JetBlue Airlines 2006 Annual Report Download - page 60

Income Taxes: We account for income taxes utilizing the liability method. Deferred income taxes
are recognized for the tax consequences of temporary differences between the tax and financial
statement reporting bases of assets and liabilities. A valuation allowance for net deferred tax assets is
provided unless realizability is judged by us to be more likely than not.
Stock-Based Compensation: Effective January 1, 2006, we adopted the provisions of Statement of
Financial Accounting Standards 123(R), Share-Based Payment, and related interpretations, or SFAS
123(R), to account for stock-based compensation using the modified prospective transition method
and therefore will not restate our prior period results. SFAS 123(R) supersedes Accounting Principles
Board Opinion 25, Accounting for Stock Issued to Employees, or APB 25, and revises guidance in
Statement of Financial Accounting Standards 123, Accounting for Stock-Based Compensation,orSFAS
123. Among other things, SFAS 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. The
modified prospective transition method applies to (a) unvested stock options under our 2002 Stock
Incentive Plan, or the 2002 Plan, and issuances under our Crewmember Stock Purchase Plan, or CSPP,
outstanding as of December 31, 2005 based on the grant date fair value estimated in accordance with
the pro forma provisions of SFAS 123, and (b) any new share-based awards granted subsequent to
December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of
SFAS 123(R). Additionally, stock-based compensation expense includes an estimate for pre-vesting
forfeitures and is recognized over the requisite service periods of the awards on a straight-line basis,
which is generally commensurate with the vesting term.
Prior to January 1, 2006, we accounted for our stock-based compensation plans in accordance
with APB 25 and related interpretations. Accordingly, compensation expense for a stock option grant
was recognized only if the exercise price was less than the market value of our common stock on the
grant date. Compensation expense was not recognized under our CSPP as the purchase price of the
stock issued thereunder was not less than 85%of the lower of the fair market value of our common
stock at the beginning of each offering period or at the end of each purchase period under the plan.
Prior to our adoption of SFAS 123(R), as required under the disclosure provisions of SFAS 123, as
amended, we provided pro forma net income (loss) and earnings (loss) per common share for each
period as if we had applied the fair value method to measure stock-based compensation expense.
SFAS 123(R) requires 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
previously required. In 2006, we did not record any excess tax benefit generated from option exercises.
The table below summarizes the impact on our results of operations for the year ended
December 31, 2006 of outstanding stock options under our 2002 Plan and issuances under our CSPP
recognized under the provisions of SFAS 123(R) (in millions, except per share data):
2006
Stock-based compensation expense:
Issuances under crewmember stock purchase plan . . $ 13
Employee stock options ......................... 8
Income tax expense .............................. (4)
Decrease in net income (loss)...................... $ 17
Decrease in earnings (loss) per common share:
Basic ......................................... $ 0.09
Diluted ....................................... $ 0.09
Prior to our adoption of SFAS 123(R), we presented unearned compensation as a separate
component of stockholders’ equity. In accordance with the provisions of SFAS 123(R), on
January 1, 2006, we reclassified unearned compensation to additional paid-in capital on our balance
sheet. The following table illustrates the effect on net income and earnings per common share as if we
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