Thrifty Car Rental 2006 Annual Report Download - page 57

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The following table provides pro forma results as if the fair value-based method had been applied to
all outstanding and unvested awards, including stock options and performance share and restricted
stock awards, in the 2004 period presented (in thousands, except per share data):
December 31,
2004
Net income, as reported 66,473$
Add: compensation expense related to
performance share and restricted stock
awards included in reported net
income, net of related tax effects 2,509
Deduct: compensation expense related to
stock options granted prior to January 1, 2003
and performance share and restricted stock
awards determined under fair value-based
method for all awards, net of related tax effects (2,755)
Pro forma net income 66,227$
Earnings per share:
Basic, as reported 2.66$
Basic, pro forma 2.65$
Diluted, as reported 2.53$
Diluted, pro forma 2.53$
The Black-Scholes option valuation model was used to estimate the fair value of the options at the
date of grant for purposes of the pro forma amounts noted above.
No stock options were granted after January 1, 2003. The assumptions used to calculate
compensation expense relating to the 2002 stock option awards included in the pro forma results
presented in the table above were as follows: weighted-average expected life of the awards of five
years, volatility factor of 54.57%, risk-free interest rate of 4.46% and no dividend payments.
Variable Interest Entity – In January 2003, the FASB issued Interpretation No. 46, “Consolidation
of Variable Interest Entities,” as amended in December 2003 (“FIN No. 46(R)”) an interpretation of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements". FIN No. 46(R) requires
existing unconsolidated variable interest entities (“VIE’s”) to be consolidated by their primary
beneficiaries if that company is subject to a majority of the risk of loss, if any, from the VIE’s
activities, or entitled to receive a majority of the entity’s residual returns, or both. The Company
believes that its involvement with Thrifty National Ad qualifies Thrifty National Ad as a VIE with the
Company representing the primary beneficiary. Consequently, Thrifty National Ad has been
consolidated in the Company’s financial statements beginning with the quarter ended March 31,
2004. The fair value of the net assets of Thrifty National Ad of approximately $3.7 million at March
31, 2004, was recorded as a cumulative effect of a change in accounting principle in the Company’s
consolidated statements of income. Beginning April 1, 2004, the Company began consolidating the
operating results of Thrifty National Ad with its operating results. Thrifty National Ad is established
for the limited purpose of collecting and disbursing funds for advertising and promotion programs for
the benefit of the Thrifty Car Rental corporate and franchisee network. Thrifty National Ad files its
tax returns under the provisions applicable to a trust. Accordingly, there is no tax effect on the
cumulative effect of the change in accounting principle or on subsequent profits or losses. The
Company’s estimated maximum exposure to loss as a result of its continuing involvement with
Thrifty National Ad is expected to be minimal as expenditures are managed by Thrifty National Ad
based on receipts. The Company also evaluated its franchisee network as potential VIE’s subject to
possible consolidation. The Company determined that its franchisees met the FIN No. 46(R)
definition of a business; however, the Company did not provide more than half of each franchisee’s
equity or other financial support, among other qualifying conditions. Therefore, the Company
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