JetBlue Airlines 2012 Annual Report Download - page 51

JETBLUE AIRWAYS CORPORATION-2012 10K 47
PART II
ITEM 8Financial Statements and Supplementary Data
The carrying values of investment securities consisted of the following at December31, 2012 and 2011 (in millions):
2012 2011
Available-for-sale securities
Time deposits $65 $70
Treasury Bills 68 —
Commercial paper 142 183
275 253
Held-to-maturity securities
Corporate bonds 313 313
Government bonds 40 25
Time deposits 57 —
410 338
TOTAL $ 685 $ 591
Derivative Instruments: Derivative instruments, including fuel hedge
contracts and interest rate swap agreements, are stated at fair value, net
of any collateral postings. Derivative instruments are included in other
current assets and other current liabilities on our consolidated balance
sheets. See Note 13 for more information.
Inventories: Inventories consist of expendable aircraft spare parts and
supplies, which are stated at average cost, and aircraft fuel, which is
accounted for on a fi rst-in, fi rst-out basis. These items are expensed
when used or consumed. An allowance for obsolescence on aircraft spare
parts is provided over the remaining useful life of the related aircraft fl eet.
Property and Equipment: We record our property and equipment at cost
and depreciate these assets on a straight-line basis to their estimated
residual values over their estimated useful lives. Additions, modifi cations
enhancing the operating performance of our assets, and interest related
to predelivery deposits to acquire new aircraft and for the construction
of facilities are capitalized.
Estimated useful lives and residual values for our property and equipment are as follows:
Estimated Useful Life ResidualValue
Aircraft 25 years 20%
In-fl ight entertainment systems 5 years 0%
Aircraft parts Fleet life 10%
Flight equipment leasehold improvements Lower of lease term or economic life 0%
Ground property and equipment 3-10 years 0%
Leasehold improvements—other Lower of lease term or economic life 0%
Buildings on leased land Lease term 0%
Property under capital leases is initially 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 fl ows estimated to be generated by the 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.
Asset Sales: During 2012, we sold two EMBRAER 190 aircraft, which
we had been leasing to another airline, and six spare aircraft engines. We
recorded net gains of approximately $10 million, which are included in other
operating expenses in our consolidated statement of operations. A portion
of the proceeds received for the engine sales were credits to be applied
to future invoices from the maintenance provider we sold the engines to.
Software: We capitalize certain costs related to the acquisition and
development of computer software. We amortize these costs using the
straight-line method over the estimated useful life of the software, which
is generally between fi ve and ten years. The net book value of computer
software, which is included in other assets on our consolidated balance
sheets, was $53 million and $50 million at December31, 2012 and 2011,
respectively. Amortization expense related to computer software was
$13 million, $10 million and $13 million for the years ended December31,
2012, 2011 and 2010, respectively. Amortization expense related to
computer software capitalized as of December31, 2012 is expected to
be approximately $13 million in 2013, $11 million in 2014, $8 million in
2015, $6 million in 2016, and $5 million in 2017.
Intangible Assets: Intangible assets consist of acquired take-off and
landing slots at certain domestic airports. We record these assets at
cost and amortize them on a straight-line basis over their expected useful
lives, up to 15 years. In 2011, we acquired eight take-off and landing
slots at each of New York’s LaGuardia Airport and Washington D.C.’s
Ronald Reagan National Airport for approximately $72 million, of which
$32 million was paid in 2012. As of December31, 2012 and 2011, the
cost of intangible assets recorded was $76 million in each respective year,
and the accumulated amortization recorded was $6 million and $2 million,
respectively, both of which are included in other long term assets on
our consolidated balance sheet. Amortization expense related to these
intangible assets is expected to be approximately $5 million in each of
2013 through 2017. We periodically evaluate these intangible assets for
impairment; however we have not recorded any impairment losses to date
through December31, 2012.
Intangible assets also include an indefi nite lived asset related to an
air-to-ground spectrum license acquired by LiveTV in 2006 at a public
auction from the Federal Communications Commission for approximately
$7 million.In September 2010, we determined this spectrum license had
been impaired as further discussed in Note 14, which resulted in a loss
of approximately $5 million being recorded in other operating expenses
during 2010. There was no further impairment in 2012 or 2011, leaving
approximately $2 million remaining in other long term assets related to
this license as of December31, 2012.
Passenger Revenues: Passenger revenue is recognized net of the taxes
that we are required to collect from our customers, including federal
transportation taxes, security taxes and airport facility charges, 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 traffi c liability.