2010
Annual Report
Transat A.T. Inc.
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Revenues of $3.5 billion.
Margin of $127.6 million,
compared with $93.4 million
in 2009.
Net income of $65.6 million,
compared with $61.8 million
in 2009.
A challenging year on the
sun destinations market, but
outstanding results for
transatlantic travel.
Agreement with air carrier
Transavia for chartering of
narrow-body jets.
Progress of Air Transat
fleet renewal.
Creation of an outgoing tour
operator based in Mexico:
Eleva Travel.
international tour operator
Transat A.T. Inc. is an integrated
international tour operator that
specializes in holiday travel. It offers
more than 60 destination countries
and distributes products in
approximately 50 countries.
Highlights
In thousands of Canadian dollars
except per share amounts and ratios
Revenues
Margin1
Net income
Diluted earnings per share
Cash flows relating to
operating activities
2010
2009
Variance
$
Variance
%
3,498,877 3,545,341
(46,464)
127,582
65,607
1.73
93,395
61,847
1.85
119,131
45,234
34,187
3,760
(0.12)
73,897
75
(1.3)
36.6
6.1
(6.5)
163.4
0.04
5.3
(73.0)
(6.5)
(6.2)
19.1
Cash and cash equivalents
180,627
180,552
Total assets
Long-tem debt
1,189,458 1,129,503
59,955
(including current portion)
29,059
107,684
(78,625)
Debt ratio2
Return on average
shareholders’ equity3 (%)
Book value per share4
Stock price
0.63
0.67
(0.04)
16.3
11.60
17.3
9.74
(1.0)
1.86
as at October 31 (TRZ.B)
16.35
14.54
1.81
12.4
Oustanding shares,
end of year
37,850
37,729
1.21
0.3
1 Margin: Revenues less operating expenses, according to
the consolidated statements of income
2 Debt ratio: Total liabilities divided by total assets
3 Return on average shareholders’s equity: Net income
divided by average shareholders’ equity
4 Book value per share: Shareholders’ equity divided by
total number of shares oustanding
Revenues
(In millions of dollars)
Cash flows relating to
operating activities
(In millions of dollars)
Aircraft fuel
(In millions of dollars)
Margin
(In millions of dollars)
Net income (loss)
(In millions of dollars)
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2006 2007 2008 2009 2010
2006 2007 2008 2009 2010
2006 2007 2008 2009 2010
2006 2007 2008 2009 2010
2006 2007 2008 2009 2010
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Jean-Marc Eustache
Chairman of the Board
President and Chief
Executive Officer
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Leveraging the strong potential
of the tourism market
During fiscal 2010, the foundations were laid for
an economic recovery that has been slow getting off
the ground and very unequal from one market to anoth-
er. International tourism demand has nonetheless been
restored following the downturn of 2009. For Transat,
volumes remained solid, but as in past years, demand
was in part driven by particularly attractive selling prices,
which exerted downward pressure on our margins for
the winter season and on the French market. The
process-optimization and cost-reduction measures
implemented over the last few years, however, helped
us post results that, all in all, are satisfactory under the
circumstances—further proof of the soundness of these
measures.
The past year has been an atypical one. During
the winter season, our results are strongly dependent
on travel to sun destinations outbound from Canada.
This market is extremely competitive, because for sev-
eral years now, capacities offered at the start of the
season have tended to largely exceed demand—even
though the latter is particularly strong. In response, this
past year we took the exceptional step of reducing our
inventory at the start of winter, which led to significant
disruptions in scheduling, operation and distribution.
Unfortunately, the hoped-for benefits—higher prices
and margins—failed to materialize, because our com-
petitors quickly moved to fill the void we had left. As a
result, we had a disappointing first six-month period.
Then, in the second half of the year, with some predict-
ing a difficult period on the transatlantic market, we had
the best summer in our history, thanks particularly to
the outstanding performance of the teams responsible
for this segment, including those at Transat Tours
Canada, Vacances Transat (France) and Canadian Affair.
For fiscal 2010, we posted sales of $3.5 billion,
a 1% decrease from the previous year; a margin of
$127.6 million, versus $93.4 million for 2009; and net
income of $65.6 million ($1.73 per share), compared
with $61.8 million ($1.85 per share) for 2009. Note that
the results for both periods include non-cash and non-
operating items. With these items excluded, our adjusted
income was $53.7 million in 2010 ($1.41 per share), a
clear improvement over the 2009 result of $33.7 million
($1.01 per share). Note also that Transat’s margin in 2010
suffered by some $4 million due to the disruptions to air
traffic in the wake of the Eyjafjallajökull volcano eruption
in Iceland.
As we begin 2011, the outlook seems bright,
despite challenges that cannot be ignored, and uncer-
tainties linked to ongoing changes affecting the industry.
Forecasts by the UN World Tourism Organization and
the Conference Board of Canada, among others, point
to a trend of long-term growth for international tourism,
propelled by factors such as demographic expansion.
Transat possesses the right skills, resources and orga-
nizational structure to leverage this potential, and so we
embark on this new year with our usual blend of caution
and optimism.
The outgoing
Canadian market
Transat Tours Canada (TTC), which operates
mainly under the brands Transat Holidays, Nolitours
and Air Transat, had an arduous winter season. The
decision to adjust inventory downward led to a slight
decrease in passenger numbers, while oversupply
remained, causing sales prices to plummet. We there-
fore posted a drop in sales and a loss, due also to the
impact of our hedging operations. The cost-reduction
initiatives rolled out over the past few years and at the
start of the season, however, helped contain the damage.
Results were much better in the second half, thanks to
increased volumes, prices and margins on the transat-
lantic market. Indeed, Transat is by far the most active
tour operator in that market, with an unmatched, pow-
erful presence that is perfectly tailored to tourism:
approximately 70 direct routes linking Canada to some
30 European cities.
In 2009, we entered into a five-year agreement
with the Canadian-based carrier CanJet Airlines for
chartering of Boeing Next Generation 737-800 narrow-
body jets on sun destination routes. We began using
these aircraft in summer 2009, but the operational
break-in period truly began in the first quarter of 2010.
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
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Performance was unfortunately not up to our expecta-
tions, due in part to the scheduling changes imposed by
Transat, but we have taken the necessary measures to
improve the situation for winter 2011. These difficulties
notwithstanding, the agreement with CanJet Airlines
has considerably strengthened TTC’s position on the
sun destinations market and had a positive impact on
our 2010 results.
We continued implementing the Air Transat fleet
renewal plan. A fifth Airbus A330 entered service in the
fall of 2009, three more followed during 2010, and we
have made arrangements to add three more aircraft of
the same type by the fall of 2011. An initial Airbus A310
was withdrawn from the fleet in the fall of 2009, and
another in the fall of 2010. The remainder will be with-
drawn gradually, or may be retained as part of special
agreements with the lessors, with application of sub-
stantially lower lease prices. Operating a fleet consisting
mainly of a single aircraft type, the A330, will allow us
to lower our operating costs as well as reduce per-pas-
senger greenhouse gas emissions.
Air Transat recorded one of its best-ever years
for flight on-time performance and reliability, with results
again superior to the average. In-flight amenities, includ-
ing meal service, were improved, and periodic customer
satisfaction surveys continue to confirm the extremely
high calibre of Air Transat’s overall performance.
A relaunched Air Transat Cargo, which began
offering expanded services in November, now trans-
ports cargo from Canada to all destinations served by
Air Transat, but also to other destinations around the
world, pursuant to agreements with some 30 air carriers
and a network of representatives in 50 countries.
In Canada, more than 30% of our sales are
made through our distribution network and our websites.
Transat Distribution Canada (TDC) continues to assert
its presence from coast to coast, and comprised 442
agencies, including 368 franchises, as of October 31,
2010. TDC posted excellent results in 2010.
The outgoing
European market
Outbound travel from France recovered after a
difficult 2009, though the market remains somewhat
depressed. Demand on long-haul routes, which had
declined sharply and severely affected our results in
2009, rebounded. The medium-haul market, however,
suffered from hesitant demand, despite the fact that it
had fared remarkably well the year before, notably in
the case of Look Voyages. The abundant supply in this
market created an imbalance that led to lower prices
and margins.
As for travel between the United Kingdom and
Canada, a very important market for Transat, we logged
excellent performance in both directions, consolidating
our position as the leading tour operator, in the face of
competition that came essentially from the air carriers.
In the wake of the 2009 creation of Transat
France (a structure that groups our two tour operators’
Finance, Legal, Information Systems, Human Resources
and, as of 2010, Communications departments), we
continued implementation of our distribution strategy.
This included the sale, with satisfactory conditions, of
20 travel agencies, and the retention of 40 agencies,
which now operate under the Look Voyages banner. In
November 2009, Transat France became a partner of
reference of AS Voyages, France’s biggest travel distri-
bution network with more than 1,300 agencies, including
those of Look Voyages since January 2010.
In 2010, Transat entered into a three-year
agreement with Transavia France, an air carrier founded
by the Air France / KLM group, under which Transat
France charters narrow-body Boeing 737-800 aircraft,
mainly for its destinations in the Mediterranean Basin.
With this agreement, Transavia France became the air-
carrier partner of choice of Vacances Transat (France) and
Look Voyages, which serve nearly 600,000 customers
per year, a good percentage of whom board medium-
haul flights to Mediterranean Basin destinations. The
agreement will enhance and strengthen our offer, much
like the agreement we reached with XL Airways, which
uses one of Air Transat’s aircraft to serve our France-
based tour operators during the winter season.
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A new outgoing market:
Mexico
During the year, Transat began activities in a
new source market, setting up operations in Monterrey,
Mexico, under the Eleva Travel banner. Since the summer
of 2010, Eleva Travel has offered Mexican travellers a
variety of package products within their country (Cancún,
Puerto Vallarta, Acapulco) as well as in the United States
(Las Vegas). Eleva Travel will gradually add other desti-
nations, including Canada, which is a popular choice
for Mexicans.
Corporate responsibility
Jointly with our employees and partners, we are
continuing our efforts to make Transat one of the most
responsible players in the mass tourism industry. We
intend to build more dynamic relationships with stake-
holders, and adopt forward-looking corporate responsi-
bility practices while encouraging our partners to do
the same, with a principal objective being to ensure the
longevity of the assets essential to tourism development.
This is in the common interest of shareholders, employ-
ees, customers, partners and communities.
Mexican tourism demand is concentrated on
domestic destinations, and is highest during summer.
Cancún and Puerto Vallarta attract more than two million
Mexican travellers, the majority of them between April
and September. Transat was already present in the
incoming tour market in Mexico, and had existing agree-
ments and business relationships with several hoteliers
in the two destinations.
The creation of Eleva Travel will, of course, allow
us to diversify our revenue streams. But it will also have
positive spinoffs for our outgoing tour operators in
Canada, our incoming tour operator in Mexico, and our
hotels along the Riviera Maya, bolstering our presence
at destination.
Incoming markets and
destination services
Despite vigorous demand for international
tourism in 2010, Canada experienced another difficult
year as a destination country. Jonview Canada, the lead-
ing incoming tour operator in the country, nevertheless
posted very good results last year after a challenging
2009: our business unit welcomed more than 236,000
passengers to Canada, an increase of 15%, and
improved its profitability. The upturn was mainly attrib-
utable to the British and French markets. However, the
strong Canadian dollar combined with the introduction
of the harmonized sales tax in Ontario and British
Columbia are now hampering development of tourism
to Canada and compounding existing industry difficul-
ties. In 2010, we made representations to the federal
government, insisting on the need for changes to
Canada’s tax regime to improve the country’s ability to
compete with other destinations.
In Mexico, a major renovation project has been
completed in one of our hotel complexes, and every-
thing is in place for our establishments to benefit from
the coming recovery, notably along the Riviera Maya.
In 2010, we developed and implemented a
dashboard tool that will guide us in our approach to
corporate responsibility by monitoring progress toward
achievement of 10 objectives, with 52 related priorities
and targets.
Transat is especially proud to have signed a
partnership agreement with the Canadian-based NGO
Beyond Borders to combat the sexual exploitation of
children in tourism. Transat had previously made this
issue one of its core concerns in June 2008, when we
adopted our policy on sustainable tourism.
In November 2010, Transat received a World
Travel Market Global Award in recognition of its efforts in
sustainable development. This international recognition
reflects on all of our employees, and especially on all
those who have focused directly on this issue as part of
their daily tasks. The award is an incentive to keep up
the good work.
With regard to human resources, over the past
year we continued our efforts at skills upgrading and
implementing a dynamic succession, building on the
solid foundations laid in recent years. For obvious rea-
sons, we paid particular attention to training in the area
of change management. The training program for front-
line managers (150 participants) has been enriched with
new modules. We also renewed a finely targeted, accel-
erated training program built around a Web tool that
promotes periodic interaction between executives and
participants, with the goal of ensuring sustained, docu-
mented progress. Lastly, we revisited our incentive
compensation and group insurance programs with an
eye to enhancing the company’s attractiveness as an
employer and to build employee loyalty.
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
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As we enter 2011, Transat
is well positioned, both
strategically and financially.
Our organization has made
significant efficiency and
flexibility gains, we are doing
a good job of controlling
our costs, and our financial
structure is sound.
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2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
• Finally, growth remains a priority, of course. This
includes going the acquisition route, when interesting
targets become available and conditions are propi-
tious. Our main intentions are to diversify our source
markets by penetrating other national markets,
increase our market share in Ontario (Canada’s
largest regional market), and continue integration,
strengthening our presence in the incoming segments
of our principal markets (notably in southern Europe
and northern Africa) and in the hotel sector.
As we enter 2011, Transat is well positioned,
both strategically and financially. Our organization has
made significant efficiency and flexibility gains, we are
doing a good job of controlling our costs, and our
financial structure is sound.
In June 2010, we announced the appointment
of W. Brian Edwards as an independent director of the
Company. Mr. Edwards is the founder of BCE Emergis,
which has grown into one of North America’s premier e-
commerce companies, and is a seasoned administrator.
His strong skills and recognized experience will be sig-
nificant assets to Transat and its shareholders.
I express my gratitude to all members of our
personnel, the management team and the Board of
Directors for their contribution and their determination
to make Transat into an exemplary company across the
board. I also thank our shareholders for their continued
confidence. We remain solidly on course for success,
and I can assure you that, as we stand on the cusp of
the year 2011, Transat has all the necessary assets to
get there.
Jean-Marc Eustache
Chairman of the Board
President and Chief Executive Officer
December 15, 2010
Looking ahead to 2011
and beyond
While demand for tourism is showing very
encouraging signs of progress over both the short and
long terms, the market is still changing and regularly
bringing new challenges. In the last two years, for
example, scheduled carriers have sent signals that they
could be in the tourism market for the long run, having
long been content to make only sporadic incursions.
The result is an industry where two distinct operating
models rub shoulders: that of tour operators and that of
airlines. This makes designing and implementing com-
mercial strategies more complicated still. And, of course,
the tenacity of the traditional competition shows no
signs of abating.
There are other drivers of uncertainty at work.
First, tourists’ tastes and expectations continue to
evolve and diversify. Second, consumers are becoming
more powerful each day with new tools available to
plan holidays, rate service providers’ performance and
share information among themselves. And the Internet
doubtless holds yet more untapped possibilities that will
become either challenges or opportunities for market
players, depending on how much vision and imagination
they are able to muster.
It is against this backdrop that we look ahead
to 2011 with relative optimism, and are actively working
in three areas to prepare Transat for the future.
• With regard to commercialization in the broadest
sense, we will continue to move the organization for-
ward with an eye to presenting a more flexible prod-
uct offering. Steering this transformation will involve,
among other things, a renewal of our product strategy
as well as upgrading of our information-management
systems, which has been underway for several years
and is progressing as planned. In 2011, we plan to
invest $21 million in technology capital expenditures.
We must also refine our marketing strategy, continue
expansion of our distribution network and, of course,
implement increasingly more effective business
processes.
• In addition, we have begun a strategic rethinking of
our brand and customer experience. The goal is to
improve our potential for differentiation, enhance
customer-experience quality, and channel the ener-
gies of our teams in a clearly defined direction so as
to propel Transat into a class by itself on the world-
wide leisure travel market.
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Transat is continuing its
efforts toward becoming one
of the most responsible
companies in its industry. We
intend to build increasingly
dynamic relationships with
those stakeholders who share
this goal, and integrate
exemplary practices, while
encouraging our partners
to do the same.
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Environment
When it comes to environmental protection, our
number one job is to reduce our resource consumption
and the green footprint of our operations as much as
possible. Thus far, actions have focused mainly on inte-
gration of the 4R principles (reduction at source, re-use,
recycling and recovery) and on preventing and reducing
sources of pollution. Furthermore, we have produced
reliable Environmental Footprint Reports for fiscal 2009
and 2010, which provide us with objective data that we
can use to track our performance.
In 2010, we began implementation of a program
to encourage our hotel partners to adopt forward-think-
ing responsible management practices. The program,
which advocates adoption of 55 exemplary practices in
eight areas of action, will gradually be extended to
include all tourism service providers with whom we do
business.
Air Transat and Handlex share a building on the
Montréal–Trudeau airport site. In 2010, pursuant to
implementation of our environmental management sys-
tem (begun in 2008), we filed an application for LEED-
EB (Leadership in Energy and Environmental Design for
Existing Buildings) certification for this building (exclud-
ing the maintenance centre).
Air Transat aircraft carry substantial amounts of
products of all kinds on board, and each flight generates
an appreciable quantity of waste. The Air Transat team
began attacking this problem in 2008. A list of 241 dis-
tinct products was drawn up, and is now being studied
to see whether items can be eliminated, whether quan-
tities brought on board can be reduced, or whether
products that are lighter, recycled, recyclable or other-
wise more responsible can be substituted.
In 2003, Air Transat implemented a stringent
fuel management program. We estimate that this program
enables us to reduce fuel consumption and greenhouse
gas emissions by some 5%, all other things being equal.
CO2 emissions from
Air Transat flights
(November 1 to October 31)
Total CO2
(tonnes)
Fuel consumption (litres)
CO2 emissions (kg)
(per passenger/100 km)
2010
2009
2008
2007
1,109,378
3.30 litres (8.35 kg)
1,139,773
3.28 litres (8.30 kg)
1,137,629
3,26 litres (8.25 kg)
1,013,970
3.17 litres (8.02 kg)
The year-over-year increase in total emissions is due to the higher
number of flights. The increase in fuel consumption per passenger/
100 kilometres from 2007 to 2008 and from 2008 to 2009 is due
mainly to the reduction in the number of seats aboard aircraft in
2008. The modest drop in emissions from 2009 to 2010 stemmed
from a slight decrease in the number of flights; and the increase
in the per-passenger consumption is attributable to slightly inferi-
or load factors and an increase in cargo.
Co-operation at destination
Taking a corporate responsibility approach in
the tourism industry necessarily implies taking an inter-
est in the communities that host travellers. This means,
among other things, building relationships with these
communities based on respect, and therefore making
efforts to reconcile the interests of all stakeholders. To
that end, and in spite of the fact that the past few years
have been difficult ones for the tourism industry, we
have continued to support a number of organizations
that are doing good work in tourism markets where
Transat is present.
Pursuant to a partnership agreement begun in
2009, we support the actions of SOS Children’s
Villages, an organization that aids orphans and aban-
doned children worldwide. SOS Children’s Villages runs
some 500 villages in 132 countries, where it cares for
80,000 children. This major partnership is in addition to
the one that has existed with the Children’s Wish
Foundation, through Air Transat, since 2004.
In 2010, Transat’s most significant initiative on
the humanitarian front was its participation in relief
operations in the wake of the January 12 earthquake in
Haiti. A week after the disaster, on January 20, we flew
a wide-body jet to Port-au-Prince, carrying several
tonnes of supplies and food provided by humanitarian
organizations, Air Transat partners and company staff.
Aid workers from various organizations were also on
board. In the ensuing weeks, three more Air Transat
humanitarian flights to Haiti took place.
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
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Fiscal 2010 was also marked by the signing of
The Odyssey program and Transat Academy
a partnership agreement with Beyond Borders, a
renowned organization based in Canada that is com-
mitted to combating child sexual exploitation. Beyond
Borders has developed a training program to help us
contribute to the fight against sex tourism that targets
children. Implementation of the program has begun.
In addition, we provided financial assistance to
several sustainable tourism projects, under a program
launched in 2007. Projects supported by Transat are
run by local community groups or non-profit organiza-
tions, and geared toward tourism development that
emphasizes protection and development of the environ-
ment and/or heritage. The goal is to maintain or stimulate
local economic activity from a perspective of sustainable
development.
With the help of Uniterra, in Canada, and Planète
Urgence, in France, we set up a humanitarian leave
program, whereby our employees can take part in short
international co-operation missions.
form the heart of our skills-development efforts. Odyssey
is offered to managers in Canada and comprises eight
modules, covering 12 competencies critical to Transat’s
industry segment. To date, 339 managers have begun
the program, and 72 of them have completed more
than half the modules. Transat Academy is an undergrad-
uate university program in organizational management,
offered to Canadian employees on a volunteer basis,
subject to certain selection criteria. It is conducted in
partnership with Université de Sherbrooke, Ryerson
University in Toronto and Simon Fraser University in
Vancouver.
To strengthen this culture geared toward upgrad-
ing of competencies and encourage personnel to excel,
we have developed a structured method for evaluating
employee potential, with input from a specialized firm.
Based on the initial results, we decided to deploy this
approach earlier in the careers of targeted employees,
so as to accelerate their development and outpace
competitors elsewhere in our industry.
The Corporate Responsibility Report
may be viewed in full as a PDF file
downloadable from the Transat
website (www.transat.com), and an
enriched version is available
at www.resp.transat.com
Professional development
and satisfaction of personnel
Transat ascribes great importance to skills
upgrading and maintenance of a work atmosphere
based on respect. Over the years, we have implemented
a variety of programs and tools to improve employee
orientation and integration, training as well as all aspects
of employee recognition. When it comes to diversity, a
key value for Transat, half of our senior executives are
women, and we promote hiring of candidates from
minority groups. We also encourage employment of
local personnel for positions at destination.
Transat’s Code of Ethics was revised in 2010,
and now includes commitments related to our vision of
corporate responsibility. This document, approved by
the Board of Directors, is at once an expression of our
corporate culture and an instrument of change manage-
ment. Every employee is required to read it and commit
to complying with it.
Skills upgrading and professional development
are the core of our strategy. In the last few years, we
have developed a flexible training offering, highly adapt-
able to employees’ needs. These efforts have clearly
helped our turnover rate, which has decreased by 26%
over the past three years.
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Source of funds
Transat and
subsidiaries
56%
Employees
11%
Customers
33%
$1.8 million in donations
Fund Allocation
The Children’s
Wish
Foundation
18%
Other
18%
Humanitarian
(Canada)
8%
Humanitarian
(International) 26%
SOS
Children’s
Villages
Research
in tourism
Sustainable
tourism
projects at
destination
23%
3%
4%
1.8 million $
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
11
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T
Transat A.T. Inc. is an integrated
international tour operator that
specializes in holiday travel. It
offers more than 60 destination
countries and distributes products
in approximately 50 countries.
Transat owns an air carrier, offers
accommodation and destination
services and operates an extensive
distribution network. A responsible
company mindful of contributing
to sustainable tourism develop-
ment, Transat has a dedicated
team of thorough and efficient
people who deliver quality holiday
travel services at affordable prices
to a broad customer base.
12
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
Outgoing Tour Operators
Transat Tours Canada (TTC)
Transat Holidays, Nolitours, Air Transat,
Transat Holidays USA
Eleva Travel
Based in Monterrey, Mexico, Eleva Travel mar-
kets leisure travel products to Mexicans, to domestic
destinations such as Cancún, Puerto Vallarta and
Acapulco, as well as Las Vegas in the United States.
Incoming Tour Operators,
Destination Services,
Accommodation
Jonview Canada (80.07%)
Jonview Canada, the leading incoming tour
operator in Canada, markets its products in approxi-
mately 50 countries, in Europe and in a growing number
of emerging markets.
Tourgreece
Each year, Tourgreece welcomes approximately
100,000 travellers, ranking it among the largest incom-
ing tour operators in Greece.
Trafic Tours (70.0%) and Turissimo (70.0%)
Trafic Tours and Turissimo offer excursions and
other destination services to vacationers in the greater
region of Puerto Vallarta, Cancún and the Riviera Maya,
Mexico, as well as in the Dominican Republic.
Ocean Hotels (35.0%)
In partnership with leading Spanish chain H10
Hotels, Transat owns a 35% interest in a company that
operates five hotels in three complexes in Mexico and
the Dominican Republic.
The leading tour operator for holiday travel
between Canada and Europe, Transat Tours Canada also
offers Canadians a wide variety of year-round travel
products to Mexico, the Caribbean, Latin America and
Florida, as well as cruise travel on all of the world’s
oceans through agreements with the best cruise opera-
tors. TTC offers a wide array of tours and accommoda-
tions on both sides of the Atlantic, including Transat as
well as other partner products.
Air Consultants Europe (ACE)
A partner of TTC, ACE also works very closely
with Jonview Canada to market Transat products in
Canadian destinations to travellers departing from Austria,
Belgium, Germany, Luxembourg, the Netherlands and
Switzerland.
Rêvatours and Merika Tours
In Canada, Rêvatours offers tours and custom-
tailored products in 30 countries in Europe, Asia, Africa
and South America, while Merika Tours offers a range
of North American destinations.
Look Voyages and Amplitravel
In France, Look Voyages offers the winning
formula of its Lookéa resort clubs network (32 clubs in
16 countries as of summer 2010), while diversifying its
offering to include a range of travel and tour products,
including travel to Tunisia under the Amplitravel brand.
Vacances Transat (France)
The leading tour operator in the French market
offering travel to Canada, Vacances Transat (France) is
also a specialist in tours to the four corners of the globe.
Also operating under the Brokair brand (specializing in
group travel), Vacances Transat offers more than 30
destination countries from France.
Canadian Affair
As the United Kingdom’s leading tour operator
specializing in travel to Canada, Canadian Affair works
hand-in-hand with Transat Tours Canada, Jonview
Canada, Air Transat and Thomas Cook Airlines.
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
13
Retail Distribution
Transat Distribution Canada (TDC)
Club Voyages, Marlin Travel, Voyages en Liberté,
Travel Plus
At fiscal 2010 year-end, Transat Distribution
Canada (TDC) grouped 442 travel agencies (including
368 franchises) and approximately 2,300 travel advisors,
and was the largest travel agency network in Canada.
Tripcentral.ca
tripcentral.ca (64.6%) and exitnow,ca
In addition to a strong Internet presence, trip-
central.ca operates 22 points of sale in Canada, as well
as the exitnow.ca online travel agency.
Eurocharter
Eurocharter is a group of 40 Transat-owned
travel agencies in France, all operated under the Look
Voyages banner and member of the AS Voyages
network.
Air Transportation
Air Transat
Air Transat operates a fleet of Airbus A330 and
A310 wide-body aircraft. Its on-time, fleet-reliability
and fuel-management performance are among the best
in the industry. Several factors combine to make Air
Transat a first-rate airline in its category: its qualified,
friendly cabin crews, an outstanding program for young
families, its Club Class and OptionPlus service, and
more.
Handlex
Handlex provides airport ground services (pas-
senger check-in, baggage and cargo handling, aircraft
cleaning, ramp services and ground-services equipment
maintenance to 32 carriers, including Air Transat, at the
international airports in Montreal (Trudeau and Mirabel),
Toronto and Vancouver.
Unless otherwise indicated, Transat A.T. Inc. holds a 100% interest
in all business units.
14
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
0
1
0
2
9
0
0
2
Americas
Europe
Outgoing Tour Operators
and Air Transportation
Transat Tours Canada
(Transat Holidays,
Nolitours and Air Transat)
Revenues
Employees
Air Transat Passengers1
Travellers2
Rêvatours
Revenues
Employees
Travellers
Incoming Tour Operators
and Destination Services
Jonview Canada
Revenues
Employees
Travellers
Other
Revenues
Employees
Retail Distribution
Transat Distribution Canada
(Club Voyages,
Voyages en Liberté, TravelPlus,
and Marlin Travel)
Revenues
(commissions and franchise)
Outlets owned
Employees
Outlets
Tripcentral.ca
Revenues
Employees
Outlets
Other Airline Services
Handlex
Revenues
Employees
Transat A.T. Inc.
Employees
2,394,000
2,516
2,960,000
1,750,000
2,394,000
2,554
3,207,000
1,619,000
29,300
20
8,700
11,700
18
3,600
110,500
153
236,000
105,400
188
206,000
44,800
313
52,700
285
56,400
74
432
368
12,800
136
22
58,900
77
454
354
9,300
136
22
49,600
941
54,900
1,024
526
488
Outgoing Tour Operators
Vacances Transat (France)
(Vacances Transat (France),
Bennett Voyages et Brokair)
Revenues (m)
Employees
Travellers
Look Voyages
Revenues (m)
Employees
Travellers
Club Lookéa/summer3
Club Lookéa / winter3
Amplitravel
Revenues (m)
Employees
Travellers
Air Consultants Europe
Revenus commissions (m)
Employees
Travellers
Canadian Affair
Revenues (£)
Employees
Travellers
Incoming Tour Operators
and Destination Services
Tourgreece
Revenues (m)
Employees
Travellers
Retail Distribution
Eurocharter
(Look Voyages agencies)
Revenues commissions (m)
Employees
Outlets owned
0
1
0
2
9
0
0
2
212,000
213
185,000
202,000
200
167,000
251,000
311
278,000
32
15
260,000
276
284,000
32
14
34,000
17
100,000
36,500
18
113,000
3,300
23
62,000
2,300
23
49,000
156,000
76
317,000
110,700
77
271,000
17,400
40
103,800
17,800
32
80,000
5,800
102
40
8,500
177
63
1 Airlines record flight segments in terms of passengers
2 Tour operators record round-trip travellers
3 Including Lookéa cruise in Egypt
All subsidiaries wholly owned, except:
Jonview Canada (80.07%) and Travel Superstore Inc. (Tripcentral.ca) (64.6%)
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
15
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i
CAUTION REGARDING
FORWARD-LOOKING
STATEMENTS
NON-GAAP FINANCIAL MEASURES
FINANCIAL HIGHLIGHTS
OVERVIEW
CONSOLIDATED OPERATIONS
FINANCIAL POSITION,
LIQUIDITY AND CAPITAL
RESOURCES
INVESTMENTS IN ABCP
OTHER
ACCOUNTING
RISKS AND UNCERTAINTIES
CONTROLS AND PROCEDURES
OUTLOOK
17
18
19
19
22
26
29
31
31
37
40
40
16
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
Examples of such forward-looking statements include, but are
not limited to, statements concerning:
• The outlook whereby the Corporation should have the
resources it needs to meet its 2011 objectives and continue
building on its long-term strategies
• The outlook whereby our 2011 revenues and total volume of
travellers are expected to outpace 2010 levels.
• The outlook whereby the Corporation expects to generate
positive cash flows from operating activities in 2011.
• The outlook whereby additions to property, plant and equip-
ment and intangible assets are expected to total up in the
neighborhood of $50.0 million.
• The outlook whereby the Corporation will be able to meet its
obligations with cash on hand, cash flows from operations
and drawdowns under existing credit facilities.
• The outlook whereby the Corporation could benefit from
lower input costs.
In making these statements, the Corporation has assumed,
among other things, that travellers will continue to travel, that
credit facilities will continue to be made available as in the past,
that management will continue to manage changes in cash
flows to fund working capital requirements for the full fiscal year
and that fuel prices, and hotel and other destination-based costs
will hold steady. If these assumptions prove incorrect, actual
results and developments may differ materially from those con-
templated by the forward-looking statements contained in this
MD&A.
The Corporation considers the assumptions on which these
forward-looking statements are based to be reasonable.
These statements reflect current expectations regarding future
events and operating performance and speak only as of the
date this MD&A is issued, and represent the Corporation’s
expectations as of that date. The Corporation disclaims any
intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future
events or otherwise, other than as required by applicable securi-
ties legislation.
This Management’s Discussion and Analysis (MD&A) provides a
review of Transat A.T. Inc.’s operations, performance and finan-
cial position for the year ended October 31, 2010, compared
with the year ended October 31, 2009, and should be read in
conjunction with the audited Consolidated Financial Statements
and notes thereto. The information contained herein is dated as
of December 15, 2010. You will find more information about us
on Transat’s website at www.transat.com and on SEDAR at
www.sedar.com, including the Attest Reports for the year ended
October 31, 2010 and Annual Information Form.
Our financial statements are prepared in accordance with
Canadian generally accepted accounting principles [“GAAP”].
We occasionally refer to non-GAAP financial measures in the
MD&A. See the Non-GAAP financial measures section for more
information. All dollar figures in this MD&A are in Canadian dol-
lars unless otherwise indicated. The terms “Transat,” “we,” “us,”
“our” and the “Corporation” mean Transat A.T. Inc. and its sub-
sidiaries, unless otherwise indicated.
CAUTION REGARDING
FORWARD-LOOKING
STATEMENTS
This MD&A contains certain forward-looking statements with
respect to the Corporation. These forward-looking statements
are identified by the use of terms and phrases such as “antici-
pate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,”
“plan,” “potential,” “predict,” “project,” “will,” “would,” the neg-
ative of these terms and similar terminology, including refer-
ences to assumptions. All such statements are made pursuant
to applicable Canadian securities legislation. Such statements
may involve but are not limited to comments with respect to
strategies, expectations, planned operations or future actions.
Forward-looking statements, by their nature, necessarily involve
risks and uncertainties that could cause actual results to differ
materially from those contemplated by these forward-looking
statements. Results indicated in forward-looking statements may
differ materially from actual results for a number of reasons,
including without limitation, extreme weather conditions, fuel
prices, armed conflicts, terrorist attacks, general industry, market
and economic conditions, disease outbreaks, changes in
demand due to the seasonal nature of the business, the ability
to reduce operating costs and employee counts, labour relations,
collective bargaining and labour disputes, pension issues,
exchange and interest rates, availability of financing in the future,
statutory changes, adverse regulatory developments or proce-
dures, pending litigation and actions by third parties, and other
risks detailed from time to time in the Corporation’s continuous
disclosure documents.
The reader is cautioned that the foregoing list of factors is not
exhaustive of the factors that may affect any of the Corpo-
ration’s forward-looking statements. The reader is also cau-
tioned to consider these and other factors carefully and not to
place undue reliance on forward-looking statements.
The Corporation made a number of assumptions in making
forward-looking statements in this MD&A such as certain eco-
nomic, market, operational and financial assumptions and
assumptions about transactions and forward-looking state-
ments.
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
17
NON-GAAP FINANCIAL
MEASURES
This MD&A was drawn up using results and financial information
determined under GAAP. We occasionally refer to non-GAAP
financial measures. Generally, a non-GAAP financial measure is
a numerical measure of an entity’s historical or future financial
performance, financial position or cash flows that excludes or
includes amounts that that would not be so adjusted in the most
directly comparable measure calculated and presented in accor-
dance with GAAP. The non-GAAP measures used by the Corpo-
ration are as follows:
Management also uses total debt and net debt to calculate the
Corporation’s indebtedness level, cash position, future cash
needs and financial leverage ratio. Management believes these
measures are useful for gauging the Corporation’s financial
leveraging.
The following table reconciles the non-GAAP financial measures
to the most comparable GAAP financial measures:
(In thousands of dollars)
Revenues
Operating expenses
Margin
2010
$
2009
$
2008
$
3,498,877
3,371,295
3,545,341
3,451,946
3,512,851
3,385,083
127,582
93,395
127,768
Margin (operating loss)
Revenues less operating expenses.
Adjusted income (loss)
Income (loss) before non-controlling interest in subsidiaries’
results, income taxes, change in fair value of derivative finan-
cial instruments used for aircraft fuel purchases, non-monetary
gain (loss) on investments in ABCP and restructuring charge
(gain).
Adjusted after-tax income (loss)
Net income (loss) before change in fair value of derivative
financial instruments used for aircraft fuel purchases, non-
monetary gain (loss) on investments in ABCP and restructur-
ing charge (gain), net of related taxes.
Adjusted after-tax income (loss) per share
Adjusted after-tax income (loss) divided by the adjusted
weighted average number of outstanding shares used in
computing diluted earnings (loss) per share.
Total debt
Long-term debt plus the debenture and off-balance sheet
arrangements, excluding agreements with service providers,
reported on page 28.
Net debt
Total debt (described above) less cash and cash equivalents
and investments in ABCP.
The above-described financial measures have no meaning pre-
scribed by GAAP and are therefore unlikely to be comparable to
similar measures reported by other issuers or those used by
financial analysts. They are furnished to provide additional infor-
mation and should not be considered in isolation or as a substi-
tute for financial performance measures calculated in accor-
dance with GAAP. Management believes that readers of our
MD&A use these measures, or a subset thereof, to analyze the
Corporation’s results, its financial performance and its financial
position.
In addition to GAAP financial measures, management uses
adjusted income and adjusted after-tax income to measure the
Corporation’s ongoing and recurring operational performance.
Management considers these measures important as they
exclude from results items that arise mainly from long-term
strategic decisions, reflecting instead the Corporation’s day-to-day
operating performance. Management believes these measures
are useful for assessing the Corporation’s capacity to discharge
its financial obligations.
Income (loss) before
non-controlling interest
in subsidiaries’ results
Income taxes
Change in fair value of derivative
financial instruments related
to aircraft fuel purchases
Non-monetary loss (gain)
on investments in ABCP
Writedown of investments
69,331
23,806
64,894
30,916
(46,107)
(28,875)
(9,341)
(68,267)
106,435
in ABCP (provision reversal)
(4,648)
5,993
45,927
Adjustment related to
January 21, 2009
restructuring plan
implementation
Remeasurement of options
related to repayment
of revolving credit facilities
Restructuring charge (gain)
Adjusted income
Net income (loss)
Change in fair value of derivative
financial instruments related
to aircraft fuel purchases
Non-monetary loss (gain)
on investments in ABCP
Restructuring charge (gain)
Tax impact
Adjusted after-tax income
—
—
(4,648)
(1,157)
77,991
1,759
(800)
6,952
11,967
46,462
—
—
45,927
—
77,380
65,607
61,847
(49,394)
(9,341)
(68,267)
106,435
(4,648)
(1,157)
3,202
53,663
6,952
11,967
21,224
33,723
45,927
—
(45,954)
57,014
Adjusted after-tax income
53,663
33,723
57,014
Adjusted weighted average
number of outstanding shares
used in computing diluted
earnings per share
Adjusted after-tax income
per share diluted
Payments on current portion
of long-term debt
Long-term debt
Debenture
Off-balance sheet
arrangements, excluding
agreements with service
providers
Total debt
Total debt
Cash and cash equivalents
Investments in ABCP
Net debt
37,993
33,485
33,108
1.41
1.01
1.72
13,768
15,291
—
24,576
83,108
3,156
16,745
133,340
3,156
643,750
396,433
297,094
672,809
672,809
(180,627)
(72,346)
507,273
507,273
(180,552)
(71,401)
450,335
450,335
(145,767)
(86,595)
419,836
255,320
217,973
18
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
FINANCIAL HIGHLIGHTS
(In thousands of dollars)
Consolidated Statements of Income
Revenues
Margin1
Net income (loss)
Basic earnings (loss) per share
Diluted earnings (loss) per share
Adjusted after-tax income (loss)1
Diluted after-tax income per share
Dividend – Class A and Class B shares
Consolidated Statements of Cash Flows
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash
and cash equivalents
Net change in cash and cash equivalents
Consolidated Balance Sheets
Cash and cash equivalents
Cash and cash equivalents in trust or otherwise
reserved (short-term and long-term)
Investments in ABCP
Total assets
Debt (short-term and long-term)
Total debt1
Net debt1
1 SEE NON-GAAP FINANCIAL MEASURES (page 18)
2010
$
2009
$
2008
$
3,498,877
127,582
65,607
1.74
1.73
53,663
1.41
—
119,131
(27,819)
(81,034)
(10,203)
75
3,545,341
93,395
61,847
1.86
1.85
33,723
1.01
0.09
45,234
(26,662)
18,303
(2,090)
34,785
3,512,851
127,768
(49,394)
(1.49)
(1.49)
57,014
1.72
0.36
95,069
(142,027)
15,091
10,866
(21,001)
As at October 31,
2010
$
As at October 31,
2009
$
As at October 31,
2008
$
180,627
180,552
145,767
352,650
72,346
272,726
71,401
256,697
86,595
1,189,458
29,059
672,809
419,836
1,129,503
110,840
507,273
255,320
1,267,214
153,241
450,335
217,973
Change
2010
%
(1.3)
36.6
6.1
(6.5)
(6.5)
59.1
39.6
(100.0)
163.4
(4.3)
(542.7)
(388.2)
(99.8)
Change
2010
%
0.0
29.3
1.3
5.3
(73.8)
32.6
64.4
Change
2009
%
0.9
(26.9)
225.2
224.8
224.2
(39.1)
(41.3)
(75.0)
(52.4)
81.2
21,3
(119.2)
265.6
Change
2009
%
23.9
6.2
(17.5)
(10.9)
(27.7)
12.6
17.1
OVERVIEW
HOLIDAY TRAVEL INDUSTRY
The “holiday travel” industry consists mainly of tour operators,
traditional and online travel agencies, destination service
providers or hotel operators, and air carriers. Each of these sub-
sectors includes companies with different operating models.
Generally, “outgoing” tour operators purchase the various com-
ponents of a trip locally or abroad and sell them separately or in
packages to consumers in their local markets, generally through
travel agencies. “Incoming” tour operators design travel pack-
ages or other travel products consisting of services they pur-
chase in their local market for sale in foreign markets, generally
through other tour operators or travel agencies. Destination
service providers are based at destination and sell a range of
optional services to travellers onsite for spontaneous consump-
tion, such as excursions or sightseeing tours. These companies
also provide outgoing tour operators with logistical support serv-
ices, such as ground transfers between airports and hotels.
Travel agencies, operating independently or in networks, are dis-
tributors serving as intermediaries between tour operators and
consumers. Air carriers sell seats through travel agencies or
directly to tour operators, who use them in building packages.
CORE BUSINESS, VISION AND STRATEGY
CORE BUSINESS
Transat is one of the largest fully integrated world-class tour oper-
ators in North America. We operate solely in the holiday travel
industry and market our services mainly in the Americas and
Europe. As a tour operator, Transat’s core business involves
developing and marketing holiday travel services in package and
air-only formats. We operate as both an outgoing and incoming
tour operator by bundling services bought in Canada and abroad
and reselling them in Canada, France, the U.K. and in ten other
European countries, mainly through travel agencies, some of
which we own (as in France and Canada). Transat is also a major
retail distributor with a total of approximately 500 travel agencies
(including 368 franchisees) and a multi-channel distribution system
incorporating web-based sales. Transat holds an interest in a hotel
business that owns and operates properties in Mexico and the
Dominican Republic. Transat deals with a large number of air car-
riers, but relies on its subsidiary Air Transat for a significant portion
of its needs. Transat also offers destination and airport services.
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
19
VISION
According to the World Tourism Organization, the volume of inter-
national tourists, which fell in 2009, is expected to grow 5%-6% in
calendar 2010. Transat’s vision is to become a leading player in
the Americas and build strong competitive positioning in several
European countries by 2014. At present, we are a market leader
in Canada, operating as an outgoing and incoming tour operator.
We are a well-established outgoing tour operator in France and
the U.K. and an incoming tour operator in Greece. We offer cus-
tomers a broad range of international destinations spanning some
60 countries and market products in over 50 countries. Over time,
we intend to expand our business to other countries where we
see high growth potential for an integrated tour operator specializ-
ing in holiday travel.
STRATEGY
To deliver on its vision, the Corporation intends to continue:
deriving synergies from its vertical integration model, which dis-
tinguishes it from several of its rivals; growing its market share in
France, where it ranks among the largest tour operators; and
tapping into new markets or expanding operations in markets
not yet fully served. To increase its buying power for its tradition-
al destinations, Transat is targeting new markets with potential
demand for these routes.
With regard to vertical integration, the key growth drivers are
multichannel distribution, which Transat will continue developing
by expanding its physical market presence and by investing in
technological solutions to better the increasingly varied expecta-
tions of consumers through a heightened presence at destina-
tion, either in the form of hotels, incoming tour operators or des-
tination-based service providers.
Alongside these initiatives, Transat intends to leverage targeted
technology investments and efficiency gains from changes to its
internal management structure to grow its margin and market
share in all its markets. Cost management remains a core strate-
gic issue in light of the tourism industry’s slim margins. On this
front, the Corporation’s move in 2009 to transition Air Transat’s
fleet to a single model (from the current two) by 2013 is expect-
ed to generate significant savings. Moreover, under an agree-
ment entered into in 2009, Transat gained flexible access to
third-party narrow-bodied aircraft for a five-year period, yielding
it further financial advantages.
Transat acknowledges the growing strategic importance of sus-
tainable development in the holiday and air travel industries. This
phenomenon, heightened by the anticipated growth in tourism
and air travel, manifests itself in various ways, particularly through
regulations and tariffs on greenhouse gas emissions and higher
customer and investor expectations in this area. Given this trend
and the vested interest tourism companies have in seeing the
environment protected and communities remaining amenable to
tourism, Transat took a marked shift in 2006 in adopting avant-
garde policies on corporate responsibility and sustainable tourism.
In doing so, the Corporation targets the following benefits, in
particular: lower resource consumption, with the associated cost
savings; brand differentiation and greater customer loyalty,
potentially boosting our commercial benefits; and enhanced
employee loyalty and motivation.
For fiscal 2011, Transat has set the following targets:
• Continue the organizational transformation with the harmo-
nized implementation of new information systems and related
operating processes.
• Increase revenues at Transat Tours Canada through organic
growth.
• Grow revenues and profitability at Transat France to become
France’s third largest tour operator by 2013.
• Strengthen our presence, expand sales and improve our bot-
tom line in certain foreign markets.
• Enhance the strategic value of our brand.
• Actively pursue our plan to make Transat one of the industry’s
most responsible companies.
• Improve our competitiveness in terms of service quality and
operating costs in the air carrier industry.
• Improve our organization’s adaptability.
REVIEW OF 2010 OBJECTIVES AND ACHIEVEMENTS
The main goals and achievements for fiscal 2010 were as
follows:
1. Expand our leadership market position on both sides of
the Atlantic via a broader offering of products and destina-
tion-based services by stepping up multichannel distribu-
tion and controlling costs, while providing enhanced cus-
tomer experience.
• Continue our bilateral approach by improving market share
in the countries in which we enjoy strong coverage (France,
United Kingdom and the Netherlands) and developing growth
plans for markets we are able to enhance coverage (Germany,
Italy, Spain and Mexico).
• Facilitate growth of direct or online sales in all our subsidiaries
and, from a traditional distribution network standpoint:
• In Canada, increase the number of agencies, their pro-
ductivity and their sales of products;
• In France, refocus our operations on tourism products
by implementing a new structure for our travel agency
network.
• Reassess our offering relative to our customers’ evolving pro-
files, needs, values and priorities.
• Capitalize on Transat’s scale to negotiate better hotel agree-
ments to enhance our competitive positioning.
• Begin the renewal of Air Transat’s fleet and work more closely
with other companies to better manage our airline capacity to
reduce aggregate airline costs.
• Redefine the operating model of our Canadian incoming tour
operator to adapt it to new market realities.
• Maximize profitability of destination-based services by work-
ing closely with our hotel business and developing our
incoming tour operators
In the trans-Atlantic market, 2010 performance was Transat’s
best ever. Our performance in the U.K. was particularly remark-
able. We continued our efforts to strengthen our positioning in
Germany, Italy and Spain. Moreover, in 2010, Transat entered
the Mexican market as an outgoing tour operator.
20
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
Transat Distribution Canada posted record results. Controlled
sales were up in 2010, as well as the productivity of our travel
agencies. In Canada, our agencies increased to 464 from 431,
and we remain Canada’s largest travel agency network. In
France, we successfully completed the implementation of the
new structure of our distribution network with the sale of 20
agencies and the rebranding of the existing travel agencies
under the Look Voyages banner, thereby refocusing our tourism
business.
We began realigning our offering of Canadian departures with
market expectations. This process will be continued in 2011 at
the same time as a reflective analysis of our brands.
In 2010, thanks to our longstanding relationship with our hotel
partners, we successfully negotiated some hotel pricing and
adapted our offering to market conditions.
As anticipated, our airline costs were down in 2010 thanks to
the agreement entered into with CanJet Airlines for Canadian
departures. In addition our agreement with French carrier XL
Airways to charter one of Air Transat’s Airbus A330 to serve our
French long-haul market was also beneficial for Transat. The
renewal of Air Transat’s fleet is now solidly underway with agree-
ments in place to add six new A330 aircraft to the fleet by the
end of 2011.
Following process and structural adjustments, Jonview capital-
ized on a robust transatlantic market to report strong perform-
ance in 2010. Our incoming tour operators in Mexico and the
Dominican Republic recorded very healthy margins in 2010. We
carried out significant renovations at one of the Ocean hotels
(jointly owned with H10 Hotels) and are well positioned to capi-
talize on the recovery, particularly in Mexico.
2. Complete the integration of new management teams, fos-
ter teaming and promote a strong sense of cohesion
among the new subsidiary entities and head office so as to
meet our business objectives sooner.
• Actively pursue the process of identifying, managing and
developing talent and the next generation of leaders.
• Enhance human resource retention, training and mobilization
programs.
• Develop the change management skills of our managers in
connection with strategic initiative deployments.
• Reinforce communications and teamwork as fundamental to
the Corporation’s success.
Over the years, various programs and tools have been imple-
mented to improve the welcoming, integration and training of
employees, as well as employee recognition. In the past few
years, we developed a flexible training program tailored to
employee needs. Our efforts in this regard have clearly helped
reduce the employee turnover rate, which is down 26% over the
past three years.
Our skill development strategy is primarily based on the Odyssey
program and Transat Academy. Odyssey is for Canadian man-
agers and includes eight modules focusing on 12 essential skills
in Transat’s business. Transat Academy is a university under-
graduate program in organization management in which our
Canadian staff can participate on a voluntary basis on meeting a
set of selection criteria. This program is offered in partnership
with the Université de Sherbrooke, Ryerson University in Toronto
and Simon Fraser University in Vancouver.
To foster a culture of ongoing professional development and
encourage employees to surpass themselves, we have imple-
mented a structured method for assessing employee potential
with support from a specialized firm. In light of our initial results,
we decided to implement this approach earlier in the career path
of targeted employees to accelerate their development and dif-
ferentiate us from the rest of the industry. Non-unionized
Canadian employees who wish to do so can also benefit from
an individualized development plan (IDP).
3. Pursue development and implementation of new informa-
tion systems to step up operating efficiency and provide us
with greater flexibility in developing our offering.
• Continue system implementation to allow the creation of à la
carte offerings.
• Complete implementation of the new airline seat inventory
management system.
• Complete the analysis and begin replacing the main tour
operator system.
• Establish a technology roadmap aligned with the new strate-
gic plan of our Canadian incoming tour operator.
Information system development is intimately related to ever-
changing market expectations, and particularly, to a more flexi-
ble offering and the possibility for Transat to offer more and
more à la carte travel services. This long-term project, which
gives rise to substantial investments, proceeded as expected in
2010 and will continue in 2011 at the same time as a reflective
analysis of our product line and strategy.
As regards airline seat management, an important milestone
was reached in 2010 with the partial implementation of a new
management system for sales made through global reservation
networks.
4. Maintain our initiatives to position Transat as an industry
leader in corporate responsibility and sustainable tourism
to play a key role in shaping our future market, secure
employee buy-in and generate a competitive edge for
Transat.
• Implement a three-year action plan based on a system of
indicators tailored to Transat’s business.
• Proceed with implementation of initiated programs.
• Step up awareness and internal and external communica-
tions programs, while working more closely with industry and
destination stakeholders.
With respect to corporate responsibility and sustainable tourism,
a three-year scorecard (2010-2012) based on ten targets and
52 priorities was prepared by Transat in 2009, then adopted and
communicated internally in 2010. This tool will provide a formal
framework for ongoing and future project planning.
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
21
The major programs that were previously initiated have been
renewed in 2010 with others to be launched or accelerated. The
highlights are as follows:
levels. In addition, we hold investments in ABCP with a fair
value and a notional value of $72.3 million and $118.1 million,
respectively, as at October 31, 2010.
• Air Transat proceeded with its fuel management program, the
implementation of an environmental management system
(including applying for LEED certification) and fast-tracked a
program to promote responsible onboard product use.
• Our tour operators completed an update to a program to
promote the adoption of responsible practices by their suppli-
ers and implemented the hotel component in January 2010.
• Transat signed and implemented a three-year partnership
with SOS Children’s Villages, an international organization
assisting orphaned and abandoned children in 132 countries.
• Transat signed and implemented a partnership with Beyond
Borders, an organization specialized in fighting the sexual
exploitation of children.
• Transat continued it support program for destination-based
sustainable tourism projects. As at October 31, 2010,
12 projects in eight countries had received financial support
from Transat.
• Transat continued its internal environmental initiatives and
adopted an environmental policy.
• Transat maintained its donations program and, with help from
staff, numerous initiatives were launched to support commu-
nities, including a remarkable effort in favour of Haiti following
the January 2010 earthquake.
Transat continued its internal and external communications and
awareness programs through all available channels and issued a
corporate responsibility report for 2009 and 2010.
KEY PERFORMANCE DRIVERS
The following key performance drivers are essential to the suc-
cessful implementation of our strategy and to the achievement
of our objectives:
MARKET SHARE
Remain the leader in Canada in all provinces and increase
market share in Ontario, across the rest of the country and in
Europe.
REVENUE GROWTH
Grow revenues by more than 3%, excluding acquisitions.
MARGIN
Generate margins higher than 4%.
ABILITY TO DELIVER ON OUR OBJECTIVES
Our ability to deliver on our objectives is dependent on our finan-
cial and non-financial resources, both of which have contributed
in the past to the success of our strategies and achievement of
our objectives.
Our financial resources are as follows:
Cash
Our balances of cash and cash equivalents not held in trust
or otherwise reserved totalled $180.6 million as at October
31, 2010. Our continued focus on expense reductions and
margin increases should maintain these balances at healthy
Credit facilities
We have revolving term credit facilities currently totalling
$242.8 million, up for renewal in 2012.
Our non-financial resources include:
Brand
The Corporation has taken the necessary steps to foster a
distinctive brand image and raise its profile, including its
sustainable tourism approach.
Structure
Our vertically integrated structure enables us to ensure better
quality control of our products and services.
Employees
In recent years, we have intensified our efforts to build a
unified corporate culture based on a clear vision and shared
values. As a result, our employees work together as a team
and are committed to ensuring overall customer satisfaction
and contributing to improving the Corporation’s effective-
ness. Moreover, we believe the Corporation is managed by
a seasoned leadership team.
Supplier relationships
We have exclusive access to certain hotels at sunshine
destinations as well as over 20 years of privileged relation-
ships with many hotels at these destinations and in
Europe.
Transat has the resources it needs to meet its 2011 objectives
and continue building on its long-term strategies.
CONSOLIDATED OPERATIONS
REVENUES
We derive our revenues from outgoing tour operators, air trans-
portation, travel agencies, distribution, incoming tour operators
and services at travel destinations.
For the year ended October 31, 2010, revenues were down
$46.5 million, owing primarily to revenues from our foreign sub-
sidiaries once translated into Canadian dollars, which declined
due to the strength of the Canadian dollar against the euro and
the pound sterling, and to a decrease in average selling prices in
the first half of the year, due mainly to intense competition. The
decline in revenues was offset however by a 6.7% aggregate
increase in the volume of travellers. During the year, revenues
rose 0.6% in the Americas, while they fell 6.3% in Europe. In the
Americas, selling prices trended generally lower during the 2010
winter season due to intense competition arising from excess
supply, and rose in the summer season compared with 2009. In
Europe, revenues from our European subsidiaries in local curren-
cies held steady compared with 2009, except in the U.K., where
they were significantly higher than in fiscal 2009.
22
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
For fiscal 2011, revenues and total volume of travellers are
expected to outpace 2010 levels. We expect competition to
remain intense throughout the first half of the fiscal year owing to
the aggregate increase in supply in the sun destinations market
departing from Canada.
OPERATING EXPENSES
Our total operating expenses fell $80.7 million or 2.3% during
the year, compared with 2009, owing in part to the strength of
Canada’s currency against the U.S. dollar, the euro and the
pound sterling, which resulted in lower operating expenses at
our foreign subsidiaries once translated into Canadian dollars, in
addition to having a favourable impact on our expenses denomi-
nated in foreign currencies. Nearly 30% of operating expenses
are settled in U.S. dollars. This decline also resulted from cost
reduction initiatives undertaken in 2009, offset however by high-
er expenses triggered by a larger volume of travellers. In the
Americas and Europe, operating expenses were down 0.1% and
8.1%, respectively. As a percentage of revenues, operating
expenses fell slightly to 96.4% from 97.4% in 2009.
DIRECT COSTS
Direct costs are incurred by our tour operators. They consist pri-
marily of hotel room costs and the cost of reserving blocks of
seats or full flights with air carriers other than Air Transat. Direct
costs were down $14.9 million or 0.7% compared with the fiscal
year ended October 31, 2009. The decrease in direct costs was
due mainly to lower seat and hotel room costs arising from
negotiated contract savings, coupled with the strength of the
Canadian dollar against other currencies. In 2010, these costs
represented 58.5% of revenues, up from 58.2% in 2009.
SALARIES AND EMPLOYEE BENEFITS
Salaries and employee benefits fell $15.3 million or 4.2% to
$349.3 million, resulting primarily from stringent personnel man-
agement, coupled with the Canadian dollar’s appreciation
against the euro.
AIRCRAFT FUEL
Aircraft fuel expense fell $16.9 million or 5.3% during the year,
owing mainly to our decision to reduce our offering and sub-
lease certain of our aircraft for the 2010 winter season. This
decline was offset however by a greater utilization of our fleet to
European destinations in the summer season. Our average fuel
price for the year was slightly higher than in fiscal 2009.
COMMISSIONS
Commissions include the fees paid by tour operators to travel
agencies for serving as intermediaries between tour operators
and consumers. Commission expense totalled $155.4 million,
down $21.8 million or 12.3% from its fiscal 2009 level. This
decline resulted primarily from a drop in revenues on which
commissions are calculated during the winter season and, to a
lesser degree, higher direct sales (with no commission), particu-
larly in Europe. As a percentage of our revenues, commissions
amounted to 4.4% compared with 5.0% in 2009.
AIRCRAFT MAINTENANCE
Aircraft maintenance costs consist mainly of engine and airframe
maintenance expenses incurred by Air Transat. These costs fell
$4.2 million or 4.6% during the year compared with 2009. The
decline was mainly due to downward revisions to a number of
assumptions used in determining future maintenance costs fol-
lowing renegotiation of a number of our supplier agreements, a
streamlined maintenance schedule and less business activity in
some areas during the winter season.
AIRPORT AND NAVIGATION FEES
Airport and navigation fees consist mainly of fees charged by
airports and air navigation service providers. Fees for the year
were down $5.3 million or 5.8% compared with 2009, owing pri-
marily to less business activity in some areas in the first half of
the year, coupled with the strength of the Canadian dollar
against its U.S. counterpart.
REVENUES BY GEOGRAPHIC AREA
(In thousands of dollars)
Americas
Europe
2010
$
2,567,983
930,894
3,498,877
2009
$
2,552,348
992,993
3,545,341
2008
$
2,536,831
976,020
3,512,851
Change
2010
%
0.6
(6.3)
(1.3)
Change
2009
%
0.6
1.7
0.9
OPERATING EXPENSES
(In thousands of dollars)
Direct costs
Salaries and
employee benefits
Aircraft fuel
Commissions
Aircraft maintenance
Airport and navigation fees
Aircraft rent
Other
Total
% of revenues
Change
2010
$
2009
$
2008
$
2,047,713 2,062,626
1,933,706
349,323
302,333
155,357
85,731
85,321
52,949
292,568
364,642
319,224
177,166
89,896
90,611
54,287
293,494
3,371,295 3,451,946
349,746
365,457
174,740
97,842
90,624
48,628
324,340
3,385,083
2010
%
58.5
10.0
8.6
4.4
2.5
2.4
1.5
8.4
96.4
2009
%
58.2
10.3
9.0
5.0
2.5
2.6
1.5
8.3
97.4
2008
%
55.0
10.0
10.4
5.0
2.8
2.6
1.4
9.2
96.4
2010
%
(0.7)
(4.2)
(5.3)
(12.3)
(4.6)
(5.8)
(2.5)
(0.3)
(2.3)
2009
%
6.7
4.3
(12.7)
1.4
(8.1)
0.0
11.6
(9.5)
2.0
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
23
AIRCRAFT RENT
Aircraft rent fell $1.3 million or 2.5% during the year, resulting
primarily from the net effect of the addition of one Airbus A-330
during the third quarter of 2009, the withdrawal of one Airbus
A-310 at the beginning of the first quarter of 2010 and the
Canadian dollar’s strength against the U.S. dollar. In addition, as
a result of our currency hedges, the Corporation was unable to
fully capitalize on the Canadian dollar’s appreciation against the
U.S. currency.
OTHER
Other operating expenses remained unchanged from 2009. As
a percentage of revenues, however, other expenses for the year
rose to 8.4% in 2010 from 8.3% in 2009.
MARGIN
In light of the foregoing, the Corporation recorded a margin of
$127.6 million compared with $93.4 million in the previous
year. As a percentage of revenues, our margins increased to
3.6% in 2010 from 2.6% in 2009. The improvement in our
margins is a result of the summer season when the volume of
travellers, the passenger load factor and average selling prices,
in Canadian dollars, were higher than in summer 2009, despite
weakening in the euro and the pound sterling against the
Canadian dollar.
GEOGRAPHIC SEGMENTS
AMERICAS
Revenues at our North American subsidiaries, stemming from
sales in Canada and abroad, were down $110.1 million or 6.7%
during the winter season, compared with 2009. Lower average
selling prices combined with a 1.1% drop in the volume of trav-
ellers caused the fall in revenues. The lower volume of travellers
is attributable, among other factors, to a decline in business
activity during the first quarter, partly due to a reduced product
offering. Our winter season margin stood at 0.6%, compared
with 2.4% in 2009. The slimmer margins were mainly attributa-
ble to lower average selling prices resulting from excess market
supply during the winter and our inability to fully capitalize on the
strength of the Canadian dollar against the U.S. currency due to
our currency hedges and constant competitive pressure.
For the summer season, revenues were up 14.0%, owing prima-
rily to a 17.0% increase in the volume of travellers, higher aver-
age selling prices than in 2009 and a rise in passenger load fac-
tors. Our margin rose to 7.6% from 3.3% in 2009.
EUROPE
Compared with 2009, revenues at our European subsidiaries,
stemming from sales in Europe and Canada, were down $43.3
million or 12.3% over the winter season, despite an 18.7% surge
in the volume of travellers. The combined impact of the strength
of the Canadian dollar against the euro and the pound sterling,
and lower selling prices, more than offset the revenue boost
from higher traveller volumes, mainly at our Canadian Affair sub-
sidiary. Growth in traveller volumes was driven by Canadian
Affair’s sales in the U.K. and Canada, partially offset by lower
volumes in France. Our European operations reported an oper-
ating loss of $13.4 million or 4.3% for the winter compared with
an operating loss of $9.5 million or 2.7% in 2009. The decline in
margins is partly due to the weakening of the euro against other
currencies, lower selling prices and additional costs incurred by
our European companies following the volcanic activity in
Iceland.
Revenues for the summer season were down $18.8 million or
2.9% despite a 4.6% rise in the volume of travellers. This decline
stems primarily from the translation into Canadian dollars of rev-
AMERICAS
(In thousands of dollars)
Winter season
Summer season
EUROPE
(In thousands of dollars)
Winter season
Summer season
Revenues
Operating expenses
Margin
Margin (%)
Revenues
Operating expenses
Margin
Margin (%)
Revenues
Operating expenses
Margin
Margin (%)
Revenues
Operating expenses
Margin
Margin (%)
24
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
2010
$
1,543,546
1,534,387
9,159
0.6
1,024,437
946,430
78,007
7.6
2009
$
1,653,636
1,613,468
40,168
2.4
898,712
869,276
29,436
3.3
2008
$
1,560,186
1,468,934
91,252
5.8
976,645
991,767
(15,122)
(1.5)
2010
$
309,402
322,772
(13,370)
(4.3)
621,492
567,706
53,786
8.7
2009
$
352,695
362,231
(9,536)
(2.7)
640,298
606,971
33,327
5.2
2008
$
302,361
303,624
(1,263)
(0.4)
673,659
620,758
52,901
7.9
Change
2010
%
(6.7)
(4.9)
(77.2)
(75.6)
14.0
8.9
165.0
132.5
Change
2010
%
(12.3)
(10.9)
(40.2)
(59.8)
(2.9)
(6.5)
61.4
66.3
Change
2009
%
6.0
9.8
(56.0)
(58.5)
(8,0)
(12,4)
294.7
320.0
Change
2009
%
16.6
19.3
(655.0)
(575.0)
(5.0)
(2.2)
(37.0)
(34.2)
enues at European subsidiaries following the strengthening of
the dollar against European currencies. Our European opera-
tions reported a margin of $53.8 million or 8.7% for the summer
season compared with $33.3 million or 5.2% in 2008. This
improvement arises primarily from our U.K. subsidiary which
reported significantly higher revenues following higher traveller
volumes and average selling prices.
OTHER EXPENSES (REVENUES)
AMORTIZATION
Amortization includes amortization of property, plant and equip-
ment, intangible assets subject to amortization, deferred lease
inducements and deferred gains on options. Amortization
expense was down $2.5 million, or 4.9% in fiscal 2010, mainly
resulting from fewer additions to property, plant and equipment
than in fiscal 2010 and 2009. As at October 31, 2010, the
deferred gain on options was amortized in full with an amortiza-
tion expense of $4.2 million for the years ended October 31,
2010 and 2009.
INTEREST ON LONG-TERM DEBT AND DEBENTURE
Interest on long-term debt and the debenture was down $2.6
million in 2010 compared with 2009, mainly due to lower aver-
age debt than in 2009 and the redemption of the debenture in
November 2009.
OTHER INTEREST AND FINANCIAL EXPENSES
Other interest and financial expenses were down $0.3 million in
2010 compared with the previous year. This decrease resulted
primarily from interest charges related to prior year income tax
assessments affecting some of our subsidiaries recorded in
2009.
INTEREST INCOME
Interest income in 2010 was down $1.6 million or 33.8% from
2009, owing primarily to lower interest rates in 2010 than in
2009, and despite generally higher average balances of cash
and cash equivalents.
period of the portfolio of derivative financial instruments held and
used by the Corporation to manage its exposure to fluctuations
in fuel prices. For the year, the fair value of derivative financial
instruments related to aircraft fuel purchases rose $9.3 million
compared with a $68.3 million increase for the same period of
2009.
FOREIGN EXCHANGE LOSS (GAIN)
ON LONG-TERM MONETARY ITEMS
The foreign exchange gain on long-term monetary items for the
year, amounting to $1.1 million, arose mainly from a favourable
foreign exchange effect on the long-term debt linked to aircraft
financing.
LOSS (GAIN) ON INVESTMENTS IN ABCP
The gain on investments in ABCP results from the change in the
fair value of investments in ABCP during the period. The gain on
investments in ABCP for fiscal 2010 amounted to $4.6 million
compared with $0.1 million in 2009. See Investments in ABCP
for more information.
RESTRUCTURING CHARGE (GAIN)
On September 24, 2009, we announced a restructuring plan to
make structural changes to our distribution network in France.
These structural changes resulted in the closure of an adminis-
trative centre. Furthermore, under these changes, some agen-
cies have closed and others will close, while some agencies will
be sold. Following this announcement, we recognized a $12.0
million restructuring charge for fiscal 2009. This charge includes
$2.9 million in cash payments, consisting mainly of termination
benefits, a $0.6 million asset impairment charge and an $8.5
million write-off of goodwill after the assets and goodwill of
agencies involved in the restructuring were tested for impair-
ment. During the year ended October 31, 2010, the Corporation
recorded a $1.2 million gain on disposal of held-for-sale assets
related to the restructuring, consisting mainly of gains on the
sale of agencies for which no restructuring charge had been rec-
ognized in 2009.
CHANGES IN FAIR VALUE OF
DERIVATIVE FINANCIAL INSTRUMENTS RELATED
TO AIRCRAFT FUEL PURCHASES
The change in fair value of derivative financial instruments related
to aircraft fuel purchases represents the change in fair value for the
GAIN ON REPURCHASE OF PREFERRED SHARES
OF A SUBSIDIARY
During the year ended October 31, 2008, the Corporation’s sub-
sidiary Travel Superstore Inc. repurchased redeemable preferred
shares held by one of its minority shareholders for a cash con-
OTHER EXPENSES (REVENUES)
(In thousands of dollars)
Amortization
Interest on long-term debt and debenture
Other interest and financial expenses
Interest income
Changes in fair value of derivative financial
2010
$
48,662
2,225
2,359
(3,036)
2009
$
51,155
4,866
2,679
(4,588)
2008
$
56,147
7,538
1,758
(16,172)
instruments related to aircraft fuel purchases
(9,341)
(68,267)
106,435
Foreign exchange loss (gain)
on long-term monetary items
Loss (gain) on investments in ABCP
Restructuring charge (gain)
Gain on repurchase of preferred shares of a subsidiary
Share of net loss (income) of a company
subject to significant influence
(1,109)
(4,648)
(1,157)
—
490
(135)
(68)
11,967
—
2,295
45,927
—
(1,605)
(24)
427
n/a
Change
2010
%
(4.9)
(54.3)
(11.9)
(33.8)
86.3
(721.5)
n/a
(109.7)
—
Change
2009
%
(8.9)
(35.4)
52.4
(71.6)
(164.1)
(105.9)
(100.1)
n/a
(100.0)
(105.6)
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
25
sideration of $0.3 million. As these redeemable preferred shares
were considered liabilities, $1.9 million was included in other lia-
bilities in the balance sheet. In light of the classification of these
redeemable preferred shares as liabilities, the $1.6 million gain
was recorded in the consolidated statement of income (loss). A
total of $0.6 million related to this transaction was also included
under non-controlling interest in subsidiaries’ results in the con-
solidated statement of income.
SHARE OF NET LOSS (INCOME)
OF A COMPANY SUBJECT
TO SIGNIFICANT INFLUENCE
Our share of net loss (income) of a company subject to signifi-
cant influence represents our share of the net income of our
hotel business, Caribbean Investments B.V. [“CIBV”]. Our share
of the net loss for the year amounted to $0.5 million compared
with $24,000 for 2009. The increase in our share stems primarily
from tax adjustments relating to previous fiscal years but recog-
nized in the fourth quarter.
INCOME TAXES
For the fiscal year ended October 31, 2010, income taxes
totalled $23.8 million, compared with $30.9 million for the previ-
ous fiscal year. Excluding the share in net income (loss) of com-
panies subject to significant influence, the effective tax rates
were 25.4% for the fiscal year ended October 31, 2010 and
32.3% for the preceding year.
The factors underlying the change in tax rates from fiscal 2009
to 2010 included a higher amount for non-deductible items in
2009 than in 2010 and the recognition in 2009 of unfavourable
items related to prior year assessments affecting a number of
our subsidiaries.
NET INCOME
In light of the items discussed in Consolidated Operations, net
income for the year ended October 31, 2010 totalled $65.6 mil-
lion, or $1.74 per share, compared with $61.8 million, or $1.86
per share, for the previous year. The weighted average number
of outstanding shares used to compute per share amounts was
37,796,000 for fiscal 2010 and 33,168,000 for fiscal 2009.
On a diluted per share basis, income per share was $1.73 for
fiscal 2010, compared with $1.85 in 2009. The adjusted weight-
ed average number of shares used to determine these amounts
was 37,993,000 for the current year and 33,485,000 for fiscal
2009. See note 15 to the audited Consolidated Financial
Statements.
For fiscal 2010, our adjusted after-tax income stood at $53.7
million ($1.41 per share) compared with $33.7 million ($1.01 per
share) for fiscal 2009.
SELECTED QUARTERLY FINANCIAL INFORMATION
The Corporation’s operations are seasonal in nature; conse-
quently, interim operating results do not proportionately reflect
the operating results for a full year. Overall, revenues are down
compared with the same quarters in previous fiscal years, mainly
as a result of lower priced sales owing to intense competition
sparked by excess supply and a strong Canadian dollar, despite
a rise in traveller volumes. Margins have fluctuated from quarter
to quarter, mainly due to competitive price pressures. As a
result, the following quarterly financial information sometimes
varies significantly from quarter to quarter.
FOURTH-QUARTER HIGHLIGHTS
For the fourth quarter, the Corporation generated $778.6 million
in revenues, up $58.9 million or 8.2% from $719.7 million for the
corresponding period in 2009. This increase resulted mainly
from higher average selling prices and a 14.7% rise in the vol-
ume of travellers compared with the fourth quarter of 2009.
The Corporation reported a margin of $77.9 million or 10.0% for
the quarter compared with $35.6 million or 4.9% in 2009. This
improved margin resulted mainly from an increase in the volume
of travellers, higher average selling prices and better passenger
load factors compared with the corresponding period of 2009.
In the fourth quarter, we recorded a $2.0 million gain arising from
the change in fair value of derivative financial instruments related
to for aircraft fuel purchases, compared with a $14.9 million in
for the corresponding period of 2009. We also recorded a $3.2
million gain on investments in ABCP compared with $2.0 million
for the same period in 2009.
The Corporation reported $52.4 million in net income for the
fourth quarter or $1.37 per share on a diluted basis, compared
with $18.1 million or $0.52 per share for the corresponding peri-
od of 2009.
For the fourth quarter, adjusted after-tax income stood at $47.7
million or $1.25 per share compared with $17.8 million or $0.51
per share in 2009.
SELECTED UNAUDITED QUARTERLY FINANCIAL INFORMATION
(In thousands of dollars,
except per share amounts)
Q1-2009
$
Q2-2009
$
Q3-2009
$
Revenues
Margin
Net income (loss)
Basic earnings (loss)
per share
Diluted earnings (loss)
per share
877,254
(8,498)
(29,436)
1,129,077
39,130
42,186
819,354
27,187
30,991
(0.90)
(0.90)
1.29
1.27
0.95
0.94
26
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
Q4-2009
$
719,656
35,576
18,106
0.53
0.52
Q1-2010
$
Q2-2010
$
792,562 1,060,386
8,198
(12,409)
6,198
(13,872)
Q3-2010
$
867,344
53,941
20,925
Q4-2010
$
778,585
77,852
52,356
(0.37)
(0.37)
0.16
0.16
0.55
0.55
1.38
1.37
FINANCIAL POSITION,
LIQUIDITY AND
CAPITAL RESOURCES
As at October 31, 2010 and October 31, 2009, cash and cash
equivalents totalled $180.6 million. Cash and cash equivalents in
trust or otherwise reserved amounted to $352.7 million as at the
end of fiscal 2010 compared with $272.7 million for fiscal 2009.
The balance sheet shows working capital of $64.3 million and a
ratio of 1.10 compared with $35.0 million and 1.06 as at
October 31, 2009.
Total assets increased by $60.0 million or 5.3% to $1,189.5 mil-
lion as at October 31, 2010 from $1,129.5 million as at October
31, 2009. This increase resulted mainly from increases of $79.9
million in cash and cash equivalents in trust or otherwise
reserved and $41.6 million in receivables, partly offset by
decreases of $34.5 million in property, plant and equipment and
$10.8 million in future income tax assets. Shareholders’ equity
rose $71.7 million to $439.1 million as at October 31, 2010 from
$367.4 million as at October 31, 2009. This increase stemmed
primarily from net income of $65.6 million and a $15.5 million
change in fair value of derivatives designated as cash flow
hedges, partly offset by a $13.2 million foreign exchange loss on
translation of the financial statements of our self-sustaining oper-
ations, recognized under accumulated other comprehensive
income.
CASH FLOWS
OPERATING ACTIVITIES
Operating activities generated $119.1 million in cash flows, com-
pared with $45.2 million in 2009. This $73.9 million or 163.4%
decrease during the year resulted mainly from a $70.0 million
increase in the net change in non-cash working capital balances
related to operations and a $7.8 million increase in the net
change in the provision for overhaul of leased aircraft.
We expect to continue to generate positive cash flows from our
operating activities in 2011.
INVESTING ACTIVITIES
Cash flows used in investing activities totalled $27.8 million for
the year, up $1.2 million from 2009. Compared with 2009, addi-
tions to property, plant and equipment and other intangible
assets increased by $0.1 million to $29.0 million. Following the
increase in our letters of credit, cash and cash equivalents
reported under non-current assets rose $3.8 million. We also
purchased the remaining shares of Tourgreece for $0.5 million
and made a $1.1 million capital contribution to our hotel busi-
ness to finance renovations; during fiscal 2009, the Corporation
had made a $5.8 million capital contribution to acquire land in
the Dominican Republic. Also in fiscal 2010, Transat received
proceeds of $2.9 million from the disposal of property, plant and
equipment mainly following the sale of some agencies of our
distribution network in France, and received proceeds on our
ABCP investments in the amount of $3.7 million compared with
$8.1 million in 2009.
In 2011, additions to property, plant and equipment and intangi-
ble assets are expected to total up in the neighborhood of
$50.0 million.
FINANCING ACTIVITIES
Cash flows used by financing activities totalled $81.0 million, up
$99.3 million compared with cash inflows of $18.3 million in
2009. This rise resulted mainly from a $42.4 million increase in
repayments of credit facilities and other debts, compared with
2009, and a $60.7 million decrease in proceeds from a share
issue. In fiscal 2009, our public offering of shares generated pro-
ceeds of $60.5 million. In addition, total dividends paid were
$3.7 million lower than in 2009.
FINANCING
As at October 31, 2010, the Corporation had several types of
financing, consisting primarily of two revolving term credit facili-
ties, loans secured by aircraft and lines of credit.
The Corporation has a $157.0 million revolving credit facility
maturing in 2012 or immediately repayable in the event of a
change in control and a $60.0 million revolving credit facility for
issuing letters of credit for which the Corporation must pledge
cash as collateral security amounting to 105% of the letters of
credit issued. Under the terms and conditions of this agree-
ment, funds may be drawn down by way of bankers’ accept-
ances or bank loans, denominated in Canadian dollars, U.S.
dollars, euros or pounds sterling. Under this agreement, inter-
est is charged at bankers’ acceptance rates, at the financial
institution’s prime rate or at the London Interbank Offered Rate
(LIBOR), plus a premium based on certain financial ratios cal-
culated on a consolidated basis. Under the terms of the agree-
ment, the Corporation is required to comply with financial crite-
ria and ratios. As at October 31, 2010, all financial criteria and
ratios were met.
The Corporation also has access to an $85.8 million revolving
credit facility which matures in 2012 or is immediately
repayable in the event of a change in control. Under the terms
and conditions of this agreement, funds may be drawn down
CASH FLOWS
(In thousands of dollars)
Cash flows related to operating activities
Cash flows related to investing activities
Cash flows related to financing activities
Effect of exchange rate changes on cash
Net change in cash
2010
$
119,131
(27,819)
(81,034)
(10,203)
75
2009
$
45,234
(26,662)
18,303
(2,090)
34,785
2008
$
95,069
(142,027)
15,091
10,866
(21,001)
Change
2010
%
163.4
(4.3)
(542.7)
(388.2)
(99.8)
Change
2009
%
(52.4)
81.2
21.3
(119.2)
(265.6)
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
27
by way of bankers’ acceptances or bank loans, denominated
in Canadian dollars, U.S. dollars, euros or pounds sterling.
Under this agreement, interest is charged at bankers’ accept-
ance rates, at the financial institution’s prime rate or at LIBOR,
plus a premium specific to the type of financing vehicle. This
credit facility also includes options, now in effect following
implementation of the ABCP restructuring plan, allowing the
Corporation, at its discretion, to repay amounts drawn down
as they fall due under certain conditions up to a maximum of
$47.0 million using the restructured notes. This option is
reported at fair value at each balance sheet date under deriva-
tive financial instruments, and any change in fair value of the
options is recorded in net income under loss (gain) on the
investments in ABCP. The Corporation measured the option as
at October 31, 2010 and recorded no change in its fair value.
Under the terms of the agreement, the Corporation is required
to comply with financial criteria and ratios. As at October 31,
2010, all financial criteria and ratios were met.
As at October 31, 2010, $15.0 million had been drawn down
under these credit facilities.
The loans secured by aircraft of the Corporation amounted to
$13.6 million [US$13.3 million] as at October 31, 2010. The
loans bear interest at LIBOR plus 2.15% and 3.25% and are
repayable in equal semi-annual instalments through 2011.
With regard to our French operations, we also have access to
undrawn lines of credit totalling m10.0 million [$14.2 million].
OFF-BALANCE SHEET ARRANGEMENTS
In the normal course of business, Transat enters into arrange-
ments and incurs obligations that will impact the Corporation’s
future operations and liquidity, some of which are reflected as
liabilities in the audited consolidated financial statements as at
October 31, 2010. As at October 31, 2010 and October 31,
2009, these obligations, as reported in the balance sheet,
amounted to $29.1 million and $110.8 million, respectively.
Obligations that are not reported as liabilities are considered
off-balance sheet arrangements. These contractual arrange-
ments are entered into with non-consolidated entities and con-
sist of the following:
• Guarantees (see notes 11 and 23 to the audited
Consolidated Financial Statements)
• Operating leases (see note 22 to the audited Consolidated
Financial Statements)
• Agreements with suppliers (see note 22 to the audited
Consolidated Financial Statements)
Off-balance sheet arrangements that can be estimated amount-
ed to approximately $916.1 million as at October 31, 2010
compared with $801.3 million as at October 31, 2009, and is
detailed as follows:
OFF-BALANCE SHEET ARRANGEMENTS
Guarantees
Irrevocable letters of credit
Guarantee contracts
Operating leases
Obligations under
operating leases
Agreements with suppliers
2010
$
5,273
957
637,520
643,750
272,334
916,084
2009
$
10,364
860
385,209
396,433
404,852
801,285
In the normal course of business, guarantees are required in
the travel industry to provide indemnifications and guarantees
to counterparties in transactions such as operating leases,
irrevocable letters of credit and guarantee contracts.
Historically, Transat has not made any significant payments
under such guarantees. Operating leases are entered into to
enable the Corporation to lease certain items rather than
acquire them.
In addition, since May 5, 2010, the Corporation has a $50.0
million guarantee facility renewable annually. Under this agree-
ment, the Corporation may issue guarantee contracts with a
maximum three-year term. As at October 31, 2010, this facility
was undrawn.
We believe that the Corporation will be able to meet its obliga-
tions with cash on hand, cash flows from operations and
drawdowns under existing credit facilities.
DEBT LEVELS
Debt levels as at October 31, 2010 were lower than as at
October 31, 2009.
Balance sheet debt declined $81.8 million to $29.1 million from
$110.8 million, and our off-balance sheet arrangements, exclud-
ing agreements with suppliers and other obligations, increased
$247.3 million to $643.8 million from $396.4 million, collectively
representing a $165.5 million increase in total debt compared
with October 31, 2009. The decrease in balance sheet debt
resulted from repayments during the year. The $247.3 million
increase in off-balance sheet arrangements results mainly from
the signing of leases for six aircraft, offset by repayments made
during the year.
PAYMENTS DUE BY YEAR
Year ending October 31
Contractual obligations
Long-term debt
Leases (aircraft)
Leases (other)
Agreements with suppliers
and other obligations
2011
$
13,768
66,346
29,598
172,999
282,711
2012
$
15,291
77,257
23,152
2013
$
—
73,985
19,758
48,269
163,969
35,277
129,020
2014
$
—
65,424
16,618
12,345
94,387
2015
$
2016 and later
$
Total
$
—
45,556
11,614
3,444
60,614
—
127,411
80,801
29,059
455,979
181,541
18,630
226,842
290,964
957,543
28
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
Net of cash and cash equivalents and our investments in ABCP,
the Corporation reported $419.8 million in net debt as at
October 31, 2010, up 64.4% from $255.3 million as at October
31, 2009.
SHARES ISSUED AND OUTSTANDING
The Corporation has three authorized classes of shares: an
unlimited number of Class A Variable Voting Shares, an unlimited
number of Class B Voting Shares and an unlimited number of
preferred shares. The preferred shares are non-voting and
issuable in series, with each series including the number of
shares, designation, rights, privileges, restrictions and conditions
as determined by the Board of Directors.
As at December 14, 2010, there were 974,136 Class A Variable
Voting Shares outstanding and 36,889,914 Class B Voting
Shares outstanding.
supported solely by traditional securitized assets (Master Asset
Vehicle 3 Traditional [“MAV3 Traditional”]). During the year ended
October 31, 2010, the Corporation received its share of $0.6
million of the cash accumulated in the conduits. In addition, the
Corporation exercised one of its options allowing it to repay an
amount of $9.4 million of the balance of one its revolving credit
facilities using ABCP supported primarily by subprime assets in
the U.S. (MAV2 Ineligible) with a notional value of $7.6 million
and a carrying amount of nil. The option was initially reported at
a fair value, amounting to $8.4 million, with the corresponding
initial gain deferred and amortized to net income over the term
of the credit agreements. The option is reported at fair value at
each balance sheet date in assets under derivative financial
instruments with any change in fair value of the options recorded
in net income under loss (gain) in fair value of the investments in
ABCP. The notional value of the new ABCP amounted to $118.1
million as at October 31, 2010 and is detailed as follows:
STOCK OPTIONS
As at December 14, 2010, there were a total of 1,722,302 stock
options outstanding, 668,680 of which were exercisable.
INVESTMENTS IN ABCP
RESTRUCTURING
In 2007, the Canadian third-party asset backed commercial
paper [“ABCP”] market was hit by a liquidity disruption. Subse-
quent to this disruption, a group of financial institutions and
other parties agreed, pursuant to the Montréal Accord [the
“Accord”], to a standstill period in respect of ABCP sold by 23
conduit issuers. A Pan-Canadian Investors Committee was sub-
sequently established to oversee the orderly restructuring of
these instruments during this standstill period.
In 2009, the Pan-Canadian Investors Committee announced that
the third-party ABCP restructuring plan had been implemented.
Pursuant to the terms of the plan, holders of ABCP had their
short-term commercial paper exchanged for longer-term notes
whose maturities match those of the assets previously held in the
underlying conduits. As at January 21, 2009, the Corporation
held a portfolio of ABCP issued by several trusts with an overall
notional value of $143.5 million.
On January 21, 2009, the plan implementation date, the Corpo-
ration measured its investments in ABCP at fair value prior to the
exchange. During this valuation, the Corporation reviewed its
assumptions to factor in new information available at that date, as
well as the changes in credit market conditions. Subsequent to
this valuation, the provision for impairment totalled $47.5 million,
and the fair value of the ABCP investment portfolio stood at
$96.1 million. The ABCP held by the Corporation was exchanged
on that date for new securities. As at that date, the new ABCP
had a notional value of $141.7 million.
PORTFOLIO
During fiscal 2010, the Corporation received $3.1 million in prin-
cipal repayments on ABCP supported by synthetic assets or a
combination of synthetic and traditional securitized assets
(Master Asset Vehicle 2 Eligible [“MAV2 Eligible”]) and ABCP
MAV2 Eligible
The Corporation holds $113.3 million in ABCP supported
by synthetic assets or a combination of synthetic and
traditional securitized assets, which have been restruc-
tured into floating rate notes with maturities through
January 2017.
MAV3 Traditional
The Corporation holds $4.8 million in ABCP supported
solely by traditional securitized assets that have been
restructured on a series-by-series basis, with each series
or trust maintaining its own assets and maturing through
September 2016.
VALUATION
On October 31, 2010, the Corporation remeasured its new
ABCP at fair value. During this valuation, the Corporation
reviewed its assumptions to factor in new information available,
as well as the changes in credit market conditions. During the
year ended October 31, 2010, a limited number of transactions
were entered into in respect of the investments in ABCP.
However, the Corporation did not take these transactions into
account in measuring its ABCP since, in its opinion, there were
too few of them to meet the definition of an active market. Once
ABCP begins trading in an active market again, the Corporation
will review its valuation assumptions accordingly.
The Corporation reviews the information released by BlackRock
Canada Ltd. [“BlackRock”], which was appointed to administer
the assets on the plan implementation date. BlackRock issues
monthly valuation reports on the fair value of ABCP supported
primarily by subprime assets in the U.S. (MAV2 Ineligible) and
ABCP supported exclusively by traditional securitized assets
(MAV3 Traditional). The Corporation’s management measured
the fair value of its assets from these classes using said valua-
tions. The Corporation also considered the information released
by DBRS on September 21, 2010, upgrading ABCP supported
by synthetic assets or a combination of synthetic and traditional
securitized assets [MAV2 Eligible] from Class A-1 to A+ and
confirming the BBB- rating of Class A-2. For the other securities,
given the lack of an active market, the Corporation’s manage-
ment estimated the fair value of these assets by discounting
future cash flows determined using a valuation model that incor-
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
29
porates management’s best estimates based as much as possi-
ble on observable market inputs, such as the credit risk attribut-
able to underlying assets, relevant market interest rates, amounts
to be received and maturity dates.
For the purposes of estimating future cash flows, the Corpo-
ration estimated that the long-term financial instruments arising
from the conversion of its ABCP would generate interest returns
ranging from 0.0% to 1.76% [weighted average rate of 1.5%],
depending on the type of series. These future cash flows were
discounted, according to the type of series, over a period of 6.2
years using discount rates ranging from 6.3% to 41.5% [weight-
ed average rate of 11.3%], which factor in liquidity.
As a result of this new valuation, on October 31, 2010, the
Corporation reversed $4.6 million of its provision for impairment
on its investments in ABCP ($6.0 million for the year ended
October 31, 2009). These adjustments do not take into account
any additional amount of the Corporation’s share of the estimat-
ed cash accumulated in the conduits. The ABCP investment
portfolio had a fair value of $72.3 million and the provision for
impairment totalled $45.8 million, representing 38.8% of the
notional value of $118.1 million.
The Corporation’s estimate of the fair value of its ABCP invest-
ments is subject to significant uncertainty. The substitution of
one or more inputs by one or more assumptions cannot reason-
ably be completed in these conditions. Management believes
that its valuation technique is appropriate in the circumstances.
However, changes in significant assumptions could significantly
impact the value of ABCP securities over the coming fiscal year.
The resolution of these uncertainties could result in the ultimate
value of these investments varying significantly from manage-
ment’s current best estimates and the extent of that difference
could have a material effect on our financial results.
A 1% increase (decrease), representing 100 basis points, in the
estimated discount rates would result in a decrease (increase) of
approximately $3.7 million in the estimated fair value of ABCP
held by the Corporation.
The following table details the change in balances of invest-
ments in ABCP in the consolidated balance sheet and the com-
position of loss (gain) on investments in ABCP in the consolidat-
ed statement of income:
VALUATION
(In thousands of dollars)
Balance as at October 31, 2008
Adjustment related to January 21, 2009
restructuring plan implementation
Writedown in notional value of ABCP
Writedown of investments in ABCP
Principal repayments
Share of estimated cash receivable
Share of cash accumulated in conduits
Remeasurement of options related to
repayment of revolving credit facilities
Balance as at October 31, 2009;
impact on results for year ended October 31, 2009
Disposal of investments in ABCP
Reversal of provision
Principal repayments
Share of cash accumulated in conduits
Balance as at October 31, 2010;
impact on results for the year
ended October 31, 2010
Notional value of
investments in
ABCP
$
Provision for
impairment of
investments in
ABCP
$
Investments in
ABCP
$
143,500
(56,905)
86,595
Loss (gain) on
investments in
ABCP
$
(1,759)
(4,844)
—
(8,062)
—
—
—
128,835
(7,630)
—
(3,083)
—
—
4,844
(5,993)
—
620
—
(1,759)
—
(5,993)
(8,062)
620
—
—
—
(57,434)
7,630
4,648
—
(620)
71,401
—
4,648
(3,083)
(620)
1,759
—
5,993
—
(620)
(6,400)
(800)
(68)
—
(4,648)
—
—
118,122
(45,776)
72,346
(4,648)
THE BALANCE OF INVESTMENTS IN ABCP AS AT OCTOBER 31, 2010
(In thousands of dollars)
MAV2 Eligible
Class A-1
Class A-2
Class B
Class C
MAV3 Traditional
30
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
Notional value of
investments in
ABCP
$
34,415
63,894
11,598
3,403
113,310
4,812
118,122
Provision for
impairment
of investments in
ABCP
$
(7,969)
(25,262)
(9,316)
(3,112)
(45,659)
(117)
(45,776)
Investments in
ABCP
$
26,446
38,632
2,282
291
67,651
4,695
72,346
OTHER
On June 10, 2010, the Corporation announced plans to set
up an ongoing tour operator in Monterrey, Mexico under
the Eleva Travel banner offering leisure travel products to
Mexican customers and leveraging its existing agreements
and business relationships with hotels.
On February 26, 2010, the Corporation made a cash pay-
ment of $0.5 million [m0.3 million] to acquire the remainder
of the shares [10%] of Tourgreece Tourist Enterprises S.A.
that it did not already own.
On October 5, 2010, Air Transat and its pilots, represented
by the Air Line Pilots Association (ALPA), ratified the agree-
ment-in-principle reached September 3, 2010 on the
renewal of their labour contract. The new 48-month collec-
tive agreement will expire May 1, 2014.
On October 28, 2010, the Corporation acquired certain assets of
French Affair Limited, a U.K. wholesaler specializing in the
European market for $0.8 million (0.5 million pounds sterling).
Air Transat’s fleet currently consists of 13 Airbus A310 aircraft
(249 seats), which will be gradually retired, and five Airbus A330
(342 seats). During the year, the Corporation announced it had
entered into long-term lease agreements for five Airbus A330
wide-body aircraft. Under all the agreements entered into by the
Corporation, three A330 aircraft should be added to the fleet by
the end of 2010 as well as three more in 2011, bringing the num-
ber of A330s in the Air Transat fleet to 11 by the end of 2011.
ACCOUNTING
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with GAAP
requires management to make certain estimates. We periodically
review these estimates, which are based on historical experience,
changes in the business environment and other factors that
management considers reasonable under the circumstances.
The main estimates include the measurement of fair value of the
financial instruments, including derivatives and investments in
ABCP, the provision for overhaul of leased aircraft and the amor-
tization and impairment of property, plant and equipment and
intangible assets including goodwill as well as the accrued bene-
fit liability. Our estimates involve judgments we make based on the
information available to us. Actual results may differ materially
from these estimates.
We discuss below the critical accounting estimates that required
us to make assumptions about matters that were uncertain at
the time the estimates were made. Our results, financial position
and liquidity could be substantially different if we had used differ-
ent estimates in the current period or were these estimates to
change in the future.
This discussion addresses only those estimates that we con-
sider important based on the degree of uncertainty and the
likelihood of a material impact if we had used different esti-
mates. There are many other areas in which we use estimates
about uncertain matters.
FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS
The fair value of derivative financial instruments represents the
amount of the consideration that would be agreed upon in an
arm’s length transaction between knowledgeable, willing par-
ties who are under no compulsion to act. The Corporation
determines the fair value of its derivative financial instruments
using the purchase or selling price, as appropriate, in the most
advantageous active market to which the Corporation has
immediate access. The Corporation also takes into account its
own credit risk and the credit risk of the counterparty in deter-
mining fair value for its derivative financial instruments based
on whether they are financial assets or financial liabilities. When
the market for a derivative financial instrument is not active, the
Corporation determines the fair value by applying valuation
techniques, such as using available information on market
transactions involving other instruments that are substantially
the same, discounted cash flow analysis or other techniques,
where appropriate. The Corporation ensures, to the extent
practicable, that its valuation technique incorporates all factors
that market participants would consider in setting a price and
that it is consistent with accepted economic methods for pric-
ing financial instruments, including the credit risk of the party
involved. The fair value of options related to repayment of
revolving credit facilities was determined using the Black &
Scholes option pricing model.
FAIR VALUE OF INVESTMENTS IN ABCP
See Investments in ABCP.
PROVISION FOR OVERHAUL
OF LEASED AIRCRAFT
Under the aircraft and engine operating leases, the Corporation
is required to maintain the aircraft and engines in serviceable
condition and to follow the maintenance plan. The Corporation
accounts for its leased aircraft and engine maintenance obliga-
tion based on utilization until the next maintenance activity. The
obligation is adjusted to reflect any change in the related mainte-
nance expenses anticipated. Depending on the type of mainte-
nance, utilization is determined based on the cycles, logged
flight time or time between overhauls. Generally speaking, the
main assumptions used to calculate this provision would have to
be reduced by approximately 15%, to result in additional
expenses that could have a material impact on our results,
financial position and cash flows.
AMORTIZATION AND IMPAIRMENT OF PROPERTY,
PLANT AND EQUIPMENT AND INTANGIBLE ASSETS
GOODWILL AND INTANGIBLE ASSETS
We record material balance sheet amounts under goodwill and
other intangible assets calculated using the historical cost
method. Goodwill and other intangible assets stem primarily
from business acquisitions. We are required to test goodwill and
intangible assets with indefinite lives, such as trademarks, for
impairment each year or more often if events or changes in cir-
cumstances indicate it is more likely than not that they might be
impaired.
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
31
The impairment test to identify a potential impairment in goodwill
is performed in two steps. The first step consists in comparing
the fair value of a reporting unit with its carrying amount, includ-
ing goodwill, in order to identify a potential impairment. When
the fair value of a reporting unit exceeds its carrying amount,
goodwill of the reporting unit is considered not to be impaired.
When the carrying amount of a reporting unit exceeds its fair
value, the second step, where necessary, consists in comparing
the fair value of any goodwill associated with its carrying amount
to measure the amount of the impairment loss, if any. The
Corporation uses the discounted cash flow method to measure
the fair value of its reporting units. We carry out an analysis by
estimating the discounted cash flows attributable to each report-
ing unit. This analysis requires us to make a variety of judgments
concerning our future operations. The cash flow forecasts used
to determine asset values may change in the future due to mar-
ket conditions, competition and other risk factors (see Risks and
uncertainties). During fiscal 2010 and 2009, we determined that
the fair value of our reporting units exceeded their carrying
amount; as a result, we did not carry out step 2 of the test for
any of our reporting units. No impairment was recognized
except for an $8.5 million charge recognized in 2009 in connec-
tion with our distribution network restructuring in France.
The impairment test for identifying a possible impairment of
intangible assets with an indefinite life such as trademarks con-
sists in comparing their fair value with their carrying amount.
When the carrying amount of an intangible asset exceeds its fair
value, an impairment charge in the amount of the excess
amount is recognized in the consolidated statement of income.
The Corporation uses the discounted cash flow method to
measure the fair value of its trademarks. Similarly to the review
of goodwill, this analysis requires us to make a variety of judg-
ments concerning our future operations.
Generally, we consider that our main assumptions regarding the
cash flow forecasts would have to be reduced by 30% to 70%,
depending on the reporting unit or the trademark, in order to
trigger a loss in fair value of a reporting unit or trademark such
that its fair value would be less than its carrying amount and to
require the Corporation, in the case of goodwill, to carry out step
2 of the impairment test and determine the impairment loss.
PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE
ASSETS WITH FINITE LIVES
Property, plant and equipment in the balance sheet represent
material amounts based on historical costs. Property, plant and
equipment are amortized, taking into account their residual
value, over their estimated useful life. Aircraft and aircraft com-
ponents account for a major class of property, plant and
equipment. The amortization period is determined based on
the fleet renewal schedule, currently slated for completion by
2014. The estimate of the residual value of aircraft and aircraft
components at the time of their anticipated disposal is sup-
ported by periodically reviewed external valuations. Our fleet
renewal schedule and the realizable value of our aircraft obtain-
able upon fleet renewal depend on numerous factors such as
supply and demand for aircraft at the scheduled fleet renewal
date. Changes in estimated useful life and residual value of air-
craft could have a significant impact on amortization expense.
Generally speaking, the main assumptions would have to be
reduced by 60% to produce a loss in value and have a materi-
al impact on our results and financial position. However, reduc-
ing these assumptions would not result in cash outflows and
would not affect our cash flows.
Property, plant and equipment and intangible assets with finite
lives are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset
may not be recoverable. No events or changes in circum-
stances of this nature have occurred in recent fiscal years.
ACCRUED BENEFIT LIABILITY
The Corporation offers defined benefit pension arrangements to
certain senior executives. The cost of pension benefits earned
by employees is determined from actuarial calculations, per-
formed annually, using the projected benefit method prorated on
services and management’s best estimate assumptions for the
increase in eligible earnings and the retirement age of employ-
ees. Past service costs and amendments to the arrangements
are amortized on a straight-line basis over the average remaining
service period of active employees generally affected thereby.
The excess of net actuarial gains and losses over 10% of the
benefit obligation is amortized over the average remaining serv-
ice period of active employees, which was 8.5 years as at
November 1, 2009. Plan obligations are discounted using cur-
rent market interest rates.
NEW ACCOUNTING POLICIES
INTERNATIONAL FINANCIAL REPORTING STANDARDS
(IFRS)
In February 2008, Canada’s Accounting Standards Board
[“AcSB”] confirmed that Canadian GAAP, as used by publicly
accountable enterprises, will be superseded by International
Financial Reporting Standards [“IFRS”] for fiscal years beginning
on or after January 1, 2011. The Corporation will be required to
report under IFRS for its interim and annual financial statements
for the fiscal year ending October 31, 2012. The Corporation
has prepared an IFRS transition plan consisting of three phases:
design and planning; identification of differences and develop-
ment of solutions; and implementation and review.
Phase 1, comprising design and planning, has been completed.
Under Phase 1, an IFRS transition plan was prepared based on
the results of a preliminary high-level diagnostic review of the dif-
ferences between IFRS and the Corporation’s accounting policies.
This analysis provided an overview of key issues raised by the
changeover to IFRS and the resulting impacts on the Corporation,
including enhanced presentation and disclosure requirements.
During Phase 1, the Corporation’s management established a
formal governance structure for the conversion project, including
an IFRS Steering Committee, to oversee the transition process
with regard to the impact on financial reporting, operating process-
es, internal controls and information systems.
As part of Phase 2, which is expected to be completed in fiscal
2011, the Corporation is now identifying the differences between
IFRS and the Corporation’s accounting policies, and developing
solutions. In this phase, the Corporation is performing a detailed
analysis of IFRS, which consists in identifying the differences
between IFRS and the Corporation’s current accounting policies
to prioritize key areas that will be more significantly impacted by
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2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
the changeover and determining the options permitted under
IFRS at the effective date and on an ongoing basis in order to
finalize conclusions. Phase 2 also includes detailed planning of
information technology and human resources as they relate to
the changeover. Moreover, internal procedures and systems that
require updating and adapting will be identified, including adjust-
ments to existing internal control procedures and the implemen-
tation of additional internal control over financial reporting and
disclosure controls and procedures that are necessary to certify
financial reporting during the changeover and post-implementa-
tion periods.
In Phase 3, the Corporation will implement the accounting and
other necessary changes to internal procedures, controls and
systems to ensure all changes are in place and operating effec-
tively for the first fiscal year under IFRS.
The following table provides a progress update on timelines for
core items of the IFRS conversion plan as at October 31, 2010:
Financial information
Core item(s)
Timeline
Progress
Identify differences and develop
solutions for accounting policy
elections, particularly permitted
elections under IFRS, including
those involving permitted exemp-
tions under IFRS 1.
Develop a model set of IFRS finan-
cial statements with accompany-
ing notes.
Prepare an opening balance sheet
and compile financial information
to prepare comparative IFRS
financial statements.
During fiscal 2011.
During fiscal 2011.
During fiscal 2011.
The analyses are underway,
and in certain cases, we are
unable to quantify the impact
of differences.
Development of a model set of
IFRS financial statements is under-
way.
Analysis is expected to begin in
the first quarter of 2011.
Information technology
and data systems
Assess the effects of changes on
information and data systems, and
make the necessary changes.
Changes to information and data
systems finalized in a timely fash-
ion to compile the financial infor-
mation during fiscal 2011. Follow-
ups and updates during fiscal
2011.
The effects on information and
data systems are analyzed at the
same time as differences are iden-
tified and financial reporting solu-
tions are developed.
Internal control over
financial reporting
Assess the effects of changes on
internal control over financial
reporting and disclosure controls
and procedures and implement
modifications as necessary.
Implement the required modifica-
tions starting in the first quarter of
fiscal 2011. Follow-ups and
updates during fiscal 2011.
The effects on information and
data systems are analyzed at the
same time as differences are iden-
tified and financial reporting solu-
tions are developed.
Business activity
Determine the conversion’s impact
on the Corporation’s business
activity.
Changes to be finalized before
October 31, 2011.
Training and communications
Offer training to affected employ-
ees, management and the Board
of Directors and its relevant com-
mittees, particularly the Audit
Committee.
Provide conversion plan status
reports to internal and external
stakeholders.
During fiscal 2010 and 2011.
The effects on business activity
are analyzed at the same time as
differences are identified and finan-
cial reporting solutions are devel-
oped.
Training is being offered in a timely
fashion in accordance with con-
version timelines.
During fiscal 2010 and 2011.
Periodic status reports are sent to
internal and external stakeholders.
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
33
The Corporation has assessed some of the exemptions from full retrospective application under IFRS 1, First-time Adoption of
International Financial Reporting Standards, on the effective date and their potential impact on the Corporation’s consolidated finan-
cial statements. Based on current progress, on adoption of IFRS, the following exemptions are likely to have an impact for the
Corporation:
Exemption
Application of exemption
Business combinations
The Corporation expects to elect not to retrospectively restate business acquisitions completed
prior to November 1, 2010.
Employee benefits
The Corporation expects to elect to recognize cumulative actuarial gains and losses arising from its defined
benefit pension plans through opening retained earnings at the IFRS transition date and prospectively
apply IAS 19, Employee Benefits. The application of this exemption will result in the recognition, as at
November 1, 2010 of a $6.7 million decrease in the Corporation’s opening retained earnings balance at
the IFRS transition date.
Cumulative translation adjustments
The Corporation expects to elect to recognize cumulative translation adjustments through opening retained
earnings at the IFRS transition date. The application of this exemption will result in the recognition, as at
November 1, 2010 of a $16.8 million decrease in the Corporation’s opening retained earnings balance at
the IFRS transition date.
Share-based payment transactions
The Corporation expects to apply the exemption enabling it not to retrospectively apply IFRS 2,
Share-based Payment, to share-based payment transactions prior to the transition date.
The Corporation is in the process of quantifying the expected material differences between IFRS and current accounting treatment
under Canadian GAAP. Differences in the accounting policies applied at the IFRS transition date and, subsequently, recognition,
measurement, presentation and disclosure of financial information, as well as the impacts on the financial statements, are expected
to be in the following key accounting areas:
Accounting area
Main differences with potential impact
for the Corporation
Progress
Financial statement
presentation and disclosure
•
IFRS require a different format and additional disclosures in the
notes to financial statements.
Property, plant and equipment
• Separate recognition of components of significant assets and
amortization of components over various useful lives.
A model set of financial statements
has been prepared and is subject to
change based on the conclusions of
our overall work.
Based on preliminary conclusions,
there are no differences that could
potentially result in a significant
impact for the Corporation.
Asset impairment
• Grouping of assets in cash generating units (CGUs) on the basis
of largely independent cash inflows for impairment testing purpos-
es, using a discounted future cash flow method in a single-step
approach.
Based on preliminary conclusions,
there are no differences that could
potentially result in a significant
impact for the Corporation.
• Goodwill allocated to and tested in conjunction with its related
CGU or group of CGUs that benefit from collective synergies.
In certain circumstances, previous impairment charges on assets
other than goodwill are required to be reversed.
•
Leases
•
IFRS require the use of qualitative versus quantitative thresholds
as under Canadian GAAP in accounting for capital leases.
Based on preliminary conclusions,
there are no differences that could
potentially result in a significant
impact for the Corporation.
34
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
Accounting area
Main differences with potential impact
for the Corporation
Progress
Business combinations
• Acquisition and restructuring costs are expensed as incurred.
Contingent consideration is measured at its acquisition-date fair
value with subsequent changes in fair value recognized through
income.
• Changes in equity interests in a subsidiary that do not result in a
loss of control are accounted for as equity transactions.
• Non-controlling interests are reported separately from sharehold-
ers’ equity.
Based on preliminary conclusions,
there are no differences that could
potentially result in a significant
impact for the Corporation.
Income taxes
• Recognition and measurement criteria for deferred tax assets and
liabilities may differ.
Provisions and contingencies
• A different threshold is used to recognize contingent liabilities,
which could impact the timing for recognition of provisions.
Employee benefits
P
•
Immediate recognition of past service costs for which benefits are
vested through opening retained earnings at the transition date
and subsequently through income.
• After the transition to IFRS, an entity may recognize actuarial gains
and losses as they occur in comprehensive income with no impact
on income.
Based on preliminary conclusions,
there are no differences that could
potentially result in a significant
impact for the Corporation.
Analysis is underway, and we are
unable to quantify the impact of dif-
ferences, if any.
Preliminary conclusions indicate there
could be differences with significant
impact for the Corporation at the
IFRS transition date. However,
changes in actuarial gains or losses
will be recognized through compre-
hensive income without any impact
on the statement of income.
The above table of significant differences addresses only the
items identified to date as work on our transition plan progress-
es. It should not be seen as exhaustive and is subject to change
following completion of the next phases of our transition plan
and potential amendments to IFRS prior to adoption by the
Corporation.
As the Corporation assesses its obligations under IFRS, adjust-
ments to internal control over financial reporting and disclosure
controls and procedures will be required and new controls could
prove necessary.
The Company has secured the appropriate internal and external
resources to complete the transition plan in a timely fashion. The
Corporation will also provide sufficient training to all relevant
resources. During the transition, the Corporation will monitor
ongoing amendments to IFRS and adjust its transition plan
accordingly. Management is providing the Audit Committee with
timely project progress updates, as well as guidance, decisions
and conclusions regarding the options available under IFRS. The
Corporation’s transition plan is currently on track with its imple-
mentation schedule, calling for initial reporting under IFRS start-
ing November 1, 2011.
During the transition to IFRS, the Corporation will regularly moni-
tor developments in the standards issued by the International
Accounting Standards Board and AcSB, as well as regulatory
changes made by the Canadian Securities Administrators, which
could impact the adoption of IFRS, and the nature and extent of
adjustments that will be made.
Additional information on the effects of the adoption of IFRS on
the Corporation’s consolidated financial statements will be
reported in upcoming MD&As.
FINANCIAL INSTRUMENTS
In the normal course of business, the Corporation is exposed to
credit and counterparty risk, liquidity risk, and market risk arising
from changes in certain foreign exchange rates, changes in fuel
prices and changes in interest rates. The Corporation manages
these risk exposures on an ongoing basis. In order to limit the
effects of changes in foreign exchange rates, fuel prices and
interest rates on its revenues, expenses and cash flows, the
Corporation can avail itself of various derivative financial instru-
ments. The Corporation’s management is responsible for deter-
mining the acceptable level of risk and only uses derivative finan-
cial instruments to manage existing or anticipated risks, commit-
ments or obligations based on its past experience.
FOREIGN EXCHANGE RISK MANAGEMENT
The Corporation is exposed, primarily as a result of its many
arrangements with foreign-based suppliers, aircraft and engine
leases, fuel purchases, long-term debt and revenues in foreign
currencies, and fluctuations in exchange rates mainly with
respect to the U.S. dollar, the euro and the pound sterling
against the Canadian dollar and the euro. Approximately 30% of
the Corporation’s costs are incurred in a currency other than the
measurement currency of the reporting unit incurring the costs,
whereas a smaller percentage of revenues is incurred in a cur-
rency other than the measurement currency of the reporting unit
making the sale. In accordance with its foreign currency risk
management policy and to safeguard the value of anticipated
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
35
commitments and transactions, the Corporation enters into for-
eign exchange forward contracts, expiring in generally less than
15 months, for the purchase and/or sale of foreign currencies
based on anticipated foreign exchange rate trends.
The Corporation documents its derivative financial instruments
related to foreign currencies as hedging instruments and regular-
ly demonstrates that these instruments are sufficiently effective
to continue using hedge accounting. These derivative financial
instruments are designated as cash flow hedges except for the
contracts related to U.S. dollar loans payable secured by air-
craft, which are designated as fair value hedges.
All derivative financial instruments are recorded at fair value in
the balance sheet. For the derivative financial instruments desig-
nated as cash flow hedges, changes in value of the effective
portion are recognized in other comprehensive income (loss) in
the consolidated statement of comprehensive income (loss). Any
ineffectiveness within a cash flow hedge is recognized in net
income as it arises in the same consolidated income statement
account as the hedged item when realized. Should the hedging
of a cash flow hedge relationship become ineffective, previously
unrealized gains and losses remain within accumulated other
comprehensive income (loss) until the hedged item is settled and
future changes in value of the derivative are recognized in
income prospectively. The change in value of the effective por-
tion of a cash flow hedge remains in accumulated other com-
prehensive income (loss) until the related hedged item is settled,
at which time amounts recognized in accumulated other com-
prehensive income (loss) are reclassified to the same income
(loss) statement account in which the hedged item is recog-
nized. For derivative financial instruments designated as fair
value hedges, periodic changes in fair value are recognized in
net income and changes in fair value of U.S. dollar loans
secured by aircraft are also recorded under the same net
income items.
MANAGEMENT OF FUEL PRICE RISK
The Corporation is particularly exposed to fluctuations in fuel
prices. Due to competitive pressures in the industry, there can
be no assurance that the Corporation would be able to pass
along any increase in fuel prices to its customers by increasing
prices, or that any eventual price increase would fully offset high-
er fuel costs, which could in turn adversely impact its business,
financial position or operating results. To hedge against sharp
increases in fuel prices, the Corporation has implemented a fuel
price risk management policy that authorizes foreign exchange
forward contracts, and other types of derivative financial instru-
ments, expiring in generally less than 15 months.
These derivative financial instruments used for fuel purchases
are measured at fair value at the end of each period, and the
unrealized gains or losses arising from remeasurement are
recorded and reported under change in fair value of derivative
financial instruments used for aircraft fuel purchases in the con-
solidated statement of income (loss). When realized at maturity
of these derivative financial instruments, any gains or losses are
reclassified to aircraft fuel.
CREDIT AND COUNTERPARTY RISK
Credit risk stems primarily from the potential inability of
clients, service providers, aircraft and engine lessors and
financial institutions, including the other counterparties to cash
equivalents, derivative financial instruments and investments in
ABCP, to discharge their obligations.
Trade accounts receivable included in accounts receivable in
the balance sheet totalled $78.3 million as at October 31,
2010. Trade accounts receivable consist of a large number of
customers, including travel agencies and other service
providers. Trade accounts receivable generally result from the
sale of vacation packages to individuals through travel agen-
cies and the sale of seats to tour operators, dispersed over a
wide geographic area. No customer represented more than
10% of total accounts receivable. As at October 31, 2010,
approximately 7% of accounts receivable were over 90 days
past due, whereas approximately 78% were up to date, that
is, under 30 days. Historically, the Corporation has not
incurred any significant losses in respect of its trade accounts
receivable.
Pursuant to the agreements entered into with its service
providers consisting primarily of hotel operators, the
Corporation pays deposits to capitalize on special benefits,
including pricing, exclusive access and room allotments. As at
October 31, 2010, these deposits totalled $31.8 million and
were generally offset by purchases of person-nights at these
hotels. Risk arises from the fact that these hotels might not be
able to honour their obligations to provide the agreed number
of person-nights. The Corporation strives to minimize its
exposure by limiting deposits to recognized and reputable
hotel operators in its active markets. These deposits are
spread across a large number of hotels and, historically, the
Corporation has not been required to write off a considerable
amount for its deposits with suppliers.
Under the terms of its aircraft and engine leases, the
Corporation pays deposits when aircraft and engines are
commissioned, particularly as collateral for remaining lease
payments. These deposits totalled $10.6 million as at October
31, 2010 and will be returned on lease expiry. The
Corporation is also required to pay cash security deposits to
lessors over the lease term to guarantee the serviceable con-
dition of aircraft. Cash security deposits with lessors are
expensed when the funds are disbursed. However, these cash
security deposits with lessors are generally returned to the
Corporation upon receipt of documented proof that the relat-
ed maintenance has been performed by the Corporation. As
at October 31, 2010, the cash security deposits with lessors
that have been claimed totalled $13.9 million and have been
included in accounts receivable. Historically, the Corporation
has not written off any significant amount of deposits and
claims for cash security deposits with aircraft and engine
lessors.
For financial institutions including the various counterparties,
the maximum credit risk as at October 31, 2010 relates to
cash and cash equivalents, including cash and cash equiva-
lents reserved, investments in ABCP and derivative financial
instruments accounted for in assets. These assets are held or
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2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
traded with a limited number of financial institutions and other
counterparties. The Corporation is exposed to the risk that
the financial institutions and other counterparties with which it
holds securities or enters into agreements could be unable to
honour their obligations. The Corporation minimizes risk by
entering into agreements with large financial institutions and
other large counterparties with appropriate credit ratings. The
Corporation’s policy is to invest solely in products that are
rated R1-Mid or better [by DBRS], A1 [by Standard & Poor’s]
or P1 [by Moody’s] and rated by at least two rating firms.
Exposure to these risks is closely monitored and maintained
within the limits set out in the Corporation’s various policies.
The Corporation revises these policies on a regular basis.
Except for the investments in ABCP, the Corporation does not
believe it is exposed to a significant concentration of credit
risk as at October 31, 2010.
LIQUIDITY RISK
The Corporation is exposed to the risk of being unable to hon-
our its financial commitments by the deadlines set out under the
terms of such commitments and at a reasonable price. The
Corporation has a Treasury Department in charge, among other
things, of ensuring sound management of available cash
resources, financing and compliance with deadlines within the
Corporation’s scope of consolidation. With senior management
oversight, the Treasury Department manages the Corporation’s
cash resources based on financial forecasts and anticipated
cash flows.
INTEREST RATE RISK
The Corporation is exposed to interest rate fluctuations, primarily
due to its variable-rate long-term debt. The Corporation man-
ages its interest rate exposure and could potentially enter into
swap agreements consisting in exchanging variable rates for
fixed rates.
Furthermore, interest rate fluctuations could have an effect on
the Corporation’s interest income derived from its cash and cash
equivalents. The Corporation has implemented an investment
policy designed to safeguard its capital and instrument liquidity
and generate a reasonable return. The policy sets out the types
of allowed investment instruments, their concentration, accept-
able credit rating and maximum maturity.
RELATED PARTY TRANSACTIONS AND BALANCES
In the normal course of business, the Corporation enters into
transactions with related companies. These transactions are
measured at the exchange amount, which is the amount of
consideration determined and agreed to by the related parties.
During the year, the Corporation recorded $13.3 million in per-
son-nights purchased at hotels belonging to CIBV, a company
subject to significant influence.
RISKS AND UNCERTAINTIES
As part of a process improvement and prevention initiative, the
Corporation identified several potential risks and uncertainties
pertaining specifically to the travel industry or otherwise.
Additional risks and uncertainties not currently known to the
Corporation or that are currently considered immaterial could
also materialize in the future and impact the Corporation.
ECONOMIC AND GENERAL FACTORS
Economic factors such as a significant downturn in the econo-
my, a recession or a decline in the employment rate in North
America, Europe or key international markets could have a neg-
ative impact on our business and operating results by affecting
demand for our products and services. Our operating results
could also be adversely affected by more general factors, includ-
ing the following: extreme weather conditions, climate-related or
geological disasters, war, political instability, terrorism whether
actual or apprehended, epidemics or disease outbreaks, con-
sumer preferences and spending patterns, consumer percep-
tions of destination-based service and airline safety, demograph-
ic trends; disruptions to air traffic control systems, and costs of
safety, security and environmental measures. Furthermore, our
revenues are sensitive to events affecting domestic and interna-
tional air travel as well as the level of car rentals and hotel and
cruise reservations.
COMPETITION
We face many competitors in the holiday travel industry. Some
of them are larger, with strong brand name recognition and an
established presence in specific geographic areas, substantial
financial resources and preferred relationships with travel suppli-
ers. We also face competition from travel suppliers selling direct-
ly to travellers at very competitive prices. These competitive
pressures could adversely impact our revenues and margins
since we would likely have to match competitors’ prices.
FLUCTUATIONS IN FOREIGN EXCHANGE
AND INTEREST RATES
Transat is exposed, due to its many arrangements with foreign-
based suppliers, to fluctuations in exchange rates mainly con-
cerning the U.S. dollar, the euro and the pound sterling against
the Canadian dollar and the euro. These fluctuations could
increase our operating costs. Changes in interest rates could
also impact our interest income from our cash and cash equiva-
lents as well as the interest expense on variable rate debt instru-
ments, which in turn could affect our income. We use derivative
financial instruments in accordance with our hedging policy to
hedge against exchange rate fluctuations affecting our long-term
debt in U.S. dollars, our off-balance sheet financing obtained for
aircraft and the revenues and operating expenses that the
Corporation settles in foreign currencies. However, while our
derivative financial instruments partially protect the Corporation
from adverse exchange rate fluctuations, they could also prevent
the Corporation from capitalizing on favourable exchange rate
fluctuations.
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
37
FUEL COSTS AND SUPPLY
Transat is particularly exposed to fluctuations in fuel costs. Due
to competitive pressures in the industry, there can be no assur-
ance that we would be able to pass along any increase in fuel
prices to our customers by increasing fares, or that any fare
increase would offset higher fuel costs, which could in turn
adversely impact our business, financial position or operating
results. We use forward contracts and other derivative financial
instruments in accordance with our hedging policy to hedge
against fuel cost fluctuations. However, while our derivative
financial instruments partially protect the Corporation from
adverse fluctuations in fuel costs, they could also prevent the
Corporation from capitalizing on favourable fluctuations in fuel
costs. Furthermore, a potential reduction in our fuel supply could
adversely affect operations.
CHANGING INDUSTRY DYNAMICS:
NEW DISTRIBUTION METHODS
The widespread popularity of the Internet has resulted in trav-
ellers being able to access information about travel products
and services and purchase such products and services directly
from suppliers, thereby bypassing not only vacation providers
such as Transat, but also retail travel agents through whom we
generate a substantial portion of our revenues. For the time
being, direct Internet sales remain limited in the vacation travel
segment, but shifts in industry dynamics in the distribution busi-
ness occur rapidly and, in this respect, give rise to risks. In order
to address this issue, Transat is in the process of developing
and implementing a multichannel distribution system to strike a
harmonious balance between a variety of distribution strategies
such as travel agencies, direct sales (including via Internet),
third-party sales and the use of electronic booking systems.
However, given that we rely to some extent on retail travel agen-
cies for access to travellers and revenues, any consumer shift
away from travel agencies and toward direct purchases from
travel suppliers could impact the Corporation.
RELIANCE ON CONTRACTING TRAVEL SUPPLIERS
Despite being well positioned due to our vertical integration, we
depend on third parties who supply us with certain components
of our packages. We are dependent, for example, on non-group
airlines and a large number of hotels, several of which are exclu-
sive to the Corporation. In general, these suppliers can terminate
or modify existing agreements with us on relatively short notice.
The potential inability to replace these agreements, to find similar
suppliers, or to renegotiate agreements at reduced rates could
have an adverse effect on our results. Furthermore, any decline
in the quality of travel products or services provided by these
suppliers, or any perception by travellers of such a decline,
could adversely affect our reputation. Any loss of contracts,
changes to our pricing agreements, access restrictions to travel
suppliers’ products and services or negative shifts in public
opinion regarding certain travel suppliers resulting in lower
demand for their products and services could have a significant
effect on our results.
DEPENDENCE ON TECHNOLOGY
Our business depends on our ability to access information,
manage reservation systems, including handling high telephone
call volumes on a daily basis, protect such information, stave off
information system intrusions and distribute our products to
retail travel agents and other travel intermediaries. To this end,
we rely on a variety of information and telecommunications tech-
nologies. Rapid changes in these technologies could require
higher-than-anticipated capital expenditures to improve cus-
tomer service; this could impact our operating results. In addi-
tion, any systems failures or outages could adversely affect our
business, customer relationships and operating results.
DEPENDENCE ON CUSTOMER DEPOSITS
AND ADVANCE PAYMENTS
Transat derives a portion of its interest income from customer
deposits and advance payments. In accordance with our invest-
ment policy, we are required to invest these deposits and
advance payments exclusively in investment-grade securities.
Any failure of these investment securities to perform at historical
levels could reduce our interest income.
NEGATIVE WORKING CAPITAL
In the normal course of business, we receive customer
deposits and advance payments. If funds from advance pay-
ments were to diminish or be unavailable to pay our suppliers,
we would be required to secure alternative capital funding.
There could be no assurance that additional funding would be
available under terms and conditions suitable to the
Corporation, which could adversely affect its business.
FLUCTUATIONS IN FINANCIAL RESULTS
The travel industry in general and our operations in particular
are seasonal. As a result, our quarterly operating results are
subject to fluctuations. In our view, comparisons of our operat-
ing results between quarters or between six-month periods are
not necessarily meaningful and should not be relied on as indi-
cators of future performance. Furthermore, due to the eco-
nomic and general factors described above, our operating
results in future periods could fall short of the expectations of
securities analysts and investors, thus affecting the market
price of our shares.
GOVERNMENT REGULATION AND TAXATION
Transat’s future results may vary depending on the actions of
government authorities with jurisdiction over our operations.
These actions include the granting and timing of certain gov-
ernment approvals or licenses; the adoption of regulations
impacting customer service standards (such as new passenger
security standards); the adoption of more stringent noise
restrictions or curfews; and the adoption of provincial regula-
tions impacting the operations of retail and wholesale travel
agencies. In addition, the adoption of new or different regulato-
ry frameworks or amendments to existing legislation or regula-
tions and tax policy changes could affect our operations, par-
ticularly as regards hotel room taxes, car rental taxes, airline
excise taxes and airport taxes and fees.
38
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
FUTURE CAPITAL REQUIREMENTS
Transat may need to raise additional funds in the future to
capitalize on growth opportunities or to respond to competi-
tive pressures. There can be no assurance that additional
financing will be available on terms and conditions accept-
able to us. This could adversely affect our business.
Moreover, financial market volatility could limit access to
credit and raise borrowing costs, hampering access to addi-
tional funding under satisfactory terms and conditions.
ACCESS TO AIRPORT FACILITIES
To carry on business or extend its outreach, the Corporation
requires access to airport facilities in its source markets and
multiple destinations. In particular, the Corporation must have
access to takeoff and landing slots and gates under conditions
that allow it to be competitive. Accordingly, any difficulty in
securing such access or disruptions in airport operations caused,
for instance by labour conflicts or other factors could adversely
affect the Corporation.
INTERRUPTION OF OPERATIONS
If our operations are interrupted for any reason, including aircraft
unavailability due to mechanical troubles, the loss of associated
revenues could have an impact on our business, financial posi-
tion and operating results.
AIRCRAFT LEASE OBLIGATIONS
Transat has significant non-cancellable lease obligations relating
to its aircraft fleet. If revenues from aircraft operations were to
decrease, the payments to be made under our existing lease
agreements could have a substantial impact on our operations..
AIRCRAFT AVAILABILITY
To carry on business or extend its outreach, the Corporation
requires access to aircraft and, in particular, its own fleet operat-
ed by its subsidiary Air Transat. This fleet consists primarily of
aircraft leased for several years with varying renewal dates and
conditions. If the Corporation were unable to renew its leases,
secure timely access to appropriate aircraft under adequate
conditions or retire certain aircraft as anticipated, such an out-
come could adversely affect the Corporation.
CLIMATE CHANGE REGULATIONS
Numerous jurisdictions around the world have implemented or
unveiled measures, particularly taxes, to penalize greenhouse
gas emissions, which cover the airline industry, with a view to
fighting climate change. Other jurisdictions could follow suit. In
light of its airline operations, the Corporation is directly exposed
to such measures, which generally give rise to additional costs
that the Corporation might be unable to fully pass on through its
product selling prices. In such a scenario, its margin would be
adversely affected.
KEY PERSONNEL
Our future success depends on our ability to attract and retain
qualified personnel. The loss of key employees could adversely
affect our business and operating results.
UNCERTAINTY REGARDING COLLECTIVE
AGREEMENTS
Our operations could be affected by any inability to reach an
agreement with a labour union representing our employees.
INSURANCE COVERAGE
In the wake of the terrorist attacks of September 11, 2001, the
airline insurance market for risks associated with war and terror-
ist acts has undergone several changes. The limit on third-party
civil liability coverage for bodily injury and property damage has
been set at US$150 million per claim.
As a result, governments are still required to cover air carriers
above this US$150 million limit until commercial insurers do so
at a reasonable cost. The Canadian government covers domes-
tic air carriers accordingly. In addition, some insurers that could
provide coverage in excess of US$150 million are not licensed
to transact business in Canada, which further limits availability.
The Canadian government continues to cover its air carriers,
prompted by the licensing situation and by the U.S. government’s
decision to continue covering its own carriers against such risks.
However, there can be no assurance that the Canadian govern-
ment will not withdraw its coverage, particularly if the U.S.
government were to change its position. If that were to happen,
we would be required to deal with private insurers to attempt to
secure such coverage, and there could be no assurance that
we would be able to secure coverage at an acceptable level
and cost.
CASUALTY LOSSES
We feel that we and our suppliers have adequate liability insur-
ance to cover risks arising in the normal course of business,
including claims for serious injury or death arising from accidents
involving aircraft or other vehicles carrying our customers.
Although we have never faced a liability claim for which we did
not have adequate insurance coverage, there can be no assur-
ance that our coverage will be sufficient to cover larger claims or
that the insurer concerned will be solvent at the time of any cov-
ered loss. In addition, there can be no assurance that we will be
able to obtain coverage at acceptable levels and cost in the
future. These uncertainties could adversely affect our business
and operating results.
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
39
CONTROLS AND PROCEDURES
The implementation of the Canadian Securities Administrators
National Instrument 52-109 represents a continuous improve-
ment process, which has prompted the Corporation to formalize
existing processes and control measures and introduce new
ones. Transat has chosen to make this a corporate-wide project,
which will result in operational improvements and better man-
agement.
In accordance with this instrument, the Corporation has filed
certificates signed by the President and Chief Executive Officer
and the Vice-President, Finance and Administration and Chief
Financial Officer that, among other things, report on the design
and operating effectiveness of disclosure controls and proce-
dures and the design and operating effectiveness of internal
control over financial reporting.
DISCLOSURE CONTROLS AND PROCEDURES
The President and Chief Executive Officer and the Vice-
President, Finance and Administration and Chief Financial Officer
have evaluated disclosure controls and procedures (DC&P) or
caused them to be evaluated under their supervision to provide
reasonable assurance that:
Lastly, no changes in ICFR occurred during the fourth quarter
ended October 31, 2010 that materially affected, or are likely to
materially affect, the Corporation’s ICFR.
OUTLOOK
The Canadian sun destinations market accounts for a very sig-
nificant portion of Transat’s business in the winter. In that mar-
ket, the fact that, at this time of year, a significant portion of
seats available remain to be sold, the trend toward last-minute
bookings and the volatility of margins make it difficult to make
forecasts. For winter 2011, Transat’s capacity is approximately
13% higher than actual capacity offered last year. Bookings and
load factors are currently higher than last year at the same date,
and prices are similar.
In France, capacity and sales on medium- and long-haul desti-
nations are higher than in 2009.
On the transatlantic market, capacity and bookings are higher
than last year.
• Material information relating to the Corporation has been
made known to them; and
In 2011, the Corporation should benefit from lower input costs,
as in 2010 it was unable to fully capitalize on the strength of the
dollar against the US currency, due to its hedging transactions.
• Information required to be disclosed in the Corporation’s fil-
ings is recorded, processed, summarized and reported within
the prescribed time periods under securities legislation.
An evaluation of the design and operating effectiveness of DC&P
was carried out under the supervision of the President and Chief
Executive Officer and the Vice-President, Finance and Adminis-
tration and Chief Financial Officer. Based on this evaluation,
these two certifying officers concluded that the DC&P were
effective as at October 31, 2010. Among other things, this eval-
uation took into consideration the Corporate Disclosure Policy,
the sub-certification process and the operation of the
Corporation’s Disclosure Committee.
INTERNAL CONTROL OVER FINANCIAL REPORTING
The President and Chief Executive Officer and the Vice-
President, Finance and Administration and Chief Financial Officer
have also designed internal control over financial reporting
(ICFR), or have caused it to be designed under their supervision,
to provide reasonable assurance regarding the reliability of finan-
cial reporting and the preparation of financial statements for
financial reporting purposes in accordance with Canadian GAAP.
An evaluation of the design and operating effectiveness of ICFR
was carried out under the supervision of the President and Chief
Executive Officer and the Vice-President, Finance and Adminis-
tration and Chief Financial Officer. Based on this evaluation, these
two certifying officers concluded that ICFR was effective as at
October 31, 2010 using the criteria set forth by the Committee
of Sponsoring Organizations (COSO) of the Treadway Commis-
sion on Internal Control – Integrated Framework.
40
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
41
Management’s report
Auditors’ report
To the Shareholders of Transat A.T. Inc.
We have audited the consolidated balance sheets
of Transat A.T. Inc. as at October 31, 2010 and
2009 and the consolidated statements of income,
comprehensive income, shareholders’ equity and
cash flows for the years then ended. These finan-
cial statements are the responsibility of the
Corporation’s management. Our responsibility is to
express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with
Canadian generally accepted auditing standards.
Those standards require that we plan and perform
an audit to obtain reasonable assurance whether
the financial statements are free of material mis-
statement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclo-
sures in the financial statements. An audit also
includes assessing the accounting principles used
and significant estimates made by management, as
well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial state-
ments present fairly, in all material respects, the
financial position of the Corporation as at October
31, 2010 and 2009 and the results of its operations
and its cash flows for the years then ended in
accordance with Canadian generally accepted
accounting principles.
Montréal, Canada
December 3, 2010
Chartered Accountants
(1) CA auditor permit no.13764
The consolidated financial statements are the
responsibility of management and have been
approved by the Board of Directors. Management’s
responsibility in this respect includes the selection
of appropriate accounting principles as well as the
exercise of sound judgment in establishing reason-
able and fair estimates in accordance with Canadian
generally accepted accounting principles which are
adequate in the circumstances. The financial infor-
mation presented throughout this annual report is
consistent with that appearing in the financial state-
ments.
The Corporation and its affiliated companies have
set up accounting and internal control systems
designed to provide reasonable assurance that the
Corporation’s assets are safeguarded against loss
or unauthorized use and that its books of account
may be relied upon for the preparation of financial
statements.
The Board of Directors is responsible for the con-
solidated financial statements through its Audit
Committee. The Audit Committee reviews the
annual consolidated financial statements and rec-
ommends their approval to the Board of Directors.
The Audit Committee is also responsible for analyz-
ing, on an ongoing basis, the results of the audits
by the external auditors of the accounting methods
and policies used as well as of the internal control
systems set up by the Corporation. These financial
statements have been audited by Ernst & Young
LLP, the external auditors. Their report on the con-
solidated financial statements appears opposite.
Jean-Marc Eustache
Chairman of the Board,
President and Chief Executive Officer
Denis Pétrin
Vice-President, Finance and Administration
and Chief Financial Officer
42
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
Consolidated Balance Sheets
As at October 31
[In thousands of dollars]
ASSETS
Current assets
Cash and cash equivalents
Cash and cash equivalents in trust or otherwise reserved [note 4]
Accounts receivable
Income taxes receivable
Future income taxes [note 19]
Inventories
Prepaid expenses
Derivative financial instruments [note 6]
Current portion of deposits
Total current assets
Cash and cash equivalents in trust or otherwise reserved [note 4]
Investments in ABCP [note 5]
Deposits [note 7]
Future income taxes [note 19]
Property, plant and equipment [notes 8, 13 and 18]
Goodwill [notes 9 and 18]
Other intangible assets [note 9]
Derivative financial instruments [note 6]
Investments and other assets [note 10]
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued liabilities
Current portion of provision for overhaul of leased aircraft
Income taxes payable
Future income tax liabilities [note 19]
Customer deposits and deferred income
Derivative financial instruments [note 6]
Debenture [note 12]
Payments on current portion of long-term debt
Total current liabilities
Long-term debt [note 13]
Provision for overhaul of leased aircraft
Other liabilities [note 14]
Derivative financial instruments [note 6]
Future income tax liabilities [note 19]
Shareholders’ equity
Share capital [note 15]
Contributed surplus
Retained earnings
Accumulated other comprehensive loss [notes 6 and 16]
Commitments and contingencies [note 22]
See accompanying notes to consolidated financial statements.
On behalf of the Board:
Jean-Marc Eustache, Director André Bisson, Director
2010
$
180,627
320,428
146,944
4,738
2,895
9,867
50,297
868
12,554
729,218
32,222
72,346
29,837
9,650
88,376
112,454
50,464
23
64,868
1,189,458
300,355
18,301
14,608
106
313,695
4,116
—
13,768
664,949
15,291
12,408
45,368
—
12,370
750,386
217,604
9,090
230,703
(18,325)
439,072
1,189,458
2009
$
180,552
244,250
105,349
25,083
12,860
9,823
30,447
6,770
30,578
645,712
28,476
71,401
12,014
10,454
122,911
113,993
46,163
9,488
68,891
1,129,503
266,445
21,029
4,021
266
251,018
40,243
3,156
24,576
610,754
83,108
8,550
41,743
50
17,937
762,142
216,236
6,642
165,096
(20,613)
367,361
1,129,503
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
43
Consolidated Statements of Income
Years ended October 31
[In thousands of dollars, except per share amounts]
Revenues
Operating expenses
Direct costs
Salaries and employee benefits
Aircraft fuel
Commissions
Aircraft maintenance
Airport and navigation fees
Aircraft rent
Other
Amortization [note 17]
Interest on long-term debt and debenture
Other interest and financial expenses
Interest income
Changes in fair value of derivative financial instruments
related to aircraft fuel purchases
Foreign exchange gain on long-term monetary items
Gain on investments in ABCP [note 5]
Restructuring charge (gain) [note 18]
Share of net loss (income) of a company subject to significant influence [note 10]
Income before the undernoted items
Income taxes (recovery) [note 19]
Current
Future
Income before non-controlling interest
in subsidiaries’ results
Non-controlling interest in subsidiaries’ results
Net income for the year
Basic earnings per share [note 15]
Diluted earnings per share [note 15]
See accompanying notes to consolidated financial statements.
2010
$
3,498,877
2,047,713
349,323
302,333
155,357
85,731
85,321
52,949
292,568
3,371,295
127,582
48,662
2,225
2,359
(3,036)
(9,341)
(1,109)
(4,648)
(1,157)
490
34,445
93,137
25,603
(1,797)
23,806
69,331
(3,724)
65,607
1.74
1.73
2009
$
3,545,341
2,062,626
364,642
319,224
177,166
89,896
90,611
54,287
293,494
3,451,946
93,395
51,155
4,866
2,679
(4,588)
(68,267)
(135)
(68)
11,967
(24)
(2,415)
95,810
(9,531)
40,447
30,916
64,894
(3,047)
61,847
1.86
1.85
44
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
Consolidated Statements of Comprehensive Income Loss
Years ended October 31
[In thousands of dollars]
Net income for the year
Other comprehensive income
Change in fair value of derivatives designated as cash flow hedges
Reclassification in income
Future income taxes
Foreign exchange losses on the translation of financial statements of self-sustaining
foreign subsidiaries due to appreciation of the Canadian dollar vs. the euro,
pound sterling and U.S. dollar as at the balance sheet date
Comprehensive income (loss) for the year
2010
$
65,607
44,276
(22,191)
(6,564)
15,521
(13,233)
2,288
67,895
2009
$
61,847
(39,829)
(92,111)
42,418
(89,522)
(13,214)
(102,736)
(40,889)
Consolidated Statements of Shareholders’ Equity
Years ended October 31
[In thousands of dollars]
2010
Balance, beginning of year
Net income for the year
Other comprehensive income
Issued from treasury [note 15]
Options exercised [note 15]
Compensation expense related
to stock option plan [note 15]
Balance, end of year
2009
Balance, beginning of year
Net income for the year
Other comprehensive income
Issued from treasury [note 15]
Options exercised [note 15]
Compensation expense related
to stock option plan [note 15]
Dividends
Balance, end of year
Share capital
$
Contributed
surplus
$
216,236
—
—
1,226
142
—
217,604
154,198
—
—
61,949
89
—
—
216,236
6,642
—
—
—
—
2,448
9,090
4,619
—
—
—
—
2,023
—
6,642
Retained
earnings
$
165,096
65,607
—
—
—
—
230,703
106,188
61,847
—
—
—
—
(2,939)
165,096
Accumulated other
comprehensive
income (loss)
$
Shareholders'
equity
$
(20,613)
—
2,288
—
—
—
(18,325)
82,123
—
(102,736)
—
—
—
—
(20,613)
367,361
65,607
2,288
1,226
142
2,448
439,072
347,128
61,847
(102,736)
61,949
89
2,023
(2,939)
367,361
See accompanying notes to consolidated financial statements.
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
45
Consolidated Statements of Cash Flows
Years ended October 31
[In thousands of dollars]
OPERATING ACTIVITIES
Net income for the year
Operating items not involving an outlay (receipt) of cash
Amortization
Changes in fair value of derivative financial instruments related
to aircraft fuel purchases
Foreign exchange gain on long-term monetary items
Gain on investments in ABCP
Restructuring charge (gain)
Share of net loss (income) of a company subject to significant influence
Non-controlling interest in subsidiaries’ results
Future income taxes
Pension expense
Compensation expense for stock option plan
Net change in non-cash working capital balances
related to operations
Net change in provision for overhaul of leased aircraft
Net change in other assets and liabilities related to operations
Cash flows relating to operating activities
INVESTING ACTIVITIES
Additions to property, plant and equipment and intangible assets
Disposals of property, plant and equipment and intangible assets
Disposal of investments in ABCP
Increase in cash and cash equivalents reserved
Consideration paid for an acquisition and a capital contribution
to a company under significant influence
Cash flows related to investing activities
FINANCING ACTIVITIES
Net change in credit facilities and other debt
Repayment of long-term debt
Proceeds from issuance of shares
Dividends paid by a subsidiary to a non-controlling shareholder
Dividends
Cash flows related to financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplementary information
Income taxes paid (recovered)
Interest paid
See accompanying notes to consolidated financial statements.
2010
$
65,607
48,662
(9,341)
(1,109)
(4,648)
(1,157)
490
3,724
(1,797)
2,294
2,448
105,173
13,155
1,130
(327)
119,131
(29,002)
2,880
3,703
(3,786)
(1,614)
(27,819)
(63,479)
(16,845)
1,368
(2,078)
—
(81,034)
(10,203)
75
180,552
180,627
(3,770)
3,177
2009
$
61,847
51,155
(68,267)
(135)
6,332
9,067
(24)
3,047
40,447
2,888
2,023
108,380
(56,833)
(6,663)
350
45,234
(28,900)
—
8,062
—
(5,824)
(26,662)
(22,951)
(14,972)
62,038
(2,873)
(2,939)
18,303
(2,090)
34,785
145,767
180,552
13,518
4,492
46
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
Notes to consolidated financial statements
October 31, 2010 and 2009
[Unless specified otherwise, amounts are expressed in thousands, of Canadian dollars, except for per share amounts]
1
INCORPORATION AND NATURE OF BUSINESS
Transat A.T. Inc. [the “Corporation”], incorporated under the Canada Business Corporations Act, is an integrated company specializing
in the organization, marketing and distribution of holiday travel in the tourism industry. The core of its business consists of tour opera-
tors based in Canada and Europe. The Corporation is also involved in air transportation, value-added services at travel destinations
and accommodations. Finally, the Corporation has secured a dynamic presence in distribution through travel agency networks.
2
SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of the Corporation have been prepared by management in accordance with Canadian generally
accepted accounting principles. The preparation of financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accom-
panying notes. The main estimates include the measurement of the fair value of the financial instruments, including derivatives and
investments in asset-backed commercial paper [“ABCP”], the provision for overhaul of leased aircraft, the amortization and impairment
of property, plant and equipment and other intangible assets including goodwill, allocations in respect of acquired interests and future
income tax balances. Actual results could differ from those estimates and differences could be significant. The consolidated financial
statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of
the accounting policies summarized below.
Basis of consolidation
The consolidated financial statements include the accounts of the Corporation, its subsidiaries and its variable interest entities where
the Corporation is the primary beneficiary.
The Corporation consolidates variable interest entities in accordance with Accounting Guideline 15, Consolidation of Variable Interest
Entities [“AcG-15”]. This Guideline presents clarification on the application of consolidation principles to certain entities that are sub-
ject to control on a basis other than ownership of voting interests. AcG-15 provides guidance for determining when an enterprise
includes the assets, liabilities and results of activities of a variable interest entity in its consolidated financial statements. Under AcG-15,
an enterprise should consolidate a variable interest entity when that enterprise has a variable interest, or combination of variable inter-
ests, that will absorb a majority of the entity’s expected losses if they occur, receive a majority of the entity’s expected residual returns
if they occur, or both [the “primary beneficiary”].
Assets recognized as a result of consolidating certain variable interest entities do not represent additional assets that could be used
to satisfy claims against the Corporation’s general assets.
Cash equivalents
Cash equivalents consist primarily of term deposits and bankers’ acceptances that are readily convertible into known amounts of cash
with initial maturities of less than three months.
Inventories
Inventories are valued at the lower of cost, determined using the first-in, first-out method, and net realizable value.
Property, plant and equipment
Property, plant and equipment are recorded at cost and are amortized, taking into account their residual value, on a straight-line
basis, unless otherwise specified, over their estimated useful life as follows:
Improvements to aircraft under operating leases
Aircraft equipment
Computer equipment
Aircraft engines
Office furniture and equipment
Leasehold improvements
Rotable aircraft spare parts
Administrative building
Lease term
5 to 10 years
3 to 7 years
Cycles used
4 to 10 years
Lease term
Use
10 to 45 years
When aircraft are acquired, a portion of the cost is allocated to the “major maintenance activities” subclass, which is related to air-
frame, engine and landing gear overhaul costs. Aircraft and major maintenance activities, included in Aircraft, are amortized taking
into account their expected estimated residual value. Aircraft are amortized on a straight-line basis over seven- to ten-year periods,
and major maintenance activities are amortized according to the type of maintenance activity on a straight-line basis or based on the
use of the corresponding aircraft until the next related major maintenance activity. Subsequent major maintenance activity expenses
are capitalized as major maintenance activities and are amortized according to their type. Expenses related to other maintenance
activities, including unexpected repairs, are recognized in net income as incurred.
Goodwill and other intangible assets
Goodwill and trademarks with an indefinite life are recorded at cost and are not amortized. Goodwill represents the excess of the
purchase price over the fair value of identifiable net assets acquired.
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
47
Goodwill is tested for impairment annually or more often if events or changes in circumstances indicate that it is more likely than not
that it is impaired. A two-step impairment test is used to identify a potential impairment in goodwill and measure the amount of a
goodwill impairment loss to be recognized, if any. The first step consists in comparing the fair value of a reporting unit with its carry-
ing amount, including goodwill, in order to identify a potential impairment. When the fair value of a reporting unit exceeds its carrying
amount, goodwill of the reporting unit is considered not to be impaired. When the carrying amount of a reporting unit exceeds its fair
value, the second step, where necessary, consists in comparing the fair value of any goodwill associated with the reporting unit with
the carrying amount of said goodwill to measure the amount of the impairment loss, if any. When the carrying amount of any goodwill
associated with a reporting unit exceeds the fair value of said goodwill, an impairment loss is recognized in an amount equal to the
excess in income for the period in which the impairment occurred. The Corporation uses the discounted cash flow method to meas-
ure the fair value of its reporting units.
Intangible assets with indefinite useful lives, such as trademarks, are tested for impairment annually or more often if events or changes
in circumstances indicate that it is more likely than not that they are impaired. The impairment test consists of a comparison of the
fair value of the trademarks with their carrying amounts. When the carrying amount exceeds the fair value, an impairment loss equal
to the difference is recognized in income in the period in which the impairment occurred. The Corporation uses the discounted cash
flow method to measure the fair value of its trademarks.
Intangible assets with definite useful lives are recorded at cost and amortized on a straight-line basis over their estimated useful lives,
as follows:
Software
Customer lists
3 to 10 years
7 to 10 years
Impairment of long-lived assets
Property, plant and equipment and intangible assets with finite lives are reviewed for impairment whenever events or changes in cir-
cumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is assessed by comparing the carrying
amount of an asset with its expected future net undiscounted cash flows from use together with its residual value [net recoverable
value]. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carry-
ing amount of the assets exceeds their fair value.
Investments and other assets
Investments in companies subject to significant influence but not control or joint control are accounted for using the equity method.
Other investments are recorded at cost. When there is an other-than-temporary impairment in an investment, its carrying amount
must be written down to net realizable value. The write-down in value is taken into account in determining net income.
Provision for overhaul of leased aircraft
Under the aircraft and engine operating leases, the Corporation is required to maintain the aircraft and engines in serviceable condi-
tion and to follow the maintenance plan. The Corporation accounts for its leased aircraft and engine maintenance obligation based
on utilization until the next maintenance activity. The obligation is adjusted to reflect any change in the related maintenance expenses
anticipated. Depending on the type of maintenance, utilization is determined based on the cycles, logged flight time or time between
overhauls. The excess of the maintenance obligation over maintenance deposits made to lessors and unclaimed is included in liabili-
ties under “Provision for overhaul of leased aircraft.”
Foreign currency translation
Self-sustaining foreign operations
The Corporation translates the accounts of its self-sustaining foreign subsidiaries, including the investment in a foreign company sub-
ject to significant influence, into Canadian dollars using the current rate method. Assets and liabilities are translated at the exchange
rates in effect at the end of the period. Revenues and expenses are translated at average rates of exchange during the period. Foreign
exchange gains or losses resulting from the translation are recorded in a separate line item under other comprehensive income.
Accounts and transactions in foreign currencies
The accounts and transactions of the Corporation denominated in foreign currencies including the accounts of integrated foreign
operations are translated using the temporal method. At the transaction date, each asset, liability, revenue or expense arising from a
foreign currency transaction is translated into Canadian dollars by using the exchange rate in effect at that date. At each balance sheet
date, monetary items denominated in a foreign currency are adjusted to reflect the exchange rate in effect at the balance sheet date.
Any exchange gain or loss that arises on translation is included in the determination of net income for the period.
Stock-based compensation and other compensation plans
A summary description of the stock-based compensation plans offered by the Corporation is included in note 15.
The Corporation accounts for its stock option plan for executives and employees in respect of stock options granted after October
31, 2003 using the fair value method. The fair value of stock options at the grant date is determined using an option pricing model.
The fair value of the options at the grant date is charged to net income over the period from the grant date to the date that the award
vests. Any consideration paid by employees on exercising stock options and the corresponding portion previously credited to con-
tributed surplus are credited to share capital.
The Corporation’s contributions to the stock ownership incentive and capital accumulation plan and the permanent stock ownership
incentive plan are the shares acquired in the marketplace by the Corporation for the benefit of plan participants when participants
purchase shares under the stock plan. These contributions are charged to income over the period from the grant date to the date
that the award vests to the participant. Any consideration paid by the participant to purchase shares under the stock plan is credited
to share capital.
48
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
The Corporation records a deferred share unit plan expense when the units are granted based on the fair value of the shares at the
grant date. Fluctuations in the share price subsequent to the grant date are recorded in net income for the period. For the restricted
share unit plan, the fair value of the shares at the units’ grant date is charged to net income over the period from the grant date to
the date that the award vests. Fluctuations in the share price subsequent to the grant date are recorded in net income over the unit
vesting period.
Revenue recognition
The Corporation recognizes revenues once all the significant risks and rewards of the service have been transferred to the customer.
As a result, revenues earned from passenger transportation are recognized upon each return flight. Revenues of tour operators and
the related costs are recognized at the time of the departure of the passengers. Commission revenues of travel agencies are recog-
nized at the time of reservation. Amounts received from customers for services not yet rendered are included in current liabilities as
“Customer deposits and deferred income.”
Financial instruments
Classification of financial instruments
Financial assets and financial liabilities, including derivative financial instruments, are initially measured at fair value. Subsequent to initial
recognition, financial assets and financial liabilities are measured based on their classification: held-for-trading, loans and receivables or
other financial liabilities. Derivative financial instruments, including embedded derivative financial instruments that are not closely related
to the host contract, are classified as held-for-trading unless they are designated within an effective hedging relationship.
Held-for-trading
Financial assets, financial liabilities and derivative financial instruments classified as held-for-trading are measured at fair value at the
balance sheet date. Gains and losses realized on disposal and unrealized gains and losses from changes in fair value are reflected in
the consolidated statement of income as they occur.
Loans and receivables and other financial liabilities
Financial assets as loans and receivables and financial liabilities classified as other liabilities are recorded at amortized cost using the
effective interest method.
Transaction costs
Transaction costs related to held-for-trading financial assets and financial liabilities are expensed as incurred. Transactions costs relat-
ed to financial assets classified as loans and receivables or other financial liabilities or to financial liabilities classified as other financial
liabilities are reflected in the carrying amount of the financial asset or financial liability and are then amortized over the estimated use-
ful life of the instrument using the effective interest method.
Fair value hierarchy
The Company categorizes its financial assets and liabilities measured at fair value into one of three different levels depending on the
observability of the inputs used in the measurement.
Level 1:
This level includes assets and liabilities measured at fair value based on unadjusted quoted prices for identical assets
and liabilities in active markets that are accessible at the measurement date.
Level 2:
This level includes valuations determined using directly or indirectly observable inputs other than quoted prices included
within Level 1. Derivative instruments in this category are valued using models or other industry standard valuation tech-
niques derived from observable market inputs.
Level 3:
This level includes valuations based on inputs which are less observable, unavailable or where the observable data does
not support a significant portion of the instruments’ fair value.
Hedge accounting and derivative financial instruments
The Corporation uses derivative financial instruments to hedge against future currency exchange rate variations related to its long-term
debt obligations, operating lease payments, receipts of revenues from certain tour operators and disbursements pertaining to certain
operating expenses in other currencies. For hedge accounting purposes, the Corporation designates its derivative financial instruments
related to foreign currencies as hedging instruments.
The Corporation documents its derivative financial instruments related to foreign currencies as hedging instruments and regularly
demonstrates that these instruments are sufficiently effective to continue using hedge accounting. These derivative financial instru-
ments are designated as cash flow hedges except for the contracts related to U.S. dollar loans payable secured by aircraft, which
are designated as fair value hedges.
All derivative financial instruments are recorded at fair value in the balance sheet. For the derivative financial instruments designated
as cash flow hedges, changes in value of the effective portion are recognized in “Other comprehensive income” in the consolidated
statement of comprehensive income. Any ineffectiveness within a cash flow hedge is recognized in net income as it arises in the same
consolidated income statement account as the hedged item when realized. Should the hedging of a cash flow hedge relationship
become ineffective, previously unrealized gains and losses remain within “Accumulated other comprehensive income” until the hedged
item is settled and future changes in value of the derivative are recognized in income prospectively. The change in value of the effec-
tive portion of a cash flow hedge remains in “Accumulated other comprehensive income” until the related hedged item settles, at
which time amounts recognized in “Accumulated other comprehensive income” are reclassified to the same account in the consoli-
dated statement of income that records the hedged item. For derivative financial instruments designated as fair value hedges, period-
ic changes in fair value are recognized in the same account in the consolidated statement of income as the hedged item.
In the normal course of business and to manage exposure to fuel pricing instability, the Corporation also enters into derivative finan-
cial instruments used for aircraft fuel purchases that have not been designated for hedge accounting. These derivatives are measured
at fair value at the end of each period, and the unrealized gains or losses arising from remeasurement are recorded and reported under
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
49
“Change in fair value of derivative financial instruments used for aircraft fuel purchases” in the consolidated statement of income.
When realized at maturity of these derivative financial instruments, any gains or losses are reclassified to “Aircraft fuel.”
It is the Corporation’s policy not to speculate on derivative financial instruments; accordingly, these instruments are normally purchased
for risk management purposes and maintained until maturity.
Income taxes
The Corporation provides for income taxes using the liability method. Under this method, future income tax assets and liabilities are
calculated based on differences between the carrying value and tax basis of assets and liabilities and measured using substantively
enacted tax rates and laws expected to be in effect when the differences reverse. A valuation allowance has been recorded to the
extent that it is more likely than not that future income tax assets will not be realized.
Deferred lease inducements
Deferred lease inducements recognized through other liabilities are amortized on a straight-line basis over the term of the leases and
are recognized as a reduction of amortization expense.
Employee future benefits
The Corporation offers defined benefit pension arrangements to certain senior executives. The cost of pension benefits earned by
employees is determined from actuarial calculations using the projected benefit method prorated on services and management’s best
estimate assumptions for the increase in eligible earnings and the retirement age of employees. Past service costs and amendments
to the arrangements are amortized on a straight-line basis over the average remaining service period of active employees generally
affected thereby. The excess of net actuarial gains and losses over 10% of the benefit obligation is amortized over the average
remaining service period of active employees, which was 8.5 years as at November 1, 2009. Plan obligations are discounted using
current market interest rates and are included in “Other liabilities.”
Earnings per share
Earnings per share are calculated based on the weighted average number of Class A Variable Voting Shares and Class B Voting
Shares outstanding during the year. Diluted earnings per share are calculated using the treasury stock method and take into account
all the elements that have a dilutive effect.
3
FUTURE CHANGES TO ACCOUNTING POLICIES
In February 2008, Canada’s Accounting Standards Board confirmed that Canadian GAAP, as used by publicly accountable enterprises,
will be superseded by International Financial Reporting Standards [IFRS] for fiscal years beginning on or after January 1, 2011. The
Corporation will be required to report under IFRSs for its interim and annual financial statements for the fiscal year ending October
31, 2012.
In January 2009, the CICA issued three new accounting standards: Section 1582, Business Combinations, Section 1601, Consoli-
dated Financial Statements, and Section 1602, Non-controlling Interests. These new standards will be effective for financial statements
related to fiscal years beginning on or after January 1, 2011. The Corporation does not intend to opt for early adoption of these
standards.
4
CASH AND CASH EQUIVALENTS IN TRUST OR OTHERWISE RESERVED
As at October 31, 2010, cash and cash equivalents in trust or otherwise reserved included $266,617 [$200,396 as at October 31,
2009] in funds received from customers, consisting primarily of Canadians, for services not yet rendered and for which the availabil-
ity period had not ended, in accordance with Canadian regulatory bodies and the Corporation’s business agreement with its credit
card processor. Cash and cash equivalents in trust or otherwise reserved also include $86,033, of which $32,222 was recorded as
non-current assets [$72,330 as at October 31, 2009, of which $28,476 was recorded as non-current assets], which was pledged
as collateral security against letters of credit.
5
INVESTMENTS IN ABCP
Restructuring
In 2007, the Canadian third-party asset backed commercial paper [“ABCP”] market was hit by a liquidity disruption. Subsequent to
this disruption, a group of financial institutions and other parties agreed, pursuant to the Montréal Accord [the “Accord”], to a stand-
still period in respect of ABCP sold by 23 conduit issuers. A Pan-Canadian Investors Committee was subsequently established to
oversee the orderly restructuring of these instruments during this standstill period.
In 2009, the Pan-Canadian Investors Committee announced that the third-party ABCP restructuring plan had been implemented.
Pursuant to the terms of the plan, holders of ABCP had their short-term commercial paper exchanged for longer-term notes whose
maturities match those of the assets previously held in the underlying conduits. As of that date, the Corporation held a portfolio of
ABCP issued by several trusts with an overall notional value of $143,500.
On January 21, 2009, the plan implementation date, the Corporation measured its investments in ABCP at fair value prior to the
exchange. During this valuation, the Corporation reviewed its assumptions to factor in new information available at that date, as well
as the changes in credit market conditions. Subsequent to this measurement, the provision for impairment totalled $47,450, and the
ABCP investment portfolio had a fair value of $96,050. The ABCP held by the Corporation was exchanged on that date for new
securities. The new ABCP than had a notional value of $141,741.
50
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
Portfolio
During fiscal 2010, the Corporation received $3,083 in principal repayments on ABCP supported by synthetic assets or a combination
of synthetic and traditional securitized assets (Master Asset Vehicle 2 Eligible [“MAV2 Eligible”]) and ABCP supported solely by tradi-
tional securitized assets (Master Asset Vehicle 3 Traditional [“MAV3 Traditional”]). During the year ended October 31, 2010, the
Corporation received its $620 share of the cash accumulated in the conduits. In addition, the Corporation exercised one of its options
allowing it to repay an amount of $9,355 on the balance of one its revolving credit facilities using ABCP supported primarily by sub-
prime assets in the U.S. (MAV2 Ineligible) with a carrying amount of nil. The option was initially reported at a fair value, amounting to
$8,400, with the corresponding initial gain deferred and recognized in net income under amortization over the term of the correspon-
ding credit agreement [see notes 14 and 17]. The option is reported at fair value at each balance sheet date in assets under deriva-
tive financial instruments [see note 6] with any change in fair value of the options recorded in net income under loss (gain) in fair value
of the investments in ABCP. The Corporation measured the option as at October 31, 2009 and recorded an $800 increase in fair
value to $9,200 as at that date. The notional value of the new ABCP amounted to $118,122 as at October 31, 2010 and is detailed
as follows:
MAV2 Eligible
The Corporation holds $113,310 in ABCP supported by synthetic assets or a combination of synthetic and traditional securitized
assets, which have been restructured into floating rate notes with maturities through January 2017.
MAV3 Traditional
The Corporation holds $4,812 in ABCP supported solely by traditional securitized assets that were restructured on a series-by-
series basis, with each series or trust maintaining its own assets, maturing through September 2016.
Valuation
On October 31, 2010, the Corporation remeasured its new ABCP at fair value. During this valuation, the Corporation reviewed its
assumptions to factor in new information available, as well as the changes in credit market conditions. During the year ended
October 31, 2010, a limited number of transactions were entered into in respect of the investments in ABCP. However, the Corpo-
ration did not take these transactions into account in measuring its ABCP since, in its opinion, there were too few of them to meet
the definition of an active market. Once ABCP begins trading in an active market again, the Corporation will review its valuation
assumptions accordingly.
The Corporation reviews the information released by BlackRock Canada Ltd. [“BlackRock”], which was appointed to administer the
assets on the plan implementation date. BlackRock issues monthly valuation reports on the value of ABCP supported primarily by
subprime assets in the U.S. (MAV2 Ineligible) and ABCP supported exclusively by traditional securitized assets (MAV3 Traditional).
The Corporation’s management measured the fair value of its assets from these classes using said valuations. For the other securi-
ties, given the lack of an active market, the Corporation’s management estimated the fair value of these assets by discounting future
cash flows determined using a valuation model that incorporates management’s best estimates based as much as possible on
observable market inputs, such as the credit risk attributable to underlying assets, relevant market interest rates, amounts to be
received and maturity dates. The Corporation also took into account the information released by DBRS on September 21, 2010.
DBRS upgraded ABCP supported by synthetic assets or a combination of synthetic and traditional securitized assets [MAV2 Eligible]
of Class A-1 to A+ and confirmed the BBB- rating of Class A-2.
For the purposes of estimating future cash flows, the Corporation estimated that the long-term financial instruments arising from the
conversion of its ABCP would generate interest returns ranging from 0.0% to 1.76% [weighted average rate of 1.5%], depending on
the type of series. These future cash flows were discounted, according to the type of series, over a 6.2-year period using discount
rates ranging from 6.3% to 41.5% [weighted average rate of 11.3%], which factor in liquidity.
As a result of this new valuation, on October 31, 2010, the Corporation recognized an increase in the fair value of its investments in
ABCP of $4,648 (decrease of $5,993 for the year ended October 31, 2009). These adjustments do not take into account any addi-
tional amount of the Corporation’s share of the estimated cash accumulated in the conduits. The ABCP investment portfolio had a
fair value of $72,346 and the provision for impairment totalled $45,776, representing 38.8% of the notional value of $118,122.
The Corporation’s estimate of the fair value of its ABCP investments is subject to significant uncertainty. The substitution of one or
more inputs by one or more assumptions cannot reasonably be completed in these conditions. Management believes that its valua-
tion technique is appropriate in the circumstances; however, changes in significant assumptions could significantly impact the value
of ABCP securities over the coming fiscal year. The resolution of these uncertainties could result in the ultimate value of these invest-
ments varying significantly from management’s current best estimates and the extent of that difference could have a material effect
on our financial results.
A 1% increase (decrease) [100 basis points], in the estimated discount rates would result in a decrease (increase) of approximately
$3,700 in the estimated fair value of ABCP held by the Corporation.
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
51
The following table details the change in balances of investments in ABCP in the consolidated balance sheet and the composition of
loss (gain) on investments in ABCP in the consolidated statement of income:
Balance as at October 31, 2008
Adjustment related to January 21, 2009
restructuring plan implementation
Writedown in notional value of ABCP
Writedown of investments in ABCP
Principal repayments
Share of estimated cash receivable
Share of estimated cash accumulated in conduits
Remeasurement of options related to repayment
of revolving credit facilities
Balance as at October 31, 2009; impact on results
Notional value
of investments
in ABCP
$
143,500
Provision for impairment
on investments
in ABCP
$
(56,905)
(1,759)
(4,844)
—
(8,062)
—
—
—
—
4,844
(5,993)
—
620
—
—
Investments
in ABCP
$
86,595
(1,759)
—
(5,993)
(8,062)
620
—
—
for the year ended October 31, 2009
128,835
(57,434)
71,401
Disposal of investments in ABCP
Appreciation in value of investments in ABCP
Principal repayments
Share of cash accumulated in conduits
Balance as at October 31, 2010; impact on results
(7,630)
—
(3,083)
—
7,630
4,648
—
(620)
—
4,648
(3,083)
(620)
Loss (gain)
on investments
in ABCP
$
1,759
—
5,993
—
(620)
(6,400)
(800)
(68)
—
(4,648)
—
—
for the year ended October 31, 2010
118,122
(45,776)
72,346
(4,648)
The balance of investments in ABCP as at October 31, 2010 is detailed as follows:
MAV2 Eligible
Class A-1
Class A-2
Class B
Class C
MAV3 Traditional
Notional value
of investments in ABCP
$
Provision for impairment
of investments in ABCP
$
Investments in
ABCP
$
34,415
63,894
11,598
3,403
113,310
4,812
118,122
(7,969)
(25,262)
(9,316)
(3,112)
(45,659)
(117)
(45,776)
26,446
38,632
2,282
291
67,651
4,695
72,346
6
FINANCIAL INSTRUMENTS
Classification of financial instruments
As at October 31, the classification of financial instruments, other than financial derivative instruments designated as hedges, as well as
their carrying amounts, are as follows:
2010
Financial assets
Cash and cash equivalents
Cash and cash equivalents in trust
or otherwise reserved
Accounts receivable
Investments in ABCP
Deposits
Derivative financial instruments
- Fuel purchasing forward contracts and other
fuel-related derivative financial instruments
Passifs financiers
Accounts payable and accrued liabilities
Long-term debt
Derivative financial instruments
- Fuel purchasing forward contracts and other
fuel-related derivative financial instruments
Held-for-trading
$
Carrying amount
Loans and
receivables
$
Other financial
liabilities
$
180,627
352,650
—
72,346
—
—
—
146,944
—
10,554
634
606,257
—
157,498
—
—
—
—
—
—
—
Total
$
180,627
352,650
146,944
72,346
10,554
634
763,755
—
—
105
105
—
—
—
—
300,355
29,059
300,355
29,059
—
329,414
105
329,519
Fair value
$
180,627
352,650
146,944
72,346
10,554
634
763,755
300,355
29,059
105
329,519
52
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
Held-for-trading
$
Carrying amount
Loans and
receivables
$
Other financial
liabilities
$
2009
Financial assets
Cash and cash equivalents
Cash and cash equivalents in trust
or otherwise reserved
Accounts receivable
Investments in ABCP
Deposits
Derivative financial instruments
- Fuel purchasing forward contracts and other
fuel-related derivative financial instruments
Options related to repayment of revolving
credit facilities [note 5]
Financial liabilities
Accounts payable and accrued liabilities
Long-term debt
Debenture
Derivative financial instruments
- Fuel purchasing forward contracts and other
fuel-related derivative financial instruments
180,552
272,726
—
71,401
—
4,141
9,200
538,020
—
—
—
12,949
12,949
—
—
105,349
—
10,784
—
—
116,133
—
—
—
—
—
Total
$
180,552
272,726
105,349
71,401
10,784
4,141
9,200
654,153
266,445
107,684
3,156
—
—
—
—
—
—
—
—
266,445
107,684
3,156
—
377,285
12,949
390,234
Fair value
$
180,552
272,726
105,349
71,401
10,784
4,141
9,200
654,153
266,445
107,684
3,156
12,949
390,234
Determination of fair value of derivative financial instruments
The fair value of the financial instruments represents the amount of the consideration that would be agreed upon in an arm’s length
transaction between knowledgeable, willing parties who are under no compulsion to act. The following methods and assumptions
were used to measure fair value:
The fair value of cash and cash equivalents, cash and cash equivalents in trust or otherwise reserved, accounts receivable, accounts
payable and accrued liabilities and the debenture approximate their carrying amount due to the short-term maturity of these financial
instruments.
A detailed analysis of the methods and assumptions used in measuring the fair value of investments in ABCP is included in note 5.
The fair value of deposits approximate their carrying amount value given that they are subject to terms and conditions similar to those
available to the Corporation for instruments with comparable terms.
The fair value of long-term debt approximate their carrying amount value given that it is subject to terms and conditions, including
variable interest rates, similar to those available to the Corporation for instruments with comparable terms.
Derivative financial instruments consist primarily of foreign exchange forward contracts, fuel purchasing forward contracts and other
fuel-related derivative financial instruments. The Corporation determines the fair value of its derivative financial instruments using the
purchase or selling price, as appropriate, in the most advantageous active market to which the Corporation has immediate access.
When there is no active market for a derivative financial instrument, the Corporation determines the fair value by applying valuation
techniques, using available information on market transactions involving other instruments that are substantially the same, discounted
cash flow analysis or other techniques, where appropriate. The Corporation ensures, to the extent practicable, that its valuation tech-
nique incorporates all factors that market participants would consider in setting a price and that it is consistent with accepted eco-
nomic methods for pricing financial instruments. The fair value of options related to repayment of revolving credit facilities was deter-
mined using the Black & Scholes option pricing model and the fair value of the underlying ABCP as at October 31, 2010.
The carrying amounts of derivative financial instruments as at October 31 are as follows:
2010
Derivative financial instruments designated as cash flow hedges
Foreign exchange forward contracts
Derivative financial instruments designated as fair value hedges
Foreign exchange forward contracts
Derivative financial instruments classified as held-for-trading
Fuel purchasing forward contracts and other fuel-related derivative financial instruments
Assets
$
250
7
634
891
Liabilities
$
4,011
—
105
4,116
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
53
2009
Derivative financial instruments designated as cash flow hedges
Foreign exchange forward contracts
Derivative financial instruments designated as fair value hedges
Foreign exchange forward contracts
Derivative financial instruments classified as held-for-trading
Fuel purchasing forward contracts and other fuel-related derivative financial instruments
Options related to repayment of revolving credit facilities [note 5]
Assets
$
2,413
504
4,141
9,200
13,341
16,258
Liabilities
$
27,144
200
12,949
—
12,949
40,293
The following table details the fair value hierarchy of financial instruments by level as at October 31 are as fallows:
Quoted prices in active
markets (Level 1)
$
Other observable
inputs (Level 2)
$
Unobservable
inputs (Level 3)
$
Total
$
2010
Financial assets
Investments in ABCP
Derivative financial instruments
- Fuel purchasing forward contracts and other
fuel-related derivative financial instruments
- Foreign exchange forward contracts
Financial liabilities
Derivative financial instruments
- Fuel purchasing forward contracts and other
fuel-related derivative financial instruments
- Foreign exchange forward contracts
2009
Financial assets
Investments in ABCP
Derivative financial instruments
—
—
—
—
—
—
—
—
- Fuel purchasing forward contracts and other
fuel-related derivative financial instruments
—
- Foreign exchange forward contracts
—
- Options related to repayment of revolving credit facilities [note 5] —
—
Financial liabilities
Derivative financial instruments
- Fuel purchasing forward contracts and other
fuel-related derivative financial instruments
- Foreign exchange forward contracts
—
—
—
—
634
257
891
105
4,011
4,116
72,346
72,346
—
—
72,346
—
—
—
634
257
73,237
105
4,011
4,116
—
71,401
71,401
4,141
2,917
—
7,058
12,949
27,344
40,293
—
—
9,200
80,601
—
—
—
4,141
2,917
9,200
87,659
12,949
27,344
40,293
Management of risks arising from financial instruments
In the normal course of business, the Corporation is exposed to credit and counterparty risk, liquidity risk, and market risk arising
from changes in certain foreign exchange rates, changes in fuel prices and changes in interest rates. The Corporation manages
these risk exposures on an ongoing basis. In order to limit the effects of changes in foreign exchange rates, fuel prices and interest
rates on its revenues, expenses and cash flows, the Corporation can avail itself of various derivative financial instruments. The
Corporation’s management is responsible for determining the acceptable level of risk and only uses derivative financial instruments
to manage existing or anticipated risks, commitments or obligations based on its past experience.
Credit and counterparty risk
Credit risk stems primarily from the potential inability of clients, service providers, aircraft and engine lessors and financial institutions,
including the other counterparties to cash equivalents, derivative financial instruments and investments in ABCP, to discharge their
obligations.
Trade accounts receivable included in accounts receivable in the balance sheet totalled $78,310 as at October 31, 2010 [$59,380 as
at October 31, 2009]. Trade accounts receivable consist of a large number of customers, including travel agencies and other service
providers. Trade accounts receivable generally result from the sale of vacation packages to individuals through travel agencies and
the sale of seats to tour operators, dispersed over a wide geographic area. No customer represented more than 10% of total
accounts receivable. As at October 31, 2010, approximately 7% [approximately 8% as at October 31, 2009] of accounts receivable
were over 90 days past due, whereas approximately 78% [approximately 73% as at October 31, 2009] were up to date, that is,
under 30 days. Historically, the Corporation has not incurred any significant losses in respect of its trade accounts receivable.
54
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
Pursuant to certain agreements entered into with its service providers, consisting primarily of hotel operators, the Corporation pays
deposits to capitalize on special benefits, including pricing, exclusive access and room allotments. As at October 31, 2010, these
deposits totalled $31,837 [$31,808 as at October 31, 2009] and were generally offset by purchases of person-nights at these hotels.
Risk arises from the fact that these hotels might not be able to honour their obligations to provide the agreed number of person-nights.
The Corporation strives to minimize its exposure by limiting deposits to recognized and reputable hotel operators in its active markets.
These deposits are spread across a large number of hotels and, historically, the Corporation has not been required to write off a con-
siderable amount for its deposits with suppliers.
Under the terms of its aircraft and engine leases, the Corporation pays deposits when aircraft and engines are commissioned, partic-
ularly as collateral for remaining lease payments. These deposits totalled $10,554 as at October 31, 2010 [$10,784 as at October
31, 2009] and are returned as leases expire. The Corporation is also required to pay cash security deposits to lessors over the lease
term to guarantee the serviceable condition of aircraft. Cash security deposits with lessors are expensed when the funds are dis-
bursed. However, these cash security deposits with lessors are generally returned to the Corporation upon receipt of documented
proof that the related maintenance has been performed by the Corporation. As at October 31, 2010, the cash security deposits with
lessors that have been claimed totalled $13,879 [$14,723 as at October 31, 2009] and have been included in accounts receivable.
Historically, the Corporation has not written off any significant amount of deposits and claims for cash security deposits with aircraft
and engine lessors.
For financial institutions including the various counterparties, the maximum credit risk as at October 31, 2010 relates to cash and
cash equivalents, including cash and cash equivalents in trust and otherwise reserved, investments in ABCP and derivative financial
instruments accounted for in assets. These assets are held or traded with a limited number of financial institutions and other counter-
parties. The Corporation is exposed to the risk that the financial institutions and other counterparties with which it holds securities or
enters into agreements could be unable to honour their obligations. The Corporation minimizes risk by entering into agreements with
large financial institutions and other large counterparties with appropriate credit ratings. The Corporation’s policy is to invest solely in
products that are rated R1-Mid or better [by Dominion Bond Rating Service (DBRS)], A1 [by Standard & Poor’s] or P1 [by Moody’s]
and rated by at least two rating firms. Exposure to these risks is closely monitored and maintained within the limits set out in the
Corporation’s various policies. The Corporation revises these policies on a regular basis.
Except for the investments in ABCP [see note 5], the Corporation does not believe it is exposed to a significant concentration of
credit risk as at October 31, 2010.
Liquidity risk
The Corporation is exposed to the risk of being unable to honour its financial commitments on a timely basis as set out under the
terms of such commitments and at a reasonable price. The Corporation has a Treasury Department in charge, among other things,
of ensuring sound management of available cash resources, financing and timely payment on a Corporation-wide basis. With senior
management oversight, the Treasury Department manages the Corporation’s cash resources based on financial forecasts and antici-
pated cash flows.
The maturities of the Corporation’s financial liabilities as at October 31 are summarized in the following table:
Maturing
within 1 year
$
Maturing in
1 to 2 years
$
Maturing in
2 to 5 years
$
2010
Accounts payable and accrued liabilities
Derivative financial instruments
Long-term debt
Total
2009
Accounts payable and accrued liabilities
Derivative financial instruments
Long-term debt
Debenture
Total
300,355
4,205
14,089
318,649
266,445
41,323
24,897
3,156
335,821
—
—
15,291
15,291
—
—
83,854
—
83,854
—
—
—
—
—
—
—
—
—
Contractual
cash flows
Total
$
300,355
4,205
29,380
333,940
266,445
41,323
108,751
3,156
419,675
Carrying
amount
Total
$
300,355
4,116
29,059
333,530
266,445
40,293
107,684
3,156
417,578
Market risk
Foreign exchange risk
The Corporation is exposed, primarily as a result of its many arrangements with foreign-based suppliers, aircraft and engine leases,
fuel purchases, long-term debt and revenues in foreign currencies, and fluctuations in exchange rates mainly with respect to the U.S.
dollar, the euro and the pound sterling against the Canadian dollar and the euro, as the case may be. Approximately 30% of the
Corporation’s costs are incurred in a currency other than the measurement currency of the reporting unit incurring the costs, whereas
an insignificant percentage of revenues is incurred in a currency other than the measurement currency of the reporting unit making
the sale. In accordance with its foreign currency risk management policy and to safeguard the value of anticipated commitments and
transactions, the Corporation enters into foreign exchange forward contracts, expiring in generally less than 15 months, for the pur-
chase and/or sale of foreign currencies based on anticipated foreign exchange rate trends.
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
55
Expressed in Canadian dollar terms, the net financial assets and net financial liabilities of the Corporation and its subsidiaries
denominated in currencies other than the measurement currency of the financial statements as at October 31, based on their
financial statement measurement currency, are summarized in the following table:
Net assets (liabilities)
2010
U.S. dollar
$
Euro
$
Pound sterling
$
Canadian dollar
$
Other currencies
$
Total
$
Financial statement measurement currency
of the group’s companies
Euro
Pound sterling
Canadian dollar
Other currencies
Total
2009
Financial statement measurement currency
of the group’s companies
Euro
Pound sterling
Canadian dollar
Autres devises
Total
(9,185)
2,172
(28,624)
(276)
(35,913)
—
3,003
(8,518)
91
(5,424)
(4,168)
648
(63,117)
153
(66,484)
—
7,192
2,628
213
10,033
203
—
50
—
253
16
—
9,199
—
9,215
(457)
5,629
—
1
5,173
(1,837)
7,326
—
(60)
5,429
(2,061)
—
(313)
(13)
(2,387)
(11,500)
10,804
(37,405)
(197)
(38,298)
(579)
—
361
(343)
(561)
(6,568)
15,166
(50,929)
(37)
(42,368)
On October 31, 2010, a 5% rise or fall in the Canadian dollar against the other currencies, assuming that all other variables had
remained the same, would have resulted in a $7,400 increase or decrease, respectively, in the Corporation’s net income for the year
ended October 31, 2010 [$3,950 for the year ended October 31, 2009], whereas other comprehensive income (loss) would have
increased or decreased by $13,000, respectively [$19,700 for the year ended October 31, 2009].
Risk of fluctuations in fuel prices
The Corporation is particularly exposed to fluctuations in fuel prices. Due to competitive pressures in the industry, there can be no
assurance that the Corporation would be able to pass along any increase in fuel prices to its customers by increasing prices, or that
any eventual price increase would fully offset higher fuel costs, which could in turn adversely impact its business, financial position or
operating results. To hedge against sharp increases in fuel prices, the Corporation has implemented a fuel price risk management
policy that authorizes foreign exchange forward contracts, and other types of derivative financial instruments, expiring in generally
less than 15 months.
On October 31, 2010, a 10% increase or decrease in fuel prices, assuming that all other variables had remained the same, would
have resulted in a $2,000 increase or decrease, respectively, in the Corporation’s net income for the year ended October 31, 2010
[$7,500 for the year ended October 31, 2009].
As at October 31, 2010, 18% of estimated requirements for fiscal 2011 were covered by fuel-related derivative financial instruments
[21% of estimated requirements for fiscal 2010 and 2% of estimated requirements for fiscal 2011 were covered as at October 31,
2009].
Interest rate risk
The Corporation is exposed to interest rate fluctuations, primarily due to its variable-rate long-term debt. The Corporation manages
its interest rate exposure and could potentially enter into swap agreements consisting in exchanging variable rates for fixed rates.
Furthermore, interest rate fluctuations could have an effect on the Corporation’s interest income derived from its cash and cash
equivalents. The Corporation has implemented an investment policy designed to safeguard its capital and instrument liquidity and
generate a reasonable return. The policy sets out the types of allowed investment instruments, their concentration, acceptable credit
rating and maximum maturity.
On October 31, 2010, a 25 basis point increase or decrease in interest rates, assuming that all other variables had remained the
same, would have resulted in a $1,000 increase or decrease, respectively, in the Corporation’s net income for the year ended
October 31, 2010 [$800 for the year ended October 31, 2009].
Capital risk management
The Corporation’s capital management objectives are first to ensure its continuity so as to continue operations, provide its sharehold-
ers with a return, generate benefits for its other stakeholders and maintain the most optimal capital structure possible with a view to
keeping capital costs to a minimum.
The Corporation manages its capital structure in line with changes in economic conditions. In order to maintain or adjust its capital
structure, the Corporation may elect to declare dividends to shareholders, return capital to its shareholders and repurchase its shares
in the marketplace or issue new shares.
The Corporation monitors its capital structure using the adjusted debt/equity ratio. This ratio is calculated as follows: net debt/share-
holders’ equity. Net debt is equal to the aggregate of long-term debt, the debenture and obligations under operating leases, less
cash and cash equivalents [not held in trust or otherwise reserved] and investments in ABCP.
56
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
The Corporation’s strategy is to maintain its debt/equity ratio below 1. The calculations of the debt/equity ratio as at October 31 are
summarized as follows:
Net debt
Long-term debt
Debenture
Obligations under operating leases [note 22]
Cash and cash equivalents
Investments in ABCP
Shareholders’ equity
Debt/equity ratio
2010
$
29,059
—
637,520
(180,627)
(72,346)
413,606
439,072
94.2 %
2009
$
107,784
3,156
385,209
(180,552)
(71,401)
244,196
367,361
66.5 %
The Corporation’s credit facilities are subject to certain covenants including a debt/equity ratio and a fixed-charge coverage ratio.
These ratios are monitored by management and submitted to the Corporation’s Board of Directors on a quarterly basis. As at
October 31, 2010, the Corporation was in compliance with these ratios. Except for the credit facility covenants, the Corporation is
not subject to any third-party capital requirements.
7
DEPOSITS
Deposits on leased aircraft and engines
Deposits with suppliers
Less current portion
8
PROPERTY, PLANT AND EQUIPMENT
Aircraft
Improvements to aircraft under operating leases
Aircraft equipment
Computer equipment
Aircraft engines
Office furniture and equipment
Leasehold improvements
Rotable aircraft spare parts
Administrative buildings
Less: accumulated amortization
Net book value
9
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The change in goodwill is as follows:
Balance, beginning of year
Goodwill on acquisition
Write-off of goodwill
Translation adjustment
2010
$
10,554
31,837
42,391
12,554
29,837
2010
Accumulated
amortization
$
118,402
38,913
37,185
39,500
13,364
23,615
22,846
22,618
1,230
317,673
Cost
$
145,499
48,682
43,137
47,617
20,172
29,646
32,937
29,841
8,518
406,049
317,673
88,376
Cost
$
143,936
45,456
44,081
62,507
20,172
30,765
35,178
28,095
9,700
419,890
296,979
122,911
2009
$
10,784
31,808
42,592
30,578
12,014
2009
Accumulated
amortization
$
102,055
34,803
36,833
47,868
11,891
22,937
21,586
17,896
1,110
296,979
2010
$
113,993
335
—
(1,874)
112,454
2009
$
124,444
—
(8,468)
(1,983)
113,993
On October 28, 2010, the Corporation acquired certain assets, for a consideration of $770 [£471], including a trademark, customer
lists and other net liabilities in the amounts of $220 [£135], $220 [£135] and $5 [£4], respectively. Goodwill in the amount of $335 [£205]
was recognized following this transaction.
During the quarter ended October 31, 2010, the Corporation performed its annual test for impairment of goodwill, and no impairment
was identified [no impairment in 2009, except for the $8,468 write-off in connection with the restructuring of its distribution network in
France [see note 18]].
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
57
Other intangible assets
Software, net of $60,126 in accumulated amortization [$37,111 in 2009]
Trademarks not subject to amortization
Customer lists, net of $2,023 in accumulated amortization [$1,876 in 2009]
2010
$
29,306
14,687
6,471
50,464
2009
$
22,432
15,738
7,993
46,163
During the quarter ended October 31, 2010, the Corporation performed its annual test for impairment of goodwill, and no impairment
was detected [no impairment in 2009].
10
INVESTMENTS AND OTHER ASSETS
Investment in Caribbean Investments B.V. [“CIBV”]
Deferred costs, unamortized balance
Other investments
Other
The change in the investment in CIBV is detailed as follows:
Balance, beginning of year
Capital contribution
Share of net income (loss)
Translation adjustment
2010
$
61,239
1,868
115
1,646
64,868
2010
$
66,347
1,110
(490)
(5,728)
61,239
2009
$
66,347
2,234
118
192
68,891
2009
$
68,114
5,824
24
(7,615)
66,347
Transat has a 35% interest in CIBV, which owns and operates five hotels in Mexico and the Dominican Republic. On October 6,
2010, the Corporation made a $1,110 capital contribution [US$1,090].
CIBV’s majority shareholder may demand that the Corporation provide the necessary funds to repay one of CIBV’s long-term
debts should CIBV be unable to make the scheduled repayments. However, the maximum amount that the Corporation could be
required to provide may not exceed its 35% share of said long-term debt. As at October 31, 2010, the Corporation’s share of
long-term debt amounted to $8,118 [US$7,968].
11
BANK LOANS
Operating lines of credit totalling m10,000 [$14,155] [m11,287 [$17,942] in 2009] have been authorized for certain French subsidiaries.
These operating lines of credit are renewable annually and were undrawn as at October 31, 2010 and 2009.
For its European operations, the Corporation has guarantee facilities renewable annually amounting to m13,462 [$19,055] [m13,050
[$20,744] in 2009]. As at October 31, 2010, letters of guarantee had been issued totalling m3,394 [$4,806] [m6,220 [$9,888] in 2009].
12
DEBENTURE
On April 6, 2004, a subsidiary of the Corporation issued a $3,156 debenture bearing interest at a rate of 6%. The debenture was
repaid in cash on November 6, 2009 subsequent to the amendment of the initial agreement providing for repayment on that date.
13
LONG-TERM DEBT
Loans secured by aircraft amounting to US$13,333 [US$26,667 as at October 31, 2009],
bearing interest at the London Interbank Offered Rate [LIBOR] plus 2.15% and 3.25% and
payable in two equal semi-annual payments through August 2011
Drawdowns under the revolving term credit facilities maturing from 2010 to 2012
Other
Less: current portion
2010
$
2009
$
13,584
15,000
475
29,059
13,768
15,291
28,730
77,963
991
107,684
24,576
83,108
58
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
Payments on long-term debt due in the next two years are as follows:
2011
2012
$
13,768
15,291
29,059
As at October 31, 2010, the Corporation has a revolving term credit facility, which was increased to $157,000 from $86,350 on
February 9, 2009 [subsequent to the implementation of the ABCP restructuring plan and pursuant to the terms of the agreement]
maturing in 2012, or repayable immediately on change in control, and a $60,000 revolving credit facility for issuing letters of credit
for which the Corporation must pledge cash as collateral security amounting to 105% of the letters of credit issued. Under the
terms and conditions of this agreement, funds may be drawn down by way of bankers’ acceptances or bank loans, denominated in
Canadian dollars, U.S. dollars, euros or pounds sterling. Under this agreement, interest is charged at bankers’ acceptance rates, at
the financial institution’s prime rate or at the LIBOR, plus a premium based on certain financial ratios calculated on a consolidated
basis. As at October 31, 2010, this credit facility was undrawn.
As at October 31, 2010, the Corporation has an $85,805 revolving credit facility which matures in 2012 or is immediately payable in
the event of a change in control. Under the terms and conditions of this agreement, funds may be drawn down by way of bankers’
acceptances or bank loans, denominated in Canadian dollars, U.S. dollars, euros or pounds sterling. Under this agreement, interest
is charged at bankers’ acceptance rates, at the financial institution’s prime rate or at the LIBOR, plus a premium specific to the type
of financing vehicle. The revolving term credit facilities bore interest at an average rate of 1.28% for the year ended October 31,
2010. This credit facility also includes options, now in effect following implementation of the ABCP restructuring plan [see note 5],
allowing the Corporation, at its discretion, to repay amounts drawn down as they fall due under certain conditions up to a maxi-
mum of $47,025 using the restructured notes. The option is reported at fair value at each balance sheet date under derivative
financial instruments in assets with any change in fair value of the options recorded in net income under loss (gain) in fair value of
the investments in ABCP. The Corporation measured the option as at October 31, 2010 and recorded no fair value because it was
immaterial at that date.
14
OTHER LIABILITIES
Accrued benefit liability [note 21]
Deferred lease inducements
Non-controlling interest
Deferred gains on options related to repayment of revolving credit facilities
2010
$
18,630
18,500
8,238
—
45,368
2009
$
17,050
12,739
7,754
4,200
41,743
On February 26, 2010, the Corporation acquired, for a cash consideration of $504 [m350], the non-controlling interests of Tourgreece
Tourist Enterprises S.A., i.e. the remaining 10% of shares it did not already own.
15
SHAREHOLDERS’ EQUITY
Authorized share capital
Class A Variable Voting Shares
An unlimited number of participating Class A Variable Voting Shares [“Class A Shares”] which may be owned or controlled only by non-
Canadians as defined by the Canada Transportation Act [“CTA”], carrying one vote per Class A Share unless [i] the number of issued
and outstanding Class A Shares exceeds 25% of the total number of all issued and outstanding voting shares (or any higher percent-
age that the Governor in Council may specify pursuant to the CTA); or [ii] the total number of votes cast by or on behalf of holders of
Class A Shares at any meeting exceeds 25% (or any higher percentage that the Governor in Council may specify pursuant to the CTA)
of the total number of votes that may be cast at such meeting.
If either of the above-noted thresholds is surpassed, the vote attached to each Class A Share will decrease automatically, without fur-
ther action. Under the circumstance described in subparagraph [i] above, the Class A Shares as a class cannot carry more than 25%
(or any higher percentage that the Governor in Council may specify pursuant to the CTA) of the aggregate votes attached to all issued
and outstanding voting shares of the Corporation. Under the circumstance described in subparagraph [ii] above, the Class A Shares as
a class cannot, for a given shareholders’ meeting, carry more than 25% (or any higher percentage that the Governor in Council may
specify pursuant to the CTA) of the total number of votes that may be cast at said meeting.
Each issued and outstanding Class A Share shall be automatically converted into one Class B Voting Share without further action on
the part of the Corporation or of the holder if [i] the Class A Share is or becomes owned and controlled by a Canadian as defined by
the CTA; or [ii] the provisions contained in the CTA relating to foreign ownership restrictions are repealed and not replaced with other
similar provisions.
Class B Voting Shares
An unlimited number of Class B Voting Shares [“Class B Shares”], participating, which may be owned and controlled by
Canadians as defined by the CTA only and shall confer the right to one vote per Class B Share at all meetings of shareholders of
the Corporation. Each issued and outstanding Class B Share shall be converted into one Class A Share automatically without fur-
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
59
ther action on the part of the Corporation or the holder if the Class B Share is or becomes owned or controlled by a non-
Canadian as defined by the CTA.
Preferred shares
An unlimited number of preferred shares, non-voting, issuable in series, each series bearing the number of shares, designation, rights,
privileges, restrictions and conditions as determined by the Board of Directors.
Issued and outstanding share capital
The changes affecting the Class A Shares and the Class B Shares were as follows:
Balance as at October 31, 2008
Issued from treasury
Exercise of options
Balance as at October 31, 2009
Issued from treasury
Exercise of options
Balance as at October 31, 2010
Number of shares
32,678,241
5,037,547
13,011
37,728,799
97,302
23,733
37,849,834
$
154,198
61,949
89
216,236
1,226
142
217,604
As at October 31, 2010, the number of Class A Shares and Class B Shares stood at 997,796 and 36,852,038 respectively
[869,249 and 36,859,550 as at October 31, 2009].
Public offering
On September 30, 2009 and October 6, 2009, the Corporation issued a total of 4,887,500 voting shares in connection with a public
offering, consisting of Class A Shares and Class B Shares, at a price of $13.00, for gross proceeds of $63,538. Net proceeds from this
offering, after covering agents’ commissions and issuance costs, amounted to $60,530.
Subscription rights plan
At the Annual General Meeting (AGM) held on March 12, 2008, the shareholders ratified the shareholders’ subscription rights plan
amended and updated on January 16, 2008 [the “rights plan”]. The rights plan entitles holders of Class A Shares and Class B Shares
to acquire, under certain conditions, additional shares at a price equal to 50% of their market value at the time the rights are exer-
cised. The rights plan is designed to give the Board of Directors time to consider offers, thus allowing shareholders to receive full and
fair value for their shares. The rights plan will terminate at the 2011 shareholders’ AGM, unless terminated prior to said AGM.
Stock option plan
Under the stock option plan, the Corporation may grant up to a maximum of 1,945,000 additional Class A Shares or Class B Shares to
eligible persons at a share price equal to the weighted average price of the shares during the five trading days prior to the option grant
date. Options granted are exercisable over a ten-year period, provided the performance criteria determined on each grant are met. The
remaining number of options available for grant is 1,492,355. The options granted in 2010 are exercisable over a ten-year period in three
tranches of 33 1/3% as of mid-December of each year provided the performance criteria determined on each grant are met. Provided
that the performance criteria set on grant are met, the exercise of any non-vested tranche of options during the first three years following
the grant date due to the performance criteria not being met may be extended three years.
No options were available for grant under the former plan as at October 31, 2010. However, on cancellation of the options granted
under this plan, a number of options will become available for grant in future. All options granted under the former plan are for Class A
Shares or Class B Shares and are granted at a price per share equal to the weighted average price of the shares during the five trading
days prior to the option grant date. Options granted in the past are exercisable over a ten-year period; a maximum of one-third of
options is exercisable in the first two years after the grant date for grants subsequent to November 1, 2006, and a maximum of one-
third of options in the second year subsequent to the grant, for grants subsequent to November 1, 2006, a maximum of two-thirds of
options in the third year with all options exercisable at the outset of the fourth year.
The following tables summarize all outstanding options:
Beginning of year
Granted
Exercised
Cancelled
End of year
Options exercisable, end of year
Number
of options
1,101,140
682,570
(23,733)
(37,675)
1,722,302
668,680
2010
Weighted
average price
$
18.31
12.25
5.99
19.82
16.04
21.45
Number
of options
716,173
441,084
(13,011)
(43,106)
1,101,140
460,744
2009
Weighted
average price
$
22.85
11.18
6.84
24.32
18.31
22.35
60
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
2010
Range of
exercise
prices
$
3.80 — 6.99
9.90 — 15.68
21.36 — 28.41
37.03 — 37.25
Outstanding options
Options exercisable
Number of options
outstanding as at
October 31, 2010
Weighted
average
remaining life
26,987
1,155,500
416,992
122,823
1,722,302
2.0
8.9
6.4
6.6
Weighted
average price
$
5.35
11.91
21.93
37.24
16.04
Number of options
outstanding as at
October 31, 2010
26,987
178,537
340,336
122,820
668,680
Weighted
average price
$
5.35
11.88
22.06
37.24
21.45
Compensation expense for stock option plan
During the year ended October 31, 2010, the Corporation granted 682,570 stock options [441,084 in 2009] to certain key executives
and employees. The average fair value of each option granted was estimated on the date of grant using the Black-Scholes option
pricing model. The assumptions used and the weighted average fair value of the options on the date of grant are as follows:
Risk-free interest rate
Expected life
Expected volatility
Dividend yield
Weighted average fair value at date of grant
2010
3.54%
6 years
49.0%
—
$5.02
2009
3.07%
6 years
45.4%
—
$6.10
During the year ended October 31, 2010, the Corporation recorded a compensation expense of $2,448 [$2,023 in 2009] for its stock
option plan. No expense was recognized in share capital for the exercise of options during the years ended October 31, 2010 and
2009.
Share purchase plan
A share purchase plan is available to eligible employees of the Corporation and its subsidiaries. Under the plan, as at October 31,
2010, the Corporation was authorized to issue up to 263,192 Class B Shares. The plan allows each eligible employee to purchase
shares up to an overall limit of 10% of his or her annual salary in effect at the time of plan enrolment. The purchase price of the
shares under the plan is equal to the weighted average price of the Class B Shares during the five trading days prior to the issue of
the shares, less 10%.
During the year, the Corporation issued 97,302 Class B Shares [150,047 Class B Shares in 2009] for a total of $1,226 [$1,419 in 2009]
under the share purchase plan.
Stock ownership incentive and capital accumulation plan
Subject to participation in the share purchase plan offered to all eligible employees of the Corporation, the Corporation awards annually
to each eligible officer a number of Class B Shares, the aggregate purchase price of which is equal to an amount ranging from 20%
to 60% of the maximum percentage of salary contributed, which may not exceed 5%. Shares so awarded by the Corporation will vest
gradually to the eligible officer, subject to the eligible officer’s retaining, during the first six months of the vesting period, all the shares
purchased under the Corporation’s share purchase plan.
The shares awarded under this plan are bought in the market by the Corporation and deposited in the participants’ accounts as and
when they purchase shares under the share purchase plan.
During the year ended October 31, 2010, the Corporation accounted for a compensation expense of $153 [$186 in 2009] for its stock
ownership incentive and capital accumulation plan.
Permanent stock ownership incentive plan
Subject to participation in the share purchase plan offered to all eligible employees of the Corporation, the Corporation awards annu-
ally to each eligible senior executive a number of Class B Shares, the aggregate purchase price of which is equal to the maximum
percentage of salary contributed, which may not exceed 10%. Shares so awarded by the Corporation will vest gradually to the eligible
senior executive, subject to the senior executive’s retaining, during the vesting period, all the shares purchased under the Corporation’s
share purchase plan. The shares awarded under this plan are bought in the market by the Corporation and deposited in the partici-
pants’ account as and when they purchase shares under the share purchase plan.
During the year ended October 31, 2010, the Corporation accounted for a compensation expense of $234 [$247 in 2009] for its
permanent stock ownership incentive plan.
Deferred share unit plan
Deferred share units [“DSUs”] are awarded in connection with the senior executive deferred share unit plan and the independent
director deferred share unit plan. Under these plans, each eligible senior executive or independent director receives a portion of his or
her compensation in the form of DSUs. The value of a DSU is determined based on the average closing price of the Class B Shares
for the five trading days prior to the award of the DSUs. The DSUs are repurchased by the Corporation when a senior executive or a
director ceases to be a plan participant. For the purpose of repurchasing DSUs, the value of a DSU is determined based on the aver-
age closing price of the Class B Shares for the five trading days prior to the repurchase of the DSUs.
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
61
As at October 31, 2010, the number of DSUs awarded amounted to 55,387 [55,455 as at October 31, 2009]. During the year ended
October 31, 2010, the Corporation recorded a compensation expense of $99 [$307 in 2009] for its deferred share unit plan.
Restricted share unit plan
Restricted share units [“RSUs”] are awarded annually to eligible employees under the restricted share unit plan. Under this plan, each
eligible employee receives a portion of his or her compensation in the form of RSUs. The value of an RSU is determined based on
the weighted average closing price of the Class B Shares for the five trading days prior to the award of the RSUs. The rights related
to RSUs are acquired over a period of three years. When acquired, the RSUs are immediately repurchased by the Corporation, sub-
ject to certain conditions and certain provisions relating to the Corporation’s financial performance. For the purpose of repurchasing
RSUs, the value of an RSU is determined based on the weighted average closing price of the Class B Shares for the five trading
days prior to the repurchase of the RSUs.
As at October 31, 2010, the number of RSUs awarded amounted to 418,841 [373,678 as at October 31, 2009]. During the year
ended October 31, 2010, the Corporation recorded a compensation expense of $1,121 [$90 in 2009] for its restricted share unit plan.
Earnings per share
Basic earnings per share and diluted earnings per share were computed as follows:
[In thousands, except per share amounts]
NUMERATOR
Income attributable to voting shareholders
Interest on the debenture that may be settled in voting shares
Income used to calculate diluted earnings per share
DENOMINATOR
Weighted average number of outstanding shares
Effect of dilutive securities
Debenture that may be settled in voting shares
Stock options
Adjusted weighted average number of outstanding shares
used in computing earnings per share
Basic earnings per share
Diluted earnings per share
2010
$
65,607
—
65,607
37,796
—
197
37,993
1.74
1.73
2009
$
61,847
131
61,978
33,168
288
29
33,485
1.86
1.85
In calculating diluted earnings per share for the year ended October 31, 2010, 570,292 stock options were not included since the
exercise price of these options was higher than the average price of the Corporation’s shares.
In calculating diluted earnings per share for the year ended October 31, 2009, 1,008,140 stock options were not included since the
exercise price of these options was higher than the average price of the Corporation’s shares.
16
ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income
Balance as at October 31, 2008
Change during the year
Balance as at October 31, 2009
Change during the year
Balance as at October 31, 2010
17
AMORTIZATION
Property, plant and equipment
Intangible assets subject to amortization
Other assets
Deferred lease inducements
Options related to repayment of revolving credit facilities [note 5]
Cash flow
hedges
$
72,479
(89,522)
(17,043)
15,521
(1,522)
Deferred translation
adjustments
$
Accumulated other
comprehensive income
$
9,644
(13,214)
(3,570)
(13,233)
(16,803)
2010
$
41,582
12,047
433
(1,200)
(4,200)
48,662
82,123
(102,736)
(20,613)
2,288
(18,325)
2009
$
45,008
10,822
974
(1,449)
(4,200)
51,155
62
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
18
RESTRUCTURING CHARGE (GAIN)
On September 24, 2009, the Corporation announced a restructuring plan to make structural changes to its distribution network in
France. Under these structural changes, an administrative centre and some agencies were closed and other agencies were sold.
During the year ended October 31, 2009, the Corporation recorded a restructuring charge of $11,967. This charge included $2,900
in cash payments, consisting mainly of termination benefits, a $599 asset impairment charge and an $8,468 write-off of goodwill after
the assets and goodwill of agencies involved in the restructuring were tested for impairment. As at October 31, 2009, property, plant
and equipment [see note 8] included held-for-sale assets related to the restructuring plan with a net carrying amount of $1,050.
During the year ended October 31, 2010, the Corporation recorded a $1,157 gain on disposal of held-for-sale assets related to the
restructuring, consisting mainly of gains on the sale of agencies for which no restructuring charge had been recognized.
19
INCOME TAXES
Income taxes as reported differ from the amount calculated by applying the statutory income tax rates to income before income taxes
and non-controlling interest in subsidiaries’ results.
The factors explaining this difference and the effect on income taxes are detailed as follows:
2010
2009
Income taxes at the statutory rate
Change in income taxes arising from the undernoted items:
Effect of differences in Canadian and foreign tax rates
Non-deductible (non-taxable) items
Recognition of previously unrecorded tax benefits
Unrecognized tax benefits
Adjustment for prior years
Effect of tax rate changes
Effect of differences in tax rates on temporary items
Valuation allowance
Other
$
28,003
(3,163)
(556)
(1,919)
264
1,394
(121)
209
(30)
(275)
23,806
%
30.1
(3.4)
(0.6)
(2.1)
0.3
1.5
(0.1)
0.2
0.0
(0.3)
25.6
$
29,605
(3,101)
4,499
(2,366)
—
1,201
—
(1,368)
1,690
756
30,916
Significant components of the Corporation’s future income tax assets and liabilities are as follows:
Future income taxes
Loss carryforwards and other tax deductions
Carrying value of capital assets in excess of tax basis
Non-deductible reserves and provisions
Taxes related to accumulated other comprehensive income and
derivative financial instruments
Other
Total future income taxes
Valuation allowance
Net future income tax assets
Current future income tax assets
Long-term future income tax assets
Current future income tax liabilities
Long-term future income tax liabilities
Net future income tax assets
2010
$
3,482
(15,183)
17,549
465
(917)
5,396
(5,327)
69
2,895
9,650
(106)
(12,370)
69
%
30.9
(3.2)
4.7
(2.5)
—
1.2
—
(1.4)
1.8
0.8
32.3
2009
$
8,139
(19,799)
21,391
8,580
(860)
17,451
(12,340)
5,111
12,860
10,454
(266)
(17,937)
5,111
As at October 31, 2010, non-capital losses carried forward and other temporary differences for which a writedown was recorded,
available to reduce future taxable income of certain subsidiaries in Canada and the Caribbean totalled $519 [$2,401 as at October
31, 2009] and MXP 8,556 [$669][nil as at October 31, 2009]. As at October 31, 2010, there are no more non-capital loss carryfor-
wards in Europe for which a writedown has been recognized [m17,102 ($27,186) as at October 31, 2009].
Of these loss carryforwards and deductions, a $519 amount expires during 2026 and subsequent years and an MXP 8,556 amount
[$669] expires in 2020. With respect to the balance of European loss carryforwards totalling m17,102 [$27,186] as at October 31,
2009, an unused balance of m14,376 [$20,350] expired during the year.
Retained earnings of the Corporation’s foreign subsidiaries are considered to be indefinitely reinvested. Accordingly, no provision for
income taxes has been provided thereon. Upon distribution of this income in the form of dividends or otherwise, the Corporation
may be subject to withholding taxes.
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
63
20
RELATED PARTY TRANSACTIONS AND BALANCES
The Corporation enters into transactions in the normal course of business with related companies. These transactions are measured at
the exchange amount, which is the amount of consideration determined and agreed to by the related parties. Significant transactions
between related parties are as follows:
Operating expenses incurred with company subject to significant influence
2010
$
13,283
209
$
18,055
21
EMPLOYEE FUTURE BENEFITS
The Corporation offers defined benefit pension arrangements to certain senior executives. These arrangements provide for payment
of benefits based on the number of years of eligible service provided and the average eligible earnings for the five years in which
the participant’s eligible earnings were the highest. These arrangements are not funded; however, to secure its obligations, the
Corporation has issued a $27,976 letter of credit to the trustee [see note 13]. The Corporation uses an actuarial estimate to meas-
ure the accrued benefit obligation as at October 31 each year.
The following table provides a reconciliation of changes in the accrued benefit obligation:
Accrued benefit obligation, beginning of year
Current service cost
Cost of changes
Interest cost
Benefits paid
Actuarial loss on the obligation
Accrued benefit obligation, end of year
2010
$
20,674
774
293
1,222
(715)
3,077
25,325
2009
$
15,414
768
320
1,219
(100)
3,053
20,674
The funded status of the pension plan and the amounts recorded in the balance sheet under other liabilities were as follows:
Plan assets at fair value
Accrued benefit obligation
Plan deficit
Unamortized past service costs
Unamortized actuarial loss
Accrued benefit liability
Pension plan expense is allocated as follows:
Current service cost
Interest cost
Amortization of past service costs
Amortization of net actuarial loss
Pension expense
2010
$
—
25,325
25,325
1,058
5,637
18,630
2010
$
774
1,222
214
84
2,294
2009
$
—
20,674
20,674
980
2,644
17,050
2009
$
768
1,219
901
—
2,888
The significant actuarial assumptions adopted to determine the Corporation’s accrued benefit obligation and pension expense
were as follows:
Accrued benefit obligation
Discount rate
Rate of increase in eligible earnings
Pension expense
Discount rate
Rate of increase in eligible earnings
64
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
2010
$
4.75
3.00
5.75
3.00
2009
$
5.75
3.00
7.25
3.00
22
COMMITMENTS AND CONTINGENCIES
[a]
The Corporation’s commitments under agreements with suppliers amounted to $272,334, whereas its obligations under
operating leases for aircraft, buildings, automotive equipment, telephone systems, maintenance contracts and office premises
amounted to $637,520. These commitments total $909,853 are allocated as follows: $204,104, $475,716 [US$466,938],
$225,063 [m158,999] and $4,970 [£3,045].
The annual payments to be made under these commitments during the next five years are as follows:
2011
2012
2013
2014
2015
$
268,943
148,678
129,020
94,387
60,614
[b]
[c]
[d]
[e]
In 2012, the minority shareholder in the subsidiary Jonview Canada Inc., which is also a shareholder of the Corporation, may
require the Corporation to buy his Jonview Canada Inc. shares at a price equal to the fair market value. The price paid may
be settled, at the Corporation’s option, in cash or by a share issue.
Between 2011 and 2015, the minority shareholders of the subsidiary Travel Superstore Inc. could require that the Corporation
purchase their Travel Superstore Inc. shares at a price equal to their fair market value, payable in cash.
In the normal course of business, the Corporation is exposed to various claims and legal proceedings. These disputes often
involve numerous uncertainties and the outcome of the individual cases is unpredictable. According to management, these
claims and proceedings are adequately provided for or covered by insurance policies and their settlement should not have a
significant negative impact on the Corporation’s financial position.
The minority shareholder of the subsidiary Trafictours Canada Inc. could require, in certain circumstances, that the Corporation
purchase his Trafictours Canada Inc. shares at a price equal to a pre-determined formula, subject to adjustment according to
the circumstances, payable in cash.
23
GUARANTEES
The Corporation has entered into agreements in the normal course of business containing clauses meeting the definition of a guaran-
tee. These agreements provide compensation and guarantees to counterparties in transactions such as operating leases, irrevocable
letters of credit and guarantee contracts.
These agreements may require the Corporation to compensate the counterparties for costs and losses incurred as a result of various
events, including breaches of representations and warranties, loss of or damages to property, claims that may arise while providing
services and environmental liabilities.
Notes 4, 11, 12, 13 and 20 to the financial statements provide information about some of these agreements. The following constitutes
additional disclosure.
Operating leases
The Corporation’s subsidiaries have general indemnity clauses in many of their airport and other real estate leases whereby they, as
lessee, indemnify the lessor against liabilities related to the use of the leased property. These leases mature at various dates through
2034. The nature of the agreements varies based on the contracts and therefore prevents the Corporation from estimating the total
potential amount its subsidiaries would have to pay to lessors. Historically, the Corporation’s subsidiaries have not made any signifi-
cant payments under such agreements and have liability insurance coverage in such circumstances.
Irrevocable letters of credit
The Corporation has entered into irrevocable letters of credit with some of its suppliers. Under these letters of credit, the Corporation
guarantees the payment of certain services rendered that it undertook to pay. These agreements typically cover a one-year period
and are renewable.
The Corporation has also issued letters of credit to regulatory bodies guaranteeing, among other things, certain amounts to its cus-
tomers for the performance of its obligations. As at October 31, 2010, the total guarantees provided by the Corporation under the
letters of credit amounted to $467. Historically, the Corporation has not made any significant payments under such letters of credit.
Guarantee contracts
The Corporation has entered into guarantee contracts whereby it has guaranteed a prescribed amount to its customers at the request
of regulatory agencies for the performance of the obligations included in mandates by its customers during the term of the licenses
granted to the Corporation for its travel agent and wholesaler activities in the province of Québec. These agreements typically cover a
one-year period and are renewable annually. As at October 31, 2010, these guarantees totalled $957. Historically, the Corporation has
not made any significant payments under such agreements. As at October 31, 2010, no amounts have been accrued with respect to
the above-mentioned agreements.
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
65
Guarantee facility
Since May 5, 2010, the Corporation has a $50,000 guarantee facility renewable annually. Under this agreement, the Corporation may
issue guarantee contracts with a maximum three-year term. As at October 31, 2010, this facility was undrawn.
24
SEGMENT DISCLOSURE
The Corporation has determined that it conducts its activities in a single industry segment, namely holiday travel. Therefore, the state-
ments of income include all the required information. With respect to geographic areas, the Corporation operates mainly in the
Americas and in Europe. Geographic intersegment sales are accounted for at prices that take into account market conditions and
other considerations.
2010
Revenues from third parties
Operating expenses
2009
Revenues from third parties
Operating expenses
Canada
France
United Kingdom
Other
Americas
$
2,567,983
2,480,817
87,166
2,552,348
2,482,744
69,604
2010
$
2,532,147
666,004
248,245
52,481
3,498,877
Revenues (1)
2009
$
2,513,216
776,742
199,159
56,224
3,545,341
Europe
$
930,894
890,478
40,416
992,993
969,202
23,791
Total
$
3,498,877
3,371,295
127,582
3,545,341
3,451,946
93,395
Property, plant and
equipment, goodwill and
other intangible assets
2010
$
147,247
57,587
34,517
11,943
251,294
2009
$
173,167
59,129
38,079
12,692
283,067
(1) Revenues are allocated based on the subsidiary’s country of domicile.
66
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
Supplementary financial data
(in thousands of dollars, except per share amounts)
Consolidated statements of income
Revenues
Operating expense
2010
2009
2008
2007
2006
3,498,877
3,371,295
127,582
3,545,341
3,451,946
93,395
3,512,851
3,385,083
127,768
3,045,917
2,909,570
136,347
2,603,746
2,476,802
126,944
Expenses and other revenues
Amortization
Interest on long-term debt and debenture
Other interest and financial expenses
Interest income
Change in fair value of derivative financial instruments
48,662
2,225
2,359
(3,036)
51,155
4,866
2,679
(4,588)
56,147
7,538
1,758
(16,172)
50,176
6,229
1,929
(19,745)
39,360
7,264
1,484
(15,706)
used for aircraft fuel purchases
Foreign exchange (gain) loss on long-term
monetary items
Restructuring charge (gain) and write-off of goodwill
Loss (gain) on investments in ABCP
Gain on repurchase of preferred shares of a subsidiary
Share of net (income) loss of companies subject
to significant influence
Income (loss) before the undernoted items
Income taxes (recovery)
Non-controlling interest in subsidiaries’ results
Net income (loss) for the year
Basic earnings (loss) per share
Diluted earnings (loss) per share
Cash flows related to:
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash
and cash equivalents
Effect of exchange rate changes on cash
and cash equivalents
Cash and cash equivalents, end of year
Cash provided by operations1
Total assets
Long-term debt (including current portion)
Debenture
Shareholders’ equity
Debt/equity ratio2
Book value per share3
Return on average shareholders’ equity4
Shareholding statistics (in thousands)
Outstanding shares, end of year
Weighted average number of outstanding
shares (undiluted)
Weighted average number of outstanding
(9,341)
(68,267)
106,435
(26,577)
—
(1,109)
(1,157)
(4,648)
—
490
34,445
93,137
23,806
(3,724)
65,607
1.74
1.73
(135)
11,967
(68)
—
(24)
(2,415)
95,810
30,916
(3,047)
61,847
1.86
1.85
2,295
—
45,927
(1,605)
427
202,750
(74,982)
(28,875)
(3,287)
(49,394)
(1.49)
(1.49)
(3,023)
3,900
11,200
—
(651)
23,438
112,909
34,350
(737)
77,822
2.30
2.27
(4,162)
—
—
—
(375)
27,865
99,079
32,046
(1,263)
65,770
1.88
1.85
119,131
(27,819)
(81,034)
45,234
(26,662)
18,303
95,069
(142,027)
15,091
156,728
(195,657)
(14,830)
102,511
(31,405)
(152,046)
(10,203)
(2,090)
10,866
5,640
2,332
75
180,627
105,173
1,189,458
29,059
—
439,072
0.63
11.60
16.3%
34,785
180,552
108,380
1,129,503
107,684
3,156
367,361
0.67
9.74
17.3%
(21,001)
145,767
121,166
1,267,214
150,085
3,156
345,930
0.73
10.59
(15.9%)
(48,119)
166,768
125,868
1,072,377
88,681
3,156
283,452
0.74
8.43
27.0%
(78,608)
214,887
104,802
959,195
84,248
3,156
295,963
0.69
8.80
20.0%
37,850
37,729
32,678
33,628
33,648
37,796
33,168
33,108
33,763
34,907
shares (diluted)
37,993
33,485
33,108
34,212
35,660
1 Represents cash flows from operating activities excluding the net change in non-cash working capital balances related to operations, the net change in the provision for aircraft
overhaul and the change in other assets and liabilities related to operations.
2 Total liabilities divided by total assets.
3 Total shareholders’ equity divided by the number of oustanding shares.
4 Net income (loss) divided by the average shareholders’ equity.
2 0 1 0 A N N U A L R E P O R T, T R A N S AT A . T. I N C .
67