|
Note 1Summary of Significant Accounting Policies
Basis of Preparation and Description of Business: JetBlue Airways Corporation, incorporated in
Delaware on August 24, 1998, offers low-fare, innovative, quality passenger air transportation service to and from a growing number of locations in the United States. As of
December 31, 2002, we operated 168 flights a day providing daily service between 20 cities. Our consolidated financial statements include the accounts of JetBlue Airways Corporation, or
JetBlue, and our wholly owned subsidiary, LiveTV, LLC, or LiveTV, collectively "we" or the "Company". LiveTV's results of operations from the date of acquisition have been included and all
intercompany transactions and balances have been eliminated. Air transportation services accounted for all of the Company's operations in 2000 and 2001, and substantially all of its operations in
2002. Accordingly, segment information is not provided for LiveTV in 2002.
During
its development stage from inception to December 31, 1999, JetBlue was involved in recruiting and training personnel, raising capital, obtaining aircraft and spare engines,
developing and analyzing markets, obtaining slot exemptions at John F. Kennedy International Airport and building our business strategy. We commenced operations on February 11, 2000.
We
are required to make estimates and assumptions when preparing our consolidated financial statements in conformity with accounting principles generally accepted in the United States
that affect the amounts reported in our consolidated financial statements and accompanying notes. Actual results
could differ from those estimates. Certain prior year amounts have been reclassified to conform to the current year presentation.
Cash and Cash Equivalents: Cash equivalents consist of short-term, highly liquid
investments with maturities of three months or less when purchased.
Short-Term Investments: Short-term investments consist of investment-grade,
interest bearing instruments maturing in 12 months or less stated at amortized cost as well as fuel hedge derivative contracts settling within 12 months stated at fair value. All
short-term investments are classified as held to maturity securities.
Inventories: Inventories consist of expendable aircraft spare parts, supplies and aircraft fuel.
These items are stated at average cost and charged to expense when used. An allowance for obsolescence on aircraft spare parts is provided over the remaining useful life of the related aircraft.
Property and Equipment: We record our property and equipment at cost and depreciate these assets on a
straight-line basis to their estimated residual values over their estimated useful lives. Additions, modifications that enhance the operating performance of our assets, and interest
related to predelivery deposits to acquire new aircraft are capitalized.
Estimated
useful lives and residual values for our property and equipment are as follows:
|
|
Estimated Useful Life |
|
Residual Value |
|
Aircraft |
|
25 years |
|
20 |
% |
| Aircraft parts |
|
Fleet life |
|
10 |
% |
| Flight equipment leasehold improvements |
|
Lease term |
|
0 |
% |
| Ground property and equipment |
|
3-10 years |
|
0 |
% |
| Leasehold improvements |
|
15 years or lease term |
|
0 |
% |
We
record impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets may be impaired and the undiscounted future cash
flows estimated to be generated by these assets are less than the assets' net book value. If an impairment occurs, the loss is measured by comparing the fair value of the asset to its carrying amount.
Passenger Revenues: Passenger revenue is recognized when the transportation is provided or after the
ticket or customer credit (issued upon payment of a change fee) expires. Tickets sold but not yet used and unexpired credits are included in air traffic liability.
LiveTV Revenues: LiveTV has a contract for the sale of certain hardware and installation, programming
and maintenance of in-flight entertainment systems. Revenues and expenses related to these activities will be recognized over the contract term as services are provided. No revenue was
recognized under this contract through December 31, 2002.
Aircraft Maintenance and Repairs: Regular maintenance, including airframe checks and engine
overhauls, for owned and leased flight equipment are charged to expense as incurred.
Advertising Costs: Advertising costs, which are included in sales and marketing, are expensed as
incurred. Advertising expense in 2002, 2001 and 2000 was $24.1 million, $15.6 million and $12.7 million, respectively.
Loyalty Program: We launched our customer loyalty program, TrueBlue Flight Gratitude, in
June 2002. We account for this by recording a liability for the estimated incremental cost of the awards we expect to be redeemed. We adjust this liability, which is included in air traffic
liability, periodically based on points earned and redeemed as well as changes in the estimated incremental costs.
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.
Comprehensive Income (Loss): Comprehensive income (loss) consists of net income (loss) plus other
comprehensive income (loss). Comprehensive income for the year ended December 31, 2002 was $55.1 million, which included our net income of $54.9 million and unrealized gains of
$0.2 million on our crude oil options contracts which qualify for hedge accounting in accordance with SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities.
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 (loss) and earnings (loss) per
common share if we had applied the fair value method to measure stock-based compensation, which is described more fully in Note 6, as required under the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation: (in thousands, except per share amounts)
|
|
Year Ended December
31,
|
|
|
|
2002
|
|
2001
|
|
2000
|
|
Net income (loss), as reported |
|
$ |
54,908 |
|
$ |
38,537 |
|
$ |
(21,330 |
) |
| Add: Stock-based employee compensation
expense included in reported net income (loss),
net of tax |
|
|
989 |
|
|
115 |
|
|
|
|
| Deduct: Stock-based employee compensation
expense determined under the fair value method,
net of tax |
|
|
|
|
|
|
|
|
|
|
| |
|
Crewmember stock purchase plan |
|
|
(3,264 |
) |
|
|
|
|
|
|
| |
|
Employee stock options |
|
|
(2,933 |
) |
|
(320 |
) |
|
(97 |
) |
| |
|
|
|
|
|
|
|
| Proforma net income (loss) |
|
$ |
49,700 |
|
$ |
38,332 |
|
$ |
(21,427 |
) |
| |
|
|
|
|
|
|
|
Earnings (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
| |
Basicas reported |
|
$ |
1.10 |
|
$ |
6.59 |
|
$ |
(17.77 |
) |
| |
|
|
|
|
|
|
|
| |
Basicproforma |
|
$ |
0.98 |
|
$ |
6.52 |
|
$ |
(17.82 |
) |
| |
|
|
|
|
|
|
|
| |
Dilutedas reported |
|
$ |
0.84 |
|
$ |
0.76 |
|
$ |
(17.77 |
) |
| |
|
|
|
|
|
|
|
| |
Dilutedproforma |
|
$ |
0.76 |
|
$ |
0.76 |
|
$ |
(17.82 |
) |
| |
|
|
|
|
|
|
|
Note 2Acquisition of LiveTV
On September 27, 2002, we paid $80.3 million in cash to acquire the membership interests of LiveTV and to retire $39.0 million of their
outstanding debt. LiveTV provides in-flight entertainment systems for commercial aircraft, including live in-seat satellite television, wireless aircraft data link service and
cabin surveillance systems. The primary reason for the acquisition was to control the execution and marketing of an important aspect of our product. The determination and allocation of the purchase
price is as follows (in thousands):
| Cash paid at acquisition |
|
$ |
80,272 |
|
| Technology previously acquired, net |
|
|
3,063 |
|
| Other, net |
|
|
(660 |
) |
| |
|
|
|
| |
Total purchase price |
|
$ |
82,675 |
|
| |
|
|
|
Current assets |
|
$ |
1,031 |
|
| Fair value of property and equipment |
|
|
20,562 |
|
| Existing technology purchased |
|
|
69,255 |
|
| Liabilities assumed |
|
|
(8,173 |
) |
| |
|
|
|
| |
Total allocated purchase price |
|
$ |
82,675 |
|
| |
|
|
|
The
existing technology purchased is an intangible asset that will be amortized over seven years based on the average number of aircraft currently expected to be in service. Accumulated
amortization at December 31, 2002 was $1.0 million. Projected amortization expense is $5.0 million in 2003, $6.8 million in 2004, $8.4 million in 2005,
$9.8 million in 2006 and $11.2 million in 2007.
Installed
in-flight entertainment systems, which comprise the majority of the property and equipment acquired, are depreciated over 12 years. Subsequent to the
acquisition, our consolidated results of operations reflect additional amortization, depreciation and salaries and benefits expense which will be offset by a reduction in other operating expenses
where the expense for payments by JetBlue under its long-term contractual agreement to LiveTV had previously been recorded.
Proforma
results of operations, had we acquired LiveTV on January 1, 2001 would have been (in thousands, except per share amounts):
|
|
Year Ended December 31, |
|
|
2002 |
|
2001 |
| Operating revenues |
|
$ |
635,321 |
|
$ |
320,569 |
| Operating income |
|
|
97,524 |
|
|
24,145 |
| Net income |
|
|
52,943 |
|
|
35,703 |
| Earnings per common share: |
|
|
|
|
|
|
| |
Basic |
|
$ |
1.05 |
|
$ |
5.72 |
| |
|
|
|
|
| |
Diluted |
|
$ |
0.81 |
|
$ |
0.71 |
| |
|
|
|
|
The
proforma results for 2001 exclude a $4.1 million pre-tax charge which resulted from the impairment in the fair value of system hardware owned by LiveTV and leased
to a customer who filed bankruptcy under Chapter 11 in 2000. The proforma results of operations have been prepared for comparative purposes only. These results are not indicative of the consolidated
results of operations which would have occurred had the transaction been consummated on January 1, 2001 and are not indicative of the consolidated results of operations which will occur in the
future.
Note 3Long-term Debt and Short-term Borrowings
Long-term debt at December 31 consisted of the following (in thousands, with interest rates as of December 31, 2002):
|
|
2002 |
|
2001 |
| Floating rate equipment notes due through 2014, 3.5% weighted average rate |
|
$ |
687,542 |
|
$ |
303,620 |
Aircraft manufacturer floating rate predelivery notes due in 2003, 3.0% weighted average rate |
|
|
2,710 |
|
|
42,030 |
| |
|
|
|
|
| Total debt |
|
|
690,252 |
|
|
345,650 |
| |
Less: current maturities |
|
|
50,754 |
|
|
54,985 |
| |
|
|
|
|
| Long-term debt |
|
$ |
639,498 |
|
$ |
290,665 |
| |
|
|
|
|
Interest
rates on floating rate notes adjust quarterly or semi-annually based on the London Interbank Offered Rate. At December 31, 2002, we were in compliance with
the covenants of all our debt and lease agreements, which include among other things, a requirement to maintain certain financial ratios.
Aircraft, engines and predelivery deposits having a net book value of $875 million at December 31, 2002, were pledged as security under various debt agreements.
Maturities
of long-term debt for the next five years are as follows (in thousands):
2003 |
|
$ |
50,754 |
| 2004 |
|
|
50,026 |
| 2005 |
|
|
52,203 |
| 2006 |
|
|
51,585 |
| 2007 |
|
|
51,699 |
Cash
payments of interest, net of capitalized interest, aggregated $14.2 million, $4.8 million and $1.5 million in 2002, 2001 and 2000, respectively.
Non-cash predelivery financing obtained in connection with the acquisition of new aircraft was $34.0 million and $28.2 million in 2001 and 2000, respectively.
In
November 2000, we entered into a funding facility to finance aircraft predelivery deposits. The facility, as amended in December 2001, allows for borrowings up to
$32.0 million through November 2004. Commitment fees are .35% per annum on the average unused portion of the facility. At December 31, 2002, $10.3 million was available
under this facility. The weighted average interest rate on these outstanding short-term borrowings at December 31, 2002 and 2001 was 2.9% and 3.6%, respectively.
Note 4Leases
We lease aircraft, as well as airport terminal space, other airport facilities, office space and other equipment, which expire in various years through 2024.
Total rental expense for all operating leases in 2002, 2001 and 2000 was $64.5 million, $49.7 million and $20.2 million, respectively. We have $12.9 million of restricted
cash pledged under standby letters of credit related to these leases which is included in other assets.
At
December 31, 2002, 16 of the 37 aircraft we operated were leased under operating leases, with initial lease term expiration dates ranging from 2009 to 2022. Five of the 16
aircraft leases have variable-rate rent payments based on the London Interbank Offered Rate. Nine aircraft leases generally can be renewed at rates based on fair market value at the end of
the lease term for one to four years. Eight aircraft leases have purchase options after five or 12 years at amounts that are expected to approximate fair market value or at the end of the lease
term at fair market value.
Future
minimum lease payments under noncancelable operating leases with initial or remaining terms in excess of one year at December 31, 2002, are as follows (in thousands):
|
|
Aircraft |
|
Other |
2003 |
|
$ |
50,534 |
|
$ |
7,069 |
| 2004 |
|
|
49,008 |
|
|
7,462 |
| 2005 |
|
|
52,782 |
|
|
6,455 |
| 2006 |
|
|
53,259 |
|
|
6,080 |
| 2007 |
|
|
52,743 |
|
|
5,392 |
| Thereafter |
|
|
362,491 |
|
|
16,210 |
| |
|
|
|
|
| |
Total minimum lease payments |
|
$ |
620,817 |
|
$ |
48,668 |
| |
|
|
|
|
We
have committed to lease six additional aircraft in 2003, five under 20 year operating leases and one under a 12 year operating lease, with total minimum lease payments
estimated to aggregate $291 million that are not included above. As we have not yet entered into an agreement to lease our terminal facility space at JFK through 2006, total expected minimum
lease payments of $43 million are also not included above.
Note 5Convertible Redeemable Preferred Stock and Stockholders' Equity (Deficit)
On October 23, 2002, our Board of Directors declared a three-for-two stock split, distributing 21,210,019 shares on
December 12, 2002. All common share and per share data for periods prior to the stock split presented in the accompanying consolidated financial statements and notes thereto have been restated
to give effect to the stock split. We did not restate share data for the convertible redeemable preferred stock.
Effective
with our initial public offering on April 17, 2002, our authorized shares of capital stock were increased to 500 million shares of common stock and
25 million shares of preferred stock and all outstanding shares of our convertible redeemable preferred stock were converted to common stock on a one-for-one basis. The
holders of our common stock are entitled to one vote per share on all matters which require a vote by the Company's stockholders as outlined in the articles of incorporation and the
by-laws.
In
1998, the Company issued 6,399,900 shares of Series A-1 Common Stock to management and other individuals for $369,203 in cash. On December 16, 1998, the
Company and a group of investors (collectively, the Investors) entered into a stock purchase agreement in which the Investors agreed to invest $126 million in cash in five installments through
2000 and in return receive 23,879,341 shares of Series A-1 Preferred and Series A-2 Preferred Stock and attached contingent warrants to purchase common stock of
the Company. The contingent warrants expired unexercised in March 2000. Management and other individuals purchased the remaining 733,200 shares of Series A-1 Preferred Stock.
On August 10, 2000, the Investors and management agreed to invest $15 million in cash for 2,026,135 shares of Series B-1 Preferred and Series B-2
Preferred Stock and provided the Company with a call for an additional $15 million through December 31, 2001. In October 2001, the Company exercised its call and issued 2,022,991
shares of Series B-1 Preferred and Series B-2 Preferred Stock.
Separately, in October and November 2001, the Company sold 2,030,595 shares of Series B-1 Preferred and Series B-2 Preferred Stock for $15 million
in cash to certain of its preferred stockholders.
On
April 17, 2002, we raised $182.2 million from an initial public offering of 10,120,000 shares of our common stock at a price to the public of $18.00 per share, all of
which shares were issued and sold by us. Upon the closing of the initial public offering, all 30,692,262 outstanding shares of our convertible redeemable preferred stock were converted into 46,038,393
shares of common stock. Net proceeds, after deducting underwriting discounts and commissions, of $169.4 million received by the Company and
were invested in short-term, investment-grade, interest-bearing instruments, of which $80.3 million was used to acquire LiveTV. Total offering expenses were $2.0 million.
Shares
of common stock and each class of convertible redeemable preferred stock as of December 31 were outstanding as follows:
|
|
|
|
Convertible
Redeemable Preferred Stock
|
|
|
|
Common
Stock
|
|
|
|
Series A-1
|
|
Series A-2
|
|
Series B-1
|
|
Series B-2
|
|
| Balance at December 31, 1999 |
|
6,399,900 |
|
16,712,088 |
|
7,701,550 |
|
|
|
|
|
| |
Stock issuance |
|
|
|
198,903 |
|
|
|
1,493,246 |
|
532,889 |
|
| |
Conversion |
|
|
|
1,895,913 |
|
(1,895,913 |
) |
|
|
|
|
| |
Exercise of stock options |
|
111,250 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 2000 |
|
6,511,150 |
|
18,806,904 |
|
5,805,637 |
|
1,493,246 |
|
532,889 |
|
| |
Stock issuance |
|
|
|
|
|
|
|
2,513,337 |
|
1,540,249 |
|
| |
Exercise of stock options |
|
34,800 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 2001 |
|
6,545,950 |
|
18,806,904 |
|
5,805,637 |
|
4,006,583 |
|
2,073,138 |
|
| |
Initial public offering |
|
10,120,000 |
|
|
|
|
|
|
|
|
|
| |
Automatic conversion |
|
46,038,393 |
|
(18,806,904 |
) |
(5,805,637 |
) |
(4,006,583 |
) |
(2,073,138 |
) |
| |
Exercise of stock options |
|
811,623 |
|
|
|
|
|
|
|
|
|
| |
Crewmember stock purchase plan |
|
242,718 |
|
|
|
|
|
|
|
|
|
| |
Other |
|
(272 |
) |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 2002 |
|
63,758,412 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Under
separate agreements signed in 1998, 5,950,350 shares of the common stock purchased by certain management owners are subject to repurchase by the Company of any unvested shares upon
the termination of service by these employees at the holder's original purchase price. The shares vest in equal annual installments upon completion of each year of service generally over a
five-year period. At December 31, 2002, 2001 and 2000, 4,772,700, 3,595,050 and 2,396,700 shares were vested under these agreements, respectively.
Holders
of our convertible redeemable preferred stock were entitled to cash dividends, which were accrued and accumulated if not paid in full, before any dividends were declared and paid
or set aside for the common stock. No dividends had been declared and concurrent with the initial public offering, the Company's obligation to pay accrued dividends was canceled upon conversion of the
convertible redeemable preferred stock into common stock.
Pursuant
to the Stockholder Rights Agreement, which became effective in February 2002, each share of common stock has attached to it a right and, until the rights expire or are
redeemed, each new share of common stock issued by the Company will include one right. Upon the occurrence of certain events, each right entitles the holder to purchase one one-thousandth
of a share of Series A participating preferred stock at an exercise price of $120, subject to adjustment. The rights become exercisable only after any person or group acquires beneficial
ownership of 15% or more (25%, or 30% in one case, in the case of certain Investor Groups as defined in the Agreement) of the Company's outstanding common stock or commences a tender or exchange offer
that would result in such person or group acquiring beneficial ownership of 15% or more (25%, or 30% in one case, in the case of certain Investor Groups) of the company's common stock. If after the
rights become exercisable, the Company is involved in a merger or other business combination or sells more than 50% of its assets or earning power, each right will entitle its holder (other than the
acquiring person or group) to receive common stock of the acquiring company having a market value of twice the exercise price of the rights. The rights expire on April 17, 2012 and may be
redeemed by the Company at a price of $.01 per right prior to the time they become exercisable.
Note 6Stock-Based Compensation
Crewmember Stock Purchase Plan: Our crewmember stock purchase plan, or CSPP, is available to all employees and was adopted in
February 2002, with 2,250,000 shares of our common stock initially reserved for issuance. The number of shares reserved for issuance will automatically increase each January by an amount equal
to 3% of the total number of shares of our common stock outstanding on the last trading day in December of the prior calendar year. On January 1, 2003, the number of shares reserved for
issuance was increased by 1,912,752 shares. In no event will any such annual increase exceed 4,050,000 shares. The plan will terminate no later than the last business day of April 2012.
The
plan has a series of successive overlapping 24-month offering periods, with a new offering period beginning on the first business day of May and November each year.
Employees can only join an offering period on the start date and participate in one offering period at a time. Employees may contribute up to 10% of their pay, through payroll deductions, toward the
purchase of common stock at 85% of the lower of the fair market value per share at the beginning of the offering period or on the purchase date. The initial purchase date occurred on
October 31, 2002 when 242,718 shares of our common stock were purchased for $3.7 million, or $15.30 per share. Purchase dates occur on the last business day of April and October each
year.
If
the fair market value per share of our common stock on any purchase date within a particular offering period is less than the fair market value per share on the start date of that
offering period, then the employees in that offering period will automatically be transferred and enrolled in the next two-year offering period which shall, immediately after the purchase
of the common stock, begin on the next business day following such purchase date.
Should
we be acquired by merger or sale of substantially all of our assets or more than 50% of our outstanding voting securities, then all outstanding purchase rights will automatically
be exercised immediately prior to the effective date of the acquisition at a price equal to the lower of 85% of the market value per share on the start date of the offering period in which the
participant is enrolled or 85% of the fair market value per share immediately prior to the acquisition.
Stock Incentive Plan: The 2002 Stock Incentive Plan, or the 2002 Plan, provides for incentive and non-qualified
stock options to be granted to certain employees and members of the Board of Directors. The 2002 Plan became effective following our initial public offering and provided that all outstanding options
under the 1999 Stock Option/Stock Issuance Plan, or the 1999 Plan, be transferred to the 2002
Plan. No further option grants will be made under the 1999 Plan. The transferred options will continue to be governed by their existing terms. Stock options under the 2002 Plan become exercisable when
vested, which occurs in annual installments of four, five or seven years or upon the occurrence of a change in control, and expire 10 years from the date of grant. Our policy is to grant
options with the exercise price equal to the market price of the underlying common stock on the date of grant. The number of shares reserved for issuance will automatically increase each January by an
amount equal to 4% of the total number of shares of our common stock outstanding on the last trading day in December of the prior calendar year. In no event will any such annual increase exceed
5,400,000 shares.
The
following is a summary of stock option activity for the years ended December 31:
|
|
2002
|
|
2001
|
|
2000
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
| Outstanding at beginning of year |
|
5,696,520 |
|
$ |
1.99 |
|
3,503,670 |
|
$ |
1.01 |
|
2,151,420 |
|
$ |
0.73 |
| Granted |
|
4,325,850 |
|
|
22.74 |
|
2,389,500 |
|
|
3.43 |
|
1,908,750 |
|
|
1.38 |
| Exercised |
|
(811,623 |
) |
|
1.31 |
|
(34,800 |
) |
|
0.73 |
|
(111,250 |
) |
|
1.24 |
| Forfeited |
|
(250,998 |
) |
|
11.24 |
|
(161,850 |
) |
|
2.17 |
|
(445,250 |
) |
|
1.18 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Outstanding at end of year |
|
8,959,749 |
|
|
11.81 |
|
5,696,520 |
|
|
1.99 |
|
3,503,670 |
|
|
1.01 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Vested at end of year |
|
1,755,180 |
|
|
1.58 |
|
1,247,467 |
|
|
0.86 |
|
774,034 |
|
|
0.91 |
Reserved for issuance |
|
9,740,402 |
(1) |
|
|
|
7,694,952 |
|
|
|
|
4,619,952 |
|
|
|
| Available for future grants |
|
27,530 |
(1) |
|
|
|
1,852,382 |
|
|
|
|
1,005,032 |
|
|
|
- (1)
- On
January 1, 2003, the number of shares reserved for issuance was increased by 2,550,336 shares.
At December 31, 2002:
|
|
Options Outstanding |
|
Options Vested |
|
|
Shares |
|
Weighted-Average
Remaining
Contractual Life
(years) |
|
Weighted-
Average
Exercise
Price |
|
Shares |
|
Weighted-
Average
Exercise
Price |
Range of exercise prices |
|
|
|
|
|
|
|
|
|
|
|
|
| $ 0.73 to $ 1.30 |
|
2,007,644 |
|
7.0 |
|
$ |
0.84 |
|
1,206,330 |
|
$ |
0.80 |
| $ 1.31 to $ 8.99 |
|
2,790,480 |
|
8.3 |
|
|
3.06 |
|
498,450 |
|
|
2.72 |
| $ 9.00 to $21.79 |
|
1,740,625 |
|
9.4 |
|
|
15.05 |
|
50,400 |
|
|
9.00 |
| $21.80 to $31.84 |
|
2,421,000 |
|
9.6 |
|
|
28.67 |
|
|
|
|
|
Certain options granted prior to the initial public offering have exercise prices that are less than the deemed market value of the underlying common stock.
Unearned compensation expense associated with these transactions is being amortized over the vesting periods of five or seven years and will be $1.8 million per year in 2003 through 2006,
$1.2 million in 2007 and $1.0 million in 2008. The following table discloses the number of options granted during 2002 and 2001 and certain weighted-average information of the options
granted:
|
|
Number of Options |
|
Fair Value |
|
Exercise Price |
Exercise price equals market price: |
|
|
|
|
|
|
|
|
| |
2002 |
|
3,469,500 |
|
$ |
12.75 |
|
$ |
26.14 |
| |
2001 |
|
676,500 |
|
$ |
0.62 |
|
$ |
2.41 |
Exercise price less than market price: |
|
|
|
|
|
|
|
|
| |
2002 |
|
856,350 |
|
$ |
12.24 |
|
$ |
9.00 |
| |
2001 |
|
1,713,000 |
|
$ |
2.92 |
|
$ |
3.83 |
The
fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model. The following table shows our assumptions and weighted average fair values
of stock-based compensation used to compute the proforma information for employee stock options included in Note 1:
|
|
Year of Grant |
|
|
|
2002 |
|
2001 |
|
2000 |
|
| Risk-free interest rate |
|
|
4.2 |
% |
|
4.9 |
% |
|
5.8 |
% |
| Average expected life of options (years) |
|
|
6.4 |
|
|
6.4 |
|
|
6.0 |
|
| Expected volatility of common stock |
|
|
41.3 |
% |
|
0.0 |
% |
|
0.0 |
% |
| Expected annual dividends |
|
|
|
|
|
|
|
|
|
|
| Weighted average fair value of stock options |
|
$ |
12.65 |
|
$ |
2.27 |
|
$ |
0.41 |
|
The
assumptions used to value the purchase rights under our 2002 CSPP plan, also included in the proforma information in Note 1, included a weighted-average risk free interest
rate of 2.66%, volatility of 41.3%, an expected life of six months and a dividend yield of zero percent, resulting in a weighted-average fair value of $8.16 per share.
Because
the Company's stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models for valuing options do not necessarily provide a reliable single measure of their fair values.
Note 7Earnings (Loss) Per Share
The following table shows how we computed basic and diluted earnings (loss) per common share for the years ended December 31 (in thousands, except share
data):
|
|
2002
|
|
2001
|
|
2000
|
|
| Numerator: |
|
|
|
|
|
|
|
| Net income (loss) applicable to common
stockholders for basic earnings (loss) per share |
|
$ 48,953 |
|
$ 21,567 |
|
$ (35,422 |
) |
| Effect of dilutive securitiespreferred
stock dividends |
|
5,955 |
|
16,970 |
|
|
|
| |
|
|
|
|
|
|
|
| Net income (loss) applicable to common
stockholders after assumed conversion for diluted
earnings (loss) per share |
|
$ 54,908 |
|
$ 38,537 |
|
$ (35,422 |
) |
| |
|
|
|
|
|
|
|
| Denominator: |
|
|
|
|
|
|
|
| Weighted-average shares outstanding
for basic earnings (loss) per share |
|
44,697,317 |
|
3,274,130 |
|
1,992,999 |
|
| Effect of dilutive securities: |
|
|
|
|
|
|
|
| |
Convertible redeemable preferred stock |
|
13,370,053 |
|
41,205,064 |
|
|
|
| |
Unvested common stock |
|
2,064,585 |
|
3,255,114 |
|
|
|
| |
Employee stock options |
|
4,970,190 |
|
2,880,429 |
|
|
|
| |
|
|
|
|
|
|
|
| Adjusted weighted-average shares outstanding
and assumed conversions for diluted earnings (loss)
per share |
|
65,102,145 |
|
50,614,737 |
|
1,992,999 |
|
| |
|
|
|
|
|
|
|
Outstanding
unvested common stock purchased by certain of the Company's management is subject to repurchase by the Company and therefore is not included in the calculation of the
weighted-average shares outstanding for basic earnings (loss) per share. Convertible redeemable preferred stock, unvested common stock outstanding and employee stock options are not included in the
calculation of loss per share for the year ended December 31, 2000 due to their anti-dilutive impact.
Note 8Income Taxes
The provision for income taxes consisted of the following for the years ended December 31 (in thousands):
|
|
2002
|
|
2001
|
|
2000
|
|
| Current: |
|
|
|
|
|
|
|
|
|
|
| |
Federal |
|
$ |
|
|
$ |
5 |
|
$ |
(237 |
) |
| |
State |
|
|
457 |
|
|
|
|
|
(2 |
) |
Deferred: |
|
|
|
|
|
|
|
|
|
|
| |
Federal |
|
|
31,560 |
|
|
2,349 |
|
|
|
|
| |
State |
|
|
8,099 |
|
|
1,024 |
|
|
|
|
| |
|
|
|
|
|
|
|
| Income tax expense (benefit) |
|
$ |
40,116 |
|
$ |
3,378 |
|
$ |
(239 |
) |
| |
|
|
|
|
|
|
|
The
effective tax rate on income (loss) before income taxes differed from the federal income tax statutory rate for the years ended December 31 for the following reasons (in
thousands):
|