TRANSAT_2016.qxp_RAP_AN_2016 2016-12-14 14:09 Page1
Transat A.T. Inc.
Annual Report 2016
Transat A.T. Inc.
is an integrated
international tour
operator that
specializes in
holiday travel.
It offers some
25 destination
countries and
distributes
products in
more than
50 countries.
TRANSAT_2016.qxp_RAP_AN_2016 2016-12-14 14:09 Page2
Revenues
(In thousands of dollars)
2016 2,889,646
2015 2,897,950
2014 2,996,106
2013 2,969,642
2012 3,051,775
Cash flows relating to operating activities
(In thousands of dollars)
2016 43,561
2015 108,992
2014 90,009
2013 102,179
2012 15,703
Aircraft fuel
(In thousands of dollars)
2016 329,784
2015 440,804
2014 462,942
2013 417,891
2012 505,422
Adjusted operating income
(In thousands of dollars)
2016 25,776
2015 100,608
2014 86,369
2013 114,302
2012 32,473
Net income (loss) attributable to shareholders
(In thousands of dollars)
2016 (41,748)
2015 42,565
2014 22,875
2013 57,955
2012 (16,669)
TRANSAT_2016.qxp_RAP_AN_2016 2016-12-14 14:09 Page3
Highlights
(In thousands of dollars, except per share amounts and ratios)
Revenues
2016
2015 Variance
Variance
2,889,646
$
2,897,950 (8,304)
%
(0.3)
Adjusted operating income 1
25,776
100,608 (74,832)
(74.4)
Net income (loss)
Net income (loss) attributable to shareholders
Diluted earnings (loss) per share
Cash flows related to operating activities
(36,759)
(41,748)
(1.13)
43,561
46,964 (83,723)
42,565 (84,313)
1.10 (2.23)
108,992 (65,431)
(178.3)
(198.1)
(202.7)
(60.0)
Cash and cash equivalents
Total assets
363,664
1,277,420
336,423 27,241
1,513,764 (236,344)
Long-tem debt (including current portion)
Debt ratio 2
Stock price as at October 31 (TRZ)
Oustanding shares, end of year (in thousands)
—
0.64
6.12
36,859
— N/A
0.65 (0.01)
7.71 (1.59)
37,591 (732)
(20.6)
(1.9)
8.1
(15.6)
N/A
(1.5)
1 Adjusted operating income: Operating income before depreciation and
amortization expense, restructuring charge, lump-sum payments related to
collective agreements and other significant unusual items, and including
premiums for fuel-related derivatives and other derivatives matured during
the period.
2 Debt ratio: Total liabilities divided by total assets.
TRANSAT_2016.qxp_RAP_AN_2016 2016-12-14 14:09 Page4
Message to Shareholders
Hastening the transition
2016 surpassed even the historic highs of the previous year,
both in terms of annual sales and adjusted operating income.
This past fiscal year was Transat’s 30th as a publicly tra-
ded company. The year 2017 will be an opportunity to offi-
cially celebrate our 30th anniversary and look back on the
day we went public, February 13, 1987, as well as the day of
our first commercial flight, which took off for Acapulco on
Behind the disappointing overall results, we need to
focus on the far-reaching changes that we are currently im-
plementing, and which are paving the way for the Transat of
the future.
The most visible of those changes has been the winding
November 14, 1987. Throughout those three decades, we
have pooled the energy and enthusiasm of several thousand
up of our tour operating business units in France and Greece,
finalized on October 31 following approval by the European
employees, all with a passion for travel, who have put all their
heart and skills into serving tens of millions of travellers from
Commission on October 21. In line with our strategic plan,
we have begun our shift in focus to the Americas, stepping
all over the world. International tourism is continuing to grow,
and there are no signs of that development slowing. But our
industry is changing, and with 2016 now behind us, we turn
away from business lines that no longer fit with our core ob-
jectives. That disposal of assets also gives us additional
means to follow through on our growth initiatives on this side
our attention to our ongoing work to adapt to those changes
of the Atlantic. We have announced that we were conside-
and make Transat the leader of tomorrow.
ring the opportunity of either purchasing the totality of the
shares of Ocean Hotels, or selling the 35% we currently hold.
While 2016 was certainly challenging for our bottom
We want to control our hotels. We are having discussions with
line, because of extremely demanding market conditions, it
has borne fruit on the strategy front and it heralds a new
phase of development for Transat.
our partner H10 on the topic.
In a similar vein, we made the decision to restructure
our distribution in some European countries through out-
We had an especially difficult winter season, caused by
sourcing, which resulted in the closing of our Netherlands-
multiple adverse factors including the Zika virus epidemic,
the threat of strike action by our pilots, terror attacks, and
based business unit. In addition, we grouped all of our direct
seat sales under a single software tool, Datalex. Seats are also
the overall state of Canada’s economy, reflected in a weak
dollar and muted demand in the Western Provinces.
now grouped into a single centralized inventory, which has
advantages for our customers as well as for Transat. We are
The summer brought improvement, but the significant
therefore heading into 2017 with a more streamlined, more
cost-effective, and dramatically more efficient distribution
increase in overall capacity on the transatlantic market (14%
system.
higher than last year) meant that we were unable to duplicate
our record performances of the three previous years, when
we posted the best summer results in Transat’s history. As a
result, for the first time since 2012, our strong summer per-
formance was not enough to offset the losses posted over
the winter. Transat therefore ended the year with an adjusted
operating income of $25.8 million and an adjusted net loss
of $15.5 million, reflecting an adjusted operating loss of $36.7
million in the winter and an adjusted operating income of
$62.5 million in the summer.
Worthy of note, however, is the performance of Jon-
view Canada, our Canadian incoming tour operator, which in
We have further simplified our structure in Canada as
well, among other means by consolidating our call centre
operations in Montreal and refocusing our cruise business
around value-added sales, in the form of packaged cruises.
These changes, besides providing us with a leaner or-
ganizational structure and greater agility, have served our
ambitious cost-reduction and margin-improvement pro-
gram, which has reached this year its $75 million target this
year, which is $30 million more than in 2015 and sets us firmly
on course to achieve our $100 million target for 2017. Among
the factors contributing to that objective, in addition to com-
2
TRANSAT_2016.qxp_RAP_AN_2016 2016-12-14 14:10 Page5
mercial negotiations, insourcing of our narrow-body fleet,
and our double flexible fleet model, it’s important to note
the strong growth in our ancillary revenues, which has ex-
ceeded our initial forecasts.
The year 2016 has also seen improvements to our air
services. On the one hand, we have expanded our domestic
feeder flights program, allowing us to offer more destinations
through Montreal, Toronto, Quebec City, Vancouver and
Calgary. On the other, we’ve increased frequency to and
from our two main European destinations, Paris and London.
On the distribution side, we are very proud of our re-
vamped website, which went live in September and now
offers richer content as well as an improved user experience
across all platforms, with search-results display speeds
surpassing those of our main competitors. With the new ap-
plications installed last year and early this year, our online
presence is now of the very highest standard. We are convin-
attendants, thus ensuring stable labour relations for the years
to come.
All of that fundamental work, along with our sound ba-
lance sheet, means that we head into fiscal 2017 well equip-
ped for continued development, and well prepared to deliver
on our plans for acquisitions in the hotel market and, subse-
quently, in the U.S. market. The strategy, as you can see, is
to build on our strengths; in other words, to broaden our
scope and wield greater control over Sun destinations mar-
ket supply, with the ultimate goal of returning to profitability
in winter.
Before concluding this message, I must remark—as I do
every year—on our progress on sustainability. During 2016,
Transat became the first tour operator in North America to
be awarded Travelife Partner status, putting us in a strong
position to achieve full certification within the next two
years, as planned. Among other achievements and distinc-
ced that these technology upgrades will drive even stronger
growth in direct sales, which were two percentage points
tions, we made Corporate Knights’ list of the 10 Best Corpo-
rate Citizens in Canada, and for the sixth year in a row, Air
higher this year than last.
Another of our major strategy initiatives concerns our
branding. Last year, we permanently shelved the Nolitours
and Vacances TMR brands, bringing them under the Transat
Transat was ranked number one in North America and in the
top 20 worldwide by the Atmosfair Airline Index, acknowled-
ging its fuel-savings and emissions-reduction performance.
About distinctions, Air Transat has been recognized as
and Air Transat banners, and completed the migration of
the best vacation airline at North America in Skytrax’s World
our owned agencies to the Transat Travel / Voyages Transat
banner. We also revisited and enhanced our brand platform,
Airline Awards, for the fifth year in a row, and Transat ranked
first in three different categories in the Agents’ Choice
and strengthened our visibility at Montréal-Trudeau airport,
Awards, including best tour operator for the third consecu-
inaugurating Espace Air Transat in the new international jetty.
From here on, there’s no doubt that for our customers,
tive year.
“vacation is calling.”
I wish to sincerely thank everyone who has made it
possible for us to achieve all this progress: our employees,
Lastly, we renewed several collective agreements over
the past year, including those with our pilots and flight
our partners, the members of the Board of Directors, and of
course our customers.
Jean-Marc Eustache
Chairman of the Board,
President and Chief Executive Officer
December 14, 2016
3
TRANSAT_2016.qxp_RAP_AN_2016 2016-12-14 14:10 Page6
Board of Directors
Jean-Marc Eustache
Chairman of the Board
President and Chief Executive Officer
Transat A.T. Inc.
Jean-Yves Leblanc
Lead Director
Corporate Director
Raymond Bachand
Strategic Advisor
Norton Rose Fulbright
Louis-Marie Beaulieu
Chairman of the Board and
President and Chief Executive Officer
Groupe Desgagnés inc.
Lucie Chabot
Vice-President
and Chief Financial Officer
SAIL Outdoors Inc.
Lina De Cesare
Corporate Director
Committees
Executive Committee
Jean-Marc Eustache
(President)
W. Brian Edwards
Jean-Yves Leblanc
Jacques Simoneau
Human Resources
and Compensation
Committee
W. Brian Edwards
(President)
Susan Kudzman
Jean-Yves Leblanc
Louis-Marie Beaulieu
Audit Committee
Jean-Yves Leblanc
(President)
Lucie Chabot
Jacques Simoneau
Raymond Bachand
Risk Management
and Corporate
Governance
Committee
Jacques Simoneau
(President)
W. Brian Edwards
Susan Kudzman
Senior Management
Jean-Marc Eustache
Chairman of the Board
President and Chief Executive Officer
Transat A.T. Inc.
Joseph Adamo
President,
Transat Distribution Canada Inc.
Jean-François Lemay
President,
Air Transat A.T. Inc.
André De Montigny
President, Transat International
and Vice-President,
Corporate Development
Transat A.T. Inc.
Annick Guérard
President,
Transat Tours Canada Inc.
Michel Bellefeuille
Vice-President
and Chief Information Officer
Transat A.T. Inc.
Jean Pierre Delisle
Corporate Director
and Executor of estates
W. Brian Edwards
Corporate Director
Susan Kudzman
Executive Vice-President
and Chief Risk and Corporate
Affairs Officer,
Laurentian Bank of Canada
Jacques Simoneau
President and CEO
and Director Gestion Univalor, s.e.c.
Philippe Sureau
Corporate Director
Daniel Godbout
Senior Vice-President
Transport and Yield Management
Transat A.T. Inc.
Christophe Hennebelle
Vice-President, Human Resources
and Corporate Affairs
Transat A.T. Inc.
Bernard Bussières
Denis Pétrin
Vice-President, General Counsel
and Corporate Secretary
Transat A.T. Inc.
Vice-President,
Finance and Administration
and Chief Financial Officer
Transat A.T. Inc.
4
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, 2016, compared with the year ended October 31, 2015, 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, 2016. 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, 2016 and Annual Information Form.
These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). We
occasionally refer to non-IFRS financial measures in the MD&A. See the Non-IFRS 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-IFRS FINANCIAL MEASURES ................................................................................................................................... 7
FINANCIAL HIGHLIGHTS .................................................................................................................................................. 10
OVERVIEW ........................................................................................................................................................................ 11
DISCONTINUED OPERATIONS ........................................................................................................................................ 14
CONSOLIDATED OPERATIONS ....................................................................................................................................... 15
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES ................................................................................... 22
OTHER ............................................................................................................................................................................... 27
ACCOUNTING ................................................................................................................................................................... 27
RISKS AND UNCERTAINTIES .......................................................................................................................................... 34
CONTROLS AND PROCEDURES ..................................................................................................................................... 39
OUTLOOK .......................................................................................................................................................................... 39
MANAGEMENT’S REPORT ............................................................................................................................................... 40
INDEPENDENT AUDITORS’ REPORT ............................................................................................................................. 41
5
Transat A.T. Inc.
2016 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 2017 objectives and continue building on
its long-term strategies.
The outlook whereby the Corporation expects revenues to increase and total travellers to remain stable compared with fiscal
2016.
The outlook whereby the Corporation expects to generate positive cash flows from operating activities in 2017.
The outlook whereby additions to property, plant and equipment and intangible assets could amount to approximately
$50.0 million.
The outlook whereby the Corporation will be able to meet its obligations with cash on hand, cash flows from operations and
drawdowns under existing credit facilities.
The outlook whereby operating income for the winter may show improvement over last year.
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.
2016 Annual Report
NON-IFRS FINANCIAL MEASURES
Management’s Discussion and Analysis
This MD&A was prepared using results and financial information determined under IFRS. In addition to IFRS financial measures,
management uses non-IFRS measures to assess the Corporation’s operational performance. It is likely that the non-IFRS financial measures
used by the Corporation will not be comparable to similar measures reported by other issuers or those used by financial analysts as their
measures may have different definitions. The measures used by the Corporation are furnished to provide additional information and should
not be considered in isolation or as a substitute for IFRS financial performance measures.
Generally, a non-IFRS financial measure is a numerical measure of an entity’s historical or future financial performance, financial
position or cash flows that is neither calculated nor recognized under IFRS. Management believes that such non-IFRS financial measures
are important as they provide users of our financial statements with a better understanding of the results of our recurring operations and their
related trends, while increasing transparency and clarity into our operating results. Management also believes these measures to be useful in
assessing the Corporation’s capacity to discharge its financial obligations.
By excluding from results items that arise mainly from long-term strategic decisions and/or do not, in our opinion, reflect
the Corporation’s operating performance for the period, such as the change in fair value of fuel-related derivatives and other derivatives,
restructuring charges, impairment of goodwill, depreciation and amortization and other significant unusual items, we believe this MD&A helps
users to better analyze the Corporation’s results and ability to generate cash flows from operations. Furthermore, the use of non-IFRS
measures helps users by enabling better comparability of results from one period to another and better comparability with other businesses
in our industry.
The non-IFRS measures the Corporation uses to assess operational performance include adjusted operating income (loss), adjusted
pre-tax income (loss) and adjusted net income (loss).
Management also uses total debt and total net debt to assess the Corporation’s debt level, cash position, future cash needs and
financial leverage ratio. Management believes these measures to be useful in assessing the Corporation’s capacity to discharge its current
and future financial obligations.
7
Transat A.T. Inc.
2016 Annual Report
Management’s Discussion and Analysis
The non-IFRS measures used by the Corporation are as follows:
Adjusted operating
income (loss)
Operating income (loss) before depreciation and amortization expense, restructuring charge, lump-sum
payments related to collective agreements and other significant unusual items, and including premiums for
fuel-related derivatives and other derivatives matured during the period.
Adjusted pre-tax
income (loss)
Adjusted net
income (loss)
Income (loss) before income tax expense before change in fair value of fuel-related derivatives and other
derivatives, gain (loss) on disposal of a subsidiary, restructuring charge, lump-sum payments related to
collective agreements, asset impairment and other significant unusual items, and including premiums for
fuel-related derivatives and other derivatives matured during the period.
Net income (loss) attributable to shareholders before net income (loss) from discontinued operations, change
in fair value of fuel-related derivatives and other derivatives, gain (loss) on disposal of a subsidiary,
restructuring charge, lump-sum payments related to collective agreements, asset impairment and other
significant unusual items, and including premiums for fuel-related derivatives and other derivatives matured
during the period, net of related taxes.
Adjusted net
income (loss) per share
Adjusted net income (loss) divided by the adjusted weighted average number of outstanding shares used in
computing diluted earnings (loss) per share.
Adjusted operating
leases
Aircraft rental expense for the past four quarters multiplied by 5.
Total debt
Long-term debt plus the amount for adjusted operating leases.
Total net debt
Total debt (described above) less cash and cash equivalents.
8
Transat A.T. Inc.
2016 Annual Report
Management’s Discussion and Analysis
The following table reconciles the non-IFRS financial measures to the most comparable IFRS financial measures:
(in thousands of Canadian dollars, except per share amounts)
Operating income (loss)
Lump-sum payments related to collective agreements
Restructuring charge
Depreciation and amortization
Premium related to fuel-related derivatives and other derivatives
matured during the year
Adjusted operating income
Income (loss) before income tax expense
Lump-sum payments related to collective agreements
Restructuring charge
Change in fair value of fuel-related derivatives and other derivatives
Loss on disposal of a subsidiary
Asset impairment
Premium related to fuel-related derivatives and other derivatives
matured during the year
Adjusted pre-tax income (loss)
Net income (loss) attributable to shareholders
Net loss (income) from discontinued operations
Lump-sum payments related to collective agreements
Restructuring charge
Change in fair value of fuel-related derivatives and other derivatives
Loss on disposal of a subsidiary
Asset impairment
Premium related to fuel-related derivatives and other derivatives
matured during the year
Tax impact
Adjusted net income (loss)
Adjusted net income (loss)
Adjusted weighted average number of outstanding shares used
in computing earnings per share
Adjusted net income (loss) per share
Aircraft rent
Multiple
Adjusted operating leases
Long-term debt
Adjusted operating leases
Total debt
Total debt
Cash and cash equivalents
Total net debt
2016
$
(30,335)
7,263
6,562
50,038
2015
$
54,791
—
—
45,817
(7,752)
25,776
—
100,608
(97,374)
7,263
6,562
(6,901)
843
79,708
(7,752)
(17,651)
(41,748)
(49,772)
7,263
6,562
(6,901)
843
79,708
(7,752)
(3,745)
(15,542)
61,732
—
—
1,391
—
—
—
63,123
42,565
2,355
—
—
1,391
—
—
—
(397)
45,914
2014
$
36,401
—
6,387
43,581
—
86,369
21,508
—
6,387
21,978
—
369
—
50,242
22,875
(6,282)
—
6,387
21,978
—
369
—
(7,566)
37,761
(15,542)
45,914
37,761
36,899
(0.42)
38,558
1.19
39,046
0.97
October 31, October 31, October 31,
2014
$
2015
$
2016
$
135,813
5
679,065
—
679,065
679,065
679,065
(363,664)
315,401
98,859
5
87,229
5
494,295
436,145
—
494,295
494,295
494,295
(336,423)
157,872
—
436,145
436,145
436,145
(308,887)
127,258
9
Transat A.T. Inc.
2016 Annual Report
FINANCIAL HIGHLIGHTS
(in thousands of Canadian dollars, except per share amounts)
Consolidated Statements of Income (Loss)
Revenues
Adjusted operating income(1)
Net income (loss) attributable to shareholders
Basic earnings (loss) per share
Diluted earnings (loss) per share
Adjusted net income (loss) (1)
Adjusted net income (loss) per share(1)
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 Statements of Financial Position
Cash and cash equivalents
Cash and cash equivalents in trust or otherwise reserved
(current and non-current)
Total assets
Debt (current and non-current)
Total debt(1)
Total net debt(1)
1 SEE NON-IFRS FINANCIAL MEASURES
Management’s Discussion and Analysis
2016
$
2015
$
2014
$
2,889,646
25,776
(41,748)
(1.13)
(1.13)
(15,542)
(0.42)
2,897,950
100,608
42,565
1.11
1.10
45,914
1.19
2,996,106
86,369
22,875
1.51
1.51
37,761
0.97
43,561
5,093
(9,823)
(12,132)
26,699
108,992
(53,854)
(12,672)
3,402
45,868
90,009
(52,683)
191
(2,262)
35,255
As at
As at
As at
October 31, October 31, October 31,
2014
$
2015
$
2016
$
Change
2016
%
(0.3)
(74.4)
(198.1)
(201.8)
(202.7)
(133.9)
(135.3)
(60.0)
109.5
22.5
(456.6)
(41.8)
2015
%
(3.3)
16.5
86.1
(26.5)
(27.2)
21.6
22.7
21.1
(2.2)
(6,734.6)
250.4
30.1
Change
2016
%
Change
2015
%
363,664
336,423
308,887
8.1
338,581
702,245
1,277,420
—
679,065
412,099
748,522
1,513,764
—
494,295
380,184
689,071
1,375,030
—
436,145
315,401
157,872
127,258
(17.8)
(6.2)
(15.6)
—
37.4
99.8
8.9
8.4
8.6
10.1
—
13.3
24.1
10
Transat A.T. Inc.
2016 Annual Report
OVERVIEW
THE HOLIDAY TRAVEL INDUSTRY
Management’s Discussion and Analysis
The holiday travel industry consists of tour operators, traditional and online travel agencies, destination service providers, 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, in networks or online, are
distributors serving as intermediaries between suppliers and consumers. Hotel operators sell accommodation, on an all-inclusive basis or
not, either directly, through travel agencies or through tour operators. Air carriers sell seats through travel agencies or directly to tour
operators that use them in building packages, or directly to consumers.
CORE BUSINESS, VISION AND STRATEGY
CORE BUSINESS
Transat is an integrated international tour operator. We operate solely in the holiday travel industry and market our services 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 purchased in Canada and abroad and
reselling them primarily in Canada, France, the U.K. and in ten other European countries, directly or through intermediaries, as part of a
multi-channel strategy. Transat is also a retail distributor, both online and through travel agencies, some of which it owns. Transat relies on
its subsidiary Air Transat for a significant portion of its needs, but also deals with other air carriers as needed. Transat offers destination
services to Canada, Mexico, the Dominican Republic and Jamaica. Transat holds an interest in a hotel business which owns, operates or
manages properties in Mexico, Cuba and the Dominican Republic.
VISION
As a leader in holiday travel, Transat intends to pursue growth by inspiring trust in travellers and by offering them an experience that is
exceptional, heart-warming and reliable. Our customers are our primary focus, and sustainable development of tourism is our passion. 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 has considerably improved the effectiveness of its airline operations and launched
technological initiatives to improve its efficiency as a distributor. The strategy also includes entry into new source markets and the launch of
new destinations, targeting new markets for its traditional destinations and increasing its buying power for these routes. Alongside these
initiatives, Transat intends to leverage targeted technology investments and efficiency gains to improve its operating income and maintain or
grow market share in all its markets. Given the growing strategic importance of sustainable development in the holiday and air travel
industries, Transat has undertaken to adopt avant-garde policies on corporate responsibility and sustainable tourism.
11
Transat A.T. Inc.
2016 Annual Report
Management’s Discussion and Analysis
For fiscal 2017, Transat has set the following objectives:
Increase the competitiveness of our distribution, notably by reinforcing our product offering and network, continuing to increase our
controlled sales and client intimacy and optimizing our revenue management.
Continue to improve Air Transat’s operational efficiency and plan for the optimization and renewal of our fleet.
Increase our presence in hotels and acquire more hotel management competencies.
Pursue our cost reduction t and unit margin improvement efforts.
Continue working on employee engagement.
REVIEW OF 2016 OBJECTIVES AND ACHIEVEMENTS
The main objectives and achievements for fiscal 2016 were as follows:
Implement an integrated distribution and brand strategy, including an enhanced online shopping experience, higher controlled
sales, deployment of the Transat brand and finalization of the required technological projects.
Transat has made a major step this year in the implementation of an integrated distribution and brand strategy by eliminating
the Nolitours and Tours Mont-Royal brands and focusing all of our offering under the brands Transat and Air Transat. The conversion of
Transat-owned travel agencies to the Transat Travel banner has also been finalized, with an additional 29 agencies converted this year, to
reach a total of 49 agencies under the new banner.
The Corporation has deployed a ‘best of breed’ website offering all of its products, thus vastly improving the online shopping
experience especially through a reduction of the response time.
The direct sales made through the web and call centre have increased from 14.5% to 16.5% of the total sales, with a more modest
increase of the total controlled sales from 35% to 36%.
Increase capacity and improve the competitiveness of our sun destination offering, strengthen our presence and increase our
capacity in the transatlantic market.
Transat has increased its capacity on the sun market in the winter by 4.6%, to 1.043 million seats in the winter and that of the
transatlantic market by 7.6% to 883,000 seats in the summer.
The Corporation has improved the regularity of flight times to its annual destinations, Paris and London. It has also added connecting
flights (between Montréal and Toronto, from Québec to Montréal and from Vancouver and Calgary to Toronto), which allows to offer more
destinations from each of those cities.
Reduce winter financial losses and maintain summer profitability, in particular by continuing our cost reduction and unit margin
improvement program, with gains of $30 million expected in 2016.
The cost and margin initiatives have delivered the target gain of $30 million in 2016.
However, the Zika epidemic, combined with a threat of strike from pilots and a weak Canadian dollar, have constituted a strong
headwind in the winter, which has prevented us from reducing our financial losses.
Summer profitability has been in the norm of Transat history, though reduced when compared to the record levels of the past few
years, in a market where capacity has increased by 15% year on year.
Enter a new market via acquisition and optimize our hotel strategy, particularly through our interest in Ocean Hotels.
We have been active in reviewing acquisitions opportunities throughout the year and will continue to do so moving forward. Our hotel
joint venture, Ocean Hotels, has acquired land in Jamaica and our plans to increase our number of rooms are well under way.
12
Transat A.T. Inc.
2016 Annual Report
Management’s Discussion and Analysis
Simplify the organizational structure and optimize the succession management plan.
We have simplified our international network by selling our French and Greek subsidiaries, Transat France and Tourgreece, to TUI,
while closing our office in Amsterdam and subcontracting our sales in the Netherlands, Belgium, Germany and Switzerland.
We have also simplified our Canadian operations and product offering by regrouping our call centres in Montréal and limiting our
cruise products to a packaged offering.
We have streamlined our succession management plan and have continued developing our internal talent.
Obtain Travelife Partner status.
In May 2016, Transat became the first tour operator in North America to earn Travelife Partner status in recognition of its commitment
to sustainable development. That exercise enabled us to map out a new action plan, broken down into seven areas. Implementing it should
allow us to fulfil the final step in the certification process within two years.
KEY PERFORMANCE DRIVERS
The following key performance drivers are essential to the successful implementation of our strategy and the achievement of our
objectives.
ADJUSTED OPERATING INCOME
Obtain an adjusted operating income margin higher than 3% of revenues.
MARKET SHARE
Consolidate or increase market share in all regions in Canada and in Europe.
REVENUE GROWTH
Grow revenues by more than 3%, excluding acquisitions.
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
Credit facilities
Our balances of cash and cash equivalents not held in trust or otherwise reserved totalled
$363.7 million as at October 31, 2016. Our continued focus on expense reductions and
operating income growth should maintain these balances at healthy levels.
We can also draw on credit facilities totalling approximately $50.0 million.
Our non-financial resources include:
Brand
Structure
Employees
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 over our
products and services and facilitates implementing programs to achieve gains in efficiency.
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 sun destinations as well as over 25 years of
privileged relationships with many hotels at these destinations and in Europe.
Transat has the resources it needs to meet its 2017 objectives and continue building on its long-term strategies.
13
Transat A.T. Inc.
2016 Annual Report
DISCONTINUED OPERATIONS
Management’s Discussion and Analysis
On October 31, 2016, the Corporation completed the sale of its tour operating businesses in France (Transat France) and Greece
(Tourgreece) for an amount of €63.4 million ($93.3 million) to TUI AG, a multinational tourism company. The price could be adjusted at the
final closing of accounts and completion of the audit within 90 business days following the sale, due to a working capital adjustment.
European competition authorities approved the transaction on October 21, 2016.
As at October 31, 2015, the tour operating businesses in France and Greece were not identified as discontinued operations or as
assets held for sale. The Corporation announced on January 12, 2016 the initiation of a process to seek interest from third parties that could
potentially lead to the sale of certain assets held by the Corporation outside Canada, namely its tour operators in France and Greece.
Accordingly, the comparative consolidated statements of income (loss) and comprehensive income (loss) were restated to report
discontinued operations separately from continuing operations.
A gain on disposal of $49.7 million, net of transaction costs of $7.1 million, was also recognized in the consolidated statement of
income (loss) and the proceeds of disposal amounting to $93.3 million, net of cash disposed of, are shown in the consolidated statement of
cash flows. The gain on disposal and the net consideration received are detailed as follows:
Selling price
Transaction costs
Cash and cash equivalents disposed of
Net assets disposed of (excluding cash and cash equivalents)
Consolidated statements
of income
$
93,254
(7,073)
(22,978)
(13,511)
49,692
Consolidated statements
of cash flows
$
93,254
(2,228)
(22,978)
—
68,048
The disposal of Transat France and Tourgreece will have no impact on Transat’s transatlantic program or on Air Transat’s operations.
14
Transat A.T. Inc.
2016 Annual Report
CONSOLIDATED OPERATIONS
(in thousands of dollars)
Continuing operations
Revenues
Operating expenses
Costs of providing tourism services
Salaries and employee benefits
Aircraft fuel
Aircraft maintenance
Aircraft rent
Airport and navigation fees
Commissions
Other
Share of net income of an associate
Depreciation and amortization
Special items
Operating expenses
Operating income (loss)
Financing costs
Financing income
Change in fair value of fuel-related derivatives and other derivatives
Foreign exchange gain on non-current monetary items
Loss on disposal of a subsidiary
Asset impairment
Income (loss) before income tax expense
Income taxes (recovery)
Current
Deferred
Net income (loss) from continuing operations
Discontinued operations
Net income (loss) from discontinued operations
Net income (loss) for the year
Net income (loss) attributable to:
Shareholders
Non-controlling interests
Earnings (loss) per share from continuing operations
Basic
Diluted
Earnings (loss) per share
Basic
Diluted
Management’s Discussion and Analysis
2016
$
2015
$
2014
$
Change
%
2,889,646
2,897,950
2,996,106
(0.3)
1,309,430
346,899
329,784
178,317
135,813
128,695
92,018
341,504
(6,342)
50,038
13,825
2,919,981
(30,335)
1,669
(6,996)
(6,901)
(1,284)
843
79,708
(97,374)
(17,188)
6,345
(10,843)
(86,531)
1,260,250
340,280
440,804
146,006
98,859
117,862
95,170
305,156
(7,045)
45,817
—
2,843,159
54,791
1,775
(7,576)
1,391
(2,531)
—
—
61,732
14,041
(1,628)
12,413
49,319
1,402,230
327,026
462,942
128,892
87,229
119,977
105,440
284,095
(8,094)
43,581
6,387
2,959,705
36,401
1,541
(7,872)
21,978
(1,123)
—
369
21,508
11,924
(10,200)
1,724
19,784
3.9
1.9
(25.2)
22.1
37.4
9.2
(3.3)
11.9
(10.0)
9.2
N/A
2.7
(155.4)
(6.0)
(7.7)
(596.1)
(49.3)
N/A
N/A
(257.7)
(222.4)
(489.7)
(187.4)
(275.5)
%
(3.3)
(10.1)
4.1
(4.8)
13.3
13.3
(1.8)
(9.7)
7.4
(13.0)
5.1
(100.0)
(3.9)
50.5
15.2
(3.8)
(93.7)
125.4
—
(100.0)
187.0
17.8
(84.0)
620.0
149.3
49,772
(36,759)
(2,355)
46,964
6,282
26,066
(2,213.5)
(178.3)
(137.5)
80.2
(41,748)
4,989
(36,759)
42,565
4,399
46,964
22,875
3,191
26,066
(2.48)
(2.48)
(1.13)
(1.13)
1.17
1.16
1.11
1.10
0.43
0.42
0.59
0.59
(198.1)
13.4
(178.3)
(312.0)
(313.8)
(201.8)
(202.7)
86.1
37.9
80.2
172.1
176.2
88.1
86.4
15
Transat A.T. Inc.
2016 Annual Report
REVENUES
Management’s Discussion and Analysis
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, 2016, our revenues were down $8.3 million (0.3%), owing to our summer season during which
average selling prices and load factors decreased following the 14% increase in overall capacity in the transatlantic market, among other
factors. Lower fuel prices also contributed to the decrease in average selling prices. During the summer, total travellers increased by 5.1%
across all our markets compared with 2015. The lower revenues during the summer season was partly offset by higher revenues during our
winter season which saw an overall 5.9% increase in total travellers across all our markets as well as higher average selling prices for
package-type products to sun destinations, our main market for the period. Overall, during the year, total travellers were up 5.5%.
For 2017, we expect revenues to increase compared with 2016 with total travellers remaining stable.
OPERATING EXPENSES
Our total operating expenses increased $76.8 million (2.7%) during the year compared with 2015. The increase resulted primarily from
our winter season during which the number of total travellers increased, driven by our decision to increase by 4.5% our sun destination
product offering to sun destinations, our main market for the period, and the weakening of the dollar against the U.S. dollar. Although
capacity increased by 6.2% during the summer in our transatlantic segment, our main market for the period, operating expenses remained
stable.
COSTS OF PROVIDING TOURISM SERVICES
Costs of providing tourism services are incurred by our tour operators. They include hotel room costs and the cost of booking blocks of
seats or full flights with carriers other than Air Transat. The $49.2 million (3.9%) increase resulted mainly from the dollar’s weakening against
the U.S. dollar and the increase in our sun destination product offering during the winter season, offset by lower hotel room costs. Additions
to our Boeing 737 fleet compared with 2015 (seven aircraft during winter and three during summer) also contributed to the decline in our
flight purchases from air carriers other than Air Transat.
SALARIES AND EMPLOYEE BENEFITS
Salaries and employee benefits rose $6.6 million (1.9%) to $346.9 million for the year ended October 31, 2016. The increase resulted
primarily from the hiring of pilots, cabin crew and mechanics following the addition of Boeing 737s to our aircraft fleet, and annual
salary reviews.
AIRCRAFT FUEL
Aircraft fuel expense was down $111.0 million (25.2%) for the year, due to lower fuel price indicators in financial markets. However,
the Corporation was unable to fully benefit from this decrease due to the fuel price hedging program it has in place. The dollar’s weakening
against the U.S. dollar (fuel is paid mainly in U.S. dollars) and the expansion of our aircraft fleet compared with 2015 also contributed to
mitigate the decrease in aircraft fuel prices.
AIRCRAFT MAINTENANCE
Aircraft maintenance costs consist mainly of engine and airframe maintenance expenses incurred by Air Transat. Compared with
2015, these expenses rose $32.3 million (22.1%) during the year. This increase was largely due to expansion in our aircraft fleet compared
with 2015 and to the dollar’s weakening against the U.S. dollar.
AIRCRAFT RENT
In line with our strategic plan, we implemented a flexible aircraft fleet at the beginning of fiscal 2015. In addition to our permanent fleet,
this flexible fleet allows us, among other options, to operate a seasonal fleet including a greater number of Boeing 737s during the winter
than during the summer season.
During winter 2016, Air Transat’s permanent fleet consisted of twelve Airbus A330s, nine Airbus A310s and four Boeing 737-800s.
For its flexible fleet, the Corporation had seasonal lease agreements for fifteen Boeing 737s compared with fourteen during winter 2015.
During summer 2016, Air Transat’s permanent fleet consisted of fourteen Airbus A330s, nine Airbus A310s and seven Boeing 737-800s. Of
this number, two Airbus A330s and three Boeing 737-800s were commissioned during summer 2016.
16
Transat A.T. Inc.
2016 Annual Report
Management’s Discussion and Analysis
The $37.0 million (37.4%) increase in aircraft rent during the year resulted from the addition of aircraft and the weakening of the dollar
against the U.S. dollar.
AIRPORT AND NAVIGATION FEES
Airport and navigation fees consist mainly of fees charged by airports and air traffic control entities. During the year, these fees rose
$10.8 million (9.2%) compared with 2015. The increase was due to expansion in our aircraft fleet compared with 2015 and the dollar’s
weakening against the U.S. dollar.
COMMISSIONS
Commissions include the fees paid by tour operators to travel agencies for serving as intermediaries between tour operators and
consumers. Commissions amounted to $92.0 million, down $3.2 million (3.3%) compared with fiscal 2015. As a percentage of revenues,
commissions decreased and accounted for 3.2% of our revenues for the year compared with 3.3% in 2015. The decrease was attributable to
the increase in revenues on which no commissions are calculated.
OTHER
Other expenses rose $36.3 million (11.9%) during the year, compared with 2015. The increase resulted primarily from a rise in other
air costs following the expansion of our fleet compared with 2015.
SHARE OF NET INCOME OF AN ASSOCIATE
Our share of net income of an associate represents our share of the net income of our hotel business, Caribbean
Investments B.V. [“CIBV”]. Our share of net income of an associate for the current fiscal year totalled $6.3 million compared with $7.0 million
for 2015. The decrease in our share of net income was driven by a foreign exchange loss, offset by an improved operating profitability.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense includes the depreciation of property, plant and equipment, and the amortization of intangible
assets subject to amortization and deferred incentive benefits. Depreciation and amortization expense rose $4.2 million during fiscal 2015.
The increase resulted from additions and improvements to our aircraft fleet.
SPECIAL ITEMS
Special items include the restructuring charge, lump-sum payments related to collective agreements and other significant unusual
items. During the year ended October 31, 2016, lump-sum payments in the amount of $7.3 million were recognized in connection with the
renewal of the collective agreement with cabin crews, in addition to a restructuring charge of $6.6 million, comprising mainly termination
benefits related to the closure of call centres and a tour operator in the Netherlands.
17
Transat A.T. Inc.
2016 Annual Report
OPERATING RESULTS
Management’s Discussion and Analysis
In light of the foregoing, the Corporation recorded an operating loss of $30.3 million (1.0%) for the year compared with operating
income of $54.8 million (1.9%) for the previous year. Operating results by season are summarized as follows:
(in thousands of dollars)
Winter season
Revenues
Operating expenses
Operating loss
Operating loss (%)
Summer season
Revenues
Operating expenses
Operating income
Operating income (%)
2016
$
2015
$
2014
$
1,613,944
1,668,187
(54,243)
(3.4)
1,559,102
1,596,641
(37,539)
(2.4)
1,675,704
1,698,528
(22,824)
(1.4)
1,275,702
1,251,794
23,908
1.9
1,338,848
1,246,518
92,330
6.9
1,320,402
1,261,177
59,225
4.5
Change
2016
%
3.5
4.5
(44.5)
(39.6)
(4.7)
0.4
(74.1)
(72.8)
2015
%
(7.0)
(6.0)
(64.5)
(76.8)
1.4
(1.2)
55.9
53.7
We recognized an operating loss for the winter season amounting to $54.2 million (3.4%) compared with an operating loss of
$37.5 million (2.4%) in 2015. The higher operating loss was mainly attributable to the weakening of the dollar against the U.S. dollar, which,
combined with the decrease in fuel prices, led to a rise in operating expenses of $49.0 million for sun packages. Nearly 60% of this increase
was offset by our cost reduction initiatives and the increase in average selling prices for our sun packages. Lastly, consumer fears about the
Zika virus, the risk of strike action by Air Transat pilots and a slowdown in demand in the West precluded an improvement in profitability.
During the summer, the Corporation generated operating income of $23.9 million (1.9%) compared with $92.3 million (6.9%) for the
previous year. The decline in operating income resulted primarily from decreases in load factors and average selling prices on the
transatlantic market following higher overall capacity, partly offset by lower fuel costs, which, combined with the weakening of the dollar
against the U.S. dollar, led to a $28.3 million decrease in operating expenses in the transatlantic market. The special items also contributed
to the deterioration in operating results.
During
the winter season,
loss of $36.7 million (2.3%) compared with
$15.0 million (1.0%) in fiscal 2015. For the summer season, we recorded adjusted net income of $62.5 million (4.9%) compared with
$115.6 million (8.6%) for 2015. Overall, for the fiscal year, we reported adjusted operating income of $25.8 million (0.9%) compared with
$100.6 million (3.5%) in 2015.
the Corporation reported an adjusted operating
OTHER EXPENSES AND REVENUES
FINANCING COSTS
Financing costs comprise interest on long-term debt and other interest, standby fees, and financial expenses. Financing costs were
down $0.1 million in 2016 compared with 2015.
FINANCING INCOME
Financing income during the year was down $0.6 million from 2015, owing primarily to lower interest rates.
18
Transat A.T. Inc.
2016 Annual Report
Management’s Discussion and Analysis
CHANGE IN FAIR VALUE OF FUEL-RELATED DERIVATIVES AND OTHER DERIVATIVES
The change in fair value of fuel-related derivatives and other derivatives 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 and foreign
exchange. During the year, the fair value of fuel-related derivatives and other derivatives rose $6.9 million, compared with a $1.4 million
decrease in fair value in 2015. The increase resulted from the favourable change in fuel price indices relating to outstanding derivatives and
to matured foreign exchange derivatives, partially offset by the unfavourable change in the dollar compared with the U.S. dollar relating to
outstanding foreign exchange derivatives.
FOREIGN EXCHANGE GAIN ON NON-CURRENT MONETARY ITEMS
The foreign exchange gain on non-current monetary items, amounting to $1.3 million for the year compared with $2.5 million in 2015,
resulted mainly from a favourable foreign exchange effect on our foreign currency deposits.
LOSS ON DISPOSAL OF A SUBSIDIARY
On April 1, 2016, the Corporation closed the sale of its Travel Superstore subsidiary for a total cash consideration of $0.3 million and
recorded a $0.8 million loss on disposal of a subsidiary.
IMPAIRMENT OF ASSETS
During the fiscal year ended October 31, 2016, the Corporation recognized a $79.7 million asset impairment charge consisting of
$15.8 million in impairment of trademarks and $63.9 million in impairment of goodwill.
The accounting policies adopted by the Corporation require that intangible assets with indefinite lives be tested for impairment
annually on April 30. Accordingly, the Corporation performed an impairment test on April 30, 2016 to determine if the carrying amounts of the
cash-generating units (“CGUs”), for the purposes of goodwill and trademarks, were higher than their recoverable amounts. After performing
the test, the Corporation recognized a $15.8 million asset impairment charge in respect of its trademarks. The impairment resulted from the
implementation of an integrated distribution and brand strategy, including the introduction of a new reservation platform which, for European
travellers, favours the purchasing of seats directly from our Air Transat subsidiary instead of through our European subsidiaries, and the
greater use of the Transat brand while decreasing the use of certain trademarks held by the Corporation.
As at October 31, 2016, important changes in the environment in which the Corporation operates, such as significant capacity
increases in markets served by the Corporation and their effect on selling prices and load factors, volatile exchange rates and fuel prices and
the recent deterioration in results of the summer season have led management to review its assumptions for future cash flows and to perform
a new impairment test. Following this impairment test, the Corporation recognized a goodwill impairment charge of $63.9 million,
representing the balance of goodwill of its sole CGU. As at October 31, 2016, reasonable changes in the assumptions used in goodwill
impairment testing would not lead to an additional impairment charge related to the assets.
In 2014, following the closure of its French Affair division, the Corporation wrote off $0.4 million in related goodwill.
INCOME TAXES
For the year ended October 31, 2016, income tax recovery amounted to $10.8 million compared with an income tax expense of
$12.4 million for the previous fiscal year. Excluding the share of net income of an associate, the effective tax rate stood at 11.1% for the fiscal
year ended October 31, 2016 and 20.0% for the preceding fiscal year. The change in tax rates between fiscal 2016 and 2015 resulted mainly
from differences between countries in the statutory tax rates applied to taxable income or losses.
19
Transat A.T. Inc.
2016 Annual Report
Management’s Discussion and Analysis
NET INCOME (LOSS) FROM CONTINUING OPERATIONS
In light of the items discussed in the Consolidated operations section, our net loss from continuing operations for the year ended
October 31, 2016 amounted to $86.5 million, compared with net income from continuing operations of $49.3 million in 2015.
For the year ended October 31, 2016, our adjusted net loss amounted to $15.5 million ($0.42 per share) compared with adjusted net
income of $45.9 million ($1.19 per share) in 2015.
NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS
As mentioned in the Discontinued operations section, for the year ended October 31, 2016 and for the previous year, the net income
of our subsidiaries Transat France and Tourgreece, which is generated from sales made to clients in Europe and Canada, is reported as net
income (loss) from discontinued operations.
For the fiscal year, revenues of our Transat France and Tourgreece subsidiaries were up $17.4 million (2.6%). The increase resulted
from a 3.5% increase in the average selling price, partially offset by a 2.9% decrease in total travellers. Our discontinued operations reported
a net income of $0.4 million (0.1%) related to operating activities, compared with a net loss of $2.4 million (0.4%) in 2015. The increase in net
income resulted primarily from higher margins on tour and package revenues, particularly in the Caribbean.
For the year ended October 31, 2016, discontinued operations generated net income of $49.8 million, compared with a net loss of
$2.4 million (0.4%) in 2015. The increase in net income is due primarily to the $49.7 million gain on disposal realized on the sale of the
Transat France and Tourgreece subsidiaries for a total cash consideration of $93.3 million.
NET INCOME (LOSS) ATTRIBUTABLE TO SHAREHOLDERS
The net loss attributable to shareholders amounted to $41.8 million or $1.13 per share (basic and diluted), compared with net income
attributable to shareholders of $42.6 million or $1.11 per share (basic) and $1.10 per share (diluted) for the previous fiscal year. The
weighted average number of outstanding shares used to compute basic per share amounts was 36,899,000 for fiscal 2016 and 38,442,000
for fiscal 2015 (36,899,000 and 38,558,000, respectively, for diluted loss per share).
20
Transat A.T. Inc.
2016 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. Compared with the corresponding quarters of the previous year, quarterly revenues were higher in the winter
season, yet lower in the summer season. For the winter season (Q1 and Q2), total travellers increased while average selling prices
decreased. For the summer season (Q3 and Q4), average selling prices were lower in the transatlantic market , our main market for the
period, owing to the decline in fuel prices and a 14% rise in overall capacity in the transatlantic market, while there was an increase in total
travellers compared with 2015. In terms of operating results, increases in average selling prices for sun packages in winter combined with
cost reduction and margin improvement initiatives were not sufficient to offset the foreign exchange effect on our costs arising from the
strength of the U.S. dollar. For the summer season, the decline in average selling prices and load factors were only partially offset by lower
fuel prices. As a result, the following quarterly financial information may vary significantly from quarter to quarter.
Q1-2015
$
683,951
23,167
(33,500)
(22,746)
(63,088)
Selected unaudited quarterly financial information
(in thousands of dollars, except per
share data)
Revenues
Aircraft rent
Operating income (loss)
Adjusted operating income (loss)
Net income (loss)
Net income (loss) attributable to
shareholders
Basic earnings (loss) per share
Diluted earnings (loss) per share
Net income (loss) from continuing
operations attributable to
shareholders
Basic earnings (loss) per share
from continuing operations
Diluted earnings (loss) per share
from continuing operations
Adjusted net income (loss)
Adjusted net income (loss) per
share
(64,314)
(1.66)
(1.66)
(53,607)
(22,882)
(1.38)
(0.59)
(1.38)
Q2-2015
$
875,151
24,684
(4,039)
7,751
26,267
24,704
0.64
0.64
Q3-2015
$
704,844
24,702
34,480
44,798
13,820
13,067
0.34
0.34
Q4-2015
$
634,004
26,306
57,850
70,805
69,965
69,108
1.82
1.82
Q1-2016
$
725,723
32,275
(40,542)
(31,683)
(59,803)
(61,155)
(1.64)
(1.64)
Q2-2016
$
888,221
38,749
(13,701)
(5,002)
(23,817)
(24,952)
(0.68)
(0.68)
Q3-2016
$
663,591
31,946
(2,990)
15,964
10,548
9,439
0.26
0.26
Q4-2016
$
612,111
32,843
26,898
46,497
36,313
34,920
0.95
0.95
26,434
13,058
59,035
(53,394)
(25,333)
7,704
(20,497)
0.68
0.34
1.56
(1.44)
(0.69)
0.21
(0.56)
0.68
(2,738)
0.34
26,886
1.55
44,648
(1.44)
(0.69)
(30,380)
(11,868)
0.21
2,523
(0.56)
24,183
(0.07)
0.70
1.18
(0.82)
(0.32)
0.07
0.66
21
Transat A.T. Inc.
2016 Annual Report
FOURTH-QUARTER HIGHLIGHTS
Management’s Discussion and Analysis
For the fourth quarter, the Corporation generated $612.1 million in revenues, down $21.9 million (3.5%) from $634.0 million for the
corresponding period of 2015. This decrease is due primarily to the 8.9% decline in average selling prices in the transatlantic market, our
main market for the period, while total travellers increased by 3.4%. In this market, the Corporation increased its capacity by 7.4% compared
with 2015 while overall capacity increased by nearly 14%. For sun destinations, average selling prices were up 3.7%, while our capacity and
total travellers increased by 5.0% and 2.2%, respectively, compared with 2015. Our continuing operations generated operating income of
$26.9 million, which includes a restructuring charge of $5.9 million compared with $57.9 million in 2015. The decline in operating income
resulted primarily from decreases in load factors and average selling prices, which were not fully offset by lower fuel prices and cost
reduction efforts. The lower fuel costs combined with the dollar’s weakening against the U.S. dollar, led to a $7.5 million decrease in
operating expenses across our markets.
Compared with 2015, revenues from discontinued operations were down $17.8 million (8.7%). The decline in revenues resulted from a
4.1% decrease in total travellers, particularly in Tunisia and Turkey due to their geopolitical situations, and a 1.7% drop in average selling
prices. Operating income from discontinued operations also decreased, to $8.1 million from $14.4 million in fiscal 2015. Net income from
discontinued operations amounted to $55.4 million compared with $10.1 million in 2015. The significant improvement in net income from
discontinued operations resulted from the $49.7 million gain on the disposal of subsidiaries Transat France and Tourgreece.
The Corporation recorded fourth-quarter net income amounting to $35.9 million, compared with $70.0 million in 2015. Net income
attributable to shareholders amounted to $34.9 million ($0.95 per share basic and diluted) compared with $69.1 million ($1.82 per share
basic and diluted) in 2015.
The Corporation’s fourth-quarter adjusted net income amounted to $24.2 million ($0.66 per share) compared with $44.6 million
($1.18 per share) in 2015.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
As at October 31, 2016, cash and cash equivalents totalled $363.7 million compared with $336.4 million as at October 31, 2015.
Cash and cash equivalents in trust or otherwise reserved amounted to $338.6 million as at the end of fiscal 2016, compared with
$412.1 million as at the end of fiscal 2015. The Corporation’s statement of financial position reflected $192.5 million in working capital, for a
ratio of 1.28, compared with $80.4 million in working capital and a ratio of 1.09 as at October 31, 2015.
Total assets decreased by $236.3 million (15.6%) from $1,513.8 million as at October 31, 2015 to $1,277.4 million as at
October 31, 2016. The decrease is mainly attributable to the disposal of the Transat France and Tourgreece subsidiaries, the write-off of
goodwill and the $75.1 million decrease in cash and cash equivalents in trust or otherwise reserved, following the decline in deposits due to
the restructuring of the cruise operations. Equity decreased $72.9 million, from $537.3 million as at October 31, 2015 to $464.4 million as at
October 31, 2016. This decrease resulted mainly from the $36.8 million net loss, the $13.7 million foreign exchange loss on translation of the
financial statements of foreign subsidiaries, the $12.5 million change in fair value of foreign exchange derivatives and the repurchase of
shares totalling $9.4 million.
22
Transat A.T. Inc.
2016 Annual Report
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 and cash equivalents related to
continuing operations
Net cash flows related to discontinued operations
OPERATING ACTIVITIES
Management’s Discussion and Analysis
2016
$
43,561
5,093
(9,823)
(12,132)
26,699
542
2015
$
108,992
(53,854)
(12,672)
3,402
45,868
(18,332)
2014
$
90,009
(52,683)
191
(2,262)
35,255
7,814
Change
2016
%
(60.0)
109.5
22.5
(456.6)
(41.8)
103.0
2015
%
21.1
(2.2)
(6,734.6)
250.4
30.1
(334.6)
Operating activities generated $43.6 million in cash flows, compared with $109.0 million in 2015. This $65.4 million decline during the
fiscal year resulted primarily from a $50.1 million decrease in profitability and a $15.9 million decrease in the net change in the provision for
overhaul of leased aircraft.
We expect to continue to generate positive cash flows from our operating activities in fiscal 2017.
INVESTING ACTIVITIES
Cash flows generated by investing activities totalled $5.1 million for the current year, up $58.9 million from fiscal 2015. The increase
resulted from proceeds of $68.0 million, net of cash ceded, from the disposal of subsidiaries, partially offset by a $15.6 million increase in
additions to property, plant and equipment and other intangible assets. In 2016, our acquisitions totalled $70.8 million and consisted primarily
of aircraft improvements resulting from the growth in our aircraft fleet and computer hardware and software.
In fiscal 2017, additions to property, plant and equipment and intangible assets could amount to approximately $50.0 million.
FINANCING ACTIVITIES
Cash flows used in financing activities totalled $9.8 million, compared with $12.7 million in in 2015. Lower utilization of cash flows than
in fiscal 2015 resulted primarily from the $7.1 million in share repurchases during the year, compared with a total of $9.4 million in share
repurchases for the previous fiscal year.
CASH FLOWS RELATED TO DISCONTINUED OPERATIONS
Discontinued operations generated cash flows totalling $0.5 million, compared with $18.3 million in cash flows used in 2015. The
higher cash flows generated by discontinued operations resulted primarily from the $9.6 million increase in net change in other assets and
liabilities related to operations and a $5.4 million increase in profitability.
23
Transat A.T. Inc.
2016 Annual Report
CONSOLIDATED FINANCIAL POSITION
Management’s Discussion and Analysis
October 31, October 31,
2015
$
2016
$
Difference
$
Main reasons for significant differences
Assets
Cash and cash equivalents
Cash and cash equivalents in trust or otherwise
reserved
Trade and other receivables
Income taxes receivable
Inventories
Prepaid expenses
Derivative financial instruments
Deposits
Deferred tax assets
Property, plant and equipment
Goodwill
363,664
338,581
105,003
39,858
12,354
58,657
18,517
42,044
15,055
336,423
412,099
129,223
16,900
9,079
80,318
25,573
58,901
32,939
134,959
—
133,502
99,527
27,241
(73,518)
(24,220)
22,958
3,275
(21,661)
(7,056)
(16,857)
(17,884)
1,457
(99,527)
Intangible assets
50,327
79,863
(29,536)
Investment in an associate
97,668
97,897
Other assets
733
1,520
(229)
(787)
Liabilities
Trade and other payables
Provision for overhaul of leased aircraft
Income taxes payable
Customer deposits and deferred revenues
247,795
40,861
976
409,045
355,656
42,962
1,431
489,622
(107,861)
(2,101)
(455)
(80,577)
Derivative financial instruments
21,358
23,203
(1,845)
Other liabilities
88,011
52,026
35,985
Deferred tax liabilities
4,988
11,612
(6,624)
Equity
Share capital
Share-based payment reserve
Retained earnings
Unrealized gain on cash flow hedges
214,250
17,849
218,821
2,211
218,134
17,105
263,812
14,960
(3,884)
744
(44,991)
(12,749)
Cumulative exchange differences
11,255
23,241
(11,986)
See the Cash flows section
Decrease in funds received from clients to be held in trust
or otherwise reserved
Sale of tour operators in France and Greece
Increase in income taxes recoverable given deductible
losses
Expansion of aircraft fleet
Sale of tour operators in France and Greece
Foreign currency derivatives matured during the year
Sale of tour operators in France and Greece
Sale of tour operators in France and Greece and decrease
in deferred tax related to derivatives
Additions during the year, partially offset by depreciation
Impairment of goodwill and sale of tour operators in France
and Greece
Sale of tour operators in France and Greece, amortization
and impairment
Share of net income of an associate and foreign exchange
difference, partially offset by dividend received
No significant difference
Sale of tour operators in France and Greece
Impact of maintenance schedule, partially offset by
additions to aircraft fleet
No significant difference
Sale of tour operators in France and Greece and
restructuring of cruise operations
Favourable change in fuel prices and unfavourable change
in the dollar compared with U.S. currency relating to
outstanding forward contracts
Increase in non-current non-controlling interests and
deferred incentive benefits
Decrease in deferred tax related to derivative financial
instruments
Repurchase of shares, net of shares issued from treasury
Share-based payment expense, net of options exercised
Net loss
Net loss on financial instruments designated as cash flow
hedges
Foreign exchange loss on translation of financial
statements of foreign subsidiaries
24
Transat A.T. Inc.
2016 Annual Report
FINANCING
Management’s Discussion and Analysis
As at December 14, 2016, the Corporation had several types of financing, consisting primarily of a revolving term credit facility and
lines of credit for issuing letters of credit.
On February 19, 2016, the Corporation renewed its $50 million revolving credit facility agreement for operating purposes. Under the
new agreement, which expires in 2020, the Corporation may increase the credit limit to $100 million, subject to lender approval.
The agreement may be extended for a year at each anniversary date subject to lender approval and the balance becomes immediately
payable in the event of a change in control. Under the terms of the 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. The agreement is secured by a first movable hypothec
on the universality of assets, present and future, of the Corporation’s Canadian subsidiaries subject to certain exceptions and is further
secured by the pledging of certain marketable securities of European subsidiaries. The credit facility bears interest at the
bankers’ acceptance rate, the financial institution’s prime rate or LIBOR, plus a premium. The terms of the agreements require
the Corporation to comply with certain financial criteria and ratios. As at October 31, 2016, all the financial ratios and criteria were met and
the credit facility was undrawn.
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 and others in the notes to the
financial statements. The Corporation did not report any obligations in the statements of financial position as at October 31, 2016 and
October 31, 2015.
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 16 and 25 to the audited consolidated financial statements)
Operating leases (see note 24 to the audited consolidated financial statements)
Purchase obligations (see note 24 to the audited consolidated financial statements)
Off-balance sheet arrangements that can be estimated amounted to approximately $820.1 million as at October 31, 2016
($998.6 million as at October 31, 2015), and are detailed as follows:
OFF-BALANCE SHEET ARRANGEMENTS
(in thousands of dollars)
Guarantees
Irrevocable letters of credit
Collateral security contracts
Operating leases
Obligations under operating leases
Agreements with suppliers
2016
$
2015
$
17,723
721
36,838
1,490
691,841
710,285
109,845
820,130
675,385
713,713
284,878
998,591
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.
25
Transat A.T. Inc.
2016 Annual Report
Management’s Discussion and Analysis
The Corporation has a $75.0 million annually renewable revolving credit facility in respect of which the Corporation must pledge cash
totalling 100% of the amount of the issued letters of credit as collateral security. As at October 31, 2016, $66.2 million had been drawn down,
of which $46.5 million was to insure the benefits to participants under senior executive defined benefit pension agreements; such irrevocable
letters of credit are held by a third-party trustee. In the event of a change of control, the irrevocable letters of credit issued to insure the
benefit to the participants under the senior executives defined benefit pension agreements will be drawn down.
In addition, the Corporation has a $35.0 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, 2016, $17.7 million was drawn down under this credit
facility for issuing letters of credit to some of our service providers.
For its U.K. operations, the Corporation has a bank line of credit for issuing letters of credit secured by deposits of £10.7 million
[$17.4 million], which has been fully drawn down.
As at October 31, 2016, off-balance sheet arrangements were down $178.5 million. The decline resulted primarily from the disposal of
subsidiaries Transat France and Tourgreece, which had significant agreements with suppliers, and repayments made during the year, and
was offset by the agreements signed during the second quarter to lease two Airbus A330s and three Boeing 737-800s.
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
2017
$
2018
$
2019
$
—
140,611
28,364
110,692
279,667
—
138,613
21,742
2,376
162,731
—
110,697
19,394
2,385
132,476
2020
$
—
55,799
16,649
2,372
74,820
2022
and beyond
$
2021
$
—
37,895
14,528
2,367
54,790
—
44,199
63,350
30,053
137,602
Total
$
—
527,814
164,027
150,245
842,086
DEBT LEVELS
The Corporation did not report any debt on its statement of financial position.
The Corporation’s total debt increased $184.8 million to $679.1 million compared with 2015, owing primarily to the addition of
Boeing 737s and Airbus A330s to our aircraft fleet.
Total net debt increased $157.5 million from $157.9 million as at October 31, 2015 to $315.4 million as at October 31, 2016.
The increase in total net debt results from the increase in total debt, partially offset by higher cash and cash equivalents balances than in
2015.
OUTSTANDING SHARES
As at October 31, 2016, the Corporation had 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 9, 2016, there were 36,893,278 total voting shares outstanding.
Since November 16, 2015 Class A Variable Voting Shares and Class B Voting Shares of the Corporation are traded on the Toronto
Stock Exchange under a single symbol, namely “TRZ.”
STOCK OPTIONS
As at December 9, 2016, there were a total of 2,611,891 stock options outstanding, 2,400,323 of which were exercisable.
26
Transat A.T. Inc.
2016 Annual Report
OTHER
FLEET
Management’s Discussion and Analysis
Air Transat’s fleet currently consists of fourteen Airbus A330s (332, 345 or 375 seats), nine Airbus A310s (249 seats) and
seven Boeing 737-800s (189 seats). Of this number, two Airbus A330s and three Boeing 737-800s were commissioned in summer 2016.
The Corporation also had lease agreements, during the 2016 winter season, for thirteen Boeing 737-800s (189 seats) and
two Boeing 737-700 (149 seats). Under current agreements, thirteen Boeing 737s will be added to the fleet for the 2017 winter season.
RENEWAL OF COLLECTIVE AGREEMENTS
The agreement-in-principle between Air Transat and the pilots’ union to renew the collective agreement which expired on
April 30, 2015 was approved by the pilots on March 22, 2016. The five-year work contract is now in force, retroactive to April 30, 2015.
The agreement-in-principle between Air Transat and the cabin crew union to renew the collective agreement was approved by our
cabin crews on July 23, 2016. The six-year work contract is now in force, retroactive to November 1, 2015.
NORMAL COURSE ISSUER BID
Pursuant to its normal course issuer bid approved on April 10, 2015, the Corporation was authorized to purchase for cancellation up to
a maximum of 2,274,921 Class A Variable Voting Shares and Class B Voting Shares, representing approximately 10% of the public float of
Class A Variable Voting Shares and Class B Voting Shares.
The normal course issuer bid was designed to allow the Corporation proper utilization, depending on the circumstances and in a wise
manner, of a portion of the Corporation’s excess cash.
Purchases under the Corporation’s normal course issuer bid were made on the open market through the TSX in accordance with its
policy on normal course issuer bids. The price paid by the Corporation for repurchased shares was the market price at the time of acquisition
plus brokerage fees, where applicable. Purchases began as of April 15, 2015 and terminated on March 4, 2016.
On March 4, 2016, the Corporation completed its normal course issuer bid for a 12-month period launched on April 10, 2015;
the Corporation repurchased a total of 2,274,921 Class B Voting Shares as of March 4, 2016, for a total cash consideration of $16.5 million.
During the year ended October 31, 2016, the Corporation repurchased a total of 978,831 Class B Voting Shares for a cash consideration of
$7.1 million.
ACCOUNTING
CRITICAL ACCOUNTING ESTIMATES
The preparation of consolidated financial statements requires management to make estimates and judgments about the future. We
periodically review these estimates, which are based on historical experience, changes in the business environment and other factors,
including expectations of future events, that management considers reasonable under the circumstances. Our estimates involve judgments
we make based on the information available to us. However, accounting estimates could result in outcomes that require a material
adjustment to the carrying amount of the asset or liability affected in future periods.
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fiscal year are described
below. The Corporation based its assumptions and estimates on parameters available when the consolidated financial statements were
prepared. However, existing circumstances and assumptions about future developments may change due to market events or to
circumstances beyond the Corporation’s control. Such changes are reflected in the assumptions when they occur.
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.
27
Transat A.T. Inc.
2016 Annual Report
Management’s Discussion and Analysis
DEPRECIATION AND AMORTIZATION AND IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT, AND INTANGIBLE ASSETS
GOODWILL
Material amounts recorded under goodwill and intangible assets in the statement of financial position are calculated using the
historical cost method. We are required to perform impairment tests on goodwill and intangible assets with indefinite lives, such as
trademarks, annually or when events or circumstances indicate that the carrying amount may be impaired.
Impairment exists when the carrying amount of an asset or CGU, in the case of goodwill, exceeds its recoverable amount, which is the
higher of fair value less costs to sell the asset or CGU and value in use. To identify CGUs, management has to take into account the
contributions made by each subsidiary and the inter-relationships among them in light of the Corporation’s vertical integration and the goal of
providing a comprehensive offering of tourism services in the markets served by the Corporation. The fair value less costs to sell calculation
is based on available data from arm’s length transactions for similar assets or observable market prices less incremental costs to sell. The
value in use calculation is based on a discounted cash flow model. Cash flows are generally derived from the budget or financial forecasts for
the next five fiscal years and do not include restructuring activities that the Corporation is not yet committed to or significant future
investments that will enhance the performance of the asset of the CGU being tested. The recoverable amount is most sensitive to the
discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation
purposes. These analyses require us to make a variety of judgments concerning our future operations. The cash flow forecasts used to
determine the values of assets of CGUs may change in the future due to market conditions, competition and other risk factors (see Risks and
uncertainties).
The Corporation performed its annual impairment test as at April 30, 2016 to determine whether the carrying amount of CGUs was
higher than their recoverable amount. No impairment of goodwill was identified by the Corporation as at that date.
As at October 31, 2016, important changes in the environment in which the Corporation operates, such as significant capacity
increases in markets served by the Corporation and their effect on selling prices and load factors, volatile exchange rates and fuel prices and
the recent deterioration in results of the summer season have led management to review the assumptions for future cash flows and to
perform a new impairment test. Following this impairment test, the Corporation recognized a goodwill impairment charge of $63.9 million
which corresponds to the balance of goodwill of its sole CGU as at October 31, 2016.
The recoverable amount is determined based on value in use, using a discounted cash flow model. The Corporation prepares cash
flow forecasts based on the most recently approved annual budgets and three-year plans of the relevant business. Cash flow forecasts
reflect the risk associated with each CGU, as well as the most recent economic indicators. Cash flow forecasts beyond three years are
extrapolated based on estimated growth rates that do not exceed the average long-term growth rates for the relevant markets.
As at April 30, 2016 and October 31, 2016, an after-tax discount rate of 10.1% was used for testing the various CGUs for impairment
[10.3% as at April 30, 2015]. The perpetual growth rate used for impairment testing was 1% [1% as at April 30, 2015].
INTANGIBLE ASSETS
The Corporation performed an impairment test as at April 30, 2016 to determine whether the carrying amount of trademarks was
higher than their recoverable amount.
The recoverable amount is determined based on value in use, using a discounted cash flow model. The Corporation prepares cash
flow forecasts based on the most recently approved annual budgets and three-year plans of the relevant business. Cash flow forecasts
reflect the risk associated with each asset, as well as the most recent economic indicators. Cash flow forecasts beyond three years are
extrapolated based on nil growth rates. The cash flow forecasts used also reflect the effects of implementing the Corporation’s integrated
distribution and brand strategy aiming to further expand the Transat brand, therefore decreasing the use of certain trademarks held by
the Corporation.
Following the introduction of our new reservation platform which, for European travellers, favours the purchasing of seats directly from
Air Transat instead of through our U.K. subsidiary, the Corporation concluded that the recoverable amount of its Canadian Affair trademark,
determined based on value in use, was less than its carrying amount due to a decline in revenues and profitability generated by this
trademark. As a result, the Corporation recorded an impairment charge of $9.7 million.
28
Transat A.T. Inc.
2016 Annual Report
Management’s Discussion and Analysis
Implementation of the Corporation’s integrated strategy to further expand the Transat brand resulted in the discontinuation of its
Vacances Tours Mont-Royal (“TMR”) brand, which the Corporation uses for the sale of sun packages outbound from Canada. As this brand
is no longer used, the Corporation has recorded an impairment charge of $4.5 million, which represents its carrying amount.
Also as part of the implementation of the Corporation’s distribution and brand strategy aiming to further expand the Transat brand,
the Corporation is currently changing its wholly owned Marlin Travel agency banners to Voyages Transat. Following these changes,
the Corporation concluded that the recoverable amount of its Marlin Travel trademark, determined based on value in use, was less than its
carrying amount due to a decline in revenues and profitability generated by this trademark. As a result, the Corporation recorded an
impairment charge of $1.6 million.
As at April 30, 2016, after-tax discount rates used for impairment testing for trademarks ranged from 10.3% to 18.0% [10.3% as at
April 30, 2015].
As at April 30, 2016, a 1% increase in the after-tax discount rate used for impairment testing, assuming that all others variables
remained the same, would have resulted in an additional impairment charge of $0.2 million.
As at April 30, 2016, a 10% decrease in the cash flows used for impairment testing, assuming that all other variables remained the
same, would have resulted in an additional impairment charge of $0.3 million.
PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS WITH FINITE LIVES
Property, plant and equipment reported in the statement of financial position represent material amounts based on historical costs.
Property, plant and equipment and intangible assets with finite lives are reviewed for impairment annually or whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable.
Property, plant and equipment are depreciated over their estimated useful lives taking into account their residual value. Aircraft and
aircraft components account for a major class of property, plant and equipment. Depreciation expense depends on several assumptions
including the period over which the aircraft will be used, the fleet renewal schedule and the estimate of the residual value of aircraft and
aircraft components at the time of their anticipated disposal. The amortization period is determined based on the fleet renewal schedule,
currently slated for completion by 2018. 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 depreciation expense. Generally speaking,
the main assumptions would have to be reduced by 10% 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.
No event or change in situation arising during the year ended October 31, 2016 could have required an impairment of property, plant
and equipment and intangible assets with finite lives. As at October 31, 2016, reasonable changes in the assumptions used in the goodwill
impairment test would not lead to an additional impairment loss related to the assets.
FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS
The fair value of derivative financial instruments is the amount for which the instrument could be exchanged between knowledgeable,
willing parties in an arm’s length transaction. 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.
29
Transat A.T. Inc.
2016 Annual Report
PROVISION FOR OVERHAUL OF LEASED AIRCRAFT
Management’s Discussion and Analysis
Under 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
estimates used to determine the provision for overhaul of leased aircraft are based on historical experience, historical costs and repairs,
information from external suppliers, forecasted aircraft utilization, planned renewal of the aircraft fleet, leased aircraft return conditions, and
other facts and reasonable assumptions in the circumstances. 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.
NON-CONTROLLING INTERESTS
Non-controlling interests in respect of which the shareholders may require the Corporation to buy back their shares are reclassified as
liabilities at their estimated redemption value, deeming exercise of this option. In the absence of a predetermined calculation formula, the
estimated redemption value is established using fair value. The fair value calculation is based on a discounted cash flow model. The cash
flows are derived from the budget and financial forecasts for the next five years and do not include restructuring activities that the Corporation
is not yet committed to or significant future investments that will enhance the subsidiary’s performance. The fair value is most sensitive to the
discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation
purposes. Generally speaking, the main assumptions used to calculate this provision would have to be adversely changed by over 15% to
generate additional expenses that could have a material impact on our comprehensive income, financial position and cash flows.
EMPLOYEE FUTURE BENEFITS
The Corporation offers defined benefit pension arrangements to certain senior executives. The pension expense for these employees
is determined from annual actuarial calculations using the projected unit credit method and management’s best estimate assumptions for the
increase in eligible earnings and the retirement age of employees. Plan obligations are discounted using current market interest rates. Given
that various assumptions are used in determining the cost and obligations associated with employee future benefits, the actuarial valuation
process involves some inherent measurement uncertainty. Actual results will differ from estimated results based on assumptions.
A 0.25 percentage point increase in the actuarial assumptions below would have the following impacts, all other actuarial assumptions
remaining the same:
Increase (decrease)
Discount rate
Rate of increase in eligible earnings
TAXES
Cost of retirement benefits
for the year ended
October 31, 2016
$
(9)
11
Retirement benefit
obligations as at
October 31, 2016
$
(1,248)
52
From time to time, the Corporation is subject to audits by tax authorities that give rise to questions regarding the fiscal treatment of
certain transactions. Certain of these matters could entail significant costs that will remain uncertain until one or more events occur or fail to
occur. Although the outcome of such matters is not predictable with assurance, the tax claims and risks for which there is a probable
unfavourable outcome are recognized by the Corporation using the best possible estimates of the amount of the loss. The tax deductibility of
losses reported by the Corporation in previous fiscal years with regard to investments in ABCP was challenged by tax authorities and notices
of assessment in this regard were received during the year. No provisions are made in connection with this issue, which could result in
expenses of approximately $16.2 million, as the Corporation intends to defend itself vigorously with respect thereto and firmly believes it has
sufficient facts and arguments to obtain a favourable final outcome. However, this resulted in outflows of $15.1 million during the year ended
October 31, 2016. This amount is recognized as income taxes receivable as at October 31, 2016.
30
Transat A.T. Inc.
2016 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, 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 61%
of the Corporation’s costs are incurred in a currency other than the measurement currency of the reporting unit incurring the costs, whereas
approximately 17% of revenues are 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 18 months, for the purchase and/or sale of
foreign currencies based on anticipated foreign exchange rate trends.
The Corporation documents certain foreign exchange derivatives as hedging instruments and regularly demonstrates that these
instruments are sufficiently effective to continue using hedge accounting. These foreign exchange derivatives are designated as cash flow
hedges.
All derivative financial instruments are recorded at fair value in the consolidated statement of financial position. For the derivative
financial instruments designated as cash flow hedges, changes in value of the effective portion are recognized in Other comprehensive
income in the consolidated statement of comprehensive income. Any ineffectiveness within a cash flow hedge is recognized through profit or
loss as it arises in the account Change in fair value of fuel-related derivatives and other derivatives. Should the hedging of a cash flow hedge
relationship become ineffective, previously unrealized gains and losses remain within Unrealized gain (loss) on cash flow hedges 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 Unrealized gain (loss) on cash flow hedges are reclassified to the same income statement account in
which the hedged item is recognized.
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 mitigate fuel price fluctuations, the Corporation has implemented a fuel price risk management policy that authorizes using foreign
exchange forward contracts, and other types of derivative financial instruments, expiring in generally less than 18 months.
The 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 fuel-related derivatives and other
derivatives in the consolidated statement of income. When realized, at maturity of fuel-related derivative financial instruments, any gains or
losses are reclassified to Aircraft fuel.
CREDIT AND COUNTERPARTY RISK
Credit risk is primarily attributable to the potential inability of customers, service providers, aircraft and engine lessors and financial
institutions, including the other counterparties to cash equivalents and derivative financial instruments, to discharge their obligations.
Trade accounts receivable included under Trade and other receivables in the statement of financial position totalled $39.6 million as at
October 31, 2016. Trade accounts receivable consist of a large number of customers, including travel agencies. 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, 2016, approximately
8% of accounts receivable were over 90 days past due, whereas approximately 75% were current, that is, under 30 days. Historically,
the Corporation has not incurred any significant losses in respect of its trade accounts receivable.
31
Transat A.T. Inc.
2016 Annual Report
Management’s Discussion and Analysis
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, 2016, these deposits
totalled $22.0 million and are 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 $20.0 million as at October 31, 2016 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. These cash security deposits with lessors are generally returned to the Corporation following receipt of documented
proof that the related maintenance has been performed by the Corporation. As at October 31, 2016, the cash security deposits with lessors
that had been claimed totalled $21.3 million and were included under Trade and other receivables. 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, 2016 related to cash and cash
equivalents, including cash and cash equivalents in trust or otherwise reserved 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 only 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.
The Corporation does not believe it was exposed to a significant concentration of credit risk as at October 31, 2016.
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’s oversight, the Treasury Department manages the Corporation’s cash resources based on financial forecasts and
anticipated cash flows. 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.
INTEREST RATE RISK
The Corporation is exposed to interest rate fluctuations, primarily due to its variable-rate credit facility. 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.
RELATED PARTY TRANSACTIONS AND BALANCES
In the normal course of business, the Corporation enters into transactions with related companies. These transactions are carried out
at arm’s length. During the fiscal year, the Corporation recorded $32.3 million in person-nights purchased at hotels belonging to its associate
CIBV, compared with $17.9 million in 2015. As at October 31, 2016, a $0.9 million amount payable to CIBV was included under Trade and
other payables, compared to $0.3 million as at October 31, 2015.
32
Transat A.T. Inc.
2016 Annual Report
FUTURE CHANGES IN ACCOUNTING POLICIES
Management’s Discussion and Analysis
Standards issued but not yet effective are discussed below. The Corporation has not early adopted these new standards.
IFRS 9, FINANCIAL INSTRUMENTS
In July 2014, the IASB completed its three-part project to replace IAS 39, Financial Instruments: Recognition and Measurement by
issuing IFRS 9, Financial Instruments. IFRS 9 addresses the classification and measurement of financial assets and financial liabilities, and
introduces a forward-looking expected-loss impairment model as well as a substantially-reformed approach to hedge accounting.
IFRS 9 uses a new approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the many
different rules in IAS 39. The approach recommended by IFRS 9 is based on how an entity manages its financial instruments and the
contractual cash flow characteristics of the financial assets. Most of the requirements in IAS 39 for classification and measurement of
financial liabilities were carried forward in IFRS 9. However, the portion of the changes in fair value related to the entity’s own credit risk, in
measuring a financial liability at fair value through profit or loss, will be presented in other comprehensive income rather than in the statement
of income.
IFRS 9 also introduces a new expected-loss impairment model that will require more timely recognition of expected credit losses.
Specifically, entities will be required to account for expected credit losses when financial instruments are first recognized and to recognize full
lifetime expected credit losses on a more timely basis.
Lastly, IFRS 9 introduces a new hedge accounting model, together with corresponding disclosures about risk management activities.
The new hedge accounting model represents a substantial overhaul of hedge accounting that will enable entities to better reflect their risk
management activities in their financial statements.
Application of IFRS 9 will be effective from the Corporation’s fiscal year beginning on November 1, 2018, with earlier adoption
permitted. The Corporation is currently assessing the impact of adopting this standard on its financial statements.
IFRS 15, REVENUE FROM CONTRACTS WITH CUSTOMERS
In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers, a new standard that specifies the steps and timing
for issuers to recognize revenue as well as requiring them to provide more relevant and comprehensive disclosures. The core principle of
IFRS 15 is that an entity should recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an
amount that reflects the expected consideration receivable in exchange for those goods or services. IFRS 15 supersedes IAS 11,
Construction Contracts, and IAS 18, Revenue, as well as various interpretations regarding revenue. The application of IFRS 15 is mandatory
and will be effective for the Corporation’s fiscal year beginning on November 1, 2018, with earlier adoption permitted. The Corporation is
currently assessing the impact of adopting this standard on its financial statements.
IFRS 16, LEASES
In January 2016, the IASB issued IFRS 16, Leases, which supersedes IAS 17, Leases. Leasing is an important and flexible source of
financing for many companies. However, under the current IAS 17 standard, it is difficult to obtain a clear picture of the assets and liabilities
related to the leasing agreements of an entity. IFRS 16 introduces a single lessee accounting model under which most of lease-related
assets and liabilities are recognized in the statement of financial position. For the lessor, substantially all the current accounting requirements
remain unchanged.
The application of IFRS 16 is mandatory and will be effective for the Corporation’s fiscal year beginning on November 1, 2019, with
earlier adoption permitted if the new IFRS 15 standard on revenue has also been applied. The Corporation is currently assessing the impact
of adopting IFRS 16 on its financial statements.
33
Transat A.T. Inc.
2016 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.
To improve its risk management capacities, the Corporation has set up a framework for identifying, assessing and managing the
different risks applicable to its industry and to companies in general. This framework is based on the following principles:
• Promote a culture of risk awareness at the head office and in subsidiaries; and
•
Integrate risk management into strategic, financial and operating objectives.
For each risk, an owner has been designated as accountable for designing and implementing measures to mitigate the consequences
of risks for which he or she is responsible, and/or limit the likelihood of these risks materializing.
In addition, the Corporation has adopted an on-going risk management process that includes a quarterly assessment of risk
exposures for the Corporation and its subsidiaries, under the oversight of the Audit Committee (financial risks), the Human Resources and
Compensation Committee (human resource risks) and the Risk Management and Corporate Governance Committee (strategic and
operational risks).
Business risks are classified to facilitate an overall understanding of risks to which the Corporation is exposed. The different types of
business risks are discussed below:
ECONOMIC AND GENERAL RISKS
The holiday travel industry is sensitive to global, national, regional and local economic 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. Although there are signs of economic recovery in certain tourist areas served by the Corporation, financial markets
could slide back into negative economic growth.
Seasonal planning of flight and person-night capacity is a risk in the tourism industry. For the Corporation, it entails forecasting
traveller demand in advance and anticipating trends in future preferred destinations. Poor planning for those needs could unfavourably
impact our business, financial situation and operating results.
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 RISKS
Transat operates in an industry where competition is intense. In recent years, air carriers and tour operators have entered into or
expanded their presence in markets served by Transat. 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. The Corporation could thus be unable to compete
successfully against existing or potential competitors, and increased competition could have a material adverse effect on its operations,
prospects, revenues and profit margin.
34
Transat A.T. Inc.
2016 Annual Report
Management’s Discussion and Analysis
In addition, traveller needs dictate how our industry evolves. In recent years, travellers have demanded higher value, better product
selection and personalized service, all at competitive prices. 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, thus bypassing not
only vacation providers such as Transat, but also retail travel agents through whom we generate a substantial portion of our revenues. Since
our available seat capacity and person-nights are also influenced by market forces, our business model is called into question in some
respects. The Corporation’s inability to rapidly meet those expectations in a proactive manner could adversely impact its competitive
positioning while reducing profitability of its products.
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.
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.
REPUTATION RISK
The ability to maintain favourable relationships with its existing customers and attract new customers greatly depends on Transat’s
service offering and its reputation. While the Corporation has already implemented sound governance practices, including a code of ethics,
and developed certain mechanisms over the years to prevent its reputation from being adversely affected, there can be no assurance that
Transat will continue to enjoy a good reputation or that events beyond its control will not tarnish its reputation. The loss or tarnishing of its
reputation could have a material unfavourable effect on the Corporation’s operations, prospects, financial position and operating results.
FINANCIAL RISKS
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.
While Transat has cash on hand to respond to competitive pressures or capitalize on growth opportunities, the availability of financing
under our existing credit facilities is subject to compliance with certain criteria and 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. 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 thus be adversely affected.
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 such fare increase would
offset higher fuel costs, which could in turn adversely impact our business, financial position or operating results.
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.
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.
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 our business.
Moreover, these advance payments generate interest income for Transat. 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.
35
Transat A.T. Inc.
2016 Annual Report
Management’s Discussion and Analysis
As a Corporation that processes 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 financial ratios or 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.
Last, it is sometimes difficult to foresee how certain Canadian or international tax laws will be interpreted by the appropriate tax
authorities. Subsequent to interpretation of these laws by the different authorities, the Corporation may have to review its own interpretations
of tax laws, which in turn could have an adverse impact on our profit margin.
KEY SUPPLIES AND SUPPLIER RISKS
Despite being well positioned due to our vertical integration, we depend on third parties who supply us with certain components of our
packages. 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, among others, on Airbus, Boeing, Rolls-Royce, General Electric and Lufthansa Technik means that we could be
adversely affected by problems connected with Airbus and Boeing aircraft and Rolls-Royce or General Electric engines, including defective
material, mechanical problems or negative perceptions among travellers. The Corporation also relies on certain suppliers for its information
system security and maintenance. See Technological risks.
We are also dependent 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.
AVIATION RISKS
To carry on business or extend its outreach, the Corporation requires access to aircraft that are largely operated by its subsidiary Air
Transat. This fleet consists primarily of aircraft leased for several years, sometimes under renewable leases, 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.
Our focus on three types of aircraft could result in significant downtime for 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. If our operations are disrupted due
to aircraft unavailability, the loss of associated revenues could have an adverse impact on our business, financial position and operating
results.
An incident involving one of our aircraft during our operations could give rise to repair costs or major replacement costs for the
damaged aircraft, service interruption, and claims. Consequently, such an event could have an unfavourable impact on the Corporation’s
reputation.
The Corporation also 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. This is particularly the case given that some of
those airports are located in U.S. cities in close proximity to the Canadian border and are not subject to such fees. If these user and
navigation fees were to increase substantially, our business, financial position and operating results could be adversely affected, which would
result in certain routes being conceded to our U.S. competitors.
36
Transat A.T. Inc.
2016 Annual Report
TECHNOLOGICAL RISKS
Management’s Discussion and Analysis
Transat relies heavily on various information and telecommunications technologies to operate its business, increase its revenues and
reduce its operating expenses. Our business depends on our ability to manage reservation systems, including handling high telephone call
volumes on a daily basis, monitor product profitability and inventory, adjust prices quickly, access and protect information, distribute our
products to retail travel agents and other travel intermediaries, and stave off information system intrusions. Furthermore, the exploitation of
system vulnerabilities through cyberattacks is increasingly sophisticated and requires constant management of and developments in the
measures taken. Rapid changes in these technologies and growing demand for web-based or mobile reservations could require higher-than-
anticipated capital expenditures to improve customer service, which could impact our operating results.
These technology systems may be vulnerable to a variety of sources of failure, interruption or misuse, including by reason of third-
party suppliers’ acts or omissions, natural disasters, terrorist attacks, telecommunication systems failures, power failures, computer viruses,
computer hacking, unauthorized or fraudulent users, and other operational and security issues. While Transat continues to invest in
initiatives, including security initiatives and disaster recovery plans, these measures may not be adequate or implemented properly. Any
systems failures or outages could materially and adversely affect the Corporation’s operations and its customer relationships and could have
an adverse effect on its operating results and financial position.
Furthermore, several of those information technology systems depend on third-party providers, such as Softvoyage, Datalex and
Radixx. Those suppliers sell more external solutions (through partnerships or cloud services) requiring additional control measures. If these
providers were to become incapable of maintaining or improving efficient technology solutions in a profitable and timely manner,
the Corporation would be unable to react effectively to information security attacks, obtain new systems to meet growth in its customer base
or support new products offered by the Corporation. Consequently, such situations could generate additional expenses, which would
unfavourably impact the Corporation’s financial position.
REGULATORY RISKS
The industry in which Transat operates is subject to extensive Canadian and foreign government regulations. These relate to, among
other things, security, safety, consumer rights, permits, licensing, intellectual property rights, privacy, competition, pricing and the
environment. Consequently, 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 taxes and airport fees.
In the fight against climate change, the International Civil Aviation Organization (ICAO) has established an international model
whereby taxes would be imposed on greenhouse gas emissions to offset emissions. For domestic air transportation, Canada intends to
implement a carbon pricing system that is yet to be defined. 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.
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.
37
Transat A.T. Inc.
2016 Annual Report
HUMAN RESOURCE RISKS
Management’s Discussion and Analysis
Labour costs constitute one of Transat’s largest operating cost items. There can be no assurance that Transat will be able to maintain
such costs at levels that do not negatively affect its business, results from operations and financial position.
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.
As at October 31, 2016, the Corporation had approximately 5,000 employees, almost 45% of whom are unionized personnel covered
by six collective agreements. As at October 31, 2016, three of the six collective agreements had expired. Negotiations to renew these
collective agreements could give rise to work stoppages or slowdowns or higher labour costs that could unfavourably impact our operations
and operating income.
INSURANCE COVERAGE RISKS
The airline insurance market for risks associated with war and terrorist acts has undergone various changes. Our liability insurance for
airline operations covers liability related to damages resulting from injury or death of passengers, as well as to damage suffered by third
parties. The limit for any single event is US$1.25 billion with the exception of War Risk Bodily Injury/Property Damage to Third Parties
excluding passengers where the limit is US$250 million for any single event and in the aggregate.
In this latter regard, additional insurance is carried and maintained for War Risk Bodily Injury/Property Damage to Third Parties
excluding passengers covering the excess of US$250 million up to the limit of US$1 billion any single event and in the aggregate. Through
our Audit Committee and our Risk Management and Corporate Governance Committee, our Board of Directors identifies and evaluates at
least once annually the principal risk factors related to our business and approves strategies and systems proposed to manage such risks,
including those specifically related to the aviation industry.
However, there can be no assurance of all risks being covered in this manner or our ability to secure coverage providing favourable
levels and conditions at an acceptable cost.
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.
38
Transat A.T. Inc.
2016 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 (DC&P) and the design and effectiveness of internal control over financial reporting (ICFR).
The President and Chief Executive Officer and the Vice-President, Finance and Administration and Chief Financial Officer have
designed DC&P or caused them to be designed under their supervision to provide reasonable assurance that material information relating to
the Corporation has been made known to them and that information required to be disclosed in the Corporation’s filings is recorded,
processed, summarized and reported within the prescribed time periods under securities legislation.
Also, the President and Chief Executive Officer and the Vice-President, Finance and Administration and Chief Financial Officer have
designed 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 IFRS.
EVALUATION OF DC&P AND ICFR
An evaluation of the design and operating effectiveness of DC&P and 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. 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.
Based on this evaluation and using the criteria set by the Committee of Sponsoring Organizations of the Treadway Commission on
Internal Control – Integrated Framework (COSO-Framework 2013) and in connection with the preparation of its year-end financial
statements, the two certifying officers concluded that the design of DC&P and ICFR were effective as at October 31, 2016.
Lastly, no significant changes in ICFR occurred during the fourth quarter ended October 31, 2016 that materially affected, or are likely
to materially affect, the Corporation’s ICFR.
OUTLOOK
For the first six-month period - On the Sun destinations market outbound from Canada, the Corporation's main market segment in
the winter, Transat's capacity is approximately 3% lower than that offered last year. To date, 50% of that capacity has been sold, bookings
are ahead by 2.2%, and load factors are higher by 3.3%. The impact of the weakened Canadian dollar, added to the increase in fuel costs,
will be a 3.0% increase in operating costs if the dollar and fuel costs remain at their current level. At this moment, margins are lower by 1.5%
compared with last year at the same date.
On the transatlantic market, where it is low season, Transat's capacity is greater by 8% than that of last winter. To date, 49% of that
capacity has been sold, bookings are ahead by 10%, load factors are higher by 0.8%, and selling prices are lower by 4.4%. Higher fuel costs,
in combination with currency variations, will result in an increase in operating costs of 2.7% if the dollar remains at its current level against the
U.S. dollar, the euro and the pound, and if fuel prices remain stable. Margins are currently lower by 7.8% compared with last year at the
same date.
With the winter of 2016 having been affected by several important events (worry over the Zika virus, the threat of strike action by pilots
and terror attacks in Europe), the situation deteriorated as of the beginning of December. In comparison, the results may therefore show
improvement over last year, once the season is over, despite the indicators mentioned above.
39
Transat A.T. Inc.
2016 Annual Report
MANAGEMENT’S REPORT
The consolidated financial statements and MD&A of Transat A.T. Inc., and all other information in the financial report, are the responsibility of
management and have been reviewed and approved by the Board of Directors.
The consolidated financial statements have been prepared by management in accordance with IFRS issued by the International Accounting
Standards Board. The MD&A has been prepared in accordance with the requirements of the Canadian Securities Administrators.
Management’s responsibility in these respects includes the selection of appropriate accounting principles as well as the exercise of sound
judgment in establishing reasonable and fair estimates in accordance with IFRS and the requirements of the Canadian Securities
Administrators, and which are adequate in the circumstances. The financial information presented throughout the MD&A and elsewhere in
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 and the MD&A.
The Board of Directors is responsible for the financial information presented in the consolidated financial statements and the MD&A, primarily
through its Audit Committee. The Audit Committee, which is appointed by the Board of Directors and comprised entirely of independent and
financially literate directors, reviews the annual consolidated financial statements and the MD&A 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, the accounting methods and policies used as well as the internal control systems set up by the Corporation. These consolidated
financial statements have been audited by Ernst & Young LLP. Their report on the consolidated financial statements appears on the next
page.
Jean-Marc Eustache
Chairman of the Board,
President and Chief Executive Officer
Denis Pétrin
Vice-President, Finance and Administration
and Chief Financial Officer
40
Transat A.T. Inc.
2016 Annual Report
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 statements of
financial position as at October 31, 2016 and 2015, and the consolidated statements of income (loss), comprehensive income (loss),
changes in 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
International Financial Reporting Standards, 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, 2016 and 2015 and its financial performance and its cash flows for the years then ended in accordance with International
Financial Reporting Standards.
Montréal, Canada
December 14, 2016
1 CPA auditor, CA, public accountancy permit No. A121006
41
TRANSAT A.T. INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at October 31
(in thousands of Canadian dollars)
ASSETS
Cash and cash equivalents
Cash and cash equivalents in trust or otherwise reserved [note 5]
Trade and other receivables [note 6]
Income taxes receivable
Inventories
Prepaid expenses
Derivative financial instruments [note 7]
Current portion of deposits
Current assets
Cash and cash equivalents reserved [note 5]
Deposits [note 8]
Income taxes receivable [note 21]
Deferred tax assets [note 21]
Property, plant and equipment [note 11]
Goodwill [note 12]
Intangible assets [note 12]
Derivative financial instruments [note 7]
Investment in an associate [note 13]
Other assets
Non-current assets
LIABILITIES
Trade and other payables [note 14]
Current portion of provision for overhaul of leased aircraft
Income taxes payable
Customer deposits and deferred revenues
Derivative financial instruments [note 7]
Current liabilities
Provision for overhaul of leased aircraft [note 15]
Other liabilities [note 17]
Derivative financial instruments [note 7]
Deferred tax liabilities [note 21]
Non-current liabilities
EQUITY
Share capital [note 18]
Share-based payment reserve
Retained earnings
Unrealized gain on cash flow hedges
Cumulative exchange differences
Commitments and contingencies [note 24]
See accompanying notes to consolidated financial statements
On behalf of the Board,
2016
$
2015
$
363,664
292,131
105,003
24,758
12,354
58,657
18,318
13,067
887,952
46,450
28,977
15,100
15,055
134,959
—
50,327
199
97,668
733
389,468
1,277,420
247,795
16,232
976
409,045
21,358
695,406
24,629
88,011
—
4,988
117,628
214,250
17,849
218,821
2,211
11,255
464,386
1,277,420
336,423
367,199
129,223
1,800
9,079
80,318
25,277
18,298
967,617
44,900
40,603
15,100
32,939
133,502
99,527
79,863
296
97,897
1,520
546,147
1,513,764
355,656
17,281
1,431
489,622
23,188
887,178
25,681
52,026
15
11,612
89,334
218,134
17,105
263,812
14,960
23,241
537,252
1,513,764
Director
Director
42
TRANSAT A.T. INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands of Canadian dollars, except per share amounts)
Continuing operations
Revenues
Operating expenses
Costs of providing tourism services
Salaries and employee benefits [notes 19 and 23]
Aircraft fuel
Aircraft maintenance
Aircraft rent
Airport and navigation fees
Commissions
Other
Share of net income of an associate [note 13]
Depreciation and amortization [note 19]
Special items [note 20]
Operating income (loss)
Financing costs
Financing income
Change in fair value of fuel-related derivatives and other derivatives
Foreign exchange gain on non-current monetary items
Loss on disposal of a subsidiary [note 10]
Asset impairment [note 12]
Income (loss) before income tax expense
Income taxes (recovery) [note 21]
Current
Deferred
Net income (loss) from continuing operations
Discontinued operations
Net income (loss) from discontinued operations [note 9]
Net income (loss) for the year
Net income (loss) attributable to:
Shareholders
Non-controlling interests
Earnings (loss) per share from continuing operations [note 18]
Basic
Diluted
Earnings (loss) per share [note 18]
Basic
Diluted
See accompanying notes to consolidated financial statements
43
2016
$
2015
$
2,889,646
2,897,950
1,309,430
346,899
329,784
178,317
135,813
128,695
92,018
341,504
(6,342)
50,038
13,825
2,919,981
(30,335)
1,669
(6,996)
(6,901)
(1,284)
843
79,708
(97,374)
(17,188)
6,345
(10,843)
(86,531)
1,260,250
340,280
440,804
146,006
98,859
117,862
95,170
305,156
(7,045)
45,817
—
2,843,159
54,791
1,775
(7,576)
1,391
(2,531)
—
—
61,732
14,041
(1,628)
12,413
49,319
49,772
(36,759)
(2,355)
46,964
(41,748)
4,989
(36,759)
42,565
4,399
46,964
(2.48)
(2.48)
(1.13)
(1.13)
1.17
1.16
1.11
1.10
TRANSAT A.T. INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years ended October 31
(in thousands of Canadian dollars)
Net income (loss) from continuing operations
Other comprehensive income (loss) from continuing operations
Items that will be reclassified to net income (loss)
Change in fair value of derivatives designated as cash flow
hedges
Reclassification to net income (loss)
Deferred taxes [note 21]
Foreign exchange gain on translation of financial
statements of foreign subsidiaries
Items that will never be reclassified to net income (loss)
Retirement benefits – Net actuarial losses [note 23]
Deferred taxes [note 21]
Total other comprehensive income (loss) from continuing operations
Comprehensive income (loss) from continuing operations
Net income (loss) from discontinued operations [note 9]
Other comprehensive income (loss) from discontinued operations
Comprehensive income (loss) from discontinued operations
Comprehensive income (loss) for the year
Attributable to:
Shareholders
Non-controlling interests
See accompanying notes to consolidated financial statements
2016
$
(86,531)
2015
$
49,319
(42,803)
25,723
4,589
(12,491)
(65,478)
70,944
(1,506)
3,960
(13,673)
19,707
(3,230)
870
(2,360)
(28,524)
(115,055)
49,772
1,093
50,865
(64,190)
(69,811)
5,621
(64,190)
388
(101)
287
23,954
73,273
(2,355)
(1,241)
(3,596)
69,677
61,738
7,939
69,677
44
TRANSAT A.T. INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Accumulated other comprehensive
income (loss)
Share-
based
payment
reserve
Unrealized
gain (loss)
on cash
flow hedges
Cumulative
exchange
differences
Reserve
related to
assets held
for sale
Retained
earnings
$
$
$
$
$
Share
capital
$
224,679
15,444
227,872
11,712
—
—
—
973
—
(7,518)
—
—
—
—
—
—
—
—
1,661
—
—
—
—
—
(6,545)
218,134
1,661
17,105
—
—
—
1,219
577
—
(5,680)
—
—
—
—
—
—
(3,884)
—
—
—
—
(177)
921
—
—
—
—
—
—
—
744
42,565
(537)
42,028
—
—
(1,906)
—
(4,182)
—
—
(6,088)
263,812
(41,748)
(2,360)
(44,108)
—
—
—
(1,427)
—
(336)
1,049
(169)
—
—
(883)
—
3,248
3,248
—
—
—
—
—
—
—
—
14,960
—
(12,491)
(12,491)
—
—
—
—
—
(258)
—
—
—
—
(258)
2,211
3,239
—
16,462
16,462
—
—
—
—
—
—
3,540
3,540
23,241
—
(14,305)
(14,305)
—
—
—
—
—
1,687
—
—
—
632
2,319
11,255
Non-
controlling
interests
$
—
4,399
3,540
7,939
—
—
—
(4,221)
Total
$
482,946
42,565
19,173
61,738
973
1,661
(9,424)
—
Total
equity
$
482,946
46,964
22,713
69,677
973
1,661
(9,424)
(4,221)
(4,182)
4,182
—
—
(4,360)
(4,360)
(3,540)
(7,939)
—
(15,371)
—
537,252
4,989
632
5,621
—
—
—
—
(4,335)
—
169
226
(36,759)
(27,431)
(64,190)
1,219
400
921
(7,107)
(4,335)
—
—
—
226
3,540
(7,432)
537,252
(41,748)
(28,063)
(69,811)
1,219
400
921
(7,107)
—
—
(169)
—
632
1,049
(1,049)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,093
1,093
—
—
—
—
—
(1,093)
—
—
—
—
(1,093)
(3,055)
(632)
(5,621)
—
(8,676)
—
464,386
—
464,386
(in thousands of Canadian dollars)
Balance as at October 31, 2014
Net income for the year
Other comprehensive income (loss)
Comprehensive income for the year
Issued from treasury
Share-based payment expense
Repurchase of shares
Dividends
Fair value changes in non-controlling
interest liabilities
Reclassification of non-controlling
interest liabilities
Reclassification of non-controlling
interest exchange difference
Balance as at October 31, 2015
Net income (loss) for the year
Other comprehensive income (loss)
Comprehensive income (loss) for the year
Issued from treasury
Exercise of options
Share-based payment expense
Repurchase of shares
Dividends
Discontinued operations
Fair value changes in non-controlling
interest liabilities
Other changes in non-controlling
interest liabilities
Reclassification of non-controlling
interest liabilities
Reclassification of non-controlling
interest exchange difference
Balance as at October 31, 2016
214,250
17,849
218,821
See accompanying notes to consolidated financial statements
45
2016
$
2015
$
(86,531)
49,319
50,038
(6,901)
(1,284)
843
79,708
(6,342)
6,345
2,657
921
39,454
5,181
(2,101)
1,027
43,561
(70,754)
(1,550)
200
68,048
9,149
5,093
1,619
(7,107)
(4,335)
(9,823)
(12,132)
26,699
542
336,423
363,664
45,817
1,391
(2,531)
—
—
(7,045)
(1,628)
2,602
1,661
89,586
2,731
13,841
2,834
108,992
(55,140)
(5,420)
—
—
6,706
(53,854)
973
(9,424)
(4,221)
(12,672)
3,402
45,868
(18,332)
308,887
336,423
8,162
514
24,952
513
TRANSAT A.T. INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended October 31
(in thousands of Canadian dollars)
OPERATING ACTIVITIES
Net income (loss) for the year
Operating items not involving an outlay (receipt) of cash:
Depreciation and amortization
Change in fair value of fuel-related derivatives and other derivatives
Foreign exchange gain on non-current monetary items
Loss on disposal of a subsidiary
Asset impairment
Share of net income of an associate
Deferred taxes
Employee benefits
Share-based payment expense
Net change in non-cash working capital balances related to operations
Net change in provision for overhaul of leased aircraft
Net change in other assets and liabilities related to operations
Cash flows related to operating activities
INVESTING ACTIVITIES
Additions to property, plant and equipment and other intangible assets
Increase in cash and cash equivalent reserved
Net proceeds from disposal of subsidiary
Proceeds from sale of discontinued operations [note 9]
Dividend received from an associate
Cash flows related to investing activities
FINANCING ACTIVITIES
Proceeds from issuance of shares
Repurchase of shares
Dividends paid by a subsidiary to a non-controlling shareholder
Cash flows related to financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents related to continuing operations
Net cash flows related to discontinued operations [note 9]
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplementary information (as reported in operating activities)
Income taxes paid
Interest paid
See accompanying notes to consolidated financial statements
46
Transat A.T. Inc.
2016 Annual Report
Notes to Consolidated Financial Statements
October 31, 2016 and 2015
[Unless specified otherwise, amounts are expressed in thousands of Canadian dollars, except for per share amounts]
Note 1
CORPORATE INFORMATION
Transat A.T. Inc. [the “Corporation”], headquartered at 300 Léo-Pariseau Street, Montréal, Québec, Canada, is incorporated under the
Canada Business Corporations Act. The Class A Variable Voting Shares and Class B Voting Shares are listed on the Toronto Stock
Exchange. Since November 16, 2015, Class A Variable Voting Shares and Class B Voting Shares of the Corporation are traded on the
Toronto Stock Exchange under a single symbol, namely “TRZ.”
The Corporation is an integrated company specializing in the organization, marketing and distribution of holiday travel in the tourism
industry. As at October 31, 2016, the core of its business consists of a tour operator based in Canada which is vertically integrated with its
other services of air transportation, distribution through a dynamic travel agency network, value-added services at travel destinations and
accommodations.
The consolidated financial statements of Transat A.T. Inc. for the year ended October 31, 2016 were approved by the Corporation’s
Board of Directors on December 14, 2016.
Note 2
SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PREPARATION
These consolidated financial statements of the Corporation and its subsidiaries have been prepared in accordance with International
Financial Reporting Standards [“IFRS”], as issued by the International Accounting Standards Board [“IASB”] and as adopted by the
Accounting Standards Board of Canada.
These consolidated financial statements are presented in Canadian dollars, the Corporation’s functional currency, except where
otherwise indicated. Each entity of the Corporation determines its own functional currency and items included in the financial statements of
each entity are measured using that functional currency.
These consolidated financial statements have been prepared on a going concern basis, using historical cost accounting, except for
certain financial assets and liabilities classified as financial assets/liabilities at fair value through profit or loss and measured at fair value.
BASIS OF CONSOLIDATION
The consolidated financial statements include the financial statements of the Corporation and its subsidiaries.
SUBSIDIARIES
Subsidiaries are entities over which the Corporation has control. Control is achieved where the Corporation has the power to govern
the financial and operating policies of an investee entity so as to obtain benefits from its activities. Subsidiaries are fully consolidated from
the date of acquisition, being the date on which the Corporation obtains control, and continue to be consolidated until the date when such
control ceases.
The acquisition method of accounting is used to account for the acquisition of subsidiaries as follows:
• Cost is measured as the fair value of the assets acquired, equity instruments issued and liabilities incurred or assumed at
•
•
•
the date of exchange, excluding transaction costs which are expensed as incurred;
Identifiable assets acquired and liabilities assumed are measured at their fair values at the acquisition date;
The excess of acquisition cost over the fair value of the identifiable net assets acquired is recorded as goodwill;
If the acquisition cost is less than the fair value of the net assets acquired, the fair value of the net assets is re-assessed
and any remaining difference is recognized directly in the statement of income;
• Contingent consideration is measured at fair value on the acquisition date, with subsequent changes in the fair value
recorded through the statement of income when the contingent consideration is a financial liability;
47
Transat A.T. Inc.
2016 Annual Report
Notes to Consolidated Financial Statements
• Upon gaining control in a step acquisition, the existing ownership interest is re-measured to fair value through the statement
•
of income; and
For each business combination including non-controlling interests, the acquirer measures the non-controlling interest in the
acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets.
Non-controlling interests, which represent the portion of net income (loss) and net assets in subsidiaries that are not 100% owned by
the Corporation, are reported separately within equity in the consolidated statement of financial position. Non-controlling interests in respect
of which shareholders hold an option entitling them to require the Corporation to buy back their shares are reclassified from equity to
liabilities, deeming exercise of the option. The carrying amount of reclassified interests is also adjusted to match the estimated redemption
value. Any changes in the estimated redemption value are recognized as equity transactions in retained earnings.
The financial statements of the subsidiaries are prepared for the same reporting period as the parent company and using consistent
accounting policies. All intragroup balances, transactions, unrealized gains and losses resulting from intragroup transactions and dividends
are fully eliminated on consolidation.
INVESTMENT IN AN ASSOCIATE
An associate is an entity over which the Corporation has significant influence, but no control. The Corporation’s investment in an
associate is accounted for using the equity method as follows:
•
•
•
Investment is initially recognized at cost;
Investment in an associate includes goodwill identified on acquisition, net of any accumulated impairment loss;
The Corporation’s share of post-acquisition net income (loss) is recognized in the statement of income and is also added to
(netted against) the carrying amount of the investment; and
• Gains on transactions between the Corporation and its equity method investee are eliminated to the extent of
the Corporation’s interest in this entity and losses are eliminated unless the transaction provides evidence of an impairment
of the asset transferred.
FOREIGN CURRENCY TRANSLATION
TRANSACTIONS AND BALANCES
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the functional currency spot rate of
exchange at the reporting date.
Foreign exchange gains and losses resulting from the settlement of such transactions as well as from the translation of monetary
assets and liabilities not denominated in the functional currency of the subsidiary are recognized in the statement of income, except for
qualifying cash flow hedges, which are deferred and presented as Unrealized gain (loss) on cash flow hedges in Accumulated other
comprehensive income (loss) in the statement of changes in equity.
GROUP COMPANIES
Assets and liabilities of entities with functional currencies other than the Canadian dollar are translated at the period-end rates of
exchange, and the results of their operations are translated at average rates of exchange for the period. The exchange differences arising
from translation are recognized in Cumulative exchange differences in Accumulated other comprehensive income (loss) in equity. On
disposal of an interest, the exchange difference component relating to that particular interest is recognized in the consolidated statement of
income.
CASH EQUIVALENTS
Cash equivalents consist primarily of term deposits and bankers’ acceptances that are highly liquid and readily convertible into known
amounts of cash with initial maturities of less than three months.
48
Transat A.T. Inc.
2016 Annual Report
INVENTORIES
Notes to Consolidated Financial Statements
Inventories, consisting primarily of supplies and aircraft parts, are valued at the lower of cost, determined using the first-in, first-out
method, and net realizable value. Net realizable value is the estimated selling price in the normal course of business less estimated costs to
sell. Replacement cost may be indicative of net realizable value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost less accumulated depreciation and provision for impairment, if any.
Depreciation on property, plant and equipment is calculated on a straight line basis, unless otherwise specified, and serves to write
down the cost of the assets to their estimated residual value over their expected useful lives as follows:
Aircraft equipment, including spare engines and rotable spare parts
Office furniture and equipment
Leasehold improvements
Administrative building
5–10 years or use
3–10 years
Lease term or useful life
10–45 years
The fleet includes owned aircraft and improvements to aircraft under operating leases. A portion of the cost of owned aircraft is
allocated to the “major maintenance activities” subclass, which relates to airframe, engine and landing gear overhaul costs, and the
remaining cost is allocated to Aircraft. Aircraft and major maintenance activities are depreciated taking into account their expected estimated
residual value. Aircraft are depreciated on a straight-line basis over seven- to ten-year periods, and major maintenance activities are
depreciated 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, or their expected useful lives. Subsequent major maintenance activity expenses are capitalized as
major maintenance activities and are depreciated according to their type. Expenses related to other maintenance activities, including
unexpected repairs, are recognized in net income as incurred. Improvements to aircraft under operating leases are depreciated on a straight-
line basis over the shorter of the corresponding lease term and their useful life.
Estimated residual values and useful lives are reviewed annually and adjusted as appropriate.
GOODWILL
Goodwill represents the excess of the cost of an acquisition over the fair value of the identifiable net assets acquired at the date of
acquisition. Goodwill is tested at least annually for impairment and carried at cost less accumulated impairment losses. For the purposes of
impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Corporation’s cash-
generating units [“CGUs”] that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree
are assigned to those units.
INTANGIBLE ASSETS
Intangible assets are recorded at cost. The cost of intangible assets acquired in a business combination is recorded at fair value as at
the acquisition date. Internally generated intangible assets include developed or modified application software. These costs are capitalized
when the following criteria are met:
•
•
•
•
•
•
It is technically feasible to complete the software product and make it available for use;
Management intends to complete the software product and use it;
The Corporation has ability to use the software product;
It can be demonstrated how the software product will generate probable future economic benefits;
Adequate technical, financial and other resources to complete the development and use the software product are available;
The expenditures attributable to the software product during its development can be reliably measured.
Costs that qualify for capitalization include both internal and external costs, but are limited to those that are directly related to the
specific project.
49
Transat A.T. Inc.
2016 Annual Report
Notes to Consolidated Financial Statements
Following initial recognition, intangible assets are carried at cost less any accumulated depreciation and impairment losses.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortized on a straight-line basis over their respective useful economic lives, as follows:
Software
Customer lists
3–10 years
7–10 years
Intangible assets with finite useful lives are assessed for impairment whenever there is an indication that the intangible asset may be
impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least annually
and adjusted as appropriate.
Intangible assets with indefinite useful lives, consisting mainly of trademarks, are not amortized but are tested for impairment at least
annually, either individually or at the CGU level. The indefinite useful life of those assets is reviewed annually, at a minimum, to determine
whether events and circumstances continue to support an indefinite useful life assessment for the assets. If they do not, the change in useful
life assessment from indefinite to finite is made on a prospective basis.
OPERATING LEASE AND DEFERRED LEASE INDUCEMENTS
Leases where substantially all the risks and rewards of ownership of the asset are not transferred to the Corporation are classified as
operating leases. Operating lease payments are recognized as an expense on a straight-line basis over the related lease term.
Deferred lease inducements consist of lease incentive amounts received from landlords and rent-free lease periods. These lease
inducements are recognized through other liabilities and are amortized over the life of the initial lease term on a straight-line basis as a
reduction of amortization expense.
FINANCIAL INSTRUMENTS
A financial instrument is any contract that gives rise to a financial asset of one party and a financial liability or equity instrument of
another party. Financial assets of the Corporation include cash and cash equivalents, cash and cash equivalents in trust or otherwise
reserved, trade and other receivables other than amounts receivable due from government, deposits on leased aircraft and engines, and
derivative financial instruments with a positive fair value. Financial liabilities of the Corporation include trade and other payables other than
amounts due to government, long-term debt, derivative financial instruments with a negative fair value and put options held by non-
controlling interests.
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: financial assets/liabilities at fair value
through profit or loss, 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 financial assets or liabilities at fair value through profit
or loss unless they are designated within an effective hedging relationship. Classification is determined by management on initial recognition
based on the purpose for their acquisition.
CLASSIFICATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities at fair value through profit or loss
Financial assets, financial liabilities and derivative financial instruments classified as financial assets or liabilities at fair value through
profit or loss are measured at fair value at the period-end date. Gains and losses realized on disposal and unrealized gains and losses from
changes in fair value are reflected in the consolidated statement of income as incurred.
Loans and receivables and other financial liabilities
Financial assets classified as loans and receivables and financial liabilities classified as other financial liabilities are recorded at
amortized cost using the effective interest method.
50
Transat A.T. Inc.
2016 Annual Report
Notes to Consolidated Financial Statements
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING
The Corporation uses derivative financial instruments to hedge against future foreign currency fluctuations in relation to its operating
lease payments, receipts of revenues from certain tour operators and disbursements pertaining to certain operating expenses in foreign
currencies. For hedge accounting purposes, the Corporation designates some of its foreign currency derivatives as hedging instruments.
The Corporation formally documents all relationships between the hedging instruments and hedged items, as well as its risk
management objectives and strategy for undertaking various hedging transactions. This process includes linking all derivative financial
instruments to forecasted cash flows or to a specific asset or liability. The Corporation also formally documents and assesses, both at the
hedge’s inception and on an ongoing basis, whether the hedging instruments are highly effective in offsetting the changes in the fair value or
cash flows of the hedged items.
These derivative financial instruments are designated as cash flow hedges.
All derivative financial instruments are recorded at fair value in the consolidated statement of financial position. For the derivative
financial instruments designated as cash flow hedges, changes in the fair value of the effective portion are recognized in Other
comprehensive income in the consolidated statement of comprehensive income. Any ineffective portion within a cash flow hedge is
recognized in net income, as incurred, in the account Change in fair value of fuel-related derivatives and other derivatives. Should the cash
flow hedge cease to be effective, previously unrealized gains and losses remain within Accumulated other comprehensive income (loss) as
Unrealized gain (loss) on cash flow hedges until the hedged item is settled, and future changes in value of the derivative instrument 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) as Unrealized gain (loss) on cash flow hedges until the related hedged item is settled, at which time amounts
recognized in Unrealized gain (loss) on cash flow hedges are reclassified to the same consolidated statement of income 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 the same account in the consolidated statement of income as the hedged item.
DERIVATIVE FINANCIAL INSTRUMENTS THAT DO NOT QUALIFY FOR HEDGE ACCOUNTING
In the normal course of business, the Corporation also uses fuel-related derivatives to manage its exposure to unstable fuel prices as
well as certain foreign currency derivatives to offset the future risks of fluctuations in foreign currencies 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 on
remeasurement are recorded and presented under Change in fair value of fuel-related derivatives and other derivatives in the consolidated
statement of income. When realized, at maturity of fuel-related 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 held to maturity.
TRANSACTION COSTS
Transaction costs related to financial assets and financial liabilities classified as financial assets or liabilities at fair value through profit
or loss are expensed as incurred. Transaction costs related to financial assets classified as loans and receivables 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
The fair value of financial instruments that are actively traded in organized financial markets is determined by reference to quoted
prices in an active market at the close of business on the reporting date. For financial instruments where there is no active market, fair value
is determined using valuation techniques. Such techniques may include using recent arm’s length market transactions, reference to the
current fair value of another instrument that is substantially the same, discounted cash flow analysis or other valuation models.
The Corporation 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.
51
Transat A.T. Inc.
2016 Annual Report
Notes to Consolidated Financial Statements
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 accessible to the Corporation 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.
IMPAIRMENT OF FINANCIAL ASSETS CLASSIFIED AS LOANS AND RECEIVABLES
The Corporation assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial
assets classified as loans and receivables is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if,
there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset [an incurred
loss event] and that incurred loss event has an impact on the estimated future cash flows of the financial asset or the group of financial
assets that can be reliably estimated. Impairment losses are recognized through profit or loss.
IMPAIRMENT OF NON-FINANCIAL ASSETS
The Corporation assesses at each reporting date whether there is any indication that an asset may be impaired. If any indication
exists, or when annual impairment testing for an asset is required, the Corporation estimates the asset’s recoverable amount. An asset’s
recoverable amount is the higher of an asset’s or CGU’s fair value less costs to sell and its value in use and is determined for an individual
asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Value in
use is calculated using estimated net cash flows, typically based on detailed projections over a five-year period with subsequent years
extrapolated using a growth assumption. The estimated net cash flows are discounted to their present value using a discount rate before
income taxes that reflects current market assessments of the time value of money and the risk specific to the asset or CGU. In determining
fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an
appropriate valuation model may be used. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is
considered impaired and is written down to its recoverable amount. Impairment losses are recognized through profit or loss.
The following criteria are also applied in assessing impairment of specific assets:
GOODWILL
Goodwill is tested annually [as at April 30] for impairment and when circumstances indicate that the carrying value may be impaired.
Impairment is determined by assessing the recoverable amount of each CGU [or group of CGUs] to which the goodwill relates. Where the
recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized.
INTANGIBLE ASSETS
Intangible assets with indefinite useful lives are tested for impairment annually [as at April 30] either individually or at the CGU level,
as appropriate, and when circumstances indicate that the carrying value may be impaired.
REVERSAL OF IMPAIRMENT LOSSES
For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously
recognized impairment losses may no longer exist or have decreased. If such indication exists, the Corporation estimates the asset’s or
CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to
determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount
of the asset does not exceed its recoverable amount or exceed the carrying amount that would have been determined, net of depreciation or
amortization, had no impairment loss been recognized for the asset in prior years. The reversal is recognized in the statement of income.
Impairment losses relating to goodwill cannot be reversed in future periods.
52
Transat A.T. Inc.
2016 Annual Report
PROVISIONS
Notes to Consolidated Financial Statements
Provisions are recognized when the Corporation has a present, legal or constructive obligation as a result of a past event, it is
probable that an outflow of resources will be required to settle the obligation and the cost can be reliably estimated. Provisions are measured
at their present value.
PROVISION FOR OVERHAUL OF LEASED AIRCRAFT
Under aircraft and engine operating leases, the Corporation is required to maintain the aircraft and engines in serviceable condition
and adhere to 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. All maintenance work done on aircraft engines under contracts with billing based on flight hours are charged to
operating expenses in the statement of income are expensed as incurred.
EMPLOYEE FUTURE BENEFITS
The Corporation offers defined benefit pension arrangements to certain senior executives. Certain non-Canadian employees also
benefit from post-employment benefits. The net periodic pension expense for these plans is actuarially determined on an annual basis by
independent actuaries using the projected unit credit method. The determination of benefit expense requires assumptions such as the
discount rate to measure obligations, expected mortality and expected rate of future compensation. Actual results will differ from estimated
results based on assumptions. The vested portion of past service cost arising from plan amendments is recognized immediately in the
statement of income. The unvested portion is amortized on a straight-line basis over the average remaining period until the benefits vest.
The liability recognized in the consolidated statements of financial position is the present value of the defined benefit obligation at the
end of the reporting period less the fair value of plan assets, together with adjustments for unrecognized past service costs. The present
value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality
corporate bonds that have terms to maturity approximating the term of the related pension liability. All actuarial gains and losses that arise in
calculating the present value of the defined benefit obligation and the fair value of plan assets are recognized immediately in Retained
earnings and included in the statement of comprehensive income.
Contributions to defined contribution pension plans are expensed as incurred, which is as the related employee service is rendered.
In certain jurisdictions, termination benefits are payable when employment is terminated by the Corporation before the normal
retirement date, or whenever an employee accepts voluntary redundancy in exchange for the benefits. The Corporation recognizes
termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed
formal plan without possibility of withdrawal, or providing termination benefits as a result of an offer made to encourage voluntary
redundancy.
REVENUE RECOGNITION
The Corporation recognizes revenue once the service is rendered and all the significant risks and rewards of the service have been
transferred to the customer. As a result, revenue earned from passenger transportation is recognized when such transportation is provided.
Revenue from tour operators and the related costs are recognized when passengers depart. Commission revenue from travel agencies is
recognized when travel is reserved. Amounts received from customers for services not yet rendered are included in current liabilities as
Customer deposits and deferred revenues.
Revenue for which the Corporation provides multiple services such as air transportation, tour operator and travel agency services is
recognized once the service is provided to the customer based on the Corporation’s accounting policy for revenue recognition.
The Corporation treats these different services as separate units of accounting as each service has a value to the customer on a stand-alone
basis and the consideration paid for these services is allocated using the relative fair value of each deliverable.
53
Transat A.T. Inc.
2016 Annual Report
INCOME TAXES
Notes to Consolidated Financial Statements
The Corporation provides for income taxes using the liability method. Under this method, deferred 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.
Deferred tax assets and liabilities are recognized directly through profit or loss, other comprehensive income, or equity based on the
classification of the item to which they relate.
Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized for all deductible
temporary differences, carryforwards of unused tax credits and unused tax losses, to the extent that it is probable that taxable income will be
available against which the deductible temporary differences, and the carryforwards of unused tax credits and unused tax losses can be
utilized.
Deferred tax assets and liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities
and the deferred taxes relate to the same taxable entity and the same taxation authority.
SHARE-BASED PAYMENT PLANS
The Corporation operates a number of equity-settled and cash-settled share-based compensation plans under which it receives
services from employees as consideration for equity instruments of the Corporation or cash-settled payments.
EQUITY-SETTLED TRANSACTIONS
For equity-settled share-based compensation [stock option plan and performance share unit plan], the compensation expense is
based on the grant date fair value of the share-based awards expected to vest over the period in which the performance and/or service
conditions are fulfilled, with a corresponding increase in the share-based payment reserve. Compensation expense related to the stock
option plan is calculated using the Black-Scholes model, whereas the performance share unit expense is measured based on the closing
price of the shares of the Corporation on the Toronto Stock Exchange at the grant date adjusted to take into account the terms and
conditions upon which the units were granted. For awards with graded vesting, the fair value of each tranche is recognized through profit or
loss over its respective vesting period. Any consideration paid by employees on exercising these awards and the corresponding portion
previously credited to the share-based payment reserve are credited to share capital.
CASH-SETTLED TRANSACTIONS
For cash-settled share-based compensation [deferred share unit plan and restricted share unit plan], the expense is determined
based on the fair value of the liability at the end of the reporting period until the award is settled. The value of the compensation is measured
based on the closing price of the shares of the Corporation on the Toronto Stock Exchange adjusted to take into account the terms and
conditions upon which the units were granted, and is based on the units that are expected to vest. The expense is recognized over the
period in which the performance or service conditions are satisfied. At the end of each reporting period, the Corporation re-assesses its
estimates of the number of awards that are expected to vest and recognizes the impact of the revisions through profit or loss.
EMPLOYEE SHARE PURCHASE PLANS
The Corporation’s contributions to the employee share purchase plans [stock ownership incentive and capital accumulation plan and
permanent stock ownership incentive plan] consist of shares acquired in the marketplace by the Corporation. These contributions are
measured at cost and are recognized over the period from the acquisition date to the date that the award vests to the participant. Any
consideration paid by the participant to purchase shares under the share purchase plan is credited to share capital.
EARNINGS (LOSS) PER SHARE
Basic earnings per share is computed based on net income attributable to shareholders of the Corporation, divided by the weighted-
average number of Class A Variable Voting Shares and Class B Voting Shares outstanding during the year.
Diluted earnings per share is calculated by adjusting net income attributable to shareholders of the Corporation for any changes in
income or expense that would result from the exercise of dilutive elements. The weighted-average number Class A Variable Voting Shares
and Class B Voting Shares outstanding is increased by the weighted-average number of additional Class A Variable Voting Shares and
Class B Voting Shares that would have been outstanding assuming the exercise of all dilutive elements.
54
Transat A.T. Inc.
2016 Annual Report
Notes to Consolidated Financial Statements
Note 3
SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS
The preparation of consolidated financial statements requires management to make estimates and judgments about the future.
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances. However, accounting estimates could result in outcomes that require a
material adjustment to the carrying amount of the asset or liability affected in future periods.
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fiscal year are described
below. The Corporation based its assumptions and estimates on parameters available when the consolidated financial statements were
prepared. However, existing circumstances and assumptions about future developments may change due to market events or to
circumstances beyond the Corporation’s control. Such changes are reflected in the assumptions when they occur.
DEPRECIATION AND AMORTIZATION AND IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT, GOODWILL AND INTANGIBLE ASSETS
Impairment exists when the carrying amount of an asset or CGU, in the case of goodwill, exceeds its recoverable amount, which is
the higher of fair value less costs to sell the asset or CGU and value in use. To identify CGUs, management has to take into account the
contributions made by each subsidiary and the inter-relationships among them in light of the Corporation’s vertical integration and the goal of
providing a comprehensive offering of tourism services in the markets served by the Corporation. The fair value less costs to sell calculation
is based on available data from arm’s length transactions for similar assets or observable market prices less incremental costs to sell. The
value in use calculation is based on a discounted cash flow model. Cash flows are derived from the budget or financial forecasts for the next
five fiscal years and do not include restructuring activities that the Corporation is not yet committed to or significant future investments that
will enhance the performance of the asset of the CGU being tested. The recoverable amount is most sensitive to the discount rate used for
the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes. The key
assumptions used to determine the recoverable amount for the various CGUs, including a sensitivity analysis, are discussed in note 12.
Property, plant and equipment are depreciated over their estimated useful lives taking into account their residual value. Aircraft and
aircraft components account for a major subclass of property, plant and equipment. Depreciation expense depends on several assumptions
including the period over which the aircraft will be used, the fleet renewal schedule and the estimate of the residual value of aircraft and
aircraft components at the time of their anticipated disposal.
Changes in estimated useful life and residual value of aircraft could have a significant impact on depreciation expense. 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.
FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS
The fair value of derivative financial instruments is the amount for which the instrument could be exchanged between knowledgeable,
willing parties in an arm’s length transaction. 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.
PROVISION FOR OVERHAUL OF LEASED AIRCRAFT
The estimates used to determine the provision for overhaul of leased aircraft are based on historical experience, historical costs and
repairs, information from external suppliers, forecasted aircraft utilization, planned renewal of the aircraft fleet, leased aircraft return
conditions, the U.S. dollar exchange rate and other facts and reasonable assumptions in the circumstances. Given that various assumptions
are used in determining the provision for overhaul of leased aircraft, the calculation involves some inherent measurement uncertainty. Actual
results will differ from estimated results based on assumptions.
55
Transat A.T. Inc.
2016 Annual Report
NON-CONTROLLING INTERESTS
Notes to Consolidated Financial Statements
Non-controlling interests in respect of which the shareholders may require the Corporation to buy back their shares are reclassified as
liabilities at their estimated redemption value, deeming exercise of this option. In the absence of a predetermined calculation formula, the
estimated redemption value is established using fair value. The fair value calculation is based on a discounted cash flow model. The cash
flows are derived from the budget and financial forecasts for the next five years and do not include restructuring activities that
the Corporation is not yet committed to or significant future investments that will enhance the subsidiary’s performance. The fair value is
most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate
used for extrapolation purposes.
EMPLOYEE FUTURE BENEFITS
The cost of defined benefit pension plans and other post-employment benefits and the present value of the associated obligations are
determined using actuarial valuations. These actuarial valuations require the use of assumptions such as the discount rate to measure
obligations, expected mortality and expected rate of future compensation. Given that various assumptions are used in determining the cost
and obligations associated with employee future benefits, the actuarial valuation process involves some inherent measurement uncertainty.
Actual results will differ from estimated results based on assumptions.
TAXES
Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax legislation and the amount and timing
of future taxable income. Given the Corporation’s wide range of international business relationships, differences arising between actual
results and the assumptions made, or future changes in such assumptions, could give rise to future adjustments in the amounts of income
taxes previously reported. Such interpretive differences may arise in a variety of areas depending on the conditions specific to the respective
tax jurisdiction of the Corporation’s subsidiaries. The Corporation establishes provisions, based on reasonable estimates, for possible
consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on
various factors, such as experience of previous tax audits and interpretations of tax regulations by the taxable entity and the responsible tax
authority.
Deferred income tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will be available
against which the losses can be utilized. Significant judgment is required by management to determine the amount of deferred income tax
assets that can be recognized, based upon the likely timing and the level of future taxable income together with future tax planning
strategies.
56
Transat A.T. Inc.
2016 Annual Report
Notes to Consolidated Financial Statements
Note 4
FUTURE CHANGES IN ACCOUNTING POLICIES
Standards issued but not yet effective are discussed below. The Corporation has not early adopted these new standards.
IFRS 9, FINANCIAL INSTRUMENTS
In July 2014, the IASB completed its three-part project to replace IAS 39, Financial Instruments: Recognition and Measurement by
issuing IFRS 9, Financial Instruments. IFRS 9 addresses the classification and measurement of financial assets and financial liabilities, and
introduces a forward-looking expected-loss impairment model as well as a substantially-reformed approach to hedge accounting.
IFRS 9 uses a new approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the many
different rules in IAS 39. The approach recommended by IFRS 9 is based on how an entity manages its financial instruments and the
contractual cash flow characteristics of the financial assets. Most of the requirements in IAS 39 for classification and measurement of
financial liabilities were carried forward in IFRS 9. However, the portion of the changes in fair value related to the entity’s own credit risk, in
measuring a financial liability at fair value through profit or loss, will be presented in other comprehensive income rather than in the statement
of income.
IFRS 9 also introduces a new expected-loss impairment model that will require more timely recognition of expected credit losses.
Specifically, entities will be required to account for expected credit losses when financial instruments are first recognized and to recognize full
lifetime expected credit losses on a more timely basis.
Lastly, IFRS 9 introduces a new hedge accounting model, together with corresponding disclosures about risk management activities.
The new hedge accounting model represents a substantial overhaul of hedge accounting that will enable entities to better reflect their risk
management activities in their financial statements.
Application of IFRS 9 will be effective from the Corporation’s fiscal year beginning on November 1, 2018, with earlier adoption
permitted. The Corporation is currently assessing the impact of adopting this standard on its financial statements.
IFRS 15, REVENUE FROM CONTRACTS WITH CUSTOMERS
In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers, a new standard that specifies the steps and timing
for issuers to recognize revenue as well as requiring them to provide more relevant and comprehensive disclosures. The core principle of
IFRS 15 is that an entity should recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an
amount that reflects the expected consideration receivable in exchange for those goods or services. IFRS 15 supersedes IAS 11,
Construction Contracts, and IAS 18, Revenue, as well as various interpretations regarding revenue. The application of IFRS 15 is mandatory
and will be effective from the Corporation’s fiscal year beginning on November 1, 2018, with earlier adoption permitted. The Corporation is
currently assessing the impact of adopting this standard on its financial statements.
IFRS 16, LEASES
In January 2016, the IASB issued IFRS 16, Leases, which supersedes IAS 17, Leases. Leasing is an important and flexible source of
financing for many companies. However, under the current IAS 17 standard, it is difficult to obtain a clear picture of the assets and liabilities
related to the leasing agreements of an entity. IFRS 16 introduces a single lessee accounting model under which most of lease-related
assets and liabilities are recognized in the statement of financial position. For the lessor, substantially all the current accounting requirements
remain unchanged.
The application of IFRS 16 is mandatory and will be effective for the Corporation’s fiscal year beginning on November 1, 2019, with
earlier adoption permitted if the new IFRS 15 standard on revenue has also been applied. The Corporation is currently assessing the impact
of adopting IFRS 16 on its financial statements.
57
Transat A.T. Inc.
2016 Annual Report
Notes to Consolidated Financial Statements
Note 5
CASH AND CASH EQUIVALENTS IN TRUST OR OTHERWISE RESERVED
As at October 31, 2016, cash and cash equivalents in trust or otherwise reserved included $254,311 [$310,883 as at
October 31, 2015] in funds received from customers, consisting primarily of Canadians, for services not yet rendered or for which the
restriction period had not ended, in accordance with Canadian regulators and the Corporation’s business agreements with certain credit card
processors. Cash and cash equivalents in trust or otherwise reserved also included $84,270, of which $46,450 was recorded as non-current
assets [$101,216 as at October 31, 2015, of which $44,900 was recorded as non-current assets], which was pledged as collateral security
against letters of credit.
Note 6
TRADE AND OTHER RECEIVABLES
Trade receivables
Government receivables
Other receivables
2016
$
2015
$
39,571
15,262
50,170
105,003
68,695
23,400
37,128
129,223
58
Transat A.T. Inc.
2016 Annual Report
Note 7
FINANCIAL INSTRUMENTS
CLASSIFICATION OF FINANCIAL INSTRUMENTS
Notes to Consolidated Financial Statements
The classification of financial instruments, other than derivative financial instruments designated as hedges, and their carrying
amounts and fair values are detailed as follows:
Carrying amount
Financial
assets/liabilities at
fair value through
profit or loss
Loans and
receivables
$
$
Other
financial
liabilities
$
Total
$
Fair value
$
363,664
338,581
—
—
8,614
2,208
713,067
—
2,619
13,878
—
16,497
—
—
89,741
20,043
—
—
109,784
—
—
—
—
—
—
—
—
—
—
—
—
363,664
338,581
89,741
20,043
8,614
2,208
822,851
363,664
338,581
89,741
20,043
8,614
2,208
822,851
227,862
227,862
227,862
—
—
29,984
257,846
2,619
13,878
29,984
274,343
2,619
13,878
29,984
274,343
As at October 31, 2016
Financial assets
Cash and cash equivalents
Cash and cash equivalents in trust or otherwise reserved
Trade and other receivables
Deposits on leased aircraft and engines
Derivative financial instruments
-Fuel purchasing forward contracts and other fuel-related
derivative financial instruments
-Other foreign currency derivatives
Financial liabilities
Trade and other payables
Derivative financial instruments
-Fuel purchasing forward contracts and other fuel-related
derivative financial instruments
-Other foreign currency derivatives
Non-controlling interests
59
Transat A.T. Inc.
2016 Annual Report
Notes to Consolidated Financial Statements
Carrying amount
Financial
assets/liabilities at
fair value through
profit or loss
$
Loans and
receivables
$
Other
financial
liabilities
$
Total
$
Fair value
$
336,423
412,099
—
—
180
142
748,844
—
17,953
1,344
—
19,297
—
—
105,823
16,530
—
—
122,353
—
—
—
—
—
—
—
—
—
—
—
—
336,423
412,099
105,823
16,530
180
142
871,197
336,423
412,099
105,823
16,530
180
142
871,197
312,964
312,964
312,964
—
—
32,800
345,764
17,953
1,344
32,800
365,061
17,953
1,344
32,800
365,061
As at October 31, 2015
Financial assets
Cash and cash equivalents
Cash and cash equivalents in trust or
Trade and other receivables
Deposits on leased aircraft and engines
Derivative financial instruments
-Fuel purchasing forward contracts and other fuel-related
derivative financial instruments
-Other foreign currency derivatives
Financial liabilities
Trade and other payables
Derivative financial instruments
-Fuel purchasing forward contracts and other fuel-related
derivative financial instruments
-Other foreign currency derivatives
Non-controlling interests
DETERMINATION OF FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is the amount for which the instrument could be exchanged between knowledgeable, willing
parties in an arm’s length transaction. The following methods and assumptions were used to measure fair value:
The fair value of cash and cash equivalents, in trust or otherwise reserved or not, trade and other receivables, and accounts payable
and accrued liabilities approximates their carrying amount due to the short-term maturity of these financial instruments.
The fair value of forward purchase contracts and other derivative financial instruments related to fuel or currencies is measured using
a generally accepted valuation method, i.e., by discounting the difference between the value of the contract at expiration determined
according to contract price or rate and the value of the contract at expiration determined according to contract price or rate that the financial
institution would have used had it renegotiated the same contract under the same conditions at the current date. The Corporation also
factors in the financial institution’s credit risk when determining contract value.
The fair value of deposits on leased aircraft and engines approximates their carrying amount 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 non-controlling interests in respect of which non-controlling shareholders hold an option to require the Corporation to
buy back their shares corresponds to their redemption price. The redemption price is based either on a formula that factors in financial and
non-financial indicators or on the fair value of shares held, which is determined using a discounted cash flow model similar to that used for
the goodwill impairment test [see note 12].
60
Transat A.T. Inc.
2016 Annual Report
Notes to Consolidated Financial Statements
The following table details the fair value hierarchy of financial instruments by level:
As at October 31, 2016
Financial assets
Derivative financial instruments
-Fuel purchasing forward contracts and other fuel-related
derivative financial instruments
-Foreign exchange forward contracts and other foreign currency derivatives
Financial liabilities
Derivative financial instruments
-Fuel purchasing forward contracts and other fuel-related
derivative financial instruments
-Foreign exchange forward contracts and other foreign currency derivatives
Non-controlling interests
As at October 31, 2015
Financial assets
Derivative financial instruments
-Fuel purchasing forward contracts and other fuel-related
derivative financial instruments
-Foreign exchange forward contracts and other foreign currency derivatives
Financial liabilities
Derivative financial instruments
-Fuel purchasing forward contracts and other fuel-related
derivative financial instruments
-Foreign exchange forward contracts and other foreign currency derivatives
Non-controlling interests
Quoted prices in
active markets
(Level 1)
$
Other
observable
inputs
(Level 2)
$
Unobservable
inputs
(Level 3)
$
—
—
—
—
—
—
—
8,614
9,903
18,517
2,619
18,739
—
21,358
—
—
—
—
—
29,984
29,984
Quoted prices in
active markets
(Level 1)
$
Other
observable
inputs
(Level 2)
$
Unobservable
inputs
(Level 3)
$
—
—
—
—
—
—
—
180
25,393
25,573
17,953
5,250
—
23,203
—
—
—
—
—
32,800
32,800
Total
$
8,614
9,903
18,517
2,619
18,739
29,984
51,342
Total
$
180
25,393
25,573
17,953
5,250
32,800
56,003
61
Transat A.T. Inc.
2016 Annual Report
Notes to Consolidated Financial Statements
The changes in non-controlling interests are as follows:
Balance, beginning of year
Net income
Other comprehensive income
Dividends
Disposal of subsidiaries
Change in fair value of non-controlling interests
2016
$
32,800
4,989
632
(4,335)
(3,053)
(1,049)
29,984
2015
$
24,900
4,399
3,540
(4,221)
—
4,182
32,800
MANAGEMENT OF RISKS ARISING FROM FINANCIAL INSTRUMENTS
In the normal course of business, the Corporation is exposed to credit and counterparty risk, liquidity risk and market risk arising from
changes in certain foreign exchange rates, changes in fuel prices and changes in interest rates. The Corporation manages these risk
exposures on an ongoing basis. In order to limit the effects of changes in foreign exchange rates, fuel prices and interest rates on its
revenues, expenses and cash flows, the Corporation can avail itself of various derivative financial instruments. The Corporation’s
management is responsible for determining the acceptable level of risk and only uses derivative financial instruments to manage existing or
anticipated risks, commitments or obligations based on its past experience.
CREDIT AND COUNTERPARTY RISK
Credit risk is primarily attributable to the potential inability of customers, service providers, aircraft and engine lessors and financial
institutions, including the other counterparties to cash equivalents and derivative financial instruments, to discharge their obligations.
Trade accounts receivable included under Trade and other receivables in the consolidated statement of financial position totalled
$39,571 as at October 31, 2016 [$68,695 as at October 31, 2015]. Trade accounts receivable consist of a large number of customers,
including travel agencies. 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, 2016 and 2015. As at October 31, 2016, approximately 8% [approximately 3% as at October 31, 2015]
of accounts receivable were over 90 days past due, whereas approximately 75% [approximately 82% as at October 31, 2015] were current,
that is, under 30 days. Historically, the Corporation has not incurred any significant losses in respect of its trade receivables. Therefore, the
allowance for doubtful accounts at the end of each period and the change recorded for each period is insignificant.
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. These deposits totalled $22,001 as at
October 31, 2016 [$42,371 as at October 31, 2015] and are 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 $20,043 as at October 31, 2016 [$16,530 as at
October 31, 2015] 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 generally returned to the Corporation upon
receipt of documented proof that the related maintenance has been performed by the Corporation. As at October 31, 2016, the cash security
deposits with lessors that have been claimed totalled $21,277 [$21,587 as at October 31, 2015] and are included in Trade and other
receivables. Historically, the Corporation has not written off any significant amount of deposits and claims for cash security deposits with
aircraft and engine lessors.
62
Transat A.T. Inc.
2016 Annual Report
Notes to Consolidated Financial Statements
For financial institutions including the various counterparties, the maximum credit risk as at October 31, 2016 relates to cash and cash
equivalents, including cash and cash equivalents in trust or otherwise reserved, 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 only 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.
The Corporation does not believe it is exposed to a significant concentration of credit risk as at October 31, 2016.
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’s oversight, the Treasury Department manages the Corporation’s cash resources based on financial forecasts and
anticipated cash flows.
The maturities of the Corporation’s financial liabilities as at October 31, 2016 are summarized in the following table:
Maturing in
under 1 year
$
227,862
4,984
21,344
254,190
Maturing in
1 to 2 years
$
—
—
—
—
Maturing in
2 to 5 years
$
—
25,000
—
25,000
Contractual
cash flows
Total
$
227,862
29,984
21,344
279,190
Carrying
amount
Total
$
227,862
29,984
21,358
279,204
Accounts payable and accrued liabilities
Non-controlling interests
Derivative financial instruments
Total
MARKET RISK
FOREIGN EXCHANGE RISK
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, 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 61%
of the Corporation’s costs are incurred in a currency other than the measurement currency of the reporting unit incurring the costs, whereas
approximately 17% of revenues are 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 and other types of derivative financial instruments, expiring in generally less
than 18 months, for the purchase and/or sale of foreign currencies based on anticipated foreign exchange rate trends.
63
Transat A.T. Inc.
2016 Annual Report
Notes to Consolidated Financial Statements
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 tables:
Net assets (liabilities)
2016
Financial statement measurement
currency of the group’s companies
Euro
Pound sterling
Canadian dollar
Other currencies
Total
Net assets (liabilities)
2015
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
$
9,356
(4,155)
(10,296)
(673)
(5,768)
U.S. dollar
$
(34,967)
97
8,839
(333)
(26,364)
—
100,963
(6,862)
19
94,120
Euro
$
—
238
2,974
102
3,314
—
—
3,287
—
3,287
—
671
—
(6)
665
—
—
(1,339)
876
(463)
Pound
sterling
$
Canadian
dollar
$
Other
Currencies
$
(446)
—
(3,868)
—
(4,314)
(1,886)
(215)
—
(18)
(2,119)
11
—
(220)
1,884
1,675
Total
$
9,356
97,479
(15,210)
216
91,841
Total
$
(37,288)
120
7,725
1,635
(27,808)
As at October 31, 2016, the proceeds of disposal of subsidiaries Transat France and Tourgreece were received in euros by a
subsidiary in the United Kingdom.
For the year ended October 31, 2016, 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 $3,199 increase or decrease [$1,307 in 2015], respectively, in the Corporation’s
net income for the year, whereas other comprehensive loss would have decreased or increased by $3,085 [$2,213 in 2015], respectively.
As at October 31, 2016, 37% of estimated requirements for fiscal 2016 were covered by foreign currency derivatives [45% of
estimated requirements for fiscal 2015 were covered as at October 31, 2015].
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 18 months.
For the year ended October 31, 2016, a 10% increase or decrease in fuel prices, assuming that all other variables had remained the
same, would have resulted in a $6,170 decrease or increase [$3,322 in 2015], respectively, in the Corporation’s net income for the year.
As at October 31, 2016, 48% of estimated requirements for fiscal 2016 were covered by fuel-related derivative financial instruments
[36% of estimated requirements for fiscal 2015 were covered as at October 31, 2015].
64
Transat A.T. Inc.
2016 Annual Report
INTEREST RATE RISK
Notes to Consolidated Financial Statements
The Corporation is exposed to interest rate fluctuations, primarily due to its variable-rate credit facility. 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.
For the year ended October 31, 2016, a 25 basis point increase or decrease in interest rates, assuming that all other variables had
remained the same, would have resulted in a $1,727 increase or decrease [$1,815 in 2015], respectively, in the Corporation’s net income.
CAPITAL RISK MANAGEMENT
The Corporation’s capital management objectives are first to ensure the longevity of the Corporation so as to support its 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.
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 by dividing net debt by equity.
Net debt is equal to the aggregate of long-term debt and obligations under adjusted operating leases, less cash and cash equivalents [not
held in trust or otherwise reserved]. The amount of adjusted operating leases is equal to the annualized aircraft rental expense multiplied by
5.0, a factor used in the industry. Although commonly used, this measure does not reflect the fair value of operating leases as it does not
take into account the remaining contractual payments, the discount rates implicit in the leases or current rates for similar obligations with
similar terms and risks.
The Corporation’s strategy is to maintain its adjusted debt/equity ratio below 1. The calculation of the adjusted debt/equity ratio is
summarized as follows:
Net debt
Long-term debt
Adjusted operating leases
Cash and cash equivalents
Equity
Adjusted debt/equity ratio
2016
$
2015
$
—
679,065
(363,664)
315,401
464,386
67.9%
—
494,295
(336,423)
157,872
537,252
29.4%
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, 2016, 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.
65
Transat A.T. Inc.
2016 Annual Report
Note 8
DEPOSITS
Deposits on leased aircraft and engines
Deposits with suppliers
Less current portion
Note 9
DISCONTINUED OPERATIONS
Notes to Consolidated Financial Statements
2016
$
20,043
22,001
42,044
13,067
28,977
2015
$
16,530
42,371
58,901
18,298
40,603
On October 31, 2016, the Corporation completed the sale of its tour operating business in France (Transat France) and Greece
(Tourgreece) for an amount of €63,428 ($93,254) to TUI AG, a multinational tourism company. The price could be adjusted at the final
closing of accounts and completion of the audit within 90 business days following the sale, due to a working capital adjustment.
As at October 31, 2015, the tour operating businesses in France and Greece were not identified as discontinued operations or as
assets held for sale. The Corporation announced on January 12, 2016 the initiation of a process to seek interest from third parties that could
potentially lead to the sale of certain assets held by the Corporation outside Canada, namely its tour operators in France and Greece.
Accordingly, the comparative consolidated statements of income (loss) and comprehensive income (loss) were restated to present after-tax
income or loss from discontinued operations as a single amount, separately from continuing operations. Unless otherwise specified, all other
notes to consolidated financial statements include amounts from continuing operations.
A gain on disposal of $49,692, net of transaction costs of $7,073, was also recognized in the consolidated statement of income (loss)
and the proceeds of disposal $93,254, net of cash disposed of, of are shown in the consolidated statement of cash flows.
The net income (loss) from discontinued operations is entirely attributable to common shareholders of the Corporation and is detailed
as follows:
Revenues
Operating expenses and other expenses
Income (loss) from operating activities
Income tax expense (recovery)
Net income (loss) from operating activities
Gain on disposal of discontinued operations
Foreign exchange loss on disposal of discontinued operations
Foreign exchange gain realized on disposal of discontinued operations
Net income (loss) from discontinued operations
Earnings (loss) per share from discontinued operations
Basic
Diluted
The net change in cash flows related to discontinued operations is as follows:
Cash flows related to operating activities
Cash flows related to investing activities
Effect of exchange rate changes on cash and cash equivalents
Net cash flows related to discontinued operations
66
2016
$
685,780
683,709
2,071
1,677
394
49,692
(854)
540
49,772
2015
$
668,418
672,823
(4,405)
(2,050)
(2,355)
—
—
—
(2,355)
1.35 (0.06)
1.35 (0.06)
2016
$
4,811
(4,269)
—
542
2015
$
(14,992)
(4,155)
815
(18,332)
Transat A.T. Inc.
2016 Annual Report
Notes to Consolidated Financial Statements
The assets and liabilities disposed of in connection with discontinued operations are as follows:
Cash and cash equivalents
Cash and cash equivalents in trust or otherwise reserved
Trade and other receivables
Income taxes receivable
Prepaid expenses
Derivative financial instruments
Deposits
Deferred tax assets
Property, plant and equipment
Goodwill
Intangible assets
Trade and other payables
Customer deposits and deferred revenues
Other liabilities
Deferred tax liabilities
Net assets disposed of
Consideration received, satisfied in cash
Transaction costs, satisfied in cash
Cash and cash equivalents disposed of
Net cash inflow
Note 10
DISPOSAL OF A SUBSIDIARY
2016
$
(22,978)
(3,893)
(32,590)
(2,666)
(14,731)
(567)
(18,489)
(9,322)
(9,229)
(31,255)
(18,869)
83,857
38,701
5,111
431
(36,489)
93,254
(2,228)
(22,978)
68,048
On April 1, 2016, the Corporation concluded the sale of its subsidiary Travel Superstore, which operates the website tripcentral.ca and
27 travel agencies. The cash consideration totalled $300 and the carrying amount of net assets disposed of stood at $1,312, which resulted
in a reversal of retained earnings of $169 and a loss on disposal of a subsidiary of $843.
67
Transat A.T. Inc.
2016 Annual Report
Notes to Consolidated Financial Statements
Note 11
PROPERTY, PLANT AND EQUIPMENT
Cost
Balance as at October 31, 2015
Additions
Disposals of subsidiaries
Write-off
Exchange difference
Balance as at October 31, 2016
Accumulated amortization
Balance as at October 31, 2015
Amortization
Disposals of subsidiaries
Write-off
Exchange difference
Balance as at October 31, 2016
Net book value as at October 31, 2016
Cost
Balance as at October 31, 2014
Additions
Write-off
Exchange difference
Balance as at October 31, 2015
Accumulated amortization
Balance as at October 31, 2014
Amortization
Write-off
Exchange difference
Balance as at October 31, 2015
Net book value as at October 31, 2015
Aircraft
equipment
Office furniture
and equipment
Building and
leasehold
improvements
$
$
$
88,893
8,884
—
—
—
97,777
72,299
3,559
—
—
—
75,858
21,919
64,943
5,035
(11,362)
(9,043)
(687)
48,886
51,413
4,654
(9,306)
(9,043)
(410)
37,308
11,578
46,939
3,676
(16,423)
(722)
—
33,470
32,129
1,919
(7,763)
(722)
—
25,563
7,907
Aircraft
equipment
Office furniture
and equipment
Building and
leasehold
improvements
$
$
$
84,670
4,371
(148)
—
88,893
70,036
2,411
(148)
—
72,299
16,594
71,607
6,569
(14,103)
870
64,943
58,703
6,234
(14,103)
579
51,413
13,530
46,529
2,582
(2,511)
339
46,939
31,717
2,753
(2,511)
170
32,129
14,810
Total
$
504,700
53,119
(27,785)
(9,765)
(687)
519,582
371,198
40,669
(17,069)
(9,765)
(410)
384,623
134,959
Total
$
480,719
41,796
(19,024)
1,209
504,700
352,159
37,314
(19,024)
749
371,198
133,502
Fleet
$
303,925
35,524
—
—
—
339,449
215,357
30,537
—
—
—
245,894
93,555
Fleet
$
277,913
28,274
(2,262)
—
303,925
191,703
25,916
(2,262)
—
215,357
88,568
68
Transat A.T. Inc.
2016 Annual Report
Notes to Consolidated Financial Statements
Note 12 GOODWILL AND OTHER INTANGIBLE ASSETS
Cost
Balance as at October 31, 2015
Additions
Disposals of subsidiaries
Write-off and impairment
Exchange difference
Balance as at October 31, 2016
Accumulated amortization and impairment
Balance as at October 31, 2015
Amortization
Disposals of subsidiaries
Write-off and impairment
Exchange difference
Balance as at October 31, 2016
Net book value as at October 31, 2016
Cost
Balance as at October 31, 2014
Additions
Write-off
Exchange difference
Balance as at October 31, 2015
Accumulated amortization and impairment
Balance as at October 31, 2014
Amortization
Write-off
Exchange difference
Balance as at October 31, 2015
Net book value as at October 31, 2015
Software
$
Trademarks
$
Customer lists
$
158,913
17,635
(35,525)
(124)
(84)
140,815
101,950
8,591
(15,484)
(124)
(4)
94,929
45,886
22,041
—
—
—
(1,791)
20,250
—
—
—
15,809
—
15,809
4,441
14,262
—
—
—
(2,043)
12,219
13,403
775
—
—
(1,959)
12,219
—
Software
$
Trademarks
$
Customer lists
$
142,642
17,499
(1,877)
649
158,913
92,096
11,356
(1,877)
375
101,950
56,963
20,429
—
—
1,612
22,041
—
—
—
—
—
22,041
13,043
—
—
1,219
14,262
11,249
1,061
—
1,093
13,403
859
Total
$
309,743
17,635
(82,612)
(124)
(7,459)
237,183
130,353
9,366
(30,484)
79,584
(1,963)
186,856
50,327
Total
$
286,715
17,499
(1,877)
7,406
309,743
118,345
12,417
(1,877)
1,468
130,353
179,390
Goodwill
$
114,527
—
(47,087)
—
(3,541)
63,899
15,000
—
(15,000)
63,899
—
63,899
—
Goodwill
$
110,601
—
—
3,926
114,527
15,000
—
—
—
15,000
99,527
69
Transat A.T. Inc.
2016 Annual Report
IMPAIRMENT TEST IN 2016
Notes to Consolidated Financial Statements
In compliance with the accounting policies adopted by the Corporation, annual impairment testing for intangible assets with indefinite
lives is required on April 30 and when circumstances indicate that the carrying value may be impaired. Impairment is determined by
assessing the recoverable amount of each asset, cash-generating unit (“CGU”) or group of CGUs. Where the recoverable amount of the
asset, CGU or group of CGUs is less than its carrying amount, an impairment loss is recognized.
The $79,708 asset impairment charge consists of impairment of goodwill and trademarks of $63,899 and $15,809, respectively.
The aggregate carrying amounts of goodwill and trademarks allocated to each CGU are as follows:
Canada – United Kingdom – Netherlands
France
Other *
Net book value
* Multiple individual CGUs
INTANGIBLE ASSETS
2016
2015
Goodwill
$
—
—
—
—
Trademarks
$
4,441
—
—
4,441
Goodwill
$
67,537
21,016
10,974
99,527
Trademarks
$
22,041
—
—
22,041
The Corporation performed its annual impairment test as at April 30, 2016 to determine whether the carrying amount of trademarks
was higher than their recoverable amount.
The recoverable amount is determined based on value in use, using a discounted cash flow model. The Corporation prepares cash
flow forecasts based on the most recently approved annual budgets and three-year plans of the relevant business. Cash flow forecasts
reflect the risk associated with each asset, as well as the most recent economic indicators. Cash flow forecasts beyond three years are
extrapolated based on nil growth rates. The cash flow forecasts used also reflect the effects of implementing the Corporation’s integrated
distribution and brand strategy aiming to further expand the Transat brand, therefore decreasing the use of certain trademarks held by
the Corporation.
Following the introduction of its new reservation platform which, for European travellers, favours the purchasing of seats directly from
Air Transat instead of through its U.K. subsidiary, the Corporation concluded that the recoverable amount of its Canadian Affair trademark,
determined based on value in use, was less than its carrying amount due to a decline in revenues and profitability generated by this
trademark. As a result, the Corporation recorded an impairment charge of $9,726.
Implementation of the Corporation’s integrated strategy to further expand the Transat brand will result in the discontinuation of its
Vacances Tours Mont-Royal (“TMR”) brand, which the Corporation uses for the sale of sun packages outbound from Canada. As this brand
is no longer used, the Corporation has recorded an impairment charge of $4,483, which corresponds to its carrying amount.
Also as part of the implementation of the Corporation’s distribution and brand strategy aiming to further expand the Transat brand,
the Corporation is currently changing its wholly owned Marlin Travel agency banners to Voyages Transat. Following these changes,
the Corporation concluded that the recoverable amount of its Marlin Travel trademark, determined based on value in use, was less than its
carrying amount due to a decline in revenues and profitability generated by this trademark. As a result, the Corporation recorded an
impairment charge of $1,600.
As at April 30, 2016, after-tax discount rates used for impairment testing for trademarks ranged from 10.3% to 18.0% [10.3% as at
April 30, 2015].
As at April 30, 2016, a 1% increase in the after-tax discount rate used for impairment testing, assuming that all others variables
remained the same, would have resulted in an additional impairment charge of $200.
As at April 30, 2016, a 10% decrease in the cash flows used for impairment testing, assuming that all other variables remained the
same, would have resulted in an additional impairment charge of $300.
70
Transat A.T. Inc.
2016 Annual Report
Notes to Consolidated Financial Statements
As at October 31, 2016, there was no indication suggesting that the conclusions of trademarks impairment test might have changed
since April 30, 2016.
GOODWILL
The Corporation performed its annual impairment test as at April 30, 2016 to determine whether a CGU’s carrying amount was higher
than its recoverable amount. No impairment of goodwill was identified by the Corporation as at that date.
As at October 31, 2016, important changes in the environment in which the Corporation operates, such as significant capacity
increases in markets served by the Corporation and their effect on selling prices and load factors, volatile exchange rates and fuel prices and
the recent deterioration in results of the summer season have led management to review the assumptions for future cash flows and to
perform a new impairment test. Following this impairment test, the Corporation recognized a goodwill impairment charge of $63,899 which
corresponds to the balance of goodwill of its sole CGU as at October 31, 2016.
The recoverable amount is determined based on value in use, using a discounted cash flow model. The Corporation prepares cash
flow forecasts based on the most recently approved annual budgets and three-year plans of the relevant business. Cash flow forecasts
reflect the risk associated with each CGU, as well as the most recent economic indicators. Cash flow forecasts beyond three years are
extrapolated based on estimated growth rates that do not exceed the average long-term growth rates for the relevant markets.
As at April 30, 2016 and October 31, 2016, an after-tax discount rate of 10.1% was used for testing the various CGUs for impairment
[10.3% as at April 30, 2015]. The perpetual growth rate used for impairment testing was 1% [1% as at April 30, 2015].
As at October 31, 2016, reasonable changes in the assumptions used in the goodwill impairment test would not lead to an additional
impairment charge related to the assets.
71
Transat A.T. Inc.
2016 Annual Report
Notes to Consolidated Financial Statements
Note 13
INVESTMENTS AND OTHER ASSETS
Investment in an associate – Caribbean Investments B.V. [“CIBV”]
Deferred costs, unamortized
Sundry
2016
$
97,668
299
434
98,401
2015
$
97,897
355
1,165
99,417
Transat has a 35% interest in CIBV, which operates hotels in Mexico, the Dominican Republic and Cuba. CIBV’s fiscal year-end is
December 31, and the Corporation recognizes its investment using the equity method and results for the 12-month period ended September
30 of each year.
The change in the investment in CIBV is detailed as follows:
Balance, beginning of year
Share of net income
Dividend received
Translation adjustment
The following table shows the condensed financial information regarding CIBV as at September 30:
Statement of financial position:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets of CIBV
Carrying amount of investment in CIBV (35% of net assets)
Statement of comprehensive
Revenues
Net income and comprehensive
Share of net income
2016
$
97,897
6,342
(9,149)
2,578
97,668
2015
$
83,949
7,045
(6,706)
13,609
97,897
2016
$
2015
$
47,811
386,903
46,795
108,867
279,052
97,668
131,889
18,120
6,342
56,987
375,441
49,619
103,102
279,707
97,897
116,389
20,129
7,045
72
Transat A.T. Inc.
2016 Annual Report
Note 14
TRADE AND OTHER PAYABLES
Trade payables
Accrued expenses
Salaries and employee benefits payable
Government remittances
Non-controlling interests [note 17]
Note 15
PROVISION FOR OVERHAUL OF LEASED AIRCRAFT
Balance as at October 31, 2015
Additional provisions
Utilization of provisions
Unused amounts released
Balance as at October 31, 2016
Current provisions
Non-current provisions
Balance as at October 31, 2016
Notes to Consolidated Financial Statements
2016
$
2015
$
117,258
58,133
52,471
14,949
4,984
247,795
184,357
68,970
59,637
9,892
32,800
355,656
$
42,962
19,192
(18,264)
(3,029)
40,861
16,232
24,629
40,861
The provision for overhaul of leased aircraft relates to the maintenance obligation for leased aircraft and spare parts used by
the Corporation’s airline under operating leases.
Note 16
LONG-TERM DEBT
On February 19, 2016, the Corporation renewed its $50,000 revolving credit facility agreement for operating purposes. Under the new
agreement, which expires in 2020, the Corporation may increase the credit limit to $100,000, with the approval of lenders. The agreement
may be extended for a year at each anniversary date subject to lender approval and the balance becomes immediately payable in the event
of a change in control. Under the terms of the 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. The agreement is secured by a first movable hypothec on the
universality of assets, present and future, of the Corporation’s Canadian subsidiaries subject to certain exceptions and is further secured by
the pledging of certain marketable securities of its European subsidiaries. The credit facility bears interest at the bankers’ acceptance rate,
the financial institution’s prime rate or LIBOR, plus a premium. The terms of the agreements require the Corporation to comply with certain
financial criteria and ratios. As at October 31, 2016, all the financial ratios and criteria were met and the credit facility was undrawn.
The Corporation also has a $75,000 annually renewable revolving credit facility in respect of which the Corporation must pledge cash
totalling 100% of the amount of the issued letters of credit as collateral security. As at October 31, 2016, $66,220 had been drawn down
under the facility [$66,943 as at October 31, 2015], of which $46,450 is to guarantee the benefits to participants under senior executives
defined benefit pension agreements; such irrevocable letters of credit are held by a third-party trustee. In the event of a change of control,
the irrevocable letters of credit issued to guarantee the benefits to participants under the senior executives defined benefit pension
agreements will be drawn down.
73
Transat A.T. Inc.
2016 Annual Report
Note 17 OTHER LIABILITIES
Employee benefits [note 23]
Deferred lease inducements
Non-controlling interests [note 7]
Less non-controlling interests included in Trade and other payables [note 14]
Notes to Consolidated Financial Statements
2016
$
40,400
22,611
29,984
92,995
(4,984)
88,011
2015
$
39,265
12,761
32,800
84,826
(32,800)
52,026
NON-CONTROLLING INTERESTS
a) The minority shareholder in the subsidiary Jonview Canada Inc., which is also a shareholder of the Corporation, may require
the Corporation to buy its Jonview Canada Inc. shares at a price equal to their fair market value. The price paid may be settled, at
the Corporation’s option, in cash or by a share issue. The fair value of this option is taken into account in the carrying amount of the non-
controlling interest.
b) The minority shareholder of the subsidiary Trafictours Canada Inc. could require that the Corporation purchase its Trafictours Canada
Inc. shares at a price equal to a pre-determined formula, subject to adjustment according to the circumstances, payable in cash. The fair
value of this option is taken into account in the carrying amount of the non-controlling interest.
Note 18
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 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 act or formality. 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 can be exercised at the said meeting.
Each issued and outstanding Class A Share shall be automatically converted into one Class B Voting Share without any further action
on the part of the Corporation or of the holder if [i] the Class A Share is or becomes owned or 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 any 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.
74
Transat A.T. Inc.
2016 Annual Report
PREFERRED SHARES
Notes to Consolidated Financial Statements
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 Class A Shares and Class B Shares were as follows:
Balance as at October 31, 2014
Issued from treasury
Repurchase and cancellation of shares
Balance as at October 31, 2015
Issued from treasury
Repurchase and cancellation of shares
Exercise of options
Balance as at October 31, 2016
Number of shares
38,741,527
145,310
(1,296,090)
37,590,747
187,359
(978,831)
59,890
36,859,165
$
224,679
973
(7,518)
218,134
1,219
(5,680)
577
214,250
On April 10, 2015, the Corporation announced that it had received the required regulatory approvals to go forward with a normal
course issuer bid for a 12-month period.
Pursuant to its normal course issuer bid, the Corporation was authorized to purchase for cancellation up to a maximum of
2,274,921 Class A Shares and Class B Shares, representing approximately 10% of the public float of Class A Shares and Class B Shares.
On March 4, 2016, the Corporation completed its normal course issuer bid for a 12-month period launched on April 10, 2015; as of
that date, the Corporation had repurchased a total of 2,274,921 Class B Shares for a total cash consideration of $16,531. The Corporation
repurchased 978,831 Class B Shares during the year ended October 31, 2016, for a cash consideration of $7,107.
As at October 31, 2016, the number of Class A Shares and Class B Shares stood at 2,476,020 and 34,383,145, respectively
[1,410,985 and 36,179,762 as at October 31, 2015].
SUBSCRIPTION RIGHTS PLAN
The shareholders’ subscription 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 alternatives, thus allowing shareholders to receive full and fair value for their shares.
The rights plan will terminate on the day after the 2017 shareholders’ annual general meeting (“AGM”), unless terminated prior to said AGM.
STOCK OPTION PLAN
At the AGM held on March 12, 2015, the shareholders approved the implementation of a new reserve of 850,000 shares issuable in
addition to the balance remaining under the stock option plan. Under this plan, the Corporation may grant up to a maximum of 1,122,337
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. The option exercise period and the performance criteria are determined on each grant. The
options granted between January 14, 2009 and October 31, 2015 are exercisable in three tranches of 33.33% as of mid-December of each
year following the grant, provided the performance criteria determined on each grant are met. For options granted starting November 1,
2015, vesting will no longer depend on meeting performance criteria. The options granted before October 31, 2013 are exercisable over a
ten-year period, whereas those granted after that date are exercisable over or a seven-year period, respectively. Provided the performance
criteria set on grant date 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.
75
Transat A.T. Inc.
2016 Annual Report
Notes to Consolidated Financial Statements
The following tables summarize all outstanding options:
Beginning of year
Granted
Exercised
Cancelled
Expired
End of year
Options exercisable, end of year
Range of exercise price
$
6.01 to 7.48
8.73 to 11.22
12.25 to 12.49
19.24 to 24.78
37.25
2016
2015
Number of
options
2,741,856
—
(59,890)
(70,075)
—
2,611,891
2,400,323
Weighted
average
price
$
11.81
—
6.68
11.10
—
11.94
Number of
options
2,654,817
236,447
—
(74,184)
(75,224)
2,741,856
Weighted
average
price
$
12.39
8.73
—
12.19
22.34
11.81
12.08
1,807,423
12.89
Outstanding options
Options exercisable
Number of options
outstanding as at October
31, 2016
Weighted
average
remaining
life
1,009,856
447,374
667,041
396,414
91,206
2,611,891
5.7
3.7
3.8
2.2
0.5
4.2
Weighted
average
price
$
6.69
10.13
12.36
20.84
37.25
11.94
Number of options
exercisable as at
October 31, 2016
1,009,856
329,825
573,022
396,414
91,206
2,400,323
Weighted
average
price
$
6.69
10.63
12.34
20.84
37.25
12.08
COMPENSATION EXPENSE RELATED TO STOCK OPTION PLAN
During the year ended October 31, 2016, the Corporation granted nil stock options [236,447 in 2015] to certain key executives and
employees. The average fair value of each option granted is 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
2016
—
—
—
—
—
2015
1.33%
4 years
58.2%
—
$ 3.52
During the year ended October 31, 2016, the Corporation recorded a compensation expense of $401 [$1,110 in 2015] for its stock
option plan.
PERFORMANCE SHARE UNIT PLAN
Performance share units [“PSUs”] are awarded in connection with the performance share unit plan for senior executives. Under this
plan, each eligible senior executive receives a portion of his or her compensation in the form of PSUs. PSUs consist of a number equal to a
percentage of the participant’s basic salary, divided by the fair market value of Class B Shares as at the award date. Once vested, PSUs
give the participant the right to receive an equal number of shares or a cash payment, at the Corporation’s discretion. PSUs awarded vest in
three tranches of 16.67% in mid-December of each year for three years following the award, provided the performance criteria determined on
each award are met. The remaining 50% of PSUs awarded vest in mid-December three years following their award, provided the plan
member is still an employee of the Corporation.
76
Transat A.T. Inc.
2016 Annual Report
Notes to Consolidated Financial Statements
As at October 31, 2016, the number of PSUs awarded amounted to 168,794. For the year ended October 31, 2016, the Corporation
recognized a compensation expense of $520 [$551 in 2015] for its performance share unit plan.
SHARE PURCHASE PLAN
A share purchase plan is available to eligible employees of the Corporation and its subsidiaries. At the AGM held March 12, 2015,
shareholders approved the implementation of a new reserve of 525,000 shares issuable in addition to the remaining balance under the plan.
Under the plan, as at October 31, 2016, the Corporation was authorized to issue up to 309,677 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 187,359 Class B Shares [145,310 Class B Shares in 2015] for a total of $1,219 [$973 in 2015]
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 of 30% or 60% of
the maximum percentage of salary contributed, which may not exceed 5%. Shares so awarded by the Corporation will vest to the eligible
employee, 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, 2016, the Corporation accounted for a compensation expense of $189 [$166 in 2015] 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, 2016, the Corporation accounted for a compensation expense of $242 [$231 in 2015] for its
permanent stock ownership incentive plan.
DEFERRED SHARE UNIT PLAN
Deferred share units [“DSUs”] are awarded in connection with the independent director deferred share unit plan. Under this plan, each
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 share price for the five trading days prior to the award of the DSUs. The DSUs are repurchased by the Corporation when 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 share price for the five trading days prior to the repurchase of the DSUs.
As at October 31, 2016, the number of DSUs awarded amounted to 190,611 [146,641 as at October 31, 2015]. For the year ended
October 31, 2016, the Corporation recognized a compensation expense of $55 [$224 in 2015] for its deferred share unit plan.
77
Transat A.T. Inc.
2016 Annual Report
RESTRICTED SHARE UNIT PLAN
Notes to Consolidated Financial Statements
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 share price 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 RSU is determined
based on the weighted average closing share price for the five trading days prior to the repurchase of the RSUs.
As at October 31, 2016, the number of RSUs awarded amounted to 1,098,377 [815,249 as at October 31, 2015]. During the year
ended October 31, 2016, the Corporation recorded a compensation expense reversal of $977 [compensation expense of $1,428 in 2015] for
its restricted share unit plan.
EARNINGS (LOSS) PER SHARE
Basic and diluted earnings (loss) per share were computed as follows:
[In thousands, except per share amounts]
NUMERATOR
Net income (loss) attributable to shareholders
Net income (loss) from discontinued operations
Net income (loss) from continuing operations attributable to shareholders
DENOMINATOR
Adjusted weighted average number of outstanding shares
Effect of dilutive securities
Stock options
Adjusted weighted average number of outstanding shares used in computing
diluted earnings per share
Earnings (loss) per share
Basic
Diluted
Earnings (loss) per share from continuing operations
Basic
Diluted
2016
$
2015
$
(41,748)
49,772
(91,520)
42,565
(2,355)
44,920
36,899
38,442
—
116
36,899
38,558
(1.13)
(1.13)
(2.48)
(2.48)
1.11
1.10
1.17
1.16
Given the loss recorded for the year ended October 31, 2016, all 2,611,891 outstanding stock options [1,672,110 in 2015] were
excluded from the calculation, as their exercise price exceeded the Corporation’s average market share price.
78
Transat A.T. Inc.
2016 Annual Report
Notes to Consolidated Financial Statements
Note 19
ADDITIONAL DISCLOSURE ON EXPENSES
SALARIES AND EMPLOYEE BENEFITS
Salaries and other employee benefits
Long-term employee benefits [note 23]
Share-based payment expense
DEPRECIATION AND AMORTIZATION
Property, plant and equipment
Intangible assets subject to amortization
Other assets
Deferred lease inducements
Note 20
SPECIAL ITEMS
2016
$
343,321
2,657
921
346,899
2016
$
40,669
9,366
243
(240)
50,038
2015
$
336,017
2,602
1,661
340,280
2015
$
35,515
9,959
583
(240)
45,817
Special items include the restructuring charge, lump-sum payments related to collective agreements and other significant unusual
items. During the year ended October 31, 2016, lump-sum payments in the amount of $7,263 were recognized in connection with the
renewal of the collective agreement with the cabin crews, in addition to the restructuring charge of $6,562, comprising mainly termination
benefits, related to the closure of call centres and a tour operator in the Netherlands, of which an amount of $5,919 was unpaid as at
October 31, 2016 and included under accounts payable and accrued liabilities.
79
Transat A.T. Inc.
2016 Annual Report
Note 21
INCOME TAXES
Notes to Consolidated Financial Statements
The major components of the income tax expense for the years ended October 31 are:
Consolidated statements of income (loss)
Current
Current income taxes
Adjustment to taxes payable for prior years
Deferred
Relating to temporary differences
Income tax expense
Income taxes on items in other comprehensive income (loss) are:
Consolidated statements of comprehensive income (loss)
Deferred
Change in fair value of derivatives designated as cash flow
hedges
Change in defined benefit plans
- Actuarial loss on the obligation
Income tax expense (recovery) on comprehensive income (loss)
2016
$
(16,555)
(633)
(17,188)
6,345
(10,843)
2015
$
13,951
90
14,041
(1,628)
12,413
2016
$
2015
$
(4,589)
1,506
(870)
(5,459)
101
1,607
The reconciliation of income taxes, computed at the Canadian statutory rates, to income tax expense was as follows for the years
ended October 31:
Income taxes at the statutory rate
Increase (decrease) resulting from:
Effect of differences in Canadian and foreign tax rates
Non-deductible items
Derecognition of a future income tax asset
Adjustments for prior years
Effect of tax rate changes
Other
2016
2015
%
26.9
3.4
(19.3)
(0.9)
0.8
0.1
0.1
11.1
$
(26,194)
(3,347)
18,809
824
(787)
(86)
(62)
(10,843)
%
26.9
(5.6)
1.6
—
(2.9)
—
—
20.0
$
16,605
(3,450)
1,018
(2)
(1,785)
33
(6)
12,413
The applicable statutory income tax rate was 26.9% for the years ended October 31, 2016 and 2015. The Corporation’s applicable
statutory income tax rate is the applicable combined Canadian (federal and Québec) tax rate.
80
Transat A.T. Inc.
2016 Annual Report
Notes to Consolidated Financial Statements
Deferred taxes reflect the net tax impact of temporary differences between the value of assets and liabilities for accounting and tax
purposes. The main components of the deferred tax assets and liabilities were as follows:
Deferred tax losses
Excess of tax value over net carrying value of:
Property, plant and equipment and software
Intangible assets, excluding software
Derivative financial instruments
Other financial assets and other assets
Provisions
Employee benefits
Other financial liabilities and other liabilities
Net deferred tax assets
The changes in net deferred tax assets are as follows:
Balance, beginning of year
Recognized in the consolidated statements of income (loss) as continuing operations
Recognized in the consolidated statements of income (loss) as discontinued operations
Recognized in other comprehensive income (loss) as continuing operations
Recognized in other comprehensive income (loss) as discontinued operations
Disposal of discontinued operations
Other
The deferred tax assets are detailed below:
Deferred tax assets
Deferred tax liabilities
Net deferred tax assets
Consolidated statements
of financial position
2015
2016
$
$
7,041
112
Consolidated statements
of income (loss)
2015
$
(1,548)
2016
$
(128)
(13,537)
922
1,804
953
8,288
10,868
657
10,067
(9,599)
(1,469)
1,201
1,901
11,115
10,686
451
21,327
(2,001)
4,735
(5,045)
(948)
(3,293)
68
267
(6,345)
2016
$
21,327
(6,345)
(1,246)
5,459
(81)
(9,502)
455
10,067
(2,156)
(751)
1,316
1,713
4,006
38
(990)
1,628
2015
$
17,706
1,628
2,775
(1,607)
797
—
28
21,327
2016
$
15,055
(4,988)
10,067
2015
$
32,939
(11,612)
21,327
As at October 31, 2016, non-capital losses carried forward and other tax deductions for which a valuation allowance was recorded,
available to reduce future taxable income of certain subsidiaries in Mexico, totalled MXP 87,451 [$6,191] [MXP 85,585 [$6,840] as at
October 31, 2015]. These losses and deductions expire in 2020 and thereafter.
The Corporation did not recognize any deferred tax liability on retained earnings of its foreign subsidiaries and its associate company
as these earnings are considered to be indefinitely reinvested. However, if these earnings are distributed in the form of dividends or
otherwise, the Corporation may be subject to corporate income tax or withholding tax in Canada and/or abroad. As of October 31, 2016,
there are no taxable temporary differences for which no deferred income tax liability were recorded.
81
Transat A.T. Inc.
2016 Annual Report
Notes to Consolidated Financial Statements
Note 22
RELATED PARTY TRANSACTIONS AND BALANCES
The consolidated financial statements include those of the Corporation and those of its subsidiaries. The main subsidiaries and
associates of the Corporation are listed below:
Air Transat A.T. inc.
Transat Tours Canada inc.
Transat Distribution Canada inc.
Jonview Canada Inc.
Travel Superstore inc. [note 10]
The Airline Seat Company Ltd.
Air Consultants France S.A.S.
Transat France S.A.S. [note 9]
Tourgreece Tourist Enterprises S.A. [note 9]
Air Consultant Europe B.V.
Caribbean Investments B.V.
Caribbean Transportation Inc.
CTI Logistics Inc.
Sun Excursion Caribbean Inc.
Servicios y Transportes Punta Cana S.R.L.
Turissimo Carribe Excusiones Dominican Republic C por A
Turissimo Jamaica Ltd.
Trafictours de Mexico S.A. de C.V.
Promotura Turistica Regiona S.A. de C.V.
Country of
incorporation
Canada
Canada
Canada
Canada
Canada
United Kingdom
France
France
Greece
Netherlands
Netherlands
Barbados
Barbados
Barbados
Dominican Republic
Dominican Republic
Jamaica
Mexico
Mexico
Interest (%)
2015
100.0
100.0
100.0
80.1
64.6
100.0
—
99.7
100.0
100.0
35.0
70.0
70.0
70.0
70.0
70.0
—
70.0
100.0
2016
100.0
100.0
100.0
80.1
—
100.0
100.0
—
—
100.0
35.0
70.0
70.0
70.0
70.0
70.0
70.0
70.0
100.0
The Corporation enters into transactions in the normal course of business with its associate. These transactions are carried out at
arm’s length. Significant transactions are as follows:
Costs of providing tourism services
Outstanding balances with our associate are as follows:
Trade and other payables
2016
$
2015
$
32,250
17,914
2016
$
869
2015
$
256
82
Transat A.T. Inc.
2016 Annual Report
COMPENSATION OF KEY SENIOR EXECUTIVES
Notes to Consolidated Financial Statements
The annual compensation and related compensation costs of directors and key senior executives, namely the President and Chief
Executive Officer and the Senior Vice Presidents of the Corporation are as follows:
Salaries and other employee benefits
Long-term employee benefits
Share-based payment expense
Note 23
EMPLOYEE FUTURE BENEFITS
2016
$
3,235
1,055
605
2015
$
4,562
974
1,022
The Corporation offers defined benefit pension arrangements to certain senior executives and defined contribution plans to certain
employees.
DEFINED BENEFIT ARRANGEMENTS AND POST-EMPLOYMENT BENEFITS
The defined benefit pension plans offered to certain senior executives 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 related to defined benefit pension arrangements, the Corporation has
issued a $46,450 letter of credit to the trustee [see note 5]. The Corporation uses an actuarial estimate to measure its obligations as at
October 31 each year.
The following table provides a reconciliation of changes in the defined benefit obligation and in the other post-employment benefit
obligation: The other benefits are related to termination benefits for the subsidiaries Transat France and Tourgreece which were disposed of
on October 31, 2016 [see note 9]. The amount of the obligation related to other benefits included in the consolidated statement of financial
position therefore amounted to nil as at October 31, 2016.
Present value of obligations, beginning of year
Current service cost
Financial costs
Benefits paid
Experience losses (gains)
Actuarial loss on obligation
Effect of exchange rate changes
Disposal of subsidiaries
Present value of obligations, end of year
Retirement benefits
Other benefits
Total
2016
$
35,327
1,212
1,445
(814)
3,191
39
—
—
40,400
2015
$
33,912
1,204
1,398
(799)
(629)
241
—
—
35,327
2016
$
3,938
296
85
—
—
517
67
(4,903)
—
2015
$
1,960
625
76
—
—
1,267
10
—
3,938
2016
$
39,265
1,508
1,530
(814)
3,191
556
67
(4,903)
40,400
2015
$
35,872
1,829
1,474
(799)
(629)
1,508
10
—
39,265
The following table provides the components of retirement benefit expense for the years ended October 31. The costs of other
benefits are included under discontinued operations in the consolidated statements of income (loss):
Retirement benefits
Other benefits
Total
Current service cost
Interest cost
Total cost of retirement benefits
2015
$
1,204
1,398
2,602
2016
$
296
85
381
2015
$
625
76
701
2016
$
1,508
1,530
3,038
2015
$
1,829
1,474
3,303
2016
$
1,212
1,445
2,657
83
Transat A.T. Inc.
2016 Annual Report
Notes to Consolidated Financial Statements
The following table indicates projected payments under defined benefit pension plan arrangements as at October 31, 2016:
Under one year
One to five years
Between five and 10 years
Between 10 and 15 years
Between 15 and 20 years
$
847
9,500
12,324
11,590
10,140
44,401
The weighted average duration of the defined benefit obligation related to pension arrangements was 12.6 years as at
October 31, 2016.
The significant actuarial assumptions used to determine the Corporation’s retirement benefit obligation and expense were as follows:
Retirement benefit obligation
Discount rate
Rate of increase in eligible earnings
Retirement benefit cost
Discount rate
Rate of increase in eligible earnings
2016
%
3.25
2.75
4.00
2.75
2015
%
4.00
2.75
4.00
2.75
A 0.25 percentage point increase in the actuarial assumptions below would have the following impacts, all other actuarial assumptions
remaining the same:
Increase (decrease)
Discount rate
Rate of increase in eligible earnings
Retirement benefit
expense for
the year ended
October 31, 2016
$
(9)
11
Retirement benefit
obligations as at
October 31, 2016
$
(1,248)
52
The funded status of the benefits and the amounts recorded in the statement of financial position under other liabilities were as
follows:
Plan assets at fair value
Accrued benefit obligation
Retirement benefit deficit
2016
$
—
40,400
40,400
2015
$
—
35,327
35,327
84
Transat A.T. Inc.
2016 Annual Report
Notes to Consolidated Financial Statements
Changes in the cumulative amount of net actuarial losses recognized in other comprehensive income (loss) and presented as a
separate component of retained earnings were as follows:
Gains (losses)
October 31, 2014
Actuarial losses
Income taxes
October 31, 2015
Actuarial losses
Income taxes
Discontinued operations
October 31, 2016
$
(7,831)
(879)
342
(8,368)
(3,747)
1,051
1,160
(9,904)
DEFINED CONTRIBUTION PENSION PLANS
The Corporation offers defined contribution pension plans to certain employees with contributions based on a percentage of salary.
Contributions to defined contribution pension plans, which are recognized at cost, amounted to $10,534 for the year ended
October 31, 2016 [$9,400 for the year ended October 31, 2015].
85
Transat A.T. Inc.
2016 Annual Report
Notes to Consolidated Financial Statements
Note 24
COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Corporation leases aircraft, buildings, automotive equipment, communications systems and office premises relating to travel
sales. The minimum lease payments under non-cancellable operating leases are as follows:
Under one year
One to five years
Over five years
2016
$
168,975
415,317
107,549
691,841
2015
$
161,702
425,023
88,660
675,385
The lease expense totalled $160,659 for the year ended October 31, 2016 [$123,683 for the year ended October 31, 2015].
OTHER COMMITMENTS
The Corporation also has purchase obligations under various contracts entered into in the normal course of business. The decrease
in purchase obligations is due to the disposal of the Transat France subsidiary. The purchase obligations are as follows:
Under one year
One to five years
Over five years
LITIGATION
2016
$
109,845
—
—
109,845
2015
$
200,505
84,373
—
284,878
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.
OTHER
From time to time, the Corporation is subject to audits by tax authorities that give rise to questions regarding the fiscal treatment of
certain transactions. Certain of these matters could entail significant costs that will remain uncertain until one or more events occur or fail to
occur. Although the outcome of such matters is not predictable with assurance, the tax claims and risks for which there is a probable
unfavourable outcome are recognized by the Corporation using the best possible estimates of the amount of the loss. The tax deductibility of
losses reported by the Corporation in previous fiscal years with regard to investments in ABCP was challenged by tax authorities and notices
of assessment in this regard were received during the year. No provisions are made in connection with this issue, which could result in
expenses of approximately $16,200, as the Corporation intends to defend itself vigorously with respect thereto and firmly believes it has
sufficient facts and arguments to obtain a favourable final outcome. However, this situation resulted in outflows of $15,100 during the year
ended October 31, 2015. This amount is recognized as income taxes receivable as at October 31, 2016 and 2015.
86
Transat A.T. Inc.
2016 Annual Report
Note 25 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 5, 7, 16, 23 and 24 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.
COLLATERAL SECURITY CONTRACTS
The Corporation has entered into collateral security contracts with certain suppliers. Under these contracts, the Corporation
guarantees the payment of certain services rendered that it undertook to pay. These contracts typically cover a one-year period and are
renewable.
The Corporation has entered into collateral security contracts whereby it guarantees 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 operations in the Province of Québec. These agreements typically cover a one-
year period and are renewable annually. As at October 31, 2016, these guarantees totalled $721. Historically, the Corporation has not made
any significant payments under such agreements. As at October 31, 2016, no amounts have been accrued with respect to the above-
mentioned agreements.
IRREVOCABLE CREDIT FACILITY UNSECURED BY DEPOSITS
The Corporation has a $35,000 guarantee facility renewable annually. Under this agreement, the Corporation may issue collateral
security contracts with a maximum three-year term. As at October 31, 2016, $17,723 had been drawn down under the facility.
Note 26
SEGMENTED DISCLOSURE
The Corporation has determined that it conducts its activities in a single industry segment, namely holiday travel. With respect to
geographic areas, the Corporation’s continuing operations are mainly in the Americas. Revenues and non-current assets outside the
Americas are not material. Therefore, the consolidated statements of income (loss) and consolidated statements of financial position include
all the required information.
87
Transat A.T. Inc.
2016 Annual Report
Additional financial information
[in thousands of Canadian dollars, except per share amounts]
Consolidated statements of income (loss)
Continuing operations
Revenues
Operating expenses
Amortization
Special items
Operating income (loss)
Financing costs
Financing income
Change in fair value of derivative financial instruments used for
aircraft fuel purchases
Foreign exchange gain on non current monetary items
Impairment of assets
Gain on investments in ABCP
Loss on disposal of a subsidiary and gain on repurchase of
preferred shares of a subsidiary
Income (loss) before income tax expense
Income taxes (recovery)
Net income (loss) from continuing operations
Discontinued operations
Net income (loss) from discontinued operations
Net income (loss) for the year
Non-controlling interest in subsidiaries’ results
Net income (loss) for the year attributable to shareholders
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
Total assets
Long-term debt (including current portion)
Equity
Debt ratio(1)
Book value per share(2)
Shareholding statistics (in thousands)
Outstanding shares, end of year
Weighted average number of shares outstanding:
Undiluted
Diluted
(1) Total liabilities divided by total assets.
(2) Total equity divided by the number of outstanding shares.
2016
2015
2014
2013
2012
2,889,646
2,856,118
50,038
13,825
(30,335)
2,897,950
2,797,342
45,817
—
54,791
2,996,106
2,909,737
43,581
6,387
36,401
2,969,642
2,855,340
36,423
5,740
72,139
3,051,775
3,019,302
38,324
—
(5,851)
1,669
(6,996)
(6,901)
(1,284)
79,708
—
843
(97,374)
(10,843)
(86,531)
49,772
(36,759)
4,989
(41,748)
(1.13)
(1.13)
43,561
5,093
(9,823)
(12,132)
26,699
363,664
1,277,420
—
464,386
0.64
12.60
1,775
(7,576)
1,391
(2,531)
—
—
—
61,732
12,413
49,319
(2,355)
46,964
4,399
42,565
1.11
1.10
108,992
(53,854)
(12,672)
3,402
45,868
1,541
(7,872)
21,978
(1,123)
369
—
—
21,508
1,724
19,784
6,282
26,066
3,191
22,875
0.59
0.59
90,009
(52,683)
191
(2,262)
35,255
2,091
(7,233)
732
(566)
—
—
—
77,115
18,046
59,069
2,133
61,202
3,247
57,955
1.51
1.51
102,179
(21,092)
(1,817)
1,710
80,980
2,543
(6,597)
(966)
(903)
—
(7,936)
(5,655)
13,663
1,494
12,169
(25,705)
(13,536)
3,133
(16,669)
(0.44)
(0.44)
15,703
(7,266)
(4,361)
(3,888)
188
336,423
308,887
171,175
181,576
1,513,764
—
537,252
0.65
14.29
1,375,030
—
482,946
0.65
12.47
1,290,073
—
441,393
0.66
11.47
1,165,301
—
366,326
0.69
9.57
36,859
37,591
38,742
38,468
38,296
36,899
36,899
38,442
38,558
38,644
39,046
38,390
38,472
38,142
38,142
88
TRANSAT_2016.qxp_RAP_AN_2016 2016-12-14 14:10 Page7
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
Transfer Agent
and Registrar
CST Trust Company
2001 Blvd. Robert-Bourassa,
Suite 1600
Montréal, Québec H3A 2A6
Toll-free: 1.800.387.0825
inquiries@canstockta.com
www.canstockta.com
Auditors
Ernst & Young LLP
Montréal, Québec
n
i
l
e
m
a
H
y
m
m
i
J
Annual General Meeting
of Shareholders
Thursday, March 16, 2017,
10:00 a.m.
McGill – New Residence Hall
Ballroom - level C
3625 Avenue du Parc
Montreal QC H2X 3P8
:
s
e
v
i
t
u
c
e
x
e
d
n
a
s
r
o
t
c
e
r
i
d
f
o
s
h
p
a
r
g
o
t
o
h
P
s
r
e
g
n
A
e
d
u
a
C
l
:
n
g
i
s
e
D
c
i
h
p
a
r
G
TRANSAT_2016.qxp_RAP_AN_2016 2016-12-14 14:10 Page8
www.resp.transat.com
www.transat.com