JetBlue Airlines 2013 Annual Report Download - page 56

JETBLUE AIRWAYS CORPORATION-2013Annual Report50
PART II
ITEM 8Financial Statements and Supplementary Data
(5) In June 2009, we completed a public offering for an aggregate principal amount of $115 million of 6.75% Series A convertible debentures due 2039, or the Series A 6.75% Debentures.
We simultaneously completed a public offering for an aggregate principal amount of $86 million of 6.75% Series B convertible debentures due 2039, or the Series B 6.75% Debentures.
These are collectively known as the 6.75% Debentures. The 6.75% Debentures are general obligations and rank equal in right of payment with all of our existing and future senior unsecured
debt. They are effectively junior in right of payment to our existing and future secured debt, including our secured equipment debentures, to the extent of the value of the assets securing
such debt, and senior in right of payment to any subordinated debt. In addition, the 6.75% Debentures are structurally subordinated to all existing and future liabilities of our subsidiaries.
The net proceeds were approximately $197 million after deducting underwriting fees and other transaction related expenses. Interest on the 6.75% Debentures is payable semi-annually on
April 15 and October 15. The first interest payment on the 6.75% Debentures was paid October 15, 2009.
Holders of either the Series A or Series B 6.75% Debentures may convert them into shares of our common stock at any time at a conversion rate of 204.6036 shares per $1,000 principal
amount of the 6.75% Debentures. The conversion rates are subject to adjustment should we declare common stock dividends or effect any common stock splits or similar transactions.
If the holders convert the Series A 6.75% Debentures in connection with a fundamental change that occurs prior to October 15, 2014, the applicable conversion rate may be increased
depending on our then current common stock price. The same applies to the Series B 6.75% Debentures prior to October 15, 2016. The maximum number of shares into which all of
the 6.75% Debentures are convertible, including pursuant to this make-whole fundamental change provision, is 235.2941 shares per $1,000 principal amount of the 6.75% Debentures
outstanding, as adjusted, or 38.1 million shares as of December 31, 2013.
We may redeem any of the 6.75% Debentures for cash at a redemption price of 100% of their principal amount, plus accrued and unpaid interest at any time on or after October 15, 2014
for the Series A 6.75% Debentures and October 15, 2016 for the Series B 6.75% Debentures. Holders may require us to repurchase the 6.75% Debentures for cash at a repurchase price
equal to 100% of their principal amount plus accrued and unpaid interest, if any, on October 15, 2014, 2019, 2024, 2029 and 2034 for the Series A 6.75% Debentures and October 15,
2016, 2021, 2026, 2031 and 2036 for the Series B 6.75% Debentures; or at any time prior to their maturity upon the occurrence of a certain designated event.
During 2011, we repurchased a total of $39 million principal amount of our Series A 6.75% Debentures for approximately $45 million. We recognized a loss of approximately $6 million on
these transactions, which was included in interest income and other in our consolidated statements of operation during 2011.
We evaluated the various embedded derivatives within the supplemental indenture for bifurcation from the 6.75% Debentures under the applicable provisions, including the basic conversion
feature, the fundamental change make-whole provision and the put and call options. Based upon our detailed assessment, we 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.
(6) In June 2008, we completed a public offering for an aggregate principal amount of $100.6 million of 5.5% Series A convertible debentures due 2038, or the Series A 5.5% Debentures.
We simultaneously completed a public offering for an aggregate principal amount of $100.6 million for 5.5% Series B convertible debentures due 2038, or the Series B 5.5% Debentures.
These are collectively known as the 5.5% Debentures. The 5.5% Debentures are general senior obligations and were originally 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 series of the 5.5% Debentures. As of December 31, 2011, all funds originally deposited in the escrow account had been used. Interest on
the 5.5% Debentures is payable semi-annually on April 15 and October 15.
Holders of the Series A 5.5% Debentures may convert them into shares of our common stock at any time at a conversion rate of 220.6288 shares per $1,000 principal amount of Series A
5.5% Debenture. Holders of the Series B 5.5% Debentures may convert them into shares of our common stock at any time at a conversion rate of 225.2252 shares per $1,000 principal
amount of Series B 5.5% Debenture. The conversion rates are subject to adjustment should we declare common stock dividends or effect any common stock splits or similar transactions.
If the holders convert the Series B 5.5% Debentures in connection with any fundamental corporate change that occurs prior to October 15, 2015 the applicable conversion rate may be
increased depending upon our then current common stock price. The maximum number of shares of common stock into which all of the remaining 5.5% Debentures are convertible,
including pursuant to this make-whole fundamental change provision, is 18.2 million shares. Holders who converted their 5.5% Debentures prior to April 15, 2011 received, in addition to
the number of shares of our common stock calculated at the applicable conversion rate, a cash payment from the escrow account for the 5.5% Debentures of the series converted equal
to the sum of the remaining interest payments that would have been due on or before April 15, 2011 in respect of the converted 5.5% Debentures.
We may redeem any of the 5.5% Debentures for cash at a redemption price of 100% of their principal amount, plus accrued and unpaid interest at any time on or after October 15, 2015
for the Series B 5.5% Debentures. Holders may require us to repurchase the 5.5% Debentures for cash at a repurchase price equal to 100% of their principal amount plus accrued and
unpaid interest, if any, on October 15, 2013, 2018, 2023, 2028, and 2033 for the Series A 5.5% Debentures and October 15, 2015, 2020, 2025, 2030, and 2035 for the Series B 5.5%
Debentures; or at any time prior to their maturity upon the occurrence of a specified designated event.
In June 2008, in conjunction with the public offering of the 5.5% Debentures described above, we also entered into a share lending agreement with Morgan Stanley & Co. Incorporated, an
affiliate of the underwriter of the offering, or the share borrower, pursuant to which we loaned the share borrower approximately 44.9 million shares of our common stock. Under the share
lending agreement, the share borrower is required to return the borrowed shares when the debentures are no longer outstanding. We did not receive any proceeds from the sale of the
borrowed shares by the share borrower, but we did receive a nominal lending fee of $0.01 per share from the share borrower for the use of borrowed shares.
Our share lending agreement requires the shares borrowed be returned upon the maturity of the related debt, October 2038, or earlier, if the debentures are no longer outstanding. We
determined the fair value of the share lending arrangement was approximately $5 million at the date of the issuance based on the value of the estimated fees the shares loaned would have
generated over the term of the share lending arrangement. The $5 million value was recognized as a debt issuance cost and is being amortized to interest expense through the earliest put
date of the related debt, October 2013 and October 2015 for Series A and Series B, respectively. As of December 31, 2013, approximately $1 million of net debt issuance costs remain
outstanding related to the share lending arrangement and will continue to be amortized through the earliest put date of the related debt.
During 2008 and 2009, approximately $79 million principal amount of the 5.5% Debentures were voluntarily converted by holders. As a result, we issued 17.5 million shares of our common
stock. Cash payments from the escrow accounts related to the 2008 conversions were $11 million and borrowed shares equivalent to the number of shares of our common stock issued
upon these conversions were returned to us pursuant to the share lending agreement described above. The borrower returned 10.0 million shares to us in September 2009, almost all of
which were voluntarily returned shares in excess of converted shares, pursuant to the share lending agreement. In October 2011, approximately 16.6 million shares were voluntarily returned
to us by the borrower, leaving 1.4 million shares outstanding under the share lending arrangement. At December 31, 2013 the fair value of similar common shares not subject to our share
lending arrangement, based upon our closing stock price, was approximately $12 million. During the fourth quarter of 2013 the remaining principal amount of approximately $55 million of
the Series A 5.5% Debentures were converted by holders and as a result, we issued 12.2 million shares of our common stock. At December 31, 2013, the remaining principal balance of
Series B 5.5% Debentures was $68 million, which is currently convertible into 15.2 million shares of our common stock.
(7) At December 31, 2013 and 2012, four capital leased Airbus A320 aircraft were included in property and equipment at a cost of $152 million with accumulated amortization of $33 million
and $28 million, respectively. The future minimum lease payments under these non-cancelable leases are $14 million in each of 2014 through 2017, $13 million in 2018, and $69 million
in the years thereafter. Included in the future minimum lease payments is $33 million representing interest, resulting in a present value of capital leases of $105 million with a current portion
of $8 million and a long-term portion of $97 million.
During 2012, we modified the debt secured by three of our Airbus A320 aircraft, effectively lowering the borrowing rates over the remaining term of the loans.
In exchange for lower borrowing rates associated with two of these aircraft loans, we deposited funds equivalent to the outstanding principal balance, a total
of approximately $57 million. The deposit, which is included in long-term investment securities on our consolidated balance sheet, will be reduced as quarterly
principal payments are made. If we withdraw the funds deposited, the interest rate on the debt reverts back to the original borrowing rate. As of December 31,
2013 the remaining balance on these funds was approximately $52 million. These deposits are discussed further in Note 1.
In December 2013, we prepaid approximately $94 million of a financing agreement relating to four Airbus A320 aircraft. This prepayment resulted in a net loss
of $3 million, inclusive of premium paid over principal outstanding and deferred financing fees write-off. In December 2013 we additionally prepaid the remaining
$119 million on our Enhanced Equipment Trust Certificate, or EETC, Class G-1 and B-1 certificates that was due to mature in January 2014.
In September 2013, we priced a private placement EETC of pass-through certificates Series 2013-1 for $226 million which will be secured by fourteen Airbus
A320 aircraft. We closed the certificates in October 2013 and are scheduled to receive funding in March 2014 to coincide with the final scheduled principal
payments of $188 million associated with our March 2004 EETC Class G-2 certificates.