PACCAR 2010 Annual Report Download - page 75

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Q . S TO CK C OM PE NS AT IO N PL AN S
PACCAR has certain plans under which officers and key employees may be granted options to purchase shares of
the Company’s authorized but unissued common stock under plans approved by stockholders. Non-employee
directors and certain officers may be granted restricted shares of the Company’s common stock under plans
approved by stockholders. Options outstanding under these plans were granted with exercise prices equal to the fair
market value of the Company’s common stock at the date of grant. Options expire no later than ten years from the
grant date and generally vest after three years. Restricted stock awards generally vest after three years.
The Company recognizes compensation cost on these options and restricted stock awards on a straight line basis
over the requisite period the employee is required to render service. The maximum number of shares of the
Company’s common stock authorized for issuance under these plans is 46.7 million, and as of December 31, 2010,
the maximum number of shares available for future grants was 18.5 million.
The estimated fair value of each option award is determined on the date of grant using the Black-Scholes-Merton
option pricing model that uses assumptions noted in the following table. The risk free interest rate is based on the
U.S. Treasury yield curve in effect at the time of grant. Expected volatility is based on historical volatility. The
dividend yield is based on an estimated future dividend yield using projected net income for the next five years,
implied dividends and Company stock price. The expected term is based on the period of time that options granted
are expected to be outstanding based on historical experience.
2010 2009 2008
Risk-free interest rate 2.48% 2.00% 2.86%
Expected volatility 44% 39% 29%
Expected dividend yield 2.5% 3.0% 4.0%
Expected term 5 years 5 years 5 years
Weighted average grant date fair value of options per share $11.95 $8.47 $8.58
The fair value of options granted was $11.7, $10.0 and $6.3 for the years ended December 31, 2010, 2009 and 2008,
respectively.
A summary of activity under the Company’s stock plans is presented below.
2010 2009 2008
Intrinsic value of options exercised $33.7 $22.7 $10.8
Cash received from stock option exercises 22.0 17.6 11.5
Tax benefit related to stock option exercises 10.8 7.1 3.7
Stock based compensation 8.5 9.5 10.2
Tax benefit related to stock based compensation 3.2 3.5 3.8
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 2010, 2009 and 2008 (currencies in millions except per share amounts)
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