Frontier Airlines 2006 Annual Report Download - page 104

During the years ended December 31, 2006, 2005 and 2004, $1,297 ($785 net of tax), $125 ($75 net of tax) and $214 ($129
net of tax), respectively, was charged to expense relating to the stock option plans. The Company has a policy of issuing new common
shares to satisfy the exercise of stock options. At December 31, 2006 there was $2,035 of unrecognized stock-based employee
compensation expense for unvested stock options, and the expected remaining expense period is 1.2 years. The Company did not
recognize excess tax benefits related to stock option exercises in 2006 since the Company did not have taxable income in 2006.
The weighted average grant date fair value of options granted in 2006, 2005 and 2004 was $7.62, $3.98 and $3.32,
respectively. The Company estimates the fair value of stock options issued using the Black-Scholes option pricing model. Expected
volatilities are based on the historical volatility of the Company’s stock and other factors. The Company uses historical data to
estimate option exercises and employee terminations within the valuation model. Dividends were based on an estimated dividend
yield. The risk-free rates for the periods within the contractual life of the option are based on the U.S. Treasury rates in effect at the
time of the grant. The forfeiture rate is based on historical information and management’s best estimate of future forfeitures. The
expected term of options granted is derived from historical exercise experience and represents the period of time the Company expects
options granted to be outstanding. Option valuation models require the input of subjective assumptions including the expected
volatility and lives. Actual values of grants could vary significantly from the results of the calculations.
The following assumptions were used to value stock option grants during the following periods:
December 31,
2006 2005 2004
Dividend yield — — —
Expected volatility 38% 40% 40%
Risk-free interest rate 4.5-4.7% 3.9% 2%
Expected life ( in years ) 1-4 1-4 3-4
Warrants
In connection with the Delta code-share agreement, the Company has issued warrants to purchase shares of its common stock
related to the code-share agreement. Warrants issued have been accounted for under SFAS No. 123 and EITF 96-18, Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, at fair
value on the measurement date. Accordingly, there is no impact on the accounting for warrants from the adoption of SFAS 123(R).
The warrants, net of amounts surrendered in December 2004, are fully vested and exercisable as follows:
Issued
Number
of Shares Exercise Price Exercise Period
June 2002 825,000 $ 12.50(1) June 2012
June 2004 825,000 12.35(1) May 2014
February 2003 396,000 13.00 February
2013
October 2003 165,000 12.35 October
2013
March 2004 264,000 12.35 March 2014
December 2004 960,000 11.60 December
2014
3,435,000
(1) The exercise price is subject to downward adjustment, if the Company issues additional shares of common stock in certain
instances.
In December 2004, the Company and Delta agreed to reduce the amounts of all warrants issued pursuant to the code-share
agreement by 45%, which reduced deferred warrant charges and warrant equity by $6,756. Amortization of deferred warrant charges
were $565, $372 and $800 for the years ended December 31, 2006, 2005 and 2004, respectively.
Source: REPUBLIC AIRWAYS HOLDINGS INC, 10-K, March 15, 2007 Powered by Morningstar® Document Research℠