Hertz 2010 Annual Report Download - page 135

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Impact on Results
A summary of the total compensation expense and associated income tax benefits recognized under
our Prior Plans and the Omnibus Plan, including the cost of stock options, restricted stock units, or
‘‘RSUs,’’ and performance stock units, or ‘‘PSUs,’’ is as follows (in millions of dollars):
Years ended December 31,
2010 2009 2008
Compensation Expense .................................. $36.6 $ 34.5 $ 27.8
Income Tax Benefit ..................................... (14.2) (13.4) (10.7)
Total .............................................. $22.4 $ 21.1 $ 17.1
As of December 31, 2010, there was approximately $39.8 million of total unrecognized compensation
cost related to non-vested stock options, RSUs and PSUs granted by Hertz Holdings under the Prior
Plans and the Omnibus 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. The total unrecognized compensation cost is expected to be recognized over the
remaining 1.4 years, on a weighted average basis, of the requisite service period that began on the grant
dates.
Stock Options and Stock Appreciation Rights
All stock options and stock appreciation rights granted under the Omnibus Plan will have a per-share
exercise price of not less than the fair market value of one share of Hertz Holdings common stock on the
grant date. Stock options and stock appreciation rights will vest based on a minimum period of service or
the occurrence of events (such as a change in control, as defined in the Omnibus Plan) specified by the
compensation committee of our Board of Directors. No stock options or stock appreciation rights will be
exercisable after ten years from the grant date.
We have accounted for our employee stock-based compensation awards in accordance with ASC 718,
‘‘Compensation—Stock Compensation.’’ The options are being accounted for as equity-classified
awards. We will recognize compensation cost on a straight-line basis over the vesting period. The value
of each option award is estimated on the grant date using a Black-Scholes option valuation model that
incorporates the assumptions noted in the following table. Because the stock of Hertz Holdings became
publicly traded in November 2006 and has a short trading history, it is not practicable for us to estimate
the expected volatility of our share price, or a peer company share price, because there is not sufficient
historical 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 6.25 years, because that is the expected term of the options using the
simplified approach.
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