News Releases
Airline's record year-end diluted earnings increase to 88 cents a share
CALGARY, Feb. 14 /CNW/ - WestJet (TSX:WJA) today announced its fourth
quarter and full year financial results for 2006. The Company achieved record
net earnings of $26.7 million for the fourth quarter of 2006 compared to $1.0
million in 2005, an impressive 26-fold increase. For the full year 2006, net
earnings were a record $114.7 million compared to $24.0 million in 2005, an
increase of 377.8 per cent.
Sean Durfy, WestJet's President said today, "Our 10th year of operations
was highlighted by four record quarters, optimal load factors,
industry-leading on-time performance and 12-consecutive months of
profitability. We generated an operating margin of 11.2 per cent, one of the
best in the North American airline industry. Our excellent performance was
achieved through our strong growth, ability to contain costs and our continued
commitment to our guests and our people."
The Company's 2006 performance delivered diluted earnings per share of 21
cents for the quarter, up from one cent in 2005. Diluted earnings per share
for the 12 months ended December 31, 2006 rose to 88 cents from 19 cents in
the same period in 2005, an increase of 363.2 per cent.
Fourth quarter revenue of $459.6 million, compared to $366.8 million in
the fourth quarter of 2005 was an improvement of 25.3 per cent. Year-end
revenue for 2006 was $1,773.7 million, increasing from $1,392.8 million in the
same period 2005, a difference of 27.4 per cent.
WestJet's 2006 fourth quarter RASM was a strong 13.9 cents, compared to
13.6 cents in the same period in 2005; an improvement of 2.2 per cent.
Year-end RASM was 14.2 cents, compared to 13.0 cents in 2005, an increase of
9.2 per cent.
"Our expectations that RASM in the fourth quarter of 2006 would track to
that of 2005 were met. We are very pleased with revenue of 13.9 cents per
available seat mile, given that we hit our fourth quarter revenue targets by
increasing capacity 23 per cent," explained Durfy.
The airline's 2006 RASM results are most significant when looked at in
relationship to fourth quarter and year-end capacity increases, as measured in
available seat miles (ASMs). Fourth quarter ASMs for 2006 increased to 3.3
billion from 2.7 billion in 2005, an increase of 23.3 per cent. For the whole
of 2006, ASMs increased to 12.5 billion compared to 10.7 billion in 2005, an
increase of 17.3 per cent.
Strong load factors throughout 2006 showed consumer's acceptance of
WestJet's increased capacity. Load factor for the quarter ended December 31,
2006 was 75.5 per cent, compared to 74.7 per cent in 2005. WestJet's year-end
load factor of 78.2 per cent, compared to 74.6 per cent in 2005 was an
increase of 3.6 points.
Given significant fourth quarter capacity increases and favourable load
factor, yield for this period was a sound 18.4 cents per passenger mile,
compared to 18.3 in the same period 2005. For the full year 2006, yield was
18.1 cents per passenger mile, compared to 17.5 cents in 2005, an increase of
3.4 per cent.
A continued focus on cost management resulted in a fourth quarter
decrease in cost per available seat mile (CASM) to 12.5 cents, compared to
13.3 cents in the fourth quarter 2005, a decline of 6.0 per cent. For the full
year 2006, CASM was 12.6 cents compared to 12.5 cents in 2005. This is
particularly significant considering oil prices in 2006 increased 17 per cent
over that of 2005.
Excluding fuel, CASM in the last quarter of 2006 decreased to 9.3 cents
compared to 9.7 cents in the same 2005 period, a decrease of 3.6 per cent. For
the full year 2006, CASM excluding fuel was 9.2 cents, consistent with 2005.
WestJet flew 2.5 billion revenue passenger miles (RPMs) in the fourth
quarter 2006, compared to 2.0 billion in the same period 2005, an increase of
24.7 per cent. Year-end 2006, the airline flew 9.8 billion RPMs compared to
8.0 billion in 2005, an increase of 23.0 per cent.
Sean Durfy went on to say, "We continue to maintain one of the most
favourable balance sheets in the airline industry and ended the year with a
debt to equity ratio of 2.3 to 1. Our corporate health is vibrant with
significant advances in our guest loyalty and brand health metrics. We
increased our presence, profile and revenue in Eastern Canada and among
business travellers, and expect to see continuous improvements throughout
2007.
"Our 2006 growth came from 12-consecutive months of adding seats into the
market. Our ability to match this capacity with the market's demands
contributed largely to our profitable results.
"The announcement of two new sun destinations, West Palm Beach, Florida
and our first international destination Nassau, Bahamas, strengthened our
transborder business. Flying to U.S. sun destinations at the right times
during the year has become a key component of our deployment strategy,
tailoring our schedule to match the seasonal demands of the Canadian market.
"Our transborder and sun destinations further contributed to the success
of WestJet Vacations. Launched in September 2006, the subsidiary of WestJet
outperformed forecasted expectations in its first months of operations.
WestJet Vacations has a distinct advantage over other tour operators by
leveraging WestJet's aircraft, schedule and renowned guest experience, while
operating in the same low-cost manner. We are looking forward to a full year
of operation in 2007.
"Our strong relationship with our major charter partner, Transat Tours
Canada, continues to be profitable. This association has been very beneficial
and we are extremely pleased to renew this partnership through 2010.
"In an industry with historically low margins ancillary revenues
including buy-on-board, headsets, service fees and pay-per-view inflight
movies play an important role in maximizing our profits while enhancing our
product offering for our guests. These high margin items contributed $74.8
million to revenue in 2006, an increase of 67.6 per cent over 2005.
"The reach of our network, along with our strategic route planning, has
allowed us to spread our operational costs over more flying hours. Utilization
of our aircraft increased five per cent to 11.9 block hours in 2006.
"While utilization played a role in our cost controls, we kept our CASM
on par with last year by continuing to purchase fuel on the open market. With
the retirement of our last 200-series aircraft early in the year, we now have
the most modern fleet of jet aircraft in North America. Operating one type of
aircraft continues to minimize our costs associated with the price of jet fuel
as well as the cost of maintenance and training.
"We finished 2006 with industry-leading performance in three major
airline indicators: on-time performance, completion rates and baggage. WestJet
is one of only two North American airlines to achieve a top-five ranking for
year-end results in all three categories, with an on-time performance(1) of
81.7 per cent; a completion rate(2) of 99.5 per cent and a baggage ratio(3) of
4.64. Our emphasis on these measures is an indication of WestJet's commitment
to making our guest's experience stress-free from start to finish.
"We are confident in our ability to continue to deliver industry-leading
performance through the dedication of all WestJetters and the strong
leadership of the executive team. Our commitment to our guests and the success
of WestJet comes from the heart of every WestJetter. We were pleased to be
acknowledged throughout the year for our hard work. In 2006, Canadian Business
Magazine recognized our Sales Super Centre as the best call centre in the
country and our brand as one of the top three best managed in Canada. We were
thrilled to receive the award for Canada's Most Admired Corporate Culture for
the second year in a row, a testament to the hard work and dedication of our
people.
"With such an encouraging year behind us we will leverage this success
for continued growth and profitability. Our team is strong with the insight,
experience and energy necessary to carry the same momentum into 2007 and
beyond."
<<
(1) On-time performance - the percentage of domestic scheduled flights
that arrive within 15 minutes of the scheduled arrival time or
earlier.
(2) Completion rate - the percentage of scheduled domestic flight legs
flown. Calculated as the number of domestic scheduled flight legs
operated divided by the number of domestic scheduled flight legs.
(3) Baggage ratio - the number of delayed/lost baggage files per every
1,000 guests flown
>>
As at January 31, 2007, WestJet had 124,227,072 common voting shares
outstanding, 5,506,137 variable voting shares outstanding and 14,644,719 stock
options outstanding.
<<
WestJet Airlines Ltd.
Consolidated Balance Sheets
December 31, 2006 and, December 31, 2005 (Unaudited)
(Stated in Thousands of Dollars)
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-------------------------------------------------------------------------
December 31 December 31
2006 2005
-------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents (note 3) $ 377,517 $ 259,640
Accounts receivable 12,645 8,022
Income taxes recoverable 13,820 13,909
Assets held for sale (note 1) 13,157 -
Prepaid expenses and deposits 30,727 31,746
Inventory 8,200 6,259
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456,066 319,576
Property and equipment (note 1) 2,158,746 1,803,497
Other assets 111,715 90,019
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$ 2,726,527 $ 2,213,092
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 121,157 $ 100,052
Advance ticket sales 148,743 127,450
Non-refundable guest credits 40,508 32,814
Current portion of long-term debt (note 2) 153,720 114,115
Current portion of obligations under
capital lease (note 5(b)) 356 2,466
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464,484 376,897
Long-term debt (note 2) 1,291,136 1,044,719
Obligations under capital lease (note 5(b)) 1,483 1,690
Other liabilities 14,114 16,982
Future income tax 149,283 102,651
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1,920,500 1,542,939
Shareholders' equity:
Share capital (note 4(a)) 431,248 429,613
Contributed surplus (note 4(e)) 58,656 39,093
Retained earnings 316,123 201,447
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806,027 670,153
Commitments and contingencies (note 5)
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$ 2,726,527 $ 2,213,092
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WestJet Airlines Ltd.
Consolidated Statements of Earnings and Retained Earnings
For the periods ended December 31, 2006 and 2005 (Unaudited)
(Stated in Thousands of Dollars, Except Per Share Amounts)
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-------------------------------------------------------------------------
Three Months Ended Twelve Months Ended
December 31 December 31
2006 2005 2006 2005
-------------------------------------------------------------------------
Revenues:
Guest
revenues $ 411,170 $ 327,425 $ 1,558,471 $ 1,207,075
Charter and
other 44,197 37,161 201,400 179,379
Interest income 4,279 2,194 13,815 6,308
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459,646 366,780 1,773,686 1,392,762
Expenses:
Aircraft fuel 106,307 98,921 425,506 354,065
Airport
operations 71,015 56,571 262,310 219,144
Flight operations
and navigational
charges 62,299 47,453 229,821 183,463
Sales and
marketing 41,705 37,071 154,734 124,154
Depreciation and
amortization 30,115 27,639 111,442 106,624
General and
administration 21,901 19,735 79,817 71,610
Interest expense 19,297 14,817 70,196 55,496
Inflight 18,610 13,825 67,220 53,005
Aircraft leasing
(note 3) 17,647 19,221 71,432 65,647
Maintenance 17,437 15,970 69,975 71,397
Guest services 8,487 7,459 31,739 27,322
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414,820 358,682 1,574,192 1,331,927
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Earnings from
operations 44,826 8,098 199,494 60,835
Non-operating
income (expense):
Gain (loss) on
foreign exchange 2,783 (246) 32 (2,729)
Gain (loss) on
disposal of
property and
equipment 47 (573) 839 (98)
Non-recurring
expenses (note
5(c)) - - (15,600) -
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2,830 (819) (14,729) (2,827)
Employee profit
share (note 6) (5,355) (757) (20,284) (6,033)
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Earnings before
income taxes 42,301 6,522 164,481 51,975
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Income tax
(expense)
recovery
(note 7):
Current (886) 2,409 (3,170) 7,367
Future (14,764) (7,894) (46,635) (35,341)
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(15,650) (5,485) (49,805) (27,974)
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Net earnings $ 26,651 $ 1,037 $ 114,676 $ 24,001
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WestJet Airlines Ltd.
Consolidated Statements of Earnings and Retained Earnings (Continued)
For the periods ended December 31, 2006 and 2005 (Unaudited)
(Stated in Thousands of Dollars, Except Per Share Amounts)
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-------------------------------------------------------------------------
Three Months Ended Twelve Months Ended
December 31 December 31
2006 2005 2006 2005
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Retained
earnings,
beginning of
period $ 289,472 $ 200,410 $ 201,447 $ 177,446
Net earnings 26,651 1,037 114,676 24,001
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Retained
earnings, end
of period $ 316,123 $ 201,447 $ 316,123 $ 201,447
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Earnings per
share (note
4(c)):
Basic $ 0.21 $ 0.01 $ 0.88 $ 0.19
Diluted $ 0.21 $ 0.01 $ 0.88 $ 0.19
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Operating
highlights:
Available
seat
miles 3,314,759,901 2,687,758,534 12,524,379,943 10,672,983,797
Revenue
passenger
miles 2,502,375,293 2,006,917,920 9,791,878,403 7,957,738,384
Load factor 75.5% 74.7% 78.2% 74.6%
Revenue per
passenger mile
(cents) 18.4 18.3 18.1 17.5
Revenue per
available seat
mile (cents) 13.9 13.6 14.2 13.0
Cost per
passenger mile
(cents) 16.6 17.9 16.1 16.7
Cost per
available seat
mile (cents) 12.5 13.3 12.6 12.5
Fuel
consumption
(litres) 165,605,465 133,911,923 617,963,429 552,382,525
Fuel cost/
litre
(cents) 64.2 73.9 68.9 64.1
Segment guests 2,889,435 2,449,198 11,168,027 9,423,279
Average stage
length 827 794 833 802
Number of
full-time
equivalent
employees at
quarter end 4,974 4,285 4,974 4,285
Fleet size at
quarter end 63 56 63 56
Aircraft
available for
use 63 55 63 55
WestJet Airlines Ltd.
Consolidated Statements of Cash Flows
For the periods ended December 31, 2006 and 2005 (Unaudited)
(Stated in Thousands of Dollars)
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-------------------------------------------------------------------------
Three Months Ended Twelve Months Ended
December 31 December 31
2006 2005 2006 2005
-------------------------------------------------------------------------
Cash provided by
(used in):
Operating
activities:
Net earnings $ 26,651 $ 1,037 $ 114,676 $ 24,001
Items not
involving cash:
Depreciation and
amortization 30,115 27,639 111,442 106,624
Amortization of
other
liabilities (217) (217) (868) (604)
Amortization of
hedge
settlements 384 348 1,427 1,391
Loss (gain) on
disposal of
property and
equipment (47) 573 (839) 98
Loss on disposal
of aircraft
parts (91) (24) (1,233) (1,126)
Stock-based
compensation
expense 5,708 4,644 21,205 17,604
Issued from
treasury stock - 1,712 - 17,705
Future income
tax expense 14,764 7,894 46,635 35,341
Decrease
(increase)
in non-cash
working capital (19,363) (4,185) 43,707 46,290
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57,904 39,421 336,152 247,324
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Financing
activities:
Repayment of
long-term debt (36,554) (28,708) (132,559) (100,487)
Increase in
long-term debt 37,811 144,369 418,581 256,385
Decrease in
obligations
under capital
lease (85) (529) (480) (5,846)
Increase in other
liabilities - (1) - 8,479
Share issuance
costs - (32) (10) (215)
Increase in other
assets (9,714) (409) (28,139) (14,350)
Issuance of
common shares - 1,712 - 21,094
Increase in
non-cash working
capital - - (1,071) (837)
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(8,542) 116,402 256,322 164,223
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Investing
activities:
Aircraft
additions (43,789) (146,813) (438,906) (660,947)
Aircraft
disposals 56 3,382 3,822 404,583
Other property
and equipment
additions (7,121) (10,103) (41,124) (44,969)
Other property
and equipment
disposals 65 390 1,611 894
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(50,789) (153,144) (474,597) (300,439)
-------------------------------------------------------------------------
Net change in cash (1,427) 2,679 117,877 111,108
Cash, beginning of
period 378,944 256,961 259,640 148,532
-------------------------------------------------------------------------
Cash, end of
period $ 377,517 $ 259,640 $ 377,517 $ 259,640
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Cash is defined as cash and cash equivalents.
Cash interest paid during the three and 12 months ended December 31, 2006
were $19,346,000 (2005 - $14,272,000), and $ 67,077,000
(2005 - $54,688,000), respectively.
Net cash taxes paid during the three and 12 months ended December 31,
2006 were $544,000 (2005 - $5,146,000), and $3,081,000 (2005 -
$10,151,000), respectively.
WestJet Airlines Ltd.
Notes to Consolidated Financial Statements
For the periods ended December 31, 2006 and 2005 (Unaudited)
(Tabular dollar Amounts are Stated in Thousands, Except Per Share Data)
The interim consolidated financial statements of WestJet Airlines Ltd.
("WestJet" or "the Corporation") have been prepared by management in
accordance with accounting principles generally accepted in Canada. The
interim consolidated financial statements have been prepared following
the same accounting policies and methods of computation as the
consolidated financial statements for the fiscal year ended December 31,
2005. The disclosures provided below are incremental to those included
with the annual consolidated financial statements. The interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto in the
Corporation's annual report for the year ended December 31, 2005.
The Corporation's business is seasonal in nature with varying levels of
activity throughout the year. The Corporation experiences increased
domestic travel in the summer months and more demand for transborder and
charter sun destinations over the winter period.
1. Property and equipment:
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-------------------------------------------------------------------------
Accumulated
December 31, 2006 Cost Depreciation Net book value
-------------------------------------------------------------------------
Aircraft - Next-Generation $ 2,086,301 $ 185,526 $ 1,900,775
Ground property and
equipment 153,896 65,854 88,042
Spare engines and parts
- Next-Generation 70,459 10,145 60,314
Buildings 40,028 4,825 35,203
Leasehold improvements 6,914 4,579 2,335
Assets under capital lease 2,481 694 1,787
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2,360,079 271,623 2,088,456
Deposits on aircraft 38,011 - 38,011
Assets under development 32,279 - 32,279
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$ 2,430,369 $ 271,623 $ 2,158,746
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Accumulated
December 31, 2005 Cost Depreciation Net book value
-------------------------------------------------------------------------
Aircraft - Next-Generation 1,619,850 102,914 1,516,936
Ground property and
equipment 135,217 52,664 82,553
Spare engines and parts
- Next-Generation 67,960 8,029 59,931
Buildings 39,636 3,825 35,811
Leasehold improvements 6,302 3,992 2,310
Other assets under capital
lease 2,289 198 2,091
Spare engines and parts
- 200 series 12,547 11,128 1,419
Aircraft - 200 series 19,475 19,475 -
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1,907,168 205,086 1,702,082
Deposits on aircraft 73,493 - 73,493
Assets under development 27,922 - 27,922
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2,008,583 205,086 1,803,497
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Subsequent to year-end the Corporation announced the suspension of the
aiRES project while an amendment to the contract is negotiated. If the
negotiation is unsuccessful, the parties will each be in a position to
proceed with claims against each other. While the Corporation is
committed to completing the aiRES project, uncertainty does remain, the
outcome of which may impact the future recoverability of the project and
may have a significant impact on the financial statements of future
periods. As at December 31, 2006, $31,869,000 (2005 - $16,781,000) is
included in assets under development for costs related to the aiRES
project.
During the three and 12 months ended December 31, 2006 property and
equipment was acquired at an aggregate cost of $NIL (2005 - $1,020,000)
and $192,000 (2005 - $2,137,000), respectively, by means of capital
leases.
The Corporation has entered into agreements to sell certain spare engines
and aircraft parts to an unrelated third party. At December 31, 2006,
these engines and parts have been taken out of revenue generating service
and are included at their net book value in current assets, as assets
held for sale. These transactions were completed in early 2007.
2. Long-term debt:
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December 31, 2006 December 31, 2005
-------------------------------------------------------------------------
$1,709,467,000 in 45 individual
term loans, amortized on
a straight-line basis over a
12-year term, repayable in
quarterly principal installments
ranging from $ 674,000 to
$ 955,000, including fixed
interest at a weighted average
rate of 5.31%, maturing between
2014 and 2018. These
facilities are guaranteed by the
Ex-Im Bank and secured
by 32 700-series aircraft and 13
600-series aircraft. $ 1,393,439 $ 1,114,506
$35,000,000 in three individual
term loans, repayable in
monthly installments ranging from
$ 104,000 to $ 166,000
including floating interest at the
bank's prime rate plus
0.88% with an effective interest
rate of 6.88% as at
December 31, 2006, maturing
between 2008 and 2011,
secured by three Next-Generation
flight simulators. 26,223 19,615
$16,968,000 in 24 individual term
loans, amortized on a
straight line basis over a five
year term, repayable in
quarterly principal installments
ranging from $29,000 to
$47,000, including floating
interest at the Canadian
LIBOR rate plus 0.08% with a
weighted average effective
interest rate of 4.35% as at
December 31, 2006 maturing
between 2009 and 2011, guaranteed
by the Ex-Im Bank
and secured by certain 700-series
and 600-series aircraft. 11,699 10,462
$12,000,000 term loan repayable in
monthly installments
of $108,000 including interest at
9.03% maturing April
2011, secured by the Calgary
hangar facility. 10,426 10,767
$4,550,000 term loan repayable in
monthly installments of
$50,000 including floating
interest at the bank's prime
plus 0.50%, with an effective
interest rate of 6.50% as at
December 31, 2006, maturing April
2013, secured by the
Calgary hangar facility. 3,069 3,484
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1,444,856 1,158,834
Less current portion 153,720 114,115
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$ 1,291,136 $ 1,044,719
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Future scheduled repayments of long-term debt are as follows:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2007 $ 153,720
2008 161,425
2009 145,593
2010 144,877
2011 157,466
2012 and thereafter 681,775
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1,444,856
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During 2006, the Corporation acquired 12 aircraft supported by loan
guarantees from the Export-Import Bank of the United States ("Ex-Im
Bank"). In 2005, the Corporation completed financing arrangements for US
$386.1 million for the purchase of seven aircraft delivered in 2005 and
six aircraft delivered between February and June 2006. In 2006, the
Corporation completed financing arrangements for US $191.1 million to
support the acquisition of six aircraft delivered between July and
December 2006. As at December 31, 2006, the Corporation has accepted the
12 2006 aircraft deliveries under these facilities and drew a total of
CAD $409.6 million (US $360.6 million).
These facilities were drawn in Canadian dollars, in separate instalments,
with five- and 12-year terms for live satellite television equipment and
new aircraft, respectively. Each loan is amortized on a straight-line
basis over the respective terms in quarterly principal instalments, and
interest calculated on the outstanding balance.
As at December 31, 2006, the Corporation has an unutilized and
uncancelled balance of a final commitment from Ex-Im Bank totalling
US $1 million for the purchase of live satellite television systems. The
Corporation also has a total preliminary commitment from Ex-Im Bank for
US $240.2 million for seven aircraft to be delivered between 2007 and
2008.
The Corporation will be charged a commitment fee of 0.125% per annum on
the unutilized and uncancelled balance of the Ex-Im Bank facility,
payable at specified dates and upon delivery of an aircraft, and is
charged a 3% exposure fee on the financed portion of the aircraft price,
payable upon delivery of an aircraft.
3. Financial instruments:
At December 31, 2006, the Corporation had US dollar cash and cash
equivalents totalling US$32,019,000 (December 31, 2005 - US $35,453,000).
As at December 31, 2006 cash and cash equivalents include US $5,279,000
(2005 - US $6,470,000) and CAD $1,858,000 (2005 - $NIL) of restricted
cash. US $186,000 (2005 - US $153,000) is cash not yet remitted for
passenger facility charges.
The Corporation has entered into a contract to purchase US $2.5 million
per month at a forward rate of 1.11 for the payment period from October
2006 to March 2007 to hedge a portion of the Corporation's committed US
dollar lease payments during the same period. This contract has been
designated as a fair value hedge for accounting purposes. The estimated
fair market value, of the remaining contract as at December 31, 2006 is a
gain of CAD $369,000.
4. Share capital:
a) Issued and outstanding:
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Three Months Ended Twelve Months Ended
December 31, 2006 December 31, 2006
-------------------------------------------------------------------------
Number Amount Number Amount
-------------------------------------------------------------------------
Common and variable voting
shares:
Balance, beginning of period 129,578,305 $ 429,711 129,575,099 $ 429,613
Exercise of options 70,383 - 73,589 -
Stock based compensation on
stock options exercised - 1,537 - 1,642
Issued from treasury - - - -
Share issuance costs - - - (10)
Tax benefit of issue costs - - - 3
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Balance, end of period 129,648,688 $ 431,248 129,648,688 $ 431,248
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Three Months Ended Twelve Months Ended
December 31, 2005 December 31, 2005
-------------------------------------------------------------------------
Number Amount Number Amount
-------------------------------------------------------------------------
Common shares:
Balance, beginning of period 129,240,797 $ 426,172 125,497,407 $ 390,469
Exercise of options 1,109 - 1,333,791 3,389
Stock-based compensation of
stock options exercised - 38 - 488
Issued from treasury 333,193 3,424 2,743,901 35,410
Share issuance costs - (32) - (215)
Tax benefit of issue costs - 11 - 72
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Balance, end of period 129,575,099 $ 429,613 129,575,099 $ 429,613
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As at December 31, 2006, the number of common voting shares and variable
voting shares amounted to 124,495,951 (December 31, 2005 - 119,378,637)
and 5,152,737 (December 31, 2005 - 10,196,462) respectively.
The Corporation has an Employee Share Purchase Plan ("ESPP") whereby the
Corporation matches every dollar contributed by each employee. Under the
terms of the ESPP the Corporation has the option to acquire common shares
on behalf of employees through open market purchases or to issue new
shares from treasury at the current market price. The Corporation's share
of the contributions is recorded as compensation expense and amounted to
$8,098,000 (2005 - $5,979,000) and $28,209,000 (2005 - $21,690,000), for
the three and 12 months ended December 31, 2006, respectively.
For the period January to October 2005, shares under the ESPP were issued
from treasury at the current market price. Subsequent to this period and
continuing throughout 2006, the Corporation elected to purchase these
shares through the open market and will continue to review this option in
the future. For the three and 12 months ended December 31, 2006 $NIL of
common shares were issued from treasury (three months ended December 31,
2005 - $3,424,000, 12 months ended December 31, 2005 - $35,410,000), of
which $NIL (three months ended December 31, 2005 - $1,712,000, 12 months
ended December 31, 2005 - $17,705,000) represented the Corporation's
matching contribution for employee contributions, for which no cash was
exchanged.
Current market price for common shares issued from treasury is determined
based on the weighted average trading price of the common shares on the
Toronto Stock Exchange for the five trading days preceding the issuance.
b) Stock option plans:
Changes in the number of options, with their weighted average exercise
prices, are summarized below:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three Months Ended Twelve Months Ended
December 31, 2006 December 31, 2006
-------------------------------------------------------------------------
Weighted Weighted
average average
Number of exercise Number of exercise
Options price Options price
-------------------------------------------------------------------------
Stock options
outstanding, beginning
of period 15,402,249 $ 13.16 11,428,718 $ 13.94
Issued 74,415 12.57 5,980,660 11.82
Exercised (405,393) 11.21 (433,129) 11.21
Cancelled (22,878) 11.82 (332,711) 13.19
Expired (2,192) 13.69 (1,597,337) 13.78
-------------------------------------------------------------------------
Stock options
outstanding,
end of period 15,046,201 $ 13.21 15,046,201 $ 13.21
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Exercisable, end of
period 4,846,236 $ 13.63 4,846,236 $ 13.63
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three Months Ended Twelve Months Ended
December 31, 2005 December 31, 2005
-------------------------------------------------------------------------
Weighted Weighted
average average
Number of exercise Number of exercise
Options price Options price
-------------------------------------------------------------------------
Stock options
outstanding,
beginning of period 11,532,737 $ 13.93 10,682,082 $ 12.37
Issued 4,106 9.74 4,474,184 14.46
Exercised (7,735) 10.66 (3,506,625) 9.82
Cancelled (26,776) 13.92 (147,309) 14.53
Repurchased (66,724) 11.99 (66,724) 11.99
Expired (6,890) 13.79 (6,890) 13.79
-------------------------------------------------------------------------
Stock options
outstanding, end of
period 11,428,718 $ 13.94 11,428,718 $ 13.94
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Exercisable, end of
period 3,920,623 $ 12.24 3,920,623 $ 12.24
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Under the terms of the Corporation's stock option plan, a cashless
settlement alternative is available whereby option holders can either (a)
elect to receive shares by delivering cash to the Corporation in the
amount of the options or (b) elect to receive a number of shares
equivalent to the difference between the market value of the options and
the exercise price. For the three and 12 months ended December 31, 2006,
option holders exercised 405,393 and 433,129 options, respectively (three
months ended December 31, 2005 - 7,735, 12 months ended December 31, 2005
- 3,151,923) on a cashless settlement basis and received 70,383 and
73,589 shares respectively (three months ended December 31, 2005 - 1,109
shares, 12 months ended December 31, 2005 - 979,089 shares).
c) Per share amounts:
The following table summarizes the shares used in calculating net
earnings per share:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three Months Ended Twelve Months Ended
December 31 December 31
2006 2005 2006 2005
-------------------------------------------------------------------------
Weighted average number
of shares outstanding
- basic 129,607,483 129,493,512 129,585,403 128,031,694
Effect of dilutive
employee stock options 292,076 61,654 124,321 392,408
-------------------------------------------------------------------------
Weighted average number
of shares outstanding
- diluted 129,899,559 129,555,166 129,709,724 128,424,102
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three and 12 month periods ended December 31, 2006, 12,729,564
and 12,823,662 (three months ended December 31, 2005 - 9,048,288, 12
months ended December 31, 2005 - 8,672,329) options, respectively, were
not included in the calculation of dilutive potential shares as the
result would be anti-dilutive.
d) Stock-based compensation:
As new options are granted, the fair value of these options will be
expensed over the vesting period, with an offsetting entry to contributed
surplus. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model. Upon the exercise of
stock options, consideration received together with amounts previously
recorded in contributed surplus is recorded as an increase in share
capital.
Stock-based compensation expense included in flight operations and
general and administration expenses totalled $5,708,000 and $21,205,000
for the three and 12 months ended December 31, 2006, respectively, (three
months ended December 31, 2005 - $4,644,000, 12 months ended December 31,
2005 - 17,604,000, net of repurchase of $320,000).
The fair market value of options granted during the three and 12 months
ended December 31, 2006 and 2005 and the assumptions used in their
determination are as follows:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three Months Ended Twelve Months Ended
December 31 December 31
2006 2005 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average fair market
value per option $ 4.36 $ 3.52 $ 4.29 $ 5.26
Average risk free interest
rate 4.00% 3.83% 4.23% 3.40%
Average volatility 40% 42% 42% 43%
Expected life (years) 3.6 3.7 3.6 3.7
Dividends per share $ - $ - $ - $ -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The Corporation has not incorporated an estimated forfeiture rate for
stock options that will not vest. Rather, the Corporation accounts for
actual forfeitures as they occur.
e) Contributed surplus:
Changes to contributed surplus were as follows:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three Months Ended Twelve Months Ended
December 31 December 31
2006 2005 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Balance, beginning of
period $ 54,485 $ 34,487 $ 39,093 $ 21,977
Stock - based compensation 5,708 4,644 21,205 17,604
expense
Stock options exercised (1,537) (38) (1,642) (488)
-------------------------------------------------------------------------
Balance, end of period $ 58,656 $ 39,093 $ 58,656 $ 39,093
-------------------------------------------------------------------------
-------------------------------------------------------------------------
5. Commitments and contingencies:
a) Aircraft:
The Corporation has committed to purchase six 737-700s, and one 737-800
Next-Generation aircraft to be delivered over the course 2007 and 2008.
The remaining estimated amounts to be paid in deposits and purchase
prices in US dollars relating to the purchases of the remaining aircraft,
live satellite television systems and winglets are as follows:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2007 $ 153,255
2008 101,330
2009 5,343
-------------------------------------------------------------------------
$ 259,928
-------------------------------------------------------------------------
-------------------------------------------------------------------------
b) Leasehold Commitments:
The Corporation has entered into operating leases and agreements for
aircraft, buildings, computer hardware and software licenses, satellite
programming, and capital leases relating ground handling equipment. The
obligations are as follows:
-----------------------------------
-----------------------------------
Capital Leases Operating Leases
-----------------------------------
2007 $ 444 $ 102,375
2008 444 118,338
2009 444 137,906
2010 698 141,627
2011 38 139,453
2012 and thereafter - 598,092
-----------------------------------
Total lease payments 2,068 $ 1,237,791
-----------------
-----------------
Less weighted average imputed
interest at 5.29% (229)
---------------
Net minimum lease payments 1,839
Less current portion of obligations
under capital lease (356)
---------------
Obligations under capital lease $ 1,483
---------------
---------------
The Corporation has committed to lease an additional 11 737-700 aircraft
and two 737-800 aircraft to be delivered between 2007 and 2009, for terms
ranging between eight- and 10-years, in US dollars. These amounts have
been included at their Canadian dollar equivalent in the above table and
US dollar equivalent in the table below.
The Corporation has certain operating leases primarily related to
aircraft that are denominated in US dollars. The US dollar amounts of
these operating leases, which have been included at their Canadian dollar
equivalent above, are as follows:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2007 $ 76,430
2008 92,673
2009 114,343
2010 119,154
2011 119,067
2012 and thereafter 500,035
-------------------------------------------------------------------------
1,021,702
-------------------------------------------------------------------------
-------------------------------------------------------------------------
c) Contingencies:
On April 4, 2004, Air Canada commenced a lawsuit against the Corporation.
Air Canada claimed damages in the amount of $220 million in an amendment
to its Statement of Claim. On May 29, 2006, as a full settlement, the
Corporation agreed to pay Air Canada's investigation and litigation costs
incurred of $5.5 million and accepted Air Canada's request that WestJet
make a donation in the amount of $10 million in the name of Air Canada
and the Corporation to children's charities across the country. Air
Canada accepted the Corporation's apology and withdrew its claims in
light of this settlement. All legal proceedings between the parties have
been terminated. These amounts and other settlement costs totalling
$15.6 million have paid as at December 31, 2006 and have been included in
non-recurring expenses.
A Statement of Claim was also filed by Jetsgo Corporation in the Ontario
Superior Court on October 15, 2004 against the Corporation, an officer,
and a former officer (the "Defendants"). The principal allegations are
that the Defendants conspired together to unlawfully obtain Jetsgo's
proprietary information and to use this proprietary information to harm
Jetsgo and benefit the Corporation. The Plaintiff is seeking damages in
an amount to be determined plus $50 million, but the Plaintiff has
provided no details or evidence to substantiate its claim. On May 13,
2005 Jetsgo Corporation declared Bankruptcy. As a result, this action has
been stayed and no further steps can be taken in the litigation unless a
court order is obtained.
The Corporation is party to other legal proceedings and claims that arise
during the ordinary course of business. It is the opinion of management
that the ultimate outcome of these and any outstanding matters will not
have a material effect upon the Corporation's financial position, results
of operations or cash flows.
6. Employee profit share provision:
The provision for employee profit share is estimated based on actual
year-to-date earnings results. The actual employee profit share amount is
to be determined by the Board of Directors based on audited financial
results at the completion of the financial year.
7. Income taxes:
During the second quarter of 2006, the federal government and various
provinces in which the Corporation operates enacted legislation reducing
the federal and provincial statutory income tax rates. The impact of this
legislation is a reduction of the Corporation's liability and provision
for future income taxes of $11.3 million in the three-months ended June
30, 2006. The federal government also eliminated the large corporations
tax (LCT) effective January 1, 2006, which created a reversal of
approximately $1 million in the second quarter of 2006 of LCT already
accrued as current tax expense in the year.
8. Comparative figures:
Certain prior period balances have been reclassified to conform to
current period's presentation.
>>
Conference call information:
WestJet will hold a live analysts' conference call today at 9 a.m. MST
(11 a.m. EST). Clive Beddoe, Chairman and CEO, Sean Durfy, President and Derek
Payne, Vice-President, Finance and Corporate Services will discuss WestJet's
2006 fourth quarter and year-end results and answer questions from financial
analysts. Following the analysts' question period, members of the media are
invited to participate in a question and answer session as time permits. The
conference call is available through the toll-free telephone number
1-888-564-1610. Participants are encouraged to join the call 10 minutes prior
to the scheduled start, at 8:50 a.m. MST (10:50 EST). The call can also be
heard live through an Internet webcast in the Investor Relations section of
westjet.com.