Hertz 2008 Annual Report Download - page 136

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
pension plan, and benefit payments made through unfunded plans. Based upon the significant decline
in asset values in 2008, which were in line with the overall market declines, it is likely we will have to make
cash contributions in 2009 and future years. The actual level of contributions is uncertain and is
dependent upon a final valuation of the plan liabilities, which will be completed later in the year. In
addition, under the Pension Protection Act of 2006, there are a number of choices in valuing assets and
liabilities to determine the required level of funding that can produce a wide range of potential
contributions. The level of future contributions will vary, and is dependent on a number of factors
including investment returns, interest rate fluctuations, plan demographics and funding regulations.
We participate in various ‘‘multiemployer’’ pension plans administered by labor unions representing
some of our employees. We make periodic contributions to these plans to allow them to meet their
pension benefit obligations to their participants. In the event that we withdraw from participation in one of
these plans, then applicable law could require us to make an additional lump-sum contribution to the
plan, and we would have to reflect that as an expense in our consolidated statement of operations and as
a liability on our consolidated balance sheet. Our withdrawal liability for any multiemployer plan would
depend on the extent of the plan’s funding of vested benefits. In the ordinary course of our renegotiation
of collective bargaining agreements with labor unions that maintain these plans, we could decide to
discontinue participation in a plan, and in that event we could face a withdrawal liability. Some
multiemployer plans, including one in which we participate, are reported to have significant underfunded
liabilities. Such underfunding could increase the size of our potential withdrawal liability.
Other Postretirement Benefits
We provide limited postretirement health care and life insurance for employees of our domestic
operations with hire dates prior to January 1, 1990. There are no plan assets associated with this plan.
We provide for these postretirement costs through monthly accruals. The net periodic postretirement
benefit gain for the year ended December 31, 2008 was $2.1 million and the accumulated benefit
obligation as of December 31, 2008 was $12.9 million compared to a net periodic postretirement benefit
cost of $0.7 million for the year ended December 31, 2007 and an accumulated benefit obligation of
$13.2 million as of December 31, 2007.
Stock-Based Compensation
On February 15, 2006, our Board of Directors and that of Hertz jointly approved the Stock Incentive Plan.
The Stock Incentive Plan provides for the sale of shares of stock of Hertz Holdings to our executive
officers, other key employees and directors as well as the grant of stock options to purchase shares of
Hertz Holdings to those individuals.
During the second quarter of 2006, we made an equity offering to approximately 350 of Hertz’s
executives and key employees (not including Craig R. Koch, our former Chief Executive Officer). The
shares sold and options granted to our employees in connection with this equity offering are subject to
and governed by the terms of the Stock Incentive Plan. The offering closed on May 5, 2006. In
connection with this offering, we sold 1,757,354 shares at a purchase price of $10.00 per share and
granted options to purchase an additional 2,786,354 shares at an exercise price of $10.00 per share
($4.56 after adjustment for special cash dividends paid on June 30, 2006 and November 21, 2006). In
addition, on May 18, 2006, we granted Hertz’s key executives and employees (except for Mr. Koch)
options to acquire an additional 9,515,000 shares of our common stock at $10.00 per share ($4.56 after
adjustment for special cash dividends paid on June 30, 2006 and November 21, 2006), 800,000 shares
at $15.00 per share ($9.56 after adjustment for special cash dividends paid on June 30, 2006 and
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