JetBlue Airlines 2012 Annual Report Download - page 58

JETBLUE AIRWAYS CORPORATION-2012 10K54
PART II
ITEM 8Financial Statements and Supplementary Data
As of December31, 2012, a total of approximately 1.4 million shares of our
common stock, which were lent to our share borrower pursuant to the terms
of our share lending agreement as described in Note 2, were issued and
outstanding for corporate law purposes. Holders of the borrowed shares
have all the rights of a holder of our common stock. However, because
the share borrower must return all borrowed shares to us (or identical
shares or, in certain circumstances of default by the counterparty, the cash
value thereof), the borrowed shares are not considered outstanding for the
purpose of computing and reporting basic or diluted earnings per share.
NOTE 7 Share-Based Compensation
Fair Value Assumptions:We used a Black-Scholes-Merton option pricing
model to estimate the fair value of share-based awards in accordance
with the Compensation-Stock Compensation topic of the Codifi cation,
for stock options under our 2002 Plan. The Black-Scholes-Merton option
pricing model incorporates various and highly subjective assumptions,
including expected term and expected volatility. We reviewed our historical
pattern of option exercises under our 2002 Plan, and determined that
meaningful differences in option exercise activity existed among employee
job categories. Therefore, for all stock options granted after January1,
2006, we categorized these awards into three groups of employees for
valuation purposes.
We estimated the expected term of options granted using an implied life
derived from the results of a lattice model, which incorporates our historical
exercise and post-vesting employment termination patterns, which we
believe are representative of future behavior. The expected term for our
restricted stock units is based on the associated service period.
We estimated the expected volatility of our common stock at the grant
date using a blend of 75% historical volatility of our common stock and
25% implied volatility of two-year publicly traded options on our common
stock as of the option grant date. Our decision to use a blend of historical
and implied volatility was based upon the volume of actively traded options
on our common stock and our belief that historical volatility alone may not
be completely representative of future stock price trends.
Our risk-free interest rate assumption was determined using the Federal
Reserve nominal rates for U.S. Treasury zero-coupon bonds with maturities
similar to those of the expected term of the award being valued. We have
never paid any cash dividends on our common stock and we do not
anticipate paying any cash dividends in the foreseeable future. Therefore,
we assumed an expected dividend yield of zero.
Additionally, the Compensation-Stock Compensation topic of the Codifi cation
requires us to estimate pre-vesting forfeitures at the time of grant and
periodically revise those estimates in subsequent periods if actual forfeitures
differ from those estimates. We record stock-based compensation expense
only for those awards expected to vest using an estimated forfeiture rate
based on our historical pre-vesting forfeiture data.
We have not granted any stock options since 2008 and those previously
granted became fully expensed in 2012. Unrecognized stock-based
compensation expense was approximately $15 million as of December31,
2012, relating to a total of 4.5 million unvested restricted stock units under
our 2002 Plan and 2011 Plan. We expect to recognize this stock-based
compensation expense over a weighted average period of approximately
two years. The total fair value of stock options vested was approximately
$2 million, $5 million and $9 million during 2012, 2011 and 2010, respectively.
2011 Incentive Compensation Plan: At our Annual Shareholders Meeting
held on May26, 2011, our shareholders approved the new 2011 Incentive
Compensation Plan, which replaced the 2002 Plan, which was set to
expire at the end of 2011. Upon inception, the 2011 Plan had 15.0 million
shares of our common stock reserved for issuance. The 2011 Plan, by its
terms, will terminate no later than May 2021.
The following is a summary of restricted stock unit activity under the 2011 Plan for the year ended December31, 2012. Activity in 2011 for the 2011
Plan was insignifi cant.
2012
Shares Weighted Average Grant Date Fair Value
Nonvested at beginning of year 65,914 $ 5.08
Granted 2,570,891 5.79
Vested (20,249) 5.09
Forfeited (132,892) 5.83
NONVESTED AT END OF YEAR 2,483,664 $ 5.77
Amended and Restated 2002 Stock Incentive Plan: The 2002 Plan,
which included stock options issued during 1999 through 2001 under a
previous plan as well as all options issued from 2002 through adoption of
the 2011 Plan provided for incentive and non-qualifi ed stock options and
restricted stock units to be granted to certain employees and members
of our Board of Directors, as well as deferred stock units to be granted
to members of our Board of Directors. The 2002 Plan became effective
following our initial public offering in April 2002.
Beginning in 2007, we began issuing restricted stock units under the 2002
Plan. These awards vest in annual installments over three years or could
be accelerated upon the occurrence of a change in control as defi ned
in the 2002 Plan. Our policy is to grant restricted stock units based on
the market price of the underlying common stock on the date of grant.