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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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Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Revised Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
Textron Inc.
(Name of Registrant as Specified In Its Charter)
Textron Inc.
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act
Rule 0-11 (Set forth the amount on which the filing fee is calculated and
state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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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 2001 annual meeting of shareholders of Textron Inc. will be held on
Wednesday, April 25, 2001, 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 II 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 2001, 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 March 2, 2001. 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.
A list of shareholders entitled to vote at the 2001 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 corporate office, 40 Westminster
Street, Providence, Rhode Island 02903.
Sincerely,
/s/ Lewis B. Campbell
Lewis B. Campbell
Chairman and Chief Executive Officer
Providence, Rhode Island
March 15, 2001
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CONTENTS
PAGE
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Proxy Statement............................................. 1
General................................................ 1
Shareholders Who May Vote.............................. 1
How to Vote............................................ 1
How Proxies Work....................................... 1
Savings Plan Participants.............................. 1
Revoking a Proxy....................................... 1
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)............ 2
Security Ownership of Certain Beneficial Holders............ 9
Security Ownership of Management............................ 10
Section 16(a) Beneficial Ownership Reporting Compliance..... 11
Report of the Audit Committee............................... 11
Report of the Organization and Compensation Committee on
Executive Compensation.................................... 12
Executive Compensation...................................... 17
Summary Compensation Table............................. 17
Stock Option/SAR Grants in Last Fiscal Year............ 18
Aggregate 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 2002 Annual
Meeting................................................... 30
Appendix A: Audit Committee Charter......................... A-1
EVERY SHAREHOLDER'S VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY CARD.
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TEXTRON INC.
PROXY STATEMENT
GENERAL
This proxy statement, which is being mailed on or about March 15, 2001, 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 25, 2001, 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 March 2, 2001, will
be entitled to vote. As of March 2, 2001, Textron had outstanding 140,723,761
shares of Common Stock; 140,579 shares of $2.08 Cumulative Convertible Preferred
Stock, Series A; and 66,309 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.
HOW TO VOTE
You may vote by proxy or in person at the meeting. To vote by proxy, please
complete, sign, date and return your proxy card in the accompanying postage-paid
envelope. 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.
HOW PROXIES WORK
When you sign, date and return the enclosed proxy card, your shares will be
voted at the meeting in the manner you direct. If you do not specify how to
vote, your shares will be voted for the election of the four nominees for
director described below, for approval of the amendment to the Textron 1999
Long-Term Incentive Plan, for ratification of the appointment of Ernst & Young
LLP as Textron's independent auditors, and against the shareholder proposal
described below.
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 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 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.
REVOKING A PROXY
You may revoke your proxy at any time before it is voted by submitting a
new proxy with a later date, delivering a written notice of revocation to
Textron's corporate secretary, or voting in person at the meeting.
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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 $13,500, 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 First Chicago
Trust Company, Textron's independent transfer agent and registrar, and certified
by Inspectors of Election who are employees of First Chicago.
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 March 2, 2001, is acceptable proof. If you are a registered holder,
no proof is required.
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
Paul E. Gagne, John A. Janitz, Lord Powell of Bayswater KCMG
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and Thomas B. Wheeler to Class II. 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 II -- NOMINEES FOR TERMS EXPIRING IN 2004
[PHOTO OF PAUL E. GAGNE]
PAUL E. GAGNE DIRECTOR SINCE 1995
Mr. Gagne, 54, was President and chief executive officer
of Avenor Inc., a forest products company, and is now
consultant to Kruger Inc. in corporate strategic planning and
acquisitions. 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, a major Canadian privately held
producer of paper and tissue. He is a director of Inmet Mining
Corporation, Wajax Limited, and Kruger Tissue Group (U.K.).
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[Photo of John A. Janitz]
JOHN A. JANITZ DIRECTOR SINCE 1999
Mr. Janitz, 58, is President and chief operating officer
of Textron. He joined Textron in 1996 as Chairman, President
and chief executive officer of Textron Automotive Company and
assumed his present position in March 1999. From 1990 to 1996,
he was Executive Vice President and General Manager of TRW
Inc.'s Occupant Restraint Group based in Cleveland, Ohio, a
worldwide business that develops, manufactures and markets air
bags, seat belts and fastening systems. Prior to joining TRW,
he was President of Wickes Manufacturing Company, an
automotive supplier based in Southfield, Michigan. Mr. Janitz
is a director of the National Association of Manufacturers and
Manufacturers Alliance/MAPI.
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[Photo of Lord Powell]
LORD POWELL OF BAYSWATER KCMG DIRECTOR SINCE FEBRUARY 2001
Lord Powell, 59, 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. He
is President of the China-Britain Business Council, Chairman
of the Singapore-British Business Council and Chairman of the
Trustees of the Oxford University Business School. He is a
director of Louis-Vuitton Moet Hennessy (LVMH), Caterpillar
Inc., Mandarin Oriental Hotel Group, Sagitta Asset Management
Ltd., Phillips Fine Art Auctioneers 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, and the
International Advisory Board of HCL Technologies.
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[Photo of Thomas B. Wheeler]
THOMAS B. WHEELER DIRECTOR SINCE 1993
Mr. Wheeler, 64, is the retired Chairman and chief
executive officer of Massachusetts Mutual Life Insurance
Company. 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 director of Massachusetts Mutual Life Insurance
Company. He is a trustee of Springfield College, the
Basketball Hall of Fame and the Woods Hole Oceanographic
Institution.
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DIRECTORS CONTINUING IN OFFICE
CLASS III -- TERMS EXPIRE IN 2002
[Photo of H. Jesse Arnelle]
H. JESSE ARNELLE DIRECTOR SINCE 1993
Mr. Arnelle, 67, was a senior partner in the law firm of
Arnelle, Hastie, McGee, Willis & Greene, San Francisco, 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 and Gannett Corporation. 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.
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[Photo of John D. Macomber]
JOHN D. MACOMBER DIRECTOR SINCE 1993
Mr. Macomber, 73, 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 and Senior
Partner of McKinsey & Co. from 1954 to 1973. He is a director
of Lehman Brothers Holdings Inc., Mettler-Toledo International
Inc. and Rand McNally. 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.
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[Photo of Brian H. Rowe]
BRIAN H. ROWE DIRECTOR SINCE 1995
Mr. Rowe, 69, 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 a director of Atlas Air,
Inc., B/E Aerospace, Fifth Third Bank, Stewart & Stevenson
Services, Inc., Convergys Corporation, Acterna Corporation,
and Fairchild Dornier, and is Chairman of AeroEquity, Inc.
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[Photo of Sam F. Segnar]
SAM F. SEGNAR DIRECTOR SINCE 1982
Mr. Segnar, 73, 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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[Photo of Martin D. Walker]
MARTIN D. WALKER DIRECTOR SINCE 1986
Mr. Walker, 68, 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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CLASS I -- TERMS EXPIRE IN 2003
[Photo of Teresa Beck]
TERESA BECK DIRECTOR SINCE 1996
Ms. Beck, 46, 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, 54, is Chairman 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, and assumed the title of
Chairman and relinquished the title of President in February
1999. 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 R. Stuart
Dickson]
R. STUART DICKSON DIRECTOR SINCE 1984
Mr. Dickson, 71, 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 Lawrence K. Fish]
LAWRENCE K. FISH DIRECTOR SINCE 1999
Mr. Fish, 56, 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, Trustee of The
Brookings Institution and Vice Chairman of the Federal Reserve
Advisory Council. He is the founding Chairman of the Rhode
Island Commission for National and Community Service, an
overseer of the Boston Symphony Orchestra, a trustee and
Chairman of the Audit Committee of the Rhode Island School of
Design and a trustee of Drake University.
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[Photo of Joe T. Ford]
JOE T. FORD DIRECTOR SINCE 1998
Mr. Ford, 63, is Chairman of the Board and chief
executive officer 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 and assumed his current
position in 1991. Mr. Ford is a director of The Dial
Corporation.
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THE BOARD OF DIRECTORS
Meetings and Organization
During 2000, the Board of Directors met ten times and the Executive
Committee of the Board did not meet. The Board has standing Audit, Nominating
and Board Affairs, and Organization and Compensation committees.
Compensation of Directors
For their service on the Board, non-employee directors are paid an annual
retainer of $75,000 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 receive $1,500 for each committee meeting attended, and the
chairman of each standing committee receives an additional $5,000 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 $45,000 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 25% 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 has received 1,000 restricted shares of Textron
common stock. 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. In September
2000, Textron established the CitationShares Director's Evaluation Program 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 a
one-eighth ownership share of a Cessna Citation aircraft from CitationShares and
allotted to each non-employee director up to ten hours of flight time each year
for his or her personal use. Following each flight, a participating Director is
expected to complete an evaluation of his or 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.
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Audit Committee
The Audit Committee recommends to the Board the selection of independent
auditors to conduct the annual audit 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 affect on the auditors independence;
reviews with management and the independent auditors Textron's 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
which is set forth in Appendix A. The following six non-employee directors
presently comprise the committee: Mr. Gagne (Chairman), Mr. Arnelle, Ms. Beck,
Mr. Rowe, Mr. Segnar and Mr. Walker. During 2000, the committee met five times.
Various members of management are regularly invited to be present at Audit
Committee meetings. The Vice President Internal Audit has direct access to the
Audit Committee and to Textron's chief executive officer.
Nominating and Board Affairs Committee
The Nominating and Board Affairs 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 2002 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 six non-employee directors presently
comprise the committee: Mr. Dickson (Chairman), Ms. Beck, Mr. Fish, Mr. Ford,
Mr. Walker and Mr. Wheeler. During 2000, 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 17 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 seven non-employee directors
presently comprise the committee: Mr. Macomber (Chairman), Mr. Arnelle, Mr.
Fish, Mr. Ford, Mr. Rowe, Mr. Segnar and Mr. Wheeler. During 2000, the committee
met six times.
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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, 2000:
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS
-------------- ------------------- ----------------- --------
Common Stock............... Putnam Fiduciary Trust Company 20,964,883 shares(1) 14.88%
859 Willard Street
Quincy, Massachusetts 02169
Common Stock............... FMR Corp. 17,105,792 shares(2) 12.03%
82 Devonshire Street
Boston, Massachusetts 02109
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(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.
(2) Pursuant to a statement filed by FMR Corp. with the Securities and Exchange
Commission in accordance with Rule 13d-1 of the Securities Exchange Act of
1934, FMR Corp. has reported that it has sole voting power over 1,038,392
shares and sole investment power over 17,105,792 shares.
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SECURITY OWNERSHIP OF MANAGEMENT
Set forth below in the column headed "Number of Shares of Common Stock" is
the number of shares of all classes of Textron stock beneficially owned by each
director of Textron, by each executive officer of Textron named in the Summary
Compensation Table on page 17 and by all current directors and executive
officers as a group. Directors and executive officers as a group beneficially
owned less than 1% of the outstanding shares of common stock. Ownership
indicated is as of December 31, 2000, except that ownership indicated for Lord
Powell is as of February 28, 2001.
The column headed "Number of Shares of Common Stock" includes 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, 2000, and shares held jointly. 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 common stock beneficially
owned and other common stock-based holdings in the form of stock units,
performance share units, restricted stock 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).
NUMBER TOTAL
OF SHARES COMMON STOCK-
NAME OF COMMON STOCK(1)(2) BASED HOLDINGS
---- --------------------- --------------
H. Jesse Arnelle........................................... 2,218 10,089
Teresa Beck................................................ 2,000 8,572
John D. Butler............................................. 78,401 143,378
Lewis B. Campbell.......................................... 584,628 1,016,081
R. Stuart Dickson.......................................... 41,300 53,020
Lawrence K. Fish........................................... 1,000 4,444
Joe T. Ford................................................ 2,000 5,902
Paul E. Gagne.............................................. 2,154 8,192
Mary L. Howell............................................. 151,957 234,902
John A. Janitz............................................. 201,424 473,794
Stephen L. Key............................................. 167,114 216,440
John D. Macomber........................................... 11,264 23,262
Lord Powell of Bayswater KCMG.............................. 1,000 1,000
Brian H. Rowe.............................................. 9,882 15,589
Sam F. Segnar.............................................. 4,215 26,212
Martin D. Walker........................................... 3,780 25,511
Thomas B. Wheeler.......................................... 2,323 21,138
All current directors and executive officers as a group (19
persons)................................................. 916,753(3) 1,840,056
- ---------------
(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, 2000: Mr. Campbell -- 569,108;
Mr. Janitz -- 199,499; Mr. Key -- 165,499; Mr. Butler -- 77,499 ; and Mrs.
Howell -- 143,763.
(3) Includes 1,007,369 shares obtainable upon the exercise of stock options
exercisable within 60 days of December 31, 2000.
10
14
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
As required by Securities and Exchange Commission rules, Textron notes that
a Form 5 report by Mr. Fish, concerning a transaction involving a charitable
donation of Textron common stock, was filed after the due date.
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 the possible affect of non-audit services on the auditors'
independence. Fees for the annual audit were $4.9 million and all other fees
were $10.8 million, including audit-related services of $6.9 million and
non-audit services of $3.9 million. Audit-related services generally include
fees for pension audits, statutory and subsidiary audits, business acquisitions
and dispositions, accounting consultations and registration statements. No fees
were paid to the independent auditors for financial information systems design
and implementation services.
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 30, 2000,
to be filed with the Securities and Exchange Commission. The Committee also
recommended to the Board, subject to shareholder approval, the selection of the
Company's independent auditors.
PAUL E. GAGNE, CHAIRMAN
H. JESSE ARNELLE
TERESA BECK
BRIAN H. ROWE
SAM F. SEGNAR
MARTIN D. WALKER
11
15
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, and to provide total compensation opportunities at
or above the 75th percentile of those corporations if outstanding performance is
achieved.
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 17 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 four principal
components: salary, annual incentive compensation, Textron Quality Management
("TQM") bonus and long-term incentive compensation.
SALARY
Salary ranges for Textron's executive officers were increased by 3.0% for
2000. 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. As a general rule, adjustments in salary are
relatively modest, inasmuch as the primary elements of the compensation program
are intended to be delivered by the variable components described below.
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 2000 incentive compensation payments for executive officers
included the degree to which certain overall corporate and individual
performance objectives were achieved such as earnings per share, top line growth
(revenues), return on invested capital ("ROIC") and free cash flow. Individual
awards were also based on the committee's assessment of each executive officer's
performance against non-financial objectives which reflect their specific
responsibilities. The annual incentive compensation earned by the officers named
in the Summary Compensation Table is reported in the "Bonus" column of that
table.
12
16
TQM BONUS
During 2000 Textron initiated a TQM special bonus program in which all
executive officers participate. The earnings opportunity is equal to 50% of a
participant's annual incentive compensation target. The maximum award for
achievement above stretch targets is 60% of a participant's annual incentive
compensation target. The 2000 TQM bonus pool for executive officers was based on
the average award paid to TQM participants in the operations. The specific
awards paid to the officers named in the Summary Compensation Table are reported
in the "Bonus" column of that table and were based on their individual
contribution to the achievement of the TQM objectives.
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.
Additionally, during 2000 the committee approved a long-term incentive additive
which provides executives the opportunity to earn awards for achieving stretch
targets above and beyond those established under the 1999 plan.
2000 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 option 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 2000 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 2000 to the officers named in the Summary Compensation Table appears in the
table on page 17.
2000 Payouts of Previously Granted Performance Share Units
The 2000 payouts to executive officers were for performance share units
granted for the three-year performance cycle ending December 30, 2000. The
committee recommended to the Board payouts at 100% of these performance share
unit grants. The payouts were based (1) 75% on three-year aggregate earnings per
share and 25% on the committee's evaluation of balance sheet strength/asset
management, shareholder value (including annual rate of dividends and common
stock performance versus Textron's proxy peers) and the executive officer's
performance or (2) 60% on three-year aggregate earnings per share, 20% on the
committee's evaluation of balance sheet strength/asset management and
shareholder value, and 20% on performance relative to Textron's Executive
Leadership Team. Information on the 2000 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.
2000 Performance Share Unit Grants
For the three-year performance cycle starting at the beginning of 2001,
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 2001-2003 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 2000 grants of
13
17
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.
In addition to the long-term incentive plans described above, 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 units which are equivalent in value to
shares of Textron common stock if the officer has not maintained a minimum stock
ownership level. The following minimum levels have been established: five times
base salary for the chief executive officer and chief operating officer, three
times base salary for other officers named in the Summary Compensation Table and
either two or three times base salary for other executive officers. Newly named
officers have five years to bring their holdings up to the minimum levels. 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 25% premium on
amounts the officers elect to defer in the stock unit account. At least 50% of
elective deferrals must be invested in stock units.
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. Mr.
Campbell's salary was increased to its current level of $1,000,000 upon his
promotion to chief executive officer effective July 1, 1998. As reported in the
Summary Compensation Table, Mr. Campbell's salary has remained at $1,000,000. In
determining not to increase his salary, the committee took into account the fact
that Mr. Campbell's base salary was at the 50th percentile of base salary paid
to chief executive officers at the surveyed companies.
Based on competitive practice data, Mr. Campbell's annual incentive
compensation target was increased to 100% of his base salary. The committee
recommended and the Board approved a 2000 annual incentive compensation award of
$1,650,000, compared to an award of $1,400,000 for 1999. In determining the
level of the award, the committee took into consideration the following factors:
performance against objectives, competitive practice for the chief executive
officer position and Mr. Campbell's 1999 award. The committee determined that
Mr. Campbell performed well against all of his objectives. Mr. Campbell's key
financial goals were to meet or exceed the 2000 operating plan for earnings per
share, top line growth (revenues), ROIC and free cash flow. Mr. Campbell's
non-financial objectives consisted of goals relative to (1) increased
shareholder value, (2) continued focus on improved performance, (3) diversity,
(4) increased global public image of Textron, (5) organization progression and
succession planning, (6) the chief operating officer's development and (7)
improved effectiveness of the management structure.
The committee recommended, and the Board approved, a 2000 TQM bonus of
$287,500 for Mr. Campbell. The bonus represented an award equal to 57.5% of his
TQM target.
The committee determined that all of the performance share units granted to
Mr. Campbell for the 1998-2000 performance cycle were earned since aggregate
earnings per share (upon which 60% of the award was based) exceeded the targeted
level for that period and performance relative to balance sheet strength/asset
14
18
management and shareholder value (upon which 20% of the award was based) and the
Executive Leadership Team (upon which 20% of the award was based) was good. The
value of the 1998-2000 performance share units earned by Mr. Campbell was
$1,517,760 and was determined by multiplying the number of earned performance
share units by the average closing price of Textron common stock for the first
ten trading days during January 2001.
In December 2000, Mr. Campbell was granted 75,000 stock options and 60,000
performance share units for the 2001-2003 performance cycle under the Textron
1999 Long-Term Incentive Plan. These grants compare to 75,000 stock options and
40,000 performance share units granted in December 1999 under the Plan. Although
the December 2000 grants were equal to the maximum number of stock options and
performance share units that may be granted under the plan, the grants placed
Mr. Campbell's long-term incentive compensation at the 35th percentile of
competitive practice. These grants brought Mr. Campbell's total direct
compensation (base salary, annual and long-term incentive compensation and TQM)
to the 45th percentile of competitive practice. As the limits placed on the
number of stock options and performance share units that may be granted under
the plan prevent Textron from granting at competitive levels, an amendment to
the plan is being presented to shareholders for consideration (see pages 23
through 28).
Mr. Campbell's also received compensation under various Textron benefit and
compensation plans including restricted stock retention awards (see footnotes
(5) and (6) 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. Awards earned for a major portion of performance
share units granted under the 1999 plan also qualify as Performance-Based
Compensation, as do restricted stock awards. Textron will continue to preserve
committee discretion under the annual incentive compensation plan and a portion
of the 1999 long-term incentive plan.
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 and
the qualification of a substantial portion of performance share units as
Performance-Based Compensation, Textron believes that the $1 million limitation
of Section 162(m) of the Internal Revenue Code will not have a material effect
on Textron's income tax expense in the near term. The committee will continue to
assess the effect of these tax rules on Textron.
15
19
AMENDMENT TO THE 1999 LONG-TERM INCENTIVE PLAN
The Committee recommends to the shareholders that they approve the
amendment to the 1999 plan as described on pages 23 through 28.
This report is submitted by the Organization and Compensation Committee.
JOHN D. MACOMBER, CHAIRMAN
H. JESSE ARNELLE
LAWRENCE K. FISH
JOE T. FORD
BRIAN H. ROWE
SAM F. SEGNAR
THOMAS B. WHEELER
16
20
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth information concerning
compensation of (i) Textron's chief executive officer at the end of 2000 and
(ii) the four most highly compensated executive officers of Textron, other than
the chief executive officer, who were serving as executive officers at the end
of 2000 for Textron's 1998, 1999 and 2000 fiscal years. Compensation which was
deferred by these officers under the Deferred Income Plan is included below as
compensation paid.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------- --------------------------------------------
AWARDS PAYOUTS
------------------------------- -------
SECURITIES
RESTRICTED UNDERLYING LTIP
NAME AND PRINCIPAL OTHER ANNUAL STOCK AWARDS OPTIONS/ PAYOUTS
POSITION(1) YEAR SALARY ($) BONUS ($) COMPENSATION(4) ($)(5) SARS (#) ($)
- --------------------------- ---- ---------- --------- --------------- ------------ ---------- -------
L.B. Campbell 2000 $1,000,000 $1,937,500(2) $117,791 $ -0- 75,000 $1,517,760
Chairman and Chief 1999 1,000,000 1,400,000 -0- 17,906,250 75,000 2,180,400
Executive Officer 1998 862,500 1,000,000 -0- -0- 142,000 2,221,800
J.A. Janitz 2000 750,000 1,328,081(2) -0- 316,362 65,000 636,480
President and Chief 1999 574,094 731,476 -0- 10,775,226 75,000 872,160
Operating Officer 1998 458,750 384,559 -0- 59,559 20,000 1,007,216
S.L. Key 2000 480,000 465,900(2) -0- -0- -0- 391,680
Executive Vice 1999 455,000 375,000 -0- -0- 25,000 799,480
President 1998 430,000 464,090 -0- 84,090 24,000 918,344
J.D. Butler 2000 440,000 520,547(2) -0- 80,972 35,000 342,720
Executive Vice President 1999 420,000 390,787 -0- 45,787 23,000 536,080
Administration and 1998 400,000 605,959(3) -0- 85,959 19,000 470,300
Chief Human Resources
Officer
M.L. Howell 2000 404,167 429,703(2) 70,388 12,500 35,000 318,240
Executive Vice 1999 370,000 310,000 -0- -0- 22,000 545,100
President Government, 1998 349,250 340,000 -0- 50,000 18,000 592,480
Strategy Development
and International,
Communications and
Investor Relations
ALL OTHER
NAME AND PRINCIPAL COMPENSATION
POSITION(1) ($)(6)
- --------------------------- ------------
L.B. Campbell $50,000
Chairman and Chief 50,000
Executive Officer 43,125
J.A. Janitz 37,500
President and Chief 28,704
Operating Officer 22,940
S.L. Key 24,000
Executive Vice 22,750
President 21,500
J.D. Butler 22,000
Executive Vice President 21,000
Administration and 20,000
Chief Human Resources
Officer
M.L. Howell 20,208
Executive Vice 18,500
President Government, 17,461
Strategy Development
and International,
Communications and
Investor Relations
- ---------------
(1) Mr. Janitz, previously Chairman, President and chief executive officer of
Textron Automotive Company since 1996, became President and chief operating
officer effective March 12, 1999. Mr. Key, previously Executive Vice
President and Chief Financial Officer, relinquished the title of chief
financial officer on December 22, 2000 and retired from Textron on January
31, 2001. Mrs. Howell, previously Executive Vice President Government and
International, became Executive Vice President Government, International,
Communications and Investor Relations on January 1, 1999 and Executive Vice
President Government, Strategy Development and International, Communications
and Investor Relations on September 1, 2000.
(2) The amounts for 2000, include both annual incentive compensation and TQM
bonus for all officers named in the Summary Compensation Table. The 2000 TQM
bonuses were $287,500, $161,719, $75,900, $69,575 and $67,203 for Messrs.
Campbell, Janitz, Key and Butler and Mrs. Howell, respectively. In addition
the amounts listed as paid to Mr. Janitz, Mr. Butler and Mrs. Howell for
2000 include vested contributions made by Textron in the amounts of
$316,362, $80,972 and $12,500, respectively, as a result of their elections
to defer compensation into the stock unit fund of the Deferred Income Plan.
(3) The amount listed as paid to Mr. Butler for 1998 includes $200,000 to
replace a lost compensation award from his prior employer.
(4) The amounts listed include the incremental cost to Textron of providing
various perquisites and personal benefits in excess of reporting thresholds,
including, for Mr. Campbell and Mrs. Howell, in 2000, $64,034 and $29,246,
respectively, for personal use of Textron aircraft.
(5) The amount listed for Mr. Campbell is the market value at the time of grant
of a retention award of 200,000 shares of restricted stock. The shares will
be granted provided he is still employed by Textron, or in certain cases if
his employment ends earlier, in accordance with the following schedule and
earnings per share
(footnotes continued on following page)
17
21
(footnotes continued from preceding page)
increases at or above an established average annual growth rate: 50,000 shares
will vest in May 2003, 2006, 2008 and 2011. As of December 30, 2000, the market
value of the 200,000 restricted shares was $9,300,000.
In January 2001, Mr. Campbell received $2,690,481, representing the payment
of 50,000 share equivalents plus dividends. The share equivalents were
granted in December 1995 and vested on January 1, 2001.
Mr. Key has received $2,123,600, which represented the cash equivalent of
40,000 shares of Textron common stock as a result of his retirement.
Included in the amount listed for Mr. Janitz for 1999 is $10,743,750, which
is the market value at the time of grant of a retention award of 120,000
shares of restricted stock. In October 2000, 30,000 shares vested. In the
case of the remaining shares, the shares will be granted provided he is
still employed by Textron, or in certain cases if his employment ends
earlier, in accordance with the following schedule and earnings per share
increases at or above an established average annual growth rate: 30,000,
15,000, 15,000 and 30,000 shares will vest in October 2004, 2005, 2006, and
2007, respectively. The 120,000 shares replaced 48,000 share equivalents
that were previously granted to Mr. Janitz. As of December 30, 2000, the
market value of the 90,000 restricted shares outstanding was $4,185,000.
All other amounts listed are not restricted stock but 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 30, 2000, 5,780, 1,160 and 172 unvested stock units with a market
value of $268,770, $53,940 and $7,998 were credited to the accounts of Mr.
Janitz, Mr. Butler and Mrs. Howell, respectively.
(6) The amounts listed for 2000 are Textron's contributions under the Textron
Savings Plan and the Savings Plan component of the Supplemental Benefits
Plan.
------------------------
STOCK OPTION GRANTS
The following table sets forth information on grants of stock options under
the Textron 1999 Long-Term Incentive Plan during Textron's 2000 fiscal year to
the officers named in the Summary Compensation Table. The number of stock
options granted to these officers during Textron's 2000 fiscal year is also
listed in the Summary Compensation Table in the column entitled "Securities
Underlying Options/SARs."
STOCK OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
INDIVIDUAL GRANTS RATES OF
------------------------------------------------------------ STOCK PRICE
NUMBER PERCENT OF APPRECIATION
OF TOTAL EXERCISE FOR OPTION/SARS
SECURITIES OPTIONS/SARS OR TERM($)(2)
UNDERLYING GRANTED TO BASE ------------------------
OPTIONS/SARS EMPLOYEES PRICE EXPIRATION FIVE TEN
NAME GRANTED(#)(1) IN FISCAL YEAR ($/SHARE) DATE PERCENT PERCENT
---- ------------- -------------- --------- ---------- ------- -------
L.B. Campbell................ 75,000 1.6% $45.5625 12/12/10 $2,149,051 $5,446,117
J.A. Janitz.................. 65,000 1.4% 45.5625 12/12/10 1,862,511 4,719,968
S.L. Key..................... -0- -- -- -- -- --
J.D. Butler.................. 35,000 0.8% 45.5625 12/12/10 1,002,890 2,541,521
M.L. Howell.................. 35,000 0.8% 45.5625 12/12/10 1,002,890 2,541,521
- ---------------
(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 December 13, 2000. 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
(footnotes continued on following page)
18
22
(footnotes continued from preceding page)
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 $74.22 and
$118.18 at the end of the ten-year term.
------------------------
AGGREGATED OPTION AND STOCK APPRECIATION RIGHTS EXERCISES AND FISCAL YEAR-END
VALUES
The following table sets forth information, with respect to the officers
named in the Summary Compensation Table, concerning: (i) the exercise during
Textron's 2000 fiscal year of stock options and stock appreciation rights and
(ii) unexercised options and stock appreciation rights held as of the end of
Textron's 2000 fiscal year, which were granted to these officers during 2000 and
in prior fiscal years under either the Textron 1999 Long-Term Incentive Plan or
a predecessor plan.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION AND SAR VALUES
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
ACQUIRED AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)
ON VALUE ---------------------------- -----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
L.B. Campbell............ -0- $ -0- 569,108 112,501 $5,094,863 $70,313
J.A. Janitz.............. -0- -0- 199,499 102,501 1,009,125 60,938
S.L. Key................. -0- -0- 165,499 12,501 1,074,844 -0-
J.D. Butler.............. -0- -0- 77,499 46,501 -0- 32,813
M.L. Howell.............. -0- -0- 148,763 46,001 1,320,138 32,813
LONG-TERM INCENTIVE PLAN
The following table provides information concerning performance share unit
awards made during Textron's 2000 fiscal year to the officers named in the
Summary Compensation Table pursuant to the Textron 1999 Long-Term Incentive Plan
for the 2001-2003 performance cycle.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
PERFORMANCE OR
NUMBER OF OTHER PERIOD
PERFORMANCE UNTIL MATURATION ESTIMATED FUTURE PAYOUTS UNDER
NAME SHARE UNITS (#) OR PAYOUT NON-STOCK PRICE BASED PLANS
---- --------------- ---------------- ------------------------------
TARGET NUMBER OF
PERFORMANCE SHARE UNITS (#)
L.B. Campbell......................... 60,000 3 years 60,000
J.A. Janitz........................... 45,000 3 years 45,000
S.L. Key.............................. -0- 3 years -0-
J.D. Butler........................... 15,000 3 years 15,000
M.L. Howell........................... 15,000 3 years 15,000
Except in the case of the chief executive officer, 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 generally based 60% on earnings per share growth, 20% on
discretionary performance measures, including balance sheet strength/asset
management, support of Textron's commitment to diversity, shareholder value and
the officer's individual performance and 20% will be based on an Executive
Leadership Team objective. In the case of the chief executive officer, 75% of
the award will be based on earnings per share
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growth and 25% will be based on measures just described above except the
Executive Leadership Team objective. Attainment of a primary performance target
will result in earning 100% of the value of the performance share units related
to that target. Awards may not exceed 100% of the value of the performance share
units. Failure to attain a minimum performance target will result in the failure
to earn any performance 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 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.
Additionally, in 2000 the committee approved a long-term incentive
additive, which is separate and apart from the long-term incentive plan. Under
the long-term incentive additive the officers named in the Summary Compensation
Table may earn up to 100% of the value of the performance share units granted
under the long-term incentive plan for award periods ending after 2001. Awards
will be based on performance relative to earnings per share, revenue, margin and
ROIC.
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
- --------------- -- -- -- -- -- --
$1,000,000 $ 148,465 $ 222,698 $ 296,930 $ 371,163 $ 445,395 $ 519,628
1,250,000 185,965 278,948 371,930 464,913 557,895 650,878
1,500,000 223,465 335,198 446,930 558,663 670,395 782,128
1,750,000 260,965 391,448 521,930 652,413 782,895 913,378
2,000,000 298,465 447,698 596,930 746,163 895,395 1,044,628
2,250,000 335,965 503,948 671,930 839,913 1,007,895 1,175,898
2,500,000 373,465 560,198 746,930 933,663 1,120,395 1,307,128
2,750,000 410,965 616,448 821,930 1,027,413 1,232,895 1,438,378
3,000,000 448,465 672,698 896,930 1,121,163 1,345,395 1,569,628
3,250,000 485,965 728,948 971,930 1,214,913 1,457,895 1,700,878
3,500,000 523,465 785,198 1,046,930 1,308,663 1,570,395 1,832,128
3,750,000 560,965 841,448 1,121,930 1,402,413 1,682,895 1,963,378
4,000,000 598,465 897,698 1,196,930 1,496,163 1,795,395 2,094,628
4,250,000 635,965 953,948 1,271,930 1,589,913 1,907,895 2,225,878
4,500,000 673,465 1,010,198 1,346,930 1,683,663 2,020,395 2,357,128
4,750,000 710,965 1,066,448 1,421,930 1,777,413 2,132,895 2,488,378
5,000,000 748,465 1,122,698 1,496,930 1,871,163 2,245,395 2,619,628
- ---------------
(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 is first awarded performance
share units after October 26, 1999, LTIP
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payouts shall not be included in compensation. As of January 1, 2001, the years
of credited service for the officers named in the Summary Compensation Table
were as follows: Mr. Campbell, 8 years; Mr. Janitz, 5 years; Mr. Key, 6 years;
Mr. Butler, 4 years; and Mrs. Howell, 20 years.
Annual pension amounts shown in the table above are computed on the basis
of a single life annuity, unless the participant receives another method of
payment, 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).
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
The officers named in the Summary Compensation Table, except for Mr. Key,
and three other executive officers have employment contracts with Textron that
provide for a three-year initial term, with a one-year renewal provision. The
agreements 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 agreements provide excise tax protection
for change in control terminations. The agreements 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
agreements.
Mr. Key also had an employment contract with similar provisions through the
date of his retirement on January 31, 2001. Immediately prior to his retirement
date, Textron contributed $720,000 to his Stock Unit Account under the Deferred
Income Plan for Textron Key Executives as a retirement bonus. Mr. Key was also
granted an enhanced pension benefit effective February 1, 2001 whereby his
Deemed Age is 62 under the Supplemental Retirement Plan for Textron Key
Executives.
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 under the plans. Generally, a "change of
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 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 1994 and 1999 Long-Term
Incentive Plans provide that outstanding options will become exercisable
immediately and in full, and the
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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.
Janitz's retention awards are payable immediately in the event of a change in
control of Textron.
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PERFORMANCE GRAPH
Set forth below is a stock performance graph which shows the change in
market value of $100 invested on December 31, 1995, 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, Automotive, 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.
TEXTRON INC. S&P 500 PEER GROUP
- ------------ ------- ----------
100.00 100.00 100.00
142.54 122.96 130.52
192.25 163.98 149.67
237.36 210.84 157.90
243.62 255.22 166.01
151.43 231.98 196.64
AMENDMENT TO THE TEXTRON 1999 LONG-TERM INCENTIVE PLAN
On February 24, 1999, the Board of Directors adopted, and on April 28, 1999
the shareholders approved, the Textron 1999 Long-Term Incentive Plan 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 selected employees in Textron's
continued growth and success. The number of stock options and performance share
units, payable only in cash, remaining available for grant and the current
limits on individual grants of those awards under the plan are 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 an amendment to the plan, subject to
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shareholder approval, increasing the total number of stock options and
performance share units available for grant and the individual grant limits for
those awards. 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. Awards may be granted to any key
employee of Textron, its segments, divisions or subsidiaries, including
full-time employees who are directors. Directors who are not full-time employees
of Textron, its divisions or its subsidiaries are not eligible to receive awards
under the amended plan.
The total number of shares of Textron common stock for which options may be
granted under the amended plan is 12,200,000, of which 5,600,000 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 1,135,000 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 500,000, of which 80,000 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 2, 2001, was $53.55.
The amended plan will be administered by the Organization and Compensation
Committee of the Board of Directors, which will determine the key employees 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). No
member of the committee will be eligible to receive an award under the amended
plan. 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 Incentive 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 during the term of an option, the
optionee may exercise the option within specified periods after such
termination. Discharge for cause, however, terminates all option
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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 fictional shares of Textron common stock which
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
earnings per share, net operating profit, after-tax profit, return on equity,
return on invested capital, economic profit, cash flow, margin and shareholder
value. 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. Awards may not exceed 100% of the value of the performance share units
for corporate officers only. 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. 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 100% of the value of such units.
For purposes of determining whether performance targets have been met, the
committee may equitably restate Textron's earnings per share, net operating
profit, return on equity or any other factor utilized in establishing the
performance targets to take into account the effect of acquisitions or
dispositions, extraordinary and non-recurring events, 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 earned and the current value of Textron common stock for the date on which
the performance share units have been 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: Textron's earnings per share, net
operating profit, after-tax profit, return on equity, return on invested
capital, economic profit, cash flow and shareholder value.
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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.
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 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.
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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 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 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 15 for a
description of the implications of Section 162(m) of the Internal Revenue Code.
GENERAL
In 2000, 62 key executives, including executive officers, received awards
of performance share units coupled with stock options, and 957 other employees
who are not executive officers received stock options without awards of
performance share units. Information relating to the most recent prior awards to
the officers named in the Summary Compensation Table under the plan is contained
in the Summary Compensation Table and the Stock Option/SAR Grants in Last Fiscal
Year and Long-Term Incentive Plan Awards in Last Fiscal Year tables on pages 17,
18 and 19.
The maximum number of shares of Textron common stock that may be subject to
options, the maximum number of performance share units 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 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 remaining maximum number of shares of Textron
common stock that may subject to options.
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, make
non-employee directors eligible to receive grants or materially increase the
benefits with respect to grants. Termination or amendment 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.
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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 Board of Directors has selected the firm of Ernst & Young LLP to audit
Textron's consolidated financial statements for 2001, and recommends to the
shareholders ratification of the appointment of Ernst & Young as independent
auditors for 2001. If this resolution is defeated, the Board will reconsider its
selection. A representative of Ernst & Young will be present at the annual
meeting, will have the opportunity to make a statement and will be available to
respond to appropriate questions.
AUDIT FEES; FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES; ALL
OTHER FEES
The aggregate fee for professional services rendered by Ernst & Young for
the audit of Textron's annual financial statements for 2000 and the reviews of
the financial statements included in Textron's Forms 10-Q for 2000 was $4.9
million. No fees were paid to Ernst & Young for financial information systems
design and implementation services. The aggregate fees for services rendered by
Ernst & Young for 2000, other than for the audit and financial information
systems design and implementation services, were $10.8 million, including
audit-related services of $6.9 million and non-audit services of $3.9 million.
Audit-related services generally include fees for pension audits, statutory and
subsidiary audits, business acquisitions and dispositions, accounting
consultations and registration statements.
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,
Missionary Oblates of Mary Immaculate, The Sisters of St. Francis of
Philadelphia, Congregation of the Sisters of Charity of the Incarnate Word,
Sisters of Charity, BVM, St. Joseph Health System 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 2001 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):
WHEREAS the proponents of this resolution believe that the Board of Textron
should establish criteria to guide management in their defense contract
bidding and implementation activities;
WHEREAS we believe that economic decision-making has both an ethical and a
financial component;
WHEREAS we believe our company's ethical responsibilities include analyzing
the effects of its decisions with respect to employees, communities, and
nations;
WHEREAS we believe decisions to develop and to produce weapons can have
grave consequences to the lives and/or freedoms of people worldwide, if the
company has not considered its ethical responsibilities ahead of time;
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WHEREAS we believe that the company has shown poor judgment in this regard
by past sales of helicopters to Indonesia in light of that country's
oppression in East Timor and by the pending sale of military helicopters to
Turkey whose oppression of the Kurds is condemned by human rights
organizations;
WHEREAS we believe that the recent proposed joint venture for manufacturing
military helicopters in Romania was ill advised due to the country's need
to provide more adequately for its own citizens' social needs. The
International Monetary Fund has concurred by refusing to loan Romania money
for weapons;
THEREFORE BE IT RESOLVED that the shareholders request the Board of
Directors to establish a committee to research this issue and to develop
criteria for the bidding, acceptance and implementation of military
contracts and to report the results of its study to shareholders at its
2002 annual meeting. Proprietary information may be omitted and the cost
limited to a reasonable amount.
The proponents have submitted the following statement in support of this
proposal:
The proponents of this resolution believe that all human beings are
called to seek justice and peace. An ethic of stewardship of the earth must
include respect for humanity and for creation. Because we believe that
corporate social responsibility in a successful free enterprise system
demands ethical reflection and action upon activities that are socially
useful as well as economically profitable, we recommend that in
establishing ethical criteria the Board consider the following:
- Arms sales to governments that repress their citizens,
- The connection between arms sales and geographical or political
instability,
- Sales of weapons, parts, technology, and components convertible to
military use (dual-use) to foreign governments,
- Transfers of technology, including co-production agreements.
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 committed to doing business in full compliance with all
applicable laws and regulations and in accordance with Textron policies and
procedures regarding such matters as standards of business conduct; export
controls; transactions with governments; political contributions and activities;
relationships with customers and suppliers; protection of intellectual property;
environmental protection, health and safety; and employee and community
relations. These policies apply to all Textron operations, including those
involving military contracts. Thus, Textron's business leaders must determine
that Textron's military contract activities meet applicable legal requirements,
adhere to Textron's ethics policies and satisfy standards of sound business
judgment. In addition, all sales by Textron under the Department of Defense's
Foreign Military Sales Program or directly to foreign military organizations
must be expressly approved by the Department of State and, in some
circumstances, Congress, which receive extensive input on humanitarian concerns
from a large number of organizations and factor those concerns into their
decision making process. The Board believes that Textron's existing process for
reviewing the types of matters raised in the proposal is already sufficient.
ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL
(ITEM 4 ON THE PROXY CARD).
29
33
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 2002 ANNUAL MEETING
Shareholder proposals intended to be presented at the 2002 annual meeting
of shareholders must be received by Textron on or before November 15, 2001, 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 26, 2001, and January 25, 2002, for
the 2002 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 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 15, 2001
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WHETHER OR NOT YOU PLAN
TO ATTEND THE MEETING IN PERSON, PLEASE FILL IN, SIGN, DATE AND RETURN THE
ACCOMPANYING PROXY CARD IN THE ENVELOPE PROVIDED.
30
34
APPENDIX A
TEXTRON INC.
AUDIT COMMITTEE CHARTER
ORGANIZATION
This charter, as amended by the Board of Directors on February 28, 2001,
governs the operations of the Audit Committee. The Committee shall review and
reassess the adequacy of the charter at least annually. The Committee shall be
appointed by the Board of Directors and shall be comprised of at least three
directors, each of whom is independent of management and the Company. Members of
the Committee shall be considered independent if they have no relationship that
may interfere with the exercise of their independence from management and the
Company. All Committee members shall be financially literate, or shall become
financially literate within a reasonable period of time after appointment to the
Committee, and at least one member shall have accounting or related financial
management expertise.
STATEMENT OF POLICY
The Audit Committee shall assist the Board of Directors in fulfilling its
oversight responsibility relating to the Company's financial statements and the
financial reporting processes, the systems of internal accounting and financial
controls, the internal audit function, the annual independent audits of the
Company's financial statements, and the legal compliance and ethics programs as
established by management and the Board. In so doing, it is the responsibility
of the Committee to maintain free and open communication between the Committee,
independent auditors, internal auditors and management of the Company. In
discharging its oversight role, the Committee is empowered to investigate any
matter brought to its attention with full access to all books, records,
facilities, and personnel of the Company and to retain outside counsel or other
experts for this purpose.
RESPONSIBILITIES AND PROCESSES
The primary responsibility of the Audit Committee is to oversee the
Company's financial reporting processes on behalf of the Board and report the
results of its activities to the Board. Management is responsible for preparing
the Company's financial statements and the independent auditors are responsible
for auditing those financial statements.
PRINCIPAL RECURRING PROCESSES
The following shall be the principal recurring processes of the Audit
Committee in carrying out its oversight responsibilities. The processes are set
forth as a guide with the understanding that the Committee may supplement them
as appropriate.
- The Committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the Board and the Audit Committee, as representatives of
the Company's shareholders. The Committee shall have the ultimate
authority and responsibility to evaluate and, where appropriate, replace
the independent auditors. The Committee shall discuss with the auditors
their independence from management and the Company and the matters
included in the written disclosures required by the Independence
Standards Board and shall consider the possible affect on the auditor's
independence of the non-audit services provided by the auditors.
Annually, the Committee shall review and recommend to the Board the
selection of the Company's independent auditors, subject to shareholders'
approval, and shall approve the selection of the
A-1
35
independent auditors for Textron's major U.S. benefits plans.
- The Committee shall discuss with the internal auditors and the
independent auditors the overall scope and plans for their respective
audits including the adequacy of staffing and compensation. Also, the
Committee shall discuss with management, the internal auditors, and the
independent auditors the adequacy and effectiveness of the accounting and
financial controls, including the Company's system to monitor and manage
business risk, and legal and ethical compliance programs. Further, the
Committee shall meet separately with the internal auditors and the
independent auditors, with and without management present, to discuss the
results of their examinations.
- The Committee shall review the Company's interim financial statements
with management and the independent auditors and discuss the results of
the independent auditors' quarterly reviews prior to the filing of the
Company's Quarterly Report on Form 10-Q.
- The Committee shall review with management and the independent auditors
the financial statements to be included in the Company's Annual Report to
Shareholders and financial statements to be filed for the major U.S.
benefits plans including their judgment about the quality, not just
acceptability, of accounting principles, the reasonableness of
significant judgments, and the clarity of the disclosures in the
financial statements. Also, the Committee shall discuss the results of
the annual audits and any other matters required to be communicated to
the Committee by the independent auditors under generally accepted
auditing standards.
A-2
36
P R O X Y
TEXTRON INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
ANNUAL MEETING OF SHAREHOLDERS APRIL 25, 2001
The undersigned hereby appoint(s) Lewis B. Campbell, John A. Janitz 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 25, 2001, 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)
------------------------------------
------------------------------------
------------------------------------
------------------------------------
(If you have written in the above
space, please mark the corresponding
box on the reverse side of this card.)
-----------
SEE REVERSE
SIDE
-----------
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
TEXTRON
Annual Meeting
of
Textron Shareholders
Rhode Island Convention Center
One Sabin Street
Providence, Rhode Island
37
X PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
This proxy, when properly executed, 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 this
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 Directors FOR* WITHHELD FROM ALL
[ ] [ ]
*Except vote withheld from the following nominee(s):
- --------------------------------------------------------------------------------
NOMINEES:
Paul E. Gagne
John A. Janitz
Lord Powell of Bayswater KCMG
Thomas B. Wheeler
Change of address/comments on the
reverse side [ ]
2. Amendment to Textron 1999 Long-Term
Incentive Plan FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Ratification of appointment of
independent auditors FOR AGAINST ABSTAIN
[ ] [ ] [ ]
THE BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE
AGAINST PROPOSAL 4.
4. Shareholder proposal relating
to Military Contracts
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Please sign exactly as name(s)
appear hereon. Joint owners
should each sign. When signing
as attorney, executor,
administrator, trustee or
guardian, please give full title
as such.
---------------------------------
---------------------------------
SIGNATURE(S) DATE
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
TEXTRON
Annual Meeting
of
Textron Shareholders
Wednesday, April 25, 2001
10:30 a.m.
Rhode Island Convention Center
One Sabin Street
Providence, Rhode Island
IMPORTANT NOTICE
----------------
IT IS IMPORTANT THAT YOU VOTE, SIGN AND
RETURN THE ABOVE PROXY AS SOON AS POSSIBLE.
BY DOING SO, YOU MAY SAVE TEXTRON THE
EXPENSE OF ADDITIONAL SOLICITATION.