
Q. STOCK COMPENSATION PLANS 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 over three years or earlier upon meeting certain age and service requirements. 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 shares, and as of December 31, 2014, the maximum number of shares available for future grants was 16.1 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.
	2014			2013			2012
Risk-free interest rate		1.51	%		.88	%		.74	%
Expected volatility		34	%		44	%		47	%
Expected dividend yield		3.4	%		3.3	%		3.8	%
Expected term		5 years			5 years			5 years
Weighted average grant date fair value of options per share	$	13.17		$	13.78		$	12.67
The fair value of options granted was $8.6, $11.2 and $12.0 for the years ended December 31, 2014, 2013 and 2012, respectively. The fair value of options vested during the years ended December 31, 2014, 2013 and 2012 was $10.5, $8.8 and $8.9, respectively. A summary of activity under the Company’s stock plans is presented below:
	2014			2013			2012
Intrinsic value of options exercised	$	20.9		$	19.6		$	15.4
Cash received from stock option exercises		29.1			31.0			13.9
Tax benefit related to stock award exercises		4.4			3.9			4.4
Stock based compensation		16.2			14.0			13.9
Tax benefit related to stock based compensation		5.6			4.9			4.8

The summary of options as of December 31, 2014 and changes during the year then ended are presented below:

NUMBER
OF SHARES

PER SHARE
EXERCISE
PRICE*

REMAINING
CONTRACTUAL
LIFE IN YEARS*

AGGREGATE
INTRINSIC
VALUE

Options outstanding at January 1

4,745,200

41.11

Granted

656,200

59.15

Exercised

(780,700

)

37.21

Cancelled

(84,000

)

48.46

Options outstanding at December 31

4,536,700

44.25

5.90

107.8

Vested and expected to vest

4,414,300

43.95

5.82

106.2

Exercisable

2,335,800

39.42

3.90

66.8

* Weighted Average

The fair value of restricted shares is determined based upon the stock price on the date of grant. The summary of nonvested restricted shares as of December 31, 2014 and changes during the year then ended is presented below:

NONVESTED SHARES

NUMBER
OF SHARES

GRANT DATE
FAIR VALUE*

Nonvested awards outstanding at January 1

166,700

46.32

Granted

112,500

59.06

Vested

(93,500

)

51.17

Nonvested awards outstanding at December 31

185,700

51.60

* Weighted Average

As of December 31, 2014, there was $8.4 of total unrecognized compensation cost related to nonvested stock options, which is recognized over a remaining weighted average vesting period of 1.47 years. Unrecognized compensation cost related to nonvested restricted stock awards of $1.1 is expected to be recognized over a remaining weighted average vesting period of 1.30 years.

The dilutive and antidilutive options are shown separately in the table below:


Year Ended December 31,	2014		2013		2012
Additional shares		1,120,500		932,000		730,000
Antidilutive options		673,700		873,800		2,572,000

A total of 187,500 performance based restricted stock awards were granted in 2008 and 2007 at a weighted average fair value of $43.61. These awards were to vest after five years if the Company’s earnings per share growth over the same five year period met or exceeded certain performance goals. All outstanding awards were forfeited in 2013 and 2012 as the performance goals were not achieved. No matching shares were granted under this program in 2014, 2013 or 2012.