JetBlue Airlines 2012 Annual Report Download - page 66

JETBLUE AIRWAYS CORPORATION-2012 10K62
PART II
ITEM 8Financial Statements and Supplementary Data
NOTE 14 Fair Value
Under the Fair Value Measurements and Disclosures topic of the Codifi cation,
disclosures are required about how fair value is determined for assets and
liabilities and a hierarchy for which these assets and liabilities must be grouped
is established, based on signifi cant levels of inputs as follows:
• Level 1 quoted prices in active markets for identical assets or liabilities;
•Level 2 quoted prices in active markets for similar assets and liabilities
and inputs that are observable for the asset or liability; or
• Level 3 unobservable inputs for the asset or liability, such as discounted
cash fl ow models or valuations.
The determination of where assets and liabilities fall within this hierarchy
is based upon the lowest level of input that is signifi cant to the fair value
measurement. The following is a listing of our assets and liabilities required
to be measured at fair value on a recurring basis and where they are
classifi ed within the fair value hierarchy (as described in Note 1) (in millions).
The carrying values of all other fi nancial instruments approximated their
fair values at December31, 2012 and 2011. Refer to Note 2 for fair value
information related to our outstanding debt obligations as of December31,
2012 and 2011.
As of December 31, 2012
Level1 Level2 Level3 Total
Assets
Cash and cash equivalents $ 84 $ — $ — $ 84
Restricted cash 4 — — 4
Available-for-sale investment securities 68 207 — 275
$ 156 $ 207 $ — $ 363
Liabilities
Aircraft fuel derivatives $ — $ 1 $ — $ 1
Interest rate swap — 12 — 12
$ —$ 13$ —$ 13
As of December 31, 2011
Level1 Level2 Level3 Total
Assets
Cash and cash equivalents $ 555 $ — $ — $ 555
Restricted cash 4 — — 4
Available-for-sale investment securities — 253 — 253
Aircraft fuel derivatives — 5 — 5
$ 559 $ 258 $ — $ 817
Liabilities
Aircraft fuel derivatives $ — $ 9 $ — $ 9
Interest rate swap — 20 — 20
$ —$ 29$ —$ 29
Cash and Cash Equivalents: Our cash and cash equivalents include
money market securities, treasury bills, and commercial paper which
are readily convertible into cash with maturities of three months or less
when purchased, all of which are considered to be highly liquid and easily
tradable. These securities are valued using inputs observable in active
markets for identical securities and are therefore classifi ed as Level 1
within our fair value hierarchy.
Available-for-sale investment securities: Included in our available-for-
sale investment securities are certifi cates of deposits and commercial
paper with original maturities greater than 90 days but less than one
year. The fair values of these instruments are based on observable
inputs in non-active markets, which are therefore classifi ed as Level 2
in the hierarchy. At December 31, 2012, we also held treasury bills with
maturities greater than three months when purchased. The fair value of
the treasury bills are based on actively traded quoted market prices and
are therefore classifi ed as Level 1 in the hierarchy. We did not record any
signifi cant gains or losses on these securities during the twelve months
ended December31, 2012 or 2011.
Auction rate securities: We had historically held auction rate securities,
or ARS, long-term debt securities for which interest rates reset regularly
at pre-determined intervals, typically 28 days, through an auction process.
During 2010, UBS, a broker-dealer, re-purchased ARS from us at their
par value of $85 million in satisfaction of a previously executed settlement
agreement. Prior to entering into the settlement agreement, we had
estimated the value of these ARS using discounted cash fl ows, a level
3 input, as a result of their par values not approximating their fair values.
The re-purchase of ARS by UBS did not result in a net gain or loss in the
year of settlement.
Interest rate swaps: The fair values of our interest rate swaps are based
on inputs received from the related counterparty, which are based on
observable inputs for active swap indications in quoted markets for similar
terms. We had previously classifi ed our interest rate swaps as Level 3 inputs
in the hierarchy with the belief some of these inputs were not observable.
However, since these inputs are all observable, we believe the appropriate
classifi cation is as Level 2 inputs in the hierarchy. We have refl ected this
adjustment for all periods presented in the tables above.
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 classifi ed as Level 2 inputs.
The data inputs are combined into quantitative models and processes
to generate forward curves and volatilities related to the specifi c 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 indefi nite lived intangible asset, refl ected in other long term
assets in our consolidated balance sheets. In late 2007, we unveiled