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Stock-Based Compensation
12 Months Ended
Dec. 31, 2013
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation
Stock-Based Compensation
Plans
On February 28, 2008, our Board of Directors adopted the Hertz Global Holdings, Inc. 2008 Omnibus Incentive Plan, or the “Omnibus Plan,” which was approved by our stockholders at the annual meeting of stockholders held on May 15, 2008 and amended and restated on May 27, 2010. A maximum of 32.7 million shares are reserved for issuance under the Omnibus Plan. The Omnibus Plan provides for grants of both equity and cash awards, including non-qualified stock options, incentive stock options, stock appreciation rights, performance awards (shares and units), restricted stock, restricted stock units and deferred stock units to key executives, employees and non-management directors. We also granted awards under the Hertz Global Holdings, Inc. Stock Incentive Plan, or the “Stock Incentive Plan,” and the Hertz Global Holdings, Inc. Director Stock Incentive Plan, or the “Director Plan”, or collectively the “Prior Plans.”
The Omnibus Plan provides that no further awards will be granted pursuant to the Prior Plans. However, awards that had been previously granted pursuant to the Prior Plans will continue to be subject to and governed by the terms of the Prior Plans. As of December 31, 2013, there were 6.0 million shares of our common stock underlying awards outstanding under the Prior Plans. In addition, as of December 31, 2013, there were 8.2 million shares of our common stock underlying awards outstanding under the Omnibus Plan.
In addition to the 14.2 million shares underlying outstanding awards as of December 31, 2013, we had 19.9 million shares of our common stock available for issuance of which 16.0 million is available under the Omnibus Plan, and 3.9 million is available under the treasury stock. The shares of common stock to be delivered under the Omnibus Plan may consist, in whole or in part, of common stock held in treasury or authorized but unissued shares of common stock, not reserved for any other purpose.
Shares subject to any award granted under the Omnibus Plan that for any reason are canceled, terminated, forfeited, settled in cash or otherwise settled without the issuance of common stock after the effective date of the Omnibus Plan will generally be available for future grants under the Omnibus Plan.
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, RSUs, and PSUs, is as follows (in millions of dollars):
 
Years Ended December 31,
 
2013
 
2012
 
2011
Compensation expense
$
36.1

 
$
30.3

 
$
31.0

Income tax benefit
(14.0
)
 
(11.7
)
 
(12.0
)
Total
$
22.1

 
$
18.6

 
$
19.0


As of December 31, 2013, there was approximately $29.9 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. 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 had a short trading history, it was not practicable for us to estimate the expected volatility of our share price, or a peer company share price, because there was insufficient historical information about past volatility prior to 2013. Therefore, prior to 2013 we used the calculated value method, substituting the historical volatility of an appropriate industry sector index for the expected volatility of our 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.
Hertz did not award any stock option equity grants in 2013.
Assumption
2013 Grants
 
2012 Grants
 
2011 Grants
Expected volatility
N/A
 
81.5
%
 
36.7
%
Expected dividend yield
N/A
 
%
 
%
Expected term (years)
N/A
 
3

 
6.25

Risk-free interest rate
N/A
 
0.40
%
 
2.56
%
Weighted-average grant date fair value
N/A
 
$
14.62

 
$
5.93


A summary of option activity under the Stock Incentive Plan and the Omnibus Plan as of December 31, 2013 is presented below.
Options
Shares (In millions)
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term (years)
 
Aggregate Intrinsic
Value (In millions
of dollars)
Outstanding at January 1, 2013
13.2

 
$
11.13

 
5.4
 
$
74.7

Granted

 

 
 
 
 
Exercised
(3.0
)
 
9.64

 
 
 
 
Forfeited or Expired
(0.2
)
 
12.1

 
 
 
 
Outstanding at December 31, 2013
10.0

 
$
11.55

 
4.5
 
$
170.1

Exercisable at December 31, 2013
8.5

 
$
11.37

 
4.1
 
$
146.6


A summary of non-vested options as of December 31, 2013, and changes during the year, is presented below.
 
Non-vested
Shares (In millions)
 
Weighted-
Average
Exercise Price
 
Weighted-
Average Grant-
Date Fair
Value
Non-vested as of January 1, 2013
2.9

 
$
12.23

 
$
4.98

Granted

 

 

Vested
(1.3
)
 
11.69

 
4.77

Forfeited
(0.1
)
 
12.1

 
5.42

Non-vested as of December 31, 2013
1.5

 
$
12.60

 
$
5.13


Additional information pertaining to option activity under the plans is as follows (in millions of dollars):
 
Years ended
December 31,
 
2013
 
2012
 
2011
Aggregate intrinsic value of stock options exercised
$
42.0

 
$
15.1

 
$
15.0

Cash received from the exercise of stock options
26.9

 
11.2

 
13.1

Fair value of options that vested
6.0

 
9.0

 
17.4

Tax benefit realized on exercise of stock options
1.3

 
0.9

 
0.5


Performance Stock, Performance Stock Units, Restricted Stock and Restricted Stock Units
Performance stock, PSUs and performance units granted under the Omnibus Plan will vest based on the achievement of pre-determined performance goals over performance periods determined by the Compensation Committee. Each of the units granted under the Omnibus Plan represent the right to receive one share of our common stock on a specified future date. In the event of an employee's death or disability, a pro rata portion of the employee's performance stock, performance stock units and performance units will vest to the extent performance goals are achieved at the end of the performance period. Restricted Stock and RSUs granted under the Omnibus Plan 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.
A summary of the PSU activity under the Omnibus Plan as of December 31, 2013 is presented below.
 
Shares (In millions)
 
Weighted-
Average
Fair Value
 
Aggregate Intrinsic
Value (In millions
of dollars)
Outstanding at January 1, 2013
2.3

 
$
12.18

 
$
37.4

Granted
1.7

 
19.95

 
 
Vested
(0.4
)
 
10.40

 
 
Forfeited or Expired
(0.3
)
 
15.24

 
 
Outstanding at December 31, 2013
3.3

 
$
15.68

 
$
95.8

A summary of RSU activity under the Omnibus Plan as of December 31, 2013 is presented below.
 
Shares (In millions)
 
Weighted-
Average
Fair Value
 
Aggregate Intrinsic
Value (In millions
of dollars)
Outstanding at January 1, 2013
1.9

 
$
12.62

 
$
30.5

Granted
0.3

 
23.95

 
 
Vested
(1.1
)
 
11.64

 
 
Forfeited or Expired
(0.2
)
 
13.68

 
 
Outstanding at December 31, 2013
0.9

 
$
17.00

 
$
25.6


Additional information pertaining to RSU activity is as follows:
 
Years ended December 31,
 
2013
 
2012
 
2011
Total fair value of awards that vested ($ millions)
$
12.9

 
$
14.6

 
$
9.6

Weighted average grant date fair value of awards
$
23.95

 
$
13.78

 
$
14.78


Compensation expense for PSUs and RSUs is based on the grant date fair value, and is recognized ratably over the vesting period. For grants in 2011, 2012 and 2013, the vesting period is two or three years (for grants in 2011, 25% in the first year, 25% in the second year and 50% in the third year and for grants in 2012 and 2013, 33 1/3% per year). In addition to the service vesting condition, the PSUs had an additional vesting condition which called for the number of units that will be awarded being based on achievement of a certain level of Corporate EBITDA over the applicable measurement period.
2013 Awards
In February 2013, we granted 1.7 million Performance Stock Units, or "PSUs," to certain executives and employees at a grant date fair value of $19.95, under the Hertz Global Holdings, Inc. 2008 Omnibus Incentive Plan, or the "Omnibus Plan." Of the total PSUs awarded 1.1 million PSUs have a performance condition under which the number of units that will ultimately be awarded will vary from 0% to 150% of the original grant, based on 2013 and combined 2013-2014 Corporate EBITDA results. "EBITDA" means consolidated net income before net interest expense, consolidated income taxes and consolidated depreciation (which includes revenue earning equipment lease charges) and amortization and "Corporate EBITDA," represents EBITDA as adjusted for car rental fleet interest, car rental fleet depreciation and certain other items, as provided in the applicable award agreements. These PSU awards vest evenly over a three year vesting period. Of the total PSUs awarded, 0.5 million PSUs have a performance condition under which the number of units that will ultimately be awarded will be 0% to 100% of the original grant. Satisfaction of the performance condition under this grant is contingent upon final 2013 Corporate EBITDA Margin exceeding a minimum level. "Corporate EBITDA Margin" means Corporate EBITDA as a percentage of Consolidated Revenue. These PSU awards vest evenly over a three year vesting period. Of the total PSUs awarded, 0.1 million PSUs have a performance condition under which the number of units that will ultimately be awarded will be 0% to 100% of the original grant. Satisfaction of the performance condition under this grant is contingent upon final 2013 Corporate EBITDA Margin exceeding a minimum level. These PSU awards vest evenly over a two year vesting period.
We granted a total of 0.3 million Restricted Stock Units, or "RSUs," during 2013 at a fair value of $23.95. Of the total RSUs awarded, 0.2 million RSUs vest 33 1/3% annually over three years. The remaining RSUs cliff vest after 2 years, 3 years or cliff vest 50% after year 3 and 50% after year 4.
Employee Stock Purchase Plan
On February 28, 2008, upon recommendation of the compensation committee of our Board of Directors, or “Committee,” our Board of Directors adopted the Hertz Global Holdings, Inc. Employee Stock Purchase Plan, or the “ESPP,” and the plan was approved by our stockholders on May 15, 2008. An amendment was approved by our stockholders on May 15, 2013. The ESPP is intended to be an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code.
The maximum number of shares that may be purchased under the ESPP is 8.0 million shares of our common stock, subject to adjustment in the case of any change in our shares, including by reason of a stock dividend, stock split, share combination, recapitalization, reorganization, merger, consolidation or change in corporate structure. An eligible employee may elect to participate in the ESPP each quarter (or other period established by the Compensation Committee) through a payroll deduction. The maximum and minimum contributions that an eligible employee may make under all of our qualified employee stock purchase plans will be determined by the Compensation Committee, provided that no employee may be permitted to purchase stock with an aggregate fair market value greater than $25,000 per year. At the end of the offering period, the total amount of each employee's payroll deduction will be used to purchase shares of our common stock. The purchase price per share will be not less than 85% of the market price of our common stock on the date of purchase; the exact percentage for each offering period will be set in advance by the Compensation Committee.
For the years ended December 31, 2013, 2012 and 2011, we recognized compensation cost of approximately $0.9 million, $0.8 million and $0.7 million, respectively, for the amount of the discount on the stock purchased by our employees under the ESPP. Approximately 2,100 employees participated in the ESPP as of December 31, 2013.