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2011
Transat A.T. Inc.
is an integrated
international tour
operator that
specializes in holiday
travel. It offers more
than 60 destination
countries and dis-
tributes products
in approximately
50 countries.
Revenues
(In millions of dollars)
6
4
0
3
,
3
1
5
3
,
5
4
5
3
,
9
9
4
3
,
8
5
6
,
3
2007
2008
2009
2010 2011
Cash flows relating
to operating activities
(In millions of dollars)
.
7
6
5
1
.
1
5
9
.
2
5
4
.
1
9
1
1
7
.
0
9
2007
2008
2009
2010 2011
Aircraft fuel
(In millions of dollars)
.
6
3
7
2
.
5
5
6
3
.
2
9
1
3
.
3
2
0
3
6
.
7
4
4
2007
2008
2009
2010 2011
Margin
(In millions of dollars)
.
3
6
3
1
.
8
7
2
1
.
4
3
9
.
6
7
2
1
.
0
0
3
2007
2008
2009
2010 2011
Net income (loss)
(In millions of dollars)
.
7
6
7
.
8
1
6
.
6
5
6
.
)
4
9
4
(
.
)
2
2
1
(
2007
2008
2009
2010 2011
Highlights
(In thousands of dollars,
except per share amounts and ratios)
Revenues
Margin1
Net income (loss)
Diluted earnings (loss)
per share
Cash flows relating
to operating activities
2011
2010
Variance
$
3,658,164
3,498,877
159,287
29,984
127,582
(97,598)
Variance
%
4.6
(76.5)
(12,213)
65,607
(77,820)
(118.6)
(0.32)
1.73
(2.05)
(118.5)
90,673
119,131
(28,458)
(23.9)
Cash ans cash equivalents
181,576
180,627
949
1,221,965
1,189,458
32,507
0.05
2.7
Total assets
Long-tem debt
(including current portion)
Debt ratio2
Return on average
shareholders’ equity3 (%)
Book value per share4
Stock price
—
0.65
29,059
(29,059)
(100.0)
0.63
0.02
3.5
(2.8)
11.15
16.3
11.60
(19.0)
(0.45)
(117.4)
(3.9)
as at October 31 (TRZ.B)
6.83
16.35
(9.52)
(58.2)
38,022
37,850
172
0.5
Oustanding shares,
end of year
1 Margin: Revenues less operating
expenses, according to the consoli-
dated statements of income.
2 Debt ratio: Total liabilities divided
by total assets.
3 Return on average shareholders’s
equity: Net income (loss) divided by
average shareholders' equity.
4 Book value per share: Shareholders’
equity divided by total number of
shares oustanding.
In this context, during 2011 we made substantial changes
aimed at simplifying our structures, accelerating decision-
making processes, and increasing accountability. We created
Transat Canada, grouping together the business units that
work closely together every day on travel outbound from
Canada as well as the transatlantic market: Transat Tours
Canada, Transat Distribution Canada, Canadian Affair, Air
Consultants Europe (ACE), Air Transat, Transat Holidays USA
and Handlex. Allen B. Graham, President and Chief Executive
Officer of Air Transat, agreed to head Transat Canada. At the
same time, we made changes to the management structure
of Transat Tours Canada, creating specific divisions for the
Sun and Europe markets. These changes were accompanied
by a review of administrative processes, all of which led to
the departure of two senior executives and the elimination of
143 positions in the organization. We also formally created
Transat International, with André De Montigny at the helm;
this entity oversees our hotel operations, Eleva Travel (our
tour operator in Mexico), Tourgreece, as well as our destina-
tion services companies in Mexico and the Dominican
Republic. No major changes were made to Transat France,
headed by Patrice Caradec.
Besides this modernization of structures, further initia-
tives are planned to help improve our performance. These
will target our product, brand and customer experience, the
Air Transat fleet, distribution, information management sys-
tems, and, of course, costs.
In terms of product, we are aiming at even greater
differentiation and enhancement of our offering, with a view
to generating bigger margins. Our priority markets for these
changes are resort travel to Sun destinations outbound from
Canada and France. Progress was made in 2011, and
changes will continue to be made in 2012.
During the past two years we developed a new brand
strategy; it is currently being implemented, and everything is
proceeding on schedule. The strategy calls for customer
experience enhancements to support our product differentia-
tion efforts. Key elements of this program were laid out in
2011, and there will be further progress in 2012. Another
major component is targeting the employee experience and
strategic management of human resources, with an eye to
positioning Transat advantageously in the job market. At the
same time, we have been successfully pursuing our program
aimed at making Transat one of the most responsible com-
panies in its industry.
Air operations account for a major portion of our costs
and our services. As planned, this year we continued the
migration of the Air Transat fleet toward Airbus A330 aircraft.
Between 2012 and 2014, we will be completely redesigning
our cabin interiors and installing a new in-flight entertainment
system, which will mean an improved customer experience.
We are also continuing our efforts to optimize capacity: the
keys to this are our partnerships with third-party providers
like CanJet Airlines in Canada as well as Transavia and XL
Airways in France; more efficient flight scheduling; increased
incidental revenues; and leasing of our wide-body jets to
third parties in the winter or low seasons.
Jean-Marc Eustache
Chairman of the Board
President and Chief Executive Officer
Message
to shareholders
International tourism demand remained fairly firm in 2011
despite the global economic uncertainty, and our industry
continues to demonstrate its enormous potential for growth.
The business environment remains saturated, consumers
demanding, and competition extremely intense, between
destinations as well as service providers. Transat has posted
disappointing results for 2011; on the other hand, we have
an exceptional balance sheet and an enviable market posi-
tion. Moreover, we are in the process of making course
adjustments to ensure that we will soon look back on 2011
as having been a stepping stone for the future.
For a third consecutive year, we had a difficult winter
season for travel outbound from Canada to Sun destinations.
Oversupply resulting from competition, as well as high jet
fuel costs, resulted in a loss for the first six months of the
year. The second half, during which the transatlantic market
makes up the lion’s share of our revenues, also proved chal-
lenging for the same reasons. This was compounded by the
impact of events in North Africa, the Middle East and Greece,
which caused unexpected shifts in tourist flows. Tunisia, a
hugely important destination outbound from France, as well
as Egypt were hard hit, forcing tour operators like Transat to
rapidly add capacity on other routes in a bid to hold on to
travellers. This often came with a price, however, in the form
of lower margins. As a result, we ended 2011 with an
increase in revenues and an operating loss.
Our absolute priority is to return to profitability, as early
as 2012—depending, of course, on market conditions, which
may not be easy. We are all too aware that the factors that
led to the current situation are not merely cyclical. Changes
are needed within our organization. We have been working
on this for some years now, and major steps were taken in
2011. Knowing how to evolve is a hallmark of winning com-
panies, and we are currently devoting our energies to imple-
menting a transformation plan that will help in the return to
growth and profitability by building on our many assets.
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2
We are continuing to plan and implement upgrades to
our information management systems. In 2011, major deci-
sions were made, including the installation—planned for
2012—of a system enabling us to react more quickly in the
Sun destinations segment beginning next winter.
Our superior strength in distribution, in Canada, along
with the strength of our controlled sales, are among our
major competitive advantages. As at October 31, we had a
total of 542 travel agencies (402 of which are franchises).
It goes without saying that, in addition to the aforemen-
tioned strategic directions, which are in keeping with an
overall dynamic of organizational change, we are continuing
to exercise tight control over administrative and operating
costs.
It is difficult to tell what kind of year 2012 will be, given
the volatility of the markets and the continuing worrisome
outlook for economies in Europe and North America. A com-
pany like ours, in an industry such as tourism, has no choice
but to commit itself to extreme caution. As we prepare to
celebrate our 25th anniversary as a publicly traded company,
however, we are confident that the actions we are taking at
present, and which are in keeping with the natural evolution
of Transat, are conducive to improved financial performance.
In November 2011, we were pleased to announce the
appointment of Madeleine Chenette to Transat’s Board of
Directors. I would like to bid her welcome, and to thank
H. Clifford Hatch, Jr., who left the Board during the year.
As we confront this very demanding period, I must
express even more forcefully than usual my gratitude to all of
the members of our staff, the management team and the
Board of Directors for their contribution and their determina-
tion. I also thank our partners and our shareholders for the
trust they place in us. We are determined to live up to the
expectations of one and all, and to ensure that results will
improve beginning in 2012.
Jean-Marc Eustache
Chairman of the Board
President and Chief Executive Officer
December 14, 2011
Transat
and sustainable
development
In February 2011, Transat published its second Corporate
Responsibility Report, summarizing its objectives and achieve-
ments in the area of sustainable development. Transat’s
vision in this regard is to become one of the most responsi-
ble companies in its industry. This is necessarily a long-term
project, and one that requires ongoing efforts—which in turn
implies a shift in values, corporate culture, and working
methods. During the year, Transat received a World Travel
Market Global Award in recognition of its sustainable devel-
opment program.
Also in 2011, several years of work by Air Transat were
capped by the awarding of LEED (Leadership in Energy and
Environmental Design) Platinum Certification in the Existing
Buildings category to its head office building in Saint-Laurent,
Quebec. In addition, the German organization Atmosfair,
after studying the environmental efforts of a hundred or so
major airlines, published a ranking in which Air Transat
finished first in the long-haul category, and third overall.
We continued our efforts at destinations, including our
program providing financial support to local sustainable
tourism initiatives. Three new projects were funded in 2011
(in the Dominican Republic, Canada and Cambodia), bringing
the total number supported since 2007 to 15, in 10 countries.
Other work at destinations includes our partnership with SOS
Children’s Villages, which cares for abandoned and orphaned
children in 132 countries.
As part of our association with Beyond Borders, a
Canadian non-governmental organization, and in collabora-
tion with ECPAT France, during the year we stepped up our
efforts aimed at combating the sexual exploitation of children
in tourism. Some 500 employees of Transat, along with
several travel agents, received training on this issue during
2011. We also took action to raise traveller awareness,
making our position known publicly and addressing the issue
in the pages of our in-flight magazine. In 2012, online training
will be rolled out to the larger Transat community, and further
traveller-awareness efforts are planned.
Please visit www.resp.transat.com to learn more about
our corporate responsibility program.
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3
MANAGEMENT’S DISCUSSION & ANALYSIS
This Management’s Discussion and Analysis (MD&A) provides a review of Transat A.T. Inc.’s operations, performance and financial
position for the year ended October 31, 2011, compared with the year ended October 31, 2010, and should be read in conjunction with the
audited Consolidated Financial Statements and notes thereto. The information contained herein is dated as of December 14, 2011. 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, 2011 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 dollars unless otherwise indicated. The terms “Transat,” “we,” “us,” “our” and the “Corporation” mean Transat A.T.
Inc. and its subsidiaries, unless otherwise indicated.
This Management’s Discussion and Analysis consists of the following sections:
CAUTION REGARDING FORWARD-LOOKING STATEMENTS ..................................................................................... 6
NON-GAAP FINANCIAL MEASURES .............................................................................................................................. 7
FINANCIAL HIGHLIGHTS ................................................................................................................................................ 9
OVERVIEW ....................................................................................................................................................................... 9
CONSOLIDATED OPERATIONS ................................................................................................................................... 13
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES................................................................................ 19
INVESTMENTS IN ABCP ............................................................................................................................................... 22
OTHER ........................................................................................................................................................................... 24
ACCOUNTING ................................................................................................................................................................ 25
RISKS AND UNCERTAINTIES ....................................................................................................................................... 33
CONTROLS AND PROCEDURES ................................................................................................................................. 37
OUTLOOK ...................................................................................................................................................................... 37
5
Transat A.T. Inc.
2011 Annual Report
Management’s Discussion and Analysis
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 “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,”
“predict,” “project,” “will,” “would,” the negative of these terms and similar terminology, including references 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
procedures, 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 Corporation’s
forward-looking statements. The reader is also cautioned 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 economic,
market, operational and financial assumptions and assumptions about transactions and forward-looking statements.
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 2012 objectives and continue building on
its long-term strategies.
The outlook whereby our 2012 revenues are expected to be higher with a volume of travellers similar to or slightly greater than
in 2011.
The outlook whereby the Corporation expects to generate positive cash flows from operating activities in 2012.
The outlook whereby additions
approximately $60.0 million.
to property, plant and equipment and
intangible assets could amount
to
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.
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, foreign exchange rates and hotel and other destination-based costs will
remain steady. If these assumptions prove incorrect, actual results and developments may differ materially from those contemplated 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, 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 securities legislation.
6
Transat A.T. Inc.
2011 Annual Report
NON-GAAP FINANCIAL MEASURES
Management’s Discussion and Analysis
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 accordance with GAAP. The non-GAAP measures used by the Corporation are as follows:
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 financial instruments related to 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 related to aircraft fuel
purchases, non-monetary gain (loss) on investments in ABCP and restructuring 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 15.
Net debt
Total debt (described above) less cash and cash equivalents and investments in ABCP.
The above-described financial measures have no meaning prescribed 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 information and should not
be considered in isolation or as a substitute for financial performance measures calculated in accordance 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 (loss) and adjusted after-tax income (loss) 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 to be useful in assessing the Corporation’s capacity to discharge its financial obligations.
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 to be useful in gauging the Corporation's financial leveraging.
7
Transat A.T. Inc.
2011 Annual Report
Management’s Discussion and Analysis
The following tables reconciles the non-GAAP financial measures to the most comparable GAAP financial measures:
(In thousands of dollars)
Revenues
Operating expenses
Margin
Income (loss) before non-controlling interest in
subsidiaries’ results
Income taxes (recovery)
Change in fair value of derivative financial instruments
used for aircraft fuel purchases
Non-monetary gain on investments in ABCP
Decline (increase) in value of investments in
ABCP
Adjustment related to January 21, 2009
restructuring plan implementation
Remeasurement of options related to
repayment of revolving credit facilities
Restructuring charge (gain)
Adjusted income (loss)
Net income (loss)
Change in fair value of derivative financial instruments
used for aircraft fuel purchases
Writedown of investments in ABCP (provision reversal)
Restructuring charge (gain)
Tax impact
Adjusted after-tax income (loss)
Adjusted after-tax income (loss)
Adjusted weighted average number of outstanding shares
used in computing diluted earnings per share
Adjusted after-tax income (loss) per share
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
8
2011
$
2010
$
2009
$
3,658,164
3,628,180
3,498,877
3,371,295
3,545,341
3,451,946
29,984
127,582
93,395
(9,154)
(4,802)
69,331
23,806
64,894
30,916
1,278
(9,341)
(68,267)
(8,113)
(4,648)
—
—
(4,648)
(1,157)
77,991
(8,113)
16,543
(4,248)
5,993
1,759
(800)
6,952
11,967
46,462
(12,213)
65,607
61,847
1,278
(8,113)
16,543
(4,699)
(7,204)
(9,341)
(4,648)
(1,157)
3,202
53,663
(68,267)
6,952
11,967
21,224
33,723
(7,204)
53,663
33,723
37,930
(0.19)
2011
$
37,993
1.41
2010
$
13,768
15,291
—
33,485
1.01
2009
$
24,576
83,108
3,156
653,663
653,663
643,750
672,809
396,433
507,273
653,663
672,809
507,273
(181,576)
(180,627)
(180,552)
(78,751)
393,336
(72,346)
419,836
(71,401)
255,320
—
—
—
—
—
Transat A.T. Inc.
2011 Annual Report
FINANCIAL HIGHLIGHTS
(In thousands of dollars)
Consolidated Statements of Income (Loss)
Revenues
Margin1
Net income (loss)
Basic earnings (loss) per share
Diluted earnings (loss) per share
Adjusted after-tax income (loss)1
Adjusted after-tax income (loss) 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
OVERVIEW
HOLIDAY TRAVEL INDUSTRY
Management’s Discussion and Analysis
2011
2010
2009
$
$
$
Change
2011
%
2010
%
3,658,164
29,984
(12,213)
(0.32)
(0.32)
(7,204)
(0.19)
—
3,498,877
127,582
65,607
1.74
1.73
53,663
1.41
—
3,545,341
93,395
61,847
1.86
1.85
33,723
1.01
0.09
90,673
(56,683)
(29,470)
(3,571)
949
119,131
(27,819)
(81,034)
45,234
(26,662)
18,303
(10,203)
75
(2,090)
34,785
4.6
(76.5)
(118.6)
(118.4)
(118.5)
(113.4)
(113.5)
—
(23.9)
(103.8)
(63.6)
65.0
n/a
(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)
As at
October 31,
2011
$
As at
October 31,
2010
$
As at
October 31,
2009
$
Change
2011
%
Change
2010
%
181,576
180,627
180,552
359,545
78,751
352,650
72,346
272,726
71,401
1,221,965
—
653,663
393,336
1,189,458
29,059
672,809
419,836
1,129,503
110,840
507,273
255,320
0.5
2.0
8.9
2.7
(100.0)
(2.8)
(6.3)
0.0
29.3
1.3
5.3
(73.8)
32.6
64.4
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 subsectors includes companies with different operating models.
Generally, “outgoing” tour operators purchase the various components of a trip locally or abroad and sell them separately or in
packages to consumers in their local markets, through travel agencies or via the Web. “Incoming” tour operators design travel packages or
other travel products consisting of services they purchase 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 consumption, such as excursions or sightseeing tours. These companies also provide outgoing tour operators with logistical
support services, such as ground transfers between airports and hotels. Travel agencies, operating independently or in networks, are
distributors serving as intermediaries between tour operators and consumers. Air carriers sell seats through travel agencies or through tour
operators that use them in building packages, or directly to consumers.
9
Transat A.T. Inc.
2011 Annual Report
CORE BUSINESS, VISION AND STRATEGY
CORE BUSINESS
Management’s Discussion and Analysis
Transat is one of the largest fully integrated world-class tour operators 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 consists in 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 542 travel
agencies (including 402 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 numerous air carriers, but relies
on its subsidiary Air Transat for a significant portion of its needs. Transat also offers destination and airport services.
VISION
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, the U.K., and an incoming tour operator in Greece and the Dominican Republic; we have both incoming
and outgoing operations in Mexico. We offer customers 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 specializing in holiday travel.
STRATEGY
To deliver on its vision, the Corporation intends to continue: deriving synergies from its vertical integration model, which distinguishes 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 traditional 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 expectations of consumers through
a heightened presence at destination, either in the form of hotels, incoming tour operators or destination-based service providers.
Alongside these initiatives, Transat intends to leverage targeted technology investments and efficiency gains from changes to its internal
management structure to improve its margin and maintain or grow market share in all its markets. Cost management remains a core
strategic issue in light of the tourism industry’s slim margins.
Transat acknowledges the growing strategic importance of sustainable 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 destination communities remaining amenable to tourism, Transat
undertook to adopt 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 2012, Transat has set the following targets:
(cid:190)
Increase organizational efficiency and profitability
(cid:190) Make Transat more competitive in Canada
(cid:190) Maintain business volumes and improve profitability at Transat France
(cid:190)
Continue profitable development of our destination services
(cid:190) Optimize airline operations
(cid:190)
Finalize and implement the development strategy for the operational information systems
10
Transat A.T. Inc.
2011 Annual Report
Management’s Discussion and Analysis
(cid:190)
(cid:190)
Enhance the strategic value of our brand, as well as customer satisfaction and loyalty
Pursue our plan to make Transat one of the industry’s most responsible companies.
REVIEW OF 2011 OBJECTIVES AND ACHIEVEMENTS
The main goals and achievements for fiscal 2011 were as follows:
1. Continue the organizational transformation with the harmonized implementation of new information systems and related
operating processes.
Transat has developed a transformation plan including a significant component to gradually replace “core business” information
management systems, complete with a tailored communication strategy. The main goal is to implement one or more software packages to
replace the existing system with a system capable of providing a broader, more precise snapshot of inventories and sales, while supporting
more dynamic sales and pricing management. This project comprises a number of phases spanning several years. Certain parts of the plan
were completed in 2011. In-depth studies were conducted in 2011 with a view to delivering a major implementation project in 2012 and gave
rise to changes in strategic direction, resulting in a restructuring charge of approximately $10.0 million (see Operating expenses section).
2. Grow revenues and profitability at Transat France to become France’s third largest tour operator by 2013.
Revenues held steady at Transat France in 2011, while profitability declined. Several factors were involved, consisting primarily of the
turmoil in North Africa and the Middle East, which caused shifts in tourist flows and effects that were only partially offset. In addition, costs
remained relatively high, particularly airline costs owing to fuel prices.
3. Strengthen our presence, expand sales and improve our bottom line in certain foreign markets.
We strengthened our presence in Mexico and embarked on business initiatives targeting several European markets. However, the
economic climate, particularly in Europe but most markedly in major Transat markets, such as Greece, Italy, Span, France and the United
Kingdom, was not conducive to improving performance.
4. Enhance the strategic value of our brand.
Following an initiative launched in 2010, Transat developed and began implementing a new brand strategy in 2011. The project is
proceeding according to schedule. Late in 2011, the Transat brand was repositioned, and the organization’s commercial banners in the
Canadian and transatlantic markets (Transat Holidays, Nolitours and Air Transat) adopted a new strategic positioning, and their respective
new visual identities have been successfully implemented. In 2011, strategic planning for commercial banners used in the U.K., France,
Greece and Canada for the incoming tour operator market was completed for implementation in 2012 as planned. The brand strategy for
distribution in Canada was also developed in 2011 and will be implemented in 2012. Lastly, Transat created the Transat Discoveries banner
under an expansion initiative of its subsidiary formerly known as Rêvatours, which tapped into the Ontario market in 2011.
5. Actively pursue our plan to make Transat one of the industry’s most responsible companies.
In 2011, Transat released its second Corporate Responsibility Report (www.resp.transat.com), which highlighted accomplishments to
date and the road map through to 2012. This program is generally proceeding as planned. The 2011 highlights include: developing and
deploying a program to combat child sexual exploitation in tourism; adopting a responsible procurement policy and gradually implementing
clauses in Transat’s contracts with partners and service providers to encourage them to adopt responsible management practices;
continuing the hotelier program, including partnerships and a commitment to recognize environmental certifications; continuing the financial
support program for sustainable destination tourism projects; and continuing Transat’s major humanitarian partnership with SOS Children’s
Villages. In 2011, Transat won the World Travel Market Global Award for its overall efforts, and Air Transat was recognized as the world’s
best long-haul airline for its efforts to reduce greenhouse gas emissions.
6.
Improve our competitiveness in terms of service quality and operating costs in the air carrier industry.
In 2011, Transat finished developing and began implementing an investment program to refurbish the cabins of its
Airbus A330 aircraft, based on an operating cost and configuration analysis, to optimize financial and business performance. The program
will be deployed gradually with the first newly configured aircraft slated to debut in spring 2012. The project primarily seeks to replace seats
11
Transat A.T. Inc.
2011 Annual Report
Management’s Discussion and Analysis
and lavatories, install individual entertainment systems and launch a new colour palette. Projects are underway at the same time to enhance
the in-flight experience.
7.
Improve our organization’s adaptability.
The transformation plan consists of a wide range of existing and new programs and projects to allow Transat to achieve its vision of
becoming a vertically integrated tour operator that is a leader of Americas and has a strong competitive position in several
European countries. There are a number of expected benefits: a return to profitability, wider margins and expanded market share. The
program entails improving system processes, developing brand value while improving the customer experience, enhancing and
differentiating our products, particularly for southern destinations, and ensuring dynamic airline capacity management. All of these projects
are underway. In addition, in 2011, Transat simplified and streamlined its organizational structure for greater accountability and efficiency.
Transat Canada now brings together all Transat entities that directly serve the Canadian and transatlantic markets in their day-to-
day operations.
KEY PERFORMANCE DRIVERS
The following key performance drivers are essential to the successful 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 3%.
ABILITY TO DELIVER ON OUR OBJECTIVES
Our ability to deliver on our objectives is dependent on our financial 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
$181.6 million as at October 31, 2011. Our continued focus on expense reductions and margin
increases should maintain these balances at healthy levels.
Credit facilities
We have revolving term credit facilities currently totalling $200.0 million, up for renewal in 2015.
Our non-financial resources include:
Brand
Structure
The Corporation has taken the necessary steps to foster a distinctive brand image and raise
its profile, including its sustainable tourism approach.
Our vertically integrated structure enables us to ensure better quality control of our products
and services.
12
Transat A.T. Inc.
2011 Annual Report
Employees
Management’s Discussion and Analysis
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 effectiveness. 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 relationships with many hotels at these destinations and in Europe.
Transat has the resources it needs to meet its 2012 objectives and continue building on its long-term strategies.
CONSOLIDATED OPERATIONS
REVENUES
Revenues by geographic area
(In thousands of dollars)
Americas
Europe
Change
2011
$
2010
$
2,762,351
2,567,983
895,813
930,894
3,658,164
3,498,877
2009
$
2,552,348
992,993
3,545,341
2011
%
7.6
(3.8)
4.6
2010
%
0.6
(6.3)
(1.3)
We derive our revenues from outgoing tour operators, air transportation, travel agencies, distribution, incoming tour operators and
services at travel destinations.
For the year ended October 31, 2011, revenues were up $159.3 million, driven by higher average selling prices resulting from fuel
surcharge increases and the end of the seat purchase/sale agreement with Sunquest, particularly in the winter season. Revenue growth was
however reined in by a 0.5% aggregate decline in the volume of travellers. During the year, revenues rose 7.6% in the Americas but fell 3.8%
in Europe. In the Americas, throughout fiscal 2011 selling prices trended generally higher than in 2010. In Europe, revenues from our
European subsidiaries in local currencies held steady compared with 2010, except for revenues generated by our subsidiary specialized in
marketing products to Tunisia, which fell well short of 2010 results, and U.K. revenues.
Our 2012 revenues are expected to be higher with a volume of travellers similar to or slightly greater than in 2011. We expect
competition to remain very intense throughout the first half of the fiscal year for sun destinations departing from Canada.
OPERATING EXPENSES
Operating expenses
(In thousands of dollars)
Direct costs
Aircraft fuel
Salaries and employee benefits
Commissions
Aircraft maintenance
Airport and navigation fees
Aircraft rent
Other
Restructuring charge
Total
% of revenues
Change
2011
$
1,999,935
447,625
375,663
166,813
108,399
104,987
68,850
349,395
6,513
3,628,180
2010
$
2,047,713
302,333
349,323
155,357
85,731
85,321
52,949
292,568
—
3,371,295
2009
$
2,062,626
319,224
364,642
177,166
89,896
90,611
54,287
293,494
—
3,451,946
2011
%
54.7
12.2
10.3
4.6
3.0
2.9
1.9
9.6
0.2
99.4
2010
%
58.5
8.6
10.0
4.4
2.5
2.4
1.5
8.4
—
96.3
2009
%
58.2
9.0
10.3
5.0
2.5
2.6
1.5
8.3
—
97.4
2011
%
(2.3)
48.1
7.5
7.4
26.4
23.0
30.0
19.4
n/a
7.6
2010
%
(0.7)
(5.3)
(4.2)
(12.3)
(4.6)
(5.8)
(2.5)
(0.3)
—
(2.3)
13
Transat A.T. Inc.
2011 Annual Report
Management’s Discussion and Analysis
Our total operating expenses rose $256.9 million or 7.6% from 2010, mainly due to higher fuel costs and the addition of five
Airbus 330 aircraft during the year. Operating expenses in the Americas were up 11.8%, offset by a 3.9% decline in Europe. As a percentage
of revenues, operating expenses increased to 99.2% from 96.4% in 2010.
DIRECT COSTS
Direct costs are incurred by our tour operators. They consist primarily 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 $47.8 million or 2.3% compared with the fiscal year ended
October 31, 2010. The decrease arose primarily from lower seat purchases following the end of our seat purchase agreement with Sunquest,
a decline in our seat purchases from Thomas Cook in the U.K. due to greater use of our own fleet, and the dollar’s strength, offset by higher
hotel room costs. In 2011, these costs represented 54.7% of revenues, down from 58.5% in 2010.
AIRCRAFT FUEL
Aircraft fuel costs rose $145.3 million or 48.1% during the year, driven mainly by the surge in fuel prices and a higher number of flights
logged by our fleet of aircraft. Our average fuel price for the year was considerably higher than in fiscal 2010.
SALARIES AND EMPLOYEE BENEFITS
Salaries and employee benefits rose $26.3 million, or 7.5%, to $375.7 million. This increase stemmed among others from new hires,
primarily following the addition of new aircraft to our fleet and, to a lesser degree, annual salary increases.
COMMISSIONS
Commissions include the fees paid by tour operators to travel agencies for serving as intermediaries between tour operators and
consumers. Commission expense totalled $166.8 million, up $11.5 million or 7.4% from its fiscal 2010 level. As a percentage of revenues,
commissions rose to 4.6% from 4.4% in 2010, owing primarily to higher revenue levels used to calculate commissions.
AIRCRAFT MAINTENANCE
Aircraft maintenance costs consist mainly of engine and airframe maintenance expenses incurred by Air Transat. These costs were
up $22.7 million or 26.4% during the fiscal year, mainly due to higher number of flights logged by our fleet. Also, in 2010, we had also revised
downwards some of our assumptions related to future maintenance costs following new agreements entered into with certain suppliers and
optimization of the future maintenance schedule, which resulted in lower aircraft maintenance costs for the fiscal year.
AIRPORT AND NAVIGATION FEES
Airport and navigation fees consist mainly of fees charged by airports and air traffic control entities. Fees for the fiscal year were up
$19.7 million or 23.0% compared with 2010, owing primarily to the increase in the number of flights logged by our fleet, offset by the
dollar's strength.
AIRCRAFT RENT
Aircraft rent rose $15.9 million or 30.0% during the year, due to the addition of five Airbus A330 in fiscal 2011, partly offset by the
withdrawal of one Airbus A310 and the Canadian dollar’s strength against the U.S. currency.
OTHER
Other expenses were up $56.8 million or 19.4% in fiscal 2011, compared with 2010, due mainly to the rise in flights logged by our
fleet. As a percentage of revenues, other expenses rose from 8.4% in 2010 to 9.6% in 2011.
RESTRUCTURING CHARGE
In fiscal 2011, the Corporation undertook a restructuring program aimed particularly at reducing direct costs and operating expenses
and adjusting its information systems approach. The plan also provides for changes in IT solutions to facilitate a faster deployment of proven
solutions at lower cost. As a result, the total restructuring charge amounts to $16.5 million, consisting of severance benefits of $6.5 million,
reported under operating expenses, and write-offs of intangible assets totalling $10.0 million, reported under other expenses.
14
Transat A.T. Inc.
2011 Annual Report
MARGIN
Management’s Discussion and Analysis
In light of the foregoing, the Corporation recorded a margin of $30.0 million for the year compared with $127.6 million in the previous
year. As a percentage of revenues, our margins decreased from 3.6% in 2010 to 0.8% in 2011. Soaring fuel prices conspired with lower load
factors, higher overall transatlantic capacity and downward pressure on selling prices to compress our margins.
GEOGRAPHIC AREAS
AMERICAS
Americas
(In thousands of dollars)
Winter season
Revenues
Operating expenses
Margin
Margin (%)
Summer season
Revenues
Operating expenses
Margin (operating loss)
Margin (%)
2011
$
2010
$
2009
$
2011
%
Change
1,584,037
1,580,437
3,600
0.2
1,543,546
1,534,387
9,159
0.6
1,653,636
1,613,468
40,168
2.4
2.6
3.0
(60.7)
(61.7)
1,178,314
1,192,043
(13,729)
(1.2)
1,024,437
946,430
78,007
7.6
898,712
869,276
29,436
3.3
15.0
26.0
(117.6)
(115.3)
2010
%
(6.7)
(4.9)
(77.2)
(75.6)
14.0
8.9
165.0
132.5
Revenues at our North American subsidiaries, stemming from sales in Canada and abroad, were up $40.5 million or 2.6% during the
winter season, compared with 2010. Revenue growth resulted from higher average selling prices compared with winter 2010 while the total
volume of travellers remained stable. However, Canadian travellers to sun destination rose about 12%. Our margin for the winter season fell
to 0.2% from 0.6% in 2010, mainly due to higher fuel prices.
For the summer season, revenues were up 15.0%, driven by a 16.3% rise in traveller volumes, while average selling prices eased
slightly lower from summer 2010. We are reporting an operating loss of 1.2% compared with a 7.6% margin in 2010. The margin loss is
primarily due to higher fuel costs, and lower average selling prices resulting from excess supply in the market during summer, and to a lesser
extent, to severance benefits recognized during the season under the restructuring charge.
EUROPE
Europe
(In thousands of dollars)
Winter season
Revenues
Operating expenses
Margin (operating loss)
Margin (%)
Summer season
Revenues
Operating expenses
Margin
Margin (%)
2011
$
2010
$
2009
$
2011
%
Change
327,226
336,296
(9,070)
(2.8)
309,402
322,772
(13,370)
(4.3)
352,695
362,231
(9,536)
(2.7)
568,587
519,404
49,183
8.7
621,492
567,706
53,786
8.7
640,298
606,971
33,327
5.2
5.8
4.2
32.2
35.9
(8.5)
(8.5)
(8.6)
0.0
2010
%
(12.3)
(10.9)
(40.2)
(59.8)
(2.9)
(6.5)
61.4
66.3
Compared with 2010, revenues at our European subsidiaries, stemming from sales in Europe and Canada, were up $17.8 million or
5.8% during the winter. Except for our subsidiary Amplitravel, which sells packages to Tunisia, revenues at our European subsidiaries were
all higher, owing primarily to increased average selling prices and despite a 10.0% decline in traveller volumes. Revenue growth was further
curbed by the Canadian dollar’s strength against the euro and the pound sterling. Our European operations reported an operating loss of
$9.1 million or 2.8% for the winter compared with an operating loss of $13.4 million or 4.3% in 2010. The margin for the winter was affected
15
Transat A.T. Inc.
2011 Annual Report
Management’s Discussion and Analysis
by turmoil in Northern Africa, which resulted in the temporary suspension of sales of travel to Tunisia and Egypt during the season. In
fiscal 2010, our margin was reduced by additional costs incurred by our European companies owing to volcanic activity in Iceland.
Revenues for the summer season were down $52.9 million or 8.5% following a 27.3% decline in the volume of travellers. These
decreases stem primarily from the significant decline in sales at our Amplitravel subsidiary, which generated most of its revenues during the
summer, and lower revenues in the U.K. (Since the beginning of the summer season, our English subsidiary has reduced its seat purchase
commitments with Thomas Cook to purchase seats, without commitment, from our airline). We generated a margin of $49.2 million or 8.7%
for the summer season compared with $53.8 million or 8.7% in 2010.
OTHER EXPENSES (REVENUES)
(In thousands of dollars)
Amortization
Interest on long-term debt
Other interest and financial expenses
Interest income
Change in fair value of derivative
financial instruments used for aircraft
fuel purchases
Foreign exchange loss (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
AMORTIZATION
Change
2011
$
43,814
1,250
2,249
(7,395)
2010
$
48,662
2,225
2,359
(3,036)
2009
$
51,155
4,866
2,679
(4,588)
2011
%
(10.0)
(43.8)
(4.7)
143.6
2010
%
(4.9)
(54.3)
(11.9)
(33.8)
1,278
(9,341)
(68,267)
(113.7)
(86.3)
1,654
(8,113)
10,030
(1,109)
(4,648)
(1,157)
(135)
(68)
11,967
249.1
(74.5)
(966.9)
(827)
490
(24)
268.8
721.5
n/a
109.7
n/a
Amortization includes amortization of property, plant and equipment, intangible assets subject to amortization, deferred lease
inducements and deferred gains on options. Amortization expense was down $4.8 million in fiscal 2011, mainly due fewer additions to
property, plant and equipment and intangible assets in fiscal 2010 and 2009. The amortization expense for the years ended
October 31, 2010 and 2009 includes the amortization of a deferred gain on options in the amount of $4.2 million.
INTEREST ON LONG-TERM DEBT
Interest on long-term debt and the debenture was down $1.0 million in fiscal 2011 as average debt levels were lower than in 2010.
OTHER INTEREST AND FINANCIAL EXPENSES
Other interest and financial expenses were down $0.1 million in fiscal 2011 compared with the previous year.
INTEREST INCOME
Interest income rose $4.4 million in fiscal 2011, driven mainly by higher average balances of cash and cash equivalents than in
fiscal 2010.
CHANGE IN FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS USED FOR TO AIRCRAFT FUEL PURCHASES
The change in fair value of derivative financial instruments used for aircraft fuel purchases represents the change in fair value for the
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 used for aircraft fuel purchases decreased by $1.3 million compared
with a $9.3 million increase in 2010.
FOREIGN EXCHANGE LOSS (GAIN) ON LONG-TERM MONETARY ITEMS
The foreign exchange loss on long-term monetary items of $1.7 million in fiscal 2011 arose mainly from an unfavourable foreign
exchange effect on our foreign currency deposits.
16
Transat A.T. Inc.
2011 Annual Report
GAIN ON INVESTMENTS IN ABCP
Management’s Discussion and Analysis
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 2011 amounted to $8.1 million compared with $4.6 million in 2010. See Investments in ABCP for
more information.
RESTRUCTURING CHARGE (GAIN)
The restructuring charge of $10.0 million comprises write-offs of intangible assets. See Operating expenses for more information.
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 administrative centre. These changes also led to the closure of some agencies while others
were sold. Following this announcement, we recognized a $12.0 million restructuring charge for fiscal 2009. 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 recognized in 2009.
SHARE OF NET LOSS (INCOME) OF A COMPANY SUBJECT TO SIGNIFICANT INFLUENCE
Our share of net loss (income) of a company subject to significant influence represents our share of the net income of our hotel
business, Caribbean Investments B.V. [“CIBV”]. Our share of net income of a company subject to significant influence for the year amounted
to $0.8 million compared with a share of net loss of $0.5 million for 2010. This increase in our share arises mainly from improved
operational profitability.
INCOME TAXES
Income tax recovery for the fiscal year ended October 31, 2011 amounted to $4.8 million compared with a $23.8 million income tax
expense for the previous fiscal year. Excluding the share in net income (loss) of companies subject to significant influence, the effective tax
rates were 32.5% for the fiscal year ended October 31, 2011 and 25.4% for the preceding year.
The change in tax rates between fiscal 2011 and 2010 resulted mainly from differences between countries in the statutory tax rates
applied to taxable income or losses.
NET INCOME (LOSS)
In light of the items discussed in Consolidated Operations, our net loss for the year ended October 31, 2011 totalled $12.2 million, or
$0.32 per share, compared with a net income of $65.6 million, or $1.74 per share, for the previous year. The weighted average number of
outstanding shares used to compute per share amounts was 37,930,000 for fiscal 2011 and 37,796,000 for fiscal 2010.
On a diluted per share basis, the loss per share amounted to $0.32 for fiscal 2011, compared with an income per share of $1.73 in
2010. The adjusted weighted average number of shares used to determine these amounts was 37,930,000 for the current year and
37,993,000 for fiscal 2010. See note 13 to the audited Consolidated Financial Statements.
In fiscal 2011, our adjusted after-tax loss stood at $7.2 million ($0.19 per share) compared with an adjusted after-tax income of
$53.7 million ($1.41 per share) for fiscal 2010.
17
Transat A.T. Inc.
2011 Annual Report
Management’s Discussion and Analysis
SELECTED QUARTERLY FINANCIAL INFORMATION
The Corporation’s operations are seasonal in nature; consequently, interim operating results do not proportionately reflect the
operating results for a full year. Overall, revenues are up compared with the corresponding quarters of previous years, owing primarily to
increases in traveller volumes and/or average selling prices. Margins have fluctuated from quarter to quarter, mainly due to competitive price
pressures. As a result, the following quarterly financial information may vary significantly from quarter to quarter.
Selected unaudited quarterly financial
information
(In thousands of dollars,
except per share amounts)
Revenues
Margin
Net income (loss)
Basic earnings (loss)
per share
Diluted earnings (loss)
per share
Diluted adjusted after-tax
income (loss) per
share
Q1-2010
$
792,562
(12,409)
(13,872)
(0.37)
(0.37)
Q2-2010
$
1,060,386
8,198
6,198
0.16
0.16
Q3-2010
$
867,344
53,941
20,925
0.55
0.55
Q4-2010
$
778,585
77,852
52,356
1.38
1.37
Q1-2011
$
810,154
(14,638)
(13,473)
(0.36)
(0.36)
Q2-2011
$
1,101,109
9,168
8,620
0.23
0.23
Q3-2011
$
936,974
14,604
(2,877)
(0.08)
(0.08)
Q4-2011
$
809,927
20,850
(4,483)
(0.12)
(0.12)
(0.48)
(0.07)
0.70
1.25
(0.51)
(0.02)
0.07
0.27
FOURTH-QUARTER HIGHLIGHTS
For the fourth quarter, the Corporation generated $809.9 million in revenues, up $31.3 million, or 4.0%, from $778.6 million for the
corresponding period in 2010. This increase resulted mainly from higher average selling prices offset by a 3.8% decrease in the volume of
travellers compared with the fourth quarter of 2010.
In the Americas, revenues at our subsidiaries were up $73.6 million (15.3%) compared with the same period of 2010, driven by
increases in the volume of travellers and average selling prices. Total market supply for the quarter remained higher than in 2010, owing to
moves by several air carriers to transfer capacity into the transatlantic market following the March tsunami in Japan. Excess supply and
difficult economic conditions in Europe continued to spark competition in the transatlantic market. This excess market capacity further
resulted in lower load factors than in the fourth quarter of 2010, making it impossible for the Corporation to fully offset the sharp increase in
fuel prices. In light of the foregoing, our North American operations reported a margin of $2.2 million, down from a $51.4 million margin for
the same period of 2010.
Year over year, revenues at our European subsidiaries were down $42.2 million (14.2%), owing primarily to the lower volume of
travellers. Our European operations recorded a margin of $18.6 million for the quarter, down from $26.4 million for the same period of 2010,
due mainly to a decline in the volume of travellers.
The Corporation reported a margin of $20.9 million or 2.6% for the quarter compared with $77.9 million or 10.0% in 2010. The slimmer
margin stems mainly from higher fuel costs and lower aircraft load factors compared with the last quarter of 2010.
In the fourth quarter, we recorded a $4.9 million loss arising from the change in fair value of derivative financial instruments used for
aircraft fuel purchases, compared with a gain of $2.0 million in the corresponding period of 2010. We also recorded a $1.2 million gain on
investments in ABCP compared with $3.2 million for the same period of fiscal 2010.
The Corporation reported a net loss for the fourth quarter of $4.5 million, or $0.12 per share on a diluted basis, compared with a net
income of $52.4 million, or $1.37 per share in 2010.
For the fourth quarter of fiscal 2011, adjusted after-tax income stood at $10.1 million ($0.27 per share) compared with $47.7 million
($1.25 per share) in 2010.
18
Transat A.T. Inc.
2011 Annual Report
Management’s Discussion and Analysis
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
As at October 31, 2011, cash and cash equivalents totalled $181.6 million compared with $180.6 million as at October 31, 2010. Cash
and cash equivalents in trust or otherwise reserved amounted to $359.5 million as at the end of fiscal 2011, compared with $352.7 million in
2010. The Corporation’s balance sheet reflects working capital of $22.8 million and a ratio of 1.03 compared with $64.3 million and 1.1 as at
October 31, 2010.
Total assets rose $32.5 million (2.7%) to $1,222.0 million as at October 31, 2011 from $1,189.5 million as at October 31, 2010, driven
mainly by increases in income taxes receivable and future income tax assets of $13.0 million and $11.9 million, respectively. Shareholders’
equity fell $15.1 million to $424.0 million as at October 31, 2011 from $439.1 million as at October 31, 2010. This decline stemmed mainly
from a $12.2 million net loss and a $10.2 million foreign exchange loss on translation of the financial statements of our self-sustaining
operations, offset by a $3.5 million change in fair value of derivatives designated as cash flow hedges with these losses accounted for in
other comprehensive income (loss).
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
OPERATING ACTIVITIES
Change
2011
$
90,673
(56,683)
(29,470)
(3,571)
949
2010
$
119,131
(27,819)
(81,034)
(10,203)
75
2009
$
45,234
(26,662)
18,303
(2,090)
34,785
2011
%
(23.9)
(103.8)
63.6
65.0
n/a
2010
%
163.4
(4.3)
(542.7)
(388.2)
(99.8)
Operating activities generated $90.7 million in cash flows, compared with $119.1 million in 2010. This $28.5 million or 23.9% decrease
during the year resulted mainly from lower profitability, offset by a $59.0 million increase in the net change in non-cash working capital
balances related to operations, which was primarily due to a larger increase in accounts payable compared with 2010.
We expect to continue to generate positive cash flows from our operating activities in 2012.
INVESTING ACTIVITIES
Cash flows used in investing activities totalled $56.7 million for the year, up $28.9 million from 2010: additions to property, plant and
equipment and other intangible assets rose $25.2 million to $54.2 million and consisted mainly of purchases of computer hardware and
software and aircraft enhancements. Following the increase in some of our letters of credit, the cash and cash equivalents balance reported
as a long-term asset rose $4.2 million. Last, we received $1.7 million from investments in ABCP compared with $3.7 million in 2010.
In 2012, additions to property, plant and equipment and intangible assets could amount to approximately $60.0 million.
FINANCING ACTIVITIES
Cash flows used by financing activities totalled $29.5 million, down $51.6 million from $81.0 million in 2010, due primarily to a
$51.7 million decrease in repayments of our credit facilities and other debt compared with fiscal 2010. During the year, a share issuance
generated proceeds of $1.7 million for the Corporation, up $0.4 million from 2010, while a subsidiary paid dividends in the amount of
$2.5. million to a non-controlling shareholder compared with $2.1 million in 2010.
19
Transat A.T. Inc.
2011 Annual Report
FINANCING
Management’s Discussion and Analysis
As at October 31, 2011, the Corporation had several types of financing, consisting primarily of two revolving term credit facilities and
lines of credit.
On July 29, 2011, the Corporation renewed the agreements for its revolving credit facilities for operations and issuance of letters of
credit. Under the new agreements, the Corporation has access to a $100.0 million revolving credit facility maturing in 2015, which is
renewable or immediately payable in the event of a change in control. The Corporation has a $60.0 million annually renewable revolving
credit facility for issuing letters of credit in respect of which the Corporation must pledge cash as collateral security against 105% of the
amount of the letters of credit. Under the terms and conditions of the agreement for the revolving credit facility for operations, 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 London Interbank Offered
Rate (LIBOR), plus a premium based on certain financial ratios calculated on a consolidated basis.
The Corporation also has access to an $84.1 million revolving credit facility which matures in 2013 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. 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 $45.3 million using the restructured
notes. This option is reported at fair value at each balance sheet date under Derivative financial instruments, and any change in fair value of
the options is recorded in net income (loss) under Gain on investments in ABCP.
As at October 31, 2011, these credit facilities were undrawn, except for the $60.0 million facility for issuing letters of credit for which
the Corporation must pledge cash as collateral security against 105% of the letters of credit issued, under which $48.1 million was drawn
down. The terms of the agreements require the Corporation to comply with financial criteria and ratios. As at October 31, 2011, all financial
ratios were met.
With regard to our French operations, we also have access to undrawn lines of credit totalling €11.5 million [$15.9 million].
OFF-BALANCE SHEET ARRANGEMENTS
In the normal course of business, Transat enters into arrangements and incurs obligations that will impact the Corporation’s future
operations and liquidity, some of which are reflected as liabilities in the Consolidated Financial Statements. The Corporation did not report
any obligations in the balance sheet as at October 31, 2011 compared with $29.1 million of obligations as at October 31, 2010.
Obligations that are not reported as liabilities are considered off-balance sheet arrangements. These contractual arrangements are
entered into with non-consolidated entities and consist of the following:
•
•
•
Guarantees (see notes 11 and 22 to the audited Consolidated Financial Statements)
Operating leases (see note 21 to the audited Consolidated Financial Statements)
Agreements with suppliers (see note 21 to the audited Consolidated Financial Statements)
Off-balance sheet arrangements that can be estimated amounted to approximately $797.0 million as at October 31, 2011 compared
with $916.1 million as at October 31, 2010, and is detailed as follows:
OFF-BALANCE SHEET ARRANGEMENTS
Guarantees
Irrevocable letters of credit
Collateral security contracts
Operating leases
Obligations under operating leases
Agreements with suppliers
20
2011
$
2,798
14,247
636,618
653,663
143,324
796,987
2010
$
5,273
957
637,520
643,750
272,334
916,084
Transat A.T. Inc.
2011 Annual Report
Management’s Discussion and Analysis
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 collateral security 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, the Corporation agrees to commitments with certain providers from time to time to purchase person-nights, airplane seats
and other services to benefit from better prices or conditions. As at October 31, 2011, such agreements were down $129.0 million, owing
primarily to the non-renewal of the seat purchase agreement with Thomas Cook in the U.K.
In addition, the Corporation has a $50.0 million guarantee facility renewable annually. Under this agreement, the Corporation may
issue collateral security contracts with a maximum three-year term. As at October 31, 2011, $13.6 million was drawn down under these credit
facilities for issuing letters of credit to some of our service providers.
We believe that the Corporation will be able to meet its obligations with cash on hand, cash flows from operations and drawdowns
under existing credit facilities.
CONTRACTUAL OBLIGATIONS BY YEAR
Year ending October 31
Contractual obligations
Long-term debt
Leases (aircraft)
Leases (other)
Agreements with suppliers and other
obligations
2012
$
—
88,525
26,972
2013
$
—
84,263
22,842
2014
$
—
72,200
18,105
2015
$
—
52,546
14,885
2016
$
—
49,252
12,863
2017
and later
$
—
104,229
89,936
Total
$
—
451,015
185,603
76,658
192,155
38,800
145,905
25,055
115,360
5,671
73,102
715
62,830
23,007
217,172
169,906
806,524
DEBT LEVELS
The Corporation’s debt levels as at October 31, 2011 were lower than as at October 31, 2010.
The balance sheet debt of $29.1 million as at October 31, 2010 was fully repaid during the fiscal year while our off-balance sheet
arrangements, excluding agreements with suppliers and other obligations, increased $9.9 million to $653.7 million from $643.8 million,
collectively representing a $19.1 million decrease in total debt compared with October 31, 2010. The $9.9 million increase in our off-balance
sheet arrangements arose mainly from the addition of an aircraft, offset by the repayments made during the fiscal year.
Net of cash and cash equivalents and our investments in ABCP, the Corporation reported $393.3 million in net debt as at
October 31, 2011, down 6.3% from $419.8 million as at October 31, 2010.
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 13, 2011, there were 937,441 Class A Variable Voting Shares outstanding and 37,124,469 Class B Voting
Shares outstanding.
STOCK OPTIONS
As at December 13, 2011, there were a total of 1,744,477 stock options outstanding, 907,328 of which were exercisable.
21
Transat A.T. Inc.
2011 Annual Report
INVESTMENTS IN ABCP
RESTRUCTURING
Management’s Discussion and Analysis
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 standstill 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 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 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 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
In fiscal 2011, the Corporation received $1.7 million in principal repayments on ABCP supported solely by traditional securitized
assets (Master Asset Vehicle (MAV) 3 Traditional [MAV3 Traditional]).
During fiscal 2010, the Corporation received $3.1 million in principal repayments on ABCP supported by synthetic assets or a
combination of synthetic and traditional securitized assets MAV2 Eligible and ABCP supported solely by traditional securitized assets
(MAV3 Traditional). In addition, the Corporation received its share of $0.6 million of the cash accumulated in the conduits. Also during the
fiscal year ended October 31, 2010, the Corporation exercised one of its options allowing it to repay a $9.4 million portion of the balance of
one its revolving credit facilities using ABCP supported primarily by subprime assets in the U.S. (MAV2 Ineligible) with a carrying amount of
nil. The option was initially reported at a fair value, amounting to $8.4 million, with the corresponding initial gain deferred and recognized in
net income under amortization 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 $116.4 million as at October 31, 2011 and is detailed as follows:
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 restructured into floating rate notes with maturities through January 2017.
MAV3 Traditional
The Corporation holds $3.1 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, 2011, 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, 2011, 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.
22
Transat A.T. Inc.
2011 Annual Report
Management’s Discussion and Analysis
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 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 securities, 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 considered the information released by DBRS on September 23, 2011,
confirming the A+ rating of Class A-1 ABCP supported by synthetic assets or a combination of synthetic and traditional securitized assets
(MAV2 Eligible) and upgrading Class A-2 to a BBB+ rating.
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 at rates ranging from 0.0% to 1.16% [weighted average rate of 1.0%], depending on the type
of series. These future cash flows were discounted, according to the type of series, over a 5.2-year period using discount rates ranging from
6.4% to 30.8% [weighted average rate of 9.9%], which factor in liquidity.
Subsequent to this new valuation, the Corporation recognized increases, on October 31, 2011, in the fair value of its investments in
ABCP of $8.1 million [$4.6 million for the year ended October 31, 2010]. These adjustments do not take into account any additional amount
of the Corporation’s share of the estimated cash accumulated in the conduits. The ABCP investment portfolio had a fair value of $78.8 million
and the provision for impairment totalled $37.7 million, representing 32.4% of the notional value of $116.4 million.
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 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 management’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 $3.6 million in the estimated fair value of ABCP held by the Corporation.
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 (loss):
Provi
impa
(57,43
sion for
irment
$
4)
7,630
4,648
—
(620)
Inv
71
estments
$
,401
—
4,6
48
(3,083)
(620)
(45,776)
8,113
—
(37,663)
72,346
8,1
13
(1,708)
78,751
Loss (gain)
$
—
(4,648)
—
—
(4,648)
(8,113)
—
(8,113)
(In thousands of dollars)
Balance as at October 31, 2009
Disposal of investments in ABCP
Increase in value of investments in ABCP
Principal repayments
Share of cash accumulated in conduits
Balance as at October 31, 2010/Impact on results for the
year ended October 31, 2010
Increase in value of investments in ABCP
Principal repayments
Balance as at October 31, 2011/Impact on results for the
year ended October 31, 2011
Notiona
l value
$
128,835
(7,630)
—
(3,083)
—
118,122
—
(1,708)
116,414
23
Transat A.T. Inc.
2011 Annual Report
Management’s Discussion and Analysis
The balance of investments in ABCP as at October 31, 2011 is detailed as follows:
(In thousands of dollars)
MAV2 Eligible
Class A-1
Class A-2
Class B
Class C
MAV3 Traditional
OTHER
ORGANIZATIONAL CHANGES
Notional value
$
P ovision for impairment
r
$
Investments
$
,415
34
,894
63
,598
11
3,
403
3,310
3,
104
6,414
11
11
(7
,984)
9,899)
(1
,578)
(7
(2
,680)
8,141)
(3
47
8
7,663)
(3
26,431
43,995
4,020
723
75,169
3,582
78,751
The Corporation has implemented changes to streamline organizational structure in Canada and accelerate its processes for making
and implementing decisions. Against this background, on September 8, 2011, the Corporation announced the departures of Nelson
Gentiletti, Chief Operating Officer and Michael DiLollo, President of Transat Tours Canada. At that time, President and Chief Executive
Officer Allen Graham was given oversight of operations at subsidiaries Air Transat, Transat Tours Canada, Transat Distribution Canada,
Canadian Affair, Air Consultants Europe and Handlex. André De Montigny was given responsibility for Eleva Travel, Tourgreece, Trafic
Tours and Turissimo, as well as hotelling operations, while remaining Vice-President, Corporate Development. The President and Chief
Executive Officer will be directly responsible for Transat France, Transat Discoveries, tripcentral.ca and Jonview Canada.
RENEWALS OF COLLECTIVE AGREEMENTS
On February 15, 2011, Handlex, one of the Corporation's subsidiaries, locked out 400 of its ramp and baggage workers at airports in
Toronto and Montréal, following the rejection of its most recent offer to renew the collective agreement, which expired in November 2010,
and the strike action launched by the union. A contingency plan was immediately implemented to ensure continuity of operations and
services for all airlines served by Handlex, including Air Transat. On March 7, 2011, Handlex and its ramp and baggage workers at airports in
Toronto and Montréal agreed to renew the collective agreement.
On August 4, 2011, the Corporation announced that the flight attendants of Air Transat, represented by the Canadian Union of Public
Employees (CUPE), had ratified the agreement in principle to renew their collective agreement. The new five-year agreement will expire
in 2015.
ADDITION OF A CREDIT CARD PROCESSOR
On February 28, 2011, we announced the signing of an agreement with a second credit card processor in Canada effective
immediately, expiring on February 28, 2015.
Credit card transactions processed in Canada under this agreement are subject to the requirement of maintaining certain levels of
unrestricted cash and other cash equivalents at each quarter-end, as well as the same financial ratios to those set out in its bank credit
agreements. The Corporation’s failure to comply with these covenants could result in a variety of adverse consequences, including, among
other things, an obligation by Transat to provide this new credit card processor with a letter of credit according to a predetermined formula
based on the monthly dollar volume of credit card transactions processed by this new credit card processor.
FLEET
During the year ended October 31, 2011, one A310 was retired and four A330s were commissioned. And in November 2011, an
eleventh A330 was commissioned and an A310 was retired. Air Transat’s fleet currently consists of 11 Airbus A310 aircraft (249 seats),
which will be gradually retired, and five Airbus A330 (342 seats). A twelfth A330 is slated for commissioning in the first quarter of fiscal 2012.
24
Transat A.T. Inc.
2011 Annual Report
ACCOUNTING
CRITICAL ACCOUNTING ESTIMATES
Management’s Discussion and Analysis
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 amortization and impairment of property,
plant and equipment and intangible assets including goodwill as well as the accrued benefit 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 different estimates in
the current period or were these estimates to change in the future.
This discussion addresses only those estimates that we consider important based on the degree of uncertainty and the likelihood of a
material impact if we had used different estimates. 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 parties 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
determining 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 pricing 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 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. Generally speaking, the main assumptions used to calculate this provision would have to be reduced by 5% to 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 circumstances indicate it is more likely
than not that they might be impaired.
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, 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
25
Transat A.T. Inc.
2011 Annual Report
Management’s Discussion and Analysis
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 reporting 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 market conditions, competition and other risk factors (see Risks and uncertainties). During fiscal
2011 and 2010, 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
connection 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 consists 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
judgments concerning our future operations.
Generally, we consider that our main assumptions regarding the cash flow forecasts would have to be reduced by 5% to 10%,
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.
On October 31, 2011, the Corporation performed its annual test for impairment of goodwill, and no impairment was detected [no
impairment in 2010]. The Corporation’s management is of the opinion that no significant change in the key assumptions used to calculate the
fair value of each of its reporting units could produce carrying amounts higher than those fair values, with the exception of one reporting unit
in France. This reporting unit, which includes outgoing tour operators and a travel agency network, generates a significant percentage of its
revenues from the sale of products to North Africa, including Tunisia, Morocco and Egypt. In establishing its assumptions for the
measurement of this reporting unit, management considered, among other factors, the potential impact on its future results of the prevailing
political climate in certain North African countries and current economic conditions in Europe. The fair value calculated for this reporting unit
was higher than its carrying amount, which includes a goodwill of $30.6 million. However, a change in the assumptions used could result in
an impairment in goodwill for this reporting unit. Furthermore, outcomes could be different if political instability in certain North African
countries does not subside in the medium term.
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 components 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 supported by periodically reviewed external valuations. Our fleet renewal schedule and the realizable value of our aircraft obtainable 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 aircraft 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 material impact on our results and financial position. However,
reducing 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. During the year ended October 31, 2011, the
Corporation recorded a $10.0 million write-off in respect of software in development under its restructuring program. No other events or
changes in circumstances 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, performed 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 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 7.7 years as at November 1, 2010. Plan obligations are discounted using current
market interest rates.
26
Transat A.T. Inc.
2011 Annual Report
CHANGEOVER TO IFRS
Management’s Discussion and Analysis
In February 2008, the AcSB confirmed that Canadian GAAP, as used by publicly accountable enterprises, will be superseded by
International Financial Reporting Standards 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 development of solutions; and
implementation and review.
Under Phase 1, consisting of design and planning, an IFRS transition plan was prepared based on the results of a preliminary high-
level diagnostic review of the differences 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
processes, internal controls and information systems.
Phase 2 consisted of identifying the differences between IFRS and the Corporation’s accounting policies, and developing solutions.
During this phase, the Corporation performed a detailed analysis of IFRS, which consisted first in identifying the differences between IFRS
and the Corporation’s current accounting policies to prioritize key areas that will be more significantly impacted by the changeover and then
determining the options permitted under IFRS at the effective date and on an ongoing basis in order to finalize conclusions. The second
stage of Phase 2 included detailed planning of information technology and human resources requirements as they relate to the changeover.
We also identified internal procedures and systems that require updating and adapting, including adjustments to existing internal control
procedures and the implementation of additional internal control over financial reporting and disclosure controls and procedures that are
necessary to certify financial reporting during the changeover and post-implementation periods.
In Phase 3, the Corporation implemented accounting and other necessary changes to internal procedures, controls and systems to
ensure all changes are in place and operating effectively 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, 2011:
Financial
information
Core item(s)
Identify differences and develop solutions for accounting
policy elections, particularly permitted elections under IFRS,
including those involving permitted exemptions under
IFRS 1.
Progress
The analyses are now complete.
Develop a model set of IFRS financial statements with
accompanying notes.
Development of a model set of IFRS financial
statements is now complete.
Prepare an opening balance sheet and compile financial
information to prepare (interim and annual) comparative
IFRS financial statements.
The preparation of the opening balance sheet and
compilation of annual and quarterly comparative
financial information are being validated.
Information and
data systems
Assess the effects of changes on information and data
systems, and make the necessary changes.
Assessment of the effects of changes on information
technology and data systems is now complete. No
major changes to the information systems were
required.
27
Transat A.T. Inc.
2011 Annual Report
Management’s Discussion and Analysis
Internal control
over financial
reporting
Core item(s)
Assess the effects of changes on internal control over
financial reporting and disclosures controls and procedures
and implement modifications as necessary.
Progress
Assessment of the effects of changes on internal
control over financial reporting is now complete. No
significant changes to existing internal controls were
required.
Business activity
Assess the conversion’s impact on the Corporation’s
business activity.
Assessment of the conversion’s impact on the
Corporation’s business activity is now complete.
Adopting IFRS is not expected to materially affect
the Corporation’s business operations.
Training and
communications
Offer training to affected employees, management and the
Board of Directors and its relevant committees, particularly
the Audit Committee.
Training was offered in a timely fashion in
accordance with conversion timelines and continue
to be provided.
Provide conversion plan status reports to internal and
external stakeholders.
Periodic status reports are sent to internal and
external stakeholders.
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 Financial
Statements. The exemptions that will have an impact on the Corporation are as follows:
Exemption
Business combinations
Application of exemption
The Corporation has elected not to retrospectively restate business acquisitions completed prior to
November 1, 2010. No adjustments are expected to the opening balance sheet as at the transition date.
Employee benefits
Cumulative translation
adjustments
Share-based payment
transactions
The Corporation has elected 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 $5.7 million after-tax decrease [$8.2 million before taxes] in the Corporation’s
opening retained earnings balance at the IFRS transition date.
The Corporation has elected 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.
The Corporation has elected 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 has finalized the preliminary quantification of the expected impact of material differences between IFRS and current
accounting treatment under Canadian GAAP. The following table shows the preliminary impact of these differences on the Corporation’s
equity as at November 1, 2010 and the net loss for the fiscal year ended October 31, 2011.
28
Transat A.T. Inc.
2011 Annual Report
Management’s Discussion and Analysis
(In thousands of dollars) (unaudited)
Equity under Canadian GAAP, as reported
Restatement of the measurement and recognition of:
Pension benefits
Business combination
Tax impacts
Total restatements
Equity under IFRS
(In thousands of dollars) (unaudited)
Net loss under Canadian GAAP, as reported
Restatement of the measurement and recognition of:
Pension benefits
Non-controlling interests
Tax impacts
Total restatements
Net loss under IFRS
Net income (loss) attributable to:
Shareholders of the Corporation
Non-controlling interests
Net loss under IFRS
Basic and diluted loss per share under Canadian GAAP, as
reported
Impact of IFRS restatements on net loss
Basic and diluted loss per share under IFRS
As at November 1,
2010
$
Difference
(i)
(ii)
(i)
439,072
(8,178)
(17,824)
(26,002)
2,502
(23,500)
415,572
Year ended October 31, 2011
$
Difference
(i)
(ii)
(i)
(12,213)
526
3,059
3,585
(146)
3,439
(8,669)
(11,728)
3,059
(8,669)
(0.32)
0.09
(0.23)
The main differences in the accounting policies applied at the IFRS transition date and, subsequently, in the recognition,
measurement, presentation and disclosure of financial information in key accounting areas are as follows:
Accounting area
(i) Employee benefits
Main differences with impacts for the Corporation
•
Immediate recognition of all actuarial gains and losses and vested past service costs
through opening retained earnings at the transition date with a corresponding
increase in liabilities.
• After IFRS transition, recognition of vested past service costs through income.
• After IFRS transition, the Corporation elected to recognize changes in actuarial gains
and losses as they occur in comprehensive income with no impact on income.
This change in accounting policy results in a pension expense that is different from
that recognized under Canadian GAAP where the excess of net actuarial gains and
losses over 10% of the benefit obligation was amortized over the average remaining
service period of active employees.
•
29
Transat A.T. Inc.
2011 Annual Report
Accounting area
(ii) Business combinations
(iii) Property, plant and equipment
(iv) Asset impairment
(v) Leases
(vi) Income taxes
(vii) Provisions and contingencies
(viii) Financial statement presentation and
disclosure
Management’s Discussion and Analysis
Main differences with impacts for the Corporation
•
Transaction costs related to acquisitions made prior to November 1, 2010 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 equity.
• Non-controlling interests in respect of which shareholders hold an option entitling
them to require the Corporation to buy back their shares are reclassified as liabilities,
deeming exercise of the option. The carrying amount of reclassified interests is also
adjusted to match the fair value of options. Any changes in the fair value of options
are recognized as equity transactions in retained earnings (deficit). This change
resulted in a $17.8 million reduction in equity as at November 1, 2010.
• Separate amortization over different useful lives for component parts of significant
•
assets.
These changes had no impact on the November 1, 2010 opening balance sheet and
the statement of income (loss) for the year ended October 31, 2011.
• Grouping of assets in cash generating units (CGUs) on the basis of largely
independent cash inflows for impairment testing purposes, using a discounted future
cash flow method in a single-step approach.
• 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.
These changes had no impact on the November 1, 2010 opening balance sheet and
the statement of income (loss) for the year ended October 31, 2011.
IFRS require the use of qualitative versus quantitative thresholds as under Canadian
GAAP in accounting for capital leases.
This change had no impact on the November 1, 2010 opening balance sheet and the
statement of income (loss) for the year ended October 31, 2011.
• Recognition and measurement criteria for deferred tax assets and liabilities may
differ.
• All deferred tax balances are now classified outside of current assets and liabilities.
• A different threshold is used to recognize contingent liabilities, which could impact
•
•
the timing for recognition of provisions.
This change had no impact on the November 1, 2010 opening balance sheet and the
statement of income (loss) for the year ended October 31, 2011.
IFRS require a different format and additional disclosures in the notes to financial
statements.
The above table shows the key differences regarding accounting policies applied on or after the IFRS transition date and should not
be considered to be a comprehensive list.
As the Corporation assessed its obligations under IFRS, adjustments to internal control over financial reporting and disclosure
controls and procedures became necessary and new controls were implemented.
The Company has secured the appropriate internal and external resources to complete the transition plan in a timely fashion. The
Corporation has provided and continues to provide sufficient training to all resources concerned. The Corporation is regularly monitoring
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. The Corporation’s transition plan is currently on track with its implementation schedule, calling for initial reporting under IFRS as of the
quarter ended January 31, 2012.
30
Transat A.T. Inc.
2011 Annual Report
FINANCIAL INSTRUMENTS
Management’s Discussion and Analysis
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.
FOREIGN EXCHANGE RISK MANAGEMENT
The Corporation is exposed to foreign exchange risk, primarily as a result of its many arrangements with foreign-based suppliers,
aircraft and engine leases, fuel purchases, 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 less than 5% 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 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 regularly
demonstrates that these instruments are sufficiently effective to continue using hedge accounting. These derivative financial instruments are
designated as cash flow hedges except for any 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 (loss)” in the consolidated
statement of comprehensive income (loss). Any ineffectiveness within a cash flow hedge is recognized in net income (loss) as it arises in the
same account in the consolidated statement of income (loss) 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 portion of a cash flow hedge remains in accumulated other comprehensive income (loss) until the related hedged item is settled, at
which time amounts recognized in accumulated other comprehensive income (loss) are reclassified to the same income (loss) statement
account in which the hedged item is recognized. 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 (loss) 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 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.
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 consolidated 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 $75.2 million as at October 31, 2011. Trade
accounts receivable consist of a large number of customers, including travel agencies and other service providers. Trade accounts
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Transat A.T. Inc.
2011 Annual Report
Management’s Discussion and Analysis
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, 2011,
approximately 6% of accounts receivable were over 90 days past due, whereas approximately 82% were current, 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, 2011, these deposits
totalled $36.9 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 $12.6 million as at October 31, 2011 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
condition 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 related maintenance has been performed by
the Corporation. As at October 31, 2011, the cash security deposits with lessors that have been claimed totalled $19.3 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, 2011 relates to cash and cash
equivalents, including cash and cash equivalents 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 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, 2011.
LIQUIDITY RISK
The Corporation is exposed to the risk of being unable to honour 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 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.
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 $12.2 million in person-nights purchased at hotels belonging to CIBV, a company subject to significant influence.
32
Transat A.T. Inc.
2011 Annual Report
RISKS AND UNCERTAINTIES
Management’s Discussion and Analysis
This section provides an overview of the general risks as well as specific risks to which Transat and its subsidiaries are exposed, and
which are likely to have a significant impact on the Corporation’s financial position, operating results and activities. It does not purport to
cover all contingencies or to describe all factors that are likely to affect the Corporation or its activities. Moreover, the risks and uncertainties
described may or may not materialize, and may develop differently or have consequences other than those contemplated in this MD&A.
Additional risks and uncertainties not currently known to the Corporation or that are currently considered immaterial could also materialize in
the future and adversely affect the Corporation.
The Corporation has developed and implemented mitigation measures to minimize the impact of risks and/or the likelihood that risks
will materialize, and has assigned risks to “owners.”
ECONOMIC AND GENERAL FACTORS
The holiday travel industry is sensitive to business conditions. Economic factors such as a significant downturn in the economy, a
recession or a decline in consumer purchasing power or the employment rate in North America, Europe or key international markets could
have a negative impact on our business and operating results by affecting demand for our products and services. Our operating results could
also be adversely affected by factors beyond Transat’s control, including the following: extreme weather conditions, climate-related or
geological disasters, war, political instability, terrorism whether actual or apprehended, epidemics or disease outbreaks, consumer
preferences and spending patterns, consumer perceptions of destination-based service and airline safety, demographic 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 international 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 suppliers. We also
face competition from travel suppliers selling directly 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. The Corporation’s performance in all of the
countries in which it operates will depend on its continued ability to offer quality products at competitive 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 concerning
the U.S. dollar, the euro and the pound sterling against the Canadian dollar and the euro. These exchange rate fluctuations could increase
our operating costs or decrease our revenues. Changes in interest rates could also impact interest income from our cash and cash
equivalents as well as interest expenses on our variable rate debt instruments, which in turn could affect our interest income and
interest expenses.
FUEL COSTS AND SUPPLY
Transat is particularly exposed to fluctuations in fuel costs. Due to competitive pressures in the industry, there can be no assurance
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.
CHANGING INDUSTRY DYNAMICS: NEW DISTRIBUTION METHODS
The widespread popularity of the Internet has resulted in travellers 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 business occur rapidly and, in this respect, give rise
to certain 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.
33
Transat A.T. Inc.
2011 Annual Report
Management’s Discussion and Analysis
Further, given that we rely to some extent on retail travel agencies for access to travellers and revenues, any consumer shift away
from travel agencies and toward direct purchases from travel suppliers could impact the Corporation.
DEPENDENCE ON 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 exclusive 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
business, financial position and operating 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 CERTAIN SUPPLIERS OF PRODUCTS AND SERVICES
We source certain goods and services from third-party suppliers. Any significant interruption in the flow of goods and services from
these suppliers, which may be outside our control, could have a significant adverse impact on our business, financial position and operating
results. Our dependence on Airbus, Rolls-Royce and General Electric means that we could be adversely affected by problems connected
with Airbus aircraft and Rolls-Royce or General Electric engines or components, including defective material, mechanical problems or
negative perceptions among travellers. Our increasing dependence on a single type of aircraft could result in significant downtime for all or
part of our fleet if mechanical problems arise or if the regulator releases any mandatory inspection or maintenance directives applicable to
our types of aircraft.
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 technologies. Rapid changes in
these technologies could require higher-than-anticipated capital expenditures to improve customer service; this could impact our operating
results. In addition, any systems failures or outages could adversely affect our business, customer relationships and operating results.
DEPENDENCE ON CREDIT CARD PROCESSORS
As a Corporation that processes, transmits and retains information with respect to credit cards used by our customers, we must
comply with the regulatory requirements of our credit card processors. Failure to comply with certain rules regarding deposits or bank card
data security may result in penalties or in the suspension of service by credit card processors. The inability to use credit cards could have a
significant negative impact on our reservations and consequently on our operating results and profitability.
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 investment
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 payments 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.
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Transat A.T. Inc.
2011 Annual Report
FLUCTUATIONS IN FINANCIAL RESULTS
Management’s Discussion and Analysis
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 operating results between quarters or between six-month periods are not necessarily
meaningful and should not be relied on as indicators of future performance. Furthermore, due to the economic and general factors described
herein, 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 government 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 regulations impacting the operations of retail and wholesale travel agencies. In addition, the adoption of new or different regulatory
frameworks or amendments to existing legislation or regulations and tax policy changes could affect our operations, particularly as regards
hotel room taxes, car rental taxes, airline excise taxes and airport taxes and fees.
FUTURE CAPITAL REQUIREMENTS
Transat may need to raise additional funds in the future to capitalize on growth opportunities or to respond to competitive pressures.
The availability of financing under our existing credit facilities is subject to compliance with respect to certain covenants, including financial
ratios. There can be no guarantee that, in the future, our ability to use our existing credit facilities or to obtain additional financing will not be
jeopardized if current recessionary trends persist or worsen. Moreover, financial market volatility could limit access to credit and raise
borrowing costs, hampering access to additional funding under satisfactory terms and conditions. Our business, financial position and
operating results could be adversely affected as a result.
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 adverse impact on our business, financial position and operating results.
INSURANCE COVERAGE
In the wake of the terrorist attacks of September 11, 2001, the airline insurance market for risks associated with war and terrorist 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 domestic 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 government 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 insurance 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 assurance that our coverage will be sufficient
to cover larger claims or that the insurer concerned will be solvent at the time of any covered 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.
35
Transat A.T. Inc.
2011 Annual Report
ACCESS TO AIRPORT FACILITIES
Management’s Discussion and Analysis
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 our business.
With the privatization of airports and air navigation authorities over the past decade in Canada, new airports and air navigation
authorities have imposed significant increases in airport user fees and air navigation fees. If these user and navigation fees were to increase
substantially, our business, financial position and operating results could be adversely affected.
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 business.
AIRCRAFT AVAILABILITY
To carry on business or extend its outreach, the Corporation requires access to aircraft and, in particular, its own fleet operated 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 outcome 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.
LITIGATION
In the course of our business in the air carrier and travel industry, the Corporation is exposed to claims and legal proceedings,
including class action suits. Litigation and claims could adversely affect our business and operating results.
KEY PERSONNEL
The Corporation’s ability to achieve its business plan is a function of the experience of its key executives and employees, and their
expertise in the tourism, travel and air carrier industries. The loss of key employees could adversely affect our business and operating
results. Further, our recruitment program, salary structure, performance management programs, succession plan, as well as our training plan
carry risks that could have adverse effects on our ability to attract and retain the skilled resources needed to sustain the Corporation's growth
and success.
COLLECTIVE AGREEMENTS
As at October 31, 2011, the Corporation had approximately 6,500 employees, including nearly 40% unionized personnel covered by
12 collective agreements. Although most of the agreements were renewed for several years, our inability to renew certain collective
agreements, particularly the agreement covering Air Transat maintenance and store personnel that expired on April 30, 2011, could give rise
to work stoppages and other disruptions that could adversely impact our business, financial position and operating results.
Furthermore, although the collective agreements covering our pilots and flight attendants were renewed up to April 30, 2014 and
October 31, 2015, respectively, they include certain conditions which, in the event of non-compliance, could lead to the payment of
significant monetary compensation, thereby adversely impacting our operating results.
36
Transat A.T. Inc.
2011 Annual Report
CONTROLS AND PROCEDURES
Management’s Discussion and Analysis
The implementation of the Canadian Securities Administrators National Instrument 52-109 represents a continuous improvement
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 management.
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 effectiveness of
disclosure controls and procedures and the design 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:
• Material information relating to the Corporation has been made known to them; and
•
Information required to be disclosed in the Corporation’s filings 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 Administration and Chief Financial Officer. Based on this evaluation, these two
certifying officers concluded that the DC&P were adequate and effective as at October 31, 2011. This evaluation consisted of a review of
documentation, audits and other procedures that management considered appropriate in the circumstances. Among other things, the
evaluation took into consideration the Corporate Disclosure Policy, the code of professional ethics, 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 financial 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 Administration and Chief Financial Officer. Based on this evaluation, these two
certifying officers concluded that ICFR is effective as at October 31, 2011 using the criteria set forth by the Committee of Sponsoring
Organizations (COSO) of the Treadway Commission on Internal Control – Integrated Framework.
Lastly, although there were certain organizational changes, no significant changes in ICFR occurred during the fourth quarter ended
October 31, 2011 that materially affected, or are likely to materially affect, the Corporation’s ICFR.
OUTLOOK
The Canadian sun destinations market accounts for a very significant portion of Transat’s business in the winter. In that market, the
fact that, at this time of year, a significant portion of seats remains to be sold, the trend towards last-minute bookings and the volatility of
margins make it difficult to make forecasts.
For that market, Transat’s capacity is approximately 2% lower than the capacity offered at the same date last year (8% lower in first
quarter, and similar capacity in the second quarter, compared to same date last year). Load factors are similar; and selling prices are higher,
as are costs, mainly due to the increase in fuel costs in the first quarter and the value of the US dollar versus the Canadian dollar in the
second quarter.
In France, medium-haul bookings are down 13%, long-haul bookings are up 8% and prices are up in both cases.
On the transatlantic market, Transat’s capacity is 20% higher than last year for the winter, load factors are slightly lower, and prices
are slightly higher.
37
Transat A.T. inc.
Annual Report 2011
MANAGEMENT’S REPORT
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 reasonable and fair estimates in accordance with Canadian generally accepted accounting principles which are
adequate in the circumstances. The financial information presented throughout this annual report is consistent with that appearing in the
financial statements.
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 consolidated financial statements through its Audit Committee. The Audit Committee reviews
the annual consolidated financial statements and recommends their approval to the Board of Directors. The Audit Committee is also
responsible for analyzing, 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 consolidated financial statements appears opposite.
Jean-Marc Eustache
Chairman of the Board,
President and Chief Executive Officer
Denis
Denis Pétrin
Vice-President, Finance and Administration
and Chief Financial Officer
38
Transat A.T. inc.
Annual Report 2011
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Transat A.T. Inc.
We have audited the accompanying consolidated financial statements of Transat A.T. Inc., which comprise the consolidated balance sheets
as at October 31, 2011 and 2010, and the consolidated statements of income (loss), comprehensive income (loss), shareholders’ equity and
cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian
generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of
consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in
accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and
plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of
the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An
audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Transat A.T. Inc. as at
October 31, 2011 and 2010 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 13, 2011
1 CA auditor permit no. 13764
Chartered Accountants
39
TRANSAT A.T. INC.
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 tax assets [note 18]
Inventories
Prepaid expenses
Derivative financial instruments [note 6]
Current portion of deposits
Total current assets
Cash and cash equivalents reserved [note 4]
Investments in ABCP [note 5]
Deposits [note 7]
Future income tax assets [note 18]
Property, plant and equipment [notes 8, 12 and 17]
Goodwill [notes 9 and 17]
Other intangible assets [note 9]
Derivative financial instruments [note 6]
Investments and other assets [note 10]
LIABILITIES AND SHAREHOLDER’S 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 18]
Customer deposits and deferred income
Derivative financial instruments [note 6]
Payments on current portion of long-term debt
Total current liabilities
Long–term debt [note 12]
Provision for overhaul of leased aircraft
Other liabilities [note 13]
Future income tax liabilities [note 18]
Shareholder’s equity
Share capital [note 14]
Contributed surplus
Retained earnings
Accumulated other comprehensive loss [notes 6 and 15]
Commitments and contingencies [note 21]
See accompanying notes to consolidated financial statements.
On behalf of the Board :
2011
$
181,576
323,314
124,000
17,749
6,065
11,096
55,196
7,935
15,599
742,530
36,231
78,751
33,907
18,378
86,520
109,495
52,347
—
63,806
1,221,965
355,246
19,088
7,943
513
331,280
5,659
—
719,729
—
14,230
50,260
13,761
797,980
219,462
11,063
218,490
(25,030)
423,985
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
1,221,965
1,189,458
Director
Director
40
2011
$
2010
$
3,658,164
3,498,877
1,999,935
447,625
375,663
166,813
108,399
104,987
68,850
349,395
6,513
3,628,180
29,984
43,814
1,250
2,249
(7,395)
1,278
1,654
(8,113)
10,030
(827)
43,940
(13,956)
7,000
(11,802)
(4,802)
(9,154)
(3,059)
(12,213)
(0.32)
(0.32)
2,047,713
302,333
349,323
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
TRANSAT A.T. INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Years ended October 31
(in thousands of dollars, except per share amounts)
Revenues
Operating expenses
Direct costs
Aircraft fuel
Salaries and employee benefits
Commissions
Aircraft maintenance
Airport and navigation fees
Aircraft rent
Other
Restructuring – Severance benefits [note 17]
Amortization [note 16]
Interest on long-term debt
Other interest and financial expenses
Interest income
Change in fair value of derivative financial instruments used for aircraft
fuel purchases
Foreign exchange loss (gain) on long-term monetary items
Gain on investments in ABCP [note 5]
Restructuring – Impairment (gain on disposal) of assets [note 17]
Share of net loss (income) of a company subject to significant influence
Income (loss) before the undernoted items
Income taxes (recovery) [note 18]
Current
Future
Income (loss) before non-controlling interest in
subsidiaries’ results
Non-controlling interest in subsidiaries’ results
Net income (loss) for the year
Earnings (loss) per share [note 14]
Basic
Diluted
See accompanying notes to consolidated financial statement
41
TRANSAT A.T. INC.
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
Years ended October 31
(in thousands of dollars)
Net income (loss) 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 translation of financial statements of
self-sustaining foreign subsidiaries due to appreciation of
Canadian dollars vs. euro, pound sterling and U.S. dollar at
balance sheet date
Comprehensive income (loss) for the period
2011
$
(12,213)
15,812
(10,620)
(1,722)
3,470
(10,175)
(6,705)
(18,918)
2010
$
65,607
44,276
(22,191)
(6,564)
15,521
(13,233)
2,288
67,895
TRANSAT A.T. INC.
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS’ EQUITY
Years ended October 31
(in thousands of dollars)
Balance as at October 31, 2009
Net income for the year
Other comprehensive income
Issued from treasury [note 14]
Options exercised [note 14]
Compensation expense for stock option plan [note 14]
Balance as at October 31, 2010
Net loss for the year
Other comprehensive loss
Issued from treasury [note 14]
Options exercised [note 14]
Compensation expense for stock option plan [note 14]
Balance as at October 31, 2011
See accompanying notes to consolidated financial statement
Share capital
Contributed
surplus
$
216,236
—
—
1,226
142
—
217,604
—
—
1,361
497
—
219,462
$
6,642
—
—
—
—
2,448
9,090
—
—
—
(127)
2,100
11,063
Accumulated
other
comprehensive
income (loss)
Shareholder
s’ equity
$
(20,613)
—
2,288
—
—
—
(18,325)
—
(6,705)
—
—
—
(25,030)
$
367,361
65,607
2,288
1,226
142
2,448
439,072
(12,213)
(6,705)
1,361
370
2,100
423,985
Retained
earnings
$
165,096
65,607
—
—
—
—
230,703
(12,213)
—
—
—
—
218,490
42
TRANSAT A.T. INC.
CONSOLIDATED STATEMENTS OF
CASH FLOWS
Years ended October 31
(in thousands of dollars)
OPERATING ACTIVITIES
Net income (loss) for the period
Operating items not involving an outlay (receipt) of cash :
Amortization
Change in fair value of derivative financial instruments used for aircraft fuel
purchases
Foreign exchange loss (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 related to 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 operation
Cash flows related to operating activities
INVESTING ACTIVITIES
Additions to property, plant and equipment and intangible assets
Proceeds on disposal of property, plant and equipment and intangible assets
Disposal of investments in ABCP
Increase in cash and cash equivalent reserved
Consideration paid for an acquisition and a capital contribution to a company
under significant influence
Cash flow related to investing activities
FINANCING ACTIVITIES
Net change in credit facilities and other debt
Repayment of long-term debt
Proceeds from issuance of shares
Dividend paid by a subsidiaries to a non-controlling shareholder
Cash flow 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 (recovery)
Interest paid
See accompanying notes to consolidated financial statement
43
2011
$
2010
$
(12,213)
65,607
43,814
48,662
1,278
1,654
(8,113)
10,030
(827)
3,059
(11,802)
2,876
2,100
31,856
72,127
2,609
(15,919)
90,673
(54,194)
—
1,708
(4,197)
—
(56,683)
(15,475)
(13,198)
1,731
(2,528)
(29,470)
(3,571)
949
180,627
181,576
25,017
2,007
(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
Transat A.T. Inc.
Annual Report 2011
Notes to consolidated financial statements
October 31, 2011 and 2010
[Unless specified otherwise, amounts are expressed in thousands of Canadian dollars, except for per share amounts]
Note 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
operators based in Canada and Europe, which are vertically integrated with its other airline travel services, distribution network of travel
agencies services, value-added services at travel destinations and hotel services.
Note 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 accompanying 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 subject 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 interests, 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”].
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.
44
Transat A.T. Inc.
Annual Report 2011
PROPERTY, PLANT AND EQUIPMENT
Notes to consolidated financial statements
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
airframe, 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 (loss) 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 of a business over the fair value of identifiable net assets acquired.
Goodwill are tested for impairment annually at fiscal year-end 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
carrying 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 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 measure 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 (loss) 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
IMPAIRMENT OF LONG-LIVED ASSETS
3 to 10 years
7 to 10 years
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. 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
45
Transat A.T. Inc.
Annual Report 2011
Notes to consolidated financial statements
such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying 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 (loss).
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 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 liabilities
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
subject to significant influence, into Canadian dollars, its functional currency, 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 (loss).
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 (loss) 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 14.
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 (loss) 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 contributed 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 (loss) 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.
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 (loss) 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 (loss) over the unit vesting
period.
46
Transat A.T. Inc.
Annual Report 2011
REVENUE RECOGNITION
Notes to consolidated financial statements
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 recognized 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 (loss) 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
related 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 useful 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 techniques
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 instruments are
47
Transat A.T. Inc.
Annual Report 2011
Notes to consolidated financial statements
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 (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
account in the consolidated statement of income (loss) 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 portion of a cash flow hedge remains in “Accumulated other comprehensive income (loss)” until the related hedged item settles, at
which time amounts recognized in “Accumulated other comprehensive income (loss)” are reclassified to the same account in the
consolidated statement of income (loss) that records the hedged item. For derivative financial instruments designated as fair value hedges,
periodic changes in fair value are recognized in the same account in the consolidated statement of income (loss) as the hedged item.
In the normal course of business and to manage exposure to fuel pricing instability, the Corporation also enters into derivative
financial 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
“Change in fair value of derivative financial instruments used for aircraft fuel purchases” in the consolidated statement of income (loss).
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 7.7 years as at November 1, 2010. Plan obligations are discounted using current market interest rates
and are included in “Other liabilities.”
EARNINGS (LOSS) PER SHARE
Earnings (loss) 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 (loss) per share are calculated using the treasury stock method and take into
account all the elements that have a dilutive effect.
48
Transat A.T. Inc.
Annual Report 2011
Notes to consolidated financial statements
Note 3
FUTURE CHANGES IN 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 IFRS for its interim and annual financial statements for the fiscal year ending
October 31, 2012.
Note 4
CASH AND CASH EQUIVALENTS IN TRUST OR OTHERWISE RESERVED
As at October 31, 2011, cash and cash equivalents in trust or otherwise reserved included $281,292 [$266,617 as at October 31,
2010] in funds received from customers, consisting primarily of Canadians, for services not yet rendered and/or for which the availability
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 included $78,253, of which $36,231 was recorded as non-current
assets [$86,033 as at October 31, 2010, of which $32,222 was recorded as non-current assets], which was pledged as collateral security
against letters of credit.
Note 5
INVESTMENTS IN ABCP
RESTRUCTURATION
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 standstill 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 now has a notional value of $141,741.
PORTFOLIO
In fiscal 2011, the Corporation received $1,708 in principal repayments on ABCP supported solely by traditional securitized assets
[MAV3 Traditional].
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 traditional
securitized assets [Master Asset Vehicle 3 Traditional [“MAV3 Traditional”]]. The Corporation received its share of $620 of the cash
accumulated in the conduits. Also during the fiscal year ended October 31, 2010, the Corporation exercised one of its options allowing it to
repay a $9,355 portion of the balance of one its revolving credit facilities using ABCP supported primarily by subprime 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 corresponding credit agreement [see note 16]. 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.
49
Transat A.T. Inc.
Annual Report 2011
Notes to consolidated financial statements
The notional value of the new ABCP amounted to $116,414 as at October 31, 2011 and is detailed as follows:
MAV 2 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.
MAV 3 Traditional
The Corporation holds $3,104 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, 2011, 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,
2011, 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 value of 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 securities, 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 considered the information released by DBRS on September 23, 2011,
confirming the A+ rating of Class A-1 ABCP supported by synthetic assets or a combination of synthetic and traditional securitized assets
[MAV2 Eligible] and upgrading Class A-2 to a BBB+ rating.
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 at rates ranging from 0.0% to 1.16% [weighted average rate of 1.0%], depending on the type
of series. These future cash flows were discounted, according to the type of series, over a 5.2-year period using discount rates ranging from
6.4% to 30.8% [weighted average rate of 9.9%], which factor in liquidity.
Subsequent to this new valuation, the Corporation recognized increases, on October 31, 2011, in the fair value of its investments in
ABCP of $8,113 [$4,648 for the year ended October 31, 2010]. These adjustments do not take into account any additional amount of the
Corporation’s share of the estimated cash accumulated in the conduits. The ABCP investment portfolio had a fair value of $78,751 and the
provision for impairment totalled $37,663, representing 32.4% of the notional value of $116,414.
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 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 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
$3,600 in the estimated fair value of ABCP held by the Corporation.
50
Transat A.T. Inc.
Annual Report 2011
Notes to consolidated financial statements
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 (loss):
Balance as at October 31, 2009
Disposal of investments in ABCP
Increase in value of investments in ABCP
Principal repayments
Share of estimated cash accumulated in conduits
Balance as at October 31, 2010 / Impact on results for
the year ended October 31, 2010
Increase in value of investments in ABCP
Principal repayments
Balance as at October 31, 2011 / Impact on results for
the year ended October 31, 2011
Notional v
alue
$
128,835
(7,630)
—
(3,083)
—
118,122
—
(1,708)
116,414
Provisio
impairm
n for
ent
$
(57,434)
7,630
4,648
—
(620)
(45,776)
8,113
—
(37,663)
es
Inv tments
$
71,401
—
4,648
(3,083)
(620)
72,346
8,113
(1,708)
78,751
Lo
ss (gain)
$
(4
—
,648)
—
—
(4,648)
(8
,113)
—
(8,113)
The balance of investments in ABCP as at October 31, 2011 is detailed as follows:
Notion
al value
$
Prov
ision for impairment
$
In
vestments
$
34,415
63,894
11,598
3,403
0
3,104
4
113,31
116,41
(7,98
(19,8
(7,57
(2,68
(38,1
4)
99)
8)
0)
41)
478
63)
(37,6
26
,431
,995
43
020
4,
72
3
75
,169
3,582
,751
78
MAV 2 Eligible
Class A-1
Class A-2
Class B
Class C
MAV 3 Traditional
51
Transat A.T. Inc.
Annual Report 2011
Note 6
FINANCIAL INSTRUMENTS
CLASSIFICATION OF FINANCIAL INSTRUMENTS
Notes to consolidated financial statements
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:
2011
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
Financial liabilities
Accounts payable and accrued liabilities
Derivative financial instruments – Fuel purchasing forward
contracts and other fuel-related derivative financial
instruments
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
Financial liabilities
Accounts payable and accrued liabilities
Long-term debt
Derivative financial instruments – Fuel purchasing forward
contracts and other fuel-related derivative financial
instruments
Carrying amount
Fair value
Held-for-
trading
$
Loans and
receivables
$
Other
financial
liabilities
$
Total
$
$
181,576
359,545
—
78,751
—
—
—
124,000
—
12,597
2,048
621,920
—
136,597
—
2,772
2,772
—
—
—
—
—
—
—
—
—
—
181,576
359,545
124,000
78,751
12,597
2,048
758,517
181,576
359,545
124,000
78,751
12,597
2,048
758,517
355,246
355,246
355,246
—
355,246
2,772
358,018
2,772
358,018
Carrying amount
Fair value
Held-for-
trading
$
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
$
180,627
352,650
146,944
72,346
10,554
634
763,755
634
763,755
—
—
—
—
300,355
29,059
300,355
29,059
300,355
29,059
—
329,414
105
329,519
105
329,519
—
—
105
105
52
Transat A.T. Inc.
Annual Report 2011
Notes to consolidated financial statements
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 approximates 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 approximates 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 approximates 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 technique incorporates all
factors that market participants would consider in setting a price and that it is consistent with accepted economic methods for pricing financial
instruments.
The carrying amounts of derivative financial instruments as at October 31 were as follows:
2011
Derivative financial instruments designated
as cash flow hedges
Foreign exchange forward contracts
Derivative financial instruments classified as held-for-trading
Fuel purchasing forward contracts and other fuel-related
derivative financial instruments
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
53
Assets
$
Liabilities
$
5,887
2,887
2,048
7,935
2,772
5,659
Assets
$
Liabilities
$
250
4,011
7
—
634
891
105
4,116
Transat A.T. Inc.
Annual Report 2011
Notes to consolidated financial statements
The following table details the fair value hierarchy of financial instruments by level as at October 31:
Quoted prices in
active market
(Level 1)
Other observable
inputs
(Level 2)
Unobservable
inputs
(Level 3)
2011
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
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
$
—
—
—
—
—
—
—
$
—
2,048
5,887
7,935
2,772
2,887
5,659
$
Total
$
78,751
78,751
—
—
78,751
2,048
5,887
86,686
—
—
—
2,772
2,887
5,659
Quoted prices in
active market
(Level 1)
$
Other observable
inputs
(Level 2)
$
Unobservable
inputs
(Level 3)
$
Total
$
—
—
—
—
—
—
—
—
72,346
72,346
634
257
891
105
4,011
4,116
—
—
72,346
634
257
73,237
—
—
—
105
4,011
4,116
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.
54
Transat A.T. Inc.
Annual Report 2011
CREDIT AND COUNTERPARTY RISK
Notes to consolidated financial statements
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 $75,220 as at October 31, 2011 [$78,310 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 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, 2011, approximately 6% [approximately 7% as at October 31, 2010] of accounts receivable were over 90 days past due,
whereas approximately 82% [approximately 78% as at October 31, 2010] 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 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, 2011, these deposits
totalled $36,909 [$31,837 as at October 31, 2010] 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 $12,597 as at October 31, 2011 [$10,554 as at October 31,
2010] 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 disbursed. 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, 2011, the cash security deposits with lessors that have been
claimed totalled $19,309 [$13,879 as at October 31, 2010] and are 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, 2011 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 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 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, 2011.
LIQUIDITY RISK
The Corporation is exposed to the risk of being unable to honour 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.
55
Transat A.T. Inc.
Annual Report 2011
Notes to consolidated financial statements
The maturities of the Corporation’s financial liabilities as at October 31 are summarized in the following table:
Maturing in
under 1 year
$
Maturing in 1
to 2 years
$
Maturing in
2 to 5 years
$
Contractual
cash flows
Total
$
Carrying Value
Total
$
355,246
5,734
360,980
—
—
—
—
—
—
355,246
5,734
360,980
355,246
5,569
360,815
Maturing in
under 1 year
$
Maturing in 1
to 2 years
$
Maturing in
2 to 5 years
$
Contractual
cash flows
Total
$
Carrying Value
Total
$
300,355
4,205
14,089
318,649
—
—
15,291
15,291
—
—
—
—
300,355
4,205
29,380
333,940
300,355
4,116
29,059
333,530
2011
Accounts payable and accrued liabilities
Derivative financial instruments
Total
2010
Accounts payable and accrued liabilities
Derivative financial instruments
Long term-debt
Total
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 less than 10% 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 purchase and/or sale of foreign currencies based on
anticipated foreign exchange rate trends.
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)
2011
Financial statement measurement currency of the
group’s companies
Euro
Pound sterling
Canadian dollar
Other currencies
Total
U.S. Dollar
$
Euro
$
Pound
sterling
$
Canadian
dollar
$
Other
currencies
$
Total
$
(6,666)
406
(19,627)
92
(25,795)
—
2,721
(13,489)
50
(10,718)
175
—
(2,027)
—
(1,852)
4,754
6,412
—
—
11,166
(1,964)
—
(1,333)
613
(2,684)
(3,701)
9,539
(36,476)
755
(29,883)
56
Transat A.T. Inc.
Annual Report 2011
Notes to consolidated financial statements
Net assets (liabilities)
2010
Financial statement measurement currency of the
group’s companies
Euro
Pound sterling
Canadian dollar
Other currencies
Total
U.S. Dollar
$
Euro
$
Pound
sterling
$
Canadian
dollar
$
Other
currencies
$
Total
$
(9,185)
2,172
(28,624)
(276)
(35,913)
—
3,003
(8,518)
91
(5,424)
203
—
50
—
253
(457)
5,629
—
1
5,173
(2,061)
—
(313)
(13)
(2,387)
(11,500)
10,804
(37,405)
(197)
(38,298)
On October 31, 2011, a 1% 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 $1,270 increase or decrease [$7,400 as at October 31, 2010], respectively, in the Corporation’s
net loss for the year ended October 31, 2011, whereas other comprehensive income would have increased or decreased by $8,800 [$13,000
as at October 31, 2010], respectively.
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 mitigate fuel price fluctuations, 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, 2011, a 10% increase or decrease in fuel prices, assuming that all other variables had remained the same, would
have resulted in a $13,200 increase or decrease [$2,000 as at October 31, 2010], respectively, in the Corporation’s net loss for the year
ended October 31, 2011.
As at October 31, 2011, 25% of estimated fuel requirements for fiscal 2012 were covered by fuel-related derivative financial
instruments [18% of estimated requirements for fiscal 2011 were covered as at October 31, 2010].
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, 2011, a 25 basis point increase or decrease in interest rates, assuming that all other variables had remained the
same, would have resulted in a $1,400 increase or decrease [$1,000 as at October 31, 2010], respectively, in the Corporation’s net loss for
the year ended October 31, 2011.
CAPITAL RISK MANAGEMENT
The Corporation’s capital management objectives are first to ensure the longevity of its capital so as to support continued operations,
provide its shareholders with a return, generate benefits for its other stakeholders and maintain the most optimal capitalization possible with
a view to keeping capital costs to a minimum.
57
Transat A.T. Inc.
Annual Report 2011
Notes to consolidated financial statements
The Corporation manages its capitalization in accordance with changes in economic conditions. In order to maintain or adjust its
capitalization, 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 capitalization using the adjusted debt/equity ratio. This ratio is calculated as follows: net
debt/shareholders’ 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.
The Corporation’s strategy is to maintain its debt/equity ratio below 1. The calculation of the debt/equity ratio as at October 31 is
summarized as follows:
Net debt
Long-term debt
Obligations under operating leases [note 21]
Cash and cash equivalents
Investments in ABCP
Shareholders’ equity
Debt / equity ratio
2011
$
2010
$
—
636,618
(181,576)
(78,751)
376,291
423,985
88.8 %
29,059
637,520
(180,627)
(72,346)
413,606
439,072
94.2 %
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,
2011, 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.
Note 7
DEPOSITS
Deposits on leased aircraft and engines
Deposits with suppliers
Less current portion
2011
$
12,597
36,909
49,506
15,599
33,907
2010
$
10,554
31,837
42,391
12,554
29,837
58
Transat A.T. Inc.
Annual Report 2011
Notes to consolidated financial statements
Note 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
Note 9
GOODWILL AND OTHER INTANGIBLE ASSETS
GOODWILL
The change in goodwill is as follows:
Balance, beginning of year
Acquisition
Translation adjustment
2011
Accumulated
depreciation
$
134,171
42,900
39,128
31,375
14,837
25,156
25,714
23,429
1,613
338,323
Cost
$
154,286
60,667
44,500
38,412
20,172
29,936
37,457
30,902
8,511
424,843
338,323
86,520
2010
Accumulated
depreciation
$
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
2011
$
112,454
—
(2,959)
109,495
2010
$
113,993
335
(1,874)
112,454
On October 28, 2010, the Corporation acquired a number of assets for a cash consideration of $770 [£471]. These assets consisted,
in particular, of a trademark amounting to $220 [£135] and customer lists amounting to $220 [£135] and other net liabilities totalling $5 [£4].
Goodwill in the amount of $335 [£205] was recognized subsequent to this transaction.
On October 31, 2011, the Corporation performed its annual test for impairment of goodwill, and no impairment was detected [no
impairment in 2010]. The Corporation’s management is of the opinion that no significant change in the key assumptions used to calculate the
fair value of each of its reporting units could produce carrying amounts higher than those fair values, with the exception of one reporting unit
in France. This reporting unit, which includes outgoing tour operators and a travel agency network, generates a significant percentage of its
revenues from the sale of products to North Africa, including Tunisia, Morocco and Egypt. In establishing its assumptions for the
measurement of this reporting unit, management considered, among other factors, the potential impact on its future results of the prevailing
political climate in certain North African countries and current economic conditions in Europe. The fair value calculated for this reporting unit
was higher than its carrying amount, which includes a goodwill of $30,639. However, a change in the assumptions used could result in an
impairment in goodwill for this reporting unit. Furthermore, outcomes could be different if political instability in certain North African countries
does not subside in the medium term.
59
Transat A.T. Inc.
Annual Report 2011
OTHER INTANGIBLE ASSETS
Software, net of $68,206 in accumulated
amortization [$60,126 in 2010]
Trademarks not subject to amortization
Customer lists, net of $6,870 in accumulated
amortization [$5,400 in 2010]
Notes to consolidated financial statements
2011
$
32,378
14,694
5,275
52,347
2010
$
29,306
14,687
6,471
50,464
During the quarter ended October 31, 2011, the Corporation performed its annual impairment test on its trademarks, and no
impairment was detected [no impairment in 2010].
Note 10
INVESTMENTS AND OTHER ASSETS
Investment in Caribbean Investments B.V. [“CIBV”]
Deferred costs, unamortized balance
Other investments
Sundry
The change in the investment in CIBV is detailed as follows:
Balance, beginning of year
Capital contribution
Share of net income (loss)
Translation adjustment
2011
$
60,612
1,301
80
1,813
63,806
2011
$
61,239
—
827
(1,454)
60,612
2010
$
61,239
1,868
115
1,646
64,868
2010
$
66,347
1,110
(490)
(5,728)
61,239
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 cover 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, 2011, the Corporation’s share of the long-term debt
amounted to $6,192 [US$6,233].
Note 11
BANK LOANS
Operating lines of credit totalling €11,500 [$15,934] [€10,000 [$14,155] in 2010] have been authorized for certain French subsidiaries.
These operating lines of credit are renewable annually and were undrawn as at October 31, 2011 and 2010.
For its European operations, the Corporation has guarantee facilities renewable annually amounting to €12,729 [$17,637] [€13,462
[$19,055] in 2010]. As at October 31, 2011, letters of guarantee had been issued totalling €3,049 [$4,224] [€3,394 [$4,806] in 2010].
60
Transat A.T. Inc.
Annual Report 2011
Note 12
LONG TERM DEBT
Loans secured by aircraft repaid during the year
[US$13,333 as at October 31, 2010]
Drawdowns under the revolving term credit facilities
maturing from 2010 to 2012
Other
Less current portion
Notes to consolidated financial statements
2011
$
—
—
—
—
—
—
2010
$
13,584
15,000
475
29,059
13,768
15,291
On July 29, 2011, the Corporation renewed the agreements for its revolving credit facilities for operations and issuance of letters of
credit. Under the new agreements, the Corporation has access to a $100,000 revolving credit facility maturing in 2015, which is renewable or
immediately payable in the event of a change in control. The Corporation also has a $60,000 annually renewable revolving credit facility for
issuing letters of credit in respect of which the Corporation must pledge cash as collateral security against 105% of letters of credit. Under
the terms and conditions of the agreement for the revolving credit facility for operations, 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, 2011, the Corporation had an $84,096 revolving credit facility which matures in 2013 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 2.00% for the year ended October 31, 2011. 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 maximum of $45,317 using the restructured notes.
The fair value of this option, as at the grant date and since then at each balance sheet date, is not material.
Note 13 OTHER LIABILITIES
Accrued benefit liability [note 20]
Deferred lease inducements
Non-controlling interests
2011
$
20,790
20,831
8,639
50,260
2010
$
18,630
18,500
8,238
45,368
On February 26, 2010, the Corporation made a cash payment of $504 [€350] to acquire the non-controlling interest of Tourgreece
Tourist Enterprises S.A. consisting of the remainder of the shares [10%] that it did not already own.
Note 14
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 percentage
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
61
Transat A.T. Inc.
Annual Report 2011
Notes to consolidated financial statements
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
further 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 further 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, 2009
Issued from treasury
Exercise of options
Balance as at October 31, 2010
Issued from treasury
Exercise of options
Balance as at October 31, 2011
Number of
shares
37,728,799
97,302
23,733
37,849,834
129,067
42,819
38,021,720
$
216,236
1,226
142
217,604
1,361
497
219,462
As at October 31, 2011, the number of Class A Shares and Class B Shares stood at 933,731 and 37,087,989, respectively [997,796
and 36,852,038 as at October 31, 2010].
SUBSCRIPTION RIGHTS PLAN
At the Annual General Meeting [AGM] held on March 10, 2011, the shareholders ratified the shareholders’ subscription rights plan
amended and updated on January 12, 2011 [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 exercised. 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 2014 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
62
Transat A.T. Inc.
Annual Report 2011
Notes to consolidated financial statements
date. Options granted are exercisable over a ten-year period, provided the performance criteria determined on each grant are met. The
remaining options available for grant under the former plan totalled 1,342,693. The options granted are exercisable over a ten-year period in
three tranches of 33(cid:31)% 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.
Under the former stock option plan, the Corporation may grant up to a maximum of 105,051 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. Under the plan, cancelled options will be available for grant in future. 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
2011
Number
of options
Weighted
average price
$
Number
of options
2010
Weighted
average price
$
1,722,302
237,239
(42,819)
(172,245)
1,744,477
907,328
16.04
19.24
8.63
13.85
16.88
19.65
1,101,140
682,570
(23,733)
(37,675)
1,722,302
668,680
18.31
12.25
5.99
19.82
16.04
21.45
2011
Outstanding options
Options exercisable
Range of
exercise price
$
3.80 - 6.99
10.52 - 15.68
19.24 - 21.36
22.34 - 28.41
37.03 - 37.25
Number of options
outstanding as at
October 31, 2011
Weighted average
remaining life
Number of options
exercisable as at
October 31, 2011
Weighted
average price
$
Weighted
average price
$
12,618
989,873
436,967
184,397
120,622
1,744,477
0.5
7.9
7.8
4.1
5.6
7.3
6.66
11.93
20.33
22.62
37.24
16.88
12,618
365,962
223,729
184,397
120,622
907,328
6.66
11.75
21.36
22.62
37.24
19.65
COMPENSATION EXPENSE FOR STOCK OPTION PLAN
During the year ended October 31, 2011, the Corporation granted 237,239 stock options [682,570 in 2010] 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
2011
3.26%
6 years
52,9 %
—
$9.93
2010
3.54%
6 years
49.0 %
—
$5.02
During the year ended October 31, 2011, the Corporation recorded a compensation expense of $2,100 [$2,448 in 2010] for its stock
option plan. In addition, $127 of contributed surplus was recognized in share capital for the exercise of options during the year [nil in 2010].
63
Transat A.T. Inc.
Annual Report 2011
SHARE PURCHASE PLAN
Notes to consolidated financial statements
A share purchase plan is available to eligible employees of the Corporation and its subsidiaries. Under the plan, as at October 31,
2011, the Corporation was authorized to issue up to 134,125 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 129,067 Class B Shares [97,302 Class B Shares in 2010] for a total of $1,361 [$1,226 in
2010] 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, 2011, the Corporation accounted for a compensation expense of $141 [$153 in 2010] 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
annually 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 participants’ account
as and when they purchase shares under the share purchase plan.
During the year ended October 31, 2011, the Corporation accounted for a compensation expense of $260 [$234 in 2010] 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 average closing price of the
Class B Shares for the five trading days prior to the repurchase of the DSUs.
As at October 31, 2011, the number of DSUs awarded amounted to 62,266 [55,387 as at October 31, 2010]. Subsequent to the
decline in its share prices, the Corporation reduced compensation expense by $405 [increased compensation expense by $99 in 2010] for its
deferred share unit plan during the year ended October 31, 2011.
RESTRICTED SHARE UNIT PLAN
Restricted share units [“RSUs”] are awarded annually to eligible employees under the new 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, subject to certain
conditions and certain provisions relating to the Corporation’s financial performance. For the purpose of repurchasing RSUs, the value of an
64
Transat A.T. Inc.
Annual Report 2011
Notes to consolidated financial statements
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, 2011, the number of RSUs awarded amounted to 461,371 [418,841 as at October 31, 2010]. During the year ended
October 31, 2011, subsequent to the decline in its share price and the revaluation of its financial performance covenants, the Corporation
reduced compensation expense by $1,860 [increased compensation expense by $1,121 in 2010] for its restricted share unit plan.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share and diluted earnings per share were computed as follows:
[In thousands, except per share amounts]
NUMERATOR
Income (loss) used to calculate diluted earnings (loss) per share
DENOMINATOR
Weighted average number of outstanding shares
Effect of dilutive securities
Stock options
Adjusted weighted average number of outstanding shares used in
computing diluted earnings (loss) per share
Basic earnings (loss) per share
Diluted earnings (loss) per share
2011
$
2010
$
(12,213)
65,607
37,930
—
37,930
(0.32)
(0.32)
37,796
197
37,993
1.74
1.73
In light of the loss recognized for the year ended October 31, 2011, the 1,744,477 outstanding stock options were not included in the
calculation of diluted loss per share because of their anti-dilutive effect.
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.
Note 15
ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss
Balance as at October 31, 2009
Change during the year
Balance as at October 31, 2010
Change during the year
Balance as at October 31, 2011
Deferred
translation
adjustments
$
Accumulated
other
comprehensive
loss
$
(3,570)
(13,233)
(16,803)
(10,175)
(26,978)
(20,613)
2,288
(18,325)
(6,705)
(25,030)
Cash flow
hedges
$
(17,043)
15,521
(1,522)
3,470
1,948
65
Transat A.T. Inc.
Annual Report 2011
Note 16
AMORTIZATION
Property, plant and equipment
Intangible assets subject to amortization
Other assets
Deferred lease inducements
Options related to repayment of revolving credit facilities
Note 17
RESTRUCTURING CHARGE (GAIN)
Notes to consolidated financial statements
2011
$
34,240
8,292
2,151
(869)
—
43,814
2010
$
41,582
12,047
433
(1,200)
(4,200)
48,662
During the last quarter of the year ended October 31, 2011, the Corporation developed a restructuring plan mainly aimed at reducing
direct costs and operating expenses and adjusting its information systems approach. Under this plan, Transat recognized a restructuring
charge totalling $16,543. The charge consists of $6,513 in severance benefits payable in cash of which an amount of $4,324 was unpaid as
at October 31, 2011 and included under accounts payable and accrued liabilities. The plan also provides for changes in IT solutions to
facilitate a faster deployment of proven solutions at lower cost. As a result, the Corporation recorded an impairment charge of $10,030 on
software under development.
During the year ended October 31, 2010, a $1,157 gain was realized on the disposal of travel agencies in France under a
restructuring plan implemented in 2009.
Note 18
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:
Income taxes (recovery) at the statutory rate
(3,896)
28.7
28,003
30.1
2011
2010
$
%
$
%
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
(3,083)
1,621
—
—
(176)
—
144
238
350
(4,802)
22.7
(11.9)
—
—
1.3
—
(1.1)
(1.7)
(2.7)
35.3
(3,163)
(556)
(1,919)
264
1,394
(121)
209
(30)
(275)
23,806
(3.4)
(0.6)
(2.1)
0.3
1.5
(0.1)
0.2
0.0
(0.3)
25.6
66
Transat A.T. Inc.
Annual Report 2011
Notes to consolidated financial statements
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 loss 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
2011
$
2010
$
13,435
(11,415)
16,281
(596)
(1,971)
15,734
(5,565)
10,169
6,065
18,378
(513)
(13,761)
10,169
3,482
(15,183)
17,549
465
(917)
5,396
(5,327)
69
2,895
9,650
(106)
(12,370)
69
As at October 31, 2011, non-capital losses carried forward and other tax deductions for which a writedown was recorded, available to
reduce future taxable income of certain subsidiaries in Canada and the Caribbean, totalled $779 in Canada [$519 in Canada as at
October 2010] and MXP 27,340 [$2,238] [MXP 8,566 [$669] in Mexico as at October 31, 2010].
Of these loss carryforwards and deductions, $779 expires in 2026 and thereafter, MXP 27,340 ($2,238) expires in 2020 and
thereafter.
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.
Note 19
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:
2011
$
2010
$
Operating expenses incurred with company subject to significant influence
12,213
13,283
67
Transat A.T. Inc.
Annual Report 2011
Note 20
EMPLOYEE FUTURE BENEFITS
Notes to consolidated financial statements
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 $31,973 letter of credit to the trustee [see note 12]. The Corporation uses an actuarial estimate to measure 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 (gain) on obligation
Accrued benefit obligation, end of year
2011
$
25,325
961
—
1,231
(715)
(220)
26,582
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
2011
$
—
26,582
26,582
778
5,014
20,790
2011
$
961
1,231
281
403
2,876
2010
$
20,674
774
293
1,222
(715)
3,077
25,325
2010
$
—
25,325
25,325
1,058
5,637
18,630
2010
$
774
1,222
214
84
2,294
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
68
2011
%
4.50
3.00
4.75
3.00
2010
%
4.75
3.00
5.75
3.00
Transat A.T. Inc.
Annual Report 2011
Notes to consolidated financial statements
Note 21
COMMITMENTS AND CONTINGENCIES
a)
The Corporation’s commitments under agreements with suppliers amounted to $143,324, whereas its obligations under operating
leases for aircraft, buildings, automotive equipment, telephone systems, maintenance contracts and office premises amounted to
$636,618. These commitments total $779,942 are allocated as follows: $207,953, $464,350 [US$467,388], $105,152 [€75,889],
$2,471 [£1,541] and $16 [MXP 215].
The annual payments to be made under these commitments during the next five years are as follows:
2012
2013
2014
2015
2016
$
191,440
145,190
114,645
72,387
62,115
b)
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.
c) Between 2014 and 2018, 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.
d)
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.
e) 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.
69
Transat A.T. Inc.
Annual Report 2011
Note 22 GUARANTEES
Notes to consolidated financial statements
The Corporation has entered into agreements in the normal course of business containing clauses meeting the definition of a
guarantee. These agreements provide compensation and guarantees to counterparties in transactions such as operating leases, irrevocable
letters of credit and collateral security 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 and 21 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 expire 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 significant 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
customers for the performance of its obligations. As at October 31, 2011, the total guarantees provided by the Corporation under the letters
of credit amounted to $563. Historically, the Corporation has not made any significant payments under such letters of credit.
COLLATERAL SECURITY CONTRACTS
The Corporation has entered into collateral security 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, 2011, these guarantees totalled $686. Historically, the Corporation has not made
any significant payments under such agreements. As at October 31, 2011, no amounts have been accrued with respect to the above-
mentioned agreements.
GUARANTEE FACILITY
The Corporation has a $50,000 guarantee facility renewable annually. Under this agreement, the Corporation may issue collateral
security contracts with a maximum three-year term. As at October 31, 2011, $13,562 had been drawn down under the facility.
70
Transat A.T. Inc.
Annual Report 2011
Note 23
SEGMENTED DISCLOSURE
Notes to consolidated financial statements
The Corporation has determined that it conducts its activities in a single industry segment, namely holiday travel. Therefore, the
statements of income (loss) 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.
2011
Revenues from third parties
Operating expenses
2010
Revenues from third parties
Operating expenses
Canada
France
United Kingdom
Other
Americas
$
Europe
$
Total
$
2,762,351
2,772,480
(10,129)
2,567,983
2,480,817
87,166
895,813
855,700
40,113
930,894
890,478
40,416
3,658,164
3,628,180
29,984
3,498,877
3,371,295
127,582
Revenues (1)
2011
$
2010
$
2,714,169
677,188
200,574
66,233
3,658,164
2,532,147
666,004
248,245
52,481
3,498,877
Property, plant and equipment,
goodwill and other intangible assets
2011
$
149,848
49,697
33,711
15,106
248,362
2010
$
147,247
57,587
34,517
11,943
251,294
(1) Revenues are allocated based on the subsidiary’s country of domicile.
71
Transat A.T. inc.
Annual Report 2011
[in thousands of dollars, except per share amounts]
Consolidated statements of income
Revenues
Operating expenses
Expenses and other revenues
Amortization
Interest on long-tem debt and debenture
Other interest and financial expense
Interest income
Change in fair value of derivative financial instruments 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
Net change in cash and cash equivalents
Cash and cash equivalents, end of year
Cash provided by operations 1
Total assets
Long term debt (including current portion)
Debenture
Shareholders’ equity
Debt/equity ration 2
Book value per share 3
Return on average shareholders’ equity 4
Shareholding statistics (in thousands)
Outstanding shares, end of year
Weighted average number of outstanding shares (undiluted)
Weighted average number of outstanding shares (diluted)
Supplementary financial data
2011
2010
2009
2008
2007
3,658,164
3,628,180
29,984
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
43,814
1,250
2,249
(7,395)
1,278
1,654
10,030
(8,113)
—
(827)
43,940
(13,956)
(4,802)
(3,059)
(12,213)
(0.32)
(0.32)
90,673
(56,683)
(29,470)
(3,571)
949
181,576
31,856
1,221,965
—
—
423,985
0.65
11.15
(2.8%)
48,662
2,225
2,359
(3,036)
(9,341)
(1,109)
(1,157)
(4,648)
—
490
34,445
93,137
23,806
(3,724)
65,607
1.74
1.73
119,131
(27,819)
(81,034)
(10,203)
75
180,627
105,173
1,189,458
29,059
—
439,072
0.63
11.60
16.3%
51,155
4,866
2,679
(4,588)
(68,267)
(135)
11,967
(68)
—
(24)
(2,415)
95,810
30,916
(3,047)
61,847
1.86
1.85
45,234
(26,662)
18,303
(2,090)
34,785
180,552
108,380
1,129,503
107,684
3,156
367,361
0.67
9.74
17.3%
56,147
7,538
1,758
(16,172)
106,435
2,295
—
45,927
(1,605)
427
202,750
(74,982)
(28,875)
(3,287)
(49,394)
(1.49)
(1.49)
95,069
(142,027)
15,091
10,866
(21,001)
145,767
121,166
1,267,214
150,085
3,156
345,930
0.73
10.59
(15.9%)
50,176
6,229
1,929
(19,745)
(26,577)
(3,023)
3,900
11,200
—
(651)
23,438
112,909
34,625
(737)
77,822
2.30
2.27
156,728
(195,657)
(14,830)
5,640
(48,119)
166,768
125,868
1,072,377
88,681
3,156
283,452
0.74
8.43
27.0%
33,628
33,763
34,212
1 Represent cash flows from operating activities excluding the net change in non-cash working capital balances related to operations, the net change in the
37,729
33,168
33,485
37,850
37,796
37,993
32,678
33,108
33,108
38,022
37,930
37,930
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 outstanding shares.
4 Net income (loss) divided by the average shareholders’ equity.
72
n
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a
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o
f
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I
Head Office
Transat A.T. Inc.
Place du Parc
300 Léo-Pariseau Street, Suite 600
Montréal, Québec H2X 4C2
Telephone: 514.987.1660
Fax: 514.987.8035
www.transat.com
info@transat.com
Information
www.transat.com
For additional information,
contact in writing the Vice-President,
Finance and Administration
and Chief Financial Officer.
Ce rapport annuel
est disponible en français.
Stock Exchange
Toronto Stock Exchange (TSX)
TRZ.B; TRZ.A.
Transfer Agent and Registrar
Canadian Stock Transfer Company Inc.,
as Administrative agent for
CIBC Mellon Trust Company
2001 University Street, Suite 1600
Montréal, Québec
H3A 2A6
Toll-free: 1.800.387.0825
inquiries@cibcmellon.com
www.cibcmellon.com
Auditors
Ernst & Young LLP
Montréal, Québec
Annual General Meeting
of shareholders
March 15, 2012, 10:00 a.m.
McGill New Residence Hall
Ballroom (Level C)
3625 Avenue du Parc
Montreal QC H2X 3P8
Graphic Design:
Claude Angers