JetBlue Airlines 2007 Annual Report Download - page 61

Loyalty Program: We account for our customer loyalty program, TrueBlue Flight Gratitude, by
recording a liability for the estimated incremental cost for points outstanding and awards we expect to
be redeemed. We adjust this liability, which is included in air traffic liability, based on points earned
and redeemed as well as changes in the estimated incremental costs associated with providing travel.
We also sell points in TrueBlue to third parties. A portion of these point sales is deferred and
recognized as passenger revenue when transportation is provided. The remaining portion, which is the
excess of the total sales proceeds over the estimated fair value of the transportation to be provided, is
recognized in other revenue at the time of sale. Deferred revenue for points not redeemed is recorded
upon expiration.
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 amended and
restated 2002 Stock Incentive Plan, or the 2002 Plan, and issuances under our Crewmember Stock
Purchase Plan, as amended, 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.
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 2007 and 2006, we did not record any excess tax benefit generated from option
exercises.
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