JetBlue Airlines 2004 Annual Report Download - page 75

JETBLUE AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2004
Note 11—Contingencies (Continued)
broadly defined regulatory changes, including changes in reserve requirements and bank capital
requirements. These indemnities would have the practical effect of increasing the interest rate on our
debt if they were to be triggered. In all cases, the Company has the right to repay the loan and avoid
the increased costs. The term of these indemnities matches the length of the related loan up to
12 years.
Under both aircraft leases with foreign lessors and aircraft and engine mortgages with foreign
lenders, the Company has agreed to customary indemnities concerning withholding tax law changes
under which the Company is responsible, should withholding taxes be imposed, for paying such amount
of additional rent or interest as is necessary to ensure that the lessor or lender still receives, after taxes,
the rent stipulated in the lease or the interest stipulated under the loan. The term of these indemnities
matches the length of the related lease up to 18 years.
The Company has various leases with respect to real property, and various agreements among
airlines relating to fuel consortia or fuel farms at airports, under which the Company has agreed to
standard language indemnifying the lessor against environmental liabilities associated with the real
property covered under the agreement, even if the Company is not the party responsible for the
environmental damage. In the case of fuel consortia at airports, these indemnities are generally joint
and several among the airlines. The Company has not purchased a stand alone environmental liability
insurance policy. The existing aviation hull and liability policy includes some limited environmental
coverage when a clean up is part of an associated covered loss.
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 12—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, 2004, the fair value of our $175 million
31⁄2% convertible notes, based on quoted market prices, was $167 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.
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