How does Budget estimate the fair value of restricted stock units?
Budget Franchise · 2025 FDDAnswer from 2025 FDD Document
Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense on a straight-line basis over the vesting period. Our policy is to record compensation expense for stock options, and restricted stock units that are time- and performance-based, for the portion of the award that vests. Compensation expense related to market-based restricted stock units is recognized provided that the requisite service is rendered, regardless of when, if ever, the market condition is satisfied. We estimate the fair value of restricted stock units using the market price of our common stock on the date of grant. We estimate the fair value of stock-based and cash unit awards containing a market condition using a Monte Carlo simulation model. Key inputs and assumptions used in the Monte Carlo simulation model include the stock price of the award on the grant date, the expected term, the risk-free interest rate over the expected term, the expected annual dividend yield and the expected stock price volatility. The expected volatility is based on a combination of the historical and implied volatility of our publicly traded, near-the-money stock options, and the valuation period is based on the vesting period of the awards. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the
time of grant and, since we do not currently pay or plan to pay a recurring dividend on our common stock, the expected dividend yield was zero.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Budget's 2025 Franchise Disclosure Document, the company measures stock-based compensation cost at the grant date, based on the fair value of the award. This cost is then recognized as an expense on a straight-line basis over the vesting period. For stock options and restricted stock units that are time- and performance-based, Budget records compensation expense for the portion of the award that vests.
For market-based restricted stock units, Budget recognizes compensation expense as long as the required service is rendered, regardless of whether the market condition is ever satisfied. The fair value of restricted stock units is estimated using the market price of Budget's common stock on the date the units are granted.
For stock-based and cash unit awards that contain a market condition, Budget uses a Monte Carlo simulation model to estimate fair value. The key inputs and assumptions for this model include the stock price on the grant date, the expected term, the risk-free interest rate over the expected term, the expected annual dividend yield, and the expected stock price volatility. The expected volatility is based on a combination of historical and implied volatility of Budget's publicly traded stock options, and the valuation period is based on the vesting period of the awards. The risk-free interest rate is derived from the U.S. Treasury yield curve at the time of grant, and the expected dividend yield is zero because Budget does not currently pay or plan to pay recurring dividends on its common stock.