UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2010
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
Commission file number: 000-49728
JETBLUE AIRWAYS CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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87-0617894
(I.R.S. Employer Identification No.)
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118-29 Queens Boulevard, Forest Hills, New York
(Address of principal executive offices)
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11375
(Zip Code)
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(718) 286-7900
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ
Yes
o
No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
o
Yes
o
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
o
Yes
þ
No
As of March 31, 2010, there were 292,537,704 shares outstanding of the registrants common stock,
par value $.01.
JetBlue Airways Corporation
FORM 10-Q
INDEX
2
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
JETBLUE AIRWAYS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
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March 31,
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December 31,
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2010
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2009
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(unaudited)
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(as adjusted, Note 1)
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ASSETS
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CURRENT ASSETS
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Cash and cash equivalents
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$
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829
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$
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896
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Investment securities
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234
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240
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Receivables, less allowance
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91
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81
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Restricted cash
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9
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13
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Prepaid expenses and other
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272
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308
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Total current assets
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1,435
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1,538
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PROPERTY AND EQUIPMENT
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Flight equipment
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4,180
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4,170
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Predelivery deposits for flight equipment
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144
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139
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4,324
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4,309
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Less accumulated depreciation
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574
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540
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3,750
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3,769
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Other property and equipment
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518
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515
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Less accumulated depreciation
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176
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169
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342
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346
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Assets constructed for others
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551
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549
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Less accumulated depreciation
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32
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26
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519
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523
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Total property and equipment
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4,611
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4,638
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OTHER ASSETS
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Investment securities
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74
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6
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Restricted cash
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62
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64
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Other
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331
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311
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Total other assets
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467
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381
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TOTAL ASSETS
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$
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6,513
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$
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6,557
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See accompanying notes to condensed consolidated financial statements
3
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March 31,
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December 31,
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2010
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2009
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(unaudited)
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(as adjusted, Note 1)
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LIABILITIES AND STOCKHOLDERS EQUITY
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CURRENT LIABILITIES
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Accounts payable
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$
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125
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$
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93
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Air traffic liability
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557
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455
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Accrued salaries, wages and benefits
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106
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121
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Other accrued liabilities
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147
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116
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Current maturities of long-term debt and capital leases
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237
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384
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Total current liabilities
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1,172
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1,169
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LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
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2,882
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2,920
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CONSTRUCTION OBLIGATION
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528
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529
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DEFERRED TAXES AND OTHER LIABILITIES
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Deferred income taxes
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259
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260
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Other
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138
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138
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397
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398
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STOCKHOLDERS EQUITY
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Preferred stock, $.01 par value; 25,000,000 shares authorized,
none issued
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Common stock, $.01 par value; 500,000,000 shares authorized,
319,810,297 and 318,592,283 shares issued and 292,537,704
and 291,490,758 outstanding in 2010 and 2009, respectively
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3
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3
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Treasury stock, at cost; 27,515,491 and 27,102,136 shares
in 2010 and 2009, respectively
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(4
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(2
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Additional paid-in capital
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1,426
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1,422
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Retained earnings
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116
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117
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Accumulated other comprehensive income (loss)
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(7
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1
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Total stockholders equity
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1,534
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1,541
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
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$
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6,513
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$
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6,557
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See accompanying notes to condensed consolidated financial statements
4
JETBLUE AIRWAYS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in millions, except per share amounts)
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Three Months Ended
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March 31,
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2010
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2009
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(as adjusted, Note 1)
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OPERATING REVENUES
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Passenger
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$
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785
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$
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706
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Other
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85
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87
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Total operating revenues
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870
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793
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OPERATING EXPENSES
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Aircraft fuel and related taxes
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254
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222
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Salaries, wages and benefits
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219
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185
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Landing fees and other rents
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54
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50
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Depreciation and amortization
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57
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55
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Aircraft rent
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31
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32
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Sales and marketing
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40
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37
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Maintenance materials and repairs
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39
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37
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Other operating expenses
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134
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102
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Total operating expenses
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828
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720
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OPERATING INCOME
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42
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73
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OTHER INCOME (EXPENSE)
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Interest expense
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(47
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)
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(49
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Capitalized interest
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1
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2
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Interest income and other
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2
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(6
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)
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Total other income (expense)
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(44
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)
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(53
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)
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INCOME (LOSS) BEFORE INCOME TAXES
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(2
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)
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20
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Income tax expense (benefit)
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(1
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)
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8
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NET INCOME (LOSS)
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$
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(1
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$
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12
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EARNINGS (LOSS) PER COMMON SHARE:
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Basic
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$
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(0.01
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$
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0.05
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Diluted
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$
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(0.01
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$
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0.05
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See accompanying notes to condensed consolidated financial statements
5
JETBLUE AIRWAYS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)
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Three months ended
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March 31,
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2010
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2009
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(as adjusted, Note 1)
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CASH FLOWS FROM OPERATING ACTIVITIES
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Net income (loss)
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$
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(1
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)
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$
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12
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Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
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Deferred income taxes
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(1
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)
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8
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Depreciation
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48
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44
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Amortization
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11
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12
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Stock-based compensation
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4
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4
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Collateral returned for derivative instruments
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56
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Changes in certain operating assets and liabilities
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159
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11
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Other, net
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9
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(23
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)
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Net cash provided by operating activities
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229
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124
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CASH FLOWS FROM INVESTING ACTIVITIES
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Capital expenditures
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(40
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)
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(207
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)
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Predelivery deposits for flight equipment
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(5
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)
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(7
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)
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Proceeds from the sale of flight equipment
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58
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Assets constructed for others
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(5
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)
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(15
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)
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Sale of auction rate securities
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12
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29
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Purchase of available-for-sale securities
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(30
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)
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Sale of available-for-sale securities
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145
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|
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Purchase of held-to-maturity investments
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(217
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)
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Proceeds from the maturities of held-to-maturity investments
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28
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Other, net
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(4
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)
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Net cash provided by (used in) investing activities
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(112
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)
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(146
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)
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CASH FLOWS FROM FINANCING ACTIVITIES
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Proceeds from:
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Issuance of common stock
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1
|
|
|
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|
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Issuance of long-term debt
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|
|
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149
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Short-term borrowings and lines of credit
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20
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|
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10
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Construction obligation
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4
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|
|
|
15
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Repayment of long-term debt and capital lease obligations
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(194
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)
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|
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(32
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)
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Repayment of short-term borrowings and lines of credit
|
|
|
(13
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)
|
|
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(48
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)
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Other, net
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
|
|
|
|
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Net cash provided by (used in) financing activities
|
|
|
(184
|
)
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
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(67
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)
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|
|
73
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
896
|
|
|
|
561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Cash and cash equivalents at end of period
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$
|
829
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$
|
634
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|
|
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See accompanying notes to condensed consolidated financial statements
6
JETBLUE AIRWAYS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
Note 1 Summary of Significant Accounting Policies
Basis of Presentation:
Our condensed consolidated financial statements include the accounts
of JetBlue Airways Corporation and our subsidiaries, collectively we or the Company, with all
intercompany transactions and balances having been eliminated. These condensed consolidated
financial statements and related notes should be read in conjunction with our 2009 audited
financial statements included in our Annual Report on Form 10-K for the year ended December 31,
2009, or our 2009 Form 10-K.
These condensed consolidated financial statements are unaudited and have been prepared by us
following the rules and regulations of the Securities and Exchange Commission, or the SEC, and, in
our opinion, reflect all adjustments including normal recurring items which are necessary to
present fairly the results for interim periods. We have evaluated for subsequent events through our
filing of this Form 10-Q. Our revenues are recorded net of excise and other related taxes in our
condensed consolidated statements of operations.
Certain information and footnote disclosures normally included in financial statements
prepared in accordance with U.S. generally accepted accounting principles have been condensed or
omitted as permitted by such rules and regulations; however, we believe that the disclosures are
adequate to make the information presented not misleading. Operating results for the periods
presented herein are not necessarily indicative of the results that may be expected for the entire
year.
Loyalty Program:
During the three months ended March 31, 2010, we recognized approximately $4
million of other revenue related to the minimum point sales guarantee associated with our
co-branded credit card, leaving $12 million deferred and included in our air traffic liability.
New Accounting Pronouncements
:
Effective January 1, 2010, we adopted the guidance for
Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance
, under
the debt topic of the Financial Accounting Standard Boards Codification, or Codification, which
changes the accounting for equity share lending arrangements on an entitys own shares when
executed in contemplation of a convertible debt offering. This new
guidance requires share
lending arrangements be measured at fair value and recognized as an issuance cost. These
issuance costs should then be amortized and recognized as interest expense over the life of the
financing arrangement. Shares loaned under these arrangements should be excluded from computation
of earnings per share. Retrospective application is required for all arrangements outstanding as
of the beginning of the fiscal year. As described more fully in our 2009 Form 10-K, we lent 44.9
million shares of our common stock in conjunction with our 2008 $201 million convertible debt
issuance, which is subject to this new guidance. Our share lending
agreement requires that the shares borrowed be returned upon the maturity of the related debt,
October 2038, or if earlier, when the debentures are no longer outstanding.
We determined the fair value of the share lending arrangement was approximately $5 million at
the date of the issuance based on the value of the estimated fees the shares loaned would have
generated over the term of the share lending arrangement. We have retrospectively applied this
change in accounting to affected accounts for all periods presented. The $5 million fair value was
recognized as a debt issuance cost and is being amortized to interest expense through the earliest
put date of the related debt, October 2013 and October 2015 for Series A and Series B,
respectively. For 2008, adoption of this new accounting treatment resulted in approximately $2
million of additional interest expense, an increase in net loss of approximately $1 million and had
no impact on earnings (loss) per share. For 2009, this adoption resulted in an insignificant
increase in interest expense and had no overall impact on net income or earnings per share. As of
March 31, 2010, approximately $2 million of net debt issuance costs remain outstanding related to
the share lending arrangement and will continue to be amortized through the earliest put date of
7
the related debt. We estimate that the $2 million value of the shares remaining outstanding under
the share lending arrangement approximates their fair value as of March 31, 2010.
Effective
January 1, 2010, we adopted the latest provisions in the Codification
related to the accounting for an entitys involvement with
variable interest entities, or VIEs. Under these rules, the
quantitative based method of determining if the entity is the primary
beneficiary is replaced with the entitys assessment on an
ongoing basis of which entity has the power to direct activities of
the VIE and the obligation to absorb the losses or the right to
receive the benefits from the VIE. Adoption of these new rules had
no impact on our consolidated financial statements.
In September 2009, the EITF reached final consensus on updates to the Codifications
Revenue
Recognition
rules, which changes the accounting for certain revenue arrangements. The new
requirements change the allocation methods used in determining how to account for multiple element
arrangements and will result in the ability to separately account for more deliverables, and
potentially less revenue deferrals. Additionally, this new accounting treatment will require
enhanced disclosures in financial statements. The new rule is effective for revenue arrangements
entered into or materially modified in fiscal years beginning after June 15, 2010 on a prospective
basis, with early application permitted. We are currently evaluating the impact this will have on
our financial statements.
Note 2 Stock-Based Compensation
During the three months ended March 31, 2010, we granted approximately 1.9 million restricted
stock units under our Amended and Restated 2002 Stock Incentive Plan, at a weighted average grant
date fair value of $5.26 per share. We issued approximately 1.1 million shares of our common stock
in connection with the vesting of restricted stock units during the three months ended March 31,
2010. At March 31, 2010, 4.1 million restricted stock units were unvested with a weighted average
grant date fair value of $5.16 per share.
Note 3 Long-term Debt, Short-term Borrowings, and Capital Lease Obligations
$250 million 3.75% Convertible Debentures due 2035
In
March 2010 on the first repurchase date, holders of the $156 million outstanding of our 3.75% convertible debentures due
2035 required us to repurchase approximately $155 million aggregate principal amount of debentures at par, plus accrued interest.
UBS Line of Credit
In March 2010, our line of credit with UBS Securities LLC and UBS Financial Services Inc, or
UBS, was increased to $63 million. This line of credit is secured by approximately $72 million in
par value of our auction rate securities, or ARS, being held by UBS and extends through at least
June 30, 2010 or when the underlying ARS are sold. As of
March 31, 2010, the entire amount available through this line of
credit was drawn.
Other Indebtedness
Aircraft, engines, predelivery deposits and other equipment and facilities having a net book
value of $3.59 billion at March 31, 2010 were pledged as security under various loan agreements.
Principal payments on our outstanding debt and capital leases for the three months ended March
31, 2010 totaled $205 million. At March 31, 2010, the weighted average interest rate of all of our
long-term debt was 4.3% and scheduled maturities were $198 million for the remainder of 2010, $175
million in 2011, $176 million in 2012, $375 million in 2013, $594 million in 2014 and $1.60 billion
thereafter.
8
The carrying amounts and estimated fair values of our long-term debt at March 31, 2010 were as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Estimated Fair
|
|
|
|
Value
|
|
|
Value
|
|
Public Debt
|
|
|
|
|
|
|
|
|
Floating rate enhanced equipment notes
|
|
|
|
|
|
|
|
|
Class G-1, due through 2016
|
|
$
|
256
|
|
|
$
|
215
|
|
Class G-2, due 2014 and 2016
|
|
|
373
|
|
|
|
295
|
|
Class B-1, due 2014
|
|
|
49
|
|
|
|
41
|
|
Fixed rate special facility bonds, due through
2036
|
|
|
84
|
|
|
|
73
|
|
6 3/4% convertible debentures due in 2039
|
|
|
201
|
|
|
|
281
|
|
5 1/2% convertible debentures due in 2038
|
|
|
123
|
|
|
|
177
|
|
Other
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Non-Public Debt
|
|
|
|
|
|
|
|
|
Floating rate equipment notes, due through 2020
|
|
|
684
|
|
|
|
606
|
|
Fixed rate equipment notes, due through 2024
|
|
|
1,148
|
|
|
|
1,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,920
|
|
|
$
|
2,715
|
|
|
|
|
|
|
|
|
The estimated fair values of our publicly held long-term debt were based on quoted market
prices or other observable market inputs when instruments are not actively traded. The fair value
of our non-public debt was estimated using discounted cash flow analysis based on our borrowing
rates for instruments with similar terms. The fair values of our other financial instruments
approximate their carrying values.
We utilize a policy provider to provide credit support on the Class G-1 and Class G-2
certificates. The policy provider has unconditionally guaranteed the payment of interest on the
certificates when due and the payment of principal on the certificates no later than 18 months
after the final expected regular distribution date. The policy provider is MBIA Insurance
Corporation (a subsidiary of MBIA, Inc.).
Note 4 Comprehensive Income / (Loss)
Comprehensive income (loss) includes changes in fair value of our aircraft fuel derivatives
and interest rate swap agreements, which qualify for hedge accounting. The differences between net
income (loss) and comprehensive income (loss) for each of these periods are as follows (dollars are
in millions):
9
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
Net income (loss)
|
|
$
|
(1
|
)
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on derivative instruments
(net of ($5) and $19 of taxes)
|
|
|
(8
|
)
|
|
|
29
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)
|
|
|
(8
|
)
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
(9
|
)
|
|
$
|
41
|
|
|
|
|
|
|
|
|
A rollforward of the amounts included in accumulated other comprehensive income (loss), net of
taxes, for the three months ended March 31, 2010 is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft Fuel
|
|
|
Interest Rate
|
|
|
|
|
|
|
Derivatives
|
|
|
Swaps
|
|
|
Total
|
|
Beginning accumulated gains (losses), at December 31, 2009
|
|
$
|
7
|
|
|
$
|
(6
|
)
|
|
$
|
1
|
|
Reclassifications into earnings
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
Change in fair value
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
Ending accumulated gains (losses), at March 31, 2010
|
|
$
|
2
|
|
|
$
|
(9
|
)
|
|
$
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
Note 5 Earnings (Loss) Per Share
The following table shows how we computed basic and diluted earnings (loss) per common share
(dollars in millions; share data in thousands):
10
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1
|
)
|
|
$
|
12
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Interest on convertible debt, net of income taxes
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common
stockholders after assumed conversion for
diluted earnings per share
|
|
$
|
(1
|
)
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for
basic earnings (loss) per share
|
|
|
274,053
|
|
|
|
244,394
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
|
|
|
|
|
2,732
|
|
Convertible debt
|
|
|
|
|
|
|
27,428
|
|
|
|
|
|
|
|
|
Adjusted weighted average shares outstanding
and assumed conversions for diluted earnings
(loss) per share
|
|
|
274,053
|
|
|
|
274,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares excluded from EPS calculation (in millions):
|
|
|
|
|
|
|
|
|
Shares issuable upon conversion of our convertible
debt since assumed conversion would be antidilutive
|
|
|
68.7
|
|
|
|
10.4
|
|
Shares issuable upon exercise of outstanding stock
options or vesting of restricted stock units since assumed exercise would be antidilutive
|
|
|
29.0
|
|
|
|
26.3
|
|
As of March 31, 2010, a total of approximately 18.0 million shares of our common stock, which
were lent to our share borrower pursuant to the terms of our share lending agreement, in which we
initially loaned 44.9 million shares of our common stock in conjunction with our 2008 $201 million
convertible debt issuance, as described more fully in Note 2 to our 2009 Form 10-K, were issued and
outstanding for corporate law purposes, and 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 (loss) per share.
Note 6 Employee Retirement Plan
We sponsor a retirement savings 401(k) defined contribution plan, or the Plan, a component of
which is a profit sharing plan. All employees are eligible to participate in the Plan. Our
contributions expensed for the Plan for the three months ended March 31, 2010 and 2009 were $14
million and $12 million, respectively.
Note 7 Commitments and Contingencies
In February 2010, we amended our Airbus A320 purchase agreement, deferring six aircraft
previously scheduled for delivery in 2011 and 2012 to 2015. This amendment had the effect of
reducing our 2010 capital expenditures by $40 million in related predelivery deposits, which will
be required to be made in future periods.
11
As of March 31, 2010, our firm aircraft orders consisted of 55 Airbus A320 aircraft, 60
EMBRAER 190 aircraft and 18 spare engines scheduled for delivery through 2018. Committed
expenditures for these aircraft, including the related flight equipment and estimated amounts for
contractual price escalations and predelivery deposits, will be approximately $190 million for the
remainder of 2010, $420 million in 2011, $710 million in 2012, $810 million in 2013, $760 million
in 2014 and $1.64 billion thereafter.
In
addition to our purchase commitments above, in April 2010, we signed a letter of intent to lease seven used Airbus A320 aircraft from a
third party, which are scheduled to be delivered later in 2010. We expect to execute operating
leases for these seven aircraft, the terms of which are still being negotiated.
As of March 31, 2010, we had approximately $30 million of restricted assets pledged under
standby letters of credit related to certain of our leases which will expire at the end of the
related lease terms. Additionally, we had $20 million pledged related to our workers compensation
insurance policies and other business partner agreements, which will expire according to the terms
of the related policies or agreements.
In March 2010, we announced that we will be combining our Darien, CT and Forest Hills, NY
corporate offices and relocating to a new corporate headquarters in Long Island City, NY. As of
March 31, 2010, we do not have any material commitments related to this future relocation, which is
preliminarily scheduled to commence beginning in 2011.
Note 8 Financial Derivative Instruments and Risk Management
As part of our risk management strategy, we periodically purchase crude or heating oil option
contracts or swap agreements to manage our exposure to the effect of changes in the price and
availability of aircraft fuel. Prices for these commodities are normally highly correlated to
aircraft fuel, making derivatives of them effective at providing short-term protection against
sharp increases in average fuel prices. We also periodically enter into basis swaps for the
differential between heating oil and jet fuel, as well as jet fuel swaps, to further limit the
variability in fuel prices at various locations. To manage the variability of the cash flows
associated with our variable rate debt, we have also entered into interest rate swaps. We do not
hold or issue any derivative financial instruments for trading purposes.
Aircraft fuel derivatives
: We attempt to obtain cash flow hedge accounting treatment for each
aircraft fuel derivative that we enter into. This treatment is provided for under the Derivatives
and Hedging topic of the Codification, which allows for gains and losses on the effective portion
of qualifying hedges to be deferred until the underlying planned jet fuel consumption occurs,
rather than recognizing the gains and losses on these instruments into earnings for each period
that they are outstanding. The effective portion of realized aircraft fuel hedging derivative
gains and losses is recognized in fuel expense, while ineffective gains and losses are recognized
in interest income and other. All cash flows related to our fuel hedging derivatives are
classified as operating cash flows.
Ineffectiveness results when the change in the total fair value of the derivative instrument
does not exactly equal the change in the value of our expected future cash outlays for the purchase
of aircraft fuel. To the extent that the periodic changes in the fair value of the hedging
instruments are not effectively
12
hedged, the ineffectiveness is recognized in other income (expense) immediately. Likewise, if a hedge does not qualify for hedge accounting, the periodic changes in
its fair values are recognized in other income (expense) in the period of the change. When
aircraft fuel is consumed and the related derivative contract settles, any gain or loss previously
deferred in other comprehensive income is recognized in aircraft fuel expense.
Our current approach to fuel hedging is to enter into hedges solely on a discretionary basis
without a targeted hedge percentage of expected fuel needs in order to mitigate the liquidity
issues and cap fuel prices, when possible.
The following table illustrates the approximate hedged percentages of our projected fuel usage
by quarter as of March 31, 2010, related to our outstanding fuel hedging contracts that were
designated as cash flow hedges for accounting purposes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil
|
|
|
|
|
|
Jet fuel
|
|
|
|
|
cap
|
|
Heating
|
|
swap
|
|
|
|
|
agreements
|
|
oil collars
|
|
agreements
|
|
Total
|
Second Quarter 2010
|
|
|
18
|
%
|
|
|
5
|
%
|
|
|
19
|
%
|
|
|
42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2010
|
|
|
18
|
%
|
|
|
14
|
%
|
|
|
4
|
%
|
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter 2010
|
|
|
18
|
%
|
|
|
14
|
%
|
|
|
5
|
%
|
|
|
37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter 2011
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter 2011
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2011
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
5
|
%
|
In April 2010, we sold some of our outstanding crude oil cap agreements scheduled to settle in
the third and fourth quarter of 2010 back to the original counterparties. We simultaneously
entered into jet fuel swap agreements for the same quantity and duration, and as a result
maintained the same level of overall hedge positions for the third and fourth quarter of 2010.
Additionally, in April 2010, we purchased additional crude oil cap agreements covering another 3%
of our projected fuel consumption in each of the first two quarters and another 2% in the third
quarter of 2011.
During 2009 and the three months ended March 31, 2010, we also entered into basis swaps and
certain jet fuel swap agreements, which we have not designated as cash flow hedges for accounting
purposes and as a result we mark to market in earnings each period based on their current fair
value.
Interest rate swaps
: The interest rate hedges we had outstanding as of March 31, 2010
effectively swap floating rate for fixed rate, taking advantage of lower borrowing rates in
existence since our original debt instruments were executed. As of March 31, 2010, we had $394
million in notional debt outstanding related to these swaps, which cover certain interest payments
through August 2016. The notional amount decreases over time to match scheduled repayments of the
related debt.
All of our outstanding interest rate swap contracts qualify as cash flow hedges in accordance
with the Derivatives and Hedging topic of the Codification. Since all of the critical terms of our
swap agreements match the debt to which they pertain, there was no ineffectiveness relating to
these interest rate swaps in 2010 or 2009, and all related unrealized losses were deferred in
accumulated other comprehensive income. We recognized approximately $2 million and $1 million in
additional interest expense as the related interest payments were made during the three months
ended March 31, 2010 and 2009, respectively.
Any outstanding derivative instruments expose us to credit loss in the event of nonperformance
by the counterparties to the agreements, but we do not expect that any of our four counterparties
will fail to meet their obligations. The amount of such credit exposure is generally the fair value
of our outstanding contracts. To manage credit risks, we select counterparties based on credit
assessments, limit our overall exposure to any single counterparty and monitor the market position
with each counterparty. Some of our agreements require cash deposits if market risk exposure
exceeds a specified threshold amount.
13
The financial derivative instrument agreements we have with our counterparties may require us
to fund all, or a portion of, outstanding loss positions related to these contracts prior to their
scheduled maturities. The amount of collateral posted, if any, is periodically adjusted based on
the fair value of the hedge contracts. Our policy is to offset the liabilities represented by
these contracts with any cash collateral paid to the counterparties. We did not have any
collateral posted related to our outstanding fuel hedge contracts at March 31, 2010 or December 31,
2009. The table below reflects a summary of our collateral balances (in millions).
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
March 31,
|
|
December 31,
|
|
|
2010
|
|
2009
|
Interest rate derivatives
|
|
|
|
|
|
|
|
|
Cash collateral posted to counterparty offsetting
hedge liability in other current liabilities
|
|
$
|
17
|
|
|
$
|
17
|
|
The table below reflects quantitative information related to our derivative instruments and
where these amounts are recorded in our financial statements. The fair value of those contracts
not designated as cash flow hedges was not material at either March 31, 2010 or December 31, 2009
(dollar amounts in millions).
14
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
March 31,
|
|
December 31,
|
|
|
2010
|
|
2009
|
Fuel derivatives
|
|
|
|
|
|
|
|
|
Asset fair value recorded in prepaid expenses and other
|
|
$
|
18
|
|
|
$
|
25
|
|
Asset fair value recorded in other long term assets
|
|
|
3
|
|
|
|
3
|
|
Longest remaining term (months)
|
|
|
18
|
|
|
|
18
|
|
Hedged volume (barrels, in thousands)
|
|
|
4,215
|
|
|
|
5,070
|
|
Estimated amount of existing gains (losses) expected to be
reclassified into earnings in the next 12 months
|
|
|
4
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
|
|
|
|
|
|
|
|
Liability fair value recorded in other long term liabilities (1)
|
|
|
15
|
|
|
|
10
|
|
Estimated amount of existing gains (losses) expected to be
reclassified into earnings in the next 12 months
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2010
|
|
2009
|
Fuel derivatives
|
|
|
|
|
|
|
|
|
Hedge effectiveness gains (losses) recognized in aircraft
fuel expense
|
|
$
|
2
|
|
|
$
|
(56
|
)
|
Hedge ineffectiveness gains (losses) recognized in other
income (expense)
|
|
|
|
|
|
|
|
|
Gains (losses) of derivatives not qualifying for hedge
accounting recognized in other income (expense)
|
|
|
|
|
|
|
|
|
Hedge gains (losses) of derivatives recognized in comprehensive
income, (see Note 4)
|
|
|
(7
|
)
|
|
|
(3
|
)
|
Percentage of actual consumption economically hedged
|
|
|
65
|
%
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
|
|
|
|
|
|
|
|
Hedge gains (losses) of derivatives recognized in comprehensive income, (see Note 4)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
|
(1)
|
|
Gross liability, prior to impact of collateral posted
|
Note 9 Fair Value of Financial Instruments
Under the Fair Value Measurements and Disclosures topic of the Codification, disclosures are
required about how fair value is determined for assets and liabilities and a hierarchy for which
these assets and liabilities must be grouped, based on significant levels of inputs as follows:
|
Level 1
|
|
quoted prices in active markets for identical assets or liabilities;
|
|
|
Level 2
|
|
quoted prices in active markets for similar assets and liabilities and inputs that
are observable for the asset or liability; or
|
|
|
Level 3
|
|
unobservable inputs, such as discounted cash flow models or valuations.
|
The determination of where assets and liabilities fall within this hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. The following is a
listing of our assets and liabilities required to be measured at fair value on a recurring basis
and where they are classified within the hierarchy as of March 31, 2010 (in millions).
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
585
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
585
|
|
Restricted cash
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
66
|
|
Investment Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities (ARS)
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
63
|
|
Available-for-sale securities
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
Held-to-maturity bonds
|
|
|
210
|
|
|
|
|
|
|
|
|
|
|
|
210
|
|
Put option related to ARS
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
9
|
|
Aircraft fuel derivatives
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
896
|
|
|
$
|
21
|
|
|
$
|
72
|
|
|
$
|
989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
$
|
|
|
|
$
|
|
|
|
$
|
15
|
|
|
$
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
15
|
|
|
$
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to Note 3 for fair value information related to our outstanding debt obligations as of
March 31, 2010. The following tables reflect the activity for the major classes of our assets and
liabilities measured at fair value using level 3 inputs (in millions) for the three months ended
March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction Rate
|
|
|
Put Option related
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
to ARS
|
|
|
Interest Rate Swaps
|
|
|
Total
|
|
Balance as of December 31, 2009
|
|
$
|
74
|
|
|
$
|
11
|
|
|
$
|
(10
|
)
|
|
$
|
75
|
|
Transfers in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains or (losses), realized or unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Included in comprehensive income
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Purchases, issuances and settlements, net
|
|
|
(12
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2010
|
|
$
|
63
|
|
|
$
|
9
|
|
|
$
|
(15
|
)
|
|
$
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
:
Our cash and cash equivalents include money market securities and
trade deposits and commercial paper which are readily convertible into cash with maturities of
three months or less when purchased, both of which are considered to be highly liquid and easily
tradable. These securities are valued using inputs observable in active markets for identical
securities and are therefore classified as level 1 within our fair value hierarchy.
Investment securities:
We held various investment securities at March 31, 2010 and December
31, 2009. When sold, we use a specific identification method to determine the cost of the
securities. The carrying value of these investments was as follows (in millions):
16
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
Asset-back securities with maturities within one year
|
|
$
|
|
|
|
$
|
109
|
|
Time deposits with maturities within one year
|
|
|
10
|
|
|
|
36
|
|
Commercial paper with maturities within one year
|
|
|
25
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
150
|
|
Held-to-maturity securities
|
|
|
|
|
|
|
|
|
Corporate bonds with maturities within one year
|
|
|
111
|
|
|
|
22
|
|
Corporate bonds with maturities between one and five
years
|
|
|
34
|
|
|
|
|
|
Government bonds with maturities between one and
five years
|
|
|
40
|
|
|
|
|
|
Municipal bonds with maturities within one year
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
210
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
|
|
|
|
|
|
|
Student loan bonds
|
|
|
63
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
308
|
|
|
$
|
246
|
|
|
|
|
|
|
|
|
Available-for-sale investment securities:
Included in our available-for-sale investment
securities are certificate of deposits placed through an account registry service, or CDARS, and
commercial paper with original maturities greater than 90 days but less than one year. At December
31, 2009, we also held asset backed securities, which are considered variable rate demand notes
with contractual maturities generally greater than ten years with interest reset dates often every
30 days or less. The fair values of these investments are based on observable market data. We did
not record any significant gains or losses on these securities during the three months ended March
31, 2010.
Held-to-maturity investment securities:
During 2009 and the three months ended March 31, 2010,
we purchased various corporate bonds. Those with original maturities less than twelve months are
included in short-term investments on our condensed consolidated balance sheets, and those with
original maturities in excess of twelve months but less than two years are included in long-term
investments on our condensed consolidated balance sheets. The fair value of these investments is
based on observable market data. We did not record any significant gains or losses on these
securities during the three months ended March 31, 2010
Auction rate securities
: At March 31, 2010, the fair values of our ARS all of which are
collateralized by student loan portfolios (substantially all of which are guaranteed by the United
States Government), were estimated through discounted cash flow models. Since these inputs were
not observable, they are classified as level 3 inputs. The change in fair value was insignificant
during the three months ended March 31, 2010. For the three months ended March 31, 2009, we
recorded an unrealized holding loss on our ARS of $8 million, based on the then current fair value.
We classify our ARS as trading securities and therefore measure at each reporting period with the
resulting gain (loss) recognized in other income (expense). Our discounted cash flow analysis
considered, among other things, the quality of the underlying collateral, the credit rating of the
issuers, an estimate of when these securities are either expected to have a successful auction or
otherwise return to par value, expected interest income to be received over this period, and the
estimated required rate of return for investors. Because of the inherent subjectivity in valuing
these securities, we also considered independent valuations obtained for each of our ARS as of
March 31, 2009 and 2010 in estimating their fair values. In
January 2010, approximately $12 million in ARS
were redeemed by their issuers at par. The $1 million gain from these sales was offset by the
related put option below.
Put option related to ARS
:
We have elected to apply the fair value option under the Financial
Instruments topic of the Codification, to UBSs agreement to repurchase, at par, ARS brokered by
them. We have done so in order to closely conform to our treatment of the underlying ARS. As of
March 31,
17
2010, the $9 million fair value of this put option is included in other current assets in
our condensed consolidated balance sheets. Any gain (loss) resulting from an adjustment of the
fair value is included in other income (expense). The change in fair value was insignificant
during the three months ended March 31, 2010 and 2009, respectively. The fair value of the put is
determined by comparing the fair value of the related ARS, as described above, to their par values
and also considers the credit risk associated with UBS. This put option will be adjusted on each
balance sheet date based on its then fair value. The fair value of the put option is based on
unobservable inputs and is therefore classified as level 3 in the hierarchy.
Interest Rate Swaps
:
The fair values of our interest rate swaps are initially based on inputs
received from the counterparty. These values were corroborated by adjusting the active swap
indications in quoted markets for similar terms (6 8 years) for the specific terms within our
swap agreements. Since some of these inputs were not observable, they are classified as level 3
inputs in the hierarchy.
Aircraft fuel derivatives
:
Our heating oil and jet fuel swaps, heating oil collars, and crude
oil caps are not traded on public exchanges. Their fair values are determined using a market
approach based on inputs that are readily available from public markets for commodities and energy
trading activities; therefore, they are classified as level 2 inputs. The data inputs are combined
into quantitative models and processes to generate forward curves and volatilities related to the
specific terms of the underlying hedge contracts.
Note 10 Income Taxes
The effective tax rate on our income (loss) before taxes can differ from the statutory rates
for various reasons from period to period including, but not limited to, share-based compensation,
non-deductible meals and other permanent differences, and changes in the valuation allowance.
18
|
|
|
Item 2.
|
|
Managements Discussion and Analysis of Financial Condition and Results of
Operations.
|
Outlook
Economic conditions showed signs of improvement during the first quarter with a stronger
pricing environment. The effects of the improving economy, which included several industry fare
increases, were evident with our improved revenue per available seat mile, or RASM, performance.
Our average fare for the first quarter increased 6% to $141.98 over the same period in 2009. While
we are optimistic that we will continue to see improvements in the revenue environment in 2010, a
competitive industry landscape is ever present, and as such we will continue to focus on achieving
our long-term sustainable growth goals. Our commitment to these goals drives a focus on
controlling costs, maximizing unit revenues, managing capital expenditures, and disciplined growth.
During the first quarter of 2010, we implemented a new integrated customer service system,
which includes a reservations system, revenue management system, revenue accounting system, and
customer loyalty management system. The computerized systems and business process changes we
implemented impacted nearly all of our crewmembers, in addition to the obvious impact to our
customers and TrueBlue members. In planning for this implementation, we invested significant
resources to minimize the disruption to our customers and crewmembers, with the understanding that
a limited level of disruption was unavoidable. We have experienced extended call hold times at our
reservations center for certain transactions, although they are much less than in the days
immediately following the cutover. We expect the proficiencies of our crewmembers on the new
systems will continue to improve throughout the summer. This investment offers many benefits which we believe
will position us well for our long-term growth, some of which we have already begun to realize.
These benefits include several near-term opportunities such as higher yielding traffic from
increased participation in global distribution systems, additional ancillary revenue opportunities,
and facilitating future commercial partnerships.
We continue to leverage our presence as the largest domestic carrier at John F. Kennedy
Airport, or JFK, and our growing presence at Bostons Logan International Airport with strategic
commercial partnerships. To this end, in March 2010, we announced a commercial collaboration with
American Airlines, or American, with certain provisions subject to
regulatory approval. Included in this collaboration is an interline agreement that
offers our customers connections to 12 of Americans international destinations from both JFK and
Boston as well as offering Americans customers access to 18 of our convenient nonstop domestic
markets. We also entered into a temporary slot swap agreement with American, whereby we will
obtain eight slot pairs at Ronald Reagan National Airport in Washington, DC, or Washington
National, and one additional slot pair at White Plains, NY in exchange for transferring 12 slot
pairs at JFK to American. If necessary regulatory approvals are obtained, we may acquire five
additional slots at Washington National as part of the US Airways and Delta Air Lines slot swap
agreement.
We have announced plans to begin service to Punta Cana, Dominican Republic in May 2010, and
Washington National, DC and Hartford, CT in November 2010. Our disciplined growth includes
managing the growth, size and age of our fleet. With new opportunities, including the Washington
National slots and commercial partnerships, we have agreed to take delivery of seven used Airbus
A320 aircraft from a third party later this year, which are in addition to our purchase commitments
with Airbus. We expect to execute operating leases for these seven aircraft, the terms of which
are still being negotiated. Including these seven used aircraft, we expect our operating aircraft
to consist of 117 Airbus A320 aircraft and 45 EMBRAER 190 aircraft at the end of 2010. We have
one of the youngest and most fuel efficient fleets in the industry, with an average age of 4.6
years, which we believe gives us a competitive advantage.
In an effort to reduce delays and modernize the airport, the Federal Aviation Administration,
or FAA, and the Port Authority of New York and New Jersey, or PANYNJ, have been undertaking major
construction work at JFK. Their plans include the creation of new taxiways and holding pads, runway
widening and rehabilitation, as well as the installation of new ground radar, lighting and other
navigation equipment. Most significantly, this project includes the closure and rehabilitation of
the most important runway in our network, which has been closed since March 1, 2010, and is
scheduled to remain closed through June 30, 2010. While we believe the results of this project will
ultimately help to alleviate some of the challenges of operating at JFK, our operations may be
adversely impacted during the runway closure.
19
The JFK runway project is currently on schedule and as a result of our planning for this
closure, which included reducing scheduled flights by us and other major domestic carriers at JFK,
we have experienced minimal operational impact thus far.
We remain committed to our financial goals, including a commitment to generating positive free
cash flow, maintaining an adequate liquidity position, and rigorously focusing on cost control.
However, costs presented a challenge in the first quarter of 2010. As expected, we incurred one
time implementation costs associated with our new integrated customer service system.
Additionally, the winter storm season was more severe than recent years and pressured our costs per
available seat mile, or CASM, excluding fuel. Unlike most airlines, we have a policy of not
furloughing crewmembers during economic downturns and a non-union workforce, which we believe
provides us with more flexibility and allows us to be more productive. Our distribution costs tend
to be lower than those of most other airlines on a per unit basis because the majority of our
customers book directly through our website or our agents; however, with our new customer service
system, real time global distribution system, or GDS, connectivity has increased the number of bookings through these more
expensive channels, which has increased our distribution costs.
The price and availability of aircraft fuel, which is our single largest operating expense,
are extremely volatile due to global economic and geopolitical factors that we can neither control
nor accurately predict. Fuel prices have been on the rise in 2010, climbing to levels not seen
since the end of 2008. In response, we continue to build our fuel hedging portfolio. We
effectively hedged 65% of our total first quarter 2010 fuel consumption. As of March 31, 2010, we
had outstanding fuel hedge contracts covering approximately 42% of our forecasted consumption for
the second quarter of 2010, 45% for the full year 2010, and 8% for the first three quarters of
2011. Additionally, in April 2010 we entered into crude oil cap agreements covering another 3% of
our forecasted consumption for the first three quarters of 2011. We will continue to monitor fuel
prices closely and take advantage of fuel hedging opportunities in order to mitigate our liquidity
exposure and provide some protection against significant volatility and increases in fuel prices.
We expect our full-year operating capacity to increase approximately 6% to 8% over 2009
primarily as a result of increased aircraft utilization and the maturation of cities added over the
past year, as well as the addition of four EMBRAER 190 and seven Airbus A320 aircraft to our
operating fleet. Revenue per available seat mile, or RASM, is expected to improve between 6% and
9% over 2009, which reflects the improving pricing environment, maturation of markets we previously
opened, and some improved capabilities in the later part of the year associated with our new
customer service system. Assuming fuel prices of $2.44 per gallon, including fuel taxes and net of
effective hedges, our cost per available seat mile for 2010 is expected to increase by 8% to 10%
over 2009. This expected increase is a result of higher fuel prices, higher salaries and wages due
to the pilot wage increases implemented in June of 2009, higher maintenance costs and the one-time
costs associated with transitioning to our new customer service system.
Results of Operations
Our operating revenue per available seat mile for the quarter increased 3% over the same
period in 2009. Our average fares for the quarter increased 6% over 2009 to $141.98, while our
load factor increased 0.8 points to 76.8% from a year ago. Our on-time performance, defined by the
Department of Transportation, or DOT, as arrival within 14 minutes of schedule, was 72.7% in the
first quarter of 2010 compared to 78.3% for the same period in 2009, while our completion factor
was 97.0% and 98.7% in 2010 and 2009, respectively.
Three Months Ended March 31, 2010 and 2009
We reported a net loss of $1 million for the three months ended March 31, 2010, compared to
net income of $12 million for the three months ended March 31, 2009. Diluted loss per share was
$0.01 for the first quarter of 2010 compared to diluted earnings per share of $0.05 for 2009. Our
operating income for the three months ended March 31, 2010 was $42 million compared to $73 million
for the same period last year, and our pre-tax margin decreased 4.5 points from 2009.
20
Operating Revenues.
Operating revenues increased 10%, or $77 million, over the same
period in 2009, primarily due to an 11%, or $79 million, increase in passenger revenues. The
increase in passenger revenues was largely attributable to a 6% increase in capacity along with a
4% increase in yield over the first quarter of 2009, which was slightly offset by capacity
reductions during the initial cutover period to our new customer service system.
Other revenue decreased 3%, or $2 million, primarily due to a 20%, or $6 million, reduction in
change fees as a result of several change fee waivers during the quarter in conjunction with our
new system migration and during the major storms in the Northeast. This was offset by a $4 million
increase in marketing related revenues.
Operating Expenses.
Operating expenses increased 15%, or $108 million, over the same period
in 2009, primarily due to higher fuel prices, increased salaries, wages, and benefits related to
pilot pay increases implemented in mid 2009, increased variable costs related to severe winter
storms and one time implementation related expenses related to our new customer service system.
Operating capacity increased 6% to 8.42 billion available seat miles, despite capacity reductions
during our initial cutover period to our new customer service system. Operating expenses per
available seat mile increased 9% to 9.83 cents for the three months ended March 31, 2010. Excluding
fuel, our cost per available seat mile for the three months ended March 31, 2010 was 9% higher
compared to the same period in 2009. In detail, operating costs per available seat mile were as
follows (percent changes are based on unrounded numbers):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Percent
|
|
|
|
(in cents)
|
|
|
Change
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel
|
|
|
3.02
|
|
|
|
2.80
|
|
|
|
7.8
|
%
|
Salaries, wages and benefits
|
|
|
2.60
|
|
|
|
2.33
|
|
|
|
11.4
|
%
|
Landing fees and other rents
|
|
|
.65
|
|
|
|
.63
|
|
|
|
2.6
|
%
|
Depreciation and amortization
|
|
|
.67
|
|
|
|
.69
|
|
|
|
(1.8)
|
%
|
Aircraft rent
|
|
|
.37
|
|
|
|
.40
|
|
|
|
(9.1)
|
%
|
Sales and marketing
|
|
|
.47
|
|
|
|
.46
|
|
|
|
2.8
|
%
|
Maintenance materials and
repairs
|
|
|
.46
|
|
|
|
.47
|
|
|
|
(1.5)
|
%
|
Other operating expenses
|
|
|
1.59
|
|
|
|
1.28
|
|
|
|
24.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
9.83
|
|
|
|
9.06
|
|
|
|
8.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel expense increased 14%, or $32 million, due to an 8% increase in average fuel
cost per gallon, or $18 million after the impact of fuel hedging, and an increase of seven million
gallons of aircraft fuel consumed, resulting in $14 million in additional fuel expense. We
recorded $2 million in effective fuel hedge gains during 2010 versus $56 million in effective fuel
hedge losses during 2009. Our average fuel cost per gallon was $2.19 for the first quarter of 2010
compared to $2.03 for the first quarter of 2009. Cost per available seat mile increased 8%
primarily due to the increase in fuel price.
Salaries, wages and benefits increased 18%, or $34 million, primarily due to increases in wages and related
benefits under our pilot employment agreements implemented in June
2009. We also incurred an additional $6 million associated with
higher staffing levels in the first quarter related to the
implementation of our new customer service system. Cost per available seat mile increased 11% primarily due to an
increase in full-time equivalent employees and one time implementation related expenses.
21
Landing fees and other rents increased 9%, or $4 million, due to a 3% increase in departures
over 2009 and a slight increase in landing fee and airport rental rates associated with increased
rates in existing markets as well as the opening of eight new cities in 2009. Cost per available
seat mile increased 3% due to increased departures.
Depreciation and amortization increased 4%, or $2 million, primarily due to having an average
of 96 owned and capital leased aircraft in 2010 compared to 88 in 2009 and increased software
amortization related to our new customer service system. This increase in depreciation was offset
by a net decrease in amortization related to our purchased technology becoming fully amortized in
late 2009, which resulted in a 2% decrease in cost per available seat mile.
Sales and marketing expense increased 9%, or $3 million, due to $3 million in higher
commissions in 2010 related to our increased participation in GDSs
and online travel agencies and $2 million in
higher credit card fees resulting from the increased average fares, offset by $2 million in lower
advertising costs. On a cost per available seat mile basis, sales and marketing expense increased
3% primarily due to increased distribution costs resulting from the enhanced capabilities of our new
customer service system.
Maintenance, materials, and repairs increased 4%, or $2 million, due to eight additional
average operating aircraft in 2010, compared to the same period in 2009 and the gradual aging of
our fleet. The average age of our fleet increased to 4.6 years as of March 31, 2010 compared to 3.7
years as of March 31, 2009. Maintenance expense is expected to increase significantly as our fleet
ages, resulting in the need for additional repairs over time. Cost per available seat mile
increased 2% primarily due to the gradual aging of our fleet.
Other operating expenses increased 32%, or $32 million, primarily due to increased costs
related to the implementation of our new customer service system. In the first quarter of 2010, we
incurred approximately $10 million in one time, non-recurring implementation related expenses.
Additionally, variable costs increased as a result of 3% more departures versus 2009, a severe
winter storm season, and operating out of eight additional cities
opened throughout 2009. Cost per available seat
mile increased 25% primarily due to the implementation costs associated with our new customer
service system.
Other Income (Expense).
Interest expense decreased 6%, or $2 million, primarily due to lower
interest rates.
Interest income and other increased 126%, or $8 million, primarily due to $8 million in
unrealized holding losses recorded in 2009 related to the valuation of our auction rate securities.
This was slightly offset by lower interest rates earned on investments. While accounting
ineffectiveness on our crude and heating oil derivative instruments classified as cash flow hedges
in each of 2009 and 2010 was immaterial, we are unable to predict what the amount of
ineffectiveness will be related to these instruments, or the potential loss of hedge accounting,
which is determined on a derivative-by-derivative basis, due to the volatility in the forward
markets for these commodities.
The following table sets forth our operating statistics for the three months ended March 31,
2010 and 2009:
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
Operating Statistics:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue passengers (thousands)
|
|
|
5,528
|
|
|
|
5,291
|
|
|
|
4.5
|
|
Revenue passenger miles (millions)
|
|
|
6,470
|
|
|
|
6,040
|
|
|
|
7.1
|
|
Available seat miles (ASMs) (millions)
|
|
|
8,424
|
|
|
|
7,942
|
|
|
|
6.1
|
|
Load factor
|
|
|
76.8
|
%
|
|
|
76.0
|
%
|
|
0.8 pts.
|
Aircraft utilization (hours per day)
|
|
|
11.8
|
|
|
|
12.0
|
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average fare
|
|
$
|
141.98
|
|
|
$
|
133.39
|
|
|
|
6.4
|
|
Yield per passenger mile (cents)
|
|
|
12.13
|
|
|
|
11.69
|
|
|
|
3.8
|
|
Passenger revenue per ASM (cents)
|
|
|
9.32
|
|
|
|
8.89
|
|
|
|
4.9
|
|
Operating revenue per ASM (cents)
|
|
|
10.32
|
|
|
|
9.98
|
|
|
|
3.4
|
|
Operating expense per ASM (cents)
|
|
|
9.83
|
|
|
|
9.06
|
|
|
|
8.5
|
|
Operating expense per ASM, excluding fuel (cents)
|
|
|
6.81
|
|
|
|
6.25
|
|
|
|
8.9
|
|
Airline operating expense per ASM (cents) (1)
|
|
|
9.62
|
|
|
|
8.83
|
|
|
|
8.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Departures
|
|
|
54,367
|
|
|
|
53,014
|
|
|
|
2.6
|
|
Average stage length (miles)
|
|
|
1,102
|
|
|
|
1,064
|
|
|
|
3.6
|
|
Average number of operating aircraft during period
|
|
|
151.0
|
|
|
|
142.3
|
|
|
|
6.1
|
|
Average fuel cost per gallon
|
|
$
|
2.19
|
|
|
$
|
2.03
|
|
|
|
7.5
|
|
Fuel gallons consumed (millions)
|
|
|
116
|
|
|
|
109
|
|
|
|
6.3
|
|
Full-time equivalent employees at period end (1)
|
|
|
11,084
|
|
|
|
10,047
|
|
|
|
10.3
|
|
|
|
|
(1)
|
|
Excludes operating expenses and employees of LiveTV, LLC, which are unrelated to our airline operations.
|
Liquidity and Capital Resources
At March 31, 2010, we had unrestricted cash and cash equivalents of $829 million and short
term investments of $234 million compared to cash and cash equivalents of $896 million and short
term investments of $240 million at December 31, 2009. Cash flows from operating activities were
$229 million for the three months ended March 31, 2010 compared to $124 million for the three
months ended March 31, 2009. The increase in operating cash flows includes the impact of the
increase in average fares and the 8% higher price of fuel in 2010 compared to 2009. We rely
primarily on operating cash flows to provide working capital. At March 31, 2010, we had one line
of credit totaling $63 million, which is secured by our auction
rate securities, and was fully drawn as of March 31, 2010.
Investing Activities.
During the three months ended March 31, 2010, capital expenditures
related to our purchase of flight equipment included expenditures of $5 million for one spare
engine, $5 million for flight equipment deposits and $4 million for spare part purchases. Capital
expenditures for other property and equipment, including ground equipment purchases and facilities
improvements, were $31 million. Investing activities also included the net purchase of $62 million
in investment securities.
During the three months ended March 31, 2009, capital expenditures related to our purchase of
flight equipment included expenditures of $200 million for seven aircraft and one spare engine, $7
million for flight equipment deposits and $4 million for spare part purchases. Capital expenditures
for other property and equipment, including ground equipment purchases and facilities improvements,
were $3 million. Proceeds from the sale of two aircraft were $58 million. Investing activities also
included $29 million in proceeds from the sale of certain auction rate securities.
23
Financing Activities.
Financing activities for the three months ended March 31, 2010
consisted of (1), the required repurchase of $155 million of our 3.75% convertible debentures due
2035, (2) borrowing a net $7 million on our line of credit collateralized by our ARS, (3) scheduled
maturities of $39 million of debt and capital lease obligations, and (4) reimbursement of
construction costs incurred for Terminal 5 of $4 million.
We currently have an automatic shelf registration statement on file with the SEC relating to
our sale, from time to time, of one or more public offerings of debt securities, pass-through
certificates, common stock, preferred stock and/or other securities. The net proceeds of any
securities we sell under this registration statement may be used to fund working capital and
capital expenditures, including the purchase of aircraft and construction of facilities on or near
airports. Through March 31, 2010, we have not issued any securities under this registration
statement. At this time, we have no plans to sell securities under this registration statement and
our ability to do so at this time may be limited.
Financing activities for the three months ended March 31, 2009 consisted of (1) our issuance
of $47 million in fixed rate equipment notes to banks and $102 million in floating rate equipment
notes to banks secured by three Airbus A320 aircraft and two EMBRAER 190 aircraft, (2) paying down
$38 million on our lines of credit collateralized by our ARS, (3) scheduled maturities of $32
million of debt and capital lease obligations, and (4) reimbursement of construction costs incurred
for our new terminal at JFK of $15 million.
Working Capital.
We had working capital of $263 million and $369 million at March 31, 2010
and December 31, 2009, respectively. Our working capital includes the fair value of our short term
fuel hedge derivatives, which was an asset of $18 million and $25 million at March 31, 2010 and
December 31, 2009, respectively.
We expect to meet our obligations as they become due through available cash, investment
securities and internally generated funds, supplemented as necessary by financing activities, as
they may be available to us. We expect to generate positive working capital through our
operations. However, we cannot predict what the effect on our business might be from the extremely
competitive environment we are operating in or from events that are beyond our control, such as
volatile fuel prices, the current economic recession and global credit and liquidity crisis,
weather-related disruptions, the impact of airline bankruptcies or consolidations, U.S. military
actions or acts of terrorism. We believe the working capital available to us will be sufficient to
meet our cash requirements for at least the next 12 months.
24
Contractual Obligations
Our noncancelable contractual obligations at March 31, 2010, include the following (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due in
|
|
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
Long-term debt and
capital lease obligations (1)
|
|
$
|
3,937
|
|
|
$
|
301
|
|
|
$
|
295
|
|
|
$
|
289
|
|
|
$
|
480
|
|
|
$
|
682
|
|
|
$
|
1,890
|
|
Lease commitments
|
|
|
1,745
|
|
|
|
156
|
|
|
|
192
|
|
|
|
168
|
|
|
|
140
|
|
|
|
142
|
|
|
|
947
|
|
Flight equipment obligations
|
|
|
4,525
|
|
|
|
190
|
|
|
|
420
|
|
|
|
710
|
|
|
|
810
|
|
|
|
760
|
|
|
|
1,635
|
|
Financing obligations and
other (2)
|
|
|
4,945
|
|
|
|
170
|
|
|
|
208
|
|
|
|
255
|
|
|
|
270
|
|
|
|
281
|
|
|
|
3,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,152
|
|
|
$
|
817
|
|
|
$
|
1,115
|
|
|
$
|
1,422
|
|
|
$
|
1,700
|
|
|
$
|
1,865
|
|
|
$
|
8,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes actual interest and estimated interest for floating-rate debt based on March 31, 2010 rates.
|
|
(2)
|
|
Amounts include noncancelable commitments for the purchase of goods and services.
|
There have been no material changes in the terms of our debt instruments from the information
provided in Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources included in our 2009 Form 10-K. We are not subject to
any financial covenants in any of our debt obligations. We have approximately $30 million of
restricted cash pledged under standby letters of credit related to certain of our leases which will
expire at the end of the related lease terms.
As of March 31, 2010, we operated a fleet of 110 Airbus A320 aircraft and 41 EMBRAER 190
aircraft, of which 92 were owned, 55 were leased under operating leases and 4 were leased under
capital leases. The average age of our operating fleet was 4.6 years at March 31, 2010. In
February 2010, we amended our Airbus A320 purchase agreement, deferring six aircraft previously
scheduled for delivery in 2011 and 2012 to 2015. As of March 31, 2010, we had on order 55 Airbus
A320 aircraft and 60 EMBRAER 190 aircraft; with options to acquire 8 additional Airbus A320
aircraft and 74 additional EMBRAER 190 aircraft as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Firm
|
|
|
Option
|
|
|
|
Airbus
|
|
|
EMBRAER
|
|
|
|
|
|
|
Airbus
|
|
|
EMBRAER
|
|
|
|
|
Year
|
|
A320
|
|
|
190
|
|
|
Total
|
|
|
A320
|
|
|
190
|
|
|
Total
|
|
Remainder of 2010
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
4
|
|
|
|
5
|
|
|
|
9
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
2012
|
|
|
11
|
|
|
|
6
|
|
|
|
17
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
2013
|
|
|
13
|
|
|
|
7
|
|
|
|
20
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
2014
|
|
|
12
|
|
|
|
7
|
|
|
|
19
|
|
|
|
4
|
|
|
|
10
|
|
|
|
14
|
|
2015
|
|
|
15
|
|
|
|
7
|
|
|
|
22
|
|
|
|
4
|
|
|
|
10
|
|
|
|
14
|
|
2016
|
|
|
|
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
2017
|
|
|
|
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
2018
|
|
|
|
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
60
|
|
|
|
115
|
|
|
|
8
|
|
|
|
74
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the above aircraft on order, we expect to lease seven used Airbus A320 aircraft
in 2010.
Committed expenditures for our 115 firm aircraft and 18 spare engines include estimated
amounts for contractual price escalations and predelivery deposits. Debt financing has been
arranged for all of our
25
remaining firm aircraft deliveries scheduled for 2010, and lease financing
is being arranged for our used aircraft deliveries expected in 2010. Although we believe that debt
and/or lease financing should be available for our remaining aircraft deliveries, we cannot give
assurance that we will be able to secure financing on terms attractive to us, if at all, which may
require us to modify our aircraft acquisition plans. Capital expenditures for facility
improvements, spare parts, and ground purchases are expected to be approximately $115 million for
the remainder of 2010.
In November 2005, we executed a 30-year lease agreement with the PANYNJ for the construction
and operation of a new terminal at JFK, which we began to operate in October 2008. For financial
reporting purposes only, this lease is being accounted for as a financing obligation because we do
not believe we qualify for sale-leaseback accounting due to our continuing involvement in the
property following the construction period. JetBlue has committed to rental payments under the
lease, including ground rents for the new terminal site, which began on lease execution and are
included as part of lease commitments in the contractual obligations table above. Facility rents
commenced upon the date of our beneficial occupancy of the new terminal and are included as part of
financing obligations and other in the contractual obligations table above.
Off-Balance Sheet Arrangements
None of our operating lease obligations are reflected on our balance sheet. Although some of
our aircraft lease arrangements are variable interest entities, as defined in the Consolidations
topic of the Codification, none of them require consolidation in our financial statements. The
decision to finance these aircraft through operating leases rather than through debt was based on
an analysis of the cash flows and tax consequences of each option and a consideration of our
liquidity requirements. We are responsible for all maintenance, insurance and other costs
associated with operating these aircraft; however, we have not made any residual value or other
guarantees to our lessors.
We have determined that we hold a variable interest in, but are not the primary beneficiary
of, certain pass-through trusts which are the purchasers of equipment notes issued by us to finance
the acquisition of new aircraft and are held by such pass-through trusts. These pass-through trusts
maintain liquidity facilities whereby a third party agrees to make payments sufficient to pay up to
18 months of interest on the applicable certificates if a payment default occurs. The liquidity
providers for the Series 2004-1 certificates and the spare parts certificates are Landesbank
Hessen-Thüringen Girozentrale and Morgan Stanley Capital Services Inc. The liquidity providers for
the Series 2004-2 certificates are Landesbank Baden-Württemberg and Citibank, N.A.
We utilize a policy provider to provide credit support on the Class G-1 and Class G-2
certificates. The policy provider has unconditionally guaranteed the payment of interest on the
certificates when due and the payment of principal on the certificates no later than 18 months
after the final expected regular distribution date. The policy provider is MBIA Insurance
Corporation (a subsidiary of MBIA, Inc.). Financial information for the parent company of the
policy provider is available at the SECs website at
http://www.sec.gov
or at the SECs public
reference room in Washington, D.C.
We have also made certain guarantees and indemnities to other unrelated parties that are not
reflected on our balance sheet, which we believe will not have a significant impact on our results
of operations, financial condition or cash flows. We have no other off-balance sheet arrangements.
Critical Accounting Policies and Estimates
There have been no material changes to our critical accounting policies and estimates from the
information provided in Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations-Critical Accounting Policies and Estimates included in our 2009 Form 10-K.
26
Other Information
Forward-Looking Information.
This report contains forward-looking statements relating to
future events and our future performance, including, without limitation, statements regarding
financial forecasts or projections, our expectations, beliefs, intentions or future strategies,
that are signified by the words expects, anticipates, intends, believes, plans or similar
language. Our actual results and the timing of certain events could differ materially from those expressed in the forward-looking
statements. All forward-looking statements included in this report are based on information
available to us on the date of this report. It is routine for our internal projections and
expectations to change as the year or each quarter in the year progresses, and therefore it should
be clearly understood that the internal projections, beliefs and assumptions upon which we base our
expectations may change prior to the end of each quarter or year. Although these expectations may
change, we may not inform you if they do.
Forward-looking statements involve risks, uncertainties and assumptions and are based on
information currently available to us. Actual results may differ materially from those expressed in
the forward-looking statements due to many factors, including without limitation, our extremely
competitive industry; volatility in financial and credit markets which could affect our ability to
obtain debt and/or lease financing or to raise funds through debt or equity issuances; increases in
fuel prices, maintenance costs and interest rates; our ability to profitably implement our growth
strategy, including the ability to operate reliably the EMBRAER 190 aircraft and our new terminal
at JFK; our significant fixed obligations; our ability to attract and retain qualified personnel
and maintain our culture as we grow; our reliance on high daily aircraft utilization; our
dependence on the New York metropolitan market; our reliance on automated systems and technology;
our subjectivity to potential unionization; our reliance on a limited number of suppliers; changes
in or additional government regulation; changes in our industry due to other airlines financial
condition; a continuance of the economic recessionary conditions in the U.S. or a further economic
downturn leading to a continuing or accelerated decrease in demand for domestic and business air
travel; and external geopolitical events and conditions.
Additional information concerning these and other factors is contained in our SEC filings,
including but not limited to, our 2009 Form 10-K and part II of this report.
|
|
|
Item 3.
|
|
Quantitative and Qualitative Disclosures About Market Risk.
|
There have been no material changes in market risks from the information provided in Item 7A.
Quantitative and Qualitative Disclosures About Market Risk included in our 2009 Form 10-K, except
as follows:
Aircraft Fuel.
As of March 31, 2010, we had hedged approximately 38% of our expected
remaining 2010 fuel requirements using jet fuel swaps, heating oil collars, and crude oil caps. Our
results of operations are affected by changes in the price and availability of aircraft fuel.
Market risk is estimated as a hypothetical 10% increase in the March 31, 2010, cost per gallon of
fuel, including the effects of our fuel hedges. Based on our projected twelve month fuel
consumption, such an increase would result in an increase to aircraft fuel expense of approximately
$108 million, compared to an estimated $65 million for 2008 measured as of March 31, 2009. See Note
8 to our unaudited condensed consolidated financial statements for additional information.
Fixed Rate Debt.
On March 31, 2010, our $326 million aggregate principal amount of
convertible debt had an estimated fair value of $461 million, based on quoted market prices.
|
|
|
Item 4.
|
|
Controls and Procedures.
|
Evaluation of Disclosure Controls and Procedures
27
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) that are
designed to ensure that information required to be disclosed in reports filed or submitted under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms and that such information is accumulated and communicated to our
management, including our Chief Executive Officer, or CEO, and our Chief Financial Officer, or CFO,
to allow timely decisions regarding required disclosure.
In connection with the preparation of this Report, our Management, with the participation of
our CEO and CFO, performed an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures as of March 31, 2010. Based on that evaluation, our CEO and CFO
concluded that our disclosure controls and procedures were effective as of March 31, 2010.
Changes in Internal Control Over Financial Reporting
During the first quarter of 2010, we implemented a new integrated customer service system,
which includes a reservations system, revenue management system, revenue accounting system, and
customer loyalty management system. Transitioning to this new platform offers many benefits which
we believe will position us well for our long term growth through improved functionality to
numerous business processes. In connection with this implementation, we have updated our internal
controls over financial reporting, as necessary, to accommodate modifications to our business
processes and to leverage enhanced automated controls provided by the new system. As a result of
our testing efforts to date, we believe that the internal controls and procedures related to
revenue, loyalty accounting and financial reporting are effective as of the end of the period
covered by this report to prevent material financial statement errors.
Other than the new customer service system implementation noted above, there were no changes
in the Companys internal control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act) during the fiscal quarter ended March 31, 2010, that have materially affected, or are
reasonably likely to materially affect, the Companys internal control over financial reporting.
28
PART II. OTHER INFORMATION
|
|
|
Item 1.
|
|
Legal Proceedings.
|
In the ordinary course of our business, we are party to various legal proceedings and claims
which we believe are incidental to the operation of our business. We believe that the ultimate
outcome of these proceedings to which we are currently a party will not have a material adverse
effect on our financial position, results of operations or cash flows.
Exhibits: See accompanying Exhibit Index included after the signature page of this report for
a list of the exhibits filed or furnished with this report.
29
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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JETBLUE AIRWAYS CORPORATION
(Registrant)
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Date: May 3, 2010
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By:
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/s/ DONALD DANIELS
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Vice President, Controller and Chief
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Accounting Officer
(Principal Accounting Officer)
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30
EXHIBIT INDEX
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Exhibit
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Number
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Exhibit
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10.1(w)**
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Amendment No. 34 to Airbus A320 Purchase Agreement between AVSA, S.A.R.L. and JetBlue Airways Corporation, dated February 5, 2010.
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10.14*
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JetBlue Airways Corporation 401(k) Retirement Plan, amended and restated as of January 1, 2009.
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10.17(h)**
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Amendment No. 8 to Purchase Agreement DCT 025/2003, dated as of March 11, 2010, between Embraer Empresa Brasileira de Aeronautica S.A. and JetBlue Airways Corporation.
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10.18(i)**
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Amendment No. 9 to Letter Agreement DCT 026/2003, dated as of March 11, 2010, between Embraer Empresa Brasleira de Aeronautica S.A. and JetBlue Airways Corporation.
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12.1
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Computation of Ratio of Earnings to Fixed Charges.
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31.1
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13a-14(a)/15d-14(a) Certification of the Chief Executive Officer, furnished herewith.
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31.2
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13a-14(a)/15d-14(a) Certification of the Chief Financial Officer, furnished herewith.
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32
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Certification Pursuant to Section 1350, furnished herewith.
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*
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Compensatory plans in which the directors and executive officers of JetBlue participate. Exhibit
10.14 was inadvertently omitted from our Annual Report for Form 10-K for the year ended December
31, 2009.
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**
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Pursuant to 17 CFR 240.24b-2, confidential information has been omitted and has been filed
separately with the Securities and Exchange Commission pursuant to a Confidential Treatment Request
filed with the SEC.
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31
Exhibit 10.14
JETBLUE AIRWAYS RETIREMENT PLAN
Amended and Restated Effective as of January 1, 2009
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
ARTICLE II
ADMINISTRATION
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2.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
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15
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2.2 DESIGNATION OF ADMINISTRATIVE AUTHORITY
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16
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2.3 POWERS AND DUTIES OF THE ADMINISTRATOR
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16
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2.4 RECORDS AND REPORTS
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18
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2.5 APPOINTMENT OF ADVISERS
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18
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2.6 PAYMENT OF EXPENSES
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18
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2.7 CLAIMS PROCEDURE
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18
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2.8 CLAIMS REVIEW PROCEDURE
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19
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ARTICLE III
ELIGIBILITY
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3.1 CONDITIONS OF ELIGIBILITY
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19
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3.2 EFFECTIVE DATE OF PARTICIPATION
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19
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3.3 DETERMINATION OF ELIGIBILITY
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20
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3.4 TERMINATION OF ELIGIBILITY
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20
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3.5 OMISSION OF ELIGIBLE EMPLOYEE
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20
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3.6 INCLUSION OF INELIGIBLE EMPLOYEE
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20
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3.7 REHIRED EMPLOYEES AND BREAKS IN SERVICE
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20
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ARTICLE IV
CONTRIBUTION AND ALLOCATION
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4.1 FORMULA FOR DETERMINING EMPLOYER CONTRIBUTION
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22
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4.2 PARTICIPANTS SALARY REDUCTION ELECTION
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23
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4.3 TIME OF PAYMENT OF EMPLOYER CONTRIBUTION
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27
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4.4 ALLOCATION OF CONTRIBUTION AND EARNINGS
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27
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i
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4.5 ACTUAL DEFERRAL PERCENTAGE TESTS
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32
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4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS
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34
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4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS
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36
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4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS
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38
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4.9 MAXIMUM ANNUAL ADDITIONS
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41
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4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
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44
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4.11 ROLLOVERS AND PLAN-TO-PLAN TRANSFERS
FROM QUALIFIED PLANS
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45
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4.12 DIRECTED INVESTMENT ACCOUNT
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48
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4.13 QUALIFIED MILITARY SERVICE
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50
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ARTICLE V
VALUATIONS
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5.1 VALUATION OF THE TRUST FUND
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50
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5.2 METHOD OF VALUATION
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51
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ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
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6.1 DETERMINATION OF BENEFITS UPON RETIREMENT
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51
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6.2 DETERMINATION OF BENEFITS UPON DEATH
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51
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6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
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53
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6.4 DETERMINATION OF BENEFITS UPON TERMINATION
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53
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6.5 DISTRIBUTION OF BENEFITS
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55
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6.6 DISTRIBUTION OF BENEFITS UPON DEATH
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57
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6.7 TIME OF SEGREGATION OR DISTRIBUTION
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58
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6.8 DISTRIBUTION FOR MINOR OR INCOMPETENT BENEFICIARY
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58
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6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
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59
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6.10 PRE-RETIREMENT DISTRIBUTION
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59
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6.11 ADVANCE DISTRIBUTION FOR HARDSHIP
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59
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6.12 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION
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61
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ii
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6.13 LATEST TIME FOR MAKING DISTRIBUTION TO A TERMINATED
PARTICIPANT
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61
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6.14 MILITARY WITHDRAWALS
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62
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ARTICLE VII
TRUSTEE
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7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE
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62
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7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE
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63
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7.3 OTHER POWERS OF THE TRUSTEE
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64
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7.4 LOANS TO PARTICIPANTS
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66
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7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS
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68
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7.6 TRUSTEES COMPENSATION AND EXPENSES AND TAXES
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68
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7.7 ANNUAL REPORT OF THE TRUSTEE
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68
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7.8 AUDIT
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69
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7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE
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69
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7.10 TRANSFER OF INTEREST
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70
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7.11 TRUSTEE INDEMNIFICATION
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71
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7.12 DIRECT ROLLOVER; MANDATORY DISTRIBUTIONS
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71
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7.13 EMPLOYER SECURITIES AND REAL PROPERTY
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73
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ARTICLE VIII
AMENDMENT, TERMINATION AND MERGERS
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8.1 AMENDMENT
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73
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8.2 TERMINATION
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75
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8.3 MERGER, CONSOLIDATION OR TRANSFER OF ASSETS
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75
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ARTICLE IX
TOP HEAVY PROVISIONS
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9.1 TOP HEAVY PLAN REQUIREMENTS
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75
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9.2 DETERMINATION OF TOP HEAVY STATUS
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76
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iii
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ARTICLE X
MISCELLANEOUS
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10.1 PARTICIPANTS RIGHTS
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79
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10.2 ALIENATION
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79
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10.3 CONSTRUCTION OF PLAN
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80
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10.4 GENDER AND NUMBER
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80
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10.5 LEGAL ACTION
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80
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10.6 PROHIBITION AGAINST DIVERSION OF FUNDS
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80
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10.7 EMPLOYERS AND TRUSTEES PROTECTIVE CLAUSE
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81
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10.8 INSURERS PROTECTIVE CLAUSE
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81
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10.9 RECEIPT AND RELEASE FOR PAYMENTS
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82
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10.10 ACTION BY THE EMPLOYER
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82
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10.11 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
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82
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10.12 HEADINGS
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83
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10.13 APPROVAL BY INTERNAL REVENUE SERVICE
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83
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10.14 UNIFORMITY
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83
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ARTICLE XI
MINIMUM DISTRIBUTION REQUIREMENTS
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11.1 GENERAL RULES
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83
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11.2 TIME AND MANNER OF DISTRIBUTION
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84
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11.3 REQUIRED MINIMUM DISTRIBUTIONS DURING PARTICIPANTS
LIFETIME
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85
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11.4 REQUIRED MINIMUM DISTRIBUTIONS AFTER PARTICIPANTS
DEATH
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85
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11.5 DEFINITIONS
|
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87
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|
iv
JETBLUE AIRWAYS RETIREMENT PLAN
JetBlue Airways Corporation (the Employer) established the JetBlue Airways Retirement Plan
(the Plan) effective as of October 1, 1999. The Plan was formerly known as the JetBlue Airways
Corporation 401(k) Retirement Plan. The Plan was subsequently amended and restated in its entirety
on December 31, 2001, and was subsequently amended by five additional amendments. The Plan was
most recently amended and restated in its entirety, effective January 1, 2005, except as otherwise
provided herein. The Plan is now amended and restated in its entirety, generally effective as of
January 1, 2009, except as otherwise required by applicable law or provided herein, to reflect
changes required under the Pension Protection Act of 2006, the Heroes Earnings Assistance and
Relief Act of 2008, the Worker, Retiree and Employer Recovery Act of 2008 and to incorporate prior
amendments.
ARTICLE I
DEFINITIONS
1.1 Act means the Employee Retirement Income Security Act of 1974, as it may be amended from
time to time.
1.2 Administrator means the Employer unless another person or entity has been designated by
the Employer pursuant to Section 2.2 to administer the Plan on behalf of the Employer.
1.3 Affiliated Employer means any corporation which is a member of a controlled group of
corporations (as defined in Code Section 414(b)) which includes the Employer; any trade or business
(whether or not incorporated) which is under common control (as defined in Code Section 414(c))
with the Employer; any organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in Code Section 414(m)) which includes the Employer; and any
other entity required to be aggregated with the Employer pursuant to Regulations under Code Section
414(o).
1.4 Aggregate Account means, with respect to each Participant, the value of all accounts
maintained on behalf of a Participant, whether attributable to Employer or Employee contributions,
subject to the provisions of Section 9.2.
1.5 Anniversary Date means the last day of the Plan Year.
1.6 Beneficiary means the person (or entity) to whom the share of a deceased Participants
total account is payable, subject to the restrictions of Sections 6.2 and 6.6.
1.7 Code means the Internal Revenue Code of 1986, as amended or replaced from time to time.
1.8 Compensation with respect to any Participant means such Participants wages as defined
in Code Section 3401(a) and all other payments of compensation by the Employer (in the course of
the Employers trade or business) for the taxable year of the Participant ending with or within the
Plan Year for which the Employer is required
1
to furnish annually to the Participant a written statement under Code Sections 6041(d),
6051(a)(3) and 6052. Compensation must be determined without regard to any rules under Code Section
3401(a) that limit the remuneration included in wages based on the nature or location of the
employment or the services performed (such as the exception for agricultural labor in Code Section
3401(a)(2)).
For purposes of this Section, the determination of Compensation shall be made by:
(a) excluding, for purposes of the Employers discretionary profit sharing
contributions pursuant to Section 4.1(c), the following items: per diem allowances
and other similar types of expense reimbursements; the value of company-paid group
term life insurance; the value of other non-cash fringe benefits, such as incentive
passes and positive space travel benefits; moving allowances, relocation
adjustments and other similar payments and allowances; automobile expense allowances
and reimbursements; annual bonuses to officers and directors, but not excluding cash
incentive awards and other types of cash bonuses to Employees other than officers
and directors; signing bonuses and other similar payments received in connection
with becoming employed; in lieu of payments made to Highly Compensated Employees
affected by the provisions of Section 4.10(a)(1); PTO payouts; any taxable
compensation that may result from the grant or exercise of stock-based compensation;
any other type of deferred compensation; severance pay and payments in the nature of
severance benefits; non-taxable sick pay, workers compensation payments and payments
under short-term and long-term disability plans; and payments under a pilots loss
of license income replacement plan.
(b) excluding, for purposes of salary reduction elections pursuant to Section
4.2 and Employer matching contributions pursuant to Section 4.1(b), the following
items: per diem allowances and other similar types of expense reimbursements; the
value of company-paid group term life insurance; the value of other non-cash fringe
benefits, such as incentive passes and positive space travel benefits; moving
allowances, relocation adjustments and other similar payments and allowances;
automobile expense allowances and reimbursements; signing bonuses and other similar
payments received in connection with becoming employed; in lieu of payments made
to Highly Compensated Employees affected by the provisions of Section 4.10(a)(1);
any taxable compensation that may result from the grant or exercise of stock-based
compensation; any other type of deferred compensation; severance pay and payments in
the nature of severance benefits; non-taxable sick pay; workers compensation
payments and payments under any long- term disability plan; and payments under a
pilots loss of license income replacement plan.
2
(c) including amounts which are contributed by the Employer pursuant to a
salary reduction agreement and which are not includible in the gross income of the
Participant under Code Sections 125, 132(f)(4), 402(e)(3), 402(h)(1)(B), 403(b) or
457(b), and Employee contributions described in Code Section 414(h)(2) that are
treated as Employer contributions.
For a Participants initial year of participation, Compensation shall be recognized as of such
Employees effective date of participation in the component of the Plan for which Compensation is
being used pursuant to Section 3.2.
Compensation in excess of $200,000 (or such other amount provided in the Code) shall be
disregarded for all purposes other than for purposes of salary deferral elections pursuant to
Section 4.2. Such amount shall be adjusted for increases in the cost of living in accordance with
Code Section 401(a)(17)(B), except that the dollar increase in effect on January 1 of any
calendar year shall be effective for the Plan Year beginning with or within such calendar year. For
any short Plan Year the Compensation limit shall be an amount equal to the Compensation limit for
the calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the
number of full months in the short Plan Year by twelve (12).
If any class of Employees is excluded from the Plan, then Compensation for any Employee who
becomes eligible or ceases to be eligible to participate during a Plan Year shall include only the
portion of his Compensation earned while the Employee is an Eligible Employee.
Effective January 1, 2009, Compensation shall include the amount of any military differential
wage payments made by the Employer to a Participant in accordance with section 3401(h) and section
414(u)(12) of the Code.
1.9 Contract or Policy means any life insurance policy, retirement income policy or
annuity contract (group or individual) issued pursuant to the terms of the Plan. In the event of
any conflict between the terms of this Plan and the terms of any contract purchased hereunder, the
Plan provisions shall control.
1.10 Deferred Compensation with respect to any Participant means the amount of the
Participants total Compensation which has been contributed to the Plan in accordance with the
Participants deferral election pursuant to Section 4.2 excluding any such amounts distributed as
excess annual additions pursuant to Section 4.10(a). Unless specifically stated otherwise or
unless otherwise required under Section 402A of the Code or the Regulations thereunder, Roth 401(k)
Contributions shall be treated as Deferred Compensation for all purposes under the Plan. Effective
for Plan Years beginning after December 31, 2007, Compensation for purposes of this paragraph shall
not include any amounts that are excluded from the definition of compensation set forth in section
415(c)(3) of the Code. Compensation will include Post-Severance Compensation only to the extent
that the
3
processing of the relevant pay check began prior to the processing of the severance from
employment.
1.11 Designated Investment Alternative means a specific investment identified by name by the
Employer (or such other Fiduciary who has been given the authority to select investment options) as
an available investment under the Plan to which Plan assets may be invested by the Trustee pursuant
to the investment direction of a Participant.
1.12 Directed Investment Option means one or more of the following:
(a) a Designated Investment Alternative.
(b) any other investment permitted by the Plan and the Participant Direction
Procedures to which Plan assets may be invested by the Trustee pursuant to the
investment direction of a Participant.
1.13 Early Retirement Date. This Plan does not provide for a retirement date prior to Normal
Retirement Date.
1.14 Elective Contribution means the Employer contributions to the Plan of Deferred
Compensation excluding any such amounts distributed as excess annual additions pursuant to
Section 4.10(a). In addition, any Employer Qualified Non-Elective Contribution made pursuant to
Section 4.6(b) which is used to satisfy the Actual Deferral Percentage tests shall be considered
an Elective Contribution for purposes of the Plan. Any contributions deemed to be Elective
Contributions (whether or not used to satisfy the Actual Deferral Percentage tests or the Actual
Contribution Percentage tests) shall be subject to the requirements of Sections 4.2(b) and 4.2(c)
and shall further be required to satisfy the nondiscrimination requirements of Regulation
1.401(k)-1(b)(5) and Regulation 1.401(m)-1(b)(5), the provisions of which are specifically
incorporated herein by reference. Unless specifically stated otherwise or unless otherwise
required under Section 402A of the Code or the Regulations thereunder, Roth 401(k) Contributions
will be treated as Elective Contributions for all purposes under the Plan.
1.15 Eligible Employee means any Employee except as specified below.
Employees whose employment is governed by the terms of a collective bargaining agreement
between Employee representatives (within the meaning of Code Section 7701(a)(46)) and the Employer
under which retirement benefits were the subject of good faith bargaining between the parties will
not be eligible to participate in this Plan unless such agreement expressly provides for coverage
in this Plan.
Employees of Affiliated Employers shall not be eligible to participate in this Plan unless
such Affiliated Employers have specifically adopted this Plan in writing.
4
Employees classified by the Employer as independent contractors who are subsequently
determined by the Internal Revenue Service to be Employees shall not be Eligible Employees.
Employees who are nonresident aliens and who receive no earned income (within the meaning of
Code Section 911(d)(2)) from the Employer which constitutes income from sources within the United
States (within the meaning of Code Section 861(a)(3).
Employees who are Leased Employees within the meaning of
Code Sections 414(n)(2) and 414(o)(2) shall not be eligible to participate in this Plan.
Employees in the following additional classifications:
(a) interns, including student interns; (b) residents of Puerto Rico; (c) customer service
representatives employed on a short-term, seasonal basis (e.g., during holiday periods).
For purposes of Employer contributions described in Section 4.1(c), Employees employed by
LiveTV, LLC.
1.16 Employee means any person who is employed by the Employer.
1.17 Employer means JetBlue Airways Corporation and any successor which shall maintain this
Plan; and any predecessor which has maintained this Plan. The Employer is a corporation, with
principal offices in the State of New York.
1.18 Excess Aggregate Contributions means, with respect to any Plan Year, the excess of the
aggregate amount of the Employer matching contributions made pursuant to Section 4.1(b) and any
qualified nonelective contributions or elective deferrals taken into account pursuant to Section
4.7(c) on behalf of Highly Compensated Participants for such Plan Year, over the maximum amount of
such contributions permitted under the limitations of Section 4.7(a) (determined by hypothetically
reducing contributions made on behalf of Highly Compensated Participants in order of the actual
contribution ratios beginning with the highest of such ratios). Such determination shall be made
after first taking into account corrections of any Excess Deferred Compensation pursuant to
Section 4.2 and taking into account any adjustments of any Excess Contributions pursuant to
Section 4.6.
1.19 Excess Contributions means, with respect to a Plan Year, the excess of Elective
Contributions used to satisfy the Actual Deferral Percentage tests made on behalf of Highly
Compensated Participants for the Plan Year over the maximum amount of such contributions permitted
under Section 4.5(a) (determined by hypothetically reducing contributions made on behalf of Highly
Compensated Participants in order of the actual deferral ratios beginning with the highest of such
ratios). Excess Contributions shall be treated as an annual addition pursuant to Section 4.9(b).
1.20 Excess Deferred Compensation means, with respect to any taxable year of a Participant,
the excess of the aggregate amount of
5
such Participants Deferred Compensation and the elective deferrals pursuant to Section 4.2(f)
actually made on behalf of such Participant for such taxable year, over the dollar limitation
provided for in Code Section 402(g), which is incorporated herein by reference. Excess Deferred
Compensation shall be treated as an annual addition pursuant to Section 4.9(b) when contributed
to the Plan unless distributed to the affected Participant not later than the first April 15th
following the close of the Participants taxable year. Additionally, for purposes of Sections 9.2
and 4.4(g), Excess Deferred Compensation shall continue to be treated as Employer contributions
even if distributed pursuant to Section 4.2(f). However, Excess Deferred Compensation of Non-Highly
Compensated Participants is not taken into account for purposes of Section 4.5(a) to the extent
such Excess Deferred Compensation occurs pursuant to Section 4.2(d).
1.21 Fiduciary means any person who (a) exercises any discretionary authority or
discretionary control respecting management of the Plan or exercises any authority or control
respecting management or disposition of its assets, (b) renders investment advice for a fee or
other compensation, direct or indirect, with respect to any monies or other property of the Plan or
has any authority or responsibility to do so, or (c) has any discretionary authority or
discretionary responsibility in the administration of the Plan.
1.22 Fiscal Year means the Employers accounting year of 12 months commencing on January 1st
of each year and ending the following December 31st.
1.23 Forfeiture means that portion of a Participants Account that is not Vested, and occurs
on the earlier of:
(a) the distribution of the entire Vested portion of the Participants Account
of a Former Participant who has severed employment with the Employer, or
(b) the last day of the Plan Year in which a Former Participant who has severed
employment with the Employer incurs five (5) consecutive 1-Year Breaks in Service.
Regardless of the preceding provisions, if a Former Participant is eligible to share in the
allocation of Employer contributions or Forfeitures in the year in which the Forfeiture would
otherwise occur, then the Forfeiture will not occur until the end of the first Plan Year for which
the Former Participant is not eligible to share in the allocation of Employer contributions or
Forfeitures. Furthermore, the term Forfeiture shall also include amounts deemed to be Forfeitures
pursuant to any other provision of this Plan.
1.24 Former Participant means a person who has been a Participant, but who has ceased to be
a Participant for any reason.
1.25 415 Compensation with respect to any Participant means such Participants wages as
defined in Code Section 3401(a) and all other payments of compensation by the Employer (in the
course of the Employers trade or business) for a Plan Year for which the Employer
6
is required to furnish the Participant a written statement under Code Sections 6041(d),
6051(a)(3) and 6052. 415 Compensation must be determined without regard to any rules under Code
Section 3401(a) that limit the remuneration included in wages based on the nature or location of
the employment or the services performed (such as the exception for agricultural labor in Code
Section 3401(a)(2)).
Notwithstanding the preceding, 415 Compensation shall also include Post-Severance
Compensation. The term Post-Severance Compensation means the following amounts paid after an
Employees severance from employment to the extent that such amounts are paid to the Employee by
the later of 2
1
/
2
months after the Employees severance from employment and the end of the
limitation year that includes the Employees date of severance from employment:
(a) The payment of regular compensation for services during the Employees
regular working hours, or compensation for services outside the Employees regular
working hours (such as overtime or shift differential), commissions, bonuses, or
other similar payments, provided that the payment would have been paid to the
Employee prior to a severance from employment if the Employee had continued in
employment with the Employer.
(b) Payments for unused accrued bona fide sick, vacation, or other leave, but
only if the Participant would have been able to use the leave if employment had
continued and such amounts would have been included in the definition of 415
Compensation if they had been paid prior to the Employees severance from
employment, but only to the extent that the processing of the relevant pay check
began prior to the processing of the severance from employment.
Compensation in excess of $200,000 (as adjusted in accordance with section 401(a)(17)(B) of
the Code) shall be disregarded for purposes of this Section.
Effective January 1, 2009, 415 Compensation shall include the amount of any military
differential wage payments made by the Employer to a Participant in accordance with section 3401(h)
and section 414(u)(12) of the Code.
1.26 414(s) Compensation means any definition of compensation that satisfies the
nondiscrimination requirements of Code Section 414(s) and the Regulations thereunder. The period
for determining 414(s) Compensation must be either the Plan Year or the calendar year ending with
or within the Plan Year. An Employer may further limit the period taken into account to that part
of the Plan Year or calendar year in which an Employee was a Participant in the component of the
Plan being tested. The period used to determine 414(s) Compensation must be applied uniformly to
all Participants for the Plan Year.
Effective January 1, 2009, 414(s) Compensation shall include the amount of any military
differential wage payments made by the Employer to a Participant in accordance with section 3401(h)
and section 414(u)(12) of the Code.
7
1.27 Highly Compensated Employee means, for Plan Years beginning after December 31, 1996,
an Employee described in Code Section 414(q) and the Regulations thereunder, and generally means
any Employee who:
(a) was a five percent owner as defined in Section 1.32(c) at any time
during the determination year or the lookback year; or
(b) for the lookback year had 415 Compensation from the Employer in excess
of $80,000 and was in the Top-Paid Group for the lookback year. The $80,000 amount
is adjusted at the same time and in the same manner as under Code Section 415(d),
except that the base period is the calendar quarter ending September 30, 1996.
The determination year means the Plan Year for which testing is being performed, and the
lookback year means the immediately preceding twelve (12) month period.
A highly compensated former Employee is based on the rules applicable to determining Highly
Compensated Employee status as in effect for the determination year, in accordance with
Regulation 1.414(q)-1T, A4 and IRS Notice 9745 (or any superseding guidance).
In determining whether an Employee is a Highly Compensated Employee for a Plan Year beginning
in 1997, the amendments to Code Section 414(q) stated above are treated as having been in effect
for years beginning in 1996.
In determining who is a Highly Compensated Employee, Employees who are nonresident aliens and
who received no earned income (within the meaning of Code Section 911(d)(2)) from the Employer
constituting United States source income within the meaning of Code Section 861(a)(3) shall not be
treated as Employees. Additionally, all Affiliated Employers shall be taken into account as a
single employer and Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2)
shall be considered Employees unless such Leased Employees are covered by a plan described in Code
Section 414(n)(5) and are not covered in any qualified plan maintained by the Employer. The
exclusion of Leased Employees for this purpose shall be applied on a uniform and consistent basis
for all of the Employers retirement plans. Highly Compensated Former Employees shall be treated as
Highly Compensated Employees without regard to whether they performed services during the
determination year.
1.28 Highly Compensated Participant means any Highly Compensated Employee who is eligible to
participate in the component of the Plan being tested.
1.29 Hour of Service means (1) each hour for which an Employee is directly or indirectly
compensated or entitled to compensation by the Employer for the performance of duties (these hours
will be credited to the Employee for the computation period in which the duties are performed); (2)
each hour for which an Employee is directly
8
or indirectly compensated or entitled to compensation by the Employer (irrespective of whether
the employment relationship has terminated) for reasons other than performance of duties (such as
vacation, holidays, sickness, jury duty, disability, layoff, military duty or leave of absence)
during the applicable computation period (these hours will be calculated and credited pursuant to
Department of Labor regulation 2530.200b-2 which is incorporated herein by reference); (3) each
hour for which back pay is awarded or agreed to by the Employer without regard to mitigation of
damages (these hours will be credited to the Employee for the computation period or periods to
which the award or agreement pertains rather than the computation period in which the award,
agreement or payment is made). The same Hours of Service shall not be credited both under (1) or
(2), as the case may be, and under (3).
Notwithstanding (2) above, (i) no more than 501 Hours of Service are required to be credited
to an Employee on account of any single continuous period during which the Employee performs no
duties (whether or not such period occurs in a single computation period); (ii) an hour for which
an Employee is directly or indirectly paid, or entitled to payment, on account of a period during
which no duties are performed is not required to be credited to the Employee if such payment is
made or due under a plan maintained solely for the purpose of complying with applicable workers
compensation, or unemployment compensation or disability insurance laws; and (iii) Hours of
Service are not required to be credited for a payment which solely reimburses an Employee for
medical or medically related expenses incurred by the Employee.
For purposes of (2) above, a payment shall be deemed to be made by or due from the Employer
regardless of whether such payment is made by or due from the Employer directly, or indirectly
through, among others, a trust fund, or insurer, to which the Employer contributes or pays premiums
and regardless of whether contributions made or due to the trust fund, insurer, or other entity are
for the benefit of particular Employees or are on behalf of a group of Employees in the aggregate.
Notwithstanding the foregoing, for purposes of vesting hereunder, a Participant shall be
credited with Hours of Service on the basis of his payroll period in accordance with the
equivalencies set forth in Department of Labor regulation 2530.200b-3(e)(1), which is incorporated
herein by reference.
For purposes of this Section, Hours of Service will be credited for employment with other
Affiliated Employers. The provisions of Department of Labor regulations 2530.200b-2(b) and (c) are
incorporated herein by reference.
1.30 Income means the income or losses allocable to Excess Deferred Compensation, Excess
Contributions or Excess Aggregate Contributions which amount shall be allocated in the same manner
as income or losses are allocated pursuant to Section 4.4(f). With respect to Excess Contributions
or Excess Aggregate Contributions for Plan Years beginning January 1, 2006 and January 1, 2007 only
or Excess Deferred Compensation for the Plan Year beginning January 1,
9
2007 only, Income shall include the allocable gain or loss for the period between the end of
the Plan Year and the date of distribution or forfeiture (or a date that is no more than seven days
prior to the date of distribution or forfeiture).
1.31 Investment Manager means an entity that (a) has the power to manage, acquire, or
dispose of Plan assets and (b) acknowledges fiduciary responsibility to the Plan in writing. Such
entity must be a person, firm, or corporation registered as an investment adviser under the
Investment Advisers Act of 1940, a bank, or an insurance company.
1.32 Key Employee means an Employee or former Employee (including any deceased Employee) who
at any time during the Plan Year that includes the Determination Date was an officer of the
Employer having annual 415 Compensation greater than $130,000 (as adjusted under Code Section
416(i)(1)), a 5-percent owner of the Employer, or a 1-percent owner of the Employer having annual
compensation of more than $150,000. For this purpose, annual compensation means compensation
within the meaning of Code Section 415(c)(3). The determination of who is a Key Employee will be
made in accordance with Code Section 416(i)(1) and the applicable Regulations and other guidance of
general applicability issued thereunder.
1.33 Late Retirement Date means the first day of the month coinciding with or next following
a Participants actual Retirement Date after having reached Normal Retirement Date.
1.34 Leased Employee means any person (other than an Employee of the recipient Employer)
who, pursuant to an agreement between the recipient Employer and any other person or entity
(leasing organization), has performed services for the recipient (or for the recipient and
related persons determined in accordance with Code Section 414(n)(6)) on a substantially full time
basis for a period of at least one year, and such services are performed under primary direction or
control by the recipient Employer.
1.35 Non-Elective Contribution means the Employer contributions to the Plan excluding,
however, contributions made pursuant to the Participants deferral election provided for in Section
4.2 and any Qualified Non-Elective Contribution used in the Actual Deferral Percentage tests.
1.36 Non-Highly Compensated Participant means, for Plan Years beginning after December 31,
1996, any Participant who is not a Highly Compensated Employee. However, for purposes of Section
4.5(a) and Section 4.6, if the prior year testing method is used, a Non-Highly Compensated
Participant shall be determined using the definition of Highly Compensated Employee in effect for
the preceding Plan Year.
1.37 Non-Key Employee means any Employee or former Employee (and such Employees or former
Employees Beneficiaries) who is not, and has never been a Key Employee.
10
1.38 Normal Retirement Age means the Participants 60th birthday. A Participant shall become
fully Vested in the Participants Account upon attaining Normal Retirement Age.
1.39 Normal Retirement Date means the first day of the month coinciding with or next
following the Participants Normal Retirement Age.
1.40 1-Year Break in Service means the applicable computation period during which an
Employee has not completed more than 500 Hours of Service with the Employer. Further, solely for
the purpose of determining whether a Participant has incurred a 1-Year Break in Service, Hours of
Service shall be recognized for authorized leaves of absence and maternity and paternity leaves
of absence. Years of Service and 1-Year Breaks in Service shall be measured on the same
computation period.
Authorized leave of absence means an unpaid, temporary cessation from active employment with
the Employer pursuant to an established nondiscriminatory policy, whether occasioned by illness,
military service, or any other reason.
A maternity or paternity leave of absence means an absence from work for any period by
reason of the Employees pregnancy, birth of the Employees child, placement of a child with the
Employee in connection with the adoption of such child, or any absence for the purpose of caring
for such child for a period immediately following such birth or placement. For this purpose, Hours
of Service shall be credited for the computation period in which the absence from work begins, only
if credit therefore is necessary to prevent the Employee from incurring a 1-Year Break in Service,
or, in any other case, in the immediately following computation period. The Hours of Service
credited for a maternity or paternity leave of absence shall be those which would normally have
been credited but for such absence, or, in any case in which the Administrator is unable to
determine such hours normally credited, eight (8) Hours of Service per day. The total Hours of
Service required to be credited for a maternity or paternity leave of absence shall not exceed
the number of Hours of Service needed to prevent the Employee from incurring a 1-Year Break in
Service.
1.41 Participant means any Eligible Employee who participates in the Plan and has not for
any reason become ineligible to participate further in the Plan.
1.42 Participant Direction Procedures means such instructions, guidelines or policies, the
terms of which are incorporated herein, as shall be established pursuant to Section 4.12 and
observed by the Administrator and applied and provided to Participants who have Participant
Directed Accounts.
1.43 Participants Account means the account established and maintained by the Administrator
for each Participant with respect to such Participants total interest in the Plan and Trust
resulting from the Employer Non-Elective Contributions.
11
A separate accounting shall be maintained with respect to that portion of the Participants
Account attributable to Employer matching contributions made pursuant to Section 4.1(b), Employer
discretionary contributions made pursuant to Section 4.1(c) and any Employer Qualified
Non-Elective Contributions.
1.44 Participants Combined Account means the total aggregate amount of each Participants
Elective Account and Participants Account.
1.45 Participants Directed Account means that portion of a Participants interest in the
Plan with respect to which the Participant has directed the investment in accordance with the
Participant Direction Procedure.
1.46 Participants Elective Account means the account established and maintained by the
Administrator for each Participant with respect to the Participants total interest in the Plan and
Trust resulting from the Employer Elective Contributions used to satisfy the Actual Deferral
Percentage tests. A separate accounting shall be maintained with respect to that portion of the
Participants Elective Account attributable to such Elective Contributions pursuant to Section 4.2
and any Employer Qualified Non-Elective Contributions. A Participants Roth 401(k) Account will be
deemed to be a subaccount of the Participants Elective Account; provided, however, that,
notwithstanding any Plan provision to the contrary, the Participants Roth 401(k) Account will be
subject to separate accounting, and no contributions other than Roth 401(k) Contributions and
properly attributable earnings, losses and expenses will be allocated to each Participants Roth
401(k) Account.
1.47 Participants Transfer/Rollover Account means the account established and maintained by
the Administrator for each Participant with respect to the Participants total interest in the Plan
resulting from amounts transferred to this Plan from a direct plan-to-plan transfer and/or with
respect to such Participants interest in the Plan resulting from amounts transferred from another
qualified plan or conduit Individual Retirement Account in accordance with Section 4.11.
A separate accounting shall be maintained with respect to that portion of the Participants
Transfer/Rollover Account attributable to transfers (within the meaning of Code Section 414(l)) and
rollovers.
1.48 Plan means this instrument, including all amendments thereto.
1.49 Plan Year means the Plans accounting year of twelve (12) months commencing on January
1st of each year and ending the following December 31st, except for the first Plan Year which
commenced October 1st.
1.50 Qualified Non-Elective Contribution means any Employer contributions made pursuant to
Section 4.6(b) and Section 4.8(f). Such contributions shall be considered an Elective Contribution
for the
12
purposes of the Plan and used to satisfy the Actual Deferral Percentage tests or the Actual
Contribution Percentage tests.
1.51 Regulation means the Income Tax Regulations as promulgated by the Secretary of the
Treasury or a delegate of the Secretary of the Treasury, and as amended from time to time. Any
reference to Regulations under the Plan shall be deemed to include a reference to any successor to
such Regulations.
1.52 Retired Participant means a person who has been a Participant, but who has become
entitled to retirement benefits under the Plan.
1.53 Retirement Date means the date as of which a Participant retires for reasons other than
Total and Permanent Disability, whether such retirement occurs on a Participants Normal Retirement
Date or Late Retirement Date (see Section 6.1).
1.54 Roth 401(k) Account means the account established and maintained by the Administrator
for each Participant with respect to the Participants total interest in the Plan and Trust
resulting from Roth 401(k) Contributions. Contributions and withdrawals of Roth 401(k)
Contributions will be credited and debited to the Roth 401(k) Account maintained for each
Participant. No contributions other than Roth 401(k) Contributions and properly attributable
earnings, losses and expenses will be allocated to each Participants Roth 401(k) Account.
1.55 Roth 401(k) Contribution means a deferral election made pursuant to Section 4.2 of the
Plan that is:
(a) designated irrevocably by the Participant at the time of the election as a
Roth elective deferral that is being made in lieu of all or a portion of the pre-tax
elective deferrals the Participant is otherwise eligible to make under the Plan; and
(b) treated by the Employer as includible in the Participants income at the
time the Participant would have received that amount in cash if the Participant had
not made a cash or deferred election.
1.56 Terminated Participant means a person who has been a Participant, but whose employment
has been terminated other than by death, Total and Permanent Disability or retirement.
1.57 Top Heavy Plan means a plan described in Section 9.2(a).
1.58 Top Heavy Plan Year means a Plan Year during which the Plan is a Top Heavy Plan.
1.59 Top-Paid Group means the top 20 percent of Employees who performed services for the
Employer during the applicable year, ranked according to the amount of 415 Compensation received
from the Employer during such year. All Affiliated Employers shall be taken into account as a
single employer, and Leased Employees within the
13
meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered Employees unless such
Leased Employees are covered by a plan described in Code Section 414(n)(5) and are not covered in
any qualified plan maintained by the Employer. Employees who are nonresident aliens who received no
earned income (within the meaning of Code Section 911(d)(2)) from the Employer constituting United
States source income within the meaning of Code Section 861(a)(3) shall not be treated as
Employees. Furthermore, for the purpose of determining the number of active Employees in any year,
the following additional Employees shall also be excluded, however, such Employees shall still be
considered for the purpose of identifying the particular Employees in the Top-Paid Group:
(a) Employees with less than six (6) months of service;
(b) Employees who normally work less than 17
1
/
2
hours per week;
(c) Employees who normally work less than six (6) months during a year; and
(d) Employees who have not yet attained age twenty-one (21).
In addition, if 90 percent or more of the Employees of the Employer are covered under
agreements the Secretary of Labor finds to be collective bargaining agreements between Employee
representatives and the Employer, and the Plan covers only Employees who are not covered under such
agreements, then Employees covered by such agreements shall be excluded from both the total number
of active Employees as well as from the identification of particular Employees in the Top-Paid
Group.
The foregoing exclusions set forth in this Section shall be applied on a uniform and
consistent basis for all purposes for which the Code Section 414(q) definition is applicable.
1.60 Total and Permanent Disability means a physical or mental condition of a Participant
resulting from bodily injury, disease, or mental disorder which renders such Participant incapable
of continuing usual and customary employment with the Employer. The disability of a Participant
shall be determined by a licensed physician chosen by the Administrator. The determination shall be
applied uniformly to all Participants.
1.61 Trustee means the person or entity named as trustee herein or in any separate trust
forming a part of this Plan, and any successors.
1.62 Trust Fund means the assets of the Plan and Trust as the same shall exist from time to
time.
1.63 Valuation Date means the Anniversary Date and may include any other date or dates
deemed necessary or appropriate by the Administrator for the valuation of the Participants
accounts during
14
the Plan Year, which may include any day that the Trustee, any transfer agent appointed by the
Trustee or the Employer or any stock exchange used by such agent, are open for business.
1.64 Vested means the nonforfeitable portion of any account maintained on behalf of a
Participant.
1.65 Year of Service means the 12-month computation period set forth below during which an
Employee is credited with at least 1,000 Hours of Service.
For vesting purposes, the computation period is the fiscal period based upon which a
Participants Compensation for the Plan Year is determined for purposes of Section 1.8.
Notwithstanding the foregoing, for any short Plan Year, the determination of whether an
Employee has completed a Year of Service shall be made in accordance with Department of Labor
regulation 2530.203-2(c).
Years of Service with any Affiliated Employer shall be recognized.
Years of Service with LiveTV, LLC and its predecessors shall be recognized.
ARTICLE II
ADMINISTRATION
2.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) In addition to the general powers and responsibilities otherwise provided
for in this Plan, the Employer shall be empowered to appoint and remove the Trustee
and the Administrator from time to time as it deems necessary for the proper
administration of the Plan to ensure that the Plan is being operated for the
exclusive benefit of the Participants and their Beneficiaries in accordance with the
terms of the Plan, the Code, and the Act. The Employer may appoint counsel,
specialists, advisers, agents (including any nonfiduciary agent) and other persons
as the Employer deems necessary or desirable in connection with the exercise of its
fiduciary duties under this Plan. The Employer may compensate such agents or
advisers from the assets of the Plan as fiduciary expenses (but not including any
business (settlor) expenses of the Employer), to the extent not paid by the
Employer.
(b) The Employer may, by written agreement or designation, appoint at its
option an Investment Manager (qualified under the Investment Company Act of 1940 as
amended), investment adviser, or other agent to provide direction to the Trustee
with respect to any or all of the Plan assets. Such appointment shall be given by
the Employer in writing in a form acceptable to the Trustee and shall specifically
identify the Plan assets with respect to
15
which the Investment Manager or other agent shall have authority to direct the
investment.
(c) The Employer shall establish a funding policy and method, i.e., it shall
determine whether the Plan has a short run need for liquidity (e.g., to pay
benefits) or whether liquidity is a long run goal and investment growth (and
stability of same) is a more current need, or shall appoint a qualified person to do
so. The Employer or its delegate shall communicate such needs and goals to the
Trustee, who shall coordinate such Plan needs with its investment policy. The
communication of such a funding policy and method shall not, however, constitute a
directive to the Trustee as to the investment of the Trust Funds. Such funding
policy and method shall be consistent with the objectives of this Plan and with the
requirements of Title I of the Act.
(d) The Employer shall periodically review the performance of any Fiduciary or
other person to whom duties have been delegated or allocated by it under the
provisions of this Plan or pursuant to procedures established hereunder. This
requirement may be satisfied by formal periodic review by the Employer or by a
qualified person specifically designated by the Employer, through day-to-day conduct
and evaluation, or through other appropriate ways.
2.2 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall be the Administrator. The Employer may appoint any person, including, but
not limited to, the Employees of the Employer, to perform the duties of the Administrator. Any
person so appointed shall signify acceptance by filing written acceptance with the Employer. Upon
the resignation or removal of any individual performing the duties of the Administrator, the
Employer may designate a successor.
2.3 POWERS AND DUTIES OF THE ADMINISTRATOR
The primary responsibility of the Administrator is to administer the Plan for the exclusive
benefit of the Participants and their Beneficiaries, subject to the specific terms of the Plan. The
Administrator shall administer the Plan in accordance with its terms and shall have the power and
discretion to construe the terms of the Plan and to determine all questions arising in connection
with the administration, interpretation, and application of the Plan. Any such determination by the
Administrator shall be conclusive and binding upon all persons. The Administrator may establish
procedures, correct any defect, supply any information, or reconcile any inconsistency in such
manner and to such extent as shall be deemed necessary or advisable to carry out the purpose of the
Plan; provided, however, that any procedure, discretionary act, interpretation or construction
shall be done in a nondiscriminatory manner based upon uniform principles consistently applied and
shall be consistent with the intent that the Plan shall continue to be deemed a qualified plan
under the terms of Code Section 401(a), and shall comply with the
16
terms of the Act and all regulations issued pursuant thereto. The Administrator shall have all
powers necessary or appropriate to accomplish the Administrators duties under the Plan.
The Administrator shall be charged with the duties of the general administration of the Plan
as set forth under the terms of the Plan, including, but not limited to, the following:
(a) the discretion to determine all questions relating to the eligibility of
Employees to participate or remain a Participant hereunder and to receive benefits
under the Plan;
(b) to compute, certify, and direct the Trustee with respect to the amount and
the kind of benefits to which any Participant shall be entitled hereunder;
(c) to authorize and direct the Trustee with respect to all discretionary or
otherwise directed disbursements from the Trust;
(d) to maintain all necessary records for the administration of the Plan;
(e) to interpret the provisions of the Plan and to make and publish such rules
for regulation of the Plan as are consistent with the terms hereof;
(f) to determine the size and type of any Contract to be purchased from any
insurer, and to designate the insurer from which such Contract shall be purchased;
(g) to compute and certify to the Employer and to the Trustee from time to time
the sums of money necessary or desirable to be contributed to the Plan;
(h) to consult with the Employer and the Trustee regarding the short and
long-term liquidity needs of the Plan in order that the Trustee can exercise any
investment discretion in a manner designed to accomplish specific objectives;
(i) to prepare and implement a procedure to notify Eligible Employees that they
may elect to have a portion of their Compensation deferred or paid to them in cash;
(j) to act as the named Fiduciary responsible for communications with
Participants as needed to maintain Plan compliance with Act Section 404(c),
including, but not limited to, the receipt and transmitting of Participants
directions as to the investment of their account(s) under the Plan and the
formulation of policies, rules, and procedures pursuant to which Participants may
give investment instructions with respect to the investment of their accounts;
17
(k) to determine the validity of, and take appropriate action with respect to,
any qualified domestic relations order received by it; and
(l) to assist any Participant regarding the Participants rights, benefits, or
elections available under the Plan.
2.4 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and shall keep all other books of
account, records, policies, and other data that may be necessary for proper administration of the
Plan and shall be responsible for supplying all information and reports to the Internal Revenue
Service, Department of Labor, Participants, Beneficiaries and others as required by law.
2.5 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the Administrator, may appoint counsel,
specialists, advisers, agents (including nonfiduciary agents) and other persons as the
Administrator or the Trustee deems necessary or desirable in connection with the administration of
this Plan, including but not limited to agents and advisers to assist with the administration and
management of the Plan, and thereby to provide, among such other duties as the Administrator may
appoint, assistance with maintaining Plan records and the providing of investment information to
the Plans investment fiduciaries and to Plan Participants.
2.6 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust Fund unless paid by the Employer.
Such expenses shall include any expenses incident to the functioning of the Administrator, or any
person or persons retained or appointed by any Named Fiduciary incident to the exercise of their
duties under the Plan, including, but not limited to, fees of accountants, counsel, Investment
Managers, agents (including nonfiduciary agents) appointed for the purpose of assisting the
Administrator or the Trustee in carrying out the instructions of Participants as to the directed
investment of their accounts and other specialists and their agents, the costs of any bonds
required pursuant to Act Section 412, and other costs of administering the Plan. Until paid, the
expenses shall constitute a liability of the Trust Fund.
2.7 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed in writing with the Administrator. Written
notice of the disposition of a claim shall be furnished to the claimant within ninety (90) days
after the application is filed, or such period as is required by applicable law or Department of
Labor regulation. In the event the claim is denied, the reasons for the denial shall be
specifically set forth in the notice in language calculated to be understood by the claimant,
pertinent provisions of the Plan shall be cited, and, where
18
appropriate, an explanation as to how the claimant can perfect the claim will be provided. In
addition, the claimant shall be furnished with an explanation of the Plans claims review
procedure.
2.8 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of either, who has been denied a benefit by a
decision of the Administrator pursuant to Section 2.7 shall be afforded a reasonable opportunity
for a full and fair review of such decision under a claims review procedure established by the
Administrator. Such claims review procedure shall comply with the requirements of Department of
Labor regulation 2560.503-1, as amended from time to time.
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
An Eligible Employee shall be eligible to participate hereunder on the date of such Employees
employment with the Employer.
3.2 EFFECTIVE DATE OF PARTICIPATION
With respect to salary reduction elections pursuant to Section 4.2 and Employer matching
contributions pursuant to Section 4.1(b), an Eligible Employee shall become a Participant in the
Plan effective as of the later of (a) his date of employment with the Employer and (b) the first
day of the payroll period in which his deferral election becomes effective in accordance with the
rules established pursuant to Section 4.2(j).
With respect to Employer discretionary contributions pursuant to Section 4.1(c), an Eligible
Employee shall become a Participant effective as of the date on which such Employee satisfies the
eligibility requirements of Section 3.1.
If, prior to the effective date of participation, an Employee who has satisfied the
eligibility conditions set forth in Section 3.1 above and would otherwise have become a
Participant, shall go from an ineligible classification of Employee to that of an Eligible
Employee, such Employee shall enter into participation on the date such Employee becomes an
Eligible Employee or, if later, the date the Employee would otherwise have entered the Plan had the
Employee always been an Eligible Employee.
If, prior to the effective date of participation, an Employee who has satisfied the
eligibility conditions set forth in Section 3.1 and would otherwise become a Participant, shall go
from the classification of an Eligible Employee to an ineligible classification of Employees, such
Employee shall enter into participation on the date such Employee again becomes an Eligible
Employee, or, if later, the date the Employee would otherwise have entered into participation had
the Employee always been an Eligible Employee. However, if such Employee incurs a 1-Year Break in
Service,
19
eligibility will be determined under the Break in Service rules set forth in Section 3.7.
3.3 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each Employee for participation in the
Plan based upon information furnished by the Employer. Such determination shall be conclusive and
binding upon all persons, as long as the same is made pursuant to the Plan and the Act. Such
determination shall be subject to review pursuant to Section 2.8.
3.4 TERMINATION OF ELIGIBILITY
In the event a Participant shall go from a classification of an Eligible Employee to an
ineligible Employee, such Former Participant shall continue to vest in the Plan for each Year of
Service completed while a non-eligible Employee, until such time as the Participants Account is
forfeited or distributed pursuant to the terms of the Plan. Additionally, the Former Participants
interest in the Plan shall continue to share in the earnings of the Trust Fund.
3.5 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a Participant in the Plan is
erroneously omitted and discovery of such omission is not made until after a contribution by the
Employer for the year has been made and allocated, then the Employer shall make a subsequent
contribution, if necessary after the application of Section 4.4(c), so that the omitted Employee
receives a total amount which the Employee would have received (including both Employer
contributions and earnings thereon) had the Employee not been omitted. Such contribution shall be
made regardless of whether it is deductible in whole or in part in any taxable year under
applicable provisions of the Code.
3.6 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been included as a Participant in the
Plan is erroneously included and discovery of such inclusion is not made until after a contribution
for the year has been made and allocated, the Employer shall be entitled to recover the
contribution made with respect to the ineligible person provided the error is discovered within
twelve (12) months of the date on which it was made. Otherwise, the amount contributed with respect
to the ineligible person shall constitute a Forfeiture for the Plan Year in which the discovery is
made. Notwithstanding the foregoing, any Deferred Compensation made by an ineligible person shall
be distributed to the person (along with any earnings attributable to such Deferred Compensation).
3.7 REHIRED EMPLOYEES AND BREAKS IN SERVICE
(a) If any Participant becomes a Former Participant due to severance from
employment with the Employer and is re-employed by the Employer before a 1-Year
Break in
20
Service occurs, the Former Participant shall become a Participant as of the
re-employment date.
(b) If any Participant becomes a Former Participant due to severance from
employment with the Employer and is re-employed after a 1-Year Break in Service has
occurred, Years of Service shall include Years of Service prior to the 1-Year Break
in Service subject to the following rules:
(1) In the case of a Former Participant who under the Plan does not have a
nonforfeitable right to any interest in the Plan resulting from Employer
contributions (including, effective January 1, 2006, Elective
Contributions), Years of Service before a period of 1-Year Break in Service
will not be taken into account if the number of consecutive 1-Year Breaks in
Service equal or exceed the greater of (A) five (5) or (B) the aggregate
number of pre-break Years of Service. Such aggregate number of Years of
Service will not include any Years of Service disregarded under the
preceding sentence by reason of prior 1-Year Breaks in Service.
(2) A Former Participant shall participate in the Plan as of the date of
re-employment.
(c) After a Former Participant who has severed employment with the Employer
incurs five (5) consecutive 1-Year Breaks in Service, the Vested portion of said
Former Participants Account attributable to pre-break service shall not be
increased as a result of post-break service. In such case, separate accounts will be
maintained as follows:
(1) one account for nonforfeitable benefits attributable to pre-break
service; and
(2) one account representing the Participants Employer derived account
balance in the Plan attributable to post-break service.
(d) If any Participant becomes a Former Participant due to severance of
employment with the Employer and is re-employed by the Employer before five (5)
consecutive 1-Year Breaks in Service, and such Former Participant had received a
distribution of the entire Vested interest prior to re-employment, then the
forfeited account shall be reinstated only if the Former Participant repays the full
amount which had been distributed. Such repayment must be made before the earlier of
five (5) years after the first date on which the Participant is subsequently
re-employed by the Employer or the close of the first period of five (5) consecutive
1-Year Breaks in Service commencing after the distribution. If a distribution occurs
for any reason other than a severance of employment, the time for repayment may not
end earlier than five (5) years after the date of distribution.
21
In the event the Former Participant does repay the full amount distributed, the
undistributed forfeited portion of the Participants Account must be restored in
full, unadjusted by any gains or losses occurring subsequent to the Valuation Date
preceding the distribution. The source for such reinstatement may be Forfeitures
occurring during the Plan Year. If such source is insufficient, then the Employer
will contribute an amount which is sufficient to restore any such forfeited Accounts
provided, however, that if a discretionary contribution is made for such year
pursuant to Section 4.1(c), such contribution will first be applied to restore any
such Accounts and the remainder shall be allocated in accordance with Section 4.4.
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER CONTRIBUTION
For each Plan Year, the Employer shall contribute to the Plan:
(a) The amount of the total salary reduction elections of all Participants made
pursuant to Section 4.2(a), which amount shall be deemed an Employer Elective
Contribution.
(b) On behalf of a Participant who elects to defer Compensation in accordance
with Section 4.2(a) hereof, a matching contribution equal to 100% of such
Participants Deferred Compensation not in excess of 5% of his Compensation for the
Plan Year, which amount shall be deemed an Employer Non-Elective Contribution. For
purposes of the foregoing, the Employer shall accrue an incremental portion of the
matching contribution separately each pay period during the Year, and shall
contribute with respect to each pay period only the amount not in excess of 5% of
the Participants Compensation for the period. After the end of the Plan Year, the
Employer shall make a true-up contribution on behalf of each Participant, equal to
the excess of the matching contribution payable for the entire Plan Year, as
determined under the first sentence hereof, over the aggregate amount of the
periodic contributions previously made for the Year.
(c) A discretionary amount equal to at least 5% of the Participants
Compensation, which amount shall be deemed an Employer Non-Elective Contribution.
Notwithstanding any provision of the Plan to the contrary, effective as of
January 1, 2007, Employees employed by LiveTV, LLC are not eligible to receive an
allocation of any such discretionary Employer Non-Elective Contributions.
22
(d) Additionally, to the extent necessary, the Employer shall contribute to the
Plan the amount necessary to provide the top heavy minimum contribution.
All contributions by the Employer shall be made in cash or in such property as is acceptable to the
Trustee.
4.2 PARTICIPANTS SALARY REDUCTION ELECTION
(a) Each Participant may elect to defer, from the Compensation otherwise
payable to him during the Plan Year but for such election, an amount not exceeding
the limits otherwise set forth in this Plan. A deferral election (or modification of
an earlier election) may not be made with respect to Compensation that is currently
available on or before the date the Participant executes such election. For purposes
of this Section, Compensation shall be determined prior to any reductions made
pursuant to Code Sections 125, 132(f)(4), 402(e)(3), 402(h)(1)(B), 403(b) or 457(b),
and Employee contributions described in Code Section 414(h)(2) that are treated as
Employer contributions.
The amount by which Compensation is reduced shall be that Participants
Deferred Compensation and be treated as an Employer Elective Contribution and
allocated to that Participants Elective Account.
All employees who are eligible to make elective deferrals under this Plan and
who have or will have attained age 50 before the close of the Plan Year shall be
eligible to make catch-up contributions in accordance with and subject to the
limitations of Code Section 414(v). Such catch-up contributions shall not be taken
into account for purposes of the provisions of this Plan implementing the required
limitations of Code Sections 402(g) and 415. The Plan shall not be treated as
failing to satisfy its provisions implementing the requirements of Code Sections
401(k)(3), 401(k)(11), 401(k)(12), 410(b) or 416, as applicable, by reason of the
making of such catch-up contributions.
(b) The balance in each Participants Elective Account shall be fully Vested at
all times and, except as otherwise provided herein, shall not be subject to
Forfeiture for any reason.
(c) Notwithstanding anything in the Plan to the contrary, amounts held in the
Participants Elective Account may not be distributable (including any offset of
loans) earlier than:
(1) a Participants severance from employment, Total and Permanent
Disability, or death;
(2) a Participants attainment of age 59
1
/
2
;
23
(3) the termination of the Plan without the existence at the time of Plan
termination of another defined contribution plan or the establishment of a
successor defined contribution plan by the Employer or an Affiliated
Employer within the period ending twelve months after distribution of all
assets from the Plan maintained by the Employer. For this purpose, a defined
contribution plan does not include an employee stock ownership plan (as
defined in Code Section 4975(e)(7) or 409), a simplified employee pension
plan (as defined in Code Section 408(k)), or a simple individual retirement
account plan (as defined in Code Section 408(p));
(4) the date of disposition by the Employer to an entity that is not an
Affiliated Employer of substantially all of the assets (within the meaning
of Code Section 409(d)(2)) used in a trade or business of such corporation
if such corporation continues to maintain this Plan after the disposition
with respect to a Participant who continues employment with the corporation
acquiring such assets;
(5) the date of disposition by the Employer or an Affiliated Employer who
maintains the Plan of its interest in a subsidiary (within the meaning of
Code Section 409(d)(3)) to an entity which is not an Affiliated Employer
but only with respect to a Participant who continues employment with such
subsidiary; or
(6) the proven financial hardship of a Participant, subject to the
limitations of Section 6.11.
(d) For each Plan Year, a Participants Deferred Compensation made under this
Plan and all other plans, contracts or arrangements of the Employer maintaining this
Plan shall not exceed, during any taxable year of the Participant, the limitation
imposed by Code Section 402(g), as in effect at the beginning of such taxable year,
except to the extent permitted under Section 4.2(a) and Code Section 414(v). If
such dollar limitation is exceeded, a Participant will be deemed to have notified
the Administrator of such excess amount, which shall be distributed in a manner
consistent with Section 4.2(f). The foregoing dollar limitations shall be adjusted
annually pursuant to the method provided in the Code and Regulations.
(e) In the event a Participant has received a hardship distribution from the
Participants Elective Account pursuant to Section 6.11(b) or pursuant to Regulation
1.401(k)-1(d)(2)(iv)(B) from any other plan maintained by the Employer, then such
Participant shall not be permitted to elect to have Deferred Compensation
contributed to the Plan for a period of twelve (12) months
24
following the receipt of the distribution. Furthermore, the dollar limitation
under Code Section 402(g) shall be reduced, with respect to the Participants
taxable year following the taxable year in which the hardship distribution was made,
by the amount of such Participants Deferred Compensation, if any, pursuant to this
Plan (and any other plan maintained by the Employer) for the taxable year of the
hardship distribution.
(f) If a Participants Deferred Compensation under this Plan together with any
elective deferrals (as defined in Regulation 1.402(g)-1(b)) under another qualified
cash or deferred arrangement (as described in Code Section 401(k)), a simplified
employee pension (as described in Code Section 408(k)(6)), a simple individual
retirement account plan (as described in Code Section 408(p)), a salary reduction
arrangement (within the meaning of Code Section 3121(a)(5)(D)), a deferred
compensation plan under Code Section 457(b), or a trust described in Code Section
501(c)(18) cumulatively exceed the limitation imposed by Code Section 402(g) (as
adjusted annually in accordance with the method provided in Code Section 415(d)
pursuant to Regulations) for such Participants taxable year, the Participant may,
not later than March 1 following the close of the Participants taxable year,
notify the Administrator in writing of such excess and request that the
Participants Deferred Compensation under this Plan be reduced by an amount
specified by the Participant. In such event, the Administrator may direct the
Trustee to distribute such excess amount (and any Income allocable to such excess
amount) to the Participant not later than the first April 15th following the close
of the Participants taxable year. Any distribution of less than the entire amount
of Excess Deferred Compensation and Income shall be treated as a pro rata
distribution of Excess Deferred Compensation and Income. The amount distributed
shall not exceed the Participants Deferred Compensation under the Plan for the
taxable year (and any Income allocable to such excess amount). Any distribution on
or before the last day of the Participants taxable year must satisfy each of the
following conditions:
(1) the distribution must be made after the date on which the Plan received
the Excess Deferred Compensation;
(2) the Participant shall designate the distribution as Excess Deferred
Compensation; and
(3) the Plan must designate the distribution as a distribution of Excess
Deferred Compensation.
Any distribution made pursuant to this Section 4.2(f) shall be made first from
unmatched Deferred Compensation and, thereafter, from Deferred Compensation
25
which is matched. Matching contributions which relate to such Deferred
Compensation shall be forfeited.
To the extent a Participant who is to receive a distribution pursuant to this
Section 4.2(f) made both non-Roth Elective Deferrals and Roth 401(k) Contributions
to the Plan for the relevant Plan Year, such distribution, whether of unmatched
contributions or matched contributions, shall be distributed from the Participants
non-Roth Elective Account and Roth 401(k) Contribution Account on a pro-rata basis,
respectively.
(g) Notwithstanding Section 4.2(f) above, a Participants Excess Deferred
Compensation shall be reduced, but not below zero, by any distribution of Excess
Contributions pursuant to Section 4.6(a) for the Plan Year beginning with or within
the taxable year of the Participant.
(h) At Normal Retirement Date, or such other date when the Participant shall be
entitled to receive benefits, the fair market value of the Participants Elective
Account shall be used to provide additional benefits to the Participant or the
Participants Beneficiary.
(i) Employer Elective Contributions made pursuant to this Section may be
segregated into a separate account for each Participant in a federally insured
savings account, certificate of deposit in a bank or savings and loan association,
money market certificate, or other short-term debt security acceptable to the
Trustee until such time as the allocations pursuant to Section 4.4 have been made.
(j) The Employer and the Administrator shall implement the salary reduction
elections provided for herein in accordance with the following:
(1) An Eligible Employee may make an initial salary deferral election within a
reasonable time, not to exceed thirty (30) days, after first becoming eligible to
participate in the Plan pursuant to Section 3.2. If the Eligible Employee fails to
make an initial salary deferral election within such time, then such Eligible
Employee may thereafter make an election in accordance with the rules governing
modifications. Such election shall constitute a binding salary reduction agreement
between such Employee and the Employer and shall be filed with the Administrator.
Such election shall initially be effective beginning with the pay period during
which or next following the acceptance of the salary reduction agreement by the
Administrator, or as otherwise specified in rules established by the Administrator
hereunder. The election shall not have retroactive effect, and shall remain in force
until modified or revoked.
26
(2) A Participant may modify a prior election at any time during the Plan
Year and concurrently make a new election by filing such new election with
the Administrator. A modification shall not have retroactive effect, and
shall remain in force until further modified or revoked.
(3) A Participant may elect to prospectively revoke his salary reduction
agreement in its entirety at any time during the Plan Year by providing the
Administrator with such advance notice as may be acceptable to the
Administrator. Such revocation shall become effective in accordance with the
rules established by the Administrator hereunder. Furthermore, the
termination of the Participants employment or the cessation of his
participation for any other reason shall be deemed to revoke any salary
reduction agreement then in effect, effective immediately following the
close of the pay period within which such termination or cessation occurs.
(4) The Administrator shall have authority to establish reasonable
procedures governing the making of elections hereunder. These procedures
shall determine the payroll period with respect to which elections shall
become effective, with the aim of giving effect to elections promptly and
without undue delay after being made and accepted, while at the same time
taking into account the reasonable requirements of the Employers payroll,
plan recordkeeping and other information systems.
4.3 TIME OF PAYMENT OF EMPLOYER CONTRIBUTION
The Employer shall make all contribution to the Plan within the applicable time limits
prescribed by law. Subject to the preceding requirement and any other provision set forth in this
Plan, the Employer may make its contributions to the Plan for a particular Plan Year at such time
or times as the Employer, in its sole discretion, may determine.
4.4 ALLOCATION OF CONTRIBUTION AND EARNINGS
(a) The Administrator shall establish and maintain an account in the name of
each Participant to which the Administrator shall credit as of each Anniversary
Date, or other Valuation Date, all amounts allocated to each such Participant as set
forth herein.
(b) The Employer shall provide the Administrator with all information required
by the Administrator to make a proper allocation of the Employer contributions for
each Plan Year. Within a reasonable period of time after the date of receipt by the
Administrator of such information,
27
the Administrator shall allocate such contribution as follows:
(1) With respect to the Employer Elective Contribution made pursuant to
Section 4.1(a), to each Participants Elective Account in an amount equal to
each such Participants Deferred Compensation for the year.
(2) With respect to the Employer Non-Elective Contribution (matching
contribution) made pursuant to Section 4.1(b), to each Participants
Account in accordance with Section 4.1(b).
Any Participant actively employed at any time during the Plan Year shall be
eligible to share in the matching contribution for the Plan Year.
(3) With respect to the Employer Non-Elective Contribution (discretionary
contribution) made pursuant to Section 4.1(c), to each Participants
Account in the same proportion that each such Participants Compensation for
the year bears to the total Compensation of all Participants for such year.
Only Participants who are actively employed on the last day of the Plan Year
shall be eligible to share in the discretionary contribution for the year.
An Employee who is on an approved leave of absence as of the last day of the
Plan Year, including an unpaid leave of absence, shall be deemed to be
actively employed for purposes of the foregoing requirement unless the
Employer has determined that such Employee is not reasonably expected to
return to employment at the expiration of such leave.
Notwithstanding anything herein to the contrary, the discretionary
contribution shall not be made to any participant whose job classification
is a manager or above.
(c) On or before each Anniversary Date any amounts which became Forfeitures
since the last Anniversary Date may be made available to reinstate previously
forfeited account balances of Former Participants, if any, in accordance with
Section 3.7(d), be used to satisfy any contribution that may be required pursuant to
Sections 3.5 and 6.9, or be used to pay any administrative expenses of the Plan.
The remaining Forfeitures, if any, shall be used to reduce the Employers
contributions hereunder for the Plan Year in which such Forfeitures occur.
(d) For any Top Heavy Plan Year, Employees not otherwise eligible to share in
the allocation of contributions as provided above, shall receive the minimum
28
allocation provided for in Section 4.4(g) if eligible pursuant to the
provisions of Section 4.4(i).
(e) Notwithstanding the final sentence of Section 4.4(b)(3) above, however, (1)
a Participant who is no longer actively employed on the last day of the Plan Year on
account of death or Total and Permanent Disability during the Year shall be entitled
to share in the discretionary contribution for the Year and (2) a Participant who is
no longer actively employed on the last day of the Plan Year on account of his
retirement during the Year at or after Normal Retirement Age shall be entitled to
share in the discretionary contribution provided that a period of at least 12
consecutive months shall have elapsed between his initial date of hire and his
retirement date.
(f) As of each Valuation Date, before the current valuation period allocation
of Employer contributions, any earnings or losses (net appreciation or net
depreciation) of the Trust Fund shall be allocated in the same proportion that each
Participants and Former Participants nonsegregated accounts bear to the total of
all Participants and Former Participants nonsegregated accounts as of such date.
Earnings or losses with respect to a Participants Directed Account shall be
allocated in accordance with Section 4.12.
Participants transfers from other qualified plans deposited in the general
Trust Fund shall share in any earnings and losses (net appreciation or depreciation)
of the Trust Fund in the same manner provided above. Each segregated account
maintained on behalf of a Participant shall be credited or charged with its separate
earnings and losses.
(g) Minimum Allocations Required for Top Heavy Plan Years: Notwithstanding the
foregoing, for any Top Heavy Plan Year, the sum of the Employer contributions
allocated to the Participants Combined Account of each Employee shall be equal to
at least three percent (3%) of such Employees 415 Compensation (reduced by
contributions and forfeitures, if any, allocated to each Employee in any defined
contribution plan included with this Plan in a Required Aggregation Group). However,
if (1) the sum of the Employer contributions allocated to the Participants
Combined Account of each Key Employee for such Top Heavy Plan Year is less than
three percent (3%) of each Key Employees 415 Compensation and (2) this Plan is
not required to be included in an Aggregation Group to enable a defined benefit plan
to meet the requirements of Code Section 401(a)(4) or 410, the sum of the Employer
contributions allocated to the Participants Combined Account of each Employee shall
be equal to the largest percentage allocated to the Participants Combined Account
of any Key Employee. Employer matching contributions shall
29
be taken into account for purposes of satisfying the minimum contribution
requirements of Code Section 416(c)(2) and of this Section 4.4(g). The preceding
sentence shall apply with respect to matching contributions under the Plan or, if
the Plan provides that the minimum contribution requirement shall be met in another
plan, such other plan. Employer matching contributions that are used to satisfy the
minimum contribution requirements shall be treated as matching contributions for
purposes of the actual contribution percentage test and other requirements of Code
Section 401(m). However, in determining whether a Non-Key Employee has received the
required minimum allocation, such Non-Key Employees Deferred Compensation needed to
satisfy the Actual Contribution Percentage tests pursuant to Section 4.7(a), if
any, shall not be taken into account.
No such minimum allocation shall be required in this Plan for any Employee who
participates in another defined contribution plan subject to Code Section 412
included with this Plan in a Required Aggregation Group.
(h) For purposes of the minimum allocations set forth above, the percentage
allocated to the Participants Combined Account of any Key Employee shall be equal
to the ratio of the sum of the Employer contributions allocated on behalf of such
Key Employee divided by the 415 Compensation for such Key Employee.
(i) For any Top Heavy Plan Year, the minimum allocations set forth above shall
be allocated to the Participants Combined Account of all Employees who are
Participants and who are employed by the Employer on the last day of the Plan Year,
including Employees who have (1) failed to complete a Year of Service; and (2)
declined to make mandatory contributions (if required) or, in the case of a cash or
deferred arrangement, elective contributions to the Plan.
(j) For the purposes of this Section, 415 Compensation in excess of $200,000
(or such other amount provided in the Code) shall be disregarded. Such amount shall
be adjusted for increases in the cost of living in accordance with Code Section
401(a)(17)(B), except that the dollar increase in effect on January 1 of any
calendar year shall be effective for the Plan Year beginning with or within such
calendar year. If 415 Compensation for any prior determination period is taken
into account in determining a Participants minimum benefit for the current Plan
Year, the 415 Compensation for such determination period is subject to the
applicable annual 415 Compensation limit in effect for that prior period. For any
short Plan Year the 415 Compensation limit shall be an amount equal to the 415
Compensation limit for the calendar year in which the Plan Year begins multiplied
by the ratio obtained by dividing the number of full months in the short Plan Year
by twelve (12).
30
(k) Notwithstanding anything herein to the contrary, Participants who
terminated employment for any reason during the Plan Year shall share in the salary
reduction contributions made by the Employer for the year of termination without
regard to the Hours of Service credited.
(l) Notwithstanding anything in this Section to the contrary, all information
necessary to properly reflect a given transaction may not be available until after
the date specified herein for processing such transaction, in which case the
transaction will be reflected when such information is received and processed.
Subject to express limits that may be imposed under the Code, the processing of any
contribution, distribution or other transaction may be delayed for any legitimate
business reason (including, but not limited to, failure of systems or computer
programs, failure of the means of the transmission of data, force majeure, the
failure of a service provider to timely receive values or prices, and the correction
for errors or omissions or the errors or omissions of any service provider). The
processing date of a transaction will be binding for all purposes of the Plan.
(m) Notwithstanding anything to the contrary, if this is a Plan that would
otherwise fail to meet the requirements of Code Section 410(b)(1) and the
Regulations thereunder because Employer contributions would not be allocated to a
sufficient number or percentage of Participants for a Plan Year, then the following
rules shall apply:
(1) The group of Participants eligible to share in the Employers
contribution for the Plan Year shall be expanded to include the minimum
number of Participants who would not otherwise be eligible as are necessary
to satisfy the applicable test specified above. The specific Participants
who shall become eligible under the terms of this paragraph shall be those
who have not separated from service prior to the last day of the Plan Year
and have completed the greatest number of Hours of Service in the Plan Year.
(2) If after application of paragraph (1) above, the applicable test is
still not satisfied, then the group of Participants eligible to share in the
Employers contribution for the Plan Year shall be further expanded to
include the minimum number of Participants who have separated from service
prior to the last day of the Plan Year as are necessary to satisfy the
applicable test. The specific Participants who shall become eligible to
share shall be those Participants who have completed the greatest number of
Hours of Service in the Plan Year before terminating employment.
31
(3) Nothing in this Section shall permit the reduction of a Participants
accrued benefit. Therefore any amounts that have previously been allocated
to Participants may not be reallocated to satisfy these requirements. In
such event, the Employer shall make an additional contribution equal to the
amount such affected Participants would have received had they been included
in the allocations, even if it exceeds the amount which would be deductible
under Code Section 404. Any adjustment to the allocations pursuant to this
paragraph shall be considered a retroactive amendment adopted by the last
day of the Plan Year.
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS
(a) Maximum Annual Allocation: The annual allocation derived from Employer
Elective Contributions to a Highly Compensated Participants Elective Account shall
satisfy one of the following tests:
(1) The Actual Deferral Percentage for the Highly Compensated Participant
group shall not be more than the Actual Deferral Percentage of the
Non-Highly Compensated Participant group multiplied by 1.25, or
(2) The excess of the Actual Deferral Percentage for the Highly
Compensated Participant group over the Actual Deferral Percentage for the
Non-Highly Compensated Participant group shall not be more than two
percentage points. Additionally, the Actual Deferral Percentage for the
Highly Compensated Participant group shall not exceed the Actual Deferral
Percentage for the Non-Highly Compensated Participant group multiplied by
2. The provisions of Code Section 401(k)(3) and the applicable regulations
under Regulation 1.401(k) are incorporated herein by reference.
(b) For the purposes of this Section Actual Deferral Percentage means, with
respect to the Highly Compensated Participant group and Non-Highly Compensated
Participant group for a Plan Year, the average of the ratios, calculated separately
for each Participant in such group, of the amount of Employer Elective Contributions
allocated to each Participants Elective Account for such Plan Year, to such
Participants 414(s) Compensation for such Plan Year. The actual deferral ratio
for each Participant and the Actual Deferral Percentage for each group shall be
calculated to the nearest one-hundredth of one percent. Employer Elective
Contributions allocated to each Non-Highly Compensated Participants Elective
Account shall be reduced by Excess Deferred Compensation to the extent such excess
amounts are made under this Plan or any other plan maintained by the Employer.
32
(c) For the purposes of Sections 4.5(a) and 4.6, a Highly Compensated
Participant and a Non-Highly Compensated Participant shall include any Employee
eligible to make a deferral election pursuant to Section 4.2, whether or not such
deferral election was made or suspended pursuant to Section 4.2.
(d) In the event this Plan satisfies the requirements of Code Sections
401(a)(4), 401(k), or 410(b) only if aggregated with one or more other plans, or if
one or more other plans satisfy the requirements of such sections of the Code only
if aggregated with this Plan, then this Section shall be applied by determining the
ADP of Employees as if all such plans were a single plan. Plans may be aggregated in
order to satisfy Code Section 401(k) only if they have the same Plan Year and use
the same ADP testing method.
(e) The ADP for any Participant who is a Highly Compensated Employee for the
Plan Year and who is eligible to have Elective Contributions (and Qualified
Nonelective Contributions or Qualified Matching Contributions, or both, if treated
as Elective Contributions for purposes of the ADP test) allocated to such
Participants accounts under two (2) or more arrangements described in Code Section
401(k), that are maintained by the Employer, shall be determined as if such Elective
Contributions (and, if applicable, such Qualified Nonelective Contributions or
Qualified Matching Contributions, or both) were made under a single arrangement for
purposes of determining such Highly Compensated Employees actual deferral ratio. If
a Highly Compensated Employee participates in two or more arrangements described in
Code Section 401(k) of the Employer that have different plan years, all Elective
Contributions made during the Plan Year under all such arrangements shall be
aggregated. For Plan Years beginning before 2006, if the plans have different Plan
Years, then all such arrangements ending with or within the same calendar year shall
be treated as a single arrangement. Notwithstanding the foregoing, certain plans
shall be treated as separate if mandatorily disaggregated under Regulations under
Code Section 401(k).
(f) Notwithstanding anything in this Section to the contrary, the provisions of
this Section and Section 4.6 may be applied separately (or will be applied
separately to the extent required by Regulations) to each plan within the meaning
of Regulation Section 1.401(k)-6. Furthermore, the provisions of Code Section
401(k)(3)(F) may be used to exclude from consideration all Non-Highly Compensated
employees who have not satisfied the minimum age and service requirements of Code
Section 410(a)(1)(A). For purposes of applying this provision, the Administrator may
use any effective date of participation that is permitted
33
under Code Section 410(b) provided such date is applied on a consistent and
uniform basis to all Participants.
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS
In the event (or if it is anticipated) that the initial allocations of the Employer Elective
Contributions made pursuant to Section 4.4 do (or might) not satisfy one of the tests set forth in
Section 4.5(a), the Administrator shall adjust Excess Contributions pursuant to the options set
forth below:
(a) On or before the fifteenth day of the third month following the end of each
Plan Year, but in no event later than the close of the following Plan Year, the
Highly Compensated Participant having the largest dollar amount of Elective
Contributions shall have a portion of such Participants Elective Contributions
distributed until the total amount of Excess Contributions has been distributed, or
until the amount of such Participants Elective Contributions equals the Elective
Contributions of the Highly Compensated Participant having the second largest dollar
amount of Elective Contributions. This process shall continue until the total amount
of Excess Contributions has been distributed. In determining the amount of Excess
Contributions to be distributed with respect to an affected Highly Compensated
Participant as determined herein, such amount shall be reduced pursuant to Section
4.2(f) by any Excess Deferred Compensation previously distributed to such affected
Highly Compensated Participant for such Participants taxable year ending with or
within such Plan Year. However, any Highly Compensated Participant who is eligible
to make Catch-Up Contributions pursuant to Section 4.2(a) shall have any amount that
would have otherwise been distributed pursuant to this Section recharacterized as a
Catch-Up Contribution (up to the maximum catch-up dollar limitation).
(1) With respect to the distribution of Excess Contributions pursuant to
(a) above, such distribution:
(i) may be postponed but not later than the close of the Plan Year
following the Plan Year to which they are allocable;
(ii) shall be adjusted for Income; and
(iii) shall be designated by the Employer as a distribution of Excess
Contributions (and Income).
(2) Any distribution of less than the entire amount of Excess Contributions
shall be treated as a pro rata distribution of Excess Contributions and
Income. To the extent a Participant who is to receive a distribution of
Excess Contributions made both non-
34
Roth Elective Deferrals and Roth 401(k) Contributions to the Plan for the
relevant Plan Year, such distribution shall be distributed from the
Participants non-Roth Elective Account and Roth 401(k) Contribution Account
on a pro-rata basis.
(3) Matching contributions which relate to Excess Contributions shall be
forfeited unless the related matching contribution is distributed as an
Excess Aggregate Contribution pursuant to Section 4.8.
(b) Notwithstanding the above, within twelve (12) months after the end of the
Plan Year, the Employer may make a special Qualified Non-Elective Contribution in
accordance with one of the following provisions which contribution shall be
allocated to the Participants Elective Account of each Non-Highly Compensated
Participant eligible to share in the allocation in accordance with such provision.
The Employer shall provide the Administrator with written notification of the amount
of the contribution being made and for which provision it is being made pursuant to:
(1) A Qualified Non-Elective Contribution may be made on behalf of
Non-Highly Compensated Participants in an amount sufficient to satisfy (or
to prevent an anticipated failure of) one of the tests set forth in
Section 4.5(a). Such contribution shall be allocated in the same proportion
that each Non-Highly Compensated Participants 414(s) Compensated for the
year bears to the total 414(s) Compensation of all Non-Highly Compensated
Participants for such year.
(2) A Qualified Non-Elective Contribution may be made on behalf of
Non-Highly Compensated Participants in an amount sufficient to satisfy (or
to prevent an anticipated failure of) one of the tests set forth in
Section 4.5(a). Such contribution shall be allocated in the same proportion
that each Non-Highly Compensated Participant electing salary reductions
pursuant to Section 4.2 in the same proportion that each such Non-Highly
Compensated Participants Deferred Compensation for the year bears to the
total Deferred Compensation of all such Non-Highly Compensated Participants
for such year.
(3) A Qualified Non-Elective Contribution may be made on behalf of
Non-Highly Compensated Participants in an amount sufficient to satisfy (or
to prevent an anticipated failure of) one of the tests set forth in
Section 4.5(a). Such contribution shall be allocated in equal amounts (per
capita).
(4) A Qualified Non-Elective Contribution may be made on behalf of
Non-Highly Compensated Participants electing salary reductions pursuant to
Section 4.2 in
35
an amount sufficient to satisfy (or to prevent an anticipated failure of)
one of the tests set forth in Section 4.5(a). Such contribution shall be
allocated for the year to each Non-Highly Compensated Participant electing
salary reductions pursuant to Section 4.2 in equal amounts (per capita).
(5) A Qualified Non-Elective Contribution may be made on behalf of
Non-Highly Compensated Participants in an amount sufficient to satisfy (or
to prevent an anticipated failure of) one of the tests set forth in
Section 4.5(a). Such contribution shall be allocated to the Non-Highly
Compensated Participant having the lowest 414(s) Compensation, until one of
the tests set forth in Section 4.5(a) is satisfied (or is anticipated to be
satisfied), or, effective for Plan Years beginning January 1, 2006, until
such Non-Highly Compensated Participant has received the lesser of the
maximum annual addition pursuant to Section 4.9. or the maximum that may
be taken into account in the tests set forth in Section 4.5(a) under
Regulation Section 1.401(k)-2(a)(6).
Notwithstanding the above, at the Employers discretion, Non-Highly Compensated
Participants who are not employed at the end of the Plan Year shall not be eligible
to receive a special Qualified Non-Elective Contribution and shall be disregarded.
(c) If during a Plan Year, it is projected that the aggregate amount of
Elective Contributions to be allocated to all Highly Compensated Participants under
this Plan would cause the Plan to fail the tests set forth in Section 4.5(a), then
the Administrator may automatically reduce the deferral amount of affected Highly
Compensated Participants, beginning with the Highly Compensated Participant who has
the highest deferral ratio until it is anticipated the Plan will pass the tests or
until the actual deferral ratio equals the actual deferral ratio of the Highly
Compensated Participant having the next highest actual deferral ratio. This process
may continue until it is anticipated that the Plan will satisfy one of the tests set
forth in Section 4.5(a). Alternatively, the Employer may specify a maximum
percentage of Compensation that may be deferred.
4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) The Actual Contribution Percentage for the Highly Compensated Participant
group shall not exceed the greater of:
(1) 125 percent of such percentage for the Non-Highly Compensated
Participant group; or
36
(2) the lesser of 200 percent of such percentage for the Non-Highly
Compensated Participant group, or such percentage for the Non-Highly
Compensated Participant group plus 2 percentage points. The provisions of
Code Section 401(m) and the applicable regulations under Regulations
1.401(m) are incorporated herein by reference.
(b) For the purposes of this Section and Section 4.8, Actual Contribution
Percentage for a Plan Year means, with respect to the Highly Compensated
Participant group and Non-Highly Compensated Participant group, the average of the
ratios (calculated separately for each Participant in each group and rounded to the
nearest one-hundredth of one percent) of:
(1) the sum of Employer matching contributions made pursuant to Section
4.1(b) on behalf of each such Participant for such Plan Year; to
(2) the Participants 414(s) Compensation for such Plan Year.
(c) For purposes of determining the Actual Contribution Percentage, only
Employer matching contributions contributed to the Plan prior to the end of the
succeeding Plan Year shall be considered. In addition, the Administrator may elect
to take into account, with respect to Employees eligible to have Employer matching
contributions pursuant to Section 4.1(b) allocated to their accounts, elective
deferrals (as defined in Regulation 1.402(g)-1(b)) and qualified nonelective
contributions (as defined in Code Section 401(m)(4)(C)) contributed to any plan
maintained by the Employer. Such elective deferrals and qualified nonelective
contributions shall be treated as Employer matching contributions subject to
Regulation 1.401(m)-1(b)(5) which is incorporated herein by reference. However, the
Plan Year must be the same as the plan year of the plan to which the elective
deferrals and the qualified nonelective contributions are made.
(d) In the event that this Plan satisfies the requirements of Code Sections
401(a)(4), 401(m), or 410(b) only if aggregated with one or more other plans, or if
one or more other plans satisfy the requirements of such sections of the Code only
if aggregated with this Plan, then this Section shall be applied by determining the
ACP of Employees as if all such plans were a single plan. Plans may be aggregated in
order to satisfy Code Section 401(m) only if they have the same Plan Year and use
the same ACP testing method.
Notwithstanding the above, an employee stock ownership plan described in Code
Section 4975(e)(7) or 409 may not be aggregated with this Plan for purposes of
determining whether the employee stock ownership plan or
37
this Plan satisfies this Section and Code Sections 401(a)(4), 410(b) and
401(m).
(e) For the purposes of this Section, if a Highly Compensated Participant is a
Participant under two (2) or more plans (other than an employee stock ownership plan
as defined in Code Section 4975(e)(7)) which are maintained by the Employer or an
Affiliated Employer to which matching contributions, nondeductible voluntary
Employee contributions, or both, are made, all such contributions on behalf of such
Highly Compensated Participant shall be aggregated for purposes of determining such
Highly Compensated Participants actual contribution ratio. However, if the plans
have different plan years, then for purposes of Plan Years beginning prior to
January 1, 2006, this paragraph shall be applied by treating all plans ending with
or within the same calendar year as a single plan. Notwithstanding the foregoing,
certain plans shall be treated as separate if mandatorily disaggregated under
Regulations under Code Section 401(m).
(f) For purposes of Sections 4.7(a) and 4.8, a Highly Compensated Participant
and Non-Highly Compensated Participant shall include any Employee eligible to have
Employer matching contributions (whether or not a deferral election was made or
suspended) allocated to the Participants account for the Plan Year.
(h) Notwithstanding anything in this Section to the contrary, the provisions of
this Section and Section 4.8 may be applied separately (or will be applied
separately to the extent required by Regulations) to each plan within the meaning of
Regulation 1.401(m)-5. The provisions of Code Section 401(m)(5)(C) may be used to
exclude from consideration all Nonhighly Compensated Employees who have not
satisfied the minimum age and service requirements of Code Section 410(a)(1)(A).
4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) In the event (or if it is anticipated) that the Actual Contribution
Percentage for the Highly Compensated Participant group exceeds (or might exceed)
the Actual Contribution Percentage for the Non-Highly Compensated Participant
group pursuant to Section 4.7(a), the Administrator (on or before the fifteenth day
of the third month following the end of the Plan Year, but in no event later than
the close of the following Plan Year) shall direct the Trustee to distribute to the
Highly Compensated Participant having the largest dollar amount of contributions
determined pursuant to Section 4.7(b)(1), the Vested portion of such contributions
(and Income allocable to such contributions) and, if forfeitable, forfeit such
non-Vested contributions attributable to Employer matching contributions (and Income
allocable to such forfeitures) until the total amount of Excess
38
Aggregate Contributions has been distributed, or until the Participants
remaining amount equals the amount of contributions determined pursuant to Section
4.7(b)(1) of the Highly Compensated Participant having the second largest dollar
amount of contributions. This process shall continue until the total amount of
Excess Aggregate Contributions has been distributed.
If the correction of Excess Aggregate Contributions attributable to Employer
matching contributions is not in proportion to the Vested and non-Vested portion of
such contributions, then the Vested portion of the Participants Account
attributable to Employer matching contributions after the correction shall be
subject to Section 6.5(g).
(b) Any distribution and/or forfeiture of less than the entire amount of Excess
Aggregate Contributions (and Income) shall be treated as a pro rata distribution
and/or forfeiture of Excess Aggregate Contributions and Income. Distribution of
Excess Aggregate Contributions shall be designated by the Employer as a distribution
of Excess Aggregate Contributions (and Income). Forfeitures of Excess Aggregate
Contributions shall be treated in accordance with Section 4.4.
(c) Excess Aggregate Contributions, including forfeited matching contributions,
shall be treated as Employer contributions for purposes of Code Sections 404 and 415
even if distributed from the Plan.
Forfeited matching contributions that are reallocated to Participants Accounts
for the Plan Year in which the forfeiture occurs shall be treated as an annual
addition pursuant to Section 4.9(b) for the Participants to whose Accounts they
are reallocated and for the Participants from whose Accounts they are forfeited.
(d) The determination of the amount of Excess Aggregate Contributions with
respect to any Plan Year shall be made after first determining the Excess
Contributions, if any, to be treated as after-tax voluntary Employee contributions
due to recharacterization for the plan year of any other qualified cash or deferred
arrangement (as defined in Code Section 401(k)) maintained by the Employer that ends
with or within the Plan Year or which are treated as after-tax voluntary Employee
contributions due to recharacterization pursuant to Section 4.6(a).
(e) If during a Plan Year the projected aggregate amount of Employer matching
contributions to be allocated to all Highly Compensated Participants under this Plan
would, by virtue of the tests set forth in Section 4.7(a), cause the Plan to fail
such tests, then the Administrator may automatically reduce proportionately or in
the order provided in Section 4.8(a) each affected Highly
39
Compensated Participants projected share of such contributions by an amount
necessary to satisfy one of the tests set forth in Section 4.7(a).
(f) Notwithstanding the above, within twelve (12) months after the end of the
Plan Year, the Employer may make a Qualified Non-Elective Contribution in accordance
with one of the following provisions which contribution shall be allocated to the
Participants Account of each Non-Highly Compensated eligible to share in the
allocation in accordance with such provision. The Employer shall provide the
Administrator with written notification of the amount of the contribution being made
and for which provision it is being made pursuant to:
(1) A Qualified Non-Elective Contribution may be made on behalf of
Non-Highly Compensated Participants in an amount sufficient to satisfy (or
to prevent an anticipated failure of) one of the tests set forth in Section
4.7. Such contribution shall be allocated in the same proportion that each
Non-Highly Compensated Participants 414(s) Compensation for the year (or
prior year if the prior year testing method is being used) bears to the
total 414(s) Compensation of all Non-Highly Compensated Participants for
such year.
(2) A Qualified Non-Elective Contribution may be made on behalf of
Non-Highly Compensated Participants in an amount sufficient to satisfy (or
to prevent an anticipated failure of) one of the tests set forth in Section
4.7. Such contribution shall be allocated in the same proportion that each
Non-Highly Compensated Participant electing salary reductions pursuant to
Section 4.2 in the same proportion that each such Non-Highly Compensated
Participants Deferred Compensation for the year (or at the end of the prior
Plan Year if the prior year testing method is being used) bears to the total
Deferred Compensation of all such Non-Highly Compensated Participants for
such year.
(3) A Qualified Non-Elective Contribution may be made on behalf of
Non-Highly Compensated Participants in an amount sufficient to satisfy (or
to prevent an anticipated failure of) one of the tests set forth in Section
4.7
.
Such contribution shall be allocated in equal amounts (per capita).
(4) A Qualified Non-Elective Contribution may be made on behalf of
Non-Highly Compensated Participants electing salary reductions pursuant to
Section 4.2 in an amount sufficient to satisfy (or to prevent an
anticipated failure of) one of the tests set forth in Section 4.5(a). Such
contribution shall be allocated for the year (or at the end of the prior
Plan Year if the prior year testing method is used) to each Non-
40
Highly Compensated Participant electing salary reductions pursuant to
Section 4.2 in equal amounts (per capita).
(5) A Qualified Non-Elective Contribution may be made on behalf of
Non-Highly Compensated Participants in an amount sufficient to satisfy (or
to prevent an anticipated failure of) one of the tests set forth in
Section 4.7. Such contribution shall be allocated to the Non-Highly
Compensated Participant having the lowest 414(s) Compensation, until one of
the tests set forth in Section 4.7 is satisfied (or is anticipated to be
satisfied), effective for Plan Years beginning January 1, 2006, until such
Non-Highly Compensated Participant has received the lesser of the maximum
annual addition pursuant to Section 4.9. or the maximum that may be taken
into account in the tests set forth in Section 4.5(a) under Regulation
Section 1.401(m)-2(a)(6).
Notwithstanding the above, at the Employers discretion, Non-Highly Compensated
Participants who are not employed at the end of the Plan Year (or at the end of the
prior Plan Year if the prior year testing method is being used) shall not be
eligible to receive a special Qualified Non-Elective Contribution and shall be
disregarded.
4.9 MAXIMUM ANNUAL ADDITIONS
(a) Notwithstanding the foregoing, the maximum annual additions that may be
contributed or allocated to a Participants accounts for any limitation year shall
equal the lesser of: (1) $49,000, adjusted for increases in the cost of living as
provided in Code Section 415(d) and pursuant to the Regulations, and (2) one hundred
percent (100%) of the Participants 415 Compensation for such limitation year.
If the Employer contribution that would otherwise be contributed or allocated to the
Participants accounts would cause the annual additions for the limitation year
to exceed the maximum annual additions, the amount contributed or allocated will
be reduced so that the annual additions for the limitation year will equal the
maximum annual additions, and any amount in excess of the maximum annual
additions, which would have been allocated to such Participant may be allocated to
other Participants. For any short limitation year, the dollar limitation in (1)
above shall be reduced by a fraction, the numerator of which is the number of full
months in the short limitation year and the denominator of which is twelve (12).
(b) For purposes of applying the limitations of Code Section 415, annual
additions means the sum credited to a Participants accounts for any limitation
year of (1) Employer contributions, (2) Employee contributions, (3) forfeitures,
(4) amounts allocated to an individual
41
medical account, as defined in Code Section 415(l)(2), that is part of a
pension or annuity plan maintained by the Employer, and (5) amounts derived from
contributions attributable to post-retirement medical benefits allocated to the
separate account of a key employee (as defined in Code Section 419A(d)(3)) under a
welfare benefit plan (as defined in Code Section 419(e)) maintained by the
Employer. Except, however, the 415 Compensation percentage limitation referred to
in paragraph (a)(2) above shall not apply to any contribution for medical benefits
(within the meaning of Code Section 401(h) or 419A(f)(2)) after separation from
service which is otherwise treated as an annual addition. Notwithstanding any
provision of the Plan to the contrary, annual additions shall be determined
consistent with Code Section 415 and the Regulations promulgated thereunder.
(c) For purposes of applying the limitations of Code Section 415, the transfer
of funds from one qualified plan to another is not an annual addition. In
addition, the following are not Employee contributions for the purposes of Section
4.9(b)(2): (1) rollover contributions (as defined in Code Sections 402(e)(6),
403(a)(4), 403(b)(8) and 408(d)(3)); (2) repayments of loans made to a Participant
from the Plan; (3) repayments of distributions received by an Employee pursuant to
Code Section 411(a)(7)(B) (cashouts); (4) repayments of distributions received by
an Employee pursuant to Code Section 411(a)(3)(D) (mandatory contributions); and
(5) Employee contributions to a simplified employee pension excludable from gross
income under Code Section 408(k)(6).
Annual additions for purposes of Code Section 415 shall not include
restorative payments. A restorative payment is a payment made to restore losses to a
Plan resulting from actions by a fiduciary for which there is reasonable risk of
liability for breach of a fiduciary duty under ERISA or under other applicable
federal or state law, where Participants who are similarly situated are treated
similarly with respect to the payments. Generally, payments are restorative payments
only if the payments are made in order to restore some or all of the Plans losses
due to an action (or a failure to act) that creates a reasonable risk of liability
for such a breach of fiduciary duty (other than a breach of fiduciary duty arising
from failure to remit contributions to the Plan). This includes payments to the Plan
made pursuant to a Department of Labor order, the Department of Labors Voluntary
Fiduciary Correction Program, or a court-approved settlement, to restore losses to
the Plan on account of the breach of fiduciary duty (other than a breach of
fiduciary duty arising from failure to remit contributions to the Plan). Payments
made to the Plan to make up for losses due merely to market fluctuations and other
payments that are not made on account of a reasonable risk of liability for breach
of a fiduciary duty under ERISA are not restorative payments and
42
generally constitute contributions that are considered annual additions.
(d) For purposes of applying the limitations of Code Section 415, the
limitation year shall be the Plan Year.
(e) For the purpose of this Section, all qualified defined contribution plans
(whether terminated or not) ever maintained by the Employer shall be treated as one
defined contribution plan. Notwithstanding any provision of the Plan to the
contrary, the Employer shall aggregate all defined contribution plans in accordance
with the requirements set forth in Section 1.415(f)-1 of the Regulations.
(f) For the purpose of this Section, if the Employer is a member of a
controlled group of corporations, trades or businesses under common control (as
defined by Code Section 1563(a) or Code Section 414(b) and (c) as modified by Code
Section 415(h)), is a member of an affiliated service group (as defined by Code
Section 414(m)), or is a member of a group of entities required to be aggregated
pursuant to Regulations under Code Section 414(o), all Employees of such Employers
shall be considered to be employed by a single Employer.
(g) For the purpose of this Section, if this Plan is a Code Section 413(c)
plan, each Employer who maintains this Plan will be considered to be a separate
Employer.
(h)(1) If a Participant participates in more than one defined contribution plan
maintained by the Employer which have different Anniversary Dates, the maximum
annual additions under this Plan shall equal the maximum annual additions for
the limitation year minus any annual additions previously credited to such
Participants accounts during the limitation year.
(2) If a Participant participates in both a defined contribution plan
subject to Code Section 412 and a defined contribution plan not subject to
Code Section 412 maintained by the Employer which have the same Anniversary
Date, annual additions will be credited to the Participants accounts
under the defined contribution plan subject to Code Section 412 prior to
crediting annual additions to the Participants accounts under the defined
contribution plan not subject to Code Section 412.
(3) If a Participant participates in more than one defined contribution plan
not subject to Code Section 412 maintained by the Employer which have the
same Anniversary Date, the maximum annual additions under this Plan shall
equal the product of (A) the maximum annual additions for the limitation
year minus any annual additions previously credited under
43
subparagraphs (1) or (2) above, multiplied by (B) a fraction (i) the
numerator of which is the annual additions which would be credited to such
Participants accounts under this Plan without regard to the limitations of
Code Section 415 and (ii) the denominator of which is such annual
additions for all plans described in this subparagraph.
(i) Notwithstanding anything contained in this Section to the contrary, the
limitations, adjustments and other requirements prescribed in this Section shall at
all times comply with the provisions of Code Section 415 and the Regulations
thereunder.
4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If, as a result of a reasonable error in estimating a Participants
Compensation, a reasonable error in determining the amount of elective deferrals
(within the meaning of Code Section 402(g)(3)) that may be made with respect to any
Participant under the limits of Section 4.9 or other facts and circumstances to
which Regulation 1.415-6(b)(6) shall be applicable, the annual additions under
this Plan would cause the maximum annual additions to be exceeded for any
Participant, the excess amount will be disposed of in the following manner:
(1) The Participants share of the Employers discretionary contributions
pursuant to Section 4.1(c) will be reduced to the extent necessary to reduce
the excess amount. The amount so reduced shall be held unallocated in a
Section 415 suspense account and will thereafter be applied to reduce
future Employer contributions in the succeeding limitation years as
provided in Regulation 1.415-6(b)(6)(i).
(2) If, after the application of subparagraph (1) above, an excess amount
still exists, any unmatched Deferred Compensation of the Participant will be
reduced to the extent necessary to reduce the excess amount. The Deferred
Compensation so reduced (and any gains attributable to such Deferred
Compensation) will be distributed to the Participant. To the extent a
Participant who is to receive a distribution under this subparagraph made
both non-Roth Elective Deferrals and Roth 401(k) Contributions to the Plan
for the relevant Plan Year, such distribution shall be distributed from the
Participants unmatched non-Roth Elective Account and unmatched Roth 401(k)
Contribution Account on a pro-rata basis.
(3) If, after the application of subparagraph (2) above, an excess amount
still exists, any Deferred Compensation which is matched and the matching
contributions which relate to such Deferred
44
Compensation will be reduced proportionately to the extent necessary to
reduce the excess amount. The Deferred Compensation so reduced (and any
gains attributable to such Deferred Compensation) will be distributed to the
Participant, and the Employer matching contributions so reduced (and any
gains attributable to such matching contributions) will be used to reduce
the Employer contribution in the next limitation year. To the extent a
Participant who is to receive a distribution under this subparagraph made
both non-Roth Elective Deferrals and Roth 401(k) Contributions to the Plan
for the relevant Plan Year, such distribution shall be distributed from the
Participants non-Roth Elective Account and Roth 401(k) Contribution Account
on a pro-rata basis.
(b) For purposes of this Article, excess amount for any Participant for a
limitation year shall mean the excess, if any, of (1) the annual additions
which would be credited to the Participants account under the terms of the Plan
without regard to the limitations of Code Section 415 over (2) the maximum annual
additions determined pursuant to Section 4.9.
(c) For purposes of this Section, Section 415 suspense account shall mean an
unallocated account equal to the sum of excess amounts for all Participants in the
Plan during the limitation year.
(d) Effective January 1, 2008, notwithstanding anything herein to the contrary,
any annual additions that are determined to be excess under this Section shall
only be corrected as permissible under applicable guidance, including the Employee
Plans Compliance Resolution System that is issued by the Internal Revenue Service.
4.11 ROLLOVERS AND PLAN-TO-PLAN TRANSFERS FROM QUALIFIED PLANS
(a) With the consent of the Administrator, amounts may be transferred (within
the meaning of Code Section 414(l)) to this Plan from other tax qualified plans
under Code Section 401(a) by Participants, provided the trust from which such funds
are transferred permits the transfer to be made and the transfer will not jeopardize
the tax exempt status of the Plan or Trust or create adverse tax consequences for
the Employer. Prior to accepting any transfers to which this Section applies, the
Administrator may require written assurances that the amounts to be transferred meet
the requirements of this Section. The amounts transferred shall be set up in a
separate account herein referred to as a Participants Transfer/Rollover Account.
The portion of the Participants Transfer/Rollover Account attributable to any
transfer shall be fully Vested at all times and shall not be subject to Forfeiture
for any reason, except as otherwise provided
45
in the conditions governing such transfer or in an amendment to the Plan
relating thereto.
Except as permitted by Regulations (including Regulation 1.411(d)-4), amounts
attributable to elective contributions (as defined in Regulation 1.401(k)-1(g)(3)),
including amounts treated as elective contributions, which are transferred from
another qualified plan in a plan-to-plan transfer (other than a direct rollover)
shall be subject to the distribution limitations provided for in Regulation
1.401(k)-1(d).
(b) With the consent of the Administrator, the Plan may accept a rollover by
Participants, as specified below, provided the rollover will not jeopardize the tax
exempt status of the Plan or create adverse tax consequences for the Employer. Prior
to accepting any rollover to which this Section applies, the Administrator may
require the Employee to furnish written assurances that the amounts to be rolled
over to this Plan meet the requirements of this Section. The amounts rolled over
shall be set up in a the Participants Transfer/Rollover Account and shall be fully
Vested at all times and not subject to Forfeiture for any reason.
(1) Direct Rollovers. The Plan will accept a direct rollover of an eligible
rollover distribution from: (a) a qualified plan described in Code Section
401(a) or 403(a), excluding after-tax employee contributions; (b) an annuity
contract described in Code Section 403(b), excluding after-tax employee
contributions; and (c) an eligible plan under Code Section 457(b) which is
maintained by a state, political subdivision of a state, or any agency or
instrumentality of a state or political subdivision of a state, except to
the extent that such distribution consists of amounts attributable to
after-tax employee contributions.
(2) Participant Rollover Contributions from Other Plans. The Plan will
accept a participant contribution of an eligible rollover distribution from:
(a) a qualified plan described in Code Section 401(a) or 403(a), excluding
after-tax employee contributions; (b) an annuity contract described in Code
Section 403(b), excluding after-tax employee contributions; (c) an eligible
plan under Code Section 457(b), which is maintained by a state, political
subdivision of a state, or any agency or instrumentality of a state or
political subdivision of a state, except to the extent that such
distribution consists of amounts attributable to after-tax employee
contributions.
(3) Participant Rollover Contributions from IRAs. The Plan will accept a
participant rollover contribution of the portion of a distribution from an
46
individual retirement account or annuity described in Code Section 408(a) or
408(b) that is eligible to be rolled over and would otherwise be includible
in gross income of the distributee.
(4) Rollover Contributions of After-Tax Employee Contributions Not Accepted.
Notwithstanding anything to the contrary herein, the Plan will not accept a
rollover contribution or any portion of a rollover contribution that
consists of amounts attributable to after-tax employee contributions that
would otherwise (but for the making of such rollover contribution) be
excludible from the gross income of the distributee.
(c) Amounts in a Participants Transfer/Rollover Account shall be held by the
Trustee pursuant to the provisions of this Plan and may not be withdrawn by, or
distributed to the Participant, in whole or in part, except as provided in paragraph
(d) of this Section. The Trustee shall have no duty or responsibility to inquire as
to the propriety of the amount, value or type of assets transferred, nor to conduct
any due diligence with respect to such assets; provided, however, that such assets
are otherwise eligible to be held by the Trustee under the terms of this Plan.
(d) The Administrator, at the election of the Participant, shall direct the
Trustee to distribute all or a portion of the amount credited to the Participants
Transfer/Rollover Account. Any distributions of amounts held in a Participants
Transfer/Rollover Account shall be made in a manner which is consistent with and
satisfies the provisions of Section 6.5, including, but not limited to, all notice
and consent requirements of Code Section 411(a)(11) and the Regulations thereunder.
Such amounts (including the earnings thereon) shall be disregarded in determining
whether an involuntary cashout of benefits may be made without Participant consent.
(e) The Administrator may direct that Employee transfers and rollovers made
after a Valuation Date be segregated into a separate account for each Participant
until such time as the allocations pursuant to this Plan have been made, at which
time they may remain segregated or be invested as part of the general Trust Fund or
be directed by the Participant pursuant to Section 4.12.
(f) This Plan shall not accept any direct or indirect transfers (as that term
is defined and interpreted under Code Section 401(a)(11) and the Regulations
thereunder) from a defined benefit plan, money purchase plan (including a target
benefit plan), stock bonus or profit sharing plan which would otherwise have
provided for a life annuity form of payment to the Participant.
47
(g) Notwithstanding anything herein to the contrary, a transfer directly to
this Plan from another qualified plan (or a transaction having the effect of such a
transfer) shall be permitted only if it will not result in the elimination or
reduction of any Section 411(d)(6) protected benefit as described in Section
8.1.
4.12 DIRECTED INVESTMENT ACCOUNT
(a) Participants may, subject to a procedure established by the Administrator
(the Participant Direction Procedures) and applied in a uniform nondiscriminatory
manner, direct the Trustee, in writing (or in such other form which is acceptable to
the Trustee), to invest all of their accounts in specific assets, specific funds or
other investments permitted under the Plan and the Participant Direction Procedures.
That portion of the interest of any Participant so directing will thereupon be
considered a Participants Directed Account.
(b) As of each Valuation Date, all Participant Directed Accounts shall be
charged or credited with the net earnings, gains, losses and expenses as well as any
appreciation or depreciation in the market value using publicly listed fair market
values when available or appropriate as follows:
(1) to the extent that the assets in a Participants Directed Account are
accounted for as pooled assets or investments, the allocation of earnings,
gains and losses of each Participants Directed Account shall be based upon
the total amount of funds so invested in a manner proportionate to the
Participants share of such pooled investment; and
(2) to the extent that the assets in the Participants Directed Account are
accounted for as segregated assets, the allocation of earnings, gains and
losses from such assets shall be made on a separate and distinct basis.
(c) Investment directions will be processed as soon as administratively
practicable after proper investment directions are received from the Participant. No
guarantee is made by the Plan, Employer, Administrator or Trustee that investment
directions will be processed on a daily basis, and no guarantee is made in any
respect regarding the processing time of an investment direction. Notwithstanding
any other provision of the Plan, the Employer, Administrator or Trustee reserves the
right to not value an investment option on any given Valuation Date for any reason
deemed appropriate by the Employer, Administrator or Trustee. Furthermore, the
processing of any investment transaction may be delayed for any legitimate business
reason (including, but not limited to, failure of systems or computer programs,
failure of the
48
means of the transmission of data, force majeure, the failure of a service
provider to timely receive values or prices, and correction for errors or omissions
or the errors or omissions of any service provider). The processing date of a
transaction will be binding for all purposes of the Plan and considered the
applicable Valuation Date for an investment transaction.
(d) The Participant Direction Procedures shall provide an explanation of the
circumstances under which Participants and their Beneficiaries may give investment
instructions, including, but need not be limited to, the following:
(1) the conveyance of instructions by the Participants and their
Beneficiaries to invest Participant Directed Accounts in Directed Investment
Options;
(2) the name, address and phone number of the Fiduciary (and, if applicable,
the person or persons designated by the Fiduciary to act on its behalf)
responsible for providing information to the Participant or a Beneficiary
upon request relating to the Directed Investment Options;
(3) applicable restrictions on transfers to and from any Designated
Investment Alternative;
(4) any restrictions on the exercise of voting, tender and similar rights
related to a Directed Investment Option by the Participants or their
Beneficiaries;
(5) a description of any transaction fees and expenses which affect the
balances in Participant Directed Accounts in connection with the purchase or
sale of Directed Investment Options; and
(6) general procedures for the dissemination of investment and other
information relating to the Designated Investment Alternatives as deemed
necessary or appropriate, including but not limited to a description of the
following:
(i) the investment vehicles available under the Plan, including
specific information regarding any Designated Investment Alternative;
(ii) any designated Investment Managers; and
(iii) a description of the additional information which may be
obtained upon request from the Fiduciary designated to provide such
information.
49
(e) With respect to any Employer stock which is allocated to a Participants
Directed Investment Account, the Participant or Beneficiary shall direct the Trustee
with regard to any voting, tender and similar rights associated with the ownership
of Employer stock, (hereinafter referred to as the Stock Rights) as follows:
(1) each Participant or Beneficiary shall direct the Trustee to vote or
otherwise exercise such Stock Rights in accordance with the provisions,
conditions and terms of any such Stock Rights;
(2) such directions shall be provided to the Trustee by the Participant or
Beneficiary in accordance with the procedure as established by the
Administrator and the Trustee shall vote or otherwise exercise such Stock
Rights with respect to which it has received directions to do so under this
Section; and
(3) to the extent to which a Participant or Beneficiary does not instruct
the Trustee to vote or otherwise exercise such Stock Rights, such
Participants or Beneficiaries shall be deemed to have directed the Trustee
that such Stock Rights remain nonvoted and unexercised.
(f) Any information regarding investments available under the Plan, to the
extent not required to be described in the Participant Direction Procedures, may be
provided to the Participant in one or more written documents (or in any other form
including, but not limited to, electronic media) which are separate from the
Participant Direction Procedures and are not thereby incorporated by reference into
this Plan.
(g) The Administrator may, in its discretion, include in or exclude by
amendment or other action from the Participant Direction Procedures such
instructions, guidelines or policies as it deems necessary or appropriate to ensure
proper administration of the Plan, and may interpret the same accordingly.
4.13 QUALIFIED MILITARY SERVICE
Notwithstanding any provision of this Plan to the contrary, effective December 12, 1994,
contributions, benefits and service will be provided in accordance with Code Section 414(u).
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each Valuation Date, to determine the net
worth of the assets comprising the Trust Fund as it exists on the Valuation Date. In determining
such
50
net worth, the Trustee shall value the assets comprising the Trust Fund at their fair market
value (or their contractual value in the case of a Contract or Policy) as of the Valuation Date and
shall deduct all expenses for which the Trustee has not yet obtained reimbursement from the
Employer or the Trust Fund. The Trustee may update the value of any shares held in the Participant
Directed Account by reference to the number of shares held by that Participant, priced at the
market value as of the Valuation Date.
5.2 METHOD OF VALUATION
In determining the fair market value of securities held in the Trust Fund which are listed on
a registered stock exchange, the Administrator shall direct the Trustee to value the same at the
prices they were last traded on such exchange preceding the close of business on the Valuation
Date. If such securities were not traded on the Valuation Date, or if the exchange on which they
are traded was not open for business on the Valuation Date, then the securities shall be valued at
the prices at which they were last traded prior to the Valuation Date. Any unlisted security held
in the Trust Fund shall be valued at its bid price next preceding the close of business on the
Valuation Date, which bid price shall be obtained from a registered broker or an investment banker.
In determining the fair market value of assets other than securities for which trading or bid
prices can be obtained, the Trustee may appraise such assets itself, or in its discretion, employ
one or more appraisers for that purpose and rely on the values established by such appraiser or
appraisers.
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate employment with the Employer and retire for the purposes
hereof on the Participants Normal Retirement Date. However, a Participant may postpone the
termination of employment with the Employer to a later date, in which event the participation of
such Participant in the Plan, including the right to receive allocations pursuant to Section 4.4,
shall continue until such Participants Late Retirement Date. Upon a Participants Retirement Date
or attainment of Normal Retirement Date without termination of employment with the Employer, or as
soon thereafter as is practicable, the Trustee shall distribute, at the election of the
Participant, all amounts credited to such Participants Combined Account in accordance with
Section 6.5.
6.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before the Participants Retirement Date or
other termination of employment, all amounts credited to such Participants Combined
Account shall become fully Vested. The Administrator shall direct the Trustee, in
accordance with the provisions of Sections 6.6 and 6.7, to distribute the value of
the deceased Participants accounts to the Participants Beneficiary. Effective
January 1, 2007, a
51
Participant who dies while performing qualified military service (as defined
under section 414(u) of the Code) shall be treated as if he had resumed employment
as of the date of his death and then incurred a termination of employment. As a
consequence, such Participant shall become fully (100%) vested as of the date of
such deemed termination of employment.
(b) Upon the death of a Former Participant, the Administrator shall direct the
Trustee, in accordance with the provisions of Sections 6.6 and 6.7, to distribute
any remaining Vested amounts credited to the accounts of a deceased Former
Participant to such Former Participants Beneficiary.
(c) Any security interest held by the Plan by reason of an outstanding loan to
the Participant or Former Participant shall be taken into account in determining the
amount of the death benefit.
(d) The Administrator may require such proper proof of death and such evidence
of the right of any person to receive payment of the value of the account of a
deceased Participant or Former Participant as the Administrator may deem desirable.
The Administrators determination of death and of the right of any person to receive
payment shall be conclusive.
(e) The Beneficiary of the death benefit payable pursuant to this Section shall
be the Participants spouse. Except, however, the Participant may designate a
Beneficiary other than the spouse if:
(1) the spouse has waived the right to be the Participants Beneficiary, or
(2) the Participant is legally separated or has been abandoned (within the
meaning of local law) and the Participant has a court order to such effect
(and there is no qualified domestic relations order as defined in Code
Section 414(p) which provides otherwise), or
(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a Beneficiary shall be made on a form
satisfactory to the Administrator. A Participant may at any time change or revoke a
designation of a Beneficiary by filing written notice of such change or revocation
with the Administrator. However, the Participants spouse must again consent in
writing (or in such other form as permitted by the Internal Revenue Service) to any
change in Beneficiary unless the original consent acknowledged that the spouse had
the right to limit
52
consent only to a specific Beneficiary and that the spouse voluntarily elected
to relinquish such right.
(f) In the event no valid designation of Beneficiary exists, or if the
Beneficiary is not alive at the time of the Participants death, the death benefit
will be paid to the Participants estate. If the Beneficiary does not predecease the
Participant, but dies prior to distribution of the death benefit, the death benefit
will be paid to the Beneficiarys estate.
(g) Notwithstanding anything in this Section to the contrary, if a Participant
has designated the spouse as a Beneficiary, then a divorce decree or a legal
separation that relates to such spouse shall revoke the Participants designation of
the spouse as a Beneficiary unless the decree or a qualified domestic relations
order (within the meaning of Code Section 414(p)) provides otherwise.
(h) Any consent by the Participants spouse to waive any rights to the death
benefit must be in writing (or in such other form as permitted by the Internal
Revenue Service), must acknowledge the effect of such waiver, and be witnessed by a
Plan representative or a notary public. Further, the spouses consent must be
irrevocable and must acknowledge the specific nonspouse Beneficiary.
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participants Total and Permanent
Disability prior to the Participants Retirement Date or other termination of employment, all
amounts credited to such Participants Combined Account shall become fully Vested. In the event of
a Participants Total and Permanent Disability, the Administrator, in accordance with the
provisions of Sections 6.5 and 6.7, shall direct the distribution to such Participant of all
Vested amounts credited to such Participants Combined Account.
6.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) If a Participants employment with the Employer is terminated for any
reason other than death, Total and Permanent Disability or retirement, then such
Participant shall be entitled to such benefits as are provided hereinafter pursuant
to this Section 6.4.
Distribution of the funds due to a Terminated Participant shall be made on the
occurrence of an event which would result in the distribution had the Terminated
Participant remained in the employ of the Employer (upon the Participants death,
Total and Permanent Disability or Normal Retirement). However, at the election of
the Participant, the Administrator shall direct the Trustee that the entire Vested
portion of the Terminated Participants Combined Account be payable to such
53
Terminated Participant. Any distribution under this paragraph shall be made in
a manner which is consistent with and satisfies the provisions of Section 6.5,
including, but not limited to, all notice and consent requirements of Code Section
411(a)(11) and the Regulations thereunder.
If the value of a Terminated Participants Vested benefit derived from Employer
and Employee contributions does not exceed $5,000, the Administrator shall direct
the Trustee to cause the entire Vested benefit to be paid immediately to such
Participant in a single lump sum. For purposes of this provision and the provisions
of Section 6.5(b), the value of a Participants Vested benefit shall be determined
without regard to that portion of his Account that is attributable to rollover
contributions (and earnings allocable thereto) as defined in Code Section
411(a)(11)(D).
(b) Effective January 1, 2007, a Participant shall become fully Vested in the
Participants Account attributable to Employer discretionary contributions made
pursuant to Section 4.1(c) upon his completion of three (3) Years of Service.
(c) The Vested portion of any Participants Account attributable to Employer
matching contributions made pursuant to Section 4.1(b) shall be a percentage of the
total of such amount credited to the Participants Account determined on the basis
of the Participants number of Years of Service according to the following schedule:
Vesting Schedule
|
|
|
Years of Service
|
|
Percentage
|
1
|
|
20%
|
2
|
|
40%
|
3
|
|
60%
|
4
|
|
80%
|
5
|
|
100%
|
(d) Notwithstanding the vesting schedule above, the Vested percentage of a
Participants Account shall not be less than the Vested percentage attained as of
the later of the effective date or adoption date of this amendment and restatement.
(e) Notwithstanding the vesting schedule above, upon the complete
discontinuance of the Employer contributions to the Plan or upon any full or partial
termination of the Plan, all amounts then credited to the account of any affected
Participant shall become 100% Vested and shall not thereafter be subject to
Forfeiture.
54
(f) The computation of a Participants nonforfeitable percentage of such
Participants interest in the Plan shall not be reduced as the result of any direct
or indirect amendment to this Plan. In the event that the Plan is amended to change
or modify any vesting schedule, or if the Plan is amended in any way that directly
or indirectly affects the computation of the Participants nonforfeitable
percentage, or if the Plan is deemed amended by an automatic change to a top heavy
vesting schedule, then each Participant with at least three (3) Years of Service as
of the expiration date of the election period may elect to have such Participants
nonforfeitable percentage computed under the Plan without regard to such amendment
or change. If a Participant fails to make such election, then such Participant shall
be subject to the new vesting schedule. The Participants election period shall
commence on the adoption date of the amendment and shall end sixty (60) days after
the latest of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
(3) the date the Participant receives written notice of the amendment from
the Employer or Administrator.
6.5 DISTRIBUTION OF BENEFITS
(a) The Administrator, pursuant to the election of the Participant, shall
direct the Trustee to distribute to a Participant or such Participants Beneficiary
any amount to which the Participant is entitled under the Plan in one lump-sum
payment in cash.
(b) Any distribution to a Participant who has a Vested benefit that exceeds
$5,000 shall require such Participants written (or in such other form as permitted
by the Internal Revenue Service) consent if such distribution occurs prior to the
time the benefit is immediately distributable. A benefit is immediately
distributable if any part of the benefit could be distributed to the Participant
(or surviving spouse) before the Participant attains (or would have attained if not
deceased) the later of the Participants Normal Retirement Age or age 62.
(c) The following rules will apply to the consent requirements set forth in
subsection (b):
(1) The Participant must be informed of the right to defer receipt of the
distribution. If a Participant fails to consent, it shall be deemed an
election to defer the distribution of any benefit. However, any election to
defer the receipt of benefits shall not apply with respect to distributions
which are required under Section 6.5(d).
55
(2) Notice of the rights specified under this paragraph shall be provided no
less than thirty (30) days and no more than ninety (90) days before the date
the distribution commences.
(3) Written (or such other form as permitted by the Internal Revenue
Service) consent of the Participant to the distribution must not be made
before the Participant receives the notice and must not be made more than
ninety (90) days before the date the distribution commences.
(4) No consent shall be valid if a significant detriment is imposed under
the Plan on any Participant who does not consent to the distribution.
Any such distribution may commence less than thirty (30) days after the notice
required under Regulation 1.411(a)-11(c) is given, provided that: (1) the
Administrator clearly informs the Participant that the Participant has a right to a
period of at least thirty (30) days after receiving the notice to consider the
decision of whether or not to elect a distribution (and, if applicable, a particular
distribution option), and (2) the Participant, after receiving the notice,
affirmatively elects a distribution.
(d) Notwithstanding any provision in the Plan to the contrary, the distribution
of a Participants benefits made on or after January 1, 1997, shall be made in
accordance with the following requirements and shall otherwise comply with Code
Section 401(a)(9) and the Regulations thereunder (including Regulation
1.401(a)(9)-2), the provisions of which are incorporated herein by reference:
(1) A Participants benefits shall be distributed or must begin to be
distributed not later than April 1st of the calendar year following the
later of (i) the calendar year in which the Participant attains age 70
1
/
2
or
(ii) the calendar year in which the Participant retires, provided, however,
that this clause (ii) shall not apply in the case of a Participant who is a
five (5) percent owner at any time during the Plan Year ending with or
within the calendar year in which such owner attains age 70
1
/
2
. Such
distributions shall be equal to or greater than any required distribution.
(2) Distributions to a Participant and the Participants Beneficiaries shall
only be made in accordance with the incidental death benefit requirements of
Code Section 401(a)(9)(G) and the Regulations thereunder.
(e) For purposes of this Section, the life expectancy of a Participant and a
Participants spouse may, at the
56
election of the Participant or the Participants spouse, be redetermined in
accordance with Regulations. The election, once made, shall be irrevocable. If no
election is made by the time distributions must commence, then the life expectancy
of the Participant and the Participants spouse shall not be subject to
recalculation. Life expectancy and joint and last survivor expectancy shall be
computed using the return multiples in Tables V and VI of Regulation 1.72-9.
(f) All annuity Contracts under this Plan shall be nontransferable when
distributed. Furthermore, the terms of any annuity Contract purchased and
distributed to a Participant or spouse shall comply with all of the requirements of
the Plan.
(g) If a distribution is made to a Participant who has not severed employment
and who is not fully Vested in the Participants Account and the Participant may
increase the Vested percentage in such account, then, at any relevant time the
Participants Vested portion of the account will be equal to an amount (X)
determined by the formula:
X equals P (AB plus D) D
where P is the Vested percentage at the relevant time, AB is the account balance
at the relevant time, and D
is the amount of the distribution.
6.6 DISTRIBUTION OF BENEFITS UPON DEATH
(a) The death benefit payable pursuant to Section 6.2 shall be paid to the
Participants Beneficiary in one lump-sum payment in cash subject to the rules of
Section 6.6(b).
(b) Notwithstanding any provision in the Plan to the contrary, distributions
upon the death of a Participant shall be made in accordance with the following
requirements and shall otherwise comply with Code Section 401(a)(9) and the
Regulations thereunder. If it is determined, pursuant to Regulations, that the
distribution of a Participants interest has begun and the Participant dies before
the entire interest has been distributed, the remaining portion of such interest
shall be distributed at least as rapidly as under the method of distribution
selected pursuant to Section 6.5 as of the date of death. If a Participant dies
before receiving any distributions of the interest in the Plan or before
distributions are deemed to have begun pursuant to Regulations, then the death
benefit shall be distributed to the Participants Beneficiaries by December 31st of
the calendar year in which the fifth anniversary of the Participants date of death
occurs.
57
However, in the event that the Participants spouse (determined as of the date
of the Participants death) is the designated Beneficiary, then in lieu of the
preceding rules, distributions must be made over a period not extending beyond the
life expectancy of the spouse and must commence on or before the later of: (1)
December 31st of the calendar year immediately following the calendar year in which
the Participant died; or (2) December 31st of the calendar year in which the
Participant would have attained age 70
1
/
2
. If the surviving spouse dies before
distributions to such spouse begin, then the 5-year distribution requirement of this
Section shall apply as if the spouse was the Participant.
(c) For purposes of this Section, any amount paid to a child of the Participant
will be treated as if it had been paid to the surviving spouse if the amount becomes
payable to the surviving spouse when the child reaches the age of majority.
6.7 TIME OF SEGREGATION OR DISTRIBUTION
Except as limited by Sections 6.5 and 6.6, whenever the Trustee is to make a distribution the
distribution may be made on such date or as soon thereafter as is practicable. However, unless a
Former Participant elects in writing to defer the receipt of benefits (such election may not result
in a death benefit that is more than incidental), the payment of benefits shall occur not later
than the sixtieth (60th) day after the close of the Plan Year in which the latest of the following
events occurs: (a) the date on which the Participant attains the earlier of age 65 or the Normal
Retirement Age specified herein; (b) the tenth (10th) anniversary of the year in which the
Participant commenced participation in the Plan; or (c) the date the Participant terminates
service with the Employer.
Notwithstanding the foregoing, the failure of a Participant to consent to a distribution that
is immediately distributable (within the meaning of Section 6.5), shall be deemed to be an
election to defer the commencement of payment of any benefit sufficient to satisfy this Section.
6.8 DISTRIBUTION FOR MINOR OR INCOMPETENT BENEFICIARY
In the event a distribution is to be made to a minor or incompetent Beneficiary, then the
Administrator may direct that such distribution be paid to the legal guardian, or if none in the
case of a minor Beneficiary, to a parent of such Beneficiary or a responsible adult with whom the
Beneficiary maintains residence, or to the custodian for such Beneficiary under the Uniform Gift to
Minors Act or Gift to Minors Act, if such is permitted by the laws of the state in which said
Beneficiary resides. Such a payment to the legal guardian, custodian or parent of a minor
Beneficiary shall fully discharge the Trustee, Employer, and Plan from further liability on account
thereof.
58
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution payable to a Participant or
Beneficiary hereunder shall, at the later of the Participants attainment of age 62 or Normal
Retirement Age, remain unpaid solely by reason of the inability of the Administrator, after sending
a certified letter, return receipt requested, to the last known address of such person, to
ascertain the whereabouts of such Participant or Beneficiary, the amount so distributable shall be
treated as a Forfeiture pursuant to the Plan. Notwithstanding the foregoing, effective January 1,
2001, if the value of a Participants Vested benefit derived from Employer and Employee
contributions does not exceed $5,000, then the amount distributable may, in the sole discretion of
the Administrator, either be treated as a Forfeiture, or be paid directly to an individual
retirement account described in Code Section 408(a) or an individual retirement annuity described
in Code Section 408(b) at the time it is determined that the whereabouts of the Participant or the
Participants Beneficiary cannot be ascertained. In the event a Participant or Beneficiary is
located subsequent to the Forfeiture, such benefit shall be restored, first from Forfeitures, if
any, and then from an additional Employer contribution if necessary. However, regardless of the
preceding, a benefit which is lost by reason of escheat under applicable state law is not treated
as a Forfeiture for purposes of this Section nor as an impermissible forfeiture under the Code.
6.10 PRE-RETIREMENT DISTRIBUTION
Unless otherwise provided, at such time as a Participant shall have attained the age of 59
1
/
2
years, the Administrator, at the election of the Participant who has not severed employment with
the Employer, shall direct the Trustee to distribute all or a portion of the Vested amount then
credited to the accounts maintained on behalf of the Participant, excluding that portion of his
Participants Account attributable to Employer discretionary contributions made pursuant to
Section 4.1(c). In the event that the Administrator makes such a distribution, the Participant
shall continue to be eligible to participate in the Plan on the same basis as any other Employee.
Any distribution made pursuant to this Section shall be made in a manner consistent with Section
6.5, including, but not limited to, all notice and consent requirements of Code Section 411(a)(11)
and the Regulations thereunder.
6.11 ADVANCE DISTRIBUTION FOR HARDSHIP
(a) The Administrator, at the election of the Participant, shall direct the
Trustee to distribute to any Participant in any one Plan Year up to the lesser of
(1) 100% of the sum of the Participants Elective Account and the Vested portion of
the Participants Account attributable to Employer matching contributions made
pursuant to Section 4.1(b) and discretionary contributions made pursuant to Section
4.1(c), valued as of the last Valuation Date (less any applicable earnings) or (2)
the amount necessary to satisfy the immediate and heavy financial need of the
Participant. Any distribution made pursuant to this Section shall be deemed to be
made as of the first day of the Plan Year or, if later, the Valuation
59
Date immediately preceding the date of distribution, and the Participants
Elective Account and the Participants Account attributable to Employer matching
contributions made pursuant to Section 4.1(b) and discretionary contributions made
pursuant to Section 4.1(c), as applicable, shall be reduced accordingly. Withdrawal
under this Section is deemed to be on account of an immediate and heavy financial
need of the Participant only if the withdrawal is for:
(1) Medical expenses described in Code Section 213(d) incurred by the
Participant, the Participants spouse, or any of the Participants
dependents (as defined in Regulation 1.401(k)-1(d)(3)(iii)(B)(3)) or
necessary for these persons to obtain medical care as described in Code
Section 213(d);
(2) The costs directly related to the purchase (excluding mortgage payments)
of a principal residence for the Participant;
(3) Payment of tuition, related educational fees, and room and board
expenses for the next twelve (12) months of post-secondary education for the
Participant and the Participants spouse, children, or dependents (as
defined in Regulation 1.401(k)-1(d)(3)(iii)(B)(3));
(4) Payments necessary to prevent the eviction of the Participant from the
Participants principal residence or foreclosure on the mortgage on that
residence;
(5) Expenses for the repair of damage to the Participants principal
residence that would qualify for the casualty deduction under section 165 of
the Code (determined without regard to whether the loss exceeds 10% of
adjusted gross income); or
(6) Payments for burial or funeral expenses for the Participants deceased
parent, spouse, children or dependents (as defined in Regulation
1.401(k)-1(d)(3)(iii)(B)(3)).
(b) No distribution shall be made pursuant to this Section unless the
Administrator, based upon the Participants representation and such other facts as
are known to the Administrator, determines that all of the following conditions are
satisfied:
(1) The distribution is not in excess of the amount of the immediate and
heavy financial need of the Participant. The amount of the immediate and
heavy financial need may include any amounts necessary to pay any federal,
state, or local income taxes or penalties reasonably anticipated to result
from the distribution;
60
(2) The Participant has obtained all distributions, other than hardship
distributions, and all nontaxable (at the time of the loan) loans currently
available under all plans maintained by the Employer; and
(3) The Plan, and all other plans maintained by the Employer, provide that
the Participants elective deferrals and after-tax voluntary Employee
contributions will be suspended for at least six (6) months after receipt of
the hardship distribution or, the Participant, pursuant to a legally
enforceable agreement, will suspend elective deferrals and after-tax
voluntary Employee contributions to the Plan and all other plans maintained
by the Employer for at least six (6) months after receipt of the hardship
distribution.
(c) Notwithstanding the above, distributions from the Participants Elective
Account pursuant to this Section shall be limited solely to the Participants total
Deferred Compensation as of the date of distribution, reduced by the amount of any
previous distributions pursuant to this Section and Section 6.10.
(d) Any distribution made pursuant to this Section shall be made in a manner
which is consistent with and satisfies the provisions of Section 6.5, including, but
not limited to, all notice and consent requirements of Code Section 411(a)(11) and
the Regulations thereunder.
6.12 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION
All rights and benefits, including elections, provided to a Participant in this Plan shall be
subject to the rights afforded to any alternate payee under a qualified domestic relations
order. Furthermore, a distribution to an alternate payee shall be permitted if such distribution
is authorized by a qualified domestic relations order, even if the affected Participant has not
separated from service and has not reached the earliest retirement age under the Plan. For the
purposes of this Section, alternate payee, qualified domestic relations order and earliest
retirement age shall have the meaning set forth under Code Section 414(p).
6.13 LATEST TIME FOR MAKING DISTRIBUTION TO A TERMINATED PARTICIPANT
Notwithstanding anything to the contrary in Sections 6.5, 6.6 and 6.7, in the event that a
terminated Participants account remains undistributed to him or his Beneficiary, in whole or in
part, when the Participant attains (or would have attained, if still living) age 65, the
Administrator shall immediately distribute such Participants entire nonforfeitable account
balance.
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6.14 MILITARY WITHDRAWALS
Effective January 1, 2009, a Participant receiving differential military pay shall be treated
as having a termination of employment for purposes of taking a distribution consisting of his
Elective Contributions if he is absent from employment due to performing service in the uniformed
services described in section 3401(h)(2)(A) of the Code. If a Participant elects to take a
distribution pursuant to the foregoing, he shall be precluded from electing to have the Employer
contribute Elective Contributions from his/her Compensation on his/her behalf to the Plan for six
months following the date of the distribution.
ARTICLE VII
TRUSTEE
7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE
(a) The Trustee shall have the following categories of responsibilities:
(1) Consistent with the funding policy and method determined by the
Employer, to invest, manage, and control the Plan assets subject, however,
to the direction of a Participant with respect to Participant Directed
Accounts, the Employer or an Investment Manager appointed by the Employer or
any agent of the Employer;
(2) At the direction of the Administrator, to pay benefits required under
the Plan to be paid to Participants, or, in the event of their death, to
their Beneficiaries; and
(3) To maintain records of receipts and disbursements and furnish to the
Employer and/or Administrator for each Plan Year a written annual report
pursuant to Section 7.7.
(b) In the event that the Trustee shall be directed by a Participant (pursuant
to the Participant Direction Procedures), or the Employer, or an Investment Manager
or other agent appointed by the Employer with respect to the investment of any or
all Plan assets, the Trustee shall have no liability with respect to the investment
of such assets, but shall be responsible only to execute such investment
instructions as so directed.
(1) The Trustee shall be entitled to rely fully on the written (or other
form acceptable to the Administrator and the Trustee, including, but not
limited to, voice recorded) instructions of a Participant (pursuant to the
Participant Direction Procedures), or the Employer, or any Fiduciary or
nonfiduciary agent of the Employer, in the discharge of such duties, and
shall not be liable for any loss
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or other liability, resulting from such direction (or lack of direction) of
the investment of any part of the Plan assets.
(2) The Trustee may delegate the duty of executing such instructions to any
nonfiduciary agent, which may be an affiliate of the Trustee or any Plan
representative.
(3) The Trustee may refuse to comply with any direction from the Participant
in the event the Trustee, in its sole and absolute discretion, deems such
directions improper by virtue of applicable law. The Trustee shall not be
responsible or liable for any loss or expense which may result from the
Trustees refusal or failure to comply with any directions from the
Participant.
(4) Any costs and expenses related to compliance with the Participants
directions shall be borne by the Participants Directed Account, unless paid
by the Employer.
(c) If there shall be more than one Trustee, they shall act by a majority of
their number, but may authorize one or more of them to sign papers on their behalf.
7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE
(a) The Trustee shall invest and reinvest the Trust Fund to keep the Trust Fund
invested without distinction between principal and income and in such securities or
property, real or personal, wherever situated, as the Trustee shall deem advisable,
including, but not limited to, stocks, common or preferred, open-end or closed-end
mutual funds, bonds and other evidences of indebtedness or ownership, and real
estate or any interest therein. The Trustee shall at all times in making investments
of the Trust Fund consider, among other factors, the short and long-term financial
needs of the Plan on the basis of information furnished by the Employer. In making
such investments, the Trustee shall not be restricted to securities or other
property of the character expressly authorized by the applicable law for trust
investments; however, the Trustee shall give due regard to any limitations imposed
by the Code or the Act so that at all times the Plan may qualify as a qualified
Profit Sharing Plan and Trust.
(b) The Trustee may employ a bank or trust company pursuant to the terms of its
usual and customary bank agency agreement, under which the duties of such bank or
trust company shall be of a custodial, clerical and recordkeeping nature.
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7.3 OTHER POWERS OF THE TRUSTEE
The Trustee, in addition to all powers and authorities under common law, statutory authority,
including the Act, and other provisions of the Plan, shall have the following powers and
authorities, to be exercised in the Trustees sole discretion:
(a) To purchase, or subscribe for, any securities or other property and to
retain the same. In conjunction with the purchase of securities, margin accounts may
be opened and maintained;
(b) To sell, exchange, convey, transfer, grant options to purchase, or
otherwise dispose of any securities or other property held by the Trustee, by
private contract or at public auction. No person dealing with the Trustee shall be
bound to see to the application of the purchase money or to inquire into the
validity, expediency, or propriety of any such sale or other disposition, with or
without advertisement;
(c) To vote upon any stocks, bonds, or other securities; to give general or
special proxies or powers of attorney with or without power of substitution; to
exercise any conversion privileges, subscription rights or other options, and to
make any payments incidental thereto; to oppose, or to consent to, or otherwise
participate in, corporate reorganizations or other changes affecting corporate
securities, and to delegate discretionary powers, and to pay any assessments or
charges in connection therewith; and generally to exercise any of the powers of an
owner with respect to stocks, bonds, securities, or other property. However, the
Trustee shall not vote proxies relating to securities for which it has not been
assigned full investment management responsibilities. In those cases where another
party has such investment authority or discretion, the Trustee will deliver all
proxies to said party who will then have full responsibility for voting those
proxies;
(d) To cause any securities or other property to be registered in the Trustees
own name, in the name of one or more of the Trustees nominees, in a clearing
corporation, in a depository, or in book entry form or in bearer form, but the books
and records of the Trustee shall at all times show that all such investments are
part of the Trust Fund;
(e) To borrow or raise money for the purposes of the Plan in such amount, and
upon such terms and conditions, as the Trustee shall deem advisable; and for any sum
so borrowed, to issue a promissory note as Trustee, and to secure the repayment
thereof by pledging all, or any part, of the Trust Fund; and no person lending money
to the Trustee shall be bound to see to the application of the money lent or to
inquire into the validity, expediency, or propriety of any borrowing;
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(f) To keep such portion of the Trust Fund in cash or cash balances as the
Trustee may, from time to time, deem to be in the best interests of the Plan,
without liability for interest thereon;
(g) To accept and retain for such time as the Trustee may deem advisable any
securities or other property received or acquired as Trustee hereunder, whether or
not such securities or other property would normally be purchased as investments
hereunder;
(h) To make, execute, acknowledge, and deliver any and all documents of
transfer and conveyance and any and all other instruments that may be necessary or
appropriate to carry out the powers herein granted;
(i) To settle, compromise, or submit to arbitration any claims, debts, or
damages due or owing to or from the Plan, to commence or defend suits or legal or
administrative proceedings, and to represent the Plan in all suits and legal and
administrative proceedings;
(j) To employ suitable agents and counsel and to pay their reasonable expenses
and compensation, and such agent or counsel may or may not be agent or counsel for
the Employer;
(k) To apply for and procure from responsible insurance companies, to be
selected by the Administrator, as an investment of the Trust Fund such annuity, or
other Contracts (on the life of any Participant) as the Administrator shall deem
proper; to exercise, at any time or from time to time, whatever rights and
privileges may be granted under such annuity, or other Contracts; to collect,
receive, and settle for the proceeds of all such annuity or other Contracts as and
when entitled to do so under the provisions thereof;
(l) To invest funds of the Trust in time deposits or savings accounts bearing a
reasonable rate of interest or in cash or cash balances without liability for
interest thereon;
(m) To invest in Treasury Bills and other forms of United States government
obligations;
(n) To invest in shares of investment companies registered under the Investment
Company Act of 1940;
(o) To sell, purchase and acquire put or call options if the options are traded
on and purchased through a national securities exchange registered under the
Securities Exchange Act of 1934, as amended, or, if the options are not traded on a
national securities exchange,
65
are guaranteed by a member firm of the New York Stock Exchange regardless of
whether such options are covered;
(p) To deposit monies in federally insured savings accounts or certificates of
deposit in banks or savings and loan associations;
(q) To pool all or any of the Trust Fund, from time to time, with assets
belonging to any other qualified employee pension benefit trust created by the
Employer or any Affiliated Employer, and to commingle such assets and make joint or
common investments and carry joint accounts on behalf of this Plan and Trust and
such other trust or trusts, allocating undivided shares or interests in such
investments or accounts or any pooled assets of the two or more trusts in accordance
with their respective interests;
(r) To appoint a nonfiduciary agent or agents to assist the Trustee in carrying
out any investment instructions of Participants and of any Investment Manager or
Fiduciary, and to compensate such agent(s) from the assets of the Plan, to the
extent not paid by the Employer;
(s) To do all such acts and exercise all such rights and privileges, although
not specifically mentioned herein, as the Trustee may deem necessary to carry out
the purposes of the Plan.
7.4 LOANS TO PARTICIPANTS
(a) The Trustee may, in the Trustees discretion, make loans to Participants
and Beneficiaries under the following circumstances: (1) loans shall be made
available to all Participants and Beneficiaries on a reasonably equivalent basis;
(2) loans shall not be made available to Highly Compensated Employees in an amount
greater than the amount made available to other Participants and Beneficiaries; (3)
loans shall bear a reasonable rate of interest; (4) loans shall be adequately
secured; and (5) loans shall provide for periodic repayment over a reasonable
period of time.
(b) Loans made pursuant to this Section (when added to the outstanding balance
of all other loans made by the Plan to the Participant) may, in accordance with a
uniform and nondiscriminatory policy established by the Administrator, be limited to
the lesser of:
(1) $50,000 reduced by the excess (if any) of the highest outstanding
balance of loans from the Plan to the Participant during the one year period
ending on the day before the date on which such loan is made, over the
outstanding balance of loans from the Plan to the Participant on the date on
which such loan was made, or
66
(2) one-half (1/2) of the present value of the nonforfeitable accrued
benefit of the Participant under the Plan.
For purposes of this limit, all plans of the Employer shall be considered one
plan.
(c) Loans shall provide for level amortization with payments to be made not
less frequently than quarterly over a period not to exceed five (5) years. However,
loans used to acquire any dwelling unit which, within a reasonable time, is to be
used (determined at the time the loan is made) as a principal residence of the
Participant shall provide for periodic repayment over a reasonable period of time
that may exceed five (5) years. For this purpose, a principal residence has the
same meaning as a principal residence under Code Section 1034. Loan repayments may
be suspended under this Plan as permitted under Code Section 414(u)(4).
(d) Any loans granted or renewed shall be made pursuant to a Participant loan
program. Such loan program shall be established in writing and must include, but
need not be limited to, the following:
(1) the identity of the person or positions authorized to administer the
Participant loan program;
(2) a procedure for applying for loans;
(3) the basis on which loans will be approved or denied;
(4) limitations, if any, on the types and amounts of loans offered;
(5) the procedure under the program for determining a reasonable rate of
interest;
(6) the types of collateral which may secure a Participant loan; and
(7) the events constituting default and the steps that will be taken to
preserve Plan assets.
Such Participant loan program shall be contained in a separate written document
which, when properly executed, is hereby incorporated by reference and made a part
of the Plan. Furthermore, such Participant loan program may be modified or amended
in writing from time to time without the necessity of amending this Section.
(e) Notwithstanding anything in this Plan to the contrary, if a Participant or
Beneficiary defaults on a loan made pursuant to this Section, then the loan default
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will be a distributable event to the extent permitted by the Code and
Regulations.
(f) Notwithstanding anything in this Section to the contrary, any loans made
prior to the date this amendment and restatement is adopted shall be subject to the
terms of the plan in effect at the time such loan was made.
7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS
At the direction of the Administrator, the Trustee shall, from time to time, in accordance
with the terms of the Plan, make payments out of the Trust Fund. The Trustee shall not be
responsible in any way for the application of such payments.
7.6 TRUSTEES COMPENSATION AND EXPENSES AND TAXES
The Trustee shall be paid such reasonable compensation as set forth in the Trustees fee
schedule (if the Trustee has such a schedule) or as agreed upon in writing by the Employer and the
Trustee. However, an individual serving as Trustee who already receives full-time pay from the
Employer shall not receive compensation from the Plan. In addition, the Trustee shall be reimbursed
for any reasonable expenses, including reasonable counsel fees incurred by it as Trustee. Such
compensation and expenses shall be paid from the Trust Fund unless paid or advanced by the
Employer. All taxes of any kind whatsoever that may be levied or assessed under existing or future
laws upon, or in respect of, the Trust Fund or the income thereof, shall be paid from the Trust
Fund.
7.7 ANNUAL REPORT OF THE TRUSTEE
(a) Within a reasonable period of time after the later of the Anniversary Date
or receipt of the Employer contribution for each Plan Year, the Trustee, or its
agent, shall furnish to the Employer and Administrator a written statement of
account with respect to the Plan Year for which such contribution was made setting
forth:
(1) the net income, or loss, of the Trust Fund;
(2) the gains, or losses, realized by the Trust Fund upon sales or other
disposition of the assets;
(3) the increase, or decrease, in the value of the Trust Fund;
(4) all payments and distributions made from the Trust Fund; and
(5) such further information as the Trustee and/or Administrator deems
appropriate.
(b) The Employer, promptly upon its receipt of each such statement of account,
shall acknowledge receipt thereof in writing and advise the Trustee and/or
68
Administrator of its approval or disapproval thereof. Failure by the Employer
to disapprove any such statement of account within thirty (30) days after its
receipt thereof shall be deemed an approval thereof. The approval by the Employer of
any statement of account shall be binding on the Employer and the Trustee as to all
matters contained in the statement to the same extent as if the account of the
Trustee had been settled by judgment or decree in an action for a judicial
settlement of its account in a court of competent jurisdiction in which the Trustee,
the Employer and all persons having or claiming an interest in the Plan were
parties. However, nothing contained in this Section shall deprive the Trustee of its
right to have its accounts judicially settled if the Trustee so desires.
7.8 AUDIT
(a) If an audit of the Plans records shall be required by the Act and the
regulations thereunder for any Plan Year, the Administrator shall direct the Trustee
to engage on behalf of all Participants an independent qualified public accountant
for that purpose. Such accountant shall, after an audit of the books and records of
the Plan in accordance with generally accepted auditing standards, within a
reasonable period after the close of the Plan Year, furnish to the Administrator and
the Trustee a report of the audit setting forth the accountants opinion as to
whether any statements, schedules or lists that are required by Act Section 103 or
the Secretary of Labor to be filed with the Plans annual report, are presented
fairly in conformity with generally accepted accounting principles applied
consistently.
(b) All auditing and accounting fees shall be an expense of and may, at the
election of the Employer, be paid from the Trust Fund.
(c) If some or all of the information necessary to enable the Administrator to
comply with Act Section 103 is maintained by a bank, insurance company, or similar
institution, regulated, supervised, and subject to periodic examination by a state
or federal agency, then it shall transmit and certify the accuracy of that
information to the Administrator as provided in Act Section 103(b) within one
hundred twenty (120) days after the end of the Plan Year or such other date as may
be prescribed under regulations of the Secretary of Labor.
7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE
(a) Unless otherwise agreed to by both the Trustee and the Employer, a Trustee
may resign at any time by delivering to the Employer, at least thirty (30) days
before its effective date, a written notice of resignation.
69
(b) Unless otherwise agreed to by both the Trustee and the Employer, the
Employer may remove a Trustee at any time by delivering to the Trustee, at least
thirty (30) days before its effective date, a written notice of such Trustees
removal.
(c) Upon the death, resignation, incapacity, or removal of any Trustee, a
successor may be appointed by the Employer; and such successor, upon accepting such
appointment in writing and delivering same to the Employer, shall, without further
act, become vested with all the powers and responsibilities of the predecessor as if
such successor had been originally named as a Trustee herein. Until such a successor
is appointed, the remaining Trustee or Trustees shall have full authority to act
under the terms of the Plan.
(d) The Employer may designate one or more successors prior to the death,
resignation, incapacity, or removal of a Trustee. In the event a successor is so
designated by the Employer and accepts such designation, the successor shall,
without further act, become vested with all the powers and responsibilities of the
predecessor as if such successor had been originally named as Trustee herein
immediately upon the death, resignation, incapacity, or removal of the predecessor.
(e) Whenever any Trustee hereunder ceases to serve as such, the Trustee shall
furnish to the Employer and Administrator a written statement of account with
respect to the portion of the Plan Year during which the individual or entity served
as Trustee. This statement shall be either (i) included as part of the annual
statement of account for the Plan Year required under Section 7.7 or (ii) set forth
in a special statement. Any such special statement of account should be rendered to
the Employer no later than the due date of the annual statement of account for the
Plan Year. The procedures set forth in Section 7.7 for the approval by the Employer
of annual statements of account shall apply to any special statement of account
rendered hereunder and approval by the Employer of any such special statement in the
manner provided in Section 7.7 shall have the same effect upon the statement as the
Employers approval of an annual statement of account. No successor to the Trustee
shall have any duty or responsibility to investigate the acts or transactions of any
predecessor who has rendered all statements of account required by Section 7.7 and
this subparagraph.
7.10 TRANSFER OF INTEREST
Notwithstanding any other provision contained in this Plan, the Trustee at the direction of
the Administrator shall transfer the Vested interest, if any, of a Participant to another trust
forming part of a pension, profit sharing or stock bonus plan maintained by such Participants new
employer and represented by said employer in
70
writing as meeting the requirements of Code Section 401(a), provided that the trust to which
such transfers are made permits the transfer to be made.
7.11 TRUSTEE INDEMNIFICATION
The Employer agrees to indemnify and hold harmless the Trustee against any and all claims,
losses, damages, expenses and liabilities the Trustee may incur in the exercise and performance of
the Trustees power and duties hereunder, unless the same are determined to be due to gross
negligence or willful misconduct.
7.12 DIRECT ROLLOVER; MANDATORY DISTRIBUTIONS
(a)
General
. A Distributee may elect, at the time and in the manner prescribed
by forms provided by the record-keeper for the Plan, to have any portion of an Eligible
Rollover Distribution of at least $500 paid directly to an Eligible Retirement Plan
specified by the Distributee in a Direct Rollover. Notwithstanding any provision of the
Plan to the contrary, for any mandatory distribution made under Section 6.4(a) of the Plan
that is greater than $1,000 but less than or equal to $5,000, such distribution shall be
paid in a Direct Rollover to an individual retirement account designated by the
Administrator, unless the Participant previously elected to have such distribution paid
directly to an Eligible Retirement Plan specified by the Participant in a Direct Rollover or
to receive the distribution directly.
(b)
Definitions
. For the purpose of this Section, the following terms shall
have these meanings:
(1)
Eligible Rollover Distribution
. Any distribution of all or any portion of
the balance to the credit of the Distributee, except that an Eligible Rollover Distribution
does not include any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life expectancy) of the
Distributee or the joint lives (or joint life expectancies) of the Distributee and the
Distributees designated beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under Code section 401(a)(9); any
hardship withdrawal; and the portion of any distribution that is not included in gross
income (determined without regard to the exclusion for net unrealized appreciation with
respect to employer securities). However, such portion may be paid only to an individual
retirement account or annuity described in section 408(a) or (b) of the Code, or to a
qualified defined contribution plan described in section 401(a) or 403(a) of the Code that
agrees to separately account for amounts so transferred, including separately accounting for
the portion of such distribution which is includible in gross income and the portion of such
distribution which is not so includible. Effective January 1, 2007, the nontaxable portion
of an Eligible Rollover Distribution may be rolled over tax-free to an Eligible Retirement
Plan as specified below if the Eligible Retirement
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Plan provides for separate accounting of the amount transferred and earnings on such
amounts.
(2)
Eligible Retirement Plan
. (A) an individual retirement account described
in Code section 408(a), (B) an individual retirement annuity described in Code section
408(b) (other than an endowment contract), (C) an annuity plan described in Section 403(a),
(D) a qualified plan described in Code section 401(a) the terms of which permit the
acceptance of the Distributees Eligible Rollover Distribution, (E) an eligible deferred
compensation plan described in Code section 457(b) that is maintained by an eligible
employer described in Code section 457(e)(I)(A) that shall separately account for the
distribution or (F) an annuity contract described in Code section 403(b). The portion of
any Eligible Rollover Distribution that consists of after-tax employee contributions only
may be paid to any Eligible Plan described in (A) or (B), a qualified plan described in (C)
or (D) or a plan described in (F) that separately accounts for the amounts transferred
earnings on such amounts. The $500 minimum in Section 7.12(a) is applied by treating any
amount distributed from the Participants Roth 401(k) Account as a separate distribution
from any amount distributed from the Participants other accounts in the Plan, even if the
amounts are distributed at the same time.
(3)
Distributee
. A Participant, a Former Participant, a Participants or
Former Participants surviving spouse and a Participants or Former Participants spouse or
former spouse who is the alternate payee under a qualified domestic relations order, within
the meaning of Code section 414(p).
(4)
Direct Rollover
. A payment by the Plan to the Eligible Retirement Plan
specified by the Distributee.
(c) The Plan will not provide for a Direct Rollover (including an automatic rollover)
for distributions from a Participants Roth 401(k) Account if the amount of the
distributions that are Eligible Rollover Distributions are reasonably expected to total less
than $200 during a year. In addition, any distribution from a Participants Roth 401(k)
Account is not taken into account in determining whether distributions from a Participants
other accounts are reasonably expected to total less than $200 during a year. However,
Eligible Rollover Distributions from a Participants Roth 401(k) Account are taken into
account in determining whether the total amount of the Participants account balances under
the Plan exceeds $1,000 for purposes of mandatory distributions from the Plan.
(d) Effective January 1, 2010, any distribution of benefits to the beneficiary of a
deceased Participant who is not the surviving spouse of the Participant may be transferred
in a direct trustee-to-trustee transfer to an individual retirement account or annuity under
Code Sections 408(a) and (b) established for the purpose of receiving such distribution and
which will be treated as an inherited IRA pursuant to the provisions of Code
72
Section 402(c)(11), if such distribution otherwise meets the requirements set forth in
subsection (b) above. Such direct rollover of a distribution by a nonspouse Beneficiary
shall be treated as an eligible rollover distribution only for purposes of Code Section
402(c). Eligible Retirement Plan shall include an individual retirement account or annuity
under Code Sections 408(a) and (b) established for the purpose of receiving a distribution
that is rolled over from a nonspouse distributee, but only if the conditions set forth
herein above are satisfied. Distributee shall include a nonspouse beneficiary, but only if
the conditions set forth above are satisfied.
(e) No distribution of an Eligible Rollover Distribution shall commence less than 30
days after the Participant receives the notice required under the provisions of section
1.411(a)-11(c) of the regulations under section 411(a)(11) of the Code unless the
Participant receives written notice that he has a right to a period of at least 30 days
after receipt of the notice to consider whether he wants to exercise the rollover election
described instead of receiving a distribution.
(f) A qualified rollover contribution as described in Code Section 408A(e) may be
made from the Plan to a Roth IRA in a Direct Rollover subject to the rules and provisions
set forth in Section 408A(e) of the Code and any regulations issued there under.
(g) The $500 minimum in Section 7.12(a) is applied by treating any amount distributed
from the Participants Roth 401(k) Account as a separate distribution from any amount
distributed from the Participants other accounts in the Plan, even if the amounts are
distributed at the same time.
7.13 EMPLOYER SECURITIES AND REAL PROPERTY
The Trustee shall be empowered to acquire and hold qualifying Employer securities and
qualifying Employer real property, as those terms are defined in the Act, provided, however, that
the Trustee shall not be permitted to acquire any qualifying Employer securities or qualifying
Employer real property if, immediately after the acquisition of such securities or property, the
fair market value of all qualifying Employer securities and qualifying Employer real property
held by the Trustee hereunder should amount to more than 100% of the fair market value of all the
assets in the Trust Fund.
ARTICLE VIII
AMENDMENT, TERMINATION AND MERGERS
8.1 AMENDMENT
(a) The Employer shall have the right at any time to amend this Plan, subject
to the limitations of this Section. However, any amendment which affects the rights,
duties or responsibilities of the Trustee or Administrator
73
may only be made with the Trustees or Administrators written consent. Any
such amendment shall become effective as provided therein upon its execution. The
Trustee shall not be required to execute any such amendment unless the amendment
affects the duties of the Trustee hereunder.
(b) No amendment to the Plan shall be effective if it authorizes or permits any
part of the Trust Fund (other than such part as is required to pay taxes and
administration expenses) to be used for or diverted to any purpose other than for
the exclusive benefit of the Participants or their Beneficiaries or estates; or
causes any reduction in the amount credited to the account of any Participant; or
causes or permits any portion of the Trust Fund to revert to or become property of
the Employer.
(c) Except as permitted by Regulations (including Regulation 1.411(d)-4) or
other IRS guidance, no Plan amendment or transaction having the effect of a Plan
amendment (such as a merger, plan transfer or similar transaction) shall be
effective if it eliminates or reduces any Section 411(d)(6) protected benefit or
adds or modifies conditions relating to Section 411(d)(6) protected benefits which
results in a further restriction on such benefits unless such Section 411(d)(6)
protected benefits are preserved with respect to benefits accrued as of the later
of the adoption date or effective date of the amendment. Section 411(d)(6)
protected benefits are benefits described in Code Section 411(d)(6)(A), early
retirement benefits and retirement-type subsidies, and optional forms of benefit. A
Plan amendment that eliminates or restricts the ability of a Participant to receive
payment of the Participants interest in the Plan under a particular optional form
of benefit will be permissible if the amendment satisfies the conditions in (1) and
(2) below:
(1) The amendment provides a single-sum distribution form that is otherwise
identical to the optional form of benefit eliminated or restricted. For
purposes of this condition (1), a single-sum distribution form is otherwise
identical only if it is identical in all respects to the eliminated or
restricted optional form of benefit (or would be identical except that it
provides greater rights to the Participant) except with respect to the
timing of payments after commencement.
(2) The amendment is not effective unless the amendment provides that the
amendment shall not apply to any distribution with an annuity starting date
earlier than the earlier of: (i) the ninetieth (90th) day after the date the
Participant receiving the distribution has been furnished a summary that
reflects the amendment and that satisfies the Act requirements at 29 CFR
2520.104b-3 (relating to a
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summary of material modifications) or (ii) the first day of the second Plan
Year following the Plan Year in which the amendment is adopted.
8.2 TERMINATION
(a) The Employer shall have the right at any time to terminate the Plan by
delivering to the Trustee and Administrator written notice of such termination. Upon
any full or partial termination, all amounts credited to the affected Participants
Combined Accounts shall become 100% Vested as provided in Section 6.4 and shall not
thereafter be subject to forfeiture, and all unallocated amounts, including
Forfeitures, shall be allocated to the accounts of all Participants in accordance
with the provisions hereof.
(b) Upon the full termination of the Plan, the Employer shall direct the
distribution of the assets of the Trust Fund to Participants in a manner which is
consistent with and satisfies the provisions of Section 6.5. Distributions to a
Participant shall be made in cash or through the purchase of irrevocable
nontransferable deferred commitments from an insurer. Except as permitted by
Regulations, the termination of the Plan shall not result in the reduction of
Section 411(d)(6) protected benefits in accordance with Section 8.1(c).
8.3 MERGER, CONSOLIDATION OR TRANSFER OF ASSETS
This Plan and Trust may be merged or consolidated with, or its assets and/or liabilities may
be transferred to any other plan and trust only if the benefits which would be received by a
Participant of this Plan, in the event of a termination of the Plan immediately after such
transfer, merger or consolidation, are at least equal to the benefits the Participant would have
received if the Plan had terminated immediately before the transfer, merger or consolidation, and
such transfer, merger or consolidation does not otherwise result in the elimination or reduction of
any Section 411(d)(6) protected benefits in accordance with Section 8.1(c).
ARTICLE IX
TOP HEAVY PROVISIONS
9.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide the special vesting requirements of Code
Section 416(b) pursuant to Section 6.4 of the Plan and the special minimum allocation requirements
of Code Section 416(c) pursuant to Section 4.4(d) of the Plan. The Top Heavy requirements of Code
Section 416 and of this Section 9.1 shall not apply in any year beginning after December 31, 2001,
in which the Plan consists solely of a cash or deferred arrangement which meets the requirements of
Code Section 401(k)(12) and matching contributions with respect to which the requirements of Code
section 401(m)(11) are met.
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9.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any Plan Year in which, as of the
Determination Date, (1) the Present Value of Accrued Benefits of Key Employees and
(2) the sum of the Aggregate Accounts of Key Employees under this Plan and all
plans of an Aggregation Group, exceeds sixty percent (60%) of the Present Value of
Accrued Benefits and the Aggregate Accounts of all Key and Non-Key Employees under
this Plan and all plans of an Aggregation Group.
If any Participant is a Non-Key Employee for any Plan Year, but such
Participant was a Key Employee for any prior Plan Year, such Participants Present
Value of Accrued Benefit and/or Aggregate Account balance shall not be taken into
account for purposes of determining whether this Plan is a Top Heavy Plan (or
whether any Aggregation Group which includes this Plan is a Top Heavy Group). In
addition, if a Participant or Former Participant has not performed any services for
any Employer maintaining the Plan at any time during the one-year period ending on
the Determination Date, any accrued benefit or account for such Participant or
Former Participant shall not be taken into account for the purposes of determining
whether this Plan is a Top Heavy Plan.
(b) Aggregate Account: A Participants Aggregate Account as of the
Determination Date is the sum of:
(1) the Participants Combined Account balance as of the most recent
valuation occurring within a twelve (12) month period ending on the
Determination Date.
(2) an adjustment for any contributions due as of the Determination Date.
Such adjustment shall be the amount of any contributions actually made after
the Valuation Date but due on or before the Determination Date, except for
the first Plan Year when such adjustment shall also reflect the amount of
any contributions made after the Determination Date that are allocated as of
a date in that first Plan Year.
(3) the present values of accrued benefits and the amounts of account
balances of an Employee as of the Determination Date shall be increased by
the distributions made with respect to the Employee under the Plan and any
plan aggregated with the Plan under Code Section 416(g)(2) during the 1-year
period ending on the Determination Date. The preceding sentence shall also
apply to distributions under a terminated plan which, had it not been
terminated, would have been aggregated with the Plan under Code Section
416(g)(2)(A)(i). In the case of a distribution made
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for a reason other than separation from service, death, or disability, this
provision shall be applied by substituting 5-year period for 1-year
period.
(4) any Employee contributions, whether voluntary or mandatory. However,
amounts attributable to tax deductible qualified voluntary employee
contributions shall not be considered to be a part of the Participants
Aggregate Account balance.
(5) with respect to unrelated rollovers and plan-to-plan transfers (ones
which are both initiated by the Employee and made from a plan maintained by
one employer to a plan maintained by another employer), if this Plan
provides the rollovers or plan-to-plan transfers, it shall always consider
such rollovers or plan-to-plan transfers as distributions for the purposes
of this Section. If this Plan is the plan accepting such rollovers or
plan-to-plan transfers, it shall not consider such rollovers or plan-to-plan
transfers as part of the Participants Aggregate Account balance.
(6) with respect to related rollovers and plan-to-plan transfers (ones
either not initiated by the Employee or made to a plan maintained by the
same employer), if this Plan provides the rollover or plan-to-plan transfer,
it shall not be counted as a distribution for purposes of this Section. If
this Plan is the plan accepting such rollover or plan-to-plan transfer, it
shall consider such rollover or plan-to-plan transfer as part of the
Participants Aggregate Account balance, irrespective of the date on which
such rollover or plan-to-plan transfer is accepted.
(7) For the purposes of determining whether two employers are to be treated
as the same employer in (5) and (6) above, all employers aggregated under
Code Sections 414(b), (c), (m) and (o) are treated as the same employer.
(c) Aggregation Group means either a Required Aggregation Group or a
Permissive Aggregation Group as hereinafter determined.
(1) Required Aggregation Group: In determining a Required Aggregation Group
hereunder, each plan of the Employer in which a Key Employee is a
participant in the Plan Year containing the Determination Date or any of the
four preceding Plan Years, and each other plan of the Employer which enables
any plan in which a Key Employee participates to meet the requirements of
Code Sections 401(a)(4) or 410, will be required to be aggregated. Such
group shall be known as a Required Aggregation Group.
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In the case of a Required Aggregation Group, each plan in the group will be
considered a Top Heavy Plan if the Required Aggregation Group is a Top Heavy
Group. No plan in the Required Aggregation Group will be considered a Top
Heavy Plan if the Required Aggregation Group is not a Top Heavy Group.
(2) Permissive Aggregation Group: The Employer may also include any other
plan not required to be included in the Required Aggregation Group, provided
the resulting group, taken as a whole, would continue to satisfy the
provisions of Code Sections 401(a)(4) and 410. Such group shall be known as
a Permissive Aggregation Group.
In the case of a Permissive Aggregation Group, only a plan that is part of
the Required Aggregation Group will be considered a Top Heavy Plan if the
Permissive Aggregation Group is a Top Heavy Group. No plan in the Permissive
Aggregation Group will be considered a Top Heavy Plan if the Permissive
Aggregation Group is not a Top Heavy Group.
(3) Only those plans of the Employer in which the Determination Dates fall
within the same calendar year shall be aggregated in order to determine
whether such plans are Top Heavy Plans.
(4) An Aggregation Group shall include any terminated plan of the Employer
if it was maintained within the last five (5) years ending on the
Determination Date.
(d) Determination Date means (a) the last day of the preceding Plan Year, or
(b) in the case of the first Plan Year, the last day of such Plan Year.
(e) Present Value of Accrued Benefit: In the case of a defined benefit plan,
the Present Value of Accrued Benefit for a Participant other than a Key Employee,
shall be as determined using the single accrual method used for all plans of the
Employer and Affiliated Employers, or if no such single method exists, using a
method which results in benefits accruing not more rapidly than the slowest accrual
rate permitted under Code Section 411(b)(1)(C). The determination of the Present
Value of Accrued Benefit shall be determined as of the most recent Valuation Date
that falls within or ends with the 12-month period ending on the Determination Date
except as provided in Code Section 416 and the Regulations thereunder for the first
and second plan years of a defined benefit plan.
(f) Top Heavy Group means an Aggregation Group in which, as of the
Determination Date, the sum of: (1) the Present Value of Accrued Benefits of Key
Employees under all defined benefit plans included in the group, and (2)
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the Aggregate Accounts of Key Employees under all defined contribution plans
included in the group, exceeds sixty percent (60%) of a similar sum determined for
all Participants.
ARTICLE X
MISCELLANEOUS
10.1 PARTICIPANTS RIGHTS
This Plan shall not be deemed to constitute a contract between the Employer and any
Participant or to be a consideration or an inducement for the employment of any Participant or
Employee. Nothing contained in this Plan shall be deemed to give any Participant or Employee the
right to be retained in the service of the Employer or to interfere with the right of the Employer
to discharge any Participant or Employee at any time regardless of the effect which such discharge
shall have upon the Employee as a Participant of this Plan.
10.2 ALIENATION
(a) Subject to the exceptions provided below, and as otherwise permitted by the
Code and the Act, no benefit which shall be payable out of the Trust Fund to any
person (including a Participant or the Participants Beneficiary) shall be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge, and any attempt to anticipate, alienate, sell, transfer,
assign, pledge, encumber, or charge the same shall be void; and no such benefit
shall in any manner be liable for, or subject to, the debts, contracts, liabilities,
engagements, or torts of any such person, nor shall it be subject to attachment or
legal process for or against such person, and the same shall not be recognized by
the Trustee, except to such extent as may be required by law.
(b) Subsection (a) shall not apply to the extent a Participant or Beneficiary
is indebted to the Plan, by reason of a loan made pursuant to Section 7.4. At the
time a distribution is to be made to or for a Participants or Beneficiarys
benefit, such proportion of the amount to be distributed as shall equal such
indebtedness shall be paid to the Plan, to apply against or discharge such
indebtedness. Prior to making a payment, however, the Participant or Beneficiary
must be given written notice by the Administrator that such indebtedness is to be so
paid in whole or part from the Participants Combined Account. If the Participant or
Beneficiary does not agree that the indebtedness is a valid claim against the Vested
Participants Combined Account, the Participant or Beneficiary shall be entitled to
a review of the validity of the claim in accordance with procedures provided in
Sections 2.7 and 2.8.
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(c) Subsection (a) shall not apply to a qualified domestic relations order
defined in Code Section 414(p), and those other domestic relations orders permitted
to be so treated by the Administrator under the provisions of the Retirement Equity
Act of 1984. The Administrator shall establish a written procedure to determine the
qualified status of domestic relations orders and to administer distributions under
such qualified orders. Further, to the extent provided under a qualified domestic
relations order, a former spouse of a Participant shall be treated as the spouse or
surviving spouse for all purposes under the Plan.
(d) Subsection (a) shall not apply to an offset to a Participants accrued
benefit against an amount that the Participant is ordered or required to pay the
Plan with respect to a judgment, order, or decree issued, or a settlement entered
into in accordance with Code Sections 401(a)(13)(C) and (D).
10.3 CONSTRUCTION OF PLAN
This Plan and Trust shall be construed and enforced according to the Code, the Act and the
laws of the State of New York, other than its laws respecting choice of law, to the extent not
preempted by the Act.
10.4 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine or neuter gender, they shall be
construed as though they were also used in another gender in all cases where they would so apply,
and whenever any words are used herein in the singular or plural form, they shall be construed as
though they were also used in the other form in all cases where they would so apply.
10.5 LEGAL ACTION
In the event any claim, suit, or proceeding is brought regarding the Trust and/or Plan
established hereunder to which the Trustee, the Employer or the Administrator may be a party, and
such claim, suit, or proceeding is resolved in favor of the Trustee, the Employer or the
Administrator, they shall be entitled to be reimbursed from the Trust Fund for any and all costs,
attorneys fees, and other expenses pertaining thereto incurred by them for which they shall have
become liable.
10.6 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise specifically permitted by law, it
shall be impossible by operation of the Plan or of the Trust, by termination of
either, by power of revocation or amendment, by the happening of any contingency, by
collateral arrangement or by any other means, for any part of the corpus or income
of any Trust Fund maintained pursuant to the Plan or any funds
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contributed thereto to be used for, or diverted to, purposes other than the
exclusive benefit of Participants, Former Participants, or their Beneficiaries.
(b) In the event the Employer shall make an excessive contribution under a
mistake of fact pursuant to Act Section 403(c)(2)(A), the Employer may demand
repayment of such excessive contribution at any time within one (1) year following
the time of payment and the Trustees shall return such amount to the Employer within
the one (1) year period. Earnings of the Plan attributable to the contributions may
not be returned to the Employer but any losses attributable thereto must reduce the
amount so returned.
(c) Except for Sections 3.5, 3.6, and 4.1(d), any contribution by the Employer
to the Trust Fund is conditioned upon the deductibility of the contribution by the
Employer under the Code and, to the extent any such deduction is disallowed, the
Employer may, within one (1) year following the final determination of the
disallowance, whether by agreement with the Internal Revenue Service or by final
decision of a competent jurisdiction, demand repayment of such disallowed
contribution and the Trustee shall return such contribution within one (1) year
following the disallowance. Earnings of the Plan attributable to the contribution
may not be returned to the Employer, but any losses attributable thereto must reduce
the amount so returned.
10.7 EMPLOYERS AND TRUSTEES PROTECTIVE CLAUSE
The Employer, Administrator and Trustee, and their successors, shall not be responsible for
the validity of any Contract issued hereunder or for the failure on the part of the insurer to make
payments provided by any such Contract, or for the action of any person which may delay payment or
render a Contract null and void or unenforceable in whole or in part.
10.8 INSURERS PROTECTIVE CLAUSE
Except as otherwise agreed upon in writing between the Employer and the insurer, an insurer
which issues any Contracts hereunder shall not have any responsibility for the validity of this
Plan or for the tax or legal aspects of this Plan. The insurer shall be protected and held harmless
in acting in accordance with any written direction of the Trustee, and shall have no duty to see to
the application of any funds paid to the Trustee, nor be required to question any actions directed
by the Trustee. Regardless of any provision of this Plan, the insurer shall not be required to take
or permit any action or allow any benefit or privilege contrary to the terms of any Contract which
it issues hereunder, or the rules of the insurer.
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10.9 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, the Participants legal representative, Beneficiary, or to any
guardian or committee appointed for such Participant or Beneficiary in accordance with the
provisions of the Plan, shall, to the extent thereof, be in full satisfaction of all claims
hereunder against the Trustee and the Employer, either of whom may require such Participant, legal
representative, Beneficiary, guardian or committee, as a condition precedent to such payment, to
execute a receipt and release thereof in such form as shall be determined by the Trustee or
Employer.
10.10 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is permitted or required to do or perform
any act or matter or thing, it shall be done and performed by a person duly authorized by its
legally constituted authority.
10.11 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The named Fiduciaries of this Plan are (1) the Employer, (2) the Administrator, (3) the
Trustee and (4) any Investment Manager appointed hereunder. The named Fiduciaries shall have only
those specific powers, duties, responsibilities, and obligations as are specifically given them
under the Plan including, but not limited to, any agreement allocating or delegating their
responsibilities, the terms of which are incorporated herein by reference. In general, the Employer
shall have the sole responsibility for making the contributions provided for under Section 4.1; and
shall have the authority to appoint and remove the Trustee and the Administrator; to formulate the
Plans funding policy and method; and to amend or terminate, in whole or in part, the Plan. The
Administrator shall have the sole responsibility for the administration of the Plan, including, but
not limited to, the items specified in Article II of the Plan, as the same may be allocated or
delegated thereunder. The Administrator shall act as the named Fiduciary responsible for
communicating with the Participant according to the Participant Direction Procedures. The Trustee
shall have the sole responsibility of management of the assets held under the Trust, except to the
extent directed pursuant to Article II or with respect to those assets, the management of which has
been assigned to an Investment Manager, who shall be solely responsible for the management of the
assets assigned to it, all as specifically provided in the Plan. Each named Fiduciary warrants that
any directions given, information furnished, or action taken by it shall be in accordance with the
provisions of the Plan, authorizing or providing for such direction, information or action.
Furthermore, each named Fiduciary may rely upon any such direction, information or action of
another named Fiduciary as being proper under the Plan, and is not required under the Plan to
inquire into the propriety of any such direction, information or action. It is intended under the
Plan that each named Fiduciary shall be responsible for the proper exercise of its own powers,
duties, responsibilities and obligations under the Plan as specified or allocated herein. No named
Fiduciary shall guarantee the Trust Fund in any manner against investment loss or depreciation in
asset value. Any person or group may serve in more than one Fiduciary capacity.
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10.12 HEADINGS
The headings and subheadings of this Plan have been inserted for convenience of reference and
are to be ignored in any construction of the provisions hereof.
10.13 APPROVAL BY INTERNAL REVENUE SERVICE
Notwithstanding anything herein to the contrary, if, pursuant to an application for
qualification filed by or on behalf of the Plan by the time prescribed by law for filing the
Employers return for the taxable year in which the Plan is adopted, or such later date that the
Secretary of the Treasury may prescribe, the Commissioner of Internal Revenue Service or the
Commissioners delegate should determine that the Plan does not initially qualify as a tax-exempt
plan under Code Sections 401 and 501, and such determination is not contested, or if contested, is
finally upheld, then if the Plan is a new plan, it shall be void ab initio and all amounts
contributed to the Plan by the Employer, less expenses paid, shall be returned within one (1) year
and the Plan shall terminate, and the Trustee shall be discharged from all further obligations. If
the disqualification relates to an amended plan, then the Plan shall operate as if it had not been
amended.
10.14 UNIFORMITY
All provisions of this Plan shall be interpreted and applied in a uniform, nondiscriminatory
manner. In the event of any conflict between the terms of this Plan and any Contract purchased
hereunder, the Plan provisions shall control.
ARTICLE XI
MINIMUM DISTRIBUTION REQUIREMENTS
11.1 GENERAL RULES
11.1.1. Effective Date. The provisions of this Article will apply for purposes of determining
required minimum distributions for calendar years beginning with the 2003 calendar year.
11.1.2. Coordination with Minimum Distribution Requirements Previously in Effect. Required
minimum distributions for 2002 will be determined under the provisions of the Plan in effect prior
to the effective date of this Article.
11.1.3. Precedence. The requirements of this Article will take precedence over any
inconsistent provisions of the Plan.
11.1.4. Requirements of Treasury Regulations Incorporated. All distributions required under
this Article will be determined and made in accordance with the Treasury regulations under Code §
401(a)(9).
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11.2 TIME AND MANNER OF DISTRIBUTION
11.2.1. Required Beginning Date. The Participants entire interest will be distributed, or
begin to be distributed, to the Participant no later than the Participants required beginning
date.
11.2.2. Death of Participant Before Distributions Begin. If the Participant dies before
distributions begin, the Participants entire interest will be distributed, or begin to be
distributed, no later than as follows:
(a) If the Participants surviving spouse is the Participants sole designated
Beneficiary, distributions to the surviving spouse will begin by December 31 of the
calendar year immediately following the calendar year in which the Participant died,
or by December 31 of the calendar year in which the Participant would have attained
age 70
1
/
2
, if later.
(b) If the Participants surviving spouse is not the Participants sole
designated Beneficiary, distributions to the designated Beneficiary will begin by
December 31 of the calendar year immediately following the calendar year in which
the Participant died.
(c) If there is no designated Beneficiary as of September 30 of the year
following the year of the Participants death, the Participants entire interest
will be distributed by December 31 of the calendar year containing the fifth
anniversary of the Participants death.
(d) If the Participants surviving spouse is the Participants sole designated
Beneficiary and the surviving spouse dies after the Participant but before
distributions to the surviving spouse begin, this Section 11.2.2, other than Section
11.2.2(a), will apply as if the surviving spouse were the Participant.
For purposes of this Section 11.2.2 and Section 11.4, unless section 11.2.2(d) applies,
distributions are considered to begin on the Participants required beginning date. If section
11.2.2(d) applies, distributions are considered to begin on the date distributions are required to
begin to the surviving spouse under section 11.2.2(a). If distributions under an annuity purchased
from an insurance company irrevocably commence to the Participant before the Participants required
beginning date (or to the Participants surviving spouse before the date distributions are required
to begin to the surviving spouse under section 11.2.2(a)), the date distributions are considered to
begin is the date distributions actually commence.
11.2.3. Forms of Distribution. Unless the Participants interest is distributed in the form
of an annuity purchased from an insurance company or in a single sum on or before the required
beginning date, as of the first distribution calendar year distributions will be made in accordance
with Sections 11.3 and 11.4 of this Article. If the Participants interest is distributed in the
form of an annuity
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purchased from an insurance company, distributions thereunder will be made in accordance with the
requirements of Code § 401(a)(9) and the Treasury regulations.
11.3 REQUIRED MINIMUM DISTRIBUTIONS DURING PARTICIPANTS LIFETIME
11.3.1. Amount of Required Minimum Distribution For Each Distribution Calendar Year. During
the Participants lifetime, the minimum amount that will be distributed for each distribution
calendar year is the lesser of:
(a) the quotient obtained by dividing the Participants account balance by the
distribution period in the Uniform Lifetime Table set forth in section 1.401(a)(9)-9
of the Treasury regulations, using the Participants age as of the Participants
birthday in the distribution calendar year; or
(b) if the Participants sole designated Beneficiary for the distribution
calendar year is the Participants spouse, the quotient obtained by dividing the
Participants account balance by the number in the Joint and Last Survivor Table set
forth in section 1.401(a)(9)-9 of the Treasury regulations, using the Participants
and spouses attained ages as of the Participants and spouses birthdays in the
distribution calendar year.
11.3.2. Lifetime Required Minimum Distributions Continue Through Year of Participants Death.
Required minimum distributions will be determined under this Section 11.3 beginning with the first
distribution calendar year and up to and including the distribution calendar year that includes the
Participants date of death.
11.4 REQUIRED MINIMUM DISTRIBUTIONS AFTER PARTICIPANTS DEATH
11.4.1. Death On or After Date Distributions Begin.
(a) Participant Survived by Designated Beneficiary. If the Participant dies on
or after the date distributions begin and there is a designated Beneficiary, the
minimum amount that will be distributed for each distribution calendar year after
the year of the Participants death is the quotient obtained by dividing the
Participants account balance by the longer of the remaining life expectancy of the
Participant or the remaining life expectancy of the Participants designated
Beneficiary, determined as follows:
(1) The Participants remaining life expectancy is calculated using the age
of the Participant in the year of death, reduced by one for each subsequent
year.
(2) If the Participants surviving spouse is the Participants sole
designated Beneficiary, the remaining life expectancy of the surviving
spouse is calculated for each distribution calendar year after
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the year of the Participants death using the surviving spouses age as of
the spouses birthday in that year. For distribution calendar years after
the year of the surviving spouses death, the remaining life expectancy of
the surviving spouse is calculated using the age of the surviving spouse as
of the spouses birthday in the calendar year of the spouses death, reduced
by one for each subsequent calendar year.
(3) If the Participants surviving spouse is not the Participants sole
designated Beneficiary, the designated Beneficiarys remaining life
expectancy is calculated using the age of the Beneficiary in the year
following the year of the Participants death, reduced by one for each
subsequent year.
(b) No Designated Beneficiary. If the Participant dies on or after the date
distributions begin and there is no designated Beneficiary as of September 30 of the
year after the year of the Participants death, the minimum amount that will be
distributed for each distribution calendar year after the year of the Participants
death is the quotient obtained by dividing the Participants account balance by the
Participants remaining life expectancy calculated using the age of the Participant
in the year of death, reduced by one for each subsequent year.
11.4.2. Death Before Date Distributions Begin.
(a) Participant Survived by Designated Beneficiary. Except as provided in the
adoption agreement, if the Participant dies before the date distributions begin and
there is a designated Beneficiary, the minimum amount that will be distributed for
each distribution calendar year after the year of the Participants death is the
quotient obtained by dividing the Participants account balance by the remaining
life expectancy of the Participants designated Beneficiary, determined as provided
in Section 11.4.1.
(b) No Designated Beneficiary. If the Participant dies before the date
distributions begin and there is no designated Beneficiary as of September 30 of the
year following the year of the Participants death, distribution of the
Participants entire interest will be completed by December 31 of the calendar year
containing the fifth anniversary of the Participants death.
(c) Death of Surviving Spouse Before Distributions to Surviving Spouse Are
Required to Begin. If the Participant dies before the date distributions begin, the
Participants surviving spouse is the Participants sole designated Beneficiary, and
the surviving spouse dies before distributions are required to begin to the
surviving spouse
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under Section 11.2.2(a), this Section 11.4.2 will apply as if the surviving spouse
were the Participant.
11.5 DEFINITIONS
11.5.1. Designated Beneficiary. The individual who is designated as the Beneficiary under
Section 6.2 of the Plan and is the designated Beneficiary under Code § 401(a)(9) and section
1.401(a)(9)-1, Q&A-4, of the Treasury regulations.
11.5.2. Distribution calendar year. A calendar year for which a minimum distribution is
required. For distributions beginning before the Participants death, the first distribution
calendar year is the calendar year immediately preceding the calendar year which contains the
Participants required beginning date. For distributions beginning after the Participants death,
the first distribution calendar year is the calendar year in which distributions are required to
begin under Section 11.2.2. The required minimum distribution for the Participants first
distribution calendar year will be made on or before the Participants required beginning date. The
required minimum distribution for other distribution calendar years, including the required minimum
distribution for the distribution calendar year in which the Participants required beginning date
occurs, will be made on or before December 31 of that distribution calendar year.
11.5.3. Life expectancy. Life expectancy as computed by use of the Single Life Table in
section 1.401(a)(9)-9 of the Treasury regulations.
11.5.4. Participants account balance. The account balance as of the last valuation date in
the calendar year immediately preceding the distribution calendar year (valuation calendar year)
increased by the amount of any contributions made and allocated or forfeitures allocated to the
account balance as of dates in the valuation calendar year after the valuation date and decreased
by distributions made in the valuation calendar year after the valuation date. The account balance
for the valuation calendar year includes any amounts rolled over or transferred to the Plan either
in the valuation calendar year or in the distribution calendar year if distributed or transferred
in the valuation calendar year.
11.5.5. Required beginning date. The date specified in Section 6.5(d)(1) of the Plan.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, this Plan has been executed as of December ___, 2009, to become effective
January 1, 2009, except as otherwise specifically provided herein.
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JETBLUE AIRWAYS CORPORATION
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By
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/s/ Glenn Cusano
Name: Glenn Cusano
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Title: VP, Audit
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