Hertz 2007 Annual Report Download - page 160

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
information about past volatility. Therefore, we have used the calculated value method, substituting the
historical volatility of an appropriate industry sector index for the expected volatility of Hertz Holdings’
common stock price as an assumption in the valuation model. We selected the Dow Jones Specialized
Consumer Services sub-sector within the consumer services industry, and we used the U.S. large
capitalization component, which includes the top 70% of the index universe (by market value).
The calculation of the historical volatility of the index was made using the daily historical closing values of
the index for the preceding 6.5 years, because that is the expected term of the options using the
simplified approach allowed under SAB No. 107.
The risk-free interest rate is the implied zero-coupon yield for U.S. Treasury securities having a maturity
approximately equal to the expected term, as of the grant dates. The assumed dividend yield is zero. We
assume that each year 1% of the options that are outstanding but not vested will be forfeited because of
employee attrition.
Assumption 2007 Grants 2006 Grants
Expected volatility .................................. 39.7% - 50.2% 50.2%
Weighted-average volatility ............................ 46.8% 50.2%
Expected dividends ................................. 0.0% 0.0%
Expected term (years) ............................... 5.0 - 6.5 6.5
Risk-free rate ...................................... 4.38% - 4.79% 4.89% - 5.07%
Forfeiture rate (per year) ............................. 1.0% 1.0%
A summary of option activity under the Stock Incentive Plan as of December 31, 2007 is presented
below.
Weighted-
Average
Weighted- Remaining
Average Contractual Aggregate Intrinsic
Exercise Term Value (In thousands
Options Shares Price (years) of dollars)
Outstanding at January 1, 2007 ......... 15,748,354 $ 5.85
Granted .......................... 1,782,527 $21.66
Exercised ......................... (1,227,950) $ 4.56
Forfeited or Expired ................. (1,747,600) $ 5.64
Outstanding at December 31, 2007 ...... 14,555,331 $ 7.91 8.5 $126,139
Exercisable at December 31, 2007 ....... 2,889,180 $ 6.50 8.4 $ 23,676
A total of 1,227,950 options were exercised in the year ended December 31, 2007 and we received
$5.6 million from the issuance of shares related to these exercises. The aggregate intrinsic value of
options exercised during the year ended December 31, 2007 was $20.3 million.
The weighted average grant date fair value of options granted during the years ended December 31,
2007 and 2006 was $11.16 and $5.99, respectively.
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