Starwood 2010 Annual Report Download - page 154

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Compensation expense, net of reimbursements during 2010, 2009 and 2008 was approximately $72 million,
$53 million and $68 million, respectively, resulting in tax benefits of $28 million, $21 million and $26 million,
respectively.
The Company utilizes the Lattice model to calculate the fair value option grants. Weighted average
assumptions used to determine the fair value of option grants were as follows:
2010 2009 2008
Year Ended December 31,
Dividend yield .................................... 0.75% 3.50% 1.50%
Volatility:
Near term ..................................... 37.0% 74.0% 38.0%
Long term ..................................... 45.0% 43.0% 36.0%
Expected life ..................................... 6yrs. 7 yrs. 6 yrs.
Yield curve:
6 month ....................................... 0.19% 0.45% 1.90%
1 year ........................................ 0.32% 0.72% 1.91%
3 year ........................................ 1.36% 1.40% 2.17%
5 year ........................................ 2.30% 1.99% 2.79%
10 year ....................................... 3.61% 3.02% 3.73%
The dividend yield is estimated based on the current expected annualized dividend payment and the average
expected price of the Company’s common shares during the same periods.
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 2010 grants was 40%.
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 2010:
Options
(In millions)
Weighted Average
Exercise
Price Per Share
Outstanding at December 31, 2009 .......................... 13.1 $29.15
Granted ............................................ 0.6 38.24
Exercised ........................................... (4.9) 28.80
Forfeited, Canceled or Expired ........................... (0.1) 45.13
Outstanding at December 31, 2010 .......................... 8.7 $29.72
Exercisable at December 31, 2010 .......................... 4.2 $42.67
The weighted-average fair value per option for options granted during 2010, 2009 and 2008 was $14.73, $4.69,
and $17.24, respectively, and the service period is typically four years. The total intrinsic value of options exercised
during 2010, 2009 and 2008 was approximately $115 million, $1 million and $89 million, respectively, resulting in
tax benefits of approximately $44 million, $0.3 million and $35 million, respectively. As of December 31, 2010,
F-38
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)