JetBlue Airlines 2006 Annual Report Download - page 59

Property under capital leases are recorded at an amount equal to the present value of future
minimum lease payments computed on the basis of our incremental borrowing rate, or, when known,
the interest rate implicit in the lease. Amortization of property under capital leases is on a
straight-line basis over the expected useful life and is included in depreciation and amortization
expense.
We record impairment losses on long-lived assets used in operations when events and
circumstances indicate that the assets may be impaired and the undiscounted future cash flows
estimated to be generated by these assets are less than the assets’ net book value. If impairment
occurs, the loss is measured by comparing the fair value of the asset to its carrying amount.
Impairment losses are recorded in depreciation and amortization expense.
In 2006, we sold five Airbus A320 aircraft, which resulted in a gain of $12 million that is included
in other operating expenses. In December 2005, we discontinued development of a maintenance and
inventory tracking system and consequently wrote off $6 million in capitalized costs. Each of these
items is included in other operating expenses.
Restricted Cash: Restricted cash primarily consists of security deposits and performance bonds
for aircraft and facility leases and funds held in escrow for estimated workers’ compensation
obligations.
Passenger Revenues: Passenger revenue is recognized when the transportation is provided or
after the ticket or customer credit (issued upon payment of a change fee) expires. Tickets sold but not
yet recognized as revenue and unexpired credits are included in air traffic liability.
LiveTV Revenues and Expenses: We account for LiveTV’s revenues and expenses related to the
sale of hardware, maintenance of hardware, and programming services provided, as a single unit in
accordance with Emerging Issues Task Force Issue 00-21, Accounting for Revenue Arrangements with
Multiple Deliverables. Revenues and expenses related to these components are recognized ratably over
the service periods which currently extend through 2014. Customer advances are included in other
liabilities.
Airframe and Engine Maintenance and Repair: Regular airframe maintenance for owned and
leased flight equipment is charged to expense as incurred unless covered by a third-party services
contract. In 2006 and 2005, we commenced separate ten-year services agreements covering the
scheduled and unscheduled repair of airframe line replacement unit components and the engines on
our Airbus A320 aircraft. These agreements require monthly payments at rates based either on the
number of cycles each aircraft was operated during each month or the number of flight hours each
engine was operated during each month, subject to annual escalations. These payments are expensed
as the related flight hours or cycles are incurred.
Advertising Costs: Advertising costs, which are included in sales and marketing, are expensed as
incurred. Advertising expense in 2006, 2005 and 2004 was $40 million, $35 million and $27 million,
respectively.
Loyalty Program: We account for our customer loyalty program, TrueBlue Flight Gratitude, by
recording a liability for the estimated incremental cost for points outstanding and awards we expect to
be redeemed. We adjust this liability, which is included in air traffic liability, based on points earned
and redeemed as well as changes in the estimated incremental costs.
We also sell points in TrueBlue to third parties. A portion of these point sales is deferred and
recognized as passenger revenue when transportation is provided. The remaining portion, which is the
excess of the total sales proceeds over the estimated fair value of the transportation to be provided, is
recognized in other revenue at the time of sale. Deferred revenue for points not redeemed is recorded
upon expiration.
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