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Stock-Based Compensation
12 Months Ended
Dec. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation
Stock-Based Compensation

Prior to the Spin-Off, certain of the Company's employees participated in stock-based compensation plans sponsored by Hertz Holdings. In connection with the Spin-Off, Herc Holdings inherited the Hertz Global Holdings, Inc. 2008 Omnibus Incentive Plan, which was renamed the Herc Holdings Inc. 2008 Omnibus Incentive Plan (the “2008 Omnibus Plan”). Outstanding equity awards at the time of the Spin-Off were adjusted and converted in accordance with a formula designed to preserve the intrinsic economic value of the original equity awards after taking into account the Spin-Off and the reverse stock split. Adjusted awards for active and former Herc employees were denominated in the common stock of Herc Holdings after the Spin-Off. Generally, the adjusted awards were subject to the same terms and vesting conditions as the original Hertz Holdings awards. The adjusted awards for performance stock units included adjusted performance metrics to reflect the separation of the vehicle rental and equipment rental businesses, and the adjusted awards contained such additional or adjusted provisions as were required. The share data presented in this note has been retroactively adjusted to reflect the impact of the separation and conversion, including the reverse stock split.

On May 17, 2018, the Herc Holdings Inc. 2018 Omnibus Incentive Plan (the "2018 Omnibus Plan") was approved and replaced the 2008 Omnibus Plan. The 2018 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 awards (shares and units) and deferred stock units to key executives, employees, non-management directors and non-employee consultants. The total number of common shares authorized for issuance under the 2018 Omnibus Plan is 2,200,000, of which approximately 2,186,000 remains available as of December 31, 2018 for future incentive awards. The shares that remained available for awards under the 2008 Omnibus Plan are no longer be available for any future awards granted under either the 2008 Omnibus Plan or the 2018 Omnibus Plan.

Stock-based compensation awards are measured on their grant date using a fair value method and are recognized in the statement of operations over the requisite service period. The Company's stock-based compensation expense is included in “Selling, general and administrative” expense in the Company's consolidated statements of operations. The following table summarizes the expenses and associated income tax benefits recognized (in millions):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Compensation expense
$
13.4

 
$
10.1

 
$
5.5

Income tax benefit
(3.5
)
 
(2.5
)
 
(2.1
)
Total
$
9.9

 
$
7.6

 
$
3.4



During the year ended December 31, 2016, stock-based compensation expense includes an allocation of THC's corporate and shared functional employee expenses of $2.0 million, on a pre-tax basis. The expenses are for the employees of THC and its non-Herc Holdings subsidiaries whose costs of services were allocated to the Company for the applicable period presented. For additional information related to costs allocated to the Company by THC, see Note 20, "Related Party Transactions."

As of December 31, 2018, there was $17.4 million of total unrecognized compensation cost related to non-vested stock options, restricted stock units ("RSUs") and performance stock units ("PSUs"). The total unrecognized compensation cost is expected to be recognized over the remaining 1.5 years, on a weighted average basis, of the requisite service period that began on the grant dates.

Stock Options

All stock options granted had a per-share exercise price of not less than the fair market value of one share of common stock on the grant date. Stock options vest based on a minimum period of service or the occurrence of events (such as a change in control, as defined in the 2018 Omnibus Plan). No stock options are exercisable after ten years from the grant date.

The Company’s practice is to grant stock options at fair market value. Options vest over four years with terms of five to 10 years, assuming continued employment with certain exceptions. Vesting of the option awards is contingent upon meeting certain service conditions. The fair value of option grants is estimated using the Black-Scholes option pricing model. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. For stock option grants during 2016, expected volatility was calculated based on a blended volatility of peer group volatility and implied volatility as the Company does not have sufficient stock price data to calculate historical volatility. The Company used the simplified method under Staff Accounting Bulletin Topic 14, Share-Based Payment as the basis for estimating the expected life of an option because the exercise data for participants who held options as employees of a subsidiary of our former parent is not necessarily indicative of future exercise patterns. The risk-free interest rate was based on U.S. Treasury zero-coupon issues with a remaining term which approximates the expected life assumed at the date of grant. The compensation expense recognized for all stock-based awards is net of estimated forfeitures. Forfeitures were estimated based on an analysis of actual option forfeitures.
 
The weighted average assumptions used in the Black-Scholes option pricing model are presented below. There were no stock options granted during 2018 or 2017.
 
Year Ended
 
December 31, 2016
Expected volatility
50.0%
Expected dividend yield
—%
Expected term (years)
4.8
Risk-free interest rate
1.09%

The weighted average per share grant date fair values of options granted during 2016 was $14.28.

A summary of option activity is presented below.
 
Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term (Years)
 
Aggregate Intrinsic
Value (in millions of dollars) (a)
Outstanding at December 31, 2017
440,642

 
$
37.25

 
 
 
 
Granted

 

 
 
 
 
Exercised
(15,416
)
 
34.40

 
 
 
 
Forfeited or expired
(54,953
)
 
35.71

 
 
 
 
Outstanding at December 31, 2018
370,273

 
$
37.56

 
 
 
 
Vested and Unvested Expected to Vest at December 31, 2018
161,502

 
$
35.74

 
4.3
 

Exercisable at December 31, 2018
203,954

 
$
39.10

 
3.9
 


(a) Market price per share on December 31, 2018 was $25.99. The intrinsic value is zero for options with exercise prices above market value.

Stock options as of December 31, 2018:
 
Options Outstanding
 
Options Exercisable
Range of Exercise Prices
Number Outstanding
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term (Years)
 
Number Outstanding
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term (Years)
$20.00-30.00
2,892

 
$
29.83

 
1.2

 
2,892

 
$
29.83

 
1.2

  30.01-40.00
302,529

 
33.19

 
4.6

 
153,193

 
33.19

 
4.6

  40.01-50.00
3,968

 
42.15

 
4.5

 
2,210

 
42.37

 
4.1

  50.01-60.00
46,820

 
56.12

 
1.5

 
35,113

 
56.12

 
1.5

  60.01-70.00

 

 

 

 

 

  70.01-80.00
14,064

 
70.14

 
1.1

 
10,546

 
70.14

 
1.1

 
370,273

 
$
37.56

 
 
 
203,954

 
$
39.10

 
 


Additional information pertaining to stock option activity under the Omnibus Plan is as follows (in millions):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Aggregate intrinsic value of stock options exercised (a)
$
0.5

 
$
0.3

 
$
0.1

Cash received from the exercise of stock options (b)
0.5

 
0.7

 
0.4

Tax benefit realized on exercise of stock options
0.1

 
0.1

 


(a)
The intrinsic value is the difference between the market value of the shares on the exercise date and the exercise price of the option.

(b)
In addition to the cash received in the table above, cash received from exercise of stock options by Hertz Holdings employees prior to the Spin-Off for 2016 was $9.6 million, as reflected in the accompanying consolidated statements of cash flows.

Performance Stock Units

PSUs will vest based on the achievement of pre-determined performance goals over performance periods determined by the Company's Compensation Committee. Each of the units granted represent the right to receive one share of the Company's common stock on a specified future date. Compensation expense for PSUs is based on the grant date fair value, and is recognized ratably over the three-year vesting period. In addition to the service vesting condition, the PSUs have an additional vesting condition which calls for the number of units to be awarded being based on the achievement of certain performance measures over the applicable measurement period. In the event of an employee's death or disability, a pro rata portion of the employee's PSUs will vest to the extent performance goals are achieved at the end of the performance period.

A summary of the PSU activity is presented below.
 
Units
 
Weighted
Average Grant Date
Fair Value
Nonvested at December 31, 2017
247,177

 
$
41.67

Granted
107,990

 
64.51

Vested
(65,987
)
 
48.98

Forfeited
(22,073
)
 
47.73

Nonvested at December 31, 2018
267,107

 
$
48.60



The weighted average per share grant-date fair values of PSUs granted during 2018, 2017 and 2016 were $64.51, $47.88 and $29.77, respectively. The total fair value of PSUs that vested during 2018 were $3.2 million. There were no PSUs that vested in 2017 or 2016.

PSUs granted in 2018 and 2017 include vesting conditions based on the achievement of the Company's return on invested capital performance measured over a three-year period starting from the year of grant. PSUs granted in 2016 include vesting conditions based on the achievement of the Company's corporate EBITDA performance measure over a three-year period from 2016 to 2018.

Restricted Stock Units

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. Compensation expense for RSUs is based on the grant date fair value, and is recognized ratably over the vesting period which generally ranges from one to three years.
A summary of the RSU activity under the Omnibus Plan is presented below.
 
Units
 
Weighted
Average Grant Date
Fair Value
Nonvested at December 31, 2017
403,177

 
$
38.33

Granted
166,925

 
62.89

Vested
(81,533
)
 
37.31

Forfeited
(31,915
)
 
44.28

Nonvested at December 31, 2018
456,654

 
$
46.57



The weighted average per share grant date fair values of RSUs granted during 2018, 2017 and 2016 were $62.89, $45.61 and $32.63, respectively. The total fair value of RSUs that vested during 2018, 2017 and 2016 was $3.0 million, $1.6 million and $0.3 million, respectively.