JetBlue Airlines 2011 Annual Report Download - page 92

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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, the 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 in estimating their fair values
as of December 31, 2009.
During 2009, we sold certain ARS for $54 million, an amount which approximated their fair value at that
time. In October 2009, we entered into an agreement with Citigroup Global Markets, Inc., under which they
agreed to purchase $158 million par value of the remaining ARS we held which were brokered by them. The
$120 million in cash proceeds from these sales did not result in significant gains or losses. In conjunction with
this transaction, we terminated the line of credit we had with Citigroup.
During 2008, following investigations by various regulatory agencies of the banks and broker-dealers that
sold ARS, UBS, one of the two broker-dealers from which we purchased ARS, subsequently reached a
settlement. As a result of our participation in this settlement agreement, UBS was required to repurchase from us
at par ARS brokered by them, which had a par value of $85 million at December 31, 2009. In July 2010, all of
our then outstanding ARS were repurchased at par by UBS in accordance with this settlement agreement. The
proceeds were used to terminate the outstanding balance on the line of credit with UBS. As a result, we no longer
hold any trading securities as of December 31, 2011.
Put option related to ARS: We had elected to apply the fair value option under the Financial Instruments
topic of the Codification, to UBS’s agreement to repurchase, at par, ARS brokered by them as described above.
We did so in order to closely conform to our treatment of the underlying ARS. The resultant loss of $3 million
recognized in 2009 offset the related ARS holding gains or losses included in other income (expense). The fair
value of the put option was determined by comparing the fair value of the related ARS, as described above, to
their par values and also considered the credit risk associated with UBS. The fair value of the put option was
based on unobservable inputs and was therefore classified as level 3 in the hierarchy. The put option was
terminated concurrent with the sale of the underlying investments in July 2010.
Interest rate swaps: The fair values of our interest rate swaps are 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 jet fuel swaps, jet fuel, heating oil and crude 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.
Spectrum license: In 2006, LiveTV acquired an air-to-ground spectrum license in a public auction from
the Federal Communications Commission for approximately $7 million. Since its acquisition, the license has
been treated as an indefinite lived intangible asset, reflected in other long term assets in our consolidated balance
sheets. In late 2007, we unveiled BetaBlue, an Airbus A320 aircraft, which utilized the acquired spectrum in
delivering email and internet capabilities to our customers. Since 2007, LiveTV continued to develop this
technology, with the intent of making it available on all of our aircraft. However, with the introduction of similar
service by competitors, we re-evaluated the long term viability of our planned offering and during 2010, ceased
further development of the air-to-ground platform. In September 2010, we announced plans to develop
broadband capability, partnering withViaSat and utilizing their advanced satellite technologies. As a result of the
change in plans, we evaluated the spectrum license for impairment, which resulted in a loss of approximately $5
million being recorded in other operating expenses during 2010. We determined the $2 million fair value of the
spectrum license at December 31, 2010 using a probability weighted cash flow model, which included an income
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