Starwood 2005 Annual Report Download - page 80

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS Ì (Continued)
Average Black Scholes assumptions:
Year Ended
December 31,
2004 2003
Dividend Yield ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2.5% 3.1%
Volatility ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 42% 42%
Risk-free rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3.2% 3.2%
Expected lifeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6 yrs 6 yrs
The weighted average fair value per Share of options granted in 2005, 2004 and 2003 was $17.23, $13.78
and $8.48, respectively, using the assumptions noted in the tables above.
Revenue Recognition. The Company's revenues are primarily derived from the following sources:
(1) hotel and resort revenues at the Company's owned, leased and consolidated joint venture properties;
(2) management and franchise fees; (3) vacation ownership and residential revenues; (4) revenues from
managed and franchised properties; and (5) other revenues which are ancillary to the Company's operations.
Generally, revenues are recognized when the services have been rendered. The following is a description of the
composition of revenues for the Company:
¬Owned, Leased and Consolidated Joint Ventures Ì Represents revenue primarily derived from hotel
operations, including the rental of rooms and food and beverage sales, from owned, leased or
consolidated joint venture hotels and resorts. Revenue is recognized when rooms are occupied and
services have been rendered.
¬Management and Franchise Fees Ì Represents fees earned on hotels managed worldwide, usually
under long-term contracts, franchise fees received in connection with the franchise of the Company's
Sheraton, Westin, Four Points by Sheraton, Le Mπeridien, St. Regis, W and Luxury Collection brand
names and termination fees, oÅset by payments by the Company under performance and other
guarantees. Management fees are comprised of a base fee, which is generally based on a percentage of
gross revenues, and an incentive fee, which is generally based on the property's proÑtability. Base fee
revenues are recognized when earned in accordance with the terms of the contract. For any time during
the year, when the provisions of the management contracts allow receipt of incentive fees upon
termination, incentive fees are recognized for the fees due and earned as if the contract was terminated
at that date, exclusive of any termination fees due or payable. Franchise fees are generally based on a
percentage of hotel room revenues and are recognized in accordance with SFAS No. 45, ""Accounting
for Franchise Fee Revenue,'' as the fees are earned and become due from the franchisee.
¬Vacation Ownership and Residential Ì The Company recognizes revenue from VOI and residential
sales in accordance with SFAS No. 66, ""Accounting for Sales of Real Estate.'' The Company
recognizes sales when a minimum of 10% of the purchase price for the VOI or residential deposit has
been received in cash, the period of cancellation with refund has expired and receivables are deemed
collectible. For sales that do not qualify for full revenue recognition as the project has progressed
beyond the preliminary stages but has not yet reached completion, all revenue and proÑt are initially
deferred and recognized in earnings through the percentage-of-completion method. The Company has
also entered into licensing agreements with third-party developers to oÅer consumers branded
condominiums or residences. The fees from these arrangements are generally based on the gross sales
revenue of the units sold.
¬Revenues from Managed and Franchised Properties Ì These revenues represent reimbursements of
costs incurred on behalf of managed hotel properties and franchisees. These costs relate primarily to
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