JetBlue Airlines 2014 Annual Report Download - page 62

JETBLUE AIRWAYS CORPORATION-2014Annual Report56
PART II
ITEM 8Financial Statements and Supplementary Data
The 2011 CSPP has a series of six month offering periods, with a new
offering period beginning on the first business day of May and November
each year. Crewmembers can only join an offering period on the start
date. Crewmembers may contribute up to 10% of their pay towards the
purchase of common stock via payroll deductions. Purchase dates occur
on the last business day of April and October each year.
Until April 2013, our 2011 CSPP was considered non-compensatory as the
purchase price discount was 5% based upon the stock price on the date
of purchase. The plan was amended and restated in May 2013 with the
CSPP purchase price discount increasing to 15% based upon the stock
price on the date of purchase. In accordance with the Compensation-
Stock Compensation topic of the Codification, the 2011 CSPP no longer
meets the non-compensatory definition as the terms of the plan are more
favorable than those to all holders of the common stock. For all offering
periods starting after May 1, 2013, the compensation cost relating to
the discount is recognized over the offering period. The total expense
recognized relating to the 2011 CSPP was approximately $3 million and
$2 million for the years ended December 31, 2014 and 2013 respectively.
Should we be acquired by merger or sale of substantially all of our assets or
sale of more than 50% of our outstanding voting securities, all outstanding
purchase rights will automatically be exercised immediately prior to the
effective date of the acquisition at a price equal to 85% of the fair market
value per share immediately prior to the acquisition.
Taxation
The Compensation-Stock Compensation topic of the Codification requires
deferred taxes be recognized on temporary differences that arise with
respect to stock-based compensation attributable to nonqualified stock
options and awards. However, no tax benefit is recognized for stock-
based compensation attributable to incentive stock options, or ISO, or
CSPP shares until there is a disqualifying disposition, if any, for income
tax purposes. A portion of our stock-based compensation is attributable
to ISO and CSPP shares; therefore, our effective tax rate is subject to
fluctuation.
LiveTV sale
In June 2014, we sold our subsidiary LiveTV and accelerated the vesting for
all RSUs outstanding for LiveTV employees. The total expense recognized
relating to this acceleration was less than $1 million.
NOTE 8 LiveTV
LiveTV, LLC, formerly a wholly owned subsidiary of JetBlue, provides in-flight
entertainment and connectivity solutions for various commercial airlines
including JetBlue. On June 10, 2014, JetBlue entered into an amended
and restated purchase agreement with Thales Holding Corporation, or
Thales, replacing the original purchase agreement between the parties
dated as of March 13, 2014. Under the terms of the amended and restated
purchase agreement, JetBlue sold LiveTV to Thales for $399million, subject
to purchase adjustments based upon the amount of cash, indebtedness,
and working capital of LiveTV at the closing date of the transaction
relative to a target amount. Excluded from this sale was LiveTV Satellite
Communications, LLC, which was retained by JetBlue pending receipt of
the necessary regulatory approvals for the sale. On September 25, 2014,
JetBlue received all necessary regulatory approvals and sold LiveTV Satellite
Communications, LLC, to Thales for approximately $1 million in cash.
The total cash proceeds of $393 million reflect the agreed upon purchase
price, net of purchase agreement adjustments including post-closing
purchase price adjustments, which were finalized during the third quarter
of 2014. The sale resulted in a pre-tax gain of approximately $241 million
and is net of approximately $19 million in transactions costs. The gain
on the sale has been reported as a separate line item in the consolidated
statement of operations for the year ended December 31, 2014.
The tax expense recorded in connection with this transaction totaled
$72million, net of a $19 million tax benefit related to the utilization of
a capital loss carryforward. The capital gain generated from the sale of
LiveTV resulted in the release of a valuation allowance related to the capital
loss deferred tax asset. This resulted in an after tax gain on the sale of
approximately $169 million.
Following the close of the sales on June 10, 2014, and on September 25,
2014, the applicable LiveTV operations are no longer being consolidated
as a subsidiary in JetBlue’s consolidated financial statements. The effect of
this reporting structure change is not material to the consolidated financial
statements presented. LiveTV third party revenues in 2014 up to the date
of sale were $30 million, compared to $72 million in 2013 and $81 million
in 2012. In December 2011, LiveTV terminated its contract with one of its
airline customers and upon fulfilling its obligation to deactivate service on
the customer’s aircraft, recorded a gain of $8 million in other operating
expenses in 2012.
Deferred profit on hardware sales and advance deposits for future hardware
sales were included in other accrued liabilities and other long term liabilities
on our consolidated balance sheets depending on whether we expected
to recognize it in the next 12 months or beyond. No deferred profit is
recognized in our consolidated balance sheets as of December 31,
2014, compared to $42 million as of December 31, 2013. There is no net
book value of equipment installed for other airlines in our consolidated
balance sheets as of December 31, 2014, compared to $102 million as
of December 31, 2013.
JetBlue expects to continue to be a significant customer of LiveTV.
Concurrent with the LiveTV sale, the parties have entered into two
agreements, each with seven year terms pursuant to which LiveTV
continues to provide JetBlue with in-flight entertainment and onboard
connectivity products and services.