WestJet Announces 2005 Year-End and Fourth Quarter Results.CALGARY Calgary (kăl`gərē), city (1991 pop. 710,677), S Alta., Canada, at the confluence of the Bow and Elbow rivers. The largest city in Alberta and the fastest-growing major city in Canada, Calgary is a corporate, transportation, and financial , Alberta Alberta (ălbûr`tə), province (2001 pop. 2,974,807), 255,285 sq mi (661,188 sq km), including 6,485 sq mi (16,796 sq km) of water surface, W Canada. -- WestJet WestJet Airlines Ltd. (TSX: WJA) is a Canadian low-cost carrier based in Calgary, Alberta, that flies to most major cities in Canada and 11 cities in the United States. (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :WJA WJA Women's Jewelry Association WJA Web JetAdmin (HP software) WJA Water Jetting Association (UK) WJA Web Jet-Admin ) today announced its unaudited fourth quarter and December December: see month. 31, 2005 year-end year-end also year·end n. The end of a year. adj. Occurring or done at the end of the year: a year-end audit. Noun 1. financial results. Total revenue for the fourth quarter increased to $367.9 million from $273.7 million in the same period in 2004. Revenue for the year was $1.40 billion compared with $1.06 billion in 2004. Operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. for the fourth quarter amounted to $359.8 million, up from $339.5 million in the fourth quarter of 2004. For full-year 2005, operating expenses were up to $1.33 billion from $1.07 billion in 2004. The airline reported net earnings for the quarter of $1.0 million compared with a net loss of $46.3 million. This prior year's loss had been caused by the cumulative effect of the accelerated replacement program of its fleet of 737-200 aircraft and the weak operating environment In computing, an operating environment is the environment in which users run programs, whether in a command line interface, such as in MS-DOS or the Unix shell, or in a graphical user interface, such as in the Macintosh operating system. experienced in the last quarter of 2004. For the year ended December 31, 2005, the airline reported net earnings of $24.0 million, up from a net loss of $17.2 million in 2004 due to the factors noted above. WestJet's earnings from operations in the fourth quarter of 2005 were $8.1 million compared with loss from operations of $65.8 million in 2004, which included the write-down Write-Down Reducing the book value of an asset because it is overvalued compared to the market value. Notes: This is usually reflected in the company's income statement as an expense, thereby reducing net income. on its older aircraft. The airline's earnings from operations in 2005 were $60.8 million compared with loss from operations of $9.9 million in 2004, which also includes the write-down. WestJet reported a fourth quarter 2005 diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of of 1 cent compared to diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. loss per share of 37 cents, including the write-down, during the fourth quarter of 2004. The airline reported diluted earnings per share for the year of 19 cents, up from diluted loss per share of 14 cents for the full-year 2004, including the write-down. WestJet's unit costs increased in the fourth quarter of 2005, compared with fourth quarter 2004 to 13.4 cents per available seat mile (ASM (1) (Association for Systems Management) An international membership organization based in Cleveland, Ohio. Founded in 1947 and disbanded in 1996, it sponsored conferences in all phases of administrative systems and management. ) from 11.7 cents per ASM due in part to a 0.6 cent per ASM increase in fuel costs. The airline's costs in 2005 were higher than in 2004, with cost per ASM rising to 12.5 cents from 11.4 cents in 2004 for similar reasons. Extremely high fuel prices and increasing landing, terminal and airport improvement fees An Airport Improvement Fee or Embarkation Fee or Airport Tax or Service charge or Service fee is an additional fee charged to departing and connecting passengers at an airport. contributed to the increase in costs from 2004 to 2005. Fuel costs now represent the largest expense of the airline which increased 23.4% over 2004 on an available seat mile basis to 26.5% of our total costs. WestJet flew 2.01 billion revenue passenger miles Revenue passenger miles (RPMs) is a measure of a passenger traffic for an airline flight, bus, or train calculated by multiplying the total number of revenue-paying passengers aboard the vehicle by the distance traveled measured in miles. (RPMs) in the fourth quarter of 2005, compared with 1.68 billion RPMs during the same quarter in 2004, and flew 7.96 billion RPMs in 2005, up from 6.28 billion RPMs in 2004. Capacity, as measured by available seat miles Available seat miles (ASM) is a measure of an airline flight's passenger carrying capacity. It is equal to the number of seats available multiplied by the number of miles flown. This measures an airlines capacity for transporting passengers. , increased in the fourth quarter of 2005 to 2.69 billion ASMs, up from 2.49 billion ASMs in the fourth quarter of 2004. In 2005, capacity was up to 10.67 billion ASMs compared to 8.96 billion ASMs during the same period in 2004. WestJet's load factor increased 7.2 percentage points in the fourth quarter of 2005 to 74.7% from 67.5% during the same period in 2004. Load factor for full-year 2005 reached 74.6% compared with 70.0% in 2004. Yield, or revenue per revenue passenger mile, increased to 18.3 cents in the fourth quarter of 2005 compared with 16.3 cents in the fourth quarter of 2004. In 2005, yield increased to 17.5 cents compared with 16.9 cents in 2004. WestJet's average stage length grew from 788 miles in the fourth quarter of 2004 to 800 miles in the fourth quarter of 2005. Average stage length for the year 2005 increased to 797 miles from 760 miles in year 2004. Clive Beddoe Clive Beddoe (born 1947) is a founding shareholder and Chairman of the Board of Directors of WestJet Airlines. As a pilot himself, it was his interest in aircraft that helped form WestJet. Clive first started flying gliders at Epsom College in England during his teenage years. , WestJet's President and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. , said today: "This past year has been very significant for WestJet as we accomplished a number of very major achievements over these 12 months. "We not only grew our airline by some 19% on a capacity basis but were also able to increase our yields and load factors at the same time in both the quarter and on a year-over-year basis. The most encouraging part of our performance in this respect is the rate of increase that we achieved in our yields, which grew by only 1.2% in the first nine months of the year but by 12.3% in the fourth quarter. "This was a huge accomplishment, particularly when one considers all the other challenges we faced at the beginning of 2005. "We began the year facing an extremely difficult environment with fuel costs escalating to new highs every month. Furthermore we had committed to a significant growth strategy for our company, as a result of decisions we had made prior to any of these events occurring. Consequently we had to develop a series of alternative plans for 2005 depending on how the competitive landscape unfolded and had to modify those plans on a number of separate occasions as a competitor failed and the price of fuel continued its upward spiral spiral /spi·ral/ (spi´ral) 1. helical; winding like the thread of a screw. 2. helix; a winding structure. . "Consequently our team has been challenged in ways that they have never experienced before and have done a wonderful job in adapting to these changing circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or . "The most significant of these has been the challenge of evolving our fleet into what is now the most modern in North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. . During the year we accelerated the retirement of our older 737-200s and disposed dis·pose v. dis·posed, dis·pos·ing, dis·pos·es v.tr. 1. To place or set in a particular order; arrange. 2. of 13 of these aircraft by year-end, replacing them with our new deliveries of Boeing (language) BOEING - An early system on the IBM 1130. [Listed in CACM 2(5):16, May 1959]. Next-Generation 737s. Not only did we achieve this seamlessly, but we were also able to install fuel saving winglets on each of the 700 and 800 series aircraft and equip e·quip tr.v. e·quipped, e·quip·ping, e·quips 1. a. To supply with necessities such as tools or provisions. b. them with live satellite television systems while still growing our airline. "Throughout 2005, we successfully maintained our controllable cost of operations on an ASM basis at 2.4 cents year-over-year by the continued use of technology, and expect to maintain this trend into 2006. We are particularly pleased with this accomplishment despite increases in salaries and benefits. Further cost reductions will also flow from finally reaching our goal of flying only one type of aircraft, which was achieved in early January January: see month. 2006. The operational advantages that will flow from this will progressively be felt during the first quarter of this year as we complete our pilot transitions and disposition Act of disposing; transferring to the care or possession of another. The parting with, alienation of, or giving up of property. The final settlement of a matter and, with reference to decisions announced by a court, a judge's ruling is commonly referred to as disposition, regardless of process of these older assets. We built our company around these wonderful aircraft and would have kept them flying for several years more had the price of fuel not more than doubled in this last year. "It should be noted that throughout all of this turmoil in our industry we grew our gross revenues by almost $337 million - a pace which represents a record for us even though we have had much larger growth of capacity in prior years. "The fourth quarter of 2005 presented another round of challenges with the impacts that our industry faced from the worst hurricane season Hurricane season refers to a period in a year when hurricanes usually form. For more information see: Tropical cyclone#Times of formation. For a lists of past seasons, see:
Florida (flôr`ĭdə, flŏr`–), state in the extreme SE United States. A long, low peninsula between the Atlantic Ocean (E) and the Gulf of Mexico (W), Florida is bordered by Georgia and and the Mexican Riviera The Mexican Riviera refers collectively to several cities and resorts lying on the western coast of Mexico. Although there are large distances between these cities, they are often referred to as the Mexican Riviera because of their popularity among tourists. . These events impacted our bottom line by at least $11 million in the quarter and have caused us to plan for the start of this year's flying into this region to a later date in the season to mitigate mit·i·gate v. To moderate in force or intensity. mit  i·ga tion n. our exposure to similar events in the future."During this last year, we also made a number of changes to our executive and senior management teams in order to help our company evolve Evolve may refer to several terms:
2. The language of the Russians. a. 1. Of or pertaining to the Russians. Hall to our team as Executive Vice-President vice president or vice-pres·i·dent n. Abbr. VP 1. An officer ranking next below a president, usually empowered to assume the president's duties under conditions such as absence, illness, or death. 2. , Guest Services and Information Technology, and is now responsible for the development of customer and inflight service, and IT strategies. On January 5, 2006, we also appointed ap·point tr.v. ap·point·ed, ap·point·ing, ap·points 1. To select or designate to fill an office or a position: appointed her the chief operating officer of the company. 2. Matthew Matthew one of the twelve disciples. [N.T.: Matthew] See : Evangelism Handford to the position of Executive Vice-President, People, responsible for providing leadership to our People (human resources The fancy word for "people." The human resources department within an organization, years ago known as the "personnel department," manages the administrative aspects of the employees. ) team. Fred (Friendly Rollabout Engineered for Doctors) A mobile medical conferencing unit. See videoconferencing. 1. FRED - Robert Carr. Language used by Framework, Ashton-Tate. 2. Ring, who previously held this role, is now our Executive Vice-President, Corporate Projects. We are already seeing the positive results from Russ, Matthew and Fred's depth of management experience being brought to our team. "On another positive note, we were very honoured to be acknowledged for having the most admired ad·mire v. ad·mired, ad·mir·ing, ad·mires v.tr. 1. To regard with pleasure, wonder, and approval. 2. To have a high opinion of; esteem or respect. 3. corporate culture in "The 2005 Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. Corporate Culture Study" by Canadian Business Canadian Business is the longest-publishing business magazine in Canada. It was founded in 1928 as The Commerce of the Nation, the organ of the Canadian Chamber of Commerce. The magazine was renamed Canadian Business in 1933. magazine and Waterstone Human Capital Ltd. WestJet's corporate culture was recognized for its "entrepreneurial en·tre·pre·neur n. A person who organizes, operates, and assumes the risk for a business venture. [French, from Old French, from entreprendre, to undertake; see enterprise. spirit," "delivering what they promise" and its "winning attitude". "In this last quarter, we launched scheduled transborder service from Toronto Toronto (tərŏn`tō), city (1998 est pop. 2,400,000), provincial capital, S Ont., Canada, on Lake Ontario. Toronto is the largest city in Canada and since the 1970s has been one of the fastest-changing cities in North America, experiencing to Fort Myers Fort Myers, city (1990 pop. 45,206), seat of Lee co., SW Fla., on the Caloosahatchee River, near the Gulf of Mexico; founded 1850, inc. 1905. It has a tourist trade and light industry and is a shipping point for citrus fruits, winter vegetables, flowers (especially and from Vancouver Vancouver, city, Canada Vancouver, city (1991 pop. 471,844), SW British Columbia, Canada, on Burrard Inlet of the Strait of Georgia, opposite Vancouver Island and just N of the Wash. border. , B.C. to the two American American, river, 30 mi (48 km) long, rising in N central Calif. in the Sierra Nevada and flowing SW into the Sacramento River at Sacramento. The discovery of gold at Sutter's Mill (see Sutter, John Augustus) along the river in 1848 led to the California gold rush of destinations of Honolulu Honolulu (hŏn'əl  `l, hōnō–), city (1990 pop. and Maui Maui (mou`ē), island (1990 est. pop. 82,500), 728 sq mi (1,886 sq km), second largest island in the state of Hawaii, separated from the island of Hawaii by the Alenuihaha Channel and from Molokai by the Pailolo Channel. . Our launch of these new
transborder markets has been extremely successful, and is particularly
rewarding after many months of hard work that was involved in securing
the required ETOPS ETOPS Extended Twin (Engine) OperationsETOPS Extended-Range Twin-Engine Operational Performance Standards ETOPS Extended Twin-Engine Over-water Operations ETOPS Engines Turn(ing) (Extended Range Twin-Engine twin-en·gine adj. Powered by two engines: a twin-engine aircraft. Operations) certification in order to operate to Hawaii Hawaii, island, United States Hawaii, island (1990 pop. 120,217), 4,037 sq mi (10,456 sq km), largest and southernmost island of the state of Hawaii and coextensive with Hawaii co.; known as the Big Island. . "Our estimated domestic market share has now grown to 32%, an improvement of 3% over last year, with much of this being focused in the east and central parts of Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of . For example, we now offer 268 scheduled flights scheduled flight schedule n → vol régulier scheduled flight schedule n → Linienflug m per week out of Toronto, ON. This represents a tenfold tenfold Adjective 1. having ten times as many or as much 2. composed of ten parts Adverb by ten times as many or as much Adj. 1. increase from when we first launched service in Toronto in May of 2002, when we only offered 26 scheduled flights per week. "Our single largest challenge for 2006 remains the volatility Volatility 1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the in the price of jet fuel. However, I am fairly optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op that one element of that cost, the cost of refining refining, any of various processes for separating impurities from crude or semifinished materials. It includes the finer processes of metallurgy, the fractional distillation of petroleum into its commercial products, and the purifying of cane, beet, and maple sugar oil to jet fuel should ease as the damaged refineries in the U.S. get back into full production this year. We can now look forward to the addition of 12 new aircraft to our fleet this year for a net growth of eight aircraft, which will bring an ASM growth for 2006 to 14% over our existing capacity. "In 2006, we will be proudly celebrating our tenth Tenth can mean: In mathematics:
"I would like to thank all of our people who have worked so diligently dil·i·gent adj. Marked by persevering, painstaking effort. See Synonyms at busy. [Middle English, from Old French, from Latin d through yet another demanding year and our shareholders for their continued support of WestJet." WestJet is Canada's leading low-cost airline offering scheduled service throughout its 34-city North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. network. Named Canada's most respected corporation for customer service in 2005, WestJet pioneered low-cost high-value flying in Canada. With increased legroom leg·room n. Room in which to stretch the legs while seated. legroom Noun space to move one's legs comfortably, as in a car legroom n → and leather seats on its modern fleet of Boeing Next-Generation 737 aircraft, and live seatback seat·back also seat back n. The back of a chair or other type of seating. television provided by Bell ExpressVu Bell ExpressVu is the division of Bell Canada Enterprises that provides satellite television service across Canada. It launched on September 10, 1997 and as of 2004 it has been providing "ExpressVu TV for Condos", a VDSL service provided to select multidwelling units (condominiums on the majority of its fleet, WestJet strives to be the number one choice for travellers.
WestJet Airlines Ltd.
Consolidated Financial Statements
December 31, 2005
(Unaudited)
WestJet Airlines Ltd.
Consolidated Balance Sheets
December 31, 2005 and December 31, 2004
(Stated in Thousands of Dollars)
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December 31, December 31,
2005 2004
(unaudited) (unaudited)
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Assets
Current assets:
Cash and cash equivalents $ 259,640 $ 148,532
Accounts receivable 8,022 12,814
Income taxes recoverable 13,909 2,854
Prepaid expenses and deposits 31,746 25,493
Inventory 6,259 5,382
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319,576 195,075
Property and equipment (note 1) 1,803,497 1,601,546
Other assets 90,019 80,733
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$ 2,213,092 $ 1,877,354
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued
liabilities $ 100,052 $ 91,885
Advance ticket sales 127,450 81,991
Non-refundable guest credits 32,814 26,704
Current portion of long-term
debt (note 2) 114,115 97,305
Current portion of obligations under
capital lease (note 6(b)) 2,466 6,564
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376,897 304,449
Long-term debt (note 2) 1,044,719 905,631
Obligations under capital
lease (note 6(b)) 1,690 0
Other liabilities (note 3) 16,982 10,000
Future income tax 102,651 67,382
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1,542,939 1,287,462
Shareholders' equity:
Share capital (note 5(a)) 429,613 390,469
Contributed surplus 39,093 21,977
Retained earnings 201,447 177,446
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670,153 589,892
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Subsequent event (note 6)
Commitments and contingencies (note 6)
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$ 2,213,092 $ 1,877,354
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WestJet Airlines Ltd.
Consolidated Statements of Earnings (loss) and Retained Earnings
For the periods ended December 31, 2005 and 2004
(Unaudited)
(Stated in Thousands of Dollars, Except Per Share Amounts)
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Three Months Ended Twelve Months Ended
December 31 December 31
2005 2004 2005 2004
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Revenues:
Guest
Revenues $ 327,425 $ 240,353 $ 1,207,075 $ 933,407
Charter
and other 38,250 32,258 181,641 119,332
Interest
Income 2,194 1,123 6,308 5,251
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367,869 273,734 1,395,024 1,057,990
Expenses:
Aircraft fuel 98,921 75,941 354,065 241,473
Airport
operations 56,571 49,945 219,144 173,604
Flight
operations and
navigational
charges 47,453 41,160 183,463 148,706
Sales and
marketing 37,071 21,979 124,154 85,186
Depreciation and
amortization 27,639 69,576 106,624 126,338
Maintenance 17,464 21,375 75,717 78,903
General and
administration 19,330 17,604 69,552 60,953
Aircraft leasing 19,221 9,701 65,647 41,239
Interest expense 14,817 13,073 55,496 44,109
Inflight 13,825 12,218 53,005 43,808
Customer service 7,459 6,940 27,322 23,570
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359,771 339,512 1,334,189 1,067,889
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Earnings (loss)
from operations 8,098 (65,778) 60,835 (9,899)
Non-operating
income (expense):
Loss on foreign
exchange (246) (2,587) (2,729) (3,224)
Gain (loss) on
disposal of
property and
equipment (573) 86 (98) 63
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(819) (2,501) (2,827) (3,161)
Employee profit
share (note 7) 757 (2,923) 6,033 2,916
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Earnings (loss)
before income
taxes 6,522 (65,356) 51,975 (15,976)
Income tax
Expense
(recovery):
Current (2,409) 595 (7,367) (4,771)
Future 7,894 (19,682) 35,341 5,963
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5,485 (19,087) 27,974 1,192
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Net earnings
(loss) 1,037 (46,269) 24,001 (17,168)
Retained earnings,
beginning of
period 200,410 223,715 177,446 204,731
Change in
accounting
policy - - (10,117)
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Retained
earnings,
end of period $ 201,447 $ 177,446 $ 201,447 $ 177,446
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Earnings (loss)
per share
(note 5(d)):
Basic $ 0.01 $ (0.37) $ 0.19 $ (0.14)
Diluted $ 0.01 $ (0.37) $ 0.19 $ (0.14)
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Operating highlights:
(1) Write-down related to 200-series fleet
impairment has been excluded from unit
stats (CASM, cost per block hour) $ - $ 47,577
Available
seat
miles 2,687,758,534 2,488,669,459 10,672,983,797 8,963,103,389
Revenue
passenger
miles 2,006,917,920 1,679,756,695 7,957,738,384 6,277,332,668
Load factor 74.7% 67.5% 74.6% 70.0%
Revenue per
passenger
mile (cents) 18.3 16.3 17.5 16.9
Revenue per
available
seat mile (cents) 13.7 11.0 13.1 11.8
Cost per
passenger
mile (cents) 17.9 17.4 16.8 16.3
Cost per
available
seat mile (cents) 13.4 11.7 12.5 11.4
Fuel consumption
(litres) 133,911,923 134,660,725 552,382,525 490,782,605
Fuel
cost/litre
(cents) 73.9 56.4 64.1 49.2
Segment
guests 2,449,198 2,092,910 9,423,279 7,835,677
Average
stage length 800 788 797 760
Number of full
time equivalent
employees at
quarter end 4,285 4,024 4,285 4,024
Fleet size
at quarter end 56 54 56 54
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WestJet Airlines Ltd.
Consolidated Statements of Cash Flows
For the periods ended December 31, 2005 and 2004
(Unaudited)
(Stated in Thousands of Dollars)
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Three Months Ended Twelve Months Ended
December 31 December 31
2005 2004 2005 2004
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Cash provided by (used in):
Operating activities:
Net earnings (loss) $ 1,037 $ (46,269)$ 24,001 $ (17,168)
Items not involving cash:
Depreciation and
amortization 27,639 69,576 106,624 126,338
Amortization of other
liabilities (217) - (604) -
Amortization of hedge
settlements 348 348 1,391 1,391
(Gain) loss on disposal
of property and equipment 573 (86) 98 (63)
Stock-based compensation
expense 4,644 3,436 17,604 12,305
Issued from treasury stock 1,712 - 17,705 -
Future income tax expense 7,894 (19,682) 35,341 5,963
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43,630 7,323 202,160 128,766
(Increase) decrease in
non-cash working capital (4,185) (1,406) 46,290 16,697
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39,445 5,917 248,450 145,463
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Financing activities:
Repayment of long-term
Debt (28,708) (22,989)(100,487) (75,819)
Increase in long-term
debt 144,369 40,955 256,385 429,890
Decrease in obligations
under capital lease (529) (1,555) (5,846) (6,381)
Increase in other
liabilities (1) - 8,479 10,000
Share issuance costs (32) - (215) (10)
Increase in other assets (409) (2,497) (14,350) (25,102)
Issuance of common shares 1,712 (1) 21,094 13,949
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116,402 13,913 165,060 346,527
Increase in non-cash
working capital - - (837) -
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116,402 13,913 164,223 346,527
Investing activities:
Aircraft additions (146,813) (90,967)(660,947) (546,242)
Aircraft disposals 3,382 - 404,583 -
Other property and
equipment additions (10,127) (8,321) (46,095) (41,545)
Other property and
equipment disposals 390 103 894 2,945
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(153,168) (99,185)(301,565) (584,842)
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Increase (decrease) in cash 2,679 (79,355) 111,108 (92,852)
Cash, beginning of period 256,961 227,887 148,532 241,384
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Cash, end of period $ 259,640 $ 148,532 $259,640 $ 148,532
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Cash is defined as cash and cash equivalents
Cash interest and taxes paid during the twelve months ended
December 31, 2005 were $54,688,000 (2004 - $42,346,000) and
$10,151,000 (2004 - $7,903,000)
As at December 31, 2005 cash and cash equivalents include US
$6,317,000 of restricted cash (2004 - US $4,251,000) of restricted
cash.
WestJet Airlines Ltd.
Notes to Consolidated Financial Statements
For the periods ended December 31, 2005 and 2004
(Unaudited)
(Tabular Dollar Amounts are Stated in Thousands,
Except Share and 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, 2004. 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, 2004.
The Corporation's business is seasonal in nature, with the highest
activity in the summer (third quarter) and the lowest activity in
the winter (first quarter) due to the high number of leisure
travelers and their preference to travel during the summer months.
1. Property and equipment:
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December 31, 2005 Accumulated
Cost Depreciation Net book value
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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 3,892 2,861 1,031
Aircraft under capital
lease 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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December 31, 2004
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Aircraft
- Next-Generation $ 1,282,308 $ 46,180 $ 1,236,128
Ground property and
equipment 109,334 34,586 74,748
Spare engines and parts
- Next-Generation 52,641 4,777 47,864
Buildings 39,636 2,840 36,796
Leasehold improvements 5,655 3,104 2,551
Spare engines and parts
- 200 series 24,397 16,523 7,874
Aircraft - 200-series 142,657 121,182 21,475
Aircraft under capital
lease 31,304 26,781 4,523
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1,687,932 255,973 1,431,959
Deposits on aircraft 156,943 - 156,943
Assets under development 12,644 - 12,644
---------------------------------------------------------------------
$ 1,857,519 $ 255,973 $ 1,601,546
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
During the year, property and equipment was acquired at an aggregate
cost of $2,137,000 (2004 - $NIL) by means of capital leases.
During 2005, the Corporation disposed of 13 200-series aircraft to
an unrelated third party and entered into an agreement to sell the
remaining spare engines, parts and flight simulator. This
transaction will be completed in early 2006.
During the year the Corporation capitalized $3,250,000 (2004 -
$3,675,000) of interest.
Included in Aircraft - Next-Generation are estimated leasehold
return costs for Next-Generation aircraft under operating leases
totaling $1,107,000 (2004 - $NIL). These amounts are amortized on
the straight-line basis over the term of each lease.
2. Long-term debt:
---------------------------------------------------------------------
---------------------------------------------------------------------
December 31 December 31
2005 2004
---------------------------------------------------------------------
$1,304,197,000 in 33 individual term loans,
amortized on a straight-line basis over a
12-year term, repayable in quarterly
principal instalments ranging from $697,000
to $955,000, guaranteed by the Ex-Im Bank
and secured by 30 700-series aircraft and
3 600-series aircraft, and maturing
between 2014 and 2017. 30 of these
facilities include fixed rate weighted
average interest at 5.39%. The remaining
three facilities, totaling $104,786,000,
includes weighted average floating
interest at the Canadian LIBOR rate plus
0.08% (effective interest rate of 3.28% as
at December 31, 2005) until after the first
scheduled repayment date in January 2006,
after such time the interest rate on the
loans will be fixed at a weighted average
rate of 4.89% for the remaining period the
loans is outstanding.
$ 1,114,506 $ 954,674
$26,000,000 in two individual term loans,
repayable in monthly instalments of
$109,000 and $161,000 including floating
interest at the bank's prime plus 0.88%
with an effective interest rate of 5.88%
as at December 31, 2005, maturing in July
2008, secured by two Next-Generation flight
simulators.
19,615 21,684
$12,000,000 term loan repayable in monthly
instalments of $108,000 including interest
at 9.03%, maturing April 2011, secured by
the Calgary hangar facility. 10,767 11,075
$12,657,000 in 18 individual term loans,
amortized on a straight-line basis over a
five year term, repayable in quarterly
principal instalments 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
3.39%, as at December 31, 2005, maturing in
2009 and 2010, guaranteed by the Ex-Im Bank
and secured by certain 700-series and
600-series aircraft.
10,462 6,303
$4,550,000 term loan repayable in monthly
instalments of $50,000, including floating
interest at the bank's prime plus 0.50%,
with an effective interest rate of 5.50% as
at December 31, 2005, maturing April 2013,
secured by the Calgary hangar facility.
3,484 3,899
$22,073,000 in six individual term loans,
repayable in monthly instalments ranging
from $25,000 to $87,000 including fixed rate
weighted average interest at 8.43% having
matured in October 2005.
0 5,301
---------------------------------------------------------------------
1,158,834 1,002,936
Less current portion 114,115 97,305
---------------------------------------------------------------------
$ 1,044,719 $ 905,631
---------------------------------------------------------------------
---------------------------------------------------------------------
Future scheduled repayments of long-term debt are as follows:
---------------------------------
---------------------------------
2006 $ 114,115
2007 114,300
2008 127,279
2009 111,514
2010 110,660
2011 and thereafter 580,966
---------------------------------
$ 1,158,834
---------------------------------
---------------------------------
During the year, the Corporation converted US $402 million of
preliminary commitments with the Export-Import Bank of the United
States ("Ex-Im Bank") into a final commitment to support the
acquisition of five Boeing Next-Generation 737-700 aircraft and
eight Boeing Next-Generation 737-600 aircraft, their related live
satellite television systems and installation of winglets on the
600-series aircraft, to be delivered between July 2005 and July
2006. As at December 31, 2005 the unutilized and uncancelled balance
of the final commitment from Ex-Im Bank was US $188.8 million. In
addition, Ex-Im bank has provided a preliminary commitment of US
$324 million to cover an additional 10 aircraft to be delivered
between July 2006 and November 2007.
During the year, the Corporation completed financing arrangements
for US $386 million supported by loan guarantees from the Ex-Im Bank
on 13 aircraft as outlined above. This facility will be drawn in
Canadian dollars in separate instalments with 12-year terms for each
new aircraft. Each loan will be amortized on a straight-line basis
over the 12-year term in quarterly principal instalments, and
interest calculated on the outstanding balance. As at December 31,
2005 the Corporation has taken delivery of the first seven aircraft
under this facility and has drawn a total of $256.4 million (US
$213.2 million).
The Corporation is charged a commitment fee of 0.125% per annum on
the unutilized and uncancelled balance of the Ex-Im Bank final
commitment, 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.
The Corporation has entered into forward starting interest rate
agreements at rates between 4.98% and 5.00% on six future aircraft
deliveries, effective from the period April 2006 and July 2006.
3. Other liabilities
Included in other liabilities is $8,000,000 (2004 - $10,000,000) of
unearned revenue related to the BMO Mosaik(R) AIR MILES(R)
Mastercard(R) credit card for future net retail sales and for bounty
on newly activated credit cards. During the year ended December 31,
2005, the Corporation recognized $2,000,000 (2004 - $NIL) of this
unearned revenue. The remaining unearned revenue balance will be
recognized during the next three years with $2,000,000 earned in
2006 and $3,000,000 in each of 2007 and 2008.
At December 31, 2005, included in other liabilities are deferred
gains from the sale and leaseback of aircraft in 2005 totaling
$7,875,000, net of amortization, which are being deferred and
amortized over the lease term with the amortization included in
aircraft leasing. During the year ended December 31, 2005 the
Corporation recognized amortization of $604,000.
The Corporation has included in other liabilities $1,107,000
pertaining to the lease return conditions on its Next-Generation
leased aircraft.
4. Financial instruments:
At December 31, 2005, the Corporation had US dollar cash and cash
equivalents totaling US $35,453,000 (2004 - US $28,440,000).
The Corporation has entered into a contract to purchase US $2.5
million per month at a forward rate of 1.22 for the payment period
from March 2005 to February 2006 to hedge a portion of the
Corporation's committed US dollar lease payments during the same
period. The estimated fair market value of the remaining portion of
the contract as at December 31, 2005 is a loss of $300,000.
The Corporation has outstanding hedge contracts representing
approximately 50%, 40% and 11% respectively of January, February and
March anticipated fuel consumption at a rate of $0.572/litre,
$0.580/litre and $0.562/litre. The total estimated fair value of the
unsettled contracts as at December 31, 2005 is a loss of $1,300,000.
5. Share capital:
(a) Authorized:
Unlimited number of common voting shares
The common voting shares may be owned and controlled by Canadians
only and shall confer the right to one vote per common voting share
at all meetings of shareholders of the Corporation.
Each issued and outstanding common voting share shall be converted
into one variable voting share automatically and without any further
act of the Corporation or the holder, if such common voting share
becomes owned or controlled by a person who is not a Canadian.
Unlimited number of variable voting share
The variable voting shares may be owned and controlled only by
persons who are not Canadians and are entitled to one vote per
variable voting share unless (i) the number of issued and
outstanding variable voting shares exceed 25% of the total number of
all issued and outstanding variable voting shares and common voting
shares (or any greater percentage the Governor in Council may
specify pursuant to the Canada Transportation Act ), or (ii) the
total number of votes cast by or on behalf of the holders of
variable voting shares at any meeting on any matter on which a vote
is to be taken exceeds 25% (or any greater percentage the Governor
in Council may specify pursuant to the Canada Transportation Act)
of the total number of votes that may be cast at such meeting.
If either of the above-noted thresholds are surpassed at any time,
the vote attached to each variable voting share will decrease
automatically without further act of formality. Under the
circumstances described above, the variable voting shares as a class
cannot carry more than 25% (or any greater percentage the Governor
in Council may specify pursuant to the Canada Transportation Act)
of the total voting rights attached to the aggregate number of
issued and outstanding variable voting shares and common voting
shares of the Corporation. Under the circumstances described above,
the variable voting shares as a class cannot, for a given
shareholders' meeting, carry more than 25% (or any greater
percentage the Governor in Council may specify pursuant to the
Canada Transportation Act ) of the total number of votes that may be
cast at the meeting.
Each issued and outstanding variable voting share shall be
automatically converted into one common voting share without any
further intervention on the part of the Corporation or of the hold
if (i) the variable voting share is or becomes owned and controlled
by a Canadian: or if (ii) the provisions contained in the Canada
Transportation Act relating to foreign ownership restrictions are
repealed and not replaced with other similar provisions in
applicable legislation.
Unlimited number of non-voting shares
Unlimited number of non-voting first, second and third preferred
shares
(b) Issued and outstanding:
On August 30, 2005, the Corporation's common shares were
restructured into two classes of shares: variable voting shares and
common voting shares. Each issued and outstanding common share which
was not owned and controlled by a Canadian within the meaning of the
Canada Transportation Act was converted into one variable voting
share and the common share was cancelled. Each issued and
outstanding common share which was owned and controlled by a
Canadian within the meaning of the Canada Transportation Act was
converted into one common voting share and the common share was
cancelled.
---------------------------------------------------------------------
---------------------------------------------------------------------
Three Months Ended Twelve Months Ended
December 31, 2005 December 31, 2005
---------------------------------------------------------------------
Number Amount Number Amount
---------------------------------------------------------------------
Common and variable
voting 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 - 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
---------------------------------------------------------------------
Balance, end
of period 129,575,099 $ 429,613 129,575,099 $ 429,613
---------------------------------------------------------------------
---------------------------------------------------------------------
As at December 31, 2005, the number of common voting shares and
variable voting shares amounted to 119,378,637 and 10,196,462
respectively.
---------------------------------------------------------------------
---------------------------------------------------------------------
Three Months Ended Twelve Months Ended
December 31, 2004 December 31, 2004
---------------------------------------------------------------------
Number Amount Number Amount
---------------------------------------------------------------------
Common shares:
Balance, beginning
of period 125,447,836 $ 390,465 123,882,490 $ 376,081
Exercise of options 49,571 - 1,611,721 13,949
Stock-based
compensation - - - 445
Issued on rounding
of stock split - - 3,196 -
Share issuance costs - - - (10)
Tax benefit of
issue costs - 4 - 4
---------------------------------------------------------------------
Balance, end
of period 125,497,407 $ 390,469 125,497,407 $ 390,469
---------------------------------------------------------------------
---------------------------------------------------------------------
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. For
the period ended December 31, 2005 $17,705,000 (2004 - $NIL) of
common shares were issued from treasury, representing the
Corporation's matching contribution from treasury for employee
contributions, for which no cash was exchanged. Subsequent to this
period, the Corporation elected to purchase these shares through the
open market and will continue to review this option in the future.
(c) Stock option plan:
Changes in the number of options, with their weighted average
exercise prices, are summarized below:
---------------------------------------------------------------------
---------------------------------------------------------------------
Three Months Ended Twelve Months Ended
December 31, 2005 December 31, 2005
---------------------------------------------------------------------
Weighted Weighted
Number average Number average
of exercise of exercise
Options price Options price
---------------------------------------------------------------------
Stock options
outstanding,
beginning of period 11,532,737 $ 13.93 10,682,082 $ 12.37
Granted 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
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Three Months Ended Twelve Months Ended
December 31, 2004 December 31, 2004
---------------------------------------------------------------------
Weighted Weighted
Number average Number average
of exercise of exercise
Options price Options price
---------------------------------------------------------------------
Stock options
outstanding,
beginning of period 10,918,889 $ 12.32 9,809,753 $ 10.78
Granted 23,198 11.35 2,927,875 15.73
Exercised (251,682) 9.79 (1,959,002) 9.42
Cancelled (8,323) 16.02 (96,544) 12.83
---------------------------------------------------------------------
Stock options
outstanding,
end of period 10,682,082 $ 12.37 10,682,082 $ 12.37
---------------------------------------------------------------------
---------------------------------------------------------------------
Exercisable, end
of period 4,694,357 $ 10.88 4,694,357 $ 10.88
---------------------------------------------------------------------
---------------------------------------------------------------------
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 or
(b) elect to receive a number of shares equivalent to the difference
between market value of the options and the aggregate exercise price.
For the year ended December 31, 2005, option holders exercised
3,151,923 (2004 - 449,635) options on a cashless settlement basis and
received 979,089 (2004 - 102,354) shares.
Certain executives holding total options of 66,724, at an exercise
price of $11.99, offered the Corporation an opportunity to purchase
and cancel their options in consideration of payment by the
Corporation in cash for a fixed price of $320,000. The agreements
were accepted by the Corporation and the options were cancelled.
(d) Per share amounts:
The following table summarizes the common shares used in calculating
net earnings per common share:
---------------------------------------------------------------------
---------------------------------------------------------------------
Three Months Ended Twelve Months Ended
December 31 December 31
2005 2004 2005 2004
---------------------------------------------------------------------
Weighted average
number of
common shares
outstanding
- basic 129,493,512 125,465,352 128,031,694 125,071,208
Effect of
dilutive
employee stock
options 61,654 - 392,408 -
---------------------------------------------------------------------
Weighted average
number of
common shares
outstanding
- diluted 129,555,166 125,465,352 128,424,102 125,071,208
---------------------------------------------------------------------
---------------------------------------------------------------------
For the year ended December 31, 2005 a total of 8,672,329 (2004 -
10,682,082) options were not included in the calculation of dilutive
common shares as the result would be anti-dilutive.
(e) Stock-based compensation
On January 1, 2004 the Corporation changed its accounting policy
related to stock options granted on or after January 1, 2002. Under
the new policy, the Corporation determines the fair value of stock
options on their grant date and records this amount as compensation
expense over the period that the stock options vest, with a
corresponding increase to contributed surplus. The Corporation has
retroactively adopted the changes without restatement of prior
periods on January 1, 2004 which resulted in retained earnings
decreasing by $10,117,000 and an offsetting entry to contributed
surplus.
As new options are granted, the fair value of these options will be
expensed over the applicable 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.
Employee stock option compensation expense is included in flight
operations and general and administration expenses totaled
$17,604,000, net of repurchase of $320,000 (2004 - $12,305,000).
The fair market value of options granted during the three months
ended December 31, 2005 and twelve months ended December 31, 2005,
and the weighted average assumptions used in their determination are
as follows:
Three Months ended December 31, 2005
Weighted average fair market value per option $ 9.74
Average risk free interest rate 3.83%
Average volatility 42%
Expected life (years) 3.7
Twelve Months ended December 31, 2005
Weighted average fair market value per option $ 5.26
Average risk free interest rate 3.40%
Average volatility 43%
Expected life (years) 3.7
6. Commitments and contingencies:
(a) Aircraft:
The Corporation has committed to purchase 10 737-600s and nine
737-700s Next-Generation aircraft for delivery between 2006
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
$368,154,000 for 2006, $143,540,00 for 2007 and $110,809,000 for
2008.
The Corporation also has an agreement to purchase a Next-Generation
flight simulator , where remaining instalments for 2006 is
$3,640,000.
(b) Leasehold commitments:
The Corporation has entered into operating leases and agreements for
aircraft, buildings, computer hardware and software licenses and
satellite programming, as well as capital leases relating to aircraft
and ground handling equipment. The obligations are as follows:
---------------------------
---------------------------
Capital Operating
Leases Leases
---------------------------
2006 $ 2,622 $ 91,340
2007 411 96,821
2008 411 97,833
2009 411 94,350
2010 665 85,203
2011 and thereafter - 373,670
---------------------------
Total lease payments 4,520 $ 839,217
---------------
---------------
Less imputed interest at 6.09% (364)
-----------
Net minimum lease payments 4,156
Less current portion of obligations
under capital lease (2,466)
-----------
Obligations under capital lease $ 1,690
-----------
-----------
The Corporation has US dollar capital lease obligations totaling
$1,900,000 for 2006 which have been included at their Canadian
dollar equivalent in the table above.
The US dollar amounts of operating leases which have been included
at their Canadian dollar equivalent above are: 2006 - $67,468,000;
2007 - $75,507,000; 2008 - $77,276,000; 2009 - $77,264,000; 2010 -
$70,636,000; 2011 and thereafter - $304,837,000.
Subsequent to December 31, 2005, the Corporation entered into an
agreement with an independent third party to lease two 737-700
aircraft to be delivered during February and April 2007 for an
eight-year term in US dollars. The Canadian dollar equivalent has
been included in the table above.
(c) Contingencies:
A Fresh as Amended Statement of Claim was filed by Air Canada and
ZIP Air Inc. in the Ontario Superior Court on March 11, 2005
(amending the original Statement of Claim filed on April 6, 2004)
against the Corporation, two officers, two employees, two former
officers, and one former employee (the "Defendants"). The principal
allegations are that the Defendants unlawfully obtained
confidential flight load and load factor information from Air
Canada's employee travel website and, as a result, the Plaintiffs
are seeking disgorgement of any incremental revenue, profits and
other benefits acquired by the Defendants as a result of having
access to the alleged confidential information. The Plaintiffs are
claiming disgorgement, damages of the tort of spoliation and
punitive damages in the aggregate amount of $220 million, but the
Plaintiffs have provided no meaningful details or evidence to
substantiate their claim for disgorgement and damages.
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.
Based on the results to date of (i) an internal investigation, (ii)
advice from independent industry experts, and (iii) cross
examinations of witnesses in the Air Canada proceedings and (iv)
evidence filed by the Plaintiffs in support of various court
applications, management believes the amounts claimed are
substantially without merit. The amount of loss, if any, to the
Corporation as a result of these two claims cannot be reasonably
estimated. The defense and investigation of these claims are
continuing.
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 matters will not have
a material effect upon the Corporation's financial position,
results of operations or cash flows.
7. 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.
8. Comparative figures:
Certain prior period balances have been reclassified to conform to
current period's presentation.
WestJet (TSX:WJA) |
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