JetBlue Airlines 2010 Annual Report Download - page 65

concluded these embedded derivatives were either (i) excluded from bifurcation as a result of being clearly
and closely related to the 6.75% Debentures or are indexed to our common stock and would be classified
in stockholders’ equity if freestanding or (ii) are immaterial embedded derivatives.
(7) In March 2005, we completed a public offering of $250 million aggregate principal amount of 3.75%
convertible unsecured debentures due 2035, or 3.75% Debentures.
In 2008, we repurchased approximately $73 million principal amount of our 3.75% Debentures for
$54 million. The $14 million net gain from these transactions is recorded in interest income and other in
the accompanying consolidated statements of operations.
During 2009, we repurchased approximately $20 million principal amount of our 3.75% Debentures at a
slight discount to par. Of the total consideration paid, $2 million was allocated to the reacquisition of the
equity component, resulting in a $2 million gain on the extinguishment of debt after writing off
unamortized debt discount and issuance costs.
In March 2010, holders of these 3.75% Debentures required us to repurchase approximately $155 million
aggregate principal amount of Debentures for cash on the first repurchase date at the repurchase price
equal to 100% of their principal amount plus accrued and unpaid interest. In August 2010, we redeemed
the remaining $1 million principal amount of the 3.75% Debentures at par, plus accrued interest.
Prior to the repurchase of these Debentures, we accounted for this convertible debt under the provisions of
the Codification which applies to all convertible debt instruments that have a “net settlement feature”,
which means instruments that by their terms may be settled either wholly or partially in cash upon
conversion. Under these provisions, the liability and equity components of convertible debt instruments
that may be settled wholly or partially in cash upon conversion must be accounted for separately in a
manner reflective of their issuer’s nonconvertible debt borrowing rate. Since our 3.75% Debentures had an
option to be settled in cash, they were within the scope of this accounting guidance.
Our effective borrowing rate for nonconvertible debt at the time of issuance of the 3.75% Debentures was
estimated to be 9%, which resulted in $52 million of the $250 million aggregate principal amount of
debentures issued, or $31 million after taxes, being attributed to equity. We amortized the debt discount
through March 2010, the first repurchase date of the debentures. The principal amount, unamortized
discount and net carrying amount of the debt and equity components are presented below (in millions):
As of
December 31,
2009
Principal amount..................................................... $156
Unamortized discount ................................................. (2)
Net carrying amount .................................................. $154
Additional paid-in capital, net ........................................... $ 29
Interest expense related to these debentures consisted of the following (in millions):
2010 2009 2008
3.75% contractual rate ........................................... $1 $ 6 $ 9
Discount amortization ........................................... 2 8 10
Total interest expense........................................... $3 $14 $19
Effective interest rate ............................................ 9% 9% 9%
(8) On June 4, 2008, we completed a public offering of $100.6 million aggregate principal amount of 5.5%
Series A convertible debentures due 2038, or the Series A 5.5% Debentures, and $100.6 million aggregate
principal amount of 5.5% Series B convertible debentures due 2038, or the Series B 5.5% Debentures, and
collectively with the Series A 5.5% Debentures, the 5.5% Debentures. The 5.5% Debentures are general
senior obligations secured in part by an escrow account for each series. We deposited approximately
$32 million of the net proceeds from the offering, representing the first six scheduled semi-annual interest
payments on the 5.5% Debentures, into escrow accounts for the exclusive benefit of the holders of each
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