JetBlue Airlines 2005 Annual Report Download - page 59

Stock-Based Compensation: We account for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Compensation expense for a stock option grant is recognized if the exercise price is
less than the fair value of our common stock on the grant date. The following table illustrates the
effect on net income and earnings per common share if we had applied the fair value method to
measure stock-based compensation, which is described more fully in Note 7, as required under the
disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation, as amended (in
millions, except per share amounts):
Year Ended December 31,
2005 2004 2003
Net income (loss), as reported ............................... $ (20) $ 46 $ 103
Add: Stock-based compensation expense included in reported
net income (loss), net of tax............................... 8 1 1
Deduct: Stock-based compensation expense determined under
the fair value method, net of tax
Crewmember stock purchase plan........................ (14) (7) (3)
Employee stock options ................................ (95) (13) (7)
Pro forma net income (loss)................................. $ (121) $ 27 $ 94
Earnings (loss) per common share:
Basic – as reported....................................... $ (0.13) $ 0.30 $ 0.71
Basic – pro forma........................................ $ (0.76) $ 0.18 $ 0.64
Diluted – as reported..................................... $ (0.13) $ 0.28 $ 0.64
Diluted – pro forma...................................... $ (0.76) $ 0.16 $ 0.58
On December 9, 2005, we accelerated the vesting of 19.9 million stock options, representing 64%
of our current outstanding options. This action resulted in non-cash, stock-based compensation
expense of $7 million in 2005. It also resulted in an increase of $72 million, net of tax, in the pro
forma employee stock option stock-based compensation expense shown above. The decision to
accelerate vesting of these options was made primarily to avoid recognizing the related compensation
cost in our future consolidated financial statements upon our adoption of SFAS No. 123(R),
Share-Based Payment.
New Accounting Standard: SFAS No. 123(R) supersedes APB No. 25 and revises guidance in
SFAS No. 123. Among other things, SFAS No. 123(R) requires that compensation expense be
recognized in the financial statements for share-based awards based on the grant date fair value of
those awards. It will also require the benefits associated with tax deductions in excess of recognized
compensation cost to be reported as a financing cash flow rather than as an operating cash flow as
currently required. We will adopt SFAS No. 123(R) on January 1, 2006. Upon adoption, we will use
the modified prospective method and therefore will not restate our prior period results. SFAS No.
123(R) will apply to new share-based awards and to unvested stock options outstanding on the
effective date and issuances under our crewmember stock purchase plan. Unrecognized non-cash stock
compensation expense related to unvested options outstanding as of December 31, 2005 was
approximately $16 million and will be recorded over the remaining vesting period of five years. We
currently utilize the Black-Scholes option pricing model to estimate the fair value for the above pro
forma calculations. We are still evaluating the alternative models available to value share-based
awards upon adoption in 2006.
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