JetBlue Airlines 2005 Annual Report Download - page 75

ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported as specified in the SEC’s rules and forms. An evaluation was
performed under the supervision and with the participation of our management, including our Chief
Executive Officer, or CEO, and Chief Financial Officer, or CFO, of the effectiveness of our disclosure
controls and procedures as of December 31, 2005. Based on that evaluation and as described below
under ‘‘Management’s Report on Internal Control Over Financial Reporting,’’ we have identified a
material weakness in our internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f)). Solely as a result of this material weakness, our management, including our CEO and
CFO, concluded that our disclosure controls and procedures were not effective as of
December 31, 2005.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision
and with the participation of our management, including our CEO and CFO, we conducted an
evaluation of the effectiveness of our internal control over financial reporting based on the framework
in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission. Based on that evaluation, our management concluded that, as of
December 31, 2005, we did not maintain effective internal control over financial reporting, solely due
to a material weakness associated with our accounting for derivative financial instruments, as
described below.
We determined that certain derivative financial instruments entered into during the fourth quarter
of 2005, used to help manage the risk of changing aircraft fuel prices were not initially recorded at the
appropriate fair values as required under GAAP. We concluded that this error resulted from the lack
of an effective review of the valuation of our derivative financial instruments. We did make the
required $2 million adjusting entry in our 2005 financial statements to reflect the fair value of the
derivative financial instruments.
Our management’s assessment of the effectiveness of our internal control over financial reporting
as of December 31, 2005 has been audited by Ernst & Young LLP, an independent registered public
accounting firm, as stated in their report which is included elsewhere herein.
Remediation of Material Weakness in Internal Control
We are currently implementing new internal control procedures to improve the effectiveness of
our review over accounting for derivative financial instruments and to ensure that these transactions
are accounted for in accordance with GAAP, including the following:
• We will implement definitive standards for detailed documentation supporting the valuation
of derivatives, including a quarterly review of the related counterparty statements; and
• We will develop a quarterly derivatives checklist to ensure that new instruments are valued
appropriately.
We will take the necessary steps to remediate this material weakness by the end of the first
quarter of 2006. Additionally, we will provide education regarding effective review procedures to the
appropriate personnel. We will continue to monitor vigorously the effectiveness of these processes,
procedures and controls, and will make any further changes as management determines appropriate.
Changes in Internal Control
Other than as expressly noted above in this Item 9A, there were no changes in our internal
control over financial reporting identified in connection with the evaluation of our controls performed
during the quarter ended December 31, 2005 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
67