John Deere 2014 Annual Report Download - page 55

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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 December 2013
authorized the repurchase of up to $8,000 million of additional
common stock (93.5 million shares based on the October 31,
2014 closing common stock price of $85.54 per share).
At October 31, 2014, this repurchase program had $6,230
million (72.8 million shares at the same price) 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:
2014 2013 2012
Net income attributable to
Deere & Company ............................... $ 3,161.7 $ 3,537.3 $ 3,064.7
Less income allocable to participating
securities ............................................ 1.0 .9 .8
Income allocable to common stock ........... $ 3,160.7 $ 3,536.4 $ 3,063.9
Average shares outstanding ..................... 363.0 385.3 397.1
Basic per share .................................... $ 8.71 $ 9.18 $ 7.72
Average shares outstanding ..................... 363.0 385.3 397.1
Effect of dilutive stock options .................. 3.1 3.9 4.4
Total potential shares outstanding ........ 366.1 389.2 401.5
Diluted per share .................................. $ 8.63 $ 9.09 $ 7.6 3
All stock options outstanding were included in the
computation during 2014, 2013 and 2012, except 2.4 million
options in 2014, 2.4 million in 2013 and 1.8 million in 2012
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, 2014, the
company is authorized to grant an additional 7.2 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 contrac-
tual 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:
2014 2013 2012
Risk-free interest rate ...... .03% - 2.9% .04% - 1.7% .01% - 2.0%
Expected dividends .......... 2.3% 2.3% 1.9%
Expected volatility ............ 25.9% - 32.0% 26.6% - 32.5% 34.1% - 41.9%
Weighted-average
volatility ...................... 31.9% 32.4% 33.6%
Expected term (in years) .. 7.3 - 7.4 7.3 - 7.9 6.8 - 7.8
Stock option activity at October 31, 2014 and changes
during 2014 in millions of dollars and shares follow:
Remaining
Contractual Aggregate
Exercise Term Intrinsic
Shares Price* (Years) Value
Outstanding at beginning
of year ................................. 15.7 $ 64.82
Granted ..................................... 2.4 8 7.4 6
Exercised .................................. (3.0) 48.53
Expired or forfeited .................... (.2) 85.99
Outstanding at end of year ...... 14.9 71.64 6.06 $ 218.4
Exercisable at end of year ...... 9.0 67.02 5.21 171.5
* Weighted-averages
The weighted-average grant-date fair values of options
granted during 2014, 2013 and 2012 were $24.74, $23.73 and
$22.51, respectively. The total intrinsic values of options
exercised during 2014, 2013 and 2012 were $125 million,
$183 million and $88 million, respectively. During 2014,
2013 and 2012, cash received from stock option exercises was
$149 million, $175 million and $61 million with tax benefits
of $46 million, $68 million and $33 million, respectively.
The company granted 236 thousand, 254 thousand and
266 thousand restricted stock units to employees and nonem-
ployee directors in 2014, 2013 and 2012, of which 102 thousand,
110 thousand and 122 thousand are subject to service based
only conditions, 67 thousand, 72 thousand and 72 thousand are
subject to performance/service based conditions, 67 thousand,
72 thousand and 72 thousand are subject to market/service
based conditions, respectively. 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.