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Prepare the Statement of Retained Earnings for 2013 by filling in the correct dollar values.
Beginning Retained Earnings
Net Income
Dividends
Ending Retained Earnings
b. Does the amount of dividends that JetBlue paid in 2013 surprise you? Why or why not?
5. Calculate the current ratio as of December 31, 2013 and comment on whether you would be willing
to sell goods to JetBlue on account if you were a JetBlue vendor.
6.
a.
According to the footnotes, when does JetBlue record revenue from passenger ticket sales?
b. In your own words, describe what air traffic liability represents and explain why it is indeed
liability to the company?
7.
a.
b. JetBlue purchased more of this asset with cash in 2013. On which section of the cash flow
statement did the company report the cash outflow related to this purchase: Operating
Activities, Investing Activities, or Financing Activities? (Yes, the cash flow statement has
intentionally been omitted from the case.)
8.
a.
What single line item is the largest component of total operating expenses on the income
statement for 2013? What did JetBlue mention it is doing in order to reduce this expense?
b. See the common-size income statement provided below. A common-size income statement
presents all income statement accounts as a percentage of total revenue. For the line item that
is the largest component of total expense from part (a), note its percentage of total revenue
from 2008 to 2013. Why does it fluctuate so much over time?
JetBlue Common-Size Income Statement
Aircraft fuel
Salaries, wages and benefits
Landing fees and other rents
Depreciation and amortization
Aircraft rent
Sales and marketing
Maintenance materials & repairs
Other operating expenses
2013
100.0%
2012
100.0%
34.9%
20.9%
5.6%
5.3%
2.4%
4.1%
7.9%
11.0%
92.1%
36.3%
21.0%
5.6%
5.2%
2.6%
4.1%
6.8%
11.0%
92.5%
29.5%
23.6%
6.0%
5.8%
3.3%
4.7%
4.6%
13.6%
91.2%
28.8%
23.6%
6.5%
6.9%
3.8%
4.6%
4.5%
12.8%
91.5%
2008
100.0%
39.9%
20.5%
5.9%
6.1%
3.8%
4.5%
3.7%
12.5%
96.8%
Is there a trend in any other expense category that might be worrisome for JetBlue in the
future?
9. In the footnotes, JetBlue indicates that it sold its Airfone business in 2013, which resulted in a gain of
$7 million. The company also had gains from selling fixed assets in both 2012 and 2013. JetBlue
notes that it recorded these gains in Other operating expenses on the income statement.
Comment on whether or not you think it is appropriate for JetBlue to include these gains in the
Other operating expense line.
(adapted)
PART I
ITEM 1. Business
Overview
General
06
PART IPART I
ITEM 1Business
of the first Airbus A321 aircraft in our fleet, which was placed into service
in December 2013 with 190 seats. Beginning in June 2014 we plan to
introduce a number of Airbus A321 aircraft which include our premium
transcontinental service, Mint. We anticipate this service will include 16
fully lie-flat beds, four of which will be in suites with privacy doors, a first
in the U.S. domestic market. We intend that Mint customers will have
access to a 15-inch flat screen with up to 100 channels of DIRECTV, 100+
channels of SiriusXM radio and access to an assortment of complimentary
food and beverages.
07
PART IPART I
ITEM 1Business
Fleet Structure
LiveTV
Fleet Maintenance
Consistent with our core value of safety, our FAA-approved maintenance
program is administered by our technical operations department. We use
qualified maintenance personnel and ensure they have comprehensive
training. We maintain our aircraft and associated maintenance records in
accordance with, if not exceeding, FAA regulations. Fleet maintenance
work is divided into three categories: line maintenance, heavy maintenance
and component maintenance.
The bulk of our line maintenance is handled by JetBlue technicians and
inspectors. It consists of daily checks, overnight and weekly checks,
A checks, diagnostics and routine repairs. Heavy maintenance checks
consist of a series of more complex tasks taking from one to four weeks
to accomplish; these items are typically performed once every 15 months.
All of our aircraft heavy maintenance work is performed by FAA-approved
facilities such as Embraer, Pemco and Timco, subject to direct oversight
by JetBlue personnel. We outsource heavy maintenance as the costs
are lower than if we performed the tasks internally (including inventory
related costs). Component maintenance on equipment such as engines,
auxiliary power units, landing gears, pumps and avionic computers are
all performed by a number of different FAA-approved repair stations. We
have maintenance agreements with MTU Maintenance Hannover GmbH,
MTU, for the engines that power our Airbus fleet and with GE (OEM) for our
EMBRAER 190 aircraft engines. We also have an agreement with Lufthansa
Technik AG for the repair, overhaul, modification and logistics of certain
Airbus components. Many of our maintenance service agreements are
based on a fixed cost per flying hour; these vary based upon the age of
the aircraft and other operating factors impacting the related component.
Required maintenance not otherwise covered by these agreements is
performed on a time and materials basis. All other maintenance activities are
sub-contracted to qualified maintenance, repair and overhaul organizations.
10
PART II
ITEM5. Market for Registrants Common Equity;
Related Stockholder Matters
Our common stock is traded on the NASDAQ Global Select Market under the symbol JBLU. The table below shows the high and low sales prices for
our common stock.
High
2013 Quarter Ended
March 31
June 30
September 30
December 31
2012 Quarter Ended
March 31
June 30
September 30
December 31
Low
7.01
7.28
6.93
9.20
5.70
5.95
6.04
6.57
6.32
5.44
5.94
5.99
4.73
4.06
4.76
4.77
As of January 31, 2014, there were approximately 754 holders of record of our common stock.
We have not paid cash dividends on our common stock and have no current intention of doing so. Any future determination to pay cash dividends will
be at the discretion of our Board of Directors, subject to applicable limitations under Delaware law. This decision will be dependent upon our results of
operations, financial condition and other factors deemed relevant by our Board of Directors.
PART IIPART II
ITEM 8Financial Statements and Supplementary Data
2012
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Investment securities
Receivables
Inventories
Prepaid expenses
Other
Deferred income taxes
Total current assets
PROPERTY AND EQUIPMENT
Flight equipment
Predelivery deposits for flight equipment
225
402
129
48
126
6
120
1,056
182
549
106
36
119
1
107
1,100
5,778
181
5,959
1,185
4,774
688
251
437
561
116
445
5,656
5,168
338
5,506
995
4,511
585
221
364
561
93
468
5,343
114
57
467
638
7,350
136
51
440
627
7,070
PART IIPART II
ITEM 8Financial Statements and Supplementary Data
2012
180
825
171
229
469
1,874
153
693
172
196
394
1,608
2,116
2,457
CONSTRUCTION OBLIGATION
501
514
605
120
725
481
122
603
3
(43)
1,573
601
2,134
7,350
3
(35)
1,495
433
(8)
1,888
7,070
41
PART IIPART II
ITEM 8Financial Statements and Supplementary Data
OPERATING REVENUES
Passenger
Other
Total operating revenues
OPERATING EXPENSES
Aircraft fuel and related taxes
Salaries, wages and benefits
Landing fees and other rents
Depreciation and amortization
Aircraft rent
Sales and marketing
Maintenance materials and repairs
Other operating expenses
Total operating expenses
4,550
432
4,982
4,080
424
4,504
1,899
1,135
305
290
128
223
432
601
5,013
1,806
1,044
277
258
130
204
338
549
4,606
1,664
947
245
233
135
199
227
532
4,182
OPERATING INCOME
428
376
322
(161)
13
(1)
(149)
(176)
8
1
(167)
(179)
5
(3)
(177)
279
111
168
209
81
128
145
59
86
$
$
0.59
0.52
$
$
0.45
0.40
$
$
0.31
0.28
4,971
470
5,441
2011
PART IIPART II
ITEM 8Financial Statements and Supplementary Data
NOTE 1
Basis of Presentation
Passenger Revenues
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.
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.
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.
JETBLUE AIRWAYS CORPORATION-2013Annual Report
46
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. We adjust this
liability, which is included in air traffic liability, based on points earned and
redeemed, changes in the estimated incremental costs associated with
providing travel and changes in the TrueBlue program. In June 2013 we
amended the program so points earned by members never expire. As a
result of these changes, our estimate for the points that will remain
unused, breakage, decreased resulting in a $5 million reduction in
revenue and a corresponding increase in air traffic liability. In October
2013, we introduced the pooling of points between small groups of people,
branded as Family Pooling. We believe Family Pooling has not had a
material impact on the breakage calculation at year-end.
PART II
ITEM 8Financial Statements and Supplementary Data
ResidualValue
20%
0%
10%
0%
0%
0%
In 2013, we sold three spare engines resulting in gains of approximately $2 million. In 2012, we sold six spare engines and two aircraft
resulting in gains of approximately $10 million. These gains are included in other operating expenses in our consolidated statement of
operations.
Intangible Assets
Our intangible assets consist primarily of acquired take-off and landing slots, or Slots, at certain domestic airports. Slots are rights to take-off
or land at a specific airport during a specific time period during the day and are a means by which airport capacity and congestion can be
managed. The Federal government controls Slots at four domestic airports under the High Density rule, including Reagan National Airport in
Washington D.C. and LaGuardia and JFK Airport in New York City. In December 2013, due to recent regulatory and market activities stemming
from the auctioning of slots at LaGuardia and Reagan National airports, we reassessed the useful lives of these assets and concluded that Slots at
High Density airports are indefinite lived intangible assets and will no longer amortize them, while Slots at other airports will continue to be
amortized on a straight-line basis over their expected useful lives, up to 15 years. We evaluate all Slots for impairment at least annually. As of
December 31, 2013, the carrying value of Slots at High Density airports was $64 million and the carrying value of other Slots was $1 million. In
January 2014, we were notified of our successful bid to acquire 24 takeoff and landing slots at Reagan National airport. The acquisition of
these Slots is subject to final approval by the Department of Justice and customary written agreements.
NOTE 8
LiveTV
Through December 31, 2013, LiveTV had installed in-flight entertainment systems for other airlines on 461 aircraft and had firm
commitments for installations of in-flight entertainment and Ka broadband connectivity on 196 additional aircraft scheduled to be installed
through 2015, with options for nine additional in-flight entertainment installations through 2016. Revenues in 2013, 2012 and 2011 were $72
million, $81 million and $82 million, respectively. Deferred profit on hardware sales and advance deposits for future hardware sales are
included in other accrued liabilities and other long term liabilities on our consolidated balance sheets depending on whether we expect to
recognize it in the next 12 months or beyond. They totaled $42 million and $34 million as of December 31, 2013 and 2012, respectively.
Deferred profit to be recognized on installations completed through December 31, 2013 will be approximately $3 million per year from
2014 through 2018 and $6 million thereafter. The net book value of equipment installed for other airlines was approximately $102 million
and $109 million as of December 31, 2013 and 2012, respectively, and is included in other assets on our consolidated balance sheets.
In 2013, upon the sale of the Airfone business by LiveTV, we recorded a gain of $7 million in other operating expenses.
47
PART IIPART II
ITEM 8Financial Statements and Supplementary Data