PART II  ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies and Estimates The preparation of our consolidated financial statements in conformity with  U.S. GAAP requires management to adopt accounting policies as well as  make estimates and judgments to develop amounts reported in our financial  statements and accompanying notes. We maintain a thorough process  to review the application of our accounting policies and to evaluate the  appropriateness of the estimates that are required to prepare our financial  statements. We believe our estimates and judgments are reasonable; however,  actual results and the timing of recognition of such amounts could differ from  those estimates. In addition, estimates routinely require adjustment based  on changing circumstances and the receipt of new or better information. Critical accounting policies and estimates are defined as those that are  reflective of significant judgments and uncertainties that could potentially  result in materially different results under different assumptions and conditions.  The policies and estimates discussed below have been reviewed with our  independent registered public accounting firm and with the Audit Committee  of our Board of Directors. For a discussion of these and other accounting  policies, see Note 1 to our consolidated financial statements. Passenger ticket sales are initially deferred in air traffic liability. The air traffic  liability also includes customer credits issued and unused tickets whose  travel date has passed. Credit for unused tickets and customer credits can  each be applied towards another ticket within 12 months of the original  scheduled service or 12 months from the issuance of the customer credit.  Revenue is recognized when transportation is provided or when a ticket  or customer credit expires. We also defer in the air traffic liability account  an estimate for customer credits issued in conjunction with the JetBlue  Airways Customer Bill of Rights that we expect to be ultimately redeemed.  These estimates are based on historical experience and are periodically  evaluated, and adjusted if necessary, based on actual credit usage. We utilize a number of estimates in accounting for our TrueBlue customer  loyalty program, or TrueBlue. We record a liability for the estimated  incremental cost of outstanding points earned from JetBlue purchases that  we expect to be redeemed. This liability was $19 million and $10 million as  of December 31, 2013 and 2012, respectively. The estimated cost includes  incremental fuel, insurance, passenger food and supplies, and reservation  costs. 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.  Customers earn points based on the value paid for a trip rather than the  length of the trip. In addition, there is no longer an automatic generation  of a travel award once minimum award levels are reached, but instead the  points are maintained in the account until used by the member. In June  2013 we further amended the program so points earned by members never  expire. This change has resulted in a reassessment of our assumptions  used in calculating the liability and our estimate of the points that remain  unused, the breakage, has been reduced by approximately $5 million in  2013. 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.  Periodically, we evaluate our assumptions for appropriateness, including  comparison of the cost estimates to actual costs incurred as well as the  expiration and redemption assumptions to actual experience. Changes in  the minimum award levels or in the lives of the awards would also require  us to reevaluate the liability, potentially resulting in a significant impact in  the year of change as well as in future years. Points in TrueBlue can also be sold to participating companies, including  credit card and car rental companies. These sales are accounted for as  multiple-element arrangements, with one element representing the fair value  of the travel that will ultimately be provided when the points are redeemed  We operate airport facilities, offices buildings and aircraft under  operating leases with minimum lease payments. We recognize the costs  associated with these agreements as rent expense on a straight-line  basis over the expected lease term. Within the provisions of certain leases  there are minimum escalations in payments over the base lease term.  There are also periodic adjustments of lease rates, landing fees, and other  charges applicable under such agreements, as well as renewal periods.  The effects of the escalations and other adjustments have been reflected  in rent expense on a straight-line basis over the lease term. This includes  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. Our intangible assets consist of acquired take-off and landing 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 accounting for our  slot-related intangible assets we make estimates about their expected useful  lives. 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. Changes in our operations, government regulations or demand  for air travel at these airports could result in changes to these estimates. Our long-lived assets are evaluated for impairment at least annually or when  events and circumstances indicate the assets may be impaired. Indicators  include operating or cash flow losses, significant decreases in market  value or changes in technology. As our assets are all relatively new and  we continue to have positive operating cash flows, we have not identified  any significant impairment related to our long-lived assets at this time. In accounting for long-lived assets, we make estimates about the expected  useful lives, projected residual values and the potential for impairment. In  estimating useful lives and residual values of our aircraft, we have relied  upon actual industry experience with the same or similar aircraft types  and our anticipated utilization of the aircraft. Changing market prices  of new and used aircraft, government regulations and changes in our  maintenance program or operations could result in changes to these  estimates. Changes in expected useful lives of assets have resulted in  acceleration of depreciation. and the other consisting of marketing related activities 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.  Deferred revenue for points sold and not redeemed is recognized as  revenue when management determines the probability of redemption is  remote. Deferred revenue was $131 million and $101 million at December 31,  2013 and 2012, respectively. We recorded $2 million and $5 million in  revenue for point expirations in 2013 and 2012, respectively. Accounting for long-lived assets Passenger revenue  Frequent flyer accounting Intangible assets Lease accounting JETBLUE AIRWAYS CORPORATION  -  2013 Annual Report 37