upon the salaried employee's highest
consecutive five-year average compensation. Compensation for such purposes means
compensation listed in the "Salary" and "LTIP Payouts" columns, and annual
incentive compensation included in the "Bonus" column of the Summary
Compensation Table. However, for any employee who was first awarded performance
share units after October 26, 1999, under the formula LTIP payouts shall not be
included in compensation. Mr. French, Mr. O'Donnell and one other executive
officer have employment contracts with Textron that provide that their LTIP
payouts will be deemed to be included in compensation for purposes of the
formula. As of January 1, 2003, the years of credited service for the officers
named in the Summary Compensation Table were as follows: Mr. Campbell, 10 years;
Mr. French, 2 years; Mr. Butler, 6 years; Mrs. Howell, 22 years; and Mr.
O'Donnell, 3 years.
Annual pension amounts shown in the table above are computed on the basis
of a single life annuity and are not subject to any offset for Social Security
benefits. The Textron Master Retirement Plan is integrated with Social Security,
however, and the amounts in the table reflect that integration. Annual pension
amounts shown in the table are subject to annual pension limitations imposed by
the Internal Revenue Code. To compensate certain Textron executives, including
the officers named in the Summary Compensation Table, for the effect of these
limitations, Textron maintains a Supplemental Benefits Plan. Certain Textron
executives, including the officers named in the Summary Compensation Table, also
participate in the Supplemental Retirement Plan for Textron Key Executives,
which provides benefits to participants who remain in the employ of Textron
until at least age 60. Under this plan, these executives are entitled to receive
an annual supplemental pension benefit equal to 50% of their highest consecutive
five-year average compensation reduced by any amounts to which they are entitled
under the plans of Textron and any prior employer if they remain in the employ
of Textron until age 65 (and a reduced benefit if they remain in the employ of
Textron until at least age 60).
20
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth as of the end of Textron's 2002 fiscal year
for all Textron compensation plans previously approved by shareholders and
Textron compensation plans not previously approved by shareholders (a) the
number of securities to be issued upon the exercise of outstanding options,
warrants and rights, (b) the weighted-average exercise price of the outstanding
options, warrants and rights and (c) the number of securities remaining
available for future issuance under the plans other than securities to be issued
upon the exercise of the outstanding options, warrants and rights.
(A) (B) (C)
------------------------ ------------------------ ------------------------
Plan category........... Number of securities to Weighted-average Number of securities
be issued upon exercise exercise price of remaining available for
of outstanding options, outstanding options, future issuance under
warrants and rights warrants and rights equity compensation
plans (excluding
securities reflected in
column (a))
Equity compensation
plans approved by
security holders...... 14,140,449 $49.62 4,065,893
Equity compensation
plans not approved by
security holders...... -- -- --
Total................... 14,140,449 $49.62 4,065,893
Each non-employee director receives 1,000 restricted shares of Textron
common stock upon joining the Board. Except in the case of the director's death
or disability, or a change in control of Textron, the director may not sell or
transfer the shares until he or she has completed all of his or her successive
terms as a director and at least five years of Board service.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
The officers named in the Summary Compensation Table, and one other
executive officer have employment contracts with Textron that provide for a
three-year initial term, with a one-year renewal provision. The contracts
provide for specified levels of severance protection based on the reason for
termination, including change in control, irrespective of the remaining term of
the agreements. The contracts provide excise tax protection for change in
control terminations. The contracts provide that base salary will not be reduced
and the officers will remain eligible for participation in Textron's executive
compensation and benefit plans during the term of the contracts.
Certain benefit plans and arrangements in which the officers named in the
Summary Compensation Table participate have provisions that will apply in the
event of a change in control of Textron. Generally, a "change in control" under
the plans will occur upon: (i) any non-Textron person or group becoming (other
than by acquisition from Textron or a related company) the beneficial owner of
more than 30% of the then outstanding voting stock of Textron, (ii) during any
two-year period, directors elected or nominated by the Board ceasing to
constitute a majority thereof, (iii) shareholder approval of a merger or
consolidation of Textron with any other corporation, other than a merger or
consolidation in which the voting securities of Textron would continue to
represent more than 50% of the combined voting power of the voting securities of
Textron or such surviving entity, or (iv) shareholder approval of a plan of
complete liquidation of Textron or an agreement for the sale or disposition by
Textron of all or substantially all of its assets. The Survivor Benefit Plan
provides that, upon a change in control, certain assets (generally, paid up life
insurance in a face amount equal to two times the base salary of an active or
former officer) will be transferred to each active or former executive or
beneficiary. The Supplemental Benefits Plan and the Deferred Income Plan provide
that, in the
21
event of a change in control of Textron, the amounts accrued under such plans
will become payable immediately. The Annual Incentive Compensation Plan
establishes minimum incentive compensation awards for the fiscal year in which
the change in control occurs. The Textron 1990, 1994 and 1999 Long-Term
Incentive Plans provide that, in the event of a change in control of Textron,
outstanding options will become exercisable immediately and in full, and the
stated value of all outstanding performance share units will be deemed earned
and will be payable immediately and in full in the event of a change in control
of Textron. The Supplemental Retirement Plan for Textron Key Executives provides
that, in the event of a change in control of Textron, participants will be fully
vested. The Textron Savings Plan provides for full vesting of the accounts of
participants whose employment ends within two years after a change in control of
Textron. The Textron Master Retirement Plan provides that: (i) if the plan is
terminated within three years after a change in control of Textron, surplus
assets will be applied to increase the benefits of active participants up to
maximum limits provided by the Internal Revenue Code, and (ii) in the event of a
plan merger, consolidation or transfer within three years after such a change in
control, the vested accrued benefit of each affected individual will be
increased as provided in item (i), will be fully vested, and will be satisfied
through the purchase of a guaranteed annuity contract. Mr. Campbell's and Mr.
French's restricted stock awards are payable immediately in the event of a
change in control of Textron.
TRANSACTIONS WITH MANAGEMENT
As permitted by his employment contract with Textron, Mr. O'Donnell remains
a partner of the Washington, D.C. law firm, Williams & Connolly LLP, which has
provided legal services to Textron from time to time for over twenty years. Mr.
O'Donnell will not receive any share in firm income resulting from any services
provided by the firm to Textron. During fiscal year 2002, Williams & Connolly
was paid $578,621 for such services. It is expected that fees in fiscal year
2003 will be approximately the same amount. These transaction are all conducted
at arms-length. During 2002, Citizens Financial Group, Inc., of which Mr. Fish
is Chairman, President and Chief Executive Officer, entered into a $25,000,000
participation in a $150,000,000 two-year Term Loan to Textron Financial
Corporation ("TFC"), a wholly owned subsidiary of Textron, agented by Mizuho
Corporate Bank Limited. The loan matures on April 10, 2004 and is unsecured. It
is priced at LIBOR plus 100 basis points. There is no amortization and the
entire balance is due at maturity. The loan is subject to a support and
subordination agreement with Textron. Citizens also entered into in 2002 a
$300,000 standby Letter of Credit to Textron maturing December 15, 2003. The
Letter of Credit is subject to an annual evergreen renewal provision at the
Citizen's discretion and is priced at 50 basis points with a standard applicable
issuance fee.
22
PERFORMANCE GRAPH
Set forth below is a stock performance graph which shows the change in
market value of $100 invested on December 31, 1997, in Textron common stock,
Standard & Poor's 500 Stock Index and a peer group index. The cumulative total
shareholder return assumes dividends are reinvested. Textron is a global,
multi-industry company with market-leading operations in five business
segments -- Aircraft, Industrial Components, Industrial Products, Fastening
Systems and Finance. The peer group consists of 18 companies in comparable
industries in the following Standard & Poor's 500 price index industry groups:
aerospace/defense -- The Boeing Company, General Dynamics Corporation, Lockheed
Martin Corporation and Northrup Grumman Corporation; auto parts &
equipment -- ITT Industries, Inc. and TRW Inc.; defense electronics -- Raytheon
Company; diversified machinery -- Dover Corporation; diversified
manufacturing -- Crane Co., Honeywell International, Inc., Illinois Tool Works
Inc., Johnson Controls Inc., Tyco International LTD. and United Technologies
Corporation; electrical equipment -- Rockwell International Company; specialized
manufacturing -- Millipore Corporation, Pall Corp. and Parker Hannifin Corp. The
companies in the indices are weighted by market capitalization.
LOGO
----------------------------------------------------------------------------------------------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1997 1998 1999 2000 2001 2002
----------------------------------------------------------------------------------------------------------------------
Textron Inc. $100.00 $123.47 $126.72 $ 78.77 $ 72.10 $77.02
----------------------------------------------------------------------------------------------------------------------
S&P 500 $100.00 $128.58 $155.64 $141.46 $124.65 $97.10
----------------------------------------------------------------------------------------------------------------------
Peer Group $100.00 $105.42 $111.63 $137.41 $123.46 $98.28
----------------------------------------------------------------------------------------------------------------------
AMENDMENT TO THE TEXTRON 1999 LONG-TERM INCENTIVE PLAN
The Textron 1999 Long-Term Incentive Plan, approved by the shareholders on
April 28, 1999, and subsequently amended with shareholder approval on April 25,
2001 and April 24, 2002, was established as part of a continuing program to
attract, retain and motivate key employees. Through the grant of awards based on
Textron's long-term performance, the plan has increased the personal involvement
of officers and other
23
selected employees in Textron's continued growth and success. The number of
shares of restricted stock remaining available for grant under the plan is not
sufficient to continue to make awards at levels consistent with the objective of
Textron's program to attract, retain and motivate key employees. The Board of
Directors has adopted a further amendment to the plan, subject to shareholder
approval, increasing the total number of restricted stock available for grant.
The principal features of the amended plan are described below.
The amended plan authorizes the granting of awards to key employees of
Textron and its related companies in any one or more of the following forms: (i)
options to purchase Textron common stock, (ii) performance share units, payable
only in cash, and (iii) restricted stock; and to directors who are not full-
time employees of Textron, its divisions or its subsidiaries in the form of
options to purchase Textron common stock.
The total number of shares of Textron common stock for which options may be
granted under the amended plan is 14,000,000, of which 3,350,143 are available
for grant, and the maximum number of stock options that may be granted to any
individual in any calendar year is 150,000, in each case subject to adjustment
as described below. Shares of Textron common stock issued upon exercise of
options may be either authorized but unissued shares or previously issued shares
held in the treasury. The maximum number of performance share units which may be
granted under the amended plan is 2,000,000, of which 427,103 are available for
grant, and the maximum number of performance share units that may be granted to
any individual for any award period is 120,000 in each case subject to
adjustment as described below. Performance share units are payable only in cash.
The maximum number of shares of restricted stock which may be granted under the
amended plan is 2,000,000, of which 1,600,000 are available for grant, and the
maximum number of shares of restricted stock which may be granted to any
individual in any one calendar year is 200,000. The closing price of Textron
common stock as reported for New York Stock Exchange Composite Transactions on
March 3, 2003, was $36.12.
The amended plan will be administered by the Organization and Compensation
Committee of the Board of Directors, which will determine the key employees and
non-employee directors to whom awards will be granted, the form and amount of
awards, the dates of grant and the terms and provisions of each award (which
need not be identical). The committee members will certify that they are
"outside directors" under the Internal Revenue Code definition. The Board of
Directors may delegate the committee's responsibilities to one or more officers
or committees of Textron, but all decisions concerning the amended plan that
relate to executive officers of Textron will be made by the committee.
STOCK OPTIONS
The amended plan provides for both incentive stock options, as defined in
Section 422 of the Internal Revenue Code, and non-qualified options.
All options granted under the amended plan will be evidenced in writing.
Each option will be at a purchase price per share of not less than 100% of the
fair market value of Textron common stock at the time the option is granted. The
purchase price must be paid in full at the time of exercise. The purchase price
may be paid in cash, in shares of common stock with a value equal to the
exercise price or in a combination thereof. The term of each option will be for
such period as the committee determines, but no option may be exercised later
than ten years after the date of grant.
The amended plan contains a provision allowing the plan to be modified to
comply with local country laws.
If an optionee ceases to be an employee or a director during the term of an
option, the optionee may exercise the option within specified periods after such
termination. Discharge or removal for cause, however,
24
terminates all option rights immediately. In the case of the death of an
optionee, the option may be exercised by the optionee's estate within one year
after death or until expiration of the option, whichever occurs first. During an
optionee's lifetime, options may be exercised only by the optionee or the
optionee's legal guardian or representative.
PERFORMANCE SHARE UNITS
Performance share units are valued for payment purposes at the market value
of Textron common stock on the date the performance share units are earned and
payable only in cash.
All performance share unit grants under the amended plan will be evidenced
in writing. In making each grant of performance share units, the committee will
establish the applicable performance targets or measures. With respect to
performance share units based on performance targets, the committee will
establish targets only in terms of one or more of the following: Textron's
return on invested capital, return on equity, economic profit, cash flow,
shareholder value, net operating profit after taxes, adjusted net income, net
operating profit margin or earnings per share. Additionally, attainment of a
primary performance target will result in the earning of 100% of the value of
the performance share units related to that target. Failure to attain a minimum
performance target will result in the failure to earn any performance share
units related to that performance target. Attainment between the primary and
minimum performance targets will result in earning a portion of the performance
share units related to those performance targets determined by a pre-established
mathematical formula. The committee may determine an award less than that
determined by the formula but may not, however, determine an award more than
that derived by the formula. Performance measures may be expressed in terms of
any standard, financial or otherwise, as the committee may determine. In
addition, stretch targets related to return on invested capital will be
established. Such targets will provide the participants with the opportunity to
earn up to an additional 30% of the value of the performance share units.
Performance share units related to one or more performance measures shall be
earned only as determined by the committee and may not exceed more than 130% of
the value of such units. For purposes of determining whether performance targets
have been met, the committee may equitably restate Textron's return on invested
capital, return on equity, earnings per share or any other performance targets
to take into account the effect of acquisitions, dispositions, extraordinary and
non-recurring events, restructurings, recapitalizations, stock dividends, stock
splits or other similar events or any change in accounting practices, tax laws
or other laws or regulations that significantly affect Textron's financial
performance. Payment of earned performance share units will be in cash in an
amount equal to the product of the number of performance share units granted,
the current value of Textron common stock for the date on which the performance
share units have been earned and the percent of the award earned. Prior to
making such payment, the committee will certify that the goals have been
attained or satisfied.
In the case of the death, disability or normal or early retirement of a
grantee more than one year into an award period, performance share units may
continue to be earned on a pro rata basis. In other cases in which Textron
employment ends more than one year into an award period, a former employee will
continue to earn related performance share units on a pro rata basis only as
determined by the committee. Upon any termination of employment for less than
acceptable performance, all outstanding performance share units will be
cancelled.
RESTRICTED STOCK
A restricted stock award represents an award made in shares of Textron
common stock. The terms of an award will be set forth in a written agreement.
Such terms may include, but are not limited to, continued employment with
Textron and/or achievement of performance goals. With respect to restricted
stock based on performance targets, the committee will establish targets only in
terms of one or more of the following:
25
Textron's return on invested capital, return on equity, economic profit, cash
flow, shareholder value, after-tax profit, adjusted net income, net operating
profit or earnings per share.
The committee may provide that a restricted stock award earn dividends or
dividend equivalents. Such dividends or dividend equivalents may be paid
currently or credited to a grantee's account. Any crediting of dividends or
dividend equivalents may be made subject to such restrictions and conditions as
the committee may establish, including reinvestment in additional shares or
share equivalents.
In 2003, the Board granted restricted stock units which are payable only in
cash to Textron's executive and certain other officers. If the amended plan is
approved by the shareholders, the Board has authorized the exchange of those
previously granted restricted stock units for shares of restricted stock. The
following table sets forth the number of shares authorized for the exchange. The
dollar value ($) reported in the table below is based on $36.12, which was the
closing price of Textron common stock on March 3, 2003. In addition to the
shares reported in the table below, Textron anticipates granting additional
shares of restricted stock to other eligible employees in 2003.
DOLLAR NUMBER
NAME VALUE($) OF SHARES
---- -------- ---------
L.B. Campbell............................................... $1,191,960 33,000
T.R. French................................................. 433,440 12,000
J.D. Butler................................................. 252,840 7,000
M.L. Howell................................................. 252,840 7,000
T. O'Donnell................................................ 252,840 7,000
All current executive officers as a group................... 2,383,920 66,000
All current non-employee directors as a group............... 0 0
All other officers and employees as a group................. 1,535,100 42,500
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the Federal income tax consequences with
respect to incentive options, non-qualified options, performance share units and
restricted stock.
Incentive Options
An optionee will not realize taxable income and Textron will not receive
any deduction at the time of a grant or exercise of incentive options. If shares
acquired upon the exercise of incentive options are not disposed of within two
years from the date of grant, nor within one year from the date of exercise, any
gain or loss realized upon disposition of the shares will be treated as
long-term capital gain or loss. If the shares received upon exercise of an
incentive option are disposed of prior to the end of the applicable holding
periods described above, the difference between: (a) the lesser of the fair
market value of the shares on the date of exercise or the price received upon
disposition of the shares and (b) the exercise price will be taxable to the
optionee as ordinary income in the year in which such disposition occurs, and
Textron will be entitled to a deduction in the amount of such ordinary income
recognized by the optionee. Any further gain or loss upon disposition will be
treated as short-term or long-term capital gain or loss depending on the holding
period of the shares. If incentive options are exercised with Textron common
stock previously owned by the optionee, such exercise will not be considered a
taxable disposition of the previously owned stock unless such stock was itself
received on exercise of incentive options and the holding periods described
above for the exchanged stock have not been satisfied. To the extent that the
aggregate option price of an optionee's incentive options which become
exercisable in any year exceeds $100,000, such options will be treated as
non-qualified options. If incentive options are exercised more than three months
after the optionee's employment with Textron has ended, the
26
incentive options will be treated as non-qualified options. For purposes of the
alternative minimum tax only, the excess of the fair market value of the shares
at the time of exercise of incentive options over the option price will be
treated as additional income unless such shares are disposed of in the year of
exercise.
Non-qualified Options
An optionee will not recognize taxable income and Textron will not receive
any deduction at the time of a grant of non-qualified options. Upon the exercise
of non-qualified options, the excess of the fair market value on the date of
exercise of the shares received over the exercise price for such shares will be
taxable to the optionee as ordinary income, and Textron will be entitled to a
deduction at that time for the amount of such ordinary income recognized by the
optionee. The subsequent sale of such shares by the optionee will be treated as
short-term or long-term capital gain or loss, as the case may be, in an amount
equal to the difference between the amount realized on such sale and the fair
market value of the shares at the time of exercise. If options are exercised
with Textron common stock previously owned by the optionee, such exercise will
not be considered a taxable disposition of the previously owned stock and no
gain or loss will be recognized with respect to such stock upon such exercise.
If additional shares are received by the optionee, the excess of the fair market
value of all of the shares received over the sum of the fair market value of all
of the shares surrendered and any cash payment made by the optionee upon
exercise will be taxable as ordinary income to the optionee and will be
deductible by Textron.
Performance Share Units
An employee will not recognize taxable income and Textron will not receive
any tax deduction by reason of the grant or award of a performance share unit.
The employee will recognize ordinary income equal to the cash paid to the
employee at the time a performance share unit is earned and paid, and Textron
will be entitled to deduction for the amount of such ordinary income recognized
by the employee.
Restricted Stock
An employee will not recognize taxable income and Textron will not receive
any tax deduction by reason of the grant of restricted stock. However, when
restrictions on restricted stock lapse there are federal income tax
consequences. Generally, the fair market value of the stock will not be taxable
to the grantee as ordinary income and Textron will not receive a tax deduction
until the year in which the grantee's interest in the stock is freely
transferable or is no longer subject to a substantial risk of forfeiture.
However, the grantee may elect to recognize income when the stock is received.
If this election is made, the amount taxed to the grantee as ordinary income and
deducted by Textron is determined as of the date of receipt of the restricted
stock.
Section 162(m) of the Internal Revenue Code
See summary under the heading "Tax Considerations" on page 14 for a
description of the implications of Section 162(m) of the Internal Revenue Code.
GENERAL
The maximum number of shares of Textron common stock that may be subject to
options, the maximum number of performance share units and restricted stock
available for grant, the number of shares of common stock covered by each
outstanding option and the price per share thereof, and the maximum number of
options and shares of restricted stock that may be granted to any individual
employee will be adjusted in the event of a recapitalization, stock dividend,
stock split or other similar event. In addition, shares which are subject to
options which expire unexercised or which are terminated or cancelled will be
added to the
27
remaining maximum number of shares of Textron common stock that may be subject
to options. Performance share units granted under the plan which are terminated
or unearnable for any reason, will be added to the remaining number of
performance share units available for grant, shares of restricted stock granted
under the plan which are terminated or on which the restrictions will not lapse
for any reason, will be added to the remaining number of shares of restricted
stock available for grant under the plan.
The Board of Directors may at any time terminate the amended plan or any
part thereof and may from time to time further amend the amended plan as it may
deem advisable, but the Board may not, without shareholder approval, increase
the aggregate number of shares of Textron common stock which may be issued under
the amended plan (except as such number may be adjusted in the event of a
recapitalization, stock dividend, stock split or similar event), extend the
period during which an incentive option may be exercised beyond ten years, or
materially increase the benefits with respect to grants. Termination or
amendment of the plan may not, without the consent of the participant, affect
the participant's rights under an award previously granted.
Awards granted under the amended plan are not assignable or transferable by
the recipient thereof, except by will or by the laws of descent and
distribution.
The amended plan provides that outstanding options will be exercisable
immediately and in full, all outstanding performance share units will be deemed
earned and payable immediately and in full, and all shares of restricted stock
will vest immediately in the event of certain changes in control of Textron
described in the amended plan, unless determined otherwise by the committee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE ADOPTION OF
THE AMENDMENT TO THE TEXTRON 1999 LONG-TERM INCENTIVE PLAN (ITEM 2 ON THE PROXY
CARD).
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee has selected the firm of Ernst & Young LLP to audit
Textron's consolidated financial statements for 2003, and recommends to the
shareholders ratification of the appointment of Ernst & Young LLP as independent
auditors for 2003. If this resolution is defeated, the Audit Committee will
reconsider its selection. A representative of Ernst & Young LLP will be present
at the annual meeting, will have the opportunity to make a statement and will be
available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP (ITEM 3 ON THE PROXY CARD).
SHAREHOLDER PROPOSAL
Mercy Consolidated Asset Management Program, Dominican Sisters of Hope,
Sisters of Mercy of the Americas, school sisters of Notre Dame of St. Louis,
Sisters of Charity, BVM, Trinity Health and the General Board of Pension and
Health Benefits of the United Methodist Church have notified Textron that they
intend to propose the following resolution at the 2003 annual meeting of
shareholders (the addresses of, and the number of shares held by, each of the
proponents can be obtained upon request from Textron's corporate secretary):
RESOLVED: Shareholders request the Company to disclose all significant
promises (including technology transfers), made to foreign governments or
foreign firms in connection with foreign military sales, intended to offset
their U.S. dollar cost of weapons purchased by foreign nations.
28
The proponents have submitted the following statement in support of this
proposal:
Definitions
Offsets are agreements by U.S. military manufacturers and the U.S.
government to direct some benefits -- usually jobs or technology -- back to
the purchasing country as a condition of sale. The value of offsets
sometimes exceeds the weapons' cost.
Direct offsets transfer purchasing dollars and/or work and military
technology (often through licensing or joint production) to the recipient
country to produce a U.S. weapons system, its components, or
sub-components.
Indirect offsets may involve investments in the purchasing country,
counter-trade agreements to market foreign goods, or transfers of
commercial technology.
U.S. taxpayers finance offsets by paying for the research and
development of weapons and providing grants, loans and loan guarantees for
the sale. Offsets also lead to the loss of U.S. jobs.
Textron
In Fiscal Year 2001, Textron was ranked as 22nd among Department of
Defence contractors with $534 billion in contracts (Government Executive,
August 2002).
Are Offset Agreements Proprietary?
The U.S. arms industry guards information on offsets closely, claiming
"proprietary privilege." However, purchasing countries often disclose such
information for their own political purposes, e.g., to convince their
citizens that they are gaining some tangible benefits from the millions or
billions of dollars spent on arms.
The proponents believe that insofar as U.S. arms manufacturers engage
in foreign policy by negotiating private offset agreements with foreign
governments, and export domestic jobs while claiming that foreign military
sales create jobs, they forfeit their proprietary claims to this
information. Sound public policy demands transparency and public debate on
these matters.
Offset Examples
In 1999, two U.S. companies offered lucrative production-sharing
contracts with Israeli military manufacturers, in connection with bidding
on a contract with Israel.
Between 1993 and 1998 U.S. defense companies entered into new offset
agreements valued at $21 billion in support of $38.5 billion worth of
defense export sales. For every dollar a U.S. company received from an arms
sale associated with offsets, it returned, on average, 54.5 cents worth of
offset obligations to the purchasing country ("Offsets in Defense Trade,
May 2001," Commerce Department).
1998 data shows that U.S. prime defense contractors reported 41 new
offset agreements valued at $1.8 billion in support of $3.1 billion in
export contracts.
Arms Exports Don't Create Jobs
The faith-based proponents submit this resolution because arms exports
do not create jobs. A study of a sample of 1993-1998 defense offset
transactions found that they resulted in the loss of $2.3 billion in work,
(or 25,300 work-years), which would have gone to U.S. firms and their
workers if the
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export sales had been made without offsets. (Status Report of the
Presidential Commission on Offsets in International Trade, 2001).
Current weapons proliferation and the export of jobs and technology
through offsets raise profound moral and ethical, as well as fiscal,
questions that shareholders should address.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE ADOPTION OF THIS
SHAREHOLDER PROPOSAL.
The Board feels strongly that this proposal is contrary to the best
interests of Textron, its shareholders and its employees.
Textron is subject to the laws and regulations of the United States
Government, which restrict the export of military goods, software and
technology. A foreign military sale may only be made when the United States
Government has determined that the sale, including all terms and conditions
relating to the sale, is consistent with the national security, foreign policy
and economic interests of the United States. Textron has in place extensive
procedures to ensure that all foreign military sales are made in strict
compliance with all applicable United States laws and regulations. Textron
already includes in its Annual Report to shareholders information on its foreign
military sales, including the amount of such sales, the types of products
involved and the specific countries to which the majority of sales were made.
The additional disclosures requested by the proposal would be of limited use to
the great majority of Textron's shareholders, but could provide Textron's
competitors with valuable information regarding Textron's sales procedures,
personnel matters and contract terms.
ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL
(ITEM 4 ON THE PROXY CARD).
OTHER MATTERS TO COME BEFORE THE MEETING
The Board of Directors does not know of any matters which will be brought
before the meeting other than those specifically set forth in the notice
thereof. If any other matter properly comes before the meeting, it is intended
that the persons named in and acting under the enclosed form of proxy or their
substitutes will vote thereon in accordance with their best judgment.
SHAREHOLDER PROPOSALS AND OTHER MATTERS FOR 2004 ANNUAL MEETING
Shareholder proposals intended to be presented at the 2004 annual meeting
of shareholders must be received by Textron on or before November 13, 2003, for
inclusion in the proxy statement and form of proxy relating thereto. Textron's
By-Laws contain provisions which impose certain additional requirements upon
shareholder proposals.
In order for a shareholder to bring other business before a shareholder
meeting, timely notice must be received by Textron in advance of the meeting.
Under Textron's By-Laws, such notice must be received not less than 90 nor more
than 120 days before the anniversary date of the immediately preceding annual
meeting of shareholders (but if the annual meeting is called for a date that is
not within 30 days of the anniversary date, then the notice must be received
within 10 days after notice of the meeting is mailed or other public disclosure
of the meeting is made) or between December 25, 2003, and January 24, 2004, for
the 2004 annual meeting. The notice must include a description of the proposed
business, the reasons therefor, and other specified matters. These requirements
are separate from and in addition to the requirements a shareholder must meet to
have a proposal included in Textron's proxy statement. These time limits also
apply in
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determining whether notice is timely for purposes of rules adopted by the
Securities and Exchange Commission relating to the exercise of discretionary
voting authority by Textron.
By order of the Board of Directors,
/s/ Frederick K. Butler
Frederick K. Butler
Vice President Business Ethics and
Corporate Secretary
March 13, 2003
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN
PERSON, PLEASE VOTE YOUR PROXY VIA INTERNET OR TELEPHONE (SEE ENCLOSED PROXY
CARD) OR FILL IN, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD IN THE
ENVELOPE PROVIDED.
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[TEXTRON LOGO]
ANNUAL MEETING OF
TEXTRON SHAREHOLDERS
WEDNESDAY, APRIL 23, 2003, 10:30 A.M.
RHODE ISLAND CONVENTION CENTER
ONE SABIN STREET
PROVIDENCE, RHODE ISLAND
You can submit your proxy by mail, by telephone or through the
Internet. Please use only one of the three response methods.
BY MAIL
Mark, sign and date your
proxy card and return it in
the enclosed envelope to:
Wachovia Bank, N.A.
Attn: Proxy Tabulation
NC-1153 P.O. Box 217950
Charlotte, NC 28254-3555
Or
BY TELEPHONE
(Available only until 5:00 pm EDST
on April 20, 2003)
Call toll free 1-866-209-1705 on
any touch-tone telephone to authorize
the voting of your shares. You may
call 24 hours a day, 7 days a week.
You will be prompted to enter the
control number in the box below;
then just follow the simple
instructions.
Or
THROUGH THE INTERNET
(Available only until 5:00 pm EDST
on April 20, 2003)
Access the website at
HTTPS://WWW.PROXYVOTENOW.COM/TXT
to authorize the voting of your shares. You
may access the site 24 hours a day, 7 days a
week. You will be prompted to enter the
control number in the box below; then just
follow the simple instructions.
IF YOU VOTE BY TELEPHONE OR BY INTERNET, PLEASE DO NOT
MAIL BACK THIS PROXY CARD.
- FOLD AND DETACH HERE -
-------------------------------------------------------------------------------
[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
THIS PROXY, WHEN PROPERLY SIGNED, WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED
SHAREHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE
NOMINEES LISTED BELOW, FOR PROPOSALS 2 AND 3 AND AGAINST PROPOSAL 4, OR IF THE
CARD CONSTITUTES VOTING INSTRUCTIONS TO A SAVINGS PLAN TRUSTEE, THE TRUSTEE WILL
VOTE AS DESCRIBED IN THE PROXY STATEMENT.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE
NOMINEES LISTED BELOW AND FOR PROPOSALS 2 AND 3.
1. Election of FOR* WITHHELD FROM ALL
Directors [ ] [ ]
*Except vote withheld from the following nominee(s):
-----------------------
NOMINEES:
(01) Teresa Beck
(02) Lewis B.Campbell
(03) Lawrence K. Fish
(04) Joe T. Ford
Change of address/ comments on reverse side. [ ]
2. Amendment to Textron 1999 Long-Term Incentive Plan FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Ratification of appointment of independent auditors [ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST PROPOSAL 4.
4. Shareholder proposal relating to Foreign Military Sales FOR AGAINST ABSTAIN
[ ] [ ] [ ]
PLEASE SIGN EXACTLY AS NAME(S) APPEAR ON THE REVERSE SIDE. JOINT OWNERS SHOULD
EACH SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
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SIGNATURE(S) DATE
[TEXTRON LOGO]
ANNUAL MEETING
OF
TEXTRON SHAREHOLDERS
RHODE ISLAND CONVENTION CENTER
ONE SABIN STREET
PROVIDENCE, RHODE ISLAND
IMPORTANT NOTICE
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, VOTE, SIGN, DATE AND RETURN YOUR PROXY,
OR SUBMIT YOUR VOTE BY INTERNET OR BY TELEPHONE AS SOON AS POSSIBLE. BY DOING
SO, YOU MAY SAVE TEXTRON THE EXPENSE OF ADDITIONAL SOLICITATION.
- FOLD AND DETACH HERE -
-------------------------------------------------------------------------------
TEXTRON INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR ANNUAL MEETING OF
SHAREHOLDERS, APRIL 23, 2003
THE UNDERSIGNED HEREBY APPOINT(S) LEWIS B.CAMPBELL, TERRENCE O'DONNELL AND
FREDERICK K. BUTLER, OR ANY ONE OR MORE OF THEM, ATTORNEYS WITH FULL POWER OF
SUBSTITUTION AND REVOCATION TO EACH, FOR AND IN THE NAME OF THE UNDERSIGNED WITH
ALL THE POWERS THE UNDERSIGNED WOULD POSSESS IF PERSONALLY PRESENT, TO VOTE THE
SHARES OF THE UNDERSIGNED IN TEXTRON INC. AS INDICATED ON THE PROPOSALS REFERRED
TO ON THE REVERSE SIDE HEREOF AT THE ANNUAL MEETING OF ITS SHAREHOLDERS TO BE
HELD APRIL 23, 2003, AND AT ANY ADJOURNMENTS THEREOF, AND IN THEIR OR HIS
DISCRETION UPON ANY OTHER MATTER WHICH MAY PROPERLY COME BEFORE SAID MEETING.
THIS CARD ALSO CONSTITUTES VOTING INSTRUCTIONS TO THE TRUSTEES UNDER THE TEXTRON
SAVINGS PLANS TO VOTE, IN PERSON OR BY PROXY, THE PROPORTIONATE INTEREST OF THE
UNDERSIGNED IN THE SHARES OF COMMON STOCK OF TEXTRON INC. HELD BY THE TRUSTEES
UNDER THE PLANS, AS DESCRIBED IN THE PROXY STATEMENT.
(CHANGE OF ADDRESS/COMMENTS)
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(IF YOU HAVE WRITTEN IN THE ABOVE SPACE, PLEASE MARK THE
CORRESPONDING BOX ON THE REVERSE SIDE OF THIS CARD.)
SEE REVERSE
SIDE