Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
JetBlue Airways Corporation
We have audited JetBlue Airways Corporation’s internal control over financial reporting as of
December 31, 2016
, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). JetBlue Airways Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, JetBlue Airways Corporation
maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2016
, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of JetBlue Airways Corporation as of
December 31, 2016
and
2015
, and the related consolidated statements of operations, comprehensive income, cash flows and stockholders’ equity for each of the three years in the period ended
December 31, 2016
of JetBlue Airways Corporation and our report dated
February 17, 2017
expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
New York, New York
February 17, 2017
JETBLUE AIRWAYS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
ASSETS
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
433
|
|
|
$
|
318
|
|
Investment securities
|
|
538
|
|
|
558
|
|
Receivables, less allowance (2016-$5; 2015-$6)
|
|
172
|
|
|
136
|
|
Inventories, less allowance (2016-$12; 2015-$10)
|
|
47
|
|
|
44
|
|
Prepaid expenses and other
|
|
213
|
|
|
172
|
|
Deferred income taxes
|
|
164
|
|
|
145
|
|
Total current assets
|
|
1,567
|
|
|
1,373
|
|
PROPERTY AND EQUIPMENT
|
|
|
|
|
Flight equipment
|
|
7,868
|
|
|
7,079
|
|
Predelivery deposits for flight equipment
|
|
223
|
|
|
171
|
|
Total flight equipment and predelivery deposits, gross
|
|
8,091
|
|
|
7,250
|
|
Less accumulated depreciation
|
|
1,823
|
|
|
1,573
|
|
Total flight equipment and predelivery deposits, net
|
|
6,268
|
|
|
5,677
|
|
Other property and equipment
|
|
972
|
|
|
868
|
|
Less accumulated depreciation
|
|
345
|
|
|
293
|
|
Total other property and equipment, net
|
|
627
|
|
|
575
|
|
Assets constructed for others
|
|
561
|
|
|
561
|
|
Less accumulated depreciation
|
|
185
|
|
|
161
|
|
Total assets constructed for others, net
|
|
376
|
|
|
400
|
|
Total property and equipment, net
|
|
7,271
|
|
|
6,652
|
|
OTHER ASSETS
|
|
|
|
|
|
|
Investment securities
|
|
90
|
|
|
49
|
|
Restricted cash
|
|
62
|
|
|
63
|
|
Other
|
|
497
|
|
|
507
|
|
Total other assets
|
|
649
|
|
|
619
|
|
TOTAL ASSETS
|
|
$
|
9,487
|
|
|
$
|
8,644
|
|
See accompanying notes to consolidated financial statements.
52
JETBLUE AIRWAYS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
Accounts payable
|
|
$
|
242
|
|
|
$
|
205
|
|
Air traffic liability
|
|
1,120
|
|
|
1,053
|
|
Accrued salaries, wages and benefits
|
|
342
|
|
|
302
|
|
Other accrued liabilities
|
|
330
|
|
|
267
|
|
Current maturities of long-term debt and capital leases
|
|
189
|
|
|
448
|
|
Total current liabilities
|
|
2,223
|
|
|
2,275
|
|
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
|
|
1,195
|
|
|
1,379
|
|
CONSTRUCTION OBLIGATION
|
|
457
|
|
|
472
|
|
DEFERRED TAXES AND OTHER LIABILITIES
|
|
|
|
|
Deferred income taxes
|
|
1,509
|
|
|
1,218
|
|
Other
|
|
90
|
|
|
90
|
|
Total deferred taxes and other liabilities
|
|
1,599
|
|
|
1,308
|
|
COMMITMENTS AND CONTINGENCIES (Notes 10 & 11)
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
Preferred stock, $0.01 par value; 25 shares authorized, none issued
|
|
—
|
|
|
—
|
|
Common stock, $0.01 par value; 900 shares authorized, 414 and 392 shares issued and 337 and 322 shares outstanding at 2016 and 2015, respectively
|
|
4
|
|
|
4
|
|
Treasury stock, at cost; 77 and 70 shares at 2016 and 2015, respectively
|
|
(500
|
)
|
|
(366
|
)
|
Additional paid-in capital
|
|
2,050
|
|
|
1,896
|
|
Retained earnings
|
|
2,446
|
|
|
1,679
|
|
Accumulated other comprehensive loss
|
|
13
|
|
|
(3
|
)
|
Total stockholders’ equity
|
|
4,013
|
|
|
3,210
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
9,487
|
|
|
$
|
8,644
|
|
See accompanying notes to consolidated financial statements.
53
JETBLUE AIRWAYS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
OPERATING REVENUES
|
|
|
|
|
|
|
Passenger
|
|
$
|
6,013
|
|
|
$
|
5,893
|
|
|
$
|
5,343
|
|
Other
|
|
619
|
|
|
523
|
|
|
474
|
|
Total operating revenues
|
|
6,632
|
|
|
6,416
|
|
|
5,817
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
Aircraft fuel and related taxes
|
|
1,074
|
|
|
1,348
|
|
|
1,912
|
|
Salaries, wages and benefits
|
|
1,698
|
|
|
1,540
|
|
|
1,294
|
|
Landing fees and other rents
|
|
357
|
|
|
342
|
|
|
321
|
|
Depreciation and amortization
|
|
393
|
|
|
345
|
|
|
320
|
|
Aircraft rent
|
|
110
|
|
|
122
|
|
|
124
|
|
Sales and marketing
|
|
259
|
|
|
264
|
|
|
231
|
|
Maintenance, materials and repairs
|
|
563
|
|
|
490
|
|
|
418
|
|
Other operating expenses
|
|
866
|
|
|
749
|
|
|
682
|
|
Total operating expenses
|
|
5,320
|
|
|
5,200
|
|
|
5,302
|
|
OPERATING INCOME
|
|
1,312
|
|
|
1,216
|
|
|
515
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
Interest expense
|
|
(111
|
)
|
|
(128
|
)
|
|
(148
|
)
|
Capitalized interest
|
|
8
|
|
|
8
|
|
|
14
|
|
Interest income and other
|
|
7
|
|
|
1
|
|
|
1
|
|
Gain on sale of subsidiary
|
|
—
|
|
|
—
|
|
|
241
|
|
Total other income (expense)
|
|
(96
|
)
|
|
(119
|
)
|
|
108
|
|
INCOME BEFORE INCOME TAXES
|
|
1,216
|
|
|
1,097
|
|
|
623
|
|
Income tax expense
|
|
457
|
|
|
420
|
|
|
222
|
|
NET INCOME
|
|
$
|
759
|
|
|
$
|
677
|
|
|
$
|
401
|
|
|
|
|
|
|
|
|
EARNINGS PER COMMON SHARE
|
|
|
|
|
|
|
Basic
|
|
$
|
2.32
|
|
|
$
|
2.15
|
|
|
$
|
1.36
|
|
Diluted
|
|
$
|
2.22
|
|
|
$
|
1.98
|
|
|
$
|
1.19
|
|
See accompanying notes to consolidated financial statements.
54
JETBLUE AIRWAYS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
NET INCOME
|
$
|
759
|
|
|
$
|
677
|
|
|
$
|
401
|
|
Changes in fair value of derivative instruments, net of reclassifications into earnings (net of $8, $38, and $(40) of taxes in 2016, 2015 and 2014, respectively)
|
16
|
|
|
60
|
|
|
(63
|
)
|
Total other comprehensive income (loss)
|
16
|
|
|
60
|
|
|
(63
|
)
|
COMPREHENSIVE INCOME
|
$
|
775
|
|
|
$
|
737
|
|
|
$
|
338
|
|
See accompanying notes to consolidated financial statements.
55
JETBLUE AIRWAYS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net income
|
|
$
|
759
|
|
|
$
|
677
|
|
|
$
|
401
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
Deferred income taxes
|
|
270
|
|
|
377
|
|
|
212
|
|
Depreciation
|
|
337
|
|
|
288
|
|
|
263
|
|
Amortization
|
|
56
|
|
|
57
|
|
|
62
|
|
Stock-based compensation
|
|
23
|
|
|
20
|
|
|
20
|
|
Gain on sale of subsidiary
|
|
—
|
|
|
—
|
|
|
(241
|
)
|
Collateral returned (paid) for derivative instruments
|
|
—
|
|
|
52
|
|
|
(49
|
)
|
Changes in certain operating assets and liabilities:
|
|
|
|
|
|
|
(Increase) decrease in receivables
|
|
(21
|
)
|
|
11
|
|
|
1
|
|
Decrease (increase) in inventories, prepaid and other
|
|
1
|
|
|
(5
|
)
|
|
3
|
|
Increase in air traffic liability
|
|
67
|
|
|
80
|
|
|
148
|
|
Increase in accounts payable and other accrued liabilities
|
|
157
|
|
|
64
|
|
|
68
|
|
Other, net
|
|
(17
|
)
|
|
(23
|
)
|
|
24
|
|
Net cash provided by operating activities
|
|
1,632
|
|
|
1,598
|
|
|
912
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(850
|
)
|
|
(837
|
)
|
|
(730
|
)
|
Predelivery deposits for flight equipment
|
|
(161
|
)
|
|
(104
|
)
|
|
(127
|
)
|
Proceeds from sale of subsidiary
|
|
—
|
|
|
—
|
|
|
393
|
|
Purchase of held-to-maturity investments
|
|
(276
|
)
|
|
(370
|
)
|
|
(361
|
)
|
Proceeds from the maturities of held-to-maturity investments
|
|
333
|
|
|
313
|
|
|
379
|
|
Purchase of available-for-sale securities
|
|
(597
|
)
|
|
(372
|
)
|
|
(335
|
)
|
Proceeds from the sale of available-for-sale securities
|
|
517
|
|
|
242
|
|
|
398
|
|
Other, net
|
|
(11
|
)
|
|
(6
|
)
|
|
4
|
|
Net cash used in investing activities
|
|
(1,045
|
)
|
|
(1,134
|
)
|
|
(379
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
Proceeds from:
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
45
|
|
|
84
|
|
|
41
|
|
Issuance of long-term debt
|
|
—
|
|
|
—
|
|
|
342
|
|
Repayment of:
|
|
|
|
|
|
|
Long-term debt and capital lease obligations
|
|
(368
|
)
|
|
(328
|
)
|
|
(702
|
)
|
Acquisition of treasury stock
|
|
(134
|
)
|
|
(241
|
)
|
|
(82
|
)
|
Other, net
|
|
(15
|
)
|
|
(2
|
)
|
|
(16
|
)
|
Net cash used in financing activities
|
|
(472
|
)
|
|
(487
|
)
|
|
(417
|
)
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
115
|
|
|
(23
|
)
|
|
116
|
|
Cash and cash equivalents at beginning of period
|
|
318
|
|
|
341
|
|
|
225
|
|
Cash and cash equivalents at end of period
|
|
$
|
433
|
|
|
$
|
318
|
|
|
$
|
341
|
|
See accompanying notes to consolidated financial statements.
56
JETBLUE AIRWAYS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Shares
|
|
Common
Stock
|
|
Treasury
Shares
|
|
Treasury
Stock
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total
|
Balance at December 31, 2013
|
|
347
|
|
|
$
|
3
|
|
|
51
|
|
|
$
|
(43
|
)
|
|
$
|
1,573
|
|
|
$
|
601
|
|
|
$
|
—
|
|
|
$
|
2,134
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
401
|
|
|
—
|
|
|
401
|
|
Changes in comprehensive loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(63
|
)
|
|
(63
|
)
|
Vesting of restricted stock units
|
|
3
|
|
|
—
|
|
|
1
|
|
|
(9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9
|
)
|
Exercise of stock options
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22
|
|
|
—
|
|
|
—
|
|
|
22
|
|
Stock compensation expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20
|
|
|
—
|
|
|
—
|
|
|
20
|
|
Stock issued under Crewmember stock purchase plan
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19
|
|
|
—
|
|
|
—
|
|
|
19
|
|
Shares repurchased under 2012 share repurchase plan
|
|
—
|
|
|
—
|
|
|
7
|
|
|
(73
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(73
|
)
|
Convertible debt redemption
|
|
15
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
76
|
|
|
—
|
|
|
—
|
|
|
77
|
|
Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Balance at December 31, 2014
|
|
369
|
|
|
$
|
4
|
|
|
59
|
|
|
$
|
(125
|
)
|
|
$
|
1,711
|
|
|
$
|
1,002
|
|
|
$
|
(63
|
)
|
|
$
|
2,529
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
677
|
|
|
—
|
|
|
677
|
|
Changes in comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
60
|
|
|
60
|
|
Vesting of restricted stock units
|
|
2
|
|
|
—
|
|
|
1
|
|
|
(14
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
Exercise of stock options
|
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
59
|
|
|
—
|
|
|
—
|
|
|
59
|
|
Stock compensation expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20
|
|
|
—
|
|
|
—
|
|
|
20
|
|
Stock issued under Crewmember stock purchase plan
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25
|
|
|
—
|
|
|
—
|
|
|
25
|
|
Shares repurchased under 2012 share repurchase plan
|
|
—
|
|
|
—
|
|
|
10
|
|
|
(227
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(227
|
)
|
Convertible debt redemption
|
|
15
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
67
|
|
|
—
|
|
|
—
|
|
|
67
|
|
Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
14
|
|
Balance at December 31, 2015
|
|
392
|
|
|
$
|
4
|
|
|
70
|
|
|
$
|
(366
|
)
|
|
$
|
1,896
|
|
|
$
|
1,679
|
|
|
$
|
(3
|
)
|
|
$
|
3,210
|
|
Cumulative Effect for the adoption of ASU 2016-09
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
8
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
759
|
|
|
—
|
|
|
759
|
|
Changes in comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16
|
|
|
16
|
|
Vesting of restricted stock units
|
|
1
|
|
|
—
|
|
|
1
|
|
|
(14
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
Exercise of stock options
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
10
|
|
Stock compensation expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23
|
|
|
—
|
|
|
—
|
|
|
23
|
|
Stock issued under Crewmember stock purchase plan
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
35
|
|
|
—
|
|
|
—
|
|
|
35
|
|
Shares repurchased under 2016 share repurchase plan
|
|
—
|
|
|
—
|
|
|
6
|
|
|
(120
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(120
|
)
|
Convertible debt redemption
|
|
18
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
86
|
|
|
—
|
|
|
—
|
|
|
86
|
|
Balance at December 31, 2016
|
|
414
|
|
|
$
|
4
|
|
|
77
|
|
|
$
|
(500
|
)
|
|
$
|
2,050
|
|
|
$
|
2,446
|
|
|
$
|
13
|
|
|
$
|
4,013
|
|
See accompanying notes to consolidated financial statements.
57
JETBLUE AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JetBlue Airways Corporation, or JetBlue, is New York's Hometown Airline
™
. We believe our differentiated product and service offerings combined with our competitive cost advantage enables us to effectively compete in the high-value geography we serve. As of December 31,2016, we served
100
destinations in
29
states, the District of Columbia, the Commonwealth of Puerto Rico, the U.S. Virgin Islands, and 21 countries in the Caribbean and Latin America. In December 2015, JetBlue created a new wholly-owned subsidiary, JetBlue Technology Ventures, LLC, or JTV. JTV will invest in or partner with emerging companies in the development of innovative products and services within the travel, hospitality and lifestyle industries.
Note 1—Summary of Significant Accounting Policies
Basis of Presentation
JetBlue provides air transportation services across the United States, the Caribbean and Latin America. Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S., or U.S. GAAP, and include the accounts of JetBlue and our subsidiaries. All majority-owned subsidiaries are consolidated on a line by line basis, with all intercompany transactions and balances being eliminated. In June 2014, LiveTV, LLC (and LTV Global, Inc, and LiveTV International, Inc., subsidiaries of LiveTV, LLC) were sold to Thales Holding Corporation, or Thales, and ceased to be subsidiaries of JetBlue. In September 2014, LiveTV Satellite Communications, LLC was sold to Thales and ceased to be a subsidiary of JetBlue. Following the closure of these sales, the transferred LiveTV operations were no longer presented in our consolidated financial statements. Refer to Note 16 for more details on the sale. Air transportation services accounted for substantially all of the Company’s operations in
2016
,
2015
and
2014
. Accordingly, segment information is not provided for LiveTV operations before the sale.
Use of Estimates
The preparation of our consolidated financial statements and accompanying notes in conformity with U.S. GAAP require us to make certain estimates and assumptions. Actual results could differ from those estimates.
Fair Value
The
Fair Value Measurements and Disclosures
topic of the Financial Accounting Standards Board’s, or FASB, Accounting Standards Codification
™
, or Codification,
establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. This topic clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The topic also requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs. Refer to Note 13 for more information.
Cash and Cash Equivalents
Our cash and cash equivalents include short-term, highly liquid investments which are readily convertible into cash. These investments include money market securities and commercial papers with maturities of three months or less when purchased.
Restricted Cash
Restricted cash primarily consists of security deposits, funds held in escrow for estimated workers’ compensation obligations and performance bonds for aircraft and facility leases.
Accounts and Other Receivables
Accounts and other receivables are carried at cost. They primarily consist of amounts due from credit card companies associated with sales of tickets for future travel. We estimate an allowance for doubtful accounts based on known troubled accounts, if any, and historical experience of losses incurred.
Investment Securities
Investment securities consist of available-for-sale investment securities and held-to-maturity investment securities. When sold, we use a specific identification method to determine the cost of the securities.
Available-for-sale investment securities
Our available-for-sale investment securities include highly liquid investments such as certificates of deposits with maturities between three and twelve months which are stated at fair value.
JETBLUE AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Held-to-maturity investment securities
Our held-to-maturity investments consist of investment-grade interest bearing instruments, primarily treasury notes and bills, which are stated at amortized cost. We do not intend to sell these investment securities and the contractual maturities are not greater than 24 months. Those with maturities less than twelve months are included in short-term investments on our consolidated balance sheets. Those with remaining maturities in excess of twelve months are included in long-term investments on our consolidated balance sheets. We did
not
record any material gains or losses on these securities during the years ended
December 31, 2016
,
2015
or
2014
. The estimated fair value of these investments approximated their carrying value as of
December 31, 2016
and
2015
.
The carrying values of investment securities consisted of the following at
December 31, 2016
and
2015
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Available-for-sale securities
|
|
|
|
|
Time deposits
|
|
$
|
160
|
|
|
$
|
125
|
|
Treasury bills
|
|
115
|
|
|
75
|
|
Commercial paper
|
|
60
|
|
|
55
|
|
Total available-for-sale securities
|
|
335
|
|
|
255
|
|
Held-to-maturity securities
|
|
|
|
|
Treasury notes
|
|
283
|
|
|
30
|
|
Corporate bonds
|
|
10
|
|
|
322
|
|
Total held-to-maturity securities
|
|
293
|
|
|
352
|
|
TOTAL INVESTMENT SECURITIES
|
|
$
|
628
|
|
|
$
|
607
|
|
Derivative Instruments
Derivative instruments, including fuel hedge contracts, fuel basis swap agreements 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 in our consolidated balance sheets. Refer to Note 12 for more information.
Inventories
Inventories consist of expendable aircraft spare parts and supplies that are stated at average cost as well as aircraft fuel that is accounted for on a first-in, first-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 fleet.
Property and Equipment
We record our property and equipment at cost and depreciate these assets on a straight-line basis over their estimated useful lives to their estimated residual values. We capitalize additions, modifications enhancing the operating performance of our assets and the interest related to predelivery deposits used to acquire new aircraft and the construction of our facilities.
Estimated useful lives and residual values for our property and equipment are as follows:
|
|
|
|
|
|
|
Property and Equipment Type
|
|
Estimated Useful Life
|
|
Residual Value
|
Aircraft
|
|
25 years
|
|
20
|
%
|
In-flight entertainment systems
|
|
5-10 years
|
|
0
|
%
|
Aircraft parts
|
|
Fleet life
|
|
10
|
%
|
Flight equipment leasehold improvements
|
|
Lower of lease term or economic life
|
|
0
|
%
|
Ground property and equipment
|
|
2-10 years
|
|
0
|
%
|
Leasehold improvements—other
|
|
Lower of lease term or economic life
|
|
0
|
%
|
Buildings on leased land
|
|
Lease term
|
|
0
|
%
|
JETBLUE AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property under capital leases is initially recorded at an amount equal to the present value of future minimum lease payments which is 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 the assets may be impaired and the undiscounted future cash flows 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.
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
five
and
ten
years. The net book value of computer software, which is included in other assets on our consolidated balance sheets, was
$97 million
and
$93 million
as of
December 31, 2016
and
2015
, respectively. Amortization expense related to computer software was
$32 million
,
$34 million
and
$39 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively. The higher amortization expense during 2014 and 2015 was mainly due to accelerated amortization expense as a result of a change in the expected useful lives of certain software. As of
December 31, 2016
, amortization expense related to computer software is expected to be approximately
$33 million
in
2017
,
$28 million
in
2018
,
$21 million
in
2019
,
$6 million
in
2020
, and
$3 million
in
2021
.
Intangible Assets
Our intangible assets consist primarily of acquired take-off and landing slots, or Slots, at certain domestic airports. Slots are the rights to take-off or land at a specific airport during a specific time period of the day and are a means by which airport capacity and congestion can be managed. We account for Slots at High Density Airports, including Reagan National Airport in Washington, D.C., LaGuardia Airport, and JFK Airport, both in New York City as indefinite life intangible assets which results in no amortization expense. Slots at other airports are amortized on a straight-line basis over their expected useful lives of up to
15 years
. We evaluate our intangible assets for impairment at least annually or when events and circumstances indicate they may be impaired. Indicators include operating or cash flow losses as well as significant decreases in market value. As of
December 31,
2016
and
2015
, our intangible assets for Slots at High Density Airports with indefinite lives was
$139 million
.
Passenger Revenue
Passenger revenue is recognized when the transportation is provided or after the ticket or passenger credit issued upon payment of a change fee expires. It 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. Tickets sold but not yet recognized as revenue and unexpired credits are included in air traffic liability on the consolidated balance sheets.
Loyalty Program
We account for our customer loyalty program, TrueBlue
®
, by recording a liability for the estimated incremental cost of outstanding points earned from JetBlue purchases that we expect to be redeemed. The estimated cost includes incremental fuel, insurance, passenger food and supplies, in-flight entertainment and reservation costs. We adjust this liability, which is included in air traffic liability, based on points earned and redeemed, points that will ultimately go unused, or breakage, changes in the estimated incremental costs associated with providing travel and changes in the TrueBlue
®
program. This liability was
$30 million
and
$24 million
as of December 31, 2016 and 2015, respectively. We estimate breakage based on historical point redemptions. In June 2013, we amended the program so points earned by members never expire. Customers earn points based on the value paid for a trip rather than the length of the trip, and Customers can pool points between small groups of people, branded as Family Pooling
™
. We believe Family Pooling
™
has not had a material impact on the breakage calculation.
TrueBlue
®
points can also be sold to participating companies, including credit card and car rental companies. These sales are accounted for as multiple-element arrangements.
Upon the re-launch of the TrueBlue
®
program in November 2009, we extended our co-branded credit card and membership rewards participation agreements. In connection with these extensions, we received a one-time payment of
$37 million
, which we deferred and recognized as Other revenue over the original term of the agreement through 2015.
JETBLUE AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We identified two elements for our co-branded credit card partnership with American Express
®
which ended in 2015, with one element representing the fair value of the travel that will ultimately be provided when the points are redeemed and the other consisting of marketing related activities that we conduct with the participating company. The fair value of the transportation portion of these point sales is deferred and recognized as passenger revenue when transportation is provided. The marketing portion, which is the excess of the total sales proceeds over the estimated fair value of the transportation to be provided, is recognized in other revenue when the points are sold.
In 2015, we announced a co-branded credit card partnership with Barclaycard
®
, which commenced in March 2016. The agreement is a multiple-element arrangement subject to Accounting Standards Update, or ASU, 2009-13,
Multiple Deliverable Revenue Arrangements.
ASU 2009-13 requires the allocation of the overall consideration received to each deliverable using the estimated selling price. We identified the following deliverables: air transportation; use of the JetBlue brand name and access to our frequent flyer customer lists; advertising; and other airline benefits. In determining the estimated selling price, JetBlue considered multiple inputs, methods and assumptions, including: discounted cash flows; estimated equivalent ticket value, net of fulfillment discount; points expected to be awarded and redeemed; estimated annual spending by cardholder; estimated annual royalty for use of JetBlue's frequent flyer customer lists; and estimated utilization of other airline benefits. The overall consideration received is allocated to each deliverable based on their relative selling prices. The air transportation element is deferred and recognized as passenger revenue when the points are utilized. The other elements are recognized as other revenue when earned.
TrueBlue
®
points sold to participating companies which are not redeemed are recognized as revenue when management determines the probability of redemption is remote. Deferred revenue was
$211 million
and
$181 million
at December 31, 2016 and 2015, respectively.
Airframe and Engine Maintenance and Repair
Regular airframe maintenance for owned and leased flight equipment is charged to expense as incurred unless covered by a third-party long-term flight hour service agreement. We have separate service agreements in place covering scheduled and unscheduled repairs of certain airframe line replacement unit components as well as the engines in our fleet. These agreements, whose original terms generally range from
10
to
15
years, require monthly payments at rates based either on the number of cycles each aircraft was operated during each month or the number of flight hours each engine was operated during each month, subject to annual escalations. These power by the hour agreements transfer certain risks, including cost risks, to the third-party service providers. They generally fix the amount we pay per flight hour or number of cycles in exchange for maintenance and repairs under a predefined maintenance program, which are representative of the time and materials that would be consumed. These costs are expensed as the related flight hours or cycles are incurred.
Advertising Costs
Advertising costs, which are included in sales and marketing, are expensed as incurred. Advertising expense was
$65 million
in
2016
,
$69 million
in
2015
and
$64 million
in
2014
.
Share-Based Compensation
We record compensation expense for share-based awards based on the grant date fair value of those awards. Share-based compensation expense includes an estimate for pre-vesting forfeitures and is recognized over the requisite service periods of the awards on a straight-line basis.
Income Taxes
We account for income taxes utilizing the liability method. Deferred income taxes are recognized for the tax consequences of temporary differences between the tax and financial statement reporting bases of assets and liabilities. A valuation allowance for deferred tax assets is provided unless realizability is judged by us to be more likely than not. Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.
JETBLUE AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
New Accounting Standards
New accounting rules and disclosure requirements can impact our financial results and the comparability of our financial statements. The authoritative literature which has recently been issued and that we believe will impact our consolidated financial statements is described below. There are also several new proposals under development. If and when enacted, these proposals may have a significant impact on our financial statements.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
topic of the Codification, which supersedes existing revenue recognition guidance. Under the new standard, a company will recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled to in exchange for those goods or services. The standard allows for either full retrospective or modified retrospective adoption. In July 2015, the FASB voted to defer the effective date of ASU 2014-09 by one year to interim and annual reporting periods beginning after December 15, 2017 and permitted early adoption of the standard, but not prior to December 15, 2016.
While we are evaluating the full impact of the new standard on our consolidated financial statements, we have determined that it will impact our loyalty program accounting. JetBlue will no longer be allowed to use the incremental cost method when recording the financial impact of TrueBlue
®
points earned on qualifying JetBlue purchases. We will be required to re-value our liability with a relative fair value approach, which is anticipated to significantly increase the related liability. In addition the standard will likely result in a change in the timing and classification of our revenue recognition for certain ancillary fees directly related to passenger revenue tickets, as these services are not longer likely to be considered distinct performance obligations. Fees associated with these services are likely to be recognized as of the date of travel, not when assessed to the customer, and classified as passenger revenue.
JetBlue currently anticipates adopting the new standard effective January 1, 2018 using the full retrospective method, however, this decision is not final and is subject to the completion of our analysis of the standard. We will continue our evaluation of ASU 2014-09 through the date of adoption.
In November 2015, the FASB issued ASU 2015-17,
Income Taxes, Balance Sheet Classification of Deferred Taxes
topic of the Codification. This standard requires all deferred tax assets and liabilities to be classified as non-current on the balance sheet instead of separating deferred taxes into current and non-current amounts. In addition, valuation allowance allocations between current and non-current deferred tax assets are no longer required because those allowances also will be classified as non-current. This standard is effective for public companies for annual periods beginning after December 15, 2016. Our current deferred tax asset and non-current deferred tax liability as of December 31, 2016 were
$164 million
and
$1.5 billion
, respectively.
During the first quarter of 2016, we adopted ASU 2015-03,
Interest - Imputation of Interest
,
Simplifying the Presentation of Debt Issuance Costs
topic of the FASB Codification, or Codification. ASU 2015-03 provides a simplified presentation of debt issuance costs and requires that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Upon adoption, ASU 2015-03 requires retrospective application to all prior periods presented in the financial statements. Our consolidated balance sheet as of December 31, 2015 reflects retrospective application and includes our unamortized debt issuance costs of
$16 million
within long-term debt and capital lease obligations. Prior to adoption this amount was included within other long-term assets.
Also during the first quarter of 2016, we adopted ASU 2015-05,
Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement
topic of the Codification, which provides guidance to clarify customers' accounting for fees paid in a cloud computing arrangement. Customers' cloud computing arrangements which include a software license should account for the software license consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. We adopted ASU 2015-05 prospectively and the amendments did not have a significant impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
. Under ASU 2016-02, a lessee will recognize liabilities for lease payments and right-of-use assets representing its right to use the underlying asset for the lease term. While we are still evaluating the full impact of adopting the amendments on our consolidated financial statements and disclosures, we have determined that the most significant impact will be our accounting for leased aircraft and other leasing agreements, requiring the presentation of those leases with durations of greater than twelve months on the balance sheet. The amendments are effective for fiscal years beginning after December 15, 2018 and includes interim periods within those fiscal years. Early adoption is permitted, and companies are required to use a modified retrospective approach at the earliest period presented.
JETBLUE AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
. The amendments apply to several aspects of accounting for stock-based compensation including the recognition of excess tax benefits and deficiencies and their related presentation in the statement of cash flows as well as accounting for forfeitures. We early adopted, as permitted, this standard during the fourth quarter of 2016. The adoption of this standard resulted in the recognition of
$8 million
of previously unrecognized excess tax benefits in deferred tax assets and an increase to retained earnings on our consolidated balance sheet as of the beginning of the current year, and the recognition of
$8 million
of excess tax benefits to the income tax provision for the year ended December 31, 2016. Excess tax benefits for share-based payments are now included in net operating cash flows rather than net financing cash flows. The changes have been applied prospectively in accordance with the ASU and prior periods have not been adjusted.
In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230), Restricted Cash.
The amendments clarified how entities should present restricted cash and restricted cash equivalents in the statement of cash flows. ASU 2016-18 requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The amendments are effective for fiscal years beginning after December 15, 2017 and includes interim periods within those years. Early adoption is permitted.
Note 2—Long-term Debt, Short-term Borrowings and Capital Lease Obligations
Long-term debt and capital lease obligations and the related weighted average interest rate at
December 31, 2016
and
2015
consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Secured Debt
|
|
|
|
|
|
|
|
|
Floating rate equipment notes, due through 2025
(1)
|
|
$
|
173
|
|
|
4.2
|
%
|
|
$
|
193
|
|
|
3.7
|
%
|
Floating rate enhanced equipment notes
(2)
|
|
|
|
|
|
|
|
|
Class G-1, due 2016
|
|
—
|
|
|
—
|
%
|
|
16
|
|
|
4.4
|
%
|
Class G-2, due 2016
|
|
—
|
|
|
—
|
%
|
|
185
|
|
|
1.0
|
%
|
Fixed rate enhanced equipment notes, due through 2023
(3)
|
|
189
|
|
|
4.5
|
%
|
|
201
|
|
|
4.5
|
%
|
Fixed rate equipment notes, due through 2026
|
|
850
|
|
|
5.5
|
%
|
|
964
|
|
|
5.5
|
%
|
Fixed rate specialty bonds, due through 2036
(4)
|
|
43
|
|
|
4.9
|
%
|
|
43
|
|
|
4.9
|
%
|
Unsecured Debt
|
|
|
|
|
|
|
|
|
6.75% convertible debentures due in 2039
(5)
|
|
—
|
|
|
|
|
86
|
|
|
|
Capital Leases
(6)
|
|
140
|
|
|
4.3
|
%
|
|
155
|
|
|
4.1
|
%
|
Total debt and capital lease obligations
|
|
1,395
|
|
|
|
|
1,843
|
|
|
|
Less: Current maturities
|
|
(189
|
)
|
|
|
|
(448
|
)
|
|
|
Less: Debt acquisition cost
(7)
|
|
(11
|
)
|
|
|
|
(16
|
)
|
|
|
Long-term debt and capital lease obligations
|
|
$
|
1,195
|
|
|
|
|
$
|
1,379
|
|
|
|
(1)
Interest rates adjust quarterly or semi-annually based on
LIBOR, plus a margin
.
(2)
In March and November 2004, we completed public offerings for
$431 million
and
$498 million
, respectively, of pass-through certificates, or EETC. These offerings were set up in order to finance the purchase of
28
new Airbus A320 aircraft delivered through 2005. Separate trusts were established for each class of these certificates. In March 2014, we paid the final scheduled principal payment of
$188 million
associated with our March 2004 EETC Class G-2 certificates. In November 2016, we paid the final scheduled principal payment of
$185 million
associated with our November 2004 EETC Class G-2 certificates.
(3)
In March 2014, we completed a private placement of
$226 million
in pass-through certificates, Series 2013-1. The certificates were issued by a pass-through trust and are not obligations of JetBlue. The proceeds from the issuance of the pass-through certificates were used to purchase equipment notes issued by JetBlue and secured by
14
of our previously unencumbered aircraft. Principal and interest are payable
semi-annually
, starting in September 2014.
JETBLUE AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4)
In November 2005, the Greater Orlando Aviation Authority, or GOAA, issued special purpose airport facilities revenue bonds to JetBlue as reimbursement for certain airport facility construction and other costs. In April 2013, GOAA issued
$42 million
in special purpose airport facility revenue bonds to refund the bonds issued in 2005. The proceeds from the refunded bonds were loaned to us and we recorded the issuance of
$43 million
, net of
$1 million
premium, as long term debt on our consolidated balance sheets. In December 2006, the New York City Industrial Development Agency issued special facility revenue bonds for JFK to us as reimbursement to us for certain airport facility construction and other costs. We recorded the principal amount of the bond, net of discounts, as long-term debt on our consolidated balance sheets because we have issued a guarantee of the debt payments on the bond. This fixed rate debt is secured by leasehold mortgages of our airport facilities. During June 2015, we prepaid the full
$32 million
principal outstanding on the JFK special facility revenue bonds.
(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.
In 2016, holders voluntarily converted
$86 million
in principal amount into shares of our common stock, as a result we issued approximately
17.6 million
shares.
(6)
As of
December 31, 2016
and
2015
,
four
capital leased Airbus A320 aircraft and
two
capital leased Airbus A321 aircraft were included in property and equipment at a cost of
$253 million
with accumulated amortization of
$56 million
and
$48 million
, respectively. The future minimum lease payments under these non-cancelable leases are
$23 million
in
2017
,
$23 million
in
2018
,
$23 million
in
2019
,
$35 million
in
2020
,
$39 million
in
2021
and
$24 million
in the years thereafter. Included in the future minimum lease payments is
$27 million
representing interest, resulting in a present value of capital leases of
$140 million
with a current portion of
$16 million
and a long-term portion of
$124 million
.
(7)
Retrospective application to 2015 as required under ASU 2015-03
Interest - Imputation of Interest
,
Simplifying the Presentation of Debt Issuance Costs
. See Note 1 for additional information.
During 2015, we prepaid
$100 million
of outstanding principal related to
10
Airbus A320 aircraft, as a result,
four
aircraft became unencumbered and
six
had lower principal balances.
As of
December 31, 2016
, we were in compliance with all of our covenants in relation to our debt and lease agreements. Maturities of long-term debt and capital leases for the next five years are as follows (in millions):
|
|
|
|
|
|
Year
|
|
Maturities
|
|
2017
|
|
$
|
185
|
|
2018
|
|
193
|
|
2019
|
|
215
|
|
2020
|
|
179
|
|
2021
|
|
164
|
|
Thereafter
|
|
448
|
|
Aircraft, engines, and other equipment and facilities having a net book value of
$2.4 billion
at
December 31, 2016
were pledged as security under various financing arrangements. Cash payments for interest related to debt and capital lease obligations, net of capitalized interest, aggregated
$78 million
,
$93 million
and
$102 million
in
2016
,
2015
and
2014
, respectively.
JETBLUE AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The carrying amounts and estimated fair values of our long-term debt (excluding capital lease obligations and debt issuance costs) at
December 31, 2016
and
2015
were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
Carrying Value
|
|
Estimated Fair Value
|
Public Debt
|
|
|
|
|
|
|
|
|
Floating rate enhanced equipment notes
|
|
|
|
|
|
|
|
|
Class G-1, due 2016
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16
|
|
|
$
|
16
|
|
Class G-2, due 2016
|
|
—
|
|
|
—
|
|
|
185
|
|
|
184
|
|
Fixed rate special facility bonds, due through 2036
|
|
43
|
|
|
45
|
|
|
43
|
|
|
45
|
|
6.75% convertible debentures due in 2039
|
|
—
|
|
|
—
|
|
|
86
|
|
|
405
|
|
Non-Public Debt
|
|
|
|
|
|
|
|
|
Fixed rate enhanced equipment notes, due through 2023
|
|
850
|
|
|
915
|
|
|
201
|
|
|
209
|
|
Floating rate equipment notes, due through 2025
|
|
173
|
|
|
179
|
|
|
193
|
|
|
195
|
|
Fixed rate equipment notes, due through 2026
|
|
189
|
|
|
197
|
|
|
964
|
|
|
1,042
|
|
Total
|
|
$
|
1,255
|
|
|
$
|
1,336
|
|
|
$
|
1,688
|
|
|
$
|
2,096
|
|
The estimated fair values of our publicly held long-term debt are classified as Level 2 in the fair value hierarchy. The fair values of our EETC transactions and our special facility bonds were based on quoted market prices in markets with low trading volumes. The fair value of our convertible debentures was based upon other observable market inputs since they are not actively traded. The fair value of our non-public debt was estimated using a discounted cash flow analysis based on our borrowing rates for instruments with similar terms and therefore classified as Level 3 in the fair value hierarchy. The fair values of our other financial instruments approximate their carrying values. Refer to Note 14 for additional information on fair value.
We have financed certain aircraft with EETCs as one of the benefits is being able to finance several aircraft at one time, rather than individually. The structure of EETC financing is that we create pass-through trusts in order to issue pass-through certificates. The proceeds from the issuance of these certificates are then used to purchase equipment notes which are issued by us and are secured by our aircraft. These trusts meet the definition of a variable interest entity, or VIE, as defined in the
Consolidations
topic of the Codification, and must be considered for consolidation in our consolidated financial statements. Our assessment of the EETCs considers both quantitative and qualitative factors including the purpose for which these trusts were established and the nature of the risks in each. The main purpose of the trust structure is to enhance the credit worthiness of our debt obligation through certain bankruptcy protection provisions, liquidity facilities and lower our total borrowing cost. We concluded that we are not the primary beneficiary in these trusts due to our involvement in them being limited to principal and interest payments on the related notes, the trusts were not set up to pass along variability created by credit risk to us and the likelihood of our defaulting on the notes. Therefore, we have not consolidated these trusts in our consolidated financial statements.
Short-term Borrowings
We have several lines of credit which bear interest at a floating rate based upon
LIBOR plus a margin
range of between
1.0%
and
2.75%
.
Morgan Stanley Line of Credit
We have a revolving line of credit with Morgan Stanley for up to approximately
$200 million
. This line of credit is secured by a portion of our investment securities held by Morgan Stanley and the amount available to us under this line of credit may vary accordingly. This line of credit bears interest at a floating rate based upon
LIBOR, plus a margin
. As of and for the years ended
December 31, 2016
and 2015, we did
not
have a balance outstanding or borrowings under this line of credit.
JETBLUE AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Citibank Line of Credit
We have a revolving Credit and Guaranty Agreement with Citibank, N.A. as the administrative agent for up to approximately
$400 million
. The term of the facility runs through April 2018. Borrowings under the Credit and Guaranty Agreement bear interest at a variable rate equal to
LIBOR, plus a margin
. The Credit and Guaranty Agreement is secured by Slots at JFK, LaGuardia and Reagan National Airport as well as certain other assets. The Credit and Guaranty Agreement includes covenants that require us to maintain certain minimum balances in unrestricted cash, cash equivalents, and unused commitments available under all revolving credit facilities. In addition, the covenants restrict our ability to incur additional indebtedness, issue preferred stock or pay dividends. As of and for the years ended
December 31, 2016
and 2015, we did
not
have a balance outstanding or borrowings under this line of credit.
Note 3—Operating Leases
We lease aircraft, all of our facilities at the airports we serve, office space and other equipment. These leases have varying terms and conditions, with some having early termination clauses which we determine to be the lease expiration date. The length of the lease depends upon the type of asset being leased, with the latest lease expiring in
2035
. Total rental expense for all of our operating leases was
$294 million
in
2016
,
$298 million
in
2015
and
$298 million
in
2014
. As of
December 31, 2016
, we have approximately
$31 million
in assets that serve as collateral for letters of credit. These letters of credit relate to a certain number of our leases and are included in restricted cash.
As of
December 31, 2016
,
47
of the
227
aircraft in our fleet were leased under operating leases, with lease expiration dates ranging from
2018
to
2028
.
No
ne of the
47
aircraft operating leases have variable rate rent payments based on
LIBOR
. Leases for
40
of our aircraft can generally be renewed at rates based on fair market value at the end of the lease term for one or two years. We have purchase options for
42
of our aircraft leases at the end of their lease term. These purchase options are at fair market value and have a one-time option during the term at fixed amounts that were expected to approximate the fair market value at lease inception.
During 2016, we extended the lease on
two
Airbus A320 aircraft that were previously set to expire by 2017. These extensions resulted in an additional
$7 million
of lease commitments through 2020. During 2015, we extended the lease on
one
Airbus A320 aircraft that was previously set to expire in 2016. This extension resulted in an additional
$9 million
of lease commitments through 2020. We did
not
extend any leases on our fleet during 2014. Our policy is to record lease return conditions when they are probable and the costs can be estimated.
In the fourth quarter of 2016, we bought out the operating leases on
nine
Airbus A320 aircraft for approximately
$164 million
.
In the fourth quarter of 2015, we bought out the operating leases on
six
Airbus A320 aircraft for approximately
$110 million
.
Future minimum lease payments under noncancelable operating leases, including those described above, with initial or remaining terms in excess of one year at
December 31, 2016
, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft
|
|
Other
|
|
Total
|
2017
|
|
$
|
74
|
|
|
$
|
97
|
|
|
$
|
171
|
|
2018
|
|
76
|
|
|
90
|
|
|
166
|
|
2019
|
|
61
|
|
|
82
|
|
|
143
|
|
2020
|
|
59
|
|
|
64
|
|
|
123
|
|
2021
|
|
51
|
|
|
57
|
|
|
108
|
|
Thereafter
|
|
183
|
|
|
420
|
|
|
603
|
|
Total minimum operating lease payments
|
|
$
|
504
|
|
|
$
|
810
|
|
|
$
|
1,314
|
|
JETBLUE AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the past we have entered into sale-leaseback arrangements with a third party lender for
40
of our operating aircraft. The sale-leasebacks occurred simultaneously with the delivery of the related aircraft to us from their manufacturers. Each sale-leaseback transaction was structured with a separate trust set up by the third party lender, the assets of which consist of the one aircraft initially transferred to it following the sale by us and the subsequent lease arrangement with us. Because of their limited capitalization and the potential need for additional financial support, these trusts are VIEs as defined in the
Consolidations
topic of the Codification and must be considered for consolidation in our financial statements. Our assessment of each trust considers both quantitative and qualitative factors, including whether we have the power to direct the activities and to what extent we participate in the sharing of benefits and losses of the trusts. JetBlue does not retain any equity interests in any of these trusts and our obligations to them are limited to the fixed rental payments we are required to make to them. These were approximately
$372 million
as of
December 31, 2016
and are reflected in the future minimum lease payments in the table above. Our only interest in these entities is the purchase options to acquire the aircraft as specified above. Since there are no other arrangements, either implicit or explicit, between us and the individual trusts that would result in our absorbing additional variability from the trusts, we concluded we are not the primary beneficiary of these trusts. We account for these leases as operating leases, following the appropriate lease guidance as required by the
Leases
topic in the Codification.
Note 4—JFK Terminal 5
We operate out of T5 at JFK and our occupancy is governed by various lease agreements with the PANYNJ. Under the terms of the facility lease agreement we were responsible for the construction of the
635,000
square foot
26
-gate terminal, a parking garage, roadways and an AirTrain Connector, all of which are owned by the PANYNJ and collectively referred to as the T5 Project. In 2012, we commenced construction on an expansion to T5, referred to as T5i, for an international arrivals facility and additional gates. The construction of T5i was completed in November 2014, with the first international flight using the facilities on November 12, 2014. T5i includes
six
international arrival gates comprised of
three
new gates and
three
converted gates from T5, as well as an international arrivals hall with full U.S. Customs and Border Protection services.
We executed an extension to the original T5 lease in 2013. The lease, as amended, now incorporates a total of approximately
19
acres of space for our T5 facilities and ends on the 28th anniversary of the date of beneficial occupancy of T5i. We have the option to terminate the agreement in
2033
, five years prior to the end of the original scheduled lease term of October 2038. We are responsible for various payments under the leases, including ground rents which are reflected in the future minimum lease payments table in Note 3, and facility rents which are included below. The facility rents are based upon the number of passengers enplaned out of the terminal, subject to annual minimums.
We were considered the owner of the T5 Project for financial reporting purposes only and have been required to reflect an asset and liability for the T5 Project on our consolidated balance sheets since construction commenced in 2005. The cost of the T5 Project and the related liability are being accounted for as a financing obligation. Our construction of T5i is accounted for at cost with no financing obligation.
Total costs incurred for the elements of the T5 Project were
$637 million
, of which
$561 million
is classified as Assets Constructed for Others and the remaining
$76 million
is classified as leasehold improvements in our consolidated balance sheets. Assets Constructed for Others are being amortized over the shorter of the
25
year non-cancelable lease term or their economic life. We recorded amortization expense of
$23 million
in
2016
,
2015
and
2014
, respectively. Our total expenditures relating to T5i were approximately
$207 million
, all of which were incurred prior to
2016
and are classified as leasehold improvements in our consolidated balance sheets.
The PANYNJ has reimbursed us for the amounts currently included in Assets Constructed for Others. These reimbursements and related interest are reflected as Construction Obligation in our consolidated balance sheets. When the facility rents are paid they are treated as a debt service on the Construction Obligation, with the portion not relating to interest reducing the principal balance. Minimum estimated facility payments including escalations associated with the facility lease are estimated to be
$40 million
per year in
2017
through
2021
and
$496 million
thereafter. The portion of these scheduled payments serving to reduce the principal balance of the Construction Obligation is
$16 million
in
2017
,
$17 million
in
2018
,
$18 million
in
2019
,
$19 million
in
2020
and
$20 million
in
2021
. Payments could exceed these amounts depending on future enplanement levels at JFK. Scheduled facility payments representative of interest totaled
$25 million
in
2016
,
$25 million
in
2015
and
$26 million
in
2014
.
JETBLUE AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We sublease portions of T5 including space for concessionaires, the airspace lounge and the TSA facilities.
Three
of our airline commercial partners, Hawaiian Airlines, Aer Lingus and TAP Portugal operate from this terminal and sublease facilities from us. Minimum lease payments due to us are subject to various escalation amounts through 2024. Future minimum lease payments due to us during each of the next five years are estimated to be
$14 million
in
2017
,
$14 million
in
2018
,
$7 million
in
2019
,
$4 million
in
2020
and
$4 million
in
2021
.
Note 5—Stockholders’ Equity
In September 2012, our Board of Directors authorized a share repurchase program for up to
25 million
shares of common stock over a
5
year period.
On May 29, 2014, we entered into an accelerated share repurchase agreement, or ASR, with JP Morgan, or the 2014 ASR, paying
$60 million
for an initial delivery of approximately
5.1 million
shares. The terms of the ASR concluded on September 9, 2014 with JP Morgan delivering approximately
0.4 million
additional shares to JetBlue. A total of approximately
5.5 million
shares was repurchased under the 2014 ASR, with an average price paid per share of
$10.90
. During 2014 in addition to the 2014 ASR, we repurchased approximately
1.6 million
shares of our common stock for approximately
$13 million
.
On June 16, 2015, we entered into an ASR with Goldman, Sachs & Co., or the 2015 ASR, paying
$150 million
for an initial delivery of approximately
6.1 million
shares. The terms of the ASR concluded on September 15, 2015 with Goldman, Sachs & Co. delivering approximately
0.7 million
additional shares to JetBlue. A total of approximately
6.8 million
shares was repurchased under the 2015 ASR, with an average price paid per share of
$22.06
.
In September 2015, JetBlue entered into an agreement for the repurchase of up to
778,460
shares per day, structured pursuant to Rule 10b5-1 and 10b-18 under the Securities Exchange Act of 1934 as amended, with a maximum of
3 million
shares to be repurchased. The repurchases commenced on October 30, 2015 and terminated on November 18, 2015 with
3 million
shares repurchased for approximately
$77 million
.
On September 10, 2015, our Board of Directors authorized a share repurchase program for up to
$250 million
worth of shares of common stock over a
three
year period beginning on January 1, 2016. On December 7, 2016, the Board approved certain changes to our share repurchase program, or the 2016 Repurchase Authorization, to increase the aggregate authorization in the value of the program, to up to
$500 million
worth of shares, and extended the term of the program through
December 31, 2019
. The program includes authorization for repurchases in open market transactions pursuant to Rules 10b-18 and/or 10b5-1 of the Securities and Exchange Act of 1934, as amended and/or one or more accelerated stock repurchase programs through privately-negotiated accelerated stock repurchase transactions.
On November 7, 2016, we entered into an ASR agreement with Goldman, Sachs & Co. paying
$60 million
for an initial delivery of approximately
2.7 million
shares. The terms of the ASR concluded on December 29, 2016 with Goldman, Sachs & Co. delivering approximately
0.2 million
additional shares to JetBlue. A total of approximately
2.9 million
shares was repurchased under this ASR, with an average price paid per share of
$20.74
.
Also on November 7, 2016, we entered into a separate ASR agreement with Morgan Stanley & Co. LLC paying
$60 million
for an initial delivery of approximately
2.7 million
shares. The terms of the ASR concluded on December 30, 2016 with Morgan Stanley & Co. LLC delivering approximately
0.2 million
additional shares to JetBlue. A total of approximately
2.9 million
shares was repurchased under this ASR, with an average price paid per share of
$20.93
.
The total shares purchased by JetBlue under the 2016 Goldman Sachs ASR and 2016 Morgan Stanley ASR, or collectively the 2016 ASRs, the 2015 ASR, and the 2014 ASR were based on the volume weighted average prices of JetBlue's common stock during the terms of the respective agreements.
As of December 31, 2016,
$380 million
worth of common shares remain available for repurchase under the 2016 Repurchase Authorization.
As of
December 31, 2016
, we had a total of
30.6 million
shares of our common stock reserved for issuance. These shares are primarily related to our equity incentive plans. Refer to Note 7 for further details on our share-based compensation.
As of
December 31, 2016
, we had a total of
77.5 million
shares of treasury stock, the majority of which relate to the return of borrowed shares under our share lending agreement.
Morgan Staley terminated our share lending facility in January 2016 and returned the shares outstanding to us. Refer to Note 2 for further details on the share lending agreement. The treasury stock also includes shares that were repurchased under our share repurchase program.
JETBLUE AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6—Earnings Per Share
The following table shows how we computed basic and diluted earnings per common share for the years ended
December 31
(dollars and share data in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Numerator:
|
|
|
|
|
|
|
Net income
|
|
$
|
759
|
|
|
$
|
677
|
|
|
$
|
401
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
Interest on convertible debt, net of income taxes and profit sharing
|
|
2
|
|
|
4
|
|
|
7
|
|
Net income applicable to common stockholders after assumed conversions for diluted earnings per share
|
|
$
|
761
|
|
|
$
|
681
|
|
|
$
|
408
|
|
Denominator:
|
|
|
|
|
|
|
Weighted average shares outstanding for basic earnings per share
|
|
326.5
|
|
|
315.1
|
|
|
294.7
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
Employee stock options and restricted stock units
|
|
2.1
|
|
|
2.8
|
|
|
2.4
|
|
Convertible debt
|
|
13.6
|
|
|
26.9
|
|
|
46.2
|
|
Adjusted weighted average shares outstanding and assumed conversions for diluted earnings per share
|
|
342.2
|
|
|
344.8
|
|
|
343.3
|
|
Shares excluded from EPS calculation:
|
|
|
|
|
|
|
Shares issuable upon exercise of outstanding stock options or vesting of restricted stock units as assumed exercise would be antidilutive
|
|
—
|
|
|
—
|
|
|
6.9
|
|
As of
December 31, 2015
, a total of approximately
1.4 million
shares of our common stock, which were lent to Morgan Stanley, our share borrower pursuant to the terms of our share lending agreement were issued and outstanding for corporate law purposes, but were returned during January 2016. Holders of the borrowed shares had all the rights of a holder of our common stock. However, because the share borrower had to return all borrowed shares to us, or identical shares or, in certain circumstances of default by the counterparty, the cash value thereof, the borrowed shares were not considered outstanding for the purpose of computing and reporting basic or diluted earnings per share.
As discussed in Note 2, during 2016 holders voluntarily converted approximately
$86 million
in principal amount of the 6.75% Series B convertible debentures. As a result, we issued
17.6 million
shares of our common stock. During 2015 holders voluntarily converted approximately
$68 million
in principal amount of the 5.5% Series B convertible debentures. As a result, we issued
15.2 million
shares of our common stock.
As discussed in Note 5, JetBlue entered into the 2016 ASRs, 2015 ASR, 2014 ASR and purchased approximately
5.8 million
,
5.5 million
, and
6.8 million
shares, respectively, for
$120 million
,
$60 million
and
$150 million
, respectively. The number of shares repurchased are based on the volume weighted average prices of JetBlue's common stock during the term of the ASR agreements.
As discussed in Note 5, JetBlue repurchased
three million
shares pursuant to Rule 10b5-1 and 10b-18 under the Securities Exchange Act of 1934 as amended, during the fourth quarter of 2015.
Note 7—Share-Based Compensation
We have various equity incentive plans under which we have granted stock awards to our eligible Crewmembers and members of our Board of Directors. These include the JetBlue Airways Corporation Restated and Amended 2002 Stock Incentive Plan, or 2002 Plan, which was replaced by the JetBlue Airways Corporation 2011 Incentive Compensation Plan, or 2011 Plan. We additionally have a Crewmember Stock Purchase Plan, or CSPP, that is available to all eligible Crewmembers. Both the 2011 Plan and CSPP were amended in 2015 by shareholders at our annual meeting.
JETBLUE AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unrecognized stock-based compensation expense, which was approximately
$17.3 million
as of
December 31, 2016
, related to a total of
2.2 million
unvested restricted stock units, or RSUs, performance stock units, or PSUs, and deferred stock units, or DSUs, under our 2011 Plan. We expect to recognize this stock-based compensation expense over a weighted average period of approximately
one
year.
The total stock-based compensation expense for the years ended
December 31, 2016
,
2015
and
2014
was
$23 million
,
$20 million
, and
$20 million
, respectively.
2011 Incentive Compensation Plan
At our Annual Shareholders Meeting held on May 26, 2011, our shareholders approved the JetBlue Airways Corporation 2011 Incentive Compensation Plan. This replaced the Restated and Amended 2002 Stock Incentive Plan, or 2002 Plan, which was set to expire at the end of 2011. Upon inception, the 2011 Plan had
15.0 million
shares of our common stock reserved for issuance. The 2011 Plan, by its terms, will terminate no later than May 2021. RSUs vest in annual installments over
three
years which can be accelerated upon the occurrence of a change in control. Under this plan, we grant RSUs to certain Crewmembers and members of our Board of Directors. Our policy is to grant RSUs based on the market price of the underlying common stock on the date of grant. Under this plan we grant DSUs, to members of our Board of Directors and PSUs, to certain members of our executive leadership team.
The 2011 Plan was amended and restated effective January 1, 2014, to include the definition of retirement eligibility. Once a Crewmember meets the definition they will continue to vest their shares as if they remained employed by JetBlue, regardless of their actual employment status with the Company. In accordance with the
Compensation-Stock Compensation
topic of the Codification, the grant’s explicit service condition is non-substantive and the grant has effectively vested at the time retirement eligibility is met.
At our Annual Shareholders Meeting held on May 21, 2015, our shareholders approved amendments to the 2011 Plan increasing the number of shares of Company common stock that remain available for issuance under the plan by
7.5 million
.
Restricted Stock Units
The following is a summary of RSU activity under the 2011 Plan for the year ended
December 31, 2016
(in millions except per share data):
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
Nonvested at beginning of year
|
|
2.5
|
|
|
$10.94
|
Granted
|
|
0.7
|
|
|
22.95
|
|
Vested
|
|
(1.4
|
)
|
|
9.34
|
|
Forfeited
|
|
—
|
|
|
—
|
|
Nonvested at end of year
|
|
1.8
|
|
|
$16.77
|
|
|
|
|
|
The total intrinsic value, determined as of the date of vesting, for all RSUs that vested and converted to shares of common stock during the
year ended December 31, 2016
,
2015
and
2014
was
$30 million
,
$33 million
and
$23 million
, respectively. The weighted average grant-date fair value of share awards during the years ended
December 31, 2016
,
2015
and
2014
was
$22.95
,
$17.09
, and
$8.62
, respectively.
The vesting period for DSUs under the 2011 Plan is either
one
or
three
years of service. Once vested, shares are issued
six months and one day
following a Director’s departure from our Board of Directors. During the years ended
December 31, 2016
,
2015
and
2014
, we granted a nominal amount of DSUs, almost all of which remain outstanding at
December 31, 2016
. In
2016
,
2015
and
2014
, we granted a nominal amount of PSUs to members of our executive leadership team which are based upon certain performance criteria.
JETBLUE AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amended and Restated 2002 Stock Incentive Plan
The 2002 Plan included stock options issued during 1999 through 2001 under a previous plan as well as all options issued from 2002 through adoption of the 2011 Plan. It provided for incentive and non-qualified stock options and RSUs to be granted to certain Crewmembers and members of our Board of Directors. Additionally, it provided for DSUs to be granted to members of our Board of Directors. The 2002 Plan became effective following our initial public offering in April 2002. We began issuing RSUs in 2007 and DSUs in 2008. Prior to 2011, the DSUs vested immediately upon being granted. The RSUs vested in annual installments over
three
years which could be accelerated upon the occurrence of a change in control as defined in the 2002 Plan. Our policy to grant RSUs was based on the market price of the underlying common stock on the date of grant. No additional grants were made from this plan after the adoption of the 2011 Plan. Since December 31, 2014, there were no RSUs outstanding under the 2002 Plan.
Stock Options
All options issued under the 2002 Plan expire
ten
years from the date of grant, with the last options vesting in 2012. Our policy is to grant options with an exercise price equal to the market price of the underlying common stock on the date of grant.
The following is a summary of stock option activity for the year ended
December 31, 2016
(in millions except per share data):
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
Outstanding at beginning of year
|
|
1.3
|
|
|
$11.40
|
Exercised
|
|
(0.9
|
)
|
|
11.65
|
|
Forfeited
|
|
—
|
|
|
—
|
|
Expired
|
|
—
|
|
|
—
|
|
Outstanding at end of year
|
|
0.4
|
|
|
$10.90
|
Vested at end of year
|
|
0.4
|
|
|
$10.90
|
The total intrinsic value, determined as of the date of exercise, of options exercised during the years ended
December 31,
2016
,
2015
and
2014
was
$6 million
,
$34 million
and
$5 million
, respectively. Total cash received from option exercises during the years ended
December 31,
2016
,
2015
and
2014
was
$10 million
,
$59 million
and
$22 million
, respectively. We have
not
granted any stock options since 2008 and those previously granted became fully expensed in 2012. Following shareholder approval of the 2011 Plan, we stopped granting new equity awards under the 2002 Plan.
Crewmember Stock Purchase Plan
In May 2011, our shareholders approved the 2011 Crewmember Stock Purchase Plan, or the CSPP. At inception, the CSPP had
8.0 million
shares of our common stock reserved for issuance. The CSPP, by its terms, will terminate no later than the last business day of April 2021.
At our Annual Shareholders Meeting held on May 21, 2015, our shareholders approved amendments to the CSPP increasing the number of shares of Company common stock that remain available for issuance under the plan by
15 million
.
The CSPP has a series of
six
month offering periods, with a new offering period beginning on the first business day of May and November each year. Crewmembers can only join an offering period on the start date. Crewmembers may contribute up to
10%
of their pay towards the purchase of common stock via payroll deductions. Purchase dates occur on the last business day of April and October each year.
Until April 2013, our CSPP was considered non-compensatory as the purchase price discount was
5%
based upon the stock price on the date of purchase. The plan was amended and restated in May 2013 with the CSPP purchase price discount increasing to
15%
based upon the stock price on the date of purchase. In accordance with the
Compensation-Stock Compensation
topic of the Codification, the CSPP no longer meets the non-compensatory definition as the terms of the plan are more favorable than those to all holders of the common stock. For all offering periods starting after May 1, 2013, the compensation cost relating to the discount is recognized over the offering period. The total expense recognized relating to the CSPP for the years ended
December 31, 2016
,
2015
and
2014
was approximately
$6 million
,
$5 million
and
$3 million
, respectively. Under this plan, Crewmembers purchased
2.2 million
,
1.3 million
, and
2.3 million
new shares for the years ended
December 31, 2016
,
2015
and
2014
, respectively, at weighted average prices of
$15.88
,
$19.25
, and
$8.04
per share, respectively.
JETBLUE AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Should we be acquired by merger or sale of substantially all of our assets or sale of more than
50%
of our outstanding voting securities, all outstanding purchase rights will automatically be exercised immediately prior to the effective date of the acquisition at a price equal to
85%
of the fair market value per share immediately prior to the acquisition.
Taxation
The
Compensation-Stock Compensation
topic of the Codification requires deferred taxes be recognized on temporary differences that arise with respect to stock-based compensation attributable to nonqualified stock options and awards. However, no tax benefit is recognized for stock-based compensation attributable to incentive stock options, or ISO, or CSPP shares until there is a disqualifying disposition, if any, for income tax purposes. A portion of our historical stock-based compensation was attributable to ISO and CSPP shares; therefore, our effective tax rate was subject to fluctuation.
Note 8—Income Taxes
The provision for income taxes consisted of the following for the years ended
December 31
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Deferred:
|
|
|
|
|
|
|
Federal
|
|
$
|
245
|
|
|
$
|
351
|
|
|
$
|
192
|
|
State
|
|
25
|
|
|
26
|
|
|
20
|
|
Deferred income tax expense
|
|
270
|
|
|
377
|
|
|
212
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
129
|
|
|
20
|
|
|
2
|
|
State
|
|
26
|
|
|
16
|
|
|
6
|
|
Foreign
|
|
32
|
|
|
7
|
|
|
2
|
|
Current income tax expense
|
|
187
|
|
|
43
|
|
|
10
|
|
Total income tax expense
|
|
$
|
457
|
|
|
$
|
420
|
|
|
$
|
222
|
|
As discussed in Note 1, we early adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting during the fourth quarter of 2016. The adoption of this standard resulted in the recognition of
$8 million
of previously unrecognized excess tax benefits in deferred tax assets and an increase to retained earnings on our consolidated balance sheet as of the beginning of the current year, and the recognition of
$8 million
of excess tax benefits to the income tax provision for the year ended December 31, 2016.
The effective tax rate on income before income taxes differed from the federal income tax statutory rate for the years ended December 31 for the following reasons (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Income tax expense at statutory rate
|
|
$
|
425
|
|
|
$
|
384
|
|
|
$
|
218
|
|
Increase resulting from:
|
|
|
|
|
|
|
State income tax, net of federal benefit
|
|
34
|
|
|
28
|
|
|
18
|
|
Valuation Allowance, federal and state
|
|
—
|
|
|
—
|
|
|
(19
|
)
|
Other, net
|
|
(2
|
)
|
|
8
|
|
|
5
|
|
Total income tax expense
|
|
$
|
457
|
|
|
$
|
420
|
|
|
$
|
222
|
|
Cash payments for income taxes were
$173 million
in
2016
,
$42 million
in
2015
and
$8 million
in
2014
.
JETBLUE AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of our deferred tax assets and liabilities as of
December 31
are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Deferred tax assets:
|
|
|
|
|
Deferred revenue/gains
|
|
121
|
|
|
104
|
|
Employee benefits
|
|
41
|
|
|
39
|
|
Terminal 5 lease
|
|
38
|
|
|
36
|
|
Rent expense
|
|
34
|
|
|
33
|
|
Other
|
|
8
|
|
|
49
|
|
Deferred tax assets, net
|
|
242
|
|
|
261
|
|
Deferred tax liabilities:
|
|
|
|
|
Accelerated depreciation
|
|
(1,596
|
)
|
|
(1,334
|
)
|
Deferred tax liabilities
|
|
(1,596
|
)
|
|
(1,334
|
)
|
Net deferred tax liability
|
|
$
|
(1,354
|
)
|
|
$
|
(1,073
|
)
|
In evaluating the realizability of the deferred tax assets, we assess whether it is more likely than not that some portion, or all, of the deferred tax assets, will be realized. We consider, among other things, the generation of future taxable income (including reversals of deferred tax liabilities) during the periods in which the related temporary differences will become deductible. We have concluded that
no
valuation allowance is required as of December 31, 2016.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follow (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Unrecognized tax benefits at January 1,
|
|
$
|
21
|
|
|
$
|
16
|
|
|
$
|
11
|
|
Increases for tax positions taken during a prior period
|
|
10
|
|
|
—
|
|
|
2
|
|
Increases for tax positions taken during the period
|
|
5
|
|
|
6
|
|
|
4
|
|
Decreases for tax positions taken during a prior period
|
|
(4
|
)
|
|
(1
|
)
|
|
(1
|
)
|
Decreases for settlement with tax authorities during the period
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
Unrecognized tax benefits December 31,
|
|
$
|
26
|
|
|
$
|
21
|
|
|
$
|
16
|
|
Interest and penalties accrued on unrecognized tax benefits were not significant. If recognized,
$19 million
of the unrecognized tax benefits as of
December 31, 2016
would impact our effective tax rate. We do not expect any significant change in the amount of the unrecognized tax benefits within the next twelve months. As a result of net operating losses and statute of limitations in our major tax jurisdictions, years 2003 through 2015 remain subject to examination by the relevant tax authorities.
Note 9—Employee Retirement Plan
We sponsor a retirement savings 401(k) defined contribution plan, or the Plan, covering all of our Crewmembers where we match
100%
of our Crewmember contributions up to
5%
of their eligible wages. The contributions vest over
five
years and are measured from a Crewmember’s hire date. Participants are immediately vested in their voluntary contributions.
Another component of the Plan is a Company discretionary contribution of
5%
of eligible non-management Crewmember compensation, which we refer to as
Retirement Plus
.
Retirement Plus
contributions vest over
three
years and are measured from a Crewmember’s hire date.
For years of service prior to 2017, our non-management Crewmembers are also eligible to receive profit sharing, calculated as
15%
of adjusted pre-tax income before profit sharing and special items with the result reduced by
Retirement Plus
contributions. Eligible non-management Crewmembers may elect to have their profit sharing contributed directly to the Plan. Beginning with 2017 adjusted pre-tax income, non-management Crewmembers will be eligible to receive profit sharing, calculated as
10%
of adjusted pre-tax income before profit sharing and special items up to a pre-tax margin of
18%
with the result reduced by
Retirement Plus
contributions. If JetBlue's resulting pre-tax margin exceeds
18%
, non-management Crewmembers will receive
20%
profit sharing above an
18%
pre-tax margin.
JETBLUE AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain Federal Aviation Administration, or FAA-licensed Crewmembers, receive an additional contribution of
3%
of eligible compensation, which we refer to as
Retirement Advantage.
Total 401(k) company match,
Retirement Plus,
profit sharing and
Retirement Advantage
expensed in for the years ended
December 31,
2016
,
2015
and
2014
were
$290 million
,
$256 million
and
$119 million
, respectively.
Note 10—Commitments
Flight Equipment Commitments
As of December 31, 2016
, our firm aircraft orders consisted of
26
Airbus A321 aircraft,
25
Airbus A320 new engine option (neo) aircraft,
60
Airbus A321neo aircraft,
24
Embraer E190 aircraft and
10
spare engines scheduled for delivery through
2023
. Committed expenditures for these aircraft and related flight equipment, including estimated amounts for contractual price escalations and predelivery deposits, will be approximately
$1.12 billion
in
2017
,
$891 million
in
2018
,
$1.3 billion
in
2019
,
$1.6 billion
in
2020
,
$1.4 billion
in
2021
and
$1.8 billion
thereafter. We are scheduled to receive
15
new Airbus A321 aircraft in
2017
. Dependent on market conditions, we anticipate paying cash for some portion of our
15
Airbus A321 aircraft scheduled for delivery in 2017.
In conjunction with our intention to expand our Mint experience, we amended our purchase agreement with Airbus during July 2016 to add
30
incremental Airbus A321 aircraft with scheduled deliveries between 2017 and 2023. We expect
15
of the incremental
30
Airbus A321 aircraft to be delivered with the current engine option beginning 2017. Our amendment includes flexibility to take deliveries in our Mint or all-core configuration. We anticipate the remaining
15
aircraft to be Airbus A321neo, scheduled to be delivered beginning in 2020. Starting in June 2019, we would have the option to take any or all A321neo deliveries with the Long Range configuration, the A321-LR.
In November 2014, we amended our purchase agreement with Airbus by deferring
13
Airbus A321 aircraft orders and
eight
Airbus A320 aircraft orders from 2016-2020 to 2020-2023. Of these deferrals,
10
Airbus A321 aircraft orders were converted to Airbus A321neo orders and
five
Airbus A320neo aircraft orders were converted to Airbus A321neo aircraft orders. We additionally converted
three
Airbus A320 aircraft orders in 2016 to Airbus A321 aircraft orders. In October 2013, we amended our purchase agreements with both Embraer and Airbus. We deferred
24
Embraer E190 aircraft from 2014-2018 to 2020-2022. We converted
eight
existing Airbus A320 orders to Airbus A321 orders and
ten
Airbus A320neo orders to Airbus A321neo orders. We incrementally ordered
15
Airbus A321 aircraft for delivery between 2015 and 2017 and
20
Airbus A321neo aircraft for delivery between 2018 and 2020.
Other Commitments
We utilize several credit card processors to process our ticket sales. Our agreements with these processors do not contain covenants, but do generally allow the processor to withhold cash reserves to protect the processor from potential liability for tickets purchased, but not yet used for travel. While we currently do not have any collateral requirements related to our credit card processors, we may be required to issue collateral to our credit card processors, or other key business partners, in the future.
As of December 31, 2016
, we had approximately
$25 million
pledged related to our workers compensation insurance policies and other business partner agreements, which will expire according to the terms of the related policies or agreements.
As part of the sale of LiveTV, refer to Note 16, a
$3 million
liability relating to Airfone was assigned to JetBlue under the purchase agreement. Separately, prior to the sale of LiveTV, JetBlue had an agreement with ViaSat Inc. through
2020
relating to in-flight broadband connectivity technology on our aircraft. That agreement stipulated a
$20 million
minimum commitment for the connectivity service and a
$25 million
minimum commitment for the related hardware and software purchases. As part of the sale of LiveTV, these commitments to ViaSat Inc. were assigned to LiveTV and JetBlue entered into
two
new service agreements with LiveTV pursuant to which LiveTV will provide in-flight entertainment and connectivity services to JetBlue for a minimum of
seven
years.
JETBLUE AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Except for our pilots, our Crewmembers do not have third-party representation. In April 2014, JetBlue pilots elected to be solely represented by ALPA. The NMB certified ALPA as the representative body for JetBlue pilots and we are working with ALPA to reach our first collective bargaining agreement. We enter into individual employment agreements with each of our non-unionized FAA-licensed Crewmembers which include dispatchers, technicians and inspectors as well as air traffic controllers. Each employment agreement is for a term of
five years
and automatically renews for an additional
five years
unless either the Crewmember or we elect not to renew it by giving at least
90 days
notice before the end of the relevant term. Pursuant to these agreements, these Crewmembers can only be terminated for cause. In the event of a downturn in our business that would require a reduction in work hours, we are obligated to pay these Crewmembers a guaranteed level of income and to continue their benefits if they do not obtain other aviation employment.
Note 11—Contingencies
We self-insure a portion of our losses from claims related to workers’ compensation, environmental issues, property damage, medical insurance for Crewmembers and general liability. Losses are accrued based on an estimate of the ultimate aggregate liability for claims incurred, using standard industry practices and our actual experience.
We are a party to many routine contracts under which we indemnify third parties for various risks. These indemnities consist of the following:
All of our bank loans, including our aircraft and engine mortgages, contain standard provisions present in loans of this type. These provisions obligate us to reimburse the bank for any increased costs associated with continuing to hold the loan on our books which arise as a result of broadly defined regulatory changes, including changes in reserve requirements and bank capital requirements. These indemnities would have the practical effect of increasing the interest rate on our debt if they were to be triggered. In all cases, we have the right to repay the loan and avoid the increased costs. The term of these indemnities matches the length of the related loan up to
15 years
.
Under both aircraft leases with foreign lessors and aircraft and engine mortgages with foreign lenders, we have agreed to customary indemnities concerning withholding tax law changes. Under these contracts we are responsible, should withholding taxes be imposed, for paying such amount of additional rent or interest as is necessary to ensure that the lessor or lender still receives, after taxes, the rent stipulated in the lease or the interest stipulated under the loan. The term of these indemnities matches the length of the related lease up to
17 years
.
We have various leases with respect to real property as well as various agreements among airlines relating to fuel consortia or fuel farms at airports. Under these contracts we have agreed to standard language indemnifying the lessor against environmental liabilities associated with the real property or operations described under the agreement, even if we are not the party responsible for the initial event that caused the environmental damage. In the case of fuel consortia at airports, these indemnities are generally joint and several among the participating airlines. We have purchased a standalone environmental liability insurance policy to help mitigate this exposure. Our existing aviation hull and liability policy includes some limited environmental coverage when a cleanup is part of an associated single identifiable covered loss.
Under certain contracts, we indemnify specified parties against legal liability arising out of actions by other parties. The terms of these contracts range up to
25 years
. Generally, we have liability insurance protecting ourselves for the obligations we have undertaken relative to these indemnities.
Upon the sale of LiveTV to Thales in June 2014, refer to Note 16 for more information, we transferred certain contingencies to Thales. These included product warranties and LiveTV indemnities against any claims which may have been brought against its customers. These indemnities related to allegations of patent, trademark, copyright or license infringement as a result of the use of the LiveTV system.
Under a certain number of our operating lease agreements we are required to restore certain property or equipment to its original form upon expiration of the related agreement. We have recorded the estimated fair value of these retirement obligations of approximately
$5 million
as of
December 31, 2016
. This liability may increase over time.
We are unable to estimate the potential amount of future payments under the foregoing indemnities and agreements.
JETBLUE AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Legal Matters
Occasionally we are involved in various claims, lawsuits, regulatory examinations, investigations and other legal matters arising, for the most part, in the ordinary course of business. The outcome of litigation and other legal matters is always uncertain. The Company believes it has valid defenses to the legal matters currently pending against it, is defending itself vigorously and has recorded accruals determined in accordance with U.S. GAAP, where appropriate. In making a determination regarding accruals, using available information, we evaluate the likelihood of an unfavorable outcome in legal or regulatory proceedings to which we are a party to and record a loss contingency when it is probable a liability has been incurred and the amount of the loss can be reasonably estimated. These subjective determinations are based on the status of such legal or regulatory proceedings, the merits of our defenses and consultation with legal counsel. Actual outcomes of these legal and regulatory proceedings may materially differ from our current estimates. It is possible that resolution of one or more of the legal matters currently pending or threatened could result in losses material to our consolidated results of operations, liquidity or financial condition.
To date, none of these types of litigation matters, most of which are typically covered by insurance, has had a material impact on our operations or financial condition. We have insured and continue to insure against most of these types of claims. A judgment on any claim not covered by, or in excess of, our insurance coverage could materially adversely affect our financial condition or results of operations.
Note 12—Financial Derivative Instruments and Risk Management
As part of our risk management techniques, we periodically purchase over the counter energy derivative instruments and enter into fixed forward price agreements, or FFPs, to manage our exposure to the effect of changes in the price of aircraft fuel. Prices for the underlying commodities have historically been highly correlated to aircraft fuel, making derivatives of them effective at providing short-term protection against volatility in average fuel prices. We also periodically enter into jet fuel basis swaps for the differential between heating oil and jet fuel to further limit the variability in fuel prices at various locations.
To manage the variability of the cash flows associated with our variable rate debt, we have also entered into interest rate swaps. We do not hold or issue any derivative financial instruments for trading purposes.
Aircraft fuel derivatives
We attempt to obtain cash flow hedge accounting treatment for each aircraft fuel derivative that we enter into. This treatment is provided for under the
Derivatives and Hedging
topic of the Codification. It allows for gains and losses on the effective portion of qualifying hedges to be deferred until the underlying planned jet fuel consumption occurs, rather than recognizing the gains and losses on these instruments into earnings during each period they are outstanding. The effective portion of realized aircraft fuel hedging derivative gains and losses is recognized in aircraft fuel expense in the period the underlying fuel is consumed.
Ineffectiveness can occur in certain circumstances, when the change in the total fair value of the derivative instrument differs from the change in the value of our expected future cash outlays for the purchase of aircraft fuel and is recognized immediately in interest income and other. Likewise, if a hedge does not qualify for hedge accounting, the periodic changes in its fair value are recognized in the period of the change in interest income and other. When aircraft fuel is consumed and the related derivative contract settles, any gain or loss previously recorded in other comprehensive income is recognized in aircraft fuel expense. All cash flows related to our fuel hedging derivatives are classified as operating cash flows.
Our current approach to fuel hedging is to enter into hedges on a discretionary basis without a specific target of hedge percentage needs. We view our hedge portfolio as a form of insurance to help mitigate the impact of price volatility and protect us against severe spikes in oil prices, when possible.
JETBLUE AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table illustrates the approximate hedged percentages of our projected fuel usage by quarter as of
December 31, 2016
, related to our outstanding fuel hedging contracts that were designated as cash flow hedges for accounting purposes.
|
|
|
|
|
|
|
|
|
|
|
|
Jet fuel swap agreements
|
|
Jet fuel collar agreements
|
|
Heating oil collar agreements
|
|
Total
|
First Quarter 2017
|
|
10%
|
|
—%
|
|
—%
|
|
10%
|
Second Quarter 2017
|
|
10%
|
|
—%
|
|
—%
|
|
10%
|
Third Quarter 2017
|
|
10%
|
|
—%
|
|
—%
|
|
10%
|
Fourth Quarter 2017
|
|
10%
|
|
—%
|
|
—%
|
|
10%
|
Interest rate swaps
The final interest payment relating to our interest rate swaps took place in August 2016. As such, as of
December 31, 2016
, we did
not
have any notional debt outstanding related to these swaps. These interest rate hedges effectively swapped floating rate debt for fixed rate debt. They took advantage of lower borrowing rates in existence at the time of the hedge transaction as compared to the date our original debt instruments were executed. The notional amount decreased over time to match scheduled repayments of the related debt.
All of our interest rate swap contracts qualified as cash flow hedges in accordance with the
Derivatives and Hedging
topic of the Codification. Since all of the critical terms of our swap agreements matched the debt to which they pertain, there was
no
ineffectiveness relating to these interest rate swaps for the years ended
December 31,
2016
,
2015
or
2014
, and all related unrealized losses were deferred in accumulated other comprehensive income. We recognized a
$1 million
gain in interest expense for the year ended
December 31, 2016
. We recognized approximately
$1 million
in additional interest expense as the related interest payments were made during the years ended
December 31,
2015
and
2014
.
The table below reflects quantitative information related to our derivative instruments and where these amounts are recorded in our financial statements (dollar amounts in millions).
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
Fuel derivatives
|
|
|
|
|
Asset fair value recorded in prepaid expense and other
(1)
|
|
$
|
22
|
|
|
$
|
—
|
|
Liability fair value recorded in other accrued liabilities
(1)
|
|
—
|
|
|
5
|
|
Longest remaining term (months)
|
|
12
|
|
|
12
|
|
Hedged volume (barrels, in thousands)
|
|
1,920
|
|
|
900
|
|
Estimated amount of existing (gains) losses expected to be reclassified into earnings in the next 12 months
|
|
(22
|
)
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Fuel derivatives
|
|
|
|
|
|
|
Hedge effectiveness (gains) losses recognized in aircraft fuel expense
|
|
$
|
(9
|
)
|
|
$
|
126
|
|
|
$
|
30
|
|
(Gains) losses on derivatives not qualifying for hedge accounting recognized in other expense
|
|
—
|
|
|
1
|
|
|
(2
|
)
|
Hedge (gains) losses on derivatives recognized in comprehensive income
|
|
(34
|
)
|
|
29
|
|
|
134
|
|
Percentage of actual consumption economically hedged
|
|
12
|
%
|
|
17
|
%
|
|
20
|
%
|
|
|
(1)
|
Gross asset or liability of each contract prior to consideration of offsetting positions with each counterparty and prior to impact of collateral paid.
|
JETBLUE AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Any outstanding derivative instrument exposes us to credit loss in connection with our fuel contracts in the event of nonperformance by the counterparties to the agreements, but we do not expect any of our counterparties will fail to meet their obligations. The amount of such credit exposure is generally the fair value of our outstanding contracts for which we are in a liability position. To manage credit risks we select counterparties based on credit assessments, limit our overall exposure to any single counterparty and monitor the market position with each counterparty. Some of our agreements require cash deposits from either counterparty if market risk exposure exceeds a specified threshold amount.
We have master netting arrangements with our counterparties allowing us the right of offset to mitigate credit risk in derivative transactions. The financial derivative instrument agreements we have with our counterparties may require us to fund all, or a portion of, outstanding loss positions related to these contracts prior to their scheduled maturities. The amount of collateral posted, if any, is periodically adjusted based on the fair value of the hedge contracts. Our policy is to offset the liabilities represented by these contracts with any cash collateral paid to the counterparties.
The impact of offsetting derivative instruments is depicted below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount of Recognized
|
|
Gross Amount of Cash Collateral
|
|
Net Amount Presented on Balance Sheet
|
|
|
Assets
|
|
Liabilities
|
|
Offset
|
|
Assets
|
|
Liabilities
|
Fuel derivatives
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
$
|
22
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22
|
|
|
$
|
—
|
|
As of December 31, 2015
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5
|
|
Note 13—Fair Value
Under the
Fair Value Measurements and Disclosures
topic of the Codification, 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 significant 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 flow models or valuations.
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant 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 classified within the fair value hierarchy (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash equivalents
|
|
$
|
313
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
313
|
|
Available-for-sale investment securities
|
|
115
|
|
|
220
|
|
|
—
|
|
|
335
|
|
Aircraft fuel derivatives
|
|
—
|
|
|
22
|
|
|
—
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash equivalents
|
|
$
|
147
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
147
|
|
Available-for-sale investment securities
|
|
75
|
|
|
180
|
|
|
—
|
|
|
255
|
|
Aircraft fuel derivatives
|
|
$
|
—
|
|
|
$
|
(5
|
)
|
|
$
|
—
|
|
|
$
|
(5
|
)
|
The carrying values of all other financial instruments approximated their fair values at
December 31, 2016
and
2015
. Refer to Note 2 for fair value information related to our outstanding debt obligations as of
December 31, 2016
and
2015
.
JETBLUE AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash equivalents
Our cash equivalents include money market securities and commercial paper which are readily convertible into cash, have maturities of 90 days or less when purchased and 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 classified as Level 1 within our fair value hierarchy.
Available-for-sale investment securities
Included in our available-for-sale investment securities are time deposits, commercial paper and treasury bills. The fair values of these instruments are based on observable inputs in non-active markets, which are therefore classified as Level 2 in the hierarchy. We did
not
record any material gains or losses on these securities during the year ended
December 31, 2016
or
2015
.
Aircraft fuel derivatives
Our aircraft fuel derivatives include swaps, caps, collars, and basis swaps which 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.
Note 14—Accumulated Other Comprehensive Income (Loss)
Comprehensive income (loss) includes changes in fair value of our aircraft fuel derivatives and interest rate swap agreements, which qualify for hedge accounting. A rollforward of the amounts included in accumulated other comprehensive income (loss), net of taxes for the years ended
December 31, 2016
,
2015
and
2014
is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft Fuel Derivatives
(1)
|
|
Interest Rate Swaps
(2)
|
|
Total
|
Balance of accumulated income (losses), at December 31, 2013
|
|
1
|
|
|
(1
|
)
|
|
—
|
|
Reclassifications into earnings (net of $12 of taxes)
|
|
18
|
|
|
1
|
|
|
19
|
|
Change in fair value (net of $(52) of taxes)
|
|
(82
|
)
|
|
—
|
|
|
(82
|
)
|
Balance of accumulated losses, at December 31, 2014
|
|
(63
|
)
|
|
—
|
|
|
(63
|
)
|
Reclassifications into earnings (net of $49 of taxes)
|
|
77
|
|
|
1
|
|
|
78
|
|
Change in fair value (net of $(11) of taxes)
|
|
(18
|
)
|
|
—
|
|
|
(18
|
)
|
Balance of accumulated losses, at December 31,2015
|
|
$
|
(4
|
)
|
|
$
|
1
|
|
|
$
|
(3
|
)
|
Reclassifications into earnings (net of $(4) of taxes)
|
|
(5
|
)
|
|
(1
|
)
|
|
(6
|
)
|
Change in fair value (net of $12 of taxes)
|
|
22
|
|
|
—
|
|
|
22
|
|
Balance of accumulated income, at December 31, 2016
|
|
13
|
|
|
—
|
|
|
13
|
|
(1) Reclassified to aircraft fuel expense
|
|
|
|
|
|
|
(2) Reclassified to interest expense
|
|
|
|
|
|
|
Note 15—Geographic Information
Under the
Segment Reporting
topic of the Codification, disclosures are required for operating segments that are regularly reviewed by chief operating decision makers. Air transportation services accounted for substantially all the Company’s operations in
2016
,
2015
and
2014
.
Operating revenues are allocated to geographic regions, as defined by the DOT, based upon the origination and destination of each flight segment. We currently serve
33
locations in the Caribbean and Latin American region, or Latin America as defined by the DOT. However, our management includes our
three
destinations in Puerto Rico and
two
destinations in the U.S. Virgin Islands in our Caribbean and Latin America allocation of revenues. Therefore, we have reflected these locations within the Caribbean and Latin America region in the table below. Operating revenues by geographic regions for the years ended
December 31
are summarized below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Domestic
|
|
$
|
4,751
|
|
|
$
|
4,521
|
|
|
$
|
4,093
|
|
Caribbean & Latin America
|
|
1,881
|
|
|
1,895
|
|
|
1,724
|
|
Total
|
|
$
|
6,632
|
|
|
$
|
6,416
|
|
|
$
|
5,817
|
|
Our tangible assets primarily consist of our fleet of aircraft, which is deployed system wide, with no individual aircraft dedicated to any specific route or region; therefore our assets do not require any allocation to a geographic area.
Note 16—LiveTV
LiveTV, LLC, formerly a wholly owned subsidiary of JetBlue, provides in-flight entertainment and connectivity solutions for various commercial airlines including JetBlue. On June 10, 2014, JetBlue entered into an amended and restated purchase agreement with Thales Holding Corporation, or Thales, replacing the original purchase agreement between the parties dated as of March 13, 2014. Under the terms of the amended and restated purchase agreement, JetBlue sold LiveTV to Thales for
$399 million
, subject to purchase adjustments based upon the amount of cash, indebtedness, and working capital of LiveTV at the closing date of the transaction relative to a target amount. Excluded from this sale was LiveTV Satellite Communications, LLC, which was retained by JetBlue pending receipt of the necessary regulatory approvals for the sale. On September 25, 2014, JetBlue received all necessary regulatory approvals and sold LiveTV Satellite Communications, LLC, to Thales for approximately
$1 million
in cash.
The total cash proceeds of
$393 million
reflect the agreed upon purchase price, net of purchase agreement adjustments including post-closing purchase price adjustments, which were finalized during the third quarter of 2014. The sale resulted in a pre-tax gain of approximately
$241 million
and is net of approximately
$19 million
in transaction costs. The gain on the sale has been reported as a separate line item in the consolidated statement of operations for the year ended December 31, 2014.
The tax expense recorded in connection with this transaction totaled
$72 million
, net of a
$19 million
tax benefit related to the utilization of a capital loss carryforward. The capital gain generated from the sale of LiveTV resulted in the release of a valuation allowance related to the capital loss deferred tax asset. This resulted in an after tax gain on the sale of approximately
$169 million
.
Following the closure of the sales on June 10, 2014, and on September 25, 2014, the applicable LiveTV operations are no longer being consolidated as a subsidiary in JetBlue's consolidated financial statements. The effect of this reporting structure change is not material to the consolidated financial statements presented. LiveTV third party revenues in 2014 up to the date of sale were
$30 million
.
Deferred profit on hardware sales and advance deposits for future hardware sales were included in other accrued liabilities and other long term liabilities on our consolidated balance sheets depending on whether we expected to recognize it in the next 12 months or beyond.
No
deferred profit is recognized in our consolidated balance sheets as of
December 31, 2016
or
2015
. There is
no
net book value of equipment installed for other airlines in our consolidated balance sheets as of
December 31, 2016
or
2015
.
JetBlue expects to continue to be a significant customer of LiveTV. Concurrent with the LiveTV sale, the parties have entered into two agreements, each with
seven
year terms pursuant to which LiveTV continues to provide JetBlue with in-flight entertainment and onboard connectivity products and services.
JETBLUE AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17—Quarterly Financial Data (Unaudited)
Quarterly results of operations for the years ended
December 31, 2016
and
2015
are summarized below (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
2016
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,616
|
|
|
$
|
1,643
|
|
|
$
|
1,732
|
|
|
$
|
1,641
|
|
Operating income
|
|
349
|
|
|
313
|
|
|
354
|
|
|
296
|
|
Net income
(1)
|
|
207
|
|
|
181
|
|
|
199
|
|
|
172
|
|
Basic earnings per share
(1)
|
|
$
|
0.64
|
|
|
$
|
0.56
|
|
|
$
|
0.61
|
|
|
$
|
0.51
|
|
Diluted earnings per share
(1)
|
|
$
|
0.61
|
|
|
$
|
0.53
|
|
|
$
|
0.58
|
|
|
$
|
0.50
|
|
2015
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,523
|
|
|
$
|
1,612
|
|
|
$
|
1,687
|
|
|
$
|
1,594
|
|
Operating income
|
|
253
|
|
|
282
|
|
|
351
|
|
|
330
|
|
Net income
|
|
137
|
|
|
152
|
|
|
198
|
|
|
190
|
|
Basic earnings per share
|
|
$
|
0.44
|
|
|
$
|
0.48
|
|
|
$
|
0.63
|
|
|
$
|
0.60
|
|
Diluted earnings per share
|
|
$
|
0.40
|
|
|
$
|
0.44
|
|
|
$
|
0.58
|
|
|
$
|
0.56
|
|
(1) As discussed in Note 1, we early adopted ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
during the fourth quarter of 2016. The adoption of this standard resulted in the recognition of
$8 million
of excess tax benefits to the income tax provision for the year ended December 31, 2016. Net Income, basic and diluted earnings per share data above are presented as if the ASU was adopted at the beginning of the year.
The sum of the quarterly earnings per share amounts does not equal the annual amount reported since per share amounts are computed independently for each quarter and for the full year based on respective weighted-average common shares outstanding and other dilutive potential common shares.