John Deere 2010 Annual Report Download - page 45

45
All stock options outstanding were included in the
computation during 2010, 2009 and 2008, except 1.9 million
options in 2010, 4.7 million options in 2009 and 2.0 million
options in 2008 that had an antidilutive effect under the
treasury stock method.
24. STOCK OPTION AND RESTRICTED STOCK AWARDS
The company issues stock options and restricted stock awards
to key employees under plans approved by stockholders.
Restricted stock is also issued to nonemployee directors for
their services as directors under a plan approved by stockholders.
Options are awarded with the exercise price equal to the
market price and become exercisable in one to three years
after grant. Options expire ten years after the date of grant.
Restricted stock awards generally vest after three years.
The company recognizes the compensation cost on these stock
options and restricted stock awards on a straight-line basis over
the requisite period the employee is required to render service.
According to these plans at October 31, 2010, the company is
authorized to grant an additional 19.8 million shares related to
stock options or restricted stock.
The fair value of each option award was estimated on the
date of grant using a binomial lattice option valuation model.
Expected volatilities are based on implied volatilities from
traded call options on the company’s stock. The expected
volatilities are constructed from the following three components:
the starting implied volatility of short-term call options traded
within a few days of the valuation date; the predicted implied
volatility of long-term call options; and the trend in implied
volatilities over the span of the call options’ time to maturity.
The company uses historical data to estimate option exercise
behavior and employee termination within the valuation model.
The expected term of options granted is derived from the
output of the option valuation model and represents the period
of time that options granted are expected to be outstanding.
The risk-free rates utilized for periods throughout the contractual
life of the options are based on U.S. Treasury security yields at
the time of grant.
The assumptions used for the binomial lattice model to
determine the fair value of options follow:
2010 2009 2008
Risk-free interest rate ....... .01% - 3.6% .03% - 2.3% 2.9% - 4.0%
E xpecte d divide nds ........... 2.85 % 1.5% 1.6 %
Expected volatility ............. 35.3% - 47.2% 35.4% - 71.7% 30.1% - 46.7%
Weighted-average
volatility ....................... 35.6% 36.0% 30.4%
Expected term (in years) ... 6.6 - 7.7 6.7 - 7.8 6.6 - 7.6
The company also had other miscellaneous contingencies
totaling approximately $70 million at October 31, 2010, for
which it believes the probability for payment is substantially
remote. The accrued liability for these contingencies was not
material at October 31, 2010.
The company is subject to various unresolved legal actions
which arise in the normal course of its business, the most
prevalent of which relate to product liability (including asbestos
related liability), retail credit, software licensing, patent and
trademark matters. Although it is not possible to predict with
certainty the outcome of these unresolved legal actions or the
range of possible loss, the company believes these unresolved legal
actions will not have a material effect on its fi nancial statements.
23. CAPITAL STOCK
Changes in the common stock account in millions were
as follows:
Number of
Shares Issued Amount
Balance at October 31, 2007 .............................. 536.4 $ 2,777
Stock options and other ...................................... 157
Balance at October 31, 2008 .............................. 536.4 2,934
Stock options and other ...................................... 62
Balance at October 31, 2009 .............................. 536.4 2,996
Stock options and other ...................................... 110
Balance at October 31, 2010 ........................... 536.4 $ 3,106
The number of common shares the company is authorized
to issue is 1,200 million. The number of authorized preferred
shares, none of which has been issued, is nine million.
The Board of Directors at its meeting in May 2008
authorized the repurchase of up to $5 billion of additional
common stock (65.1 million shares based on October 31, 2010
closing common stock price of $76.80 per share). This repurchase
program supplements the previous 40 million share repurchase
program, which had 8.5 million shares remaining as of
October 31, 2010, for a total of 73.6 million shares remaining
to be repurchased. Repurchases of the company’s common
stock under this plan will be made from time to time, at the
company’s discretion, in the open market.
A reconciliation of basic and diluted net income per share
attributable to Deere & Company follows in millions, except
per share amounts:
2010 2009 2008
Net income attributable to
Deere & Company ............................... $ 1,865.0 $ 873.5 $ 2,052.8
Less income allocable to participating
securities* ........................................... .7
Income allocable to common stock ........... $ 1,864.3 $ 873.5 $ 2,052.8
Average shares outstanding ..................... 424.0 422.8 431.1
Basic per share .................................... $ 4.40 $ 2.07 $ 4.76
Average shares outstanding ..................... 424.0 422.8 431.1
Effect of dilutive stock options .................. 4.6 1.6 5.2
Total potential shares outstanding ........ 428.6 424.4 436.3
Diluted per share .................................. $ 4.3 5 $ 2.06 $ 4.70
* Effects on prior periods were not material.