Sunoco 2011 Annual Report Download - page 105

options’ expected life, to estimate the expected volatility of the Company’s share price. There were no stock
options granted in 2011. The fair value of the stock options granted in prior years has been based on the
following weighted-average assumptions:
2010 2009
Expected life (years) ..................................................... 5 5
Risk-free interest rate .................................................... 2.3% 2.2%
Dividend yield .......................................................... 2.1% 3.6%
Expected volatility ....................................................... 41.1% 41.1%
The following table summarizes information with respect to Sunoco common stock option awards under
Sunoco’s stock-based incentive plans (dollars in millions, except per-share and per-option amounts):
Shares
Under Option
Weighted-
Average
Option Price
Per Share
Weighted-
Average
Fair Value
Per Option*
Intrinsic
Value
Outstanding, December 31, 2008 ............ 2,236,773 $55.19
Granted .................................. 216,100 $27.76 $7.51
Exercised ................................ (35,890) $12.63 $ 1
Canceled ................................. (84,167) $46.69
Outstanding, December 31, 2009 ............ 2,332,816 $53.61
Granted .................................. 644,800 $28.26 $9.00
Exercised ................................ (7,000) $26.05 $—
Canceled ................................. (207,134) $48.90
Outstanding, December 31, 2010 ............ 2,763,482 $48.12
Granted .................................. —
Exercised** .............................. (196,145) $29.14 $ 3
Canceled ................................. (158,115) $53.93
Outstanding, December 31, 2011 ............ 2,409,222*** $49.28 $12
Exercisable, December 31
2009 .................................... 1,702,042 $61.35
2010 .................................... 1,831,871 $57.57
2011 .................................... 1,965,179*** $54.05 $ 6
*Represents the weighted-average fair value per option granted as of the date of grant.
**Cash received by the Company upon exercise amounted to $6 million and the related tax benefit realized amounted to less than $1 million.
***The weighted-average remaining contractual term of outstanding options and exercisable options was 6.1 and 5.7 years, respectively.
Outstanding common stock award units under the Company’s stock-based incentive plans mature upon
completion of a three- to ten-year service period or upon attainment of predetermined performance targets during
a three-year period. For performance-based awards, adjustments for attainment of performance targets can range
from 0-150 percent of the award grant. Awards are payable in cash or common stock as determined on the date of
grant. Awards to be paid in cash are classified as liabilities in the Company’s consolidated balance sheets and are
re-measured for expense purposes at fair value each period (based on the fair value of an equivalent number of
Sunoco common shares at the end of the period) with any change in fair value recognized as an increase or
decrease in earnings. For service-based awards to be settled in common stock, the grant-date fair value is based
on the closing price of the Company’s shares on the date of grant. For performance-based awards to be settled in
common stock, the payout of which is determined by market conditions related to stock price performance, the
grant-date fair value is generally estimated using a Monte Carlo simulation model. Use of this model requires the
Company to make certain assumptions regarding expected volatility of the Company’s stock price during the
vesting period as well as regarding the risk-free interest rate and correlations of stock returns among the
Company and its peers. The Company uses historical share prices, for a period equivalent to the award’s term, to
estimate the expected volatility of the Company’s share price. The risk-free interest rate is based on the U.S.
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