Frontier Airlines 2007 Annual Report Download - page 83

Warrants
In connection with the Delta code-share agreement, the Company had issued warrants to purchase shares of its common stock
related to the code-share agreement. Warrants issued were 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 was no impact on the accounting for warrants from the adoption of SFAS 123(R).
The Company recorded deferred warrant charges on the measurement date based upon an option pricing model that
considered continuous compounding of dividends and dilution using an estimated fair value of the Company’s common stock on the
grant date, an estimated dividend yield, a risk-free interest rate commensurate with the warrant term, volatility of 40% and an expected
life of 10 years. Amortization of deferred warrant charges was $0, $565 and $372 for the years ended December 31, 2007, 2006 and
2005, respectively.
In March 2007, the Company amended its fixed-fee code-share agreements with Delta. As a part of this amendment, Delta
agreed to surrender its warrants for 3,435,000 shares of the Company’s common stock. The Company recorded a deferred gain on the
surrender of the warrants from Delta of $42,735, which was net of the write-off of the previously reported unamortized deferred
warrant charge of $6,369. Stockholders' equity was reduced by $32,892, net of tax, resulting from the surrender of the warrants and
their retirement. The deferred credits for the proceeds of the pre-petition claim and the gain on the surrender of the warrants totaling
$87,325 is being amortized as an adjustment to revenue over the weighted average aircraft in service during the term of the
agreements with Delta.
11. INCOME TAXES
The components of the provision for income tax expense for the years ended December 31 are as follows:
2007 2006 2005
Federal:
Current $ — $ — $ —
Deferred 45,102 43,171 32,855
Total Federal 45,102 43,171 32,855
State:
Current 120 495 1,915
Deferred 5,094 8,233 4,751
Total State 5,214 8,728 6,666
Expense for uncertain tax positions (FIN 48) 894 — —
Income tax expense $ 51,210 $ 51,899 $ 39,521
A reconciliation of income tax expense at the applicable federal statutory income tax rate to the tax provision as reported for the years
ended December 31 are as follows:
2007 2006 2005
Federal income tax expense at statutory rate $ 46,799 $ 45,993 $ 35,163
State income tax expense, net of federal benefit 3,489 5,673 4,333
Other 28 233 25
Expense for uncertain tax positions (FIN 48) 894 − −
Income tax expense $ 51,210 $ 51,899 $ 39,521
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Source: REPUBLIC AIRWAYS HOLDINGS INC, 10-K, February 21, 2008 Powered by Morningstar® Document Research℠