Hertz 2007 Annual Report Download - page 123

by an amount equal to the per share amount of the special cash dividend paid on June 30, 2006, thereby
preserving the intrinsic value of the options, consistent with applicable tax law. In order to assist
management and the Compensation Committee of the Board of Directors in their determination of the
value of the common stock of Hertz Holdings, an independent valuation was performed as of
immediately before and after the modification. We will recognize incremental compensation cost of
approximately $14.1 million related to the cost of modifying the exercise prices of the stock options for
the special cash dividend over the remainder of the five-year requisite vesting period that began on the
grant date.
Prior to the consummation of the initial public offering of the common stock of Hertz Holdings on
November 21, 2006, Hertz Holdings declared a special cash dividend, to be paid promptly following the
completion of the offering. In connection with the special cash dividend, Hertz Holdings’ outstanding
stock options were adjusted to preserve the intrinsic value of the options, consistent with applicable tax
law and the terms of the Stock Incentive Plan. The Board approved this modification on October 12,
2006. Beginning on that date, the cost of the modification was recognized ratably over the remainder of
the requisite service period for each grant. Because the modification was effective before the amount of
the dividend was known, the cost of the modification reflected the assumption that the dividend would
be funded by the proceeds to Hertz Holdings from the sale of the common stock after deducting
underwriting discounts and commissions and offering expenses. The assumed proceeds from the sale
of the common stock were determined by assuming an offering price equivalent to the midpoint of the
range set forth on the cover page of the initial public offering prospectus (or $17.00 per share) and
resulted in an estimated dividend of $1.83 per share. The actual dividend declared was $1.12 per share.
We will recognize incremental compensation cost of $14.2 million related to the cost of modifying the
exercise prices of the stock options for the special cash dividend paid on November 21, 2006 over the
remainder of the five-year requisite service period. This charge was based on the estimated dividend,
rather than the actual dividend paid.
In May 2007, Hertz Holdings granted options to acquire 1,029,007 shares of Hertz Holdings’ common
stock to key executives, employees and non-management directors at exercise prices ranging from
$20.55 to $21.87. In August 2007, Hertz Holdings granted options to acquire 510,000 shares of Hertz
Holdings’ common stock to certain executives, including an award to Mark P. Frissora, our Chief
Executive Officer, at exercise prices ranging from $22.61 to $23.06. In November 2007, Hertz Holdings
granted options to acquire 232,000 shares of Hertz Holdings’ common stock to certain executives at
exercise prices ranging from $17.14 to $21.22. These options are subject to and governed by the terms
of the Stock Incentive Plan, and the Hertz Global Holdings, Inc. Director Stock Incentive Plan, or the
‘‘Director Plan.’’ We have accounted for our employee stock-based compensation awards in
accordance with SFAS No. 123R, ‘‘Share-Based Payment.’’ The options are being accounted for as
equity-classified awards.
For the year ended December 31, 2007, we recognized compensation cost of $32.9 million
($20.2 million, net of tax) including $5.1 million related to restructuring activities. As of December 31,
2007, there was approximately $85.3 million of total unrecognized compensation cost related to
non-vested stock options granted by Hertz Holdings under the Stock Incentive Plan, including costs
related to modifying the exercise prices of certain option grants in order to preserve the intrinsic value of
the options, consistent with applicable tax law, to reflect special cash dividends of $4.32 per share paid
on June 30, 2006 and $1.12 per share paid on November 21, 2006. These remaining costs are expected
to be recognized over the remaining 2.1 years, on a weighted average basis, of the requisite service
period that began on the grant dates.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, ‘‘Fair Value Measurements,’’ or ‘‘SFAS No. 157.’’
SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with
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