JetBlue Airlines 2003 Annual Report Download - page 72

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JETBLUE AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003
Note 12—Contingencies (Continued)
and several among the airlines. The Company does not presently have liability insurance which protects
the Company against environmental damages.
Under certain contracts, we indemnify certain parties against legal liability arising out of actions by
other parties. The terms of these contracts range up to 20 years. Generally, the Company has liability
insurance protecting the Company for the obligations it has undertaken relative to these indemnities.
LiveTV provides product warranties to third party airlines to which it sells its products and
services. The Company does not accrue a liability for product warranties upon sale of the hardware
since revenue is recognized over the term of the related service agreements of up to 13 years. Expenses
for warranty repairs are recognized as they occur. In addition, LiveTV has provided indemnities against
any claims which may be brought against its customers related to allegations of patent, trademark,
copyright or license infringement as a result of the use of the LiveTV system.
We are unable to estimate the potential amount of future payments under the foregoing
indemnities and agreements.
Note 13—Financial Instruments and Risk Management
We maintain cash and cash equivalents with various high-quality financial institutions or in
short-term duration high-quality debt securities. Investments in highly-liquid debt securities are stated
at fair value, which approximates cost. The majority of our receivables result from the sale of tickets to
individuals, mostly through the use of major credit cards. These receivables are short-term, generally
being settled shortly after the sale. As of December 31, 2003, the fair value of our $175 million 31⁄2%
convertible notes, based on quoted market prices, was $184.4 million. The fair value of our other
long-term debt, which approximated its carrying value, was estimated using discounted cash flow
analysis based on our current incremental borrowing rates for instruments with similar terms. The
carrying values of all other financial instruments approximated their fair values.
The Company is exposed to the effect of changes in the price and availability of aircraft fuel. To
manage this risk, we periodically purchase crude oil option contracts and swap agreements. Prices for
crude oil are highly correlated to jet fuel, making crude oil derivatives effective at offsetting jet fuel
prices to provide some short-term protection against a sharp increase in average fuel prices. We have
agreements whereby cash deposits are required if market risk exposure exceeds a specified threshold
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