John Deere 2011 Annual Report Download - page 46

A reconciliation of basic and diluted net income per share
attributable to Deere & Company follows in millions, except
per share amounts:
2011 2010 2009
Net income attributable to
Deere & Company ............................... $ 2,799.9 $ 1,865.0 $ 873.5
Less income allocable to participating
securities* ........................................... 1.0 .7
Income allocable to common stock ........... $ 2,798.9 $ 1,864.3 $ 873.5
Average shares outstanding ..................... 417.4 424.0 422.8
Basic per share .................................... $ 6.71 $ 4.40 $ 2.07
Average shares outstanding ..................... 417.4 424.0 422.8
Effect of dilutive stock options .................. 5.0 4.6 1.6
Total potential shares outstanding ........ 422.4 428.6 424.4
Diluted per share .................................. $ 6.63 $ 4.35 $ 2.06
* Effect in 2009 was not significant.
All stock options outstanding were included in the
computation during 2011, 2010 and 2009, except none in 2011,
1.9 million options in 2010 and 4.7 million options in 2009 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 compensation cost
for stock options, service based restricted stock units and
market/service based restricted stock units, which is based on
the fair value at the grant date, is recognized on a straight-line
basis over the requisite period the employee is required to
render service. The compensation cost for performance/service
based units, which is based on the fair value at the grant date,
is recognized over the employees’ requisite service period and
periodically adjusted for the probable number of shares to be
awarded. According to these plans at October 31, 2011, the
company is authorized to grant an additional 16.9 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 outstand-
ing. 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:
2011 2010 2009
Risk-free interest rate ....... .08% - 3.3% .01% - 3.6% .03% - 2.3%
Expected dividends ........... 1.9% 2.9% 1.5%
Expected volatility ............. 34.4% - 34.6% 35.3% - 47.2% 35.4% - 71.7%
Weighted-average
volatility ....................... 34.4% 35.6% 36.0%
Expected term (in years) ... 6.8 - 7.8 6.6 - 7.7 6.7 - 7.8
Stock option activity at October 31, 2011 and changes
during 2011 in millions of dollars and shares follow:
Remaining
Contractual Aggregate
Exercise Term Intrinsic
Shares Price* (Years) Value
Outstanding at beginning
of year ................................. 19.4 $ 45.12
Granted ..................................... 2.2 80.61
Exercised .................................. (4.6) 36.99
Expired or forfeited .................... (.1) 6 7.4 5
Outstanding at end of year ...... 16.9 51.70 6.14 $ 441.4
Exercisable at end of year ...... 11.2 47. 5 2 5.08 341.9
* Weighted-averages
The weighted-average grant-date fair values of options
granted during 2011, 2010 and 2009 were $25.61, $15.71 and
$13.06, respectively. The total intrinsic values of options
exercised during 2011, 2010 and 2009 were $231 million,
$139 million and $12 million, respectively. During 2011,
2010 and 2009, cash received from stock option exercises was
$170 million, $129 million and $16 million with tax benefits
of $85 million, $51 million and $4 million, respectively.
The company granted 222 thousand restricted stock units
to employees and nonemployee directors in 2011, of which
92 thousand are subject to service based only conditions, 65
thousand are subject to performance/service based conditions
and 65 thousand are subject to market/service based conditions.
The service based only units award one share of common stock
for each unit at the end of the vesting period and include
dividend equivalent payments. The performance/service based
units are subject to a performance metric based on the com-
pany’s compound annual revenue growth rate, compared to a
benchmark group of companies over the vesting period.
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