Starwood 2009 Annual Report Download - page 161

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been granted and remain outstanding under those plans. The aggregate award pool for non-qualified or incentive
stock options, performance shares, restricted stock and units or any combination of the foregoing which are
available to be granted under the 2004 LTIP at December 31, 2009 was approximately 53 million.
Compensation expense, net of reimbursements during 2009, 2008 and 2007 was approximately $53 million,
$68 million and $99 million, respectively, resulting in tax benefits of $21 million, $26 million and $33 million,
respectively.
The Company utilizes the Lattice model to calculate the fair value of option grants. Weighted average
assumptions used to determine the fair value of option grants were as follows:
2009 2008 2007
Year Ended December 31,
Dividend yield .............................................. 3.50% 1.50% 1.40%
Volatility:
Near term ................................................ 74.0% 38% 25%
Long term................................................ 43.0% 36% 37%
Expected life ............................................... 7yrs 6yrs 6yrs
Yield curve:
6 month ................................................. 0.45% 1.90% 5.12%
1 year ................................................... 0.72% 1.91% 4.96%
3 year ................................................... 1.40% 2.17% 4.55%
5 year ................................................... 1.99% 2.79% 4.52%
10 year .................................................. 3.02% 3.73% 4.56%
The dividend yield is estimated based on the current expected annualized dividend payment and the average
price of the Company’s common shares during the prior year.
The estimated volatility is based on a combination of historical share price volatility as well as implied
volatility based on market analysis. The historical share price volatility was measured over an 8-year period, which
is equal to the contractual term of the options. The weighted average volatility for 2009 grants was 53.1%.
The expected life represents the period that the Company’s stock-based awards are expected to be outstanding
and was determined based on an actuarial calculation using historical experience, giving consideration to the
contractual terms of the stock-based awards and vesting schedules.
The yield curve (risk-free interest rate) is based on the implied zero-coupon yield from the U.S. Treasury yield
curve over the expected term of the option.
The following table summarizes the Company’s stock option activity during 2009:
Options
(In millions)
Weighted Average
Exercise
Price Per Share
Outstanding at December 31, 2008 .......................... 8.7 $40.66
Granted ............................................ 5.3 11.39
Exercised ........................................... (0.1) 23.36
Forfeited, Canceled or Expired ........................... (0.8) 39.02
Outstanding at December 31, 2009 .......................... 13.1 $29.15
Exercisable at December 31, 2009 .......................... 7.2 $38.72
F-38
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)