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o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)
Complejo Business Park, Torre Norte
Parque Lefevre, Panama City
Panama
(+507 304 2677)
Contact person: Joseph Putaturo
e-mail: Jputaturo@copaair.com
(Address of registrant’s principal executive offices)
Title of each class: | Name of each exchange on which registered | |
Class A Common Stock, without par value | New York Stock Exchange |
None
None
Large Accelerated Filerþ | Accelerated Filero | Non-accelerated Filero |
US GAAPþ | IRFSo | Othero |
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Exhibit 13.1 | ||||||||
Exhibit 13.2 |
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• | “Aircraft utilization” represents the average number of block hours operated per day per aircraft for the total aircraft fleet. | ||
• | “Available seat miles” or “ASMs” represents the aircraft seating capacity multiplied by the number of miles the seats are flown. | ||
• | “Average stage length” represents the average number of miles flown per flight. | ||
• | “Block hours” refers to the elapsed time between an aircraft leaving an airport gate and arriving at an airport gate. | ||
• | “Break-even load factor” represents the load factor that would have resulted in total revenues being equal to total expenses. | ||
• | “Load factor” represents the percentage of aircraft seating capacity that is actually utilized (calculated by dividing revenue passenger miles by available seat miles). | ||
• | “Operating expense per available seat mile” represents operating expenses divided by available seat miles. | ||
• | “Operating revenue per available seat mile” represents operating revenues divided by available seat miles. | ||
• | “Passenger revenue per available seat mile” represents passenger revenue divided by available seat miles. | ||
• | “Revenue passenger miles” represents the number of miles flown by revenue passengers. | ||
• | “Revenue passengers” represents the total number of paying passengers (including all passengers redeeming OnePass frequent flyer miles and other travel awards) flown on all flight segments (with each connecting segment being considered a separate flight segment). | ||
• | “Yield” represents the average amount one passenger pays to fly one mile. |
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• | general economic, political and business conditions in Panama and Latin America and particularly in the geographic markets we serve; | ||
• | our management’s expectations and estimates concerning our future financial performance and financing plans and programs; | ||
• | our level of debt and other fixed obligations; | ||
• | demand for passenger and cargo air service in the markets in which we operate; | ||
• | competition; | ||
• | our capital expenditure plans; | ||
• | changes in the regulatory environment in which we operate; | ||
• | changes in labor costs, maintenance costs, fuel costs and insurance premiums; | ||
• | changes in market prices, customer demand and preferences and competitive conditions; | ||
• | cyclical and seasonal fluctuations in our operating results; | ||
• | defects or mechanical problems with our aircraft; | ||
• | our ability to successfully implement our growth strategy; | ||
• | our ability to obtain financing on commercially reasonable terms; and | ||
• | the risk factors discussed under “Risk Factors” beginning on page 4. |
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Year Ended December 31, | ||||||||||||||||||||
2003 | 2004 | 2005(22) | 2006 | 2007 | ||||||||||||||||
(in thousands of dollars, except share and per share data, capital stock and operating data) | ||||||||||||||||||||
INCOME STATEMENT DATA | ||||||||||||||||||||
Operating revenue: | ||||||||||||||||||||
Passenger revenue | $ | 311,683 | $ | 364,611 | $ | 563,520 | $ | 798,901 | $ | 967,066 | ||||||||||
Cargo, mail and other | 30,106 | 35,226 | 45,094 | 52,259 | 60,198 | |||||||||||||||
Total operating revenues | 341,789 | 399,837 | 608,614 | 851,160 | 1,027,264 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Aircraft fuel | 48,512 | 62,549 | 149,303 | 217,730 | 265,387 | |||||||||||||||
Salaries and benefits | 45,254 | 51,701 | 69,730 | 91,382 | 116,691 | |||||||||||||||
Passenger servicing | 36,879 | 39,222 | 50,622 | 64,380 | 82,948 | |||||||||||||||
Commissions | 27,681 | 29,073 | 45,087 | 57,808 | 65,930 | |||||||||||||||
Reservations and sales | 18,011 | 22,118 | 29,213 | 38,212 | 48,229 | |||||||||||||||
Maintenance, materials and repairs | 20,354 | 19,742 | 32,505 | 50,057 | 51,249 | |||||||||||||||
Depreciation | 14,040 | 19,279 | 19,857 | 24,874 | 35,328 | |||||||||||||||
Flight operations | 15,976 | 17,904 | 24,943 | 33,740 | 43,958 | |||||||||||||||
Aircraft rentals | 16,686 | 14,445 | 27,631 | 38,169 | 38,636 | |||||||||||||||
Landing fees and other rentals | 10,551 | 12,155 | 17,909 | 23,929 | 27,017 | |||||||||||||||
Other | 25,977 | 29,306 | 32,622 | 44,758 | 55,093 | |||||||||||||||
Fleet impairment charge(1) | 3,572 | — | — | — | — | |||||||||||||||
Special fleet charges(2) | — | — | — | — | 7,309 | |||||||||||||||
Gain from involuntary conversion(3) | — | — | — | — | (8,019 | ) | ||||||||||||||
Total operating expenses | 283,493 | 317,494 | 499,422 | 685,039 | 829,756 | |||||||||||||||
Operating income | 58,296 | 82,343 | 109,192 | 166,121 | 197,508 | |||||||||||||||
Non-operating income (expense): | ||||||||||||||||||||
Interest expense | (11,613 | ) | (16,488 | ) | (21,629 | ) | (29,150 | ) | (44,332 | ) | ||||||||||
Interest capitalized | 2,009 | 963 | 1,089 | 1,712 | 2,570 | |||||||||||||||
Interest income | 887 | 1,423 | 3,544 | 7,257 | 12,193 | |||||||||||||||
Other, net(4) | 2,554 | 6,063 | 395 | 185 | 10,987 | |||||||||||||||
Total non-operating expenses, net | (6,163 | ) | (8,039 | ) | (16,601 | ) | (19,996 | ) | (18,582 | ) | ||||||||||
Income before income taxes | 52,133 | 74,304 | 92,591 | 146,125 | 178,926 | |||||||||||||||
Provision for income taxes | (3,644 | ) | (5,732 | ) | (9,592 | ) | (12,286 | ) | (17,106 | ) | ||||||||||
Net income | 48,489 | 68,572 | 82,999 | 133,839 | 161,820 | |||||||||||||||
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Year Ended December 31, | ||||||||||||||||||||
2003 | 2004 | 2005(22) | 2006 | 2007 | ||||||||||||||||
(in thousands of dollars, except share and per share data, and | ||||||||||||||||||||
operating data) | ||||||||||||||||||||
BALANCE SHEET DATA | ||||||||||||||||||||
Total cash, cash equivalents and short-term investments | $ | 61,432 | $ | 110,943 | $ | 114,490 | $ | 197,380 | $ | 308,358 | ||||||||||
Accounts receivable, net | 31,019 | 27,706 | 46,533 | 62,137 | 74,169 | |||||||||||||||
Total current assets | 103,523 | 152,087 | 184,351 | 290,651 | 435,736 | |||||||||||||||
Purchase deposits for flight equipment | 45,869 | 7,190 | 52,753 | 65,150 | 64,079 | |||||||||||||||
Total property and equipment | 480,488 | 541,211 | 637,543 | 862,283 | 1,166,262 | |||||||||||||||
Total assets | 591,915 | 702,050 | 916,912 | 1,255,015 | 1,707,251 | |||||||||||||||
Long-term debt | 311,991 | 380,827 | 402,954 | 529,802 | 732,209 | |||||||||||||||
Total shareholders’ equity | 115,583 | 174,155 | 245,867 | 371,669 | 531,637 | |||||||||||||||
Capital stock | 29,223 | 29,223 | 29,223 | 32,563 | 37,372 | |||||||||||||||
CASH FLOW DATA | ||||||||||||||||||||
Net cash provided by operating activities | $ | 73,479 | $ | 98,051 | $ | 115,368 | $ | 193,468 | $ | 221,941 | ||||||||||
Net cash used in investing activities | (151,802 | ) | (85,738 | ) | (159,886 | ) | (258,980 | ) | (334,758 | ) | ||||||||||
Net cash provided by financing activities | 105,298 | 29,755 | 38,929 | 141,498 | 228,295 | |||||||||||||||
OTHER FINANCIAL DATA | ||||||||||||||||||||
EBITDA(5) | 74,890 | 107,685 | 129,444 | 191,180 | 243,823 | |||||||||||||||
Aircraft rentals | 16,686 | 14,445 | 27,631 | 38,169 | 38,636 | |||||||||||||||
Operating margin(6) | 17.1 | % | 20.6 | % | 17.9 | % | 19.5 | % | 19.2 | % | ||||||||||
Weighted average shares used in computing net income per share (basic)(7) | 42,812,500 | 42,812,500 | 42,812,500 | 42,812,500 | 42,907,967 | |||||||||||||||
Weighted average shares used in computing net income per share (diluted)(7) | 42,812,500 | 42,812,500 | 42,812,500 | 43,234,553 | 43,463,759 | |||||||||||||||
Net income (loss) per share (basic)(7) | $ | 1.13 | $ | 1.60 | $ | 1.94 | $ | 3.13 | $ | 3.77 | ||||||||||
Net income (loss) per share (diluted)(7) | $ | 1.13 | $ | 1.60 | $ | 1.94 | $ | 3.10 | $ | 3.72 | ||||||||||
Dividends declared per share | $ | — | $ | 0.23 | $ | 0.24 | $ | 0.19 | $ | 0.31 | ||||||||||
OPERATING DATA | ||||||||||||||||||||
Revenue passengers carried(8) | 2,028 | 2,333 | 4,361 | 5,741 | 6,015 | |||||||||||||||
Revenue passenger miles(9) | 2,193 | 2,548 | 3,824 | 5,017 | 5,861 | |||||||||||||||
Available seat miles(10) | 3,226 | 3,639 | 5,359 | 6,866 | 7,918 | |||||||||||||||
Load factor(11) | 68.0 | % | 70.0 | % | 71.4 | % | 73.1 | % | 74.0 | % | ||||||||||
Break-even load factor(12) | 52.8 | % | 52.6 | % | 57.9 | % | 58.0 | % | 58.6 | % | ||||||||||
Total block hours(13) | 64,909 | 70,228 | 103,628 | 130,818 | 157,200 | |||||||||||||||
Average daily aircraft utilization(14) | 9.0 | 9.3 | 9.8 | 9.8 | 9.6 | |||||||||||||||
Average passenger fare | 153.7 | 156.3 | 129.2 | 139.2 | 160.8 | |||||||||||||||
Yield(15) | 14.22 | 14.31 | 14.74 | 15.92 | 16.50 | |||||||||||||||
Passenger revenue per ASM(16) | 9.66 | 10.02 | 10.51 | 11.64 | 12.21 | |||||||||||||||
Operating revenue per ASM(17) | 10.60 | 10.99 | 11.36 | 12.40 | 12.97 | |||||||||||||||
Operating expenses per ASM (CASM)(18) | 8.79 | 8.72 | 9.32 | 9.98 | 10.48 | |||||||||||||||
Departures | 25,702 | 27,434 | 48,934 | 65,471 | 71,893 | |||||||||||||||
Average daily departures | 70.4 | 75.0 | 156.6 | 179.4 | 197.0 | |||||||||||||||
Average number of aircraft | 19.8 | 20.6 | 31.0 | 38.6 | 45.0 | |||||||||||||||
Airports served at period end | 28 | 29 | 36 | 42 | 46 | |||||||||||||||
SEGMENT FINANCIAL DATA | ||||||||||||||||||||
Copa: | ||||||||||||||||||||
Operating revenue | $ | 341,789 | $ | 399,837 | $ | 505,655 | $ | 676,168 | $ | 806,201 | ||||||||||
Operating expenses | 283,493 | 317,494 | 402,684 | 509,540 | 634,521 | |||||||||||||||
Depreciation | 14,040 | 19,279 | 19,242 | 23,732 | 30,710 | |||||||||||||||
Aircraft rentals | 16,686 | 14,445 | 22,096 | 23,842 | 27,756 | |||||||||||||||
Interest expense | 11,613 | 16,488 | 19,424 | 26,907 | 36,300 | |||||||||||||||
Interest capitalized | 2,009 | 963 | 1,089 | 1,712 | 2,570 | |||||||||||||||
Interest income | 887 | 1,423 | 3,376 | 6,887 | 11,720 | |||||||||||||||
Net income (loss) before tax | 52,133 | 74,304 | 89,745 | 155,533 | 165,571 | |||||||||||||||
Total assets | 591,915 | 702,050 | 851,075 | 1,168,121 | 1,546,623 | |||||||||||||||
AeroRepública: | ||||||||||||||||||||
Operating revenue | — | — | $ | 103,016 | $ | 175,883 | $ | 226,042 | ||||||||||||
Operating expenses | — | — | 96,839 | 176,388 | 200,474 | |||||||||||||||
Depreciation | — | — | 615 | 1,142 | 4,618 | |||||||||||||||
Aircraft rentals | — | — | 5,535 | 14,604 | 14,760 | |||||||||||||||
Interest expense | — | — | 2,205 | 2,243 | 8,032 | |||||||||||||||
Interest capitalized | — | — | — | — | — | |||||||||||||||
Interest income | — | — | 168 | 370 | 473 | |||||||||||||||
Net income (loss) before tax | — | — | 2,846 | (9,408 | ) | 13,354 | ||||||||||||||
Total assets | — | — | 98,091 | 132,872 | 256,349 | |||||||||||||||
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Year Ended December 31, | ||||||||||||||||||||
2003 | 2004 | 2005(22) | 2006 | 2007 | ||||||||||||||||
(in thousands of dollars, except share and per share data, capital stock and operating data) | ||||||||||||||||||||
SEGMENT OPERATING DATA | ||||||||||||||||||||
Copa: | ||||||||||||||||||||
Available seat miles(10) | 3,226 | 3,639 | 4,409 | 5,239 | 6,298 | |||||||||||||||
Load factor(11) | 68.0 | % | 70.0 | % | 73.4 | % | 77.8 | % | 78.4 | % | ||||||||||
Break-even load factor | 52.8 | % | 52.6 | % | 56.8 | % | 56.1 | % | 58.7 | % | ||||||||||
Yield(15) | 14.22 | 14.31 | 14.41 | 15.49 | 15.33 | |||||||||||||||
Operating revenue per ASM(17) | 10.60 | 10.99 | 11.47 | 12.91 | 12.80 | |||||||||||||||
CASM(18) | 8.79 | 8.72 | 9.13 | 9.73 | 10.08 | |||||||||||||||
Average stage length(20) | 1,028 | 1,047 | 1,123 | 1,158 | 1,207 | |||||||||||||||
On time performance(19) | 91.4 | % | 91.8 | % | 91.7 | % | 91.0 | % | 86.9 | % | ||||||||||
AeroRepública:(23) | ||||||||||||||||||||
Available seat miles(10) | — | — | 950 | 1,627 | 1,620 | |||||||||||||||
Load factor(11) | — | — | 62.0 | % | 57.9 | % | 57.2 | % | ||||||||||||
Break even load factor | — | — | 60.8 | % | 61.9 | % | 54.1 | % | ||||||||||||
Yield(15) | — | — | 16.53 | 17.79 | 22.74 | |||||||||||||||
Operating revenue per ASM(17) | — | — | 10.84 | 10.81 | 13.95 | |||||||||||||||
CASM(18) | — | — | 10.19 | 10.84 | 12.37 | |||||||||||||||
Average stage length(20) | — | — | 360 | 370 | 398 | |||||||||||||||
On time performance(21) | — | — | 70.4 | % | 80.3 | % | 72.8 | % |
(1) | Represents impairment losses on our Boeing 737-200 aircraft and related assets. | |
(2) | Represents expenses related to costs associated with terms negotiated for the early termination of three MD-80 aircraft as a result of AeroRepública’s ongoing transition to a more fuel efficient all Embraer-190 fleet. | |
(3) | Represents gain on involuntary conversion of non-monetary assets to monetary assets related to insurance proceeds in excess of aircraft book value. | |
(4) | Consists primarily of changes in the fair value of fuel derivative contracts, foreign exchange gains/losses and gains on sale of Boeing 737-200 aircraft. See “Item 5. Operating and Financial Review and Prospects” and the notes to our consolidated financial statements. | |
(5) | EBITDA represents net income (loss) plus the sum of interest expense, income taxes, depreciation and amortization minus the sum of interest capitalized and interest income. EBITDA is presented as supplemental information because we believe it is a useful indicator of our operating performance and is useful in comparing our operating performance with other companies in the airline industry. However, EBITDA should not be considered in isolation, as a substitute for net income prepared in accordance with U.S. GAAP or as a measure of a company’s profitability. In addition, our calculation of EBITDA may not be comparable to other companies’ similarly titled measures. The following table presents a reconciliation of our net income to EBITDA for the specified periods: |
Year Ended December 31, | ||||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | ||||||||||||||||
(in thousands of dollars) | ||||||||||||||||||||
Net income | $ | 48,489 | $ | 68,572 | $ | 82,999 | $ | 133,839 | $ | 161,820 | ||||||||||
Interest expense | 11,613 | 16,488 | 21,629 | 29,150 | 44,332 | |||||||||||||||
Income taxes | 3,644 | 5,732 | 9,592 | 12,286 | 17,106 | |||||||||||||||
Depreciation | 14,040 | 19,279 | 19,857 | 24,874 | 35,328 | |||||||||||||||
Subtotal | 77,786 | 110,071 | 134,077 | 200,149 | 258,586 | |||||||||||||||
Interest capitalized | (2,009 | ) | (963 | ) | (1,089 | ) | (1,712 | ) | (2,570 | ) | ||||||||||
Interest income | (887 | ) | (1,423 | ) | (3,544 | ) | (7,257 | ) | (12,193 | ) | ||||||||||
EBITDA | 74,890 | 107,685 | 129,444 | 191,180 | 243,823 | |||||||||||||||
Aircraft rentals represents a significant operating expense of our business. Because we leased several of our aircraft during the periods presented, we believe that when assessing our EBITDA you should also consider the impact of our aircraft rent expense, which was $16.7 million in 2003, $14.4 million in 2004, $27.6 million in 2005, $38.2 million in 2006 and $38.6 million in 2007. | ||
(6) | Operating margin represents operating income divided by operating revenues. | |
(7) | All share and per share amounts have been retroactively restated to reflect the current capital structure described under “Description of Capital Stock” and in the notes to our consolidated financial statements. | |
(8) | Total number of paying passengers (including all passengers redeeming OnePass frequent flyer miles and other travel awards) flown on all flight segments, expressed in thousands. | |
(9) | Number of miles flown by scheduled revenue passengers, expressed in millions. | |
(10) | Aircraft seating capacity multiplied by the number of miles the seats are flown, expressed in millions. | |
(11) | Percentage of aircraft seating capacity that is actually utilized. Load factors are calculated by dividing revenue passenger miles by available seat miles. | |
(12) | Load factor that would have resulted in total revenues being equal to total expenses. | |
(13) | The number of hours from the time an airplane moves off the departure gate for a revenue flight until it is parked at the gate of the arrival airport. |
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(14) | Average number of block hours operated per day per aircraft for the total aircraft fleet. | |
(15) | Average amount (in cents) one passenger pays to fly one mile. | |
(16) | Passenger revenues (in cents) divided by the number of available seat miles. | |
(17) | Total operating revenues for passenger aircraft related costs (in cents) divided by the number of available seat miles. | |
(18) | Total operating expenses for passenger aircraft related costs (in cents) divided by the number of available seat miles. | |
(19) | Percentage of flights that arrive at the destination gate within fifteen minutes of scheduled arrival. | |
(20) | The average number of miles flown per flight. | |
(21) | Percentage of flights that depart within fifteen minutes of the scheduled departure time. | |
(22) | For AeroRepública operating data, this period covers from April 22, 2005 until December 31, 2005 which corresponds to the period that AeroRepública was consolidated in our financial statements. | |
(23) | AeroRepública has not historically distinguished between revenue passengers and non-revenue passengers. Although we have implemented systems at AeroRepública to record that information, revenue passenger information and other statistics derived from revenue passenger data for the year ended December 31, 2005, 2006 and 2007 has been derived from estimates that we believe to be materially accurate. |
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• | difficulties or delays in obtaining the necessary certifications from the aviation regulatory authorities of the countries to which we fly; | ||
• | manufacturer’s delays in meeting the agreed upon aircraft delivery schedule; | ||
• | difficulties in obtaining financing on acceptable terms to complete our purchase of all of the aircraft we have committed to purchase; and | ||
• | the inability of the new aircraft and its components to comply with agreed upon specifications and performance standards. |
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• | limit our ability in the future to obtain additional financing for working capital or other important needs; |
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• | impair our liquidity by diverting substantial cash from our operating needs to service fixed financing obligations; or | ||
• | limit our ability to plan for or react to changes in our business, in the airline industry or in general economic conditions. |
• | create material liens on our assets; | ||
• | take certain actions that may impair creditors’ rights to our aircraft; | ||
• | sell assets or engage in certain mergers or consolidations; and | ||
• | engage in other specified significant transactions. |
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• | the size of commissions offered by other airlines; | ||
• | changes in our arrangements with other distributors of airline tickets; and | ||
• | the introduction and growth of new methods of selling tickets. |
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• | changes in economic or other governmental policies; | ||
• | changes in regulatory, legal or administrative practices; or | ||
• | other political or economic developments over which we have no control. |
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• | Our “Hub of the Americas” airport is strategically located.We believe that Copa’s base of operations at the geographically central location of Tocumen International Airport in Panama City, Panama provides convenient connections to our principal markets in North, Central and South America and the Caribbean, enabling us to consolidate traffic to serve several destinations that do not generate enough demand to justify point-to-point service. Flights from Panama operate with few service disruptions due to weather, contributing to high completion factors and on-time performance. Tocumen International Airport’s sea-level altitude allows our aircraft to operate without performance restrictions that they would be subject to at higher-altitude airports. We believe that Copa’s hub in Panama allows us to benefit from Panama City’s status as a center for financial services, shipping and commerce and from Panama’s stable, dollar-based economy, free-trade zone and growing tourism. |
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• | We focus on keeping our operating costs low.In recent years, our low operating costs and efficiency have contributed significantly to our profitability. Our operating cost per available seat mile, excluding costs for fuel and fleet impairment charges, was 7.17 cents in 2003, 7.01 cents in 2004, 6.53 cents in 2005, 6.81 cents in 2006, and 7.13 cents in 2007. See “Item 5. Operating and Financial Review and Prospects” for a reconciliation of our operating cost per available seat mile when excluding costs for fuel and fleet impairment charges to our operating cost per available seat mile. We believe that our cost per available seat mile reflects our modern fleet, efficient operations and the competitive cost of labor in Panama. | ||
• | Copa operates a modern fleet.Copa’s fleet consists of modern Boeing 737-Next Generation and Embraer 190 aircraft equipped with winglets and other modern cost-saving and safety features. Over the next years, Copa intends to enhance its modern fleet through the addition of at least ten additional Boeing 737-Next Generation aircraft and four new Embraer 190s. We believe that Copa’s modern fleet contributes to its on-time performance and high completion factor (percentage of scheduled flights not cancelled). We expect our Boeing 737-700s, 737-800s and Embraer 190s to continue offering substantial operational cost advantages in terms of fuel efficiency and maintenance costs. AeroRepública is currently implementing a fleet modernization and expansion plan. Since December 2007, AeroRepública has taken delivery of eight Embraer 190 aircraft and had firm commitments on four additional Embraer 190s and options for an additional eight Embraer 190 aircraft. | ||
• | We believe Copa has a strong brand and a reputation for quality service.We believe that the Copa brand is associated with value to passengers, providing world-class service and competitive pricing. For the year ended December 31, 2007, Copa Airline’s statistic for on-time performance was 86.9%, completion factor was 99.7% and baggage handling was 2.1 mishandled bags per 1000 passengers. Our goal is to apply our expertise in these areas to improve AeroRepública’s service statistics to comparable levels. Our focus on customer service has helped to build passenger loyalty. We believe that our brand has also been enhanced through our relationship with Continental, including our joint marketing of the OnePass loyalty program in Latin America, the similarity of our aircraft livery and aircraft interiors and our participation in Continental’s President’s Club lounge program. | ||
• | Our management fosters a culture of teamwork and continuous improvement.Our management team has been successful at creating a culture based on teamwork and focused on continuous improvement. Each of our employees at Copa has individual objectives based on corporate goals that serve as a basis for measuring performance. When corporate operational and financial targets are met, employees at Copa are eligible to receive bonuses according to our profit sharing program. See “Item 6D. Employees.” We also recognize outstanding performance of individual employees through company-wide recognition, one-time awards, special events and, in the case of our senior management, grants of restricted stock and stock options. Copa’s goal-oriented culture and incentive programs have contributed to a motivated work force that is focused on satisfying customers, achieving efficiencies and growing profitability. We seek to create a similar culture at AeroRepública. |
• | Expand our network by increasing frequencies and adding new destinations.We believe that demand for air travel in Latin America is likely to expand in the next decade, and we intend to use our increasing fleet capacity to meet this growing demand. We intend to focus on expanding our operations by increasing flight frequencies on our most profitable routes and initiating service to new destinations. Copa’s Panama City hub allows us to consolidate traffic and provide service to certain underserved markets, particularly in Central America and the Caribbean, and we intend to focus on providing new service to regional destinations that we believe best enhance the overall connectivity and profitability of our network. With the addition of Embraer 190 aircraft and growth in overall capacity, we expect to have more flexibility in scheduling our flights for our customers’ convenience. |
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• | Continue to focus on keeping our costs low.We seek to reduce our cost per available seat mile without sacrificing services valued by our customers as we execute our growth plans. Our goal is to maintain a modern fleet and to make effective use of our resources through efficient aircraft utilization and employee productivity. We intend to reduce our distribution costs by increasing direct sales, including internet and call center sales, as well as improving efficiency through technology and automated processes. | ||
• | Emphasize superior service and value to our customers.We intend to continue to focus on satisfying our customers and earning their loyalty by providing a combination of superior service and competitive fares. We believe that continuing our operational success in keeping flights on time, reducing mishandled luggage and offering convenient schedules to attractive destinations will be essential to achieving this goal. We intend to continue to incentivize our employees to improve or maintain operating and service metrics relating to our customers’ satisfaction by continuing our profit sharing plan and employee recognition programs and to reward customer loyalty with the popular OnePass frequent flyer program, upgrades and access to President’s Club lounges. | ||
• | Capitalize on opportunities at AeroRepública.We are seeking to enhance AeroRepública’s profitability through a variety of initiatives, including modernizing its fleet, integrating its route network with Copa’s and improving overall efficiency. We also seek to increase customer loyalty by making further improvements at AeroRepública, such as implementing the OnePass frequent flyer program and improving on-time performance. |
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2006 IATA Traffic Results(1) | ||||||||||||||||||||||||||||
Passengers | Passenger | |||||||||||||||||||||||||||
Carried | Miles | |||||||||||||||||||||||||||
(Thousands) | Change (%) | (Millions) | Change (%) | ASMs (Million) | Change (%) | Load Factor | ||||||||||||||||||||||
International Scheduled Service | ||||||||||||||||||||||||||||
North America — Central America | 22,453 | 7.0 | % | 35,431 | 8.8 | % | 48,176 | 8.0 | % | 73.5 | % | |||||||||||||||||
North America — South America | 19,744 | 4.8 | % | 39,505 | 6.3 | % | 52,459 | 2.4 | % | 75.3 | % | |||||||||||||||||
Central America — South America | 1,485 | -4.5 | % | 2,465 | -10.6 | % | 3,520 | -13.3 | % | 70.0 | % | |||||||||||||||||
Within Central America | 2,192 | 1.3 | % | 1,153 | 5.8 | % | 1,818 | 6.2 | % | 63.4 | % | |||||||||||||||||
Within South America | 9,190 | 10.5 | % | 8,869 | 7.1 | % | 12,504 | 5.1 | % | 70.9 | % | |||||||||||||||||
Domestic Scheduled Service | ||||||||||||||||||||||||||||
Central America | 11,000 | -4.2 | % | 6,700 | -4.2 | % | 10,472 | -0.3 | % | 64.0 | % | |||||||||||||||||
South America | 38,826 | -3.4 | % | 19,983 | -3.3 | % | 28,246 | -5.3 | % | 70.7 | % |
(1) | IATA passenger traffic data is not yet available for 2007. |
GDP | GDP per Capita | |||||||||||
2007 GDP | 2007 GDP per Capita | |||||||||||
Current Prices | 2007 Real GDP | Current Prices | ||||||||||
(US$bn) | (% Growth) | (US$) | ||||||||||
Brazil | 1,295 | 4.4 | % | 6,842 | ||||||||
Argentina | 248 | 7.5 | % | 6,310 | ||||||||
Chile | 161 | 5.9 | % | 9,698 | ||||||||
Mexico | 886 | 2.9 | % | 8,426 | ||||||||
Colombia | 172 | 6.6 | % | 3,614 | ||||||||
Panama | 19 | 8.5 | % | 5,767 | ||||||||
USA | 13,794 | 1.9 | % | 45,594 |
Source: | International Monetary Fund, World Economic Outlook Database, October 2007; real GDP growth calculated in local currency |
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Year Ended December 31, | ||||||||||||
Region | 2005 | 2006 | 2007 | |||||||||
North America(1) | 17.2 | % | 19.4 | % | 18.9 | % | ||||||
South America | 39.6 | % | 41.5 | % | 46.1 | % | ||||||
Central America(2) | 31.6 | % | 29.0 | % | 26.2 | % | ||||||
Caribbean(3) | 11.6 | % | 10.1 | % | 8.8 | % |
(1) | The United States, Canada and Mexico. | |
(2) | Includes Panama. | |
(3) | Cuba, Dominican Republic, Haiti, Jamaica, Puerto Rico |
Date Service | ||||
Destinations Served | Commenced | |||
Barranquilla | Jun 1995 | |||
Bogotá | Jun 1993 | |||
Bucaramanga | May 1995 | |||
Cali | Jun 1993 | |||
Cartagena | Jun 1993 | |||
Cúcuta | Nov 2005 | |||
Leticia | Nov 1993 | |||
Medellín | Oct 1994 | |||
Montería | Jul 1994 | |||
Panama | Dec 2005 | |||
Pereira | Mar 2003 | |||
San Andrés | Jun 1993 | |||
Santa Marta | Jun 1993 |
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Average | ||||||||||||||||||||||||
Term | ||||||||||||||||||||||||
of Lease | Average | |||||||||||||||||||||||
Number of Aircraft | Remaining | Age | Seating | |||||||||||||||||||||
Total | Owned | Leased | (Years) | (Years) | Capacity | |||||||||||||||||||
Boeing 737-700 | 20 | 14 | 6 | 3.2 | 5.6 | 124 | ||||||||||||||||||
Boeing 737-800 | 6 | 5 | 1 | 4.9 | 2.5 | 155 | ||||||||||||||||||
Embraer 190 | 11 | 11 | — | — | 1.0 | 94 | ||||||||||||||||||
Total | 37 | 30 | 7 | 3.4 | 3.7 | — |
Aircraft Type | 2008 | 2009 | 2010 | 2011 | 2012 | |||||||||||||||
737-700 | 20 | 20 | 20 | 20 | 20 | |||||||||||||||
737-800(1) | 8 | 10 | 10 | 12 | 14 | |||||||||||||||
Embraer 190 | 15 | 15 | 15 | 15 | 15 | |||||||||||||||
Total Fleet | 43 | 45 | 45 | 47 | 49 |
(1) | We have the flexibility to choose between the Boeing 737-700 or the Boeing 737-800 aircraft for most of the 737-700 aircraft deliveries scheduled after 2007. |
• | They have simplified maintenance procedures. | ||
• | They require just one type of standardized training for our crews. | ||
• | They have one of the lowest operating costs in their class. |
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• | Panama’s consistently temperate climate is ideal for airport operations. For example, in recent years Tocumen was closed and unavailable for flight operations for a total of less than two hours per year on average | ||
• | Tocumen is the only airport in Central America with two operational runways. Also unlike some other regional airports, we are currently not constrained by a lack of available gates/parking positions at Tocumen, and there is ample room to expand. |
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• | From Panama’s central location, our Boeing 737-Next Generation can efficiently serve long-haul destinations in South American cities such as Santiago, Chile; Montevideo, Uruguay; Cordoba, Argentina; Buenos Aires, Argentina; Rio de Janeiro, Brazil; and São Paulo, Brazil as well as short-haul destinations in Central and South America. | ||
• | Travelers can generally make connections easily through Tocumen because of its manageable size and Panama’s policies accommodating in-transit passengers. |
Aircraft Fuel Data | ||||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | ||||||||||||||||
Copa | ||||||||||||||||||||
Average price per gallon of jet fuel into plane (excluding hedge) (in U.S. dollars) | $ | 1.01 | $ | 1.32 | $ | 1.87 | $ | 2.10 | $ | 2.29 | ||||||||||
Gallons consumed (in thousands) | 48,444 | 50,833 | 58,924 | 70,770 | 85,463 | |||||||||||||||
Available seat miles (in millions) | 3,226 | 3,639 | 4,409 | 5,239 | 6,298 | |||||||||||||||
Gallons per ASM (in hundredths) | 1.50 | 1.40 | 1.34 | 1.35 | 1.36 | |||||||||||||||
AeroRepública(1) | ||||||||||||||||||||
Average price per gallon of jet fuel into plane (excluding hedge) (in U.S. dollars) | — | — | $ | 2.12 | $ | 2.24 | $ | 2.43 | ||||||||||||
Gallons consumed (in thousands) | — | — | 17,887 | 28,321 | 26,984 | |||||||||||||||
Available seat miles (in millions) | — | — | 950 | 1,627 | 1,620 | |||||||||||||||
Gallons per ASM (in hundredths) | — | — | 1.88 | 1.74 | 1.67 |
(1) | Since April 22, 2005. |
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* | Includes ownership by us held through wholly-owned holding companies organized in the British Virgin Islands. |
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Year Ended December 31, | ||||||||||||
2005 | 2006 | 2007 | ||||||||||
Copa Segment | ||||||||||||
Capacity (in available seat miles, in millions) | 4,408.8 | 5,239.1 | 6,297.9 | |||||||||
Load factor | 73.4 | % | 77.8 | % | 78.4 | % | ||||||
Yield (in cents) | 14.41 | 15.49 | 15.33 | |||||||||
AeroRepública Segment(1) | ||||||||||||
Capacity (in available seat miles, in millions) | 950.5 | 1,627.1 | 1,620.4 | |||||||||
Load factor | 62.0 | % | 57.9 | % | 57.2 | % | ||||||
Yield (in cents)(2) | 16.53 | 17.79 | 22.74 |
(1) | Since April 22, 2005. | |
(2) | AeroRepública has not historically distinguished between revenue passengers and non-revenue passengers. While we are implementing systems at AeroRepública to record that information, revenue passenger information and other statistics derived from revenue passenger data for the year ended December 31, 2005 has been derived from estimates that we believe to be materially accurate. |
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Aircraft Fuel Data | ||||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | ||||||||||||||||
Copa Segment | ||||||||||||||||||||
Average price per gallon of jet fuel into plane (excluding hedge) (in U.S. dollars) | $ | 1.01 | $ | 1.32 | $ | 1.87 | $ | 2.10 | $ | 2.29 | ||||||||||
Gallons consumed (in thousands) | 48,444 | 50,833 | 58,924 | 70,770 | 85,463 | |||||||||||||||
Available seat miles (in millions) | 3,226 | 3,639 | 4,409 | 5,239 | 6,298 | |||||||||||||||
Gallons per ASM (in hundredths) | 1.50 | 1.40 | 1.34 | 1.35 | 1.36 | |||||||||||||||
AeroRepública(1) | ||||||||||||||||||||
Average price per gallon of jet fuel into plane (excluding hedge) (in U.S. dollars) | — | — | $ | 2.12 | $ | 2.24 | $ | 2.43 | ||||||||||||
Gallons consumed (in thousands) | — | — | 17,887 | 28,321 | 26,984 | |||||||||||||||
Available seat miles (in millions) | — | — | 950 | 1,627 | 1,620 | |||||||||||||||
Gallons per ASM (in hundredths) | — | — | 1.88 | 1.74 | 1.67 |
(1) | Since April 22, 2005. |
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Year Ended December 31, | ||||||||||||
2005(1) | 2006 | 2007 | ||||||||||
Operating revenues: | ||||||||||||
Passenger revenue | 92.6 | % | 93.9 | % | 94.1 | % | ||||||
Cargo, mail and other | 7.4 | % | 6.1 | % | 5.9 | % | ||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Operating expenses: | ||||||||||||
Aircraft fuel | (24.5 | )% | (25.6 | )% | (25.8 | )% | ||||||
Salaries and benefits | (11.5 | )% | (10.7 | )% | (11.4 | )% | ||||||
Passenger servicing | (8.3 | )% | (7.6 | )% | (8.1 | )% | ||||||
Commissions | (7.4 | )% | (6.8 | )% | (6.4 | )% |
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Year Ended December 31, | ||||||||||||
2005(1) | 2006 | 2007 | ||||||||||
Reservation and sales | (4.8 | )% | (4.5 | )% | (4.7 | )% | ||||||
Maintenance, materials and repairs | (5.3 | )% | (5.9 | )% | (5.0 | )% | ||||||
Depreciation | (3.3 | )% | (2.9 | )% | (3.4 | )% | ||||||
Flight operations | (4.1 | )% | (4.0 | )% | (4.3 | )% | ||||||
Aircraft rentals | (4.5 | )% | (4.5 | )% | (3.8 | )% | ||||||
Landing fees and other rentals | (2.9 | )% | (2.8 | )% | (2.6 | )% | ||||||
Other | (5.4 | )% | (5.3 | )% | (5.4 | )% | ||||||
Special fleet charges | — | — | (0.7 | )% | ||||||||
Gain from involuntary conversion | — | — | 0.8 | % | ||||||||
Total | (82.1 | )% | (80.5 | )% | (80.8 | )% | ||||||
Operating income | 17.9 | % | 19.5 | % | 19.2 | % | ||||||
Non-operating income (expenses): | ||||||||||||
Interest expense | (3.6 | )% | (3.4 | )% | (4.3 | )% | ||||||
Interest capitalized | 0.2 | % | 0.2 | % | 0.3 | % | ||||||
Interest income | 0.6 | % | 0.9 | % | 1.2 | % | ||||||
Other, net | 0.1 | % | 0.0 | % | 1.1 | % | ||||||
Total | (2.7 | )% | (2.3 | )% | (1.8 | )% | ||||||
Income/(loss) before income taxes | 15.2 | % | 17.2 | % | 17.4 | % | ||||||
Income taxes | (1.6 | )% | (1.4 | )% | (1.7 | )% | ||||||
Net income | 13.6 | % | 15.7 | % | 15.8 | % |
(1) | Includes results from our AeroRepública segment for the period from April 22, 2005 to December 31, 2005. |
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Year Ended | ||||||||||||
December 31, | Percent | |||||||||||
2006 | 2007 | Change | ||||||||||
(in cents) | ||||||||||||
Operating Expenses per ASM: | ||||||||||||
Salaries and benefits | 1.43 | 1.45 | 1.4 | % | ||||||||
Passenger servicing | 1.03 | 1.09 | 5.2 | % | ||||||||
Commissions | 0.77 | 0.74 | (4.5 | )% | ||||||||
Reservation and sales | 0.58 | 0.57 | (2.1 | )% | ||||||||
Maintenance, materials and repairs | 0.52 | 0.62 | 18.8 | % | ||||||||
Depreciation | 0.45 | 0.49 | 7.6 | % | ||||||||
Flight operations | 0.54 | 0.58 | 7.4 | % | ||||||||
Aircraft rentals | 0.46 | 0.44 | (3.2 | )% | ||||||||
Landing fees and other rentals | 0.35 | 0.32 | (9.4 | )% | ||||||||
Other | 0.64 | 0.61 | (4.3 | )% | ||||||||
Total operating expenses per ASM before aircraft fuel | 6.78 | 6.90 | 1.8 | % | ||||||||
Aircraft fuel | 2.95 | 3.17 | 7.6 | % | ||||||||
Total operating expenses per ASM | 9.73 | 10.08 | 3.6 | % | ||||||||
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Year Ended | ||||||||||||
December 31, | Percent | |||||||||||
2005 | 2006 | Change | ||||||||||
(in cents) | ||||||||||||
Operating Expenses per ASM: | ||||||||||||
Salaries and benefits | 1.33 | 1.43 | 7.2 | % | ||||||||
Passenger servicing | 1.02 | 1.03 | 0.9 | % | ||||||||
Commissions | 0.81 | 0.77 | (4.4 | )% | ||||||||
Reservation and sales | 0.57 | 0.58 | 1.3 | % | ||||||||
Maintenance, materials and repairs | 0.48 | 0.52 | 8.3 | % | ||||||||
Depreciation | 0.44 | 0.45 | 3.8 | % | ||||||||
Flight operations | 0.50 | 0.54 | 9.2 | % | ||||||||
Aircraft rentals | 0.50 | 0.46 | (9.2 | )% | ||||||||
Landing fees and other rentals | 0.34 | 0.35 | 4.8 | % | ||||||||
Other | 0.62 | 0.64 | 1.9 | % | ||||||||
Total operating expenses per ASM before aircraft fuel | 6.62 | 6.78 | 2.4 | % | ||||||||
Aircraft fuel | 2.52 | 2.95 | 17.1 | % | ||||||||
Total operating expenses per ASM | 9.13 | 9.73 | 6.5 | % | ||||||||
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At December 31, 2007 | ||||||||||||||||||||
Less than | 1-3 | 3-5 | More than | |||||||||||||||||
Total | 1 Year | Years | Years | 5 Years | ||||||||||||||||
(in thousands of dollars) | ||||||||||||||||||||
Aircraft and engine purchase commitments | 213,534 | 172,895 | 40,639 | — | — | |||||||||||||||
Aircraft operating leases | 292,696 | 37,538 | 81,614 | 69,845 | 103,699 | |||||||||||||||
Other operating leases | 38,928 | 7,359 | 12,083 | 9,208 | 10,278 | |||||||||||||||
Short-term debt and long-term debt(1) | 1,023,050 | 156,274 | 202,073 | 205,255 | 459,448 | |||||||||||||||
Total | 1,568,208 | 374,066 | 336,409 | 284,308 | 573,425 |
(1) | Includes actual interest and estimated interest for floating-rate debt based on December 31, 2007 rates. |
Name | Position | Age | ||||
Pedro Heilbron | Chief Executive Officer and Director | 50 | ||||
Stanley Motta | Chairman and Director | 62 | ||||
Osvaldo Heilbron | Director | 82 | ||||
Jaime Arias | Director | 73 | ||||
Ricardo Alberto Arias | Director | 68 | ||||
Alberto C. Motta, Jr. | Director | 61 | ||||
Mark Erwin | Director | 52 | ||||
Joseph Fidanque III | Director | 41 | ||||
Jose Castañeda Velez | Director | 64 | ||||
Roberto Artavia Loria | Director | 49 | ||||
Alfredo Arias Loredo | Director | 61 |
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Name | Position | Age | ||||
Pedro Heilbron | Chief Executive Officer | 50 | ||||
Victor Vial | Chief Financial Officer | 42 | ||||
Lawrence Ganse | Senior Vice-President of Operations | 65 | ||||
Daniel Gunn | Vice-President of Commercial and Planning | 40 | ||||
Jaime Aguirre | Vice President of Maintenance | 47 | ||||
Vidalia de Casado | Vice President of Passenger Services | 51 | ||||
Leo Marchosky | Vice-President of Human Resources | 51 | ||||
Joe Mohan | Vice-President of Marketing and Sales | 39 | ||||
Roberto Junguito Pombo | Chief Executive Officer of AeroRepública | 38 |
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• | the integrity of financial reports and other financial information made available to the public or any regulator or governmental body; | ||
• | the effectiveness of our internal financial control and risk management systems; the effectiveness of our internal audit function, the independent audit process including the appointment, retention, compensation, and supervision of the independent auditor; and | ||
• | the compliance with laws and regulations, as well as the policies and ethical codes established by management and the board of directors. |
• | any transactions in excess of $5 million between us and our controlling shareholders, | ||
• | the designation of certain primary share issuances that will not be included in the calculation of the percentage ownership pertaining to the Class B shares for purposes of determining whether the Class A shares should be converted to voting shares under our Articles of Incorporation, and | ||
• | the issuance of additional Class B shares or Class C shares to ensure Copa Airline’s compliance with aviation laws and regulations. |
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December 31, | ||||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | ||||||||||||||||
Pilots | 220 | 224 | 235 | 299 | 375 | |||||||||||||||
Flight attendants | 349 | 372 | 448 | 514 | 575 | |||||||||||||||
Mechanics | 209 | 189 | 200 | 155 | 213 | |||||||||||||||
Customer service agents, reservation agents, ramp and other | 1,382 | 1,470 | 1,626 | 1,861 | 1,898 | |||||||||||||||
Management and clerical | 480 | 499 | 587 | 675 | 742 | |||||||||||||||
Total employees | 2,640 | 2,754 | 3,096 | 3,504 | 3,803 | |||||||||||||||
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Class A Shares | ||||||||
Beneficially Owned | ||||||||
Shares | (%)(1) | |||||||
CIASA(2) | — | — | ||||||
Continental(3) | 4,375,000 | 14.4 | % | |||||
Executive officers and directors as a group (19 persons) | 168,486 | 0.6 | % | |||||
Others | 25,872,954 | 85.1 | % | |||||
Total | 30,416,440 | 100 | % | |||||
(1) | Based on a total of 30,416,440 Class A shares outstanding. | |
(2) | CIASA owns 100% of the Class B shares of Copa Holdings, representing 29.2% of our total capital stock. | |
(3) | Based on a Schedule 13G filed with the Securities and Exchange Commission, dated July 5, 2006, in which Continental reported that it had sole voting and dispositive power over 4,375,000 of Class A shares. |
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• | a right of each of CIASA and Continental to designate a certain number of directors to our board of directors for so long as they hold a certain amount of our common stock. Of the 11 members of our board, currently CIASA has the right to designate seven directors and Continental has the right to designate one directors, with the remaining three directors being “independent” under the rules of the New York Stock Exchange. | ||
• | certain limitations on transfers of our common stock by CIASA or Continental; | ||
• | subject to certain exceptions, a right of first offer in favor of CIASA to purchase any shares of our common stock Continental proposes to sell to any third party; and | ||
• | the ability of Continental to “tag-along” their shares of our common stock to certain sales of common stock by CIASA to non-Panamanians or, in the case of certain sales of Class B stock by CIASA to Panamanians, to receive additional registration rights with respect to the shares they would otherwise have been able to sell. |
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Low | High | |||||||
2005 | ||||||||
Annual(1) | 21.95 | 27.40 | ||||||
2006 | ||||||||
Annual | 20.31 | 49.05 | ||||||
First quarter | 20.31 | 27.10 | ||||||
Second quarter | 20.95 | 24.25 | ||||||
Third quarter | 21.53 | 35.22 | ||||||
Fourth quarter | 33.15 | 49.05 | ||||||
2007 | ||||||||
Annual | 30.25 | 73.33 | ||||||
First quarter | 46.70 | 66.47 | ||||||
Second quarter | 50.54 | 71.00 | ||||||
Third quarter | 38.31 | 73.33 | ||||||
Fourth quarter | 30.25 | 45.24 | ||||||
Last Six Months | ||||||||
November 2007 | 30.25 | 37.37 | ||||||
December 2007 | 35.27 | 39.25 | ||||||
January 2008 | 32.59 | 40.25 | ||||||
February 2008 | 36.01 | 41.97 | ||||||
March 2008 | 30.00 | 38.39 | ||||||
April 2008 | 34.53 | 40.74 |
(1) | Period beginning December 14, 2005 through December 31, 2005. |
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NYSE Standards | Our Corporate Governance Practice | |
Director Independence. Majority of board of directors must be independent. §303A.01 | Panamanian corporate governance standards recommend that one in every five directors should be an independent director. The criteria for determining independence under the Panamanian corporate governance standards differs from the NYSE rules. In Panama, a director would be considered independent as long as the director does not directly or indirectly own 5% or more of the issued and outstanding voting shares of the company, is not involved in the daily management of the company and is not a spouse or related to the second degree by blood or marriage to the persons named above. | |
Our Articles of Incorporation require us to have three independent directors as defined under the NYSE rules. | ||
Executive Sessions.Non-management directors must meet regularly in executive sessions without management. Independent directors should meet alone in an executive session at least once a year. §303A.03 | There are no mandatory requirements under Panamanian law that a company should hold, and we currently do not hold, such executive sessions. | |
Nominating/corporate governance committee.Nominating/corporate governance committee of independent directors is required. The committee must have a charter specifying the purpose, duties and evaluation procedures of the committee. §303A.04 | Panamanian corporate governance standards recommend that registered companies have a nominating committee composed of three members of the board of directors, at least one of which should be an independent director, plus the chief executive officer and the chief financial officer. In Panama, the majority of public corporations do not have a nominating or corporate governance committee. Our Articles of Incorporation require that we maintain a Nominating and Corporate Governance Committee with at least one independent director until the first shareholders’ meeting to elect directors after such time as the Class A shares are entitled to full voting rights. | |
Compensation committee.Compensation committee of independent directors is required, which must approve executive officer compensation. The committee must have a charter specifying the purpose, duties and evaluation procedures of the committee. §303A.05 | Panamanian corporate governance standards recommend that the compensation of executives and directors be overseen by the nominating committee but do not otherwise address the need for a compensation committee. While we maintain a compensation committee that operates under a charter as described by the NYSE governance standards, currently one of the members of that committee is independent. | |
Equity compensation plans.Equity compensation plans require shareholder approval, subject to limited exemptions. | Under Panamanian law, shareholder approval is not required for equity compensation plans. | |
Code of Ethics.Corporate governance guidelines and a code of business conduct and ethics is required, with disclosure of any waiver for directors or executive officers. §303A.10 | Panamanian corporate governance standards do not require the adoption of specific guidelines as contemplated by the NYSE standards, although they do require that companies disclose differences between their practices and a list of specified practices recommended by the CNV. | |
We have not adopted a set of corporate governance guidelines as contemplated by the NYSE, although we will be required to comply with the disclosure requirement of the CNV. | ||
Panamanian corporate governance standards recommend that registered companies adopt a code of ethics covering such topics as its ethical and moral principles, how to address conflicts of interest, the appropriate use of resources, obligations to inform of acts of corruption and mechanism to enforce the compliance with established rules of conduct. |
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• | a transformation of Copa Holdings into another corporate type; | ||
• | a merger, consolidation or spin-off of Copa Holdings; | ||
• | a change of corporate purpose; | ||
• | voluntarily delisting Class A shares from the NYSE; | ||
• | approving the nomination of Independent Directors nominated by our board of director’s Nominating and Corporate Governance Committee following our next annual general shareholders meeting; and | ||
• | any amendment to the foregoing special voting provisions adversely affecting the rights and privileges of the Class A shares. |
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• | authorize the issuance of additional Class B shares to Panamanians at a price determined by the Independent Directors to reflect the current market value of such shares or | ||
• | authorize the issuance to Class B shareholders such number of Class C shares as the Independent Directors Committee, or the board of directors if applicable, deems necessary and with such other terms and conditions established by the Independent Directors Committee that do not confer economic rights on the Class C shares. |
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Panama | Delaware | |
Directors | ||
Conflict of Interest Transactions. Transactions involving a Panamanian corporation and an interested director or officer are initially subject to the approval of the board of directors. | Conflict of Interest Transactions. Transactions involving a Delaware corporation and an interested director of that corporation are generally permitted if: | |
At the next shareholders’ meeting, shareholders will then have the right to disapprove the board of directors’ decision and to decide to take legal actions against the directors or officers who voted in favor of the transaction. | (1) the material facts as to the interested director’s relationship or interest are disclosed and a majority of disinterested directors approve the transaction; (2) the material facts are disclosed as to the interested director’s relationship or interest and the stockholders approve the transaction; or (3) the transaction is fair to the corporation at the time it is authorized by the board of directors, a committee of the board of directors or the stockholders. | |
Terms. Panamanian law does not set limits on the length of the terms that a director may serve. Staggered terms are allowed but not required. | Terms. The Delaware General Corporation Law generally provides for a one-year term for directors. However, the directorships may be divided into up to three classes with up to three-year terms, with the years for each class expiring in different years, if permitted by the articles of incorporation, an initial by-law or a by-law adopted by the shareholders. | |
Number. The board of directors must consist of a minimum of three members, which could be natural persons or legal entities. | Number. The board of directors must consist of a minimum of one member. | |
Authority to take Actions. In general, a simple majority of the board of directors is necessary and sufficient to take any action on behalf of the board of directors. | Authority to take Actions. The articles of incorporation or by-laws can establish certain actions that require the approval of more than a majority of directors. | |
Shareholder Meetings and Voting Rights | ||
Quorum. The quorum for shareholder meetings must be set by the articles of incorporation or the by-laws. If the articles of incorporation and the notice for a given meeting so provide, if quorum is not met a new meeting can be immediately called and quorum shall consist of those present at such new meeting. | Quorum. For stock corporations, the articles of incorporation or bylaws may specify the number to constitute a quorum but in no event shall a quorum consist of less than one-third of shares entitled to vote at a meeting. In the absence of such specifications, a majority of shares entitled to vote shall constitute a quorum. | |
Action by Written Consent. Panamanian law does not permit shareholder action without formally calling a meeting. | Action by Written Consent. Unless otherwise provided in the articles of incorporation, any action required or permitted to be taken at any annual meeting or special meeting of stockholders of a corporation may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action to be so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and noted. |
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Panama | Delaware | |
Other Shareholder Rights | ||
Shareholder Proposals. Shareholders representing 5% of the issued and outstanding capital of the corporation have the right to require a judge to call a general shareholders’ meeting and to propose the matters for vote. | Shareholder Proposals. Delaware law does not specifically grant shareholders the right to bring business before an annual or special meeting. If a Delaware corporation is subject to the SEC’s proxy rules, a shareholder who owns at least $2,000 in market value, or 1% of the corporation’s securities entitled to vote, may propose a matter for a vote at an annual or special meeting in accordance with those rules. | |
Appraisal Rights. Shareholders of Panamanian corporation do not have the right to demand payment in cash of the judicially determined fair value of their shares in connection with a merger or consolidation involving the corporation. Nevertheless, in a merger, the majority of shareholders could approve the total or partial distribution of cash, instead of shares, of the surviving entity. | Appraisal Rights. Delaware law affords shareholders in certain cases the right to demand payment in cash of the judicially-determined fair value of their shares in connection with a merger or consolidation involving their corporation. However, no appraisal rights are available if, among other things and subject to certain exceptions, such shares were listed on a national securities exchange or designated national market system or such shares were held of record by more than 2,000 holders. | |
Shareholder Derivative Actions. Any shareholder, with the consent of the majority of the shareholders, can sue on behalf of the corporation, the directors of the corporation for a breach of their duties of care and loyalty to the corporation or a violation of the law, the articles of incorporation or the by-laws. | Shareholder Derivative Actions. Subject to certain requirements that a shareholder make prior demand on the board of directors or have an excuse not to make such demand, a shareholder may bring a derivative action on behalf of the corporation to enforce the rights of the corporation against officers, directors and third parties. An individual may also commence a class action suit on behalf of himself and other similarly-situated stockholders if the requirements for maintaining a class action under the Delaware General Corporation Law have been met. Subject to equitable principles, a three-year period of limitations generally applies to such shareholder suits against officers and directors. | |
Inspection of Corporate Records. Shareholders representing at least 5% of the issued and outstanding shares of the corporation have the right to require a judge to appoint an independent auditor to examine the corporate accounting books, the background of the company’s incorporation or its operation. | Inspection of Corporate Records. A shareholder may inspect or obtain copies of a corporation’s shareholder list and its other books and records for any purpose reasonably related to a person’s interest as a shareholder. | |
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Panama | Delaware | |
Anti-takeover Provisions | ||
Panamanian corporations may include in their articles of incorporation or by-laws classified board and super-majority provisions. | Delaware corporations may have a classified board, super-majority voting and shareholders’ rights plan. | |
Panamanian corporation law’s anti-takeover provisions apply only to companies that are(1) registered with the CNV for a period of six months before the public offering,(2) have over 3,000 shareholders, and(3) have a permanent office in Panama with full time employees and investments in the country for more than $1,000,000. | Unless Delaware corporations specifically elect otherwise, Delaware corporations may not enter into a “business combination,” including mergers, sales and leases of assets, issuances of securities and similar transactions, with an “interested stockholder,” or one that beneficially owns 15% or more of a corporation’s voting stock, within three years of such person becoming an interested shareholder unless: | |
These provisions are triggered when a buyer makes a public offer to acquire 5% or more of any class of shares with a market value of at least $5,000,000. In sum, the buyer must deliver to the corporation a complete and accurate statement that includes(1) the name of the company, the number of the shares that the buyer intends to acquire and the purchase price;(2) the identity and background of the person acquiring the shares;(3) the source and amount of the funds or other goods that will be used to pay the purchase price;(4) the plans or project the buyer has once it has acquired the control of the company;(5) the number of shares of the company that the buyer already has or is a beneficiary of and those owned by any of its directors, officers, subsidiaries, or partners or the same, and any transactions made regarding the shares in the last 60 days;(6) contracts, agreements, business relations or negotiations regarding securities issued by the company in which the buyer is a party;(7) contract, agreements, business relations or negotiations between the buyer and any director, officer or beneficiary of the securities; and(8) any other significant information. This declaration will be accompanied by, among other things, a copy of the buyer’s financial statements. | (1) the transaction that will cause the person to become an interested shareholder is approved by the board of directors of the target prior to the transactions; (2) after the completion of the transaction in which the person becomes an interested shareholder, the interested shareholder holds at least 85% of the voting stock of the corporation not including shares owned by persons who are directors and also officers of interested shareholders and shares owned by specified employee benefit plans; or (3) after the person becomes an interested shareholder, the business combination is approved by the board of directors of the corporation and holders of at least 66.67% of the outstanding voting stock, excluding shares held by the interested shareholder. | |
If the board of directors believes that the statement does not contain all required information or that the statement is inaccurate, the board of directors must send the statement to the CNV within 45 days from the buyer’s initial delivery of the statement to the CNV. The CNV may then hold a public hearing to determine if the information is accurate and complete and if the buyer has complied with the legal requirements. The CNV may also start an inquiry into the case, having the power to decide whether or not the offer may be made. | ||
Regardless of the above, the board of directors has the authority to submit the offer to the consideration of the shareholders. The board should only convene a shareholders’ meeting when it deems the statement delivered by the offeror to be complete and accurate. If convened, the shareholders’ meeting should take place within the next 30 days. At the shareholders’ meeting, two-thirds of the holders of the issued and outstanding shares of each class of shares of the corporation with a right to vote must approve the offer and the offer is to be executed within 60 days from the shareholders’ approval. If the board decides not to convene the shareholders’ meeting within 15 days following the receipt of a complete and accurate statement from the offeror, shares may then be purchased. In all cases, the purchase of shares can take place only if it is not prohibited by an administrative or judicial order or injunction. |
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Panama | Delaware | |
The law also establishes some actions or recourses of the sellers against the buyer in cases the offer is made in contravention of the law. | ||
Previously Acquired Rights | ||
In no event can the vote of the majority shareholders deprive the shareholders of a corporation of previously-acquired rights. Panamanian jurisprudence and doctrine has established that the majority shareholders cannot amend the articles of incorporation and deprive minority shareholders of previously-acquired rights nor impose upon them an agreement that is contrary to those articles of incorporation. | No comparable provisions exist under Delaware law. | |
Once a share is issued, the shareholders become entitled to the rights established in the articles of incorporation and such rights cannot be taken away, diminished nor extinguished without the express consent of the shareholders entitled to such rights. If by amending the articles of incorporation, the rights granted to a class of shareholders is somehow altered or modified to their disadvantage, those shareholders will need to approve the amendment unanimously. |
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• | a bank; | ||
• | a dealer in securities or currencies; | ||
• | a financial institution; |
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• | a regulated investment company; | ||
• | a real estate investment trust; | ||
• | an insurance company; | ||
• | a tax-exempt organization; | ||
• | a person holding our Class A shares as part of a hedging, integrated or conversion transaction, a constructive sale or a straddle; | ||
• | a trader in securities that has elected the mark-to-market method of accounting for your securities; | ||
• | a person liable for alternative minimum tax; | ||
• | a person who owns 10% or more of our voting stock; | ||
• | a partnership or other pass-through entity for United States federal income tax purposes; or | ||
• | a person whose “functional currency” is not the United States dollar. |
• | an individual citizen or resident of the United States; | ||
• | a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; | ||
• | an estate the income of which is subject to United States federal income taxation regardless of its source; or | ||
• | a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person. |
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• | have held Class A shares for less than a specified minimum period during which you are not protected from risk of loss, or | ||
• | are obligated to make payments related to the dividends, |
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Revenue | Expense | |||||||
Argentinean Peso | 5.1 | % | 2.2 | % | ||||
Brazilian Real | 7.2 | % | 3.9 | % | ||||
Chilean Peso | 3.3 | % | 1.4 | % | ||||
Colombian Peso | 23.8 | % | 14.3 | % | ||||
Costa Rican Colon | 3.1 | % | 1.3 | % | ||||
Mexican Peso | 3.5 | % | 1.9 | % | ||||
U.S. Dollar | 40.5 | % | 69.3 | % | ||||
Venezuelan Bolivar | 5.5 | % | 2.1 | % | ||||
Other(1) | 7.9 | % | 3.6 | % |
(1) | Dominican Peso, Euro, Guatemalan Quetzal, Jamaican Dollar, Honduran Lempira, Haitian Gourde, Uruguayan Peso |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Shareholders
COPA HOLDINGS, S.A.
We have audited Copa Holdings, S.A. (the “Company”) and its subsidiaries’ internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Copa Holdings, S. A. and its subsidiaries’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Copa Holdings S. A. and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the COSO criteria.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Copa Holdings, S.A. and its subsidiaries as of December 31, 2007 and 2006, and related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007 of Copa Holdings, S.A. and its subsidiaries and our report dated May 5, 2008 expressed an unqualified opinion thereon.
/s/ Ernst and Young
Panama City, Republic of Panama
May 5, 2008
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2006 | 2007 | |||||||
Audit Fees | $ | 959,428 | $ | 823,085 | ||||
Audit-Related Fees | — | — | ||||||
Tax Fees | — | — | ||||||
All Other Fees | — | — | ||||||
Total | $ | 959,428 | $ | 823,085 | ||||
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1.1** | English translation of the Articles of Incorporation (Pacto Social) of the Registrant | |||
2.1* | Form of Second Amended and Restated Shareholders’ Agreement among Copa Holdings, S.A., Corporación de Inversiones Aéreas, S.A. and Continental Airlines, Inc. | |||
2.2* | Form of Amended and Restated Registration Rights Agreement among Copa Holdings, S.A., Corporación de Inversiones Aéreas, S.A. and Continental Airlines, Inc. | |||
10.1**† | Aircraft Lease Agreement, dated as of October 1, 1998, between First Security Bank and Compañía Panameña de Aviación, S.A., in respect of Boeing Model 737-71Q Aircraft, Serial No. 29047 | |||
10.2**† | Letter Agreement dated as of November 6, 1998 amending Aircraft Lease Agreement, dated October 1, 1998, between First Security Bank and Compañía Panameña de Aviación, S.A., in respect of One Boeing Model 737-71Q Aircraft, Manufacturer’s Serial No. 29047 | |||
10.3**† | Aircraft Lease Amendment Agreement dated as of May 21, 2004 to Aircraft Lease Agreement, dated October 1, 1998, between First Security Bank and Compañía Panameña de Aviación, S.A., in respect of Boeing Model 737-71Q Aircraft, Serial No. 29047 | |||
10.4**† | Aircraft Lease Agreement, dated as of October 1, 1998, between First Security Bank and Compañía Panameña de Aviación, S.A., in respect of Boeing Model 737-71Q Aircraft, Serial No. 29048 | |||
10.5**† | Letter Agreement dated as of November 6, 1998 amending Aircraft Lease Agreement, dated as of October 1, 1998, between First Security Bank and Compañía Panameña de Aviación, S.A., in respect of Boeing Model 737-71Q Aircraft, Serial No. 29048 | |||
10.6**† | Aircraft Lease Amendment Agreement dated as of May 21, 2003 to Aircraft Lease Agreement, dated October 1, 1998, between First Security Bank and Compañía Panameña de Aviación, S.A., in respect of Boeing Model 737-71Q Aircraft, Serial No. 29048 | |||
10.7**† | Aircraft Lease Agreement, dated as of November 18, 1998, between Aviation Financial Services Inc. and Compañía Panameña de Aviación, S.A., Boeing Model 737-700 Aircraft, Serial No. 28607 | |||
10.8**† | Letter Agreement No. 1 dated as of November 18, 1998 to Aircraft Lease Agreement, dated November 18, 1998, between Aviation Financial Services Inc. and Compañía Panameña de Aviación, S.A., Boeing Model 737-700 Aircraft, Serial No. 28607 | |||
10.9**† | Letter Agreement No. 2 dated as of March 8, 1999 to Aircraft Lease Agreement, dated November 18, 1998, between Aviation Financial Services Inc. and Compañía Panameña de Aviación, S.A., Boeing Model 737-700 Aircraft, Serial No. 28607 | |||
10.10**† | Lease Extension and Amendment Agreement dated as of April 30, 2003, to Aircraft Lease Agreement, dated November 18, 1998, between Aviation Financial Services Inc. and Compañía Panameña de Aviación, S.A., Boeing Model 737-700 Aircraft, Serial No. 28607 |
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10.11**† | Aircraft Lease Agreement, dated as of November 18, 1998, between Aviation Financial Services Inc. and Compañía Panameña de Aviación, S.A., Boeing Model 737-700 Aircraft, Serial No. 30049 | |||
10.12**† | Letter Agreement No. 1 dated as of November 18, 1998 to Aircraft Lease Agreement, dated November 18, 1998, between Aviation Financial Services Inc. and Compañía Panameña de Aviación, S.A., Boeing Model 737-700 Aircraft, Serial No. 30049 | |||
10.13**† | Letter Agreement No. 2 dated as of March 8, 1999 to Aircraft Lease Agreement, dated November 18, 1998, between Aviation Financial Services Inc. and Compañía Panameña de Aviación, S.A., Boeing Model 737-700 Aircraft, Serial No. 30049 | |||
10.14**† | Lease Extension and Amendment Agreement dated as of April 30, 2003, to Aircraft Lease Agreement, dated November 18, 1998, between Aviation Financial Services Inc. and Compañía Panameña de Aviación, S.A., Boeing Model 737-700 Aircraft, Serial No. 30049 | |||
10.15**† | Aircraft Lease Agreement, dated as of November 30, 2003, between International Lease Finance Corporation and Compañía Panameña de Aviación, S.A., New B737-700 or 800, Serial No. 30676 | |||
10.16**† | Aircraft Lease Agreement, dated as of March 4, 2004, between International Lease Finance Corporation and Compañía Panameña de Aviación, S.A., New B737-700 or 800, Serial No. 32800 | |||
10.17**† | Aircraft Lease Agreement dated as of December 23, 2004, between Wells Fargo Bank Northwest, N.A. and Compañía Panameña de Aviación, S.A., in respect of Boeing B737-800 Aircraft, Serial No. 29670 | |||
10.18**† | Embraer 190LR Purchase Agreement DCT-006/2003 dated as of May 2003 between Embraer— Empresa Brasileira de Aeronáutica S.A. and Regional Aircraft Holdings Ltd. | |||
10.19**† | Letter Agreement DCT-007/2003 between Embraer—Empresa Brasileira de Aeronáutica S.A. and Regional Aircraft Holdings Ltd., relating to Purchase Agreement DCT-006/2003 | |||
10.20**† | Letter Agreement DCT-008/2003 between Embraer—Empresa Brasileira de Aeronáutica S.A. and Regional Aircraft Holdings Ltd., relating to Purchase Agreement DCT-006/2003 | |||
10.21*† | Embraer 190 Purchase Agreement COM 0028-06 dated February 2006 between Embraer—Empresa Brasileira de Aeronáutica S.A. and Copa Holdings, S.A. relating to Embraer 190LR aircraft | |||
10.22*† | Letter Agreement COM 0029-06 to the Embraer Agreement dated February 2006 between Embraer—Empresa Brasileira de Aeronáutica S.A. and Copa Holdings, S.A. relating to Embraer 190LR aircraft | |||
10.23**† | Aircraft General Terms Agreement, dated November 25, 1998, between The Boeing Company and Copa Holdings, S.A. | |||
10.24**† | Purchase Agreement Number 2191, dated November 25, 1998, between The Boeing Company and Copa Holdings, S.A., Inc. relating to Boeing Model 737-7V3 & 737-8V3 Aircraft | |||
10.25**† | Supplemental Agreement No. 1 dated as of June 29, 2001 to Purchase Agreement Number 2191 between The Boeing Company and Copa Holdings, S.A. | |||
10.26**† | Supplemental Agreement No. 2 dated as of December 21, 2001 to Purchase Agreement Number 2191 between The Boeing Company and Copa Holdings, S.A. | |||
10.27**† | Supplemental Agreement No. 3 dated as of June 14, 2002 to Purchase Agreement Number 2191 between The Boeing Company and Copa Holdings, S.A. | |||
10.28**† | Supplemental Agreement No. 4 dated as of December 20, 2002 to Purchase Agreement Number 2191 between The Boeing Company and Copa Holdings, S.A. | |||
10.29**† | Supplemental Agreement No. 5 dated as of October 31, 2003 to Purchase Agreement Number 2191 between The Boeing Company and Copa Holdings, S.A. | |||
10.30**† | Supplemental Agreement No. 6 dated as of September 9, 2004 to Purchase Agreement Number 2191 between The Boeing Company and Copa Holdings, S.A. | |||
10.31**† | Supplemental Agreement No. 7 dated as of December 9, 2004 to Purchase Agreement Number 2191 between The Boeing Company and Copa Holdings, S.A. |
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10.32**† | Supplemental Agreement No. 8 dated as of April 15, 2005 to Purchase Agreement Number 2191 between The Boeing Company and Copa Holdings, S.A. | |||
10.33*† | Supplemental Agreement No. 9 dated as of March 16, 2006 to the Boeing Purchase Agreement Number 2191 dated November 25, 1998 between the Boeing Company and Copa Holdings, S.A. | |||
10.34*† | Supplemental Agreement No. 10 dated as of May 8, 2006 to the Boeing Purchase Agreement Number 2191 dated November 25, 1998 between the Boeing Company and Copa Holdings, S.A. | |||
10.35**† | Maintenance Cost per Hour Engine Service Agreement, dated March 5, 2003, between G.E. Engine Services, Inc. and Copa Holdings, S.A. | |||
10.36**† | English translation of Aviation Fuel Supply Agreement, dated July 18, 2005, between Petróleos Delta, S.A. and Compañía Panameña de Aviación, S.A. | |||
10.37** | Form of Guaranteed Loan Agreement | |||
10.38** | Form of Amended and Restated Alliance Agreement between Continental Airlines, Inc. and Compañía Panameña de Aviación, S.A. | |||
10.39** | Form of Amended and Restated Services Agreement between Continental Airlines, Inc. and Compañía Panameña de Aviación, S.A. | |||
10.40** | Form of Amended and Restated Frequent Flyer Program Participation Agreement | |||
10.41** | Form of Copa Holdings, S.A. 2005 Stock Incentive Plan | |||
10.42** | Form of Copa Holdings, S.A. Restricted Stock Award Agreement | |||
10.43** | Form of Indemnification Agreement with the Registrant’s directors | |||
10.44**† | Supplemental Agreement No. 11 dated as of August 30, 2006 to the Boeing Purchase Agreement Number 2191 dated November 25, 1998 between the Boeing Company and Copa Holdings, S.A. | |||
10.45**† | Supplemental Agreement No. 12 dated as of February 26, 2007 to the Boeing Purchase Agreement Number 2191 dated November 25, 1998 between the Boeing Company and Copa Holdings, S.A. | |||
10.46**† | Supplemental Agreement No. 13 dated as of April 23, 2007 to the Boeing Purchase Agreement Number 2191 dated November 25, 1998 between the Boeing Company and Copa Holdings, S.A. | |||
10.47†† | Supplemental Agreement No. 14 dated as of August 31, 2007 to the Boeing Purchase Agreement Number 2191 dated November 25, 1998 between the Boeing Company and Copa Holdings, S.A. | |||
10.48†† | Supplemental Agreement No. 15 dated as of February 21, 2008 to the Boeing Purchase Agreement Number 2191 dated November 25, 1998 between the Boeing Company and Copa Holdings, S.A. | |||
12.1 | Certification of the Chief Executive Officer, pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934. | |||
12.2 | Certification of the Chief Financial Officer, pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934. | |||
13.1 | Certification of Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||
13.2 | Certification of the Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||
21.1** | Subsidiaries of the Registrant |
* | Previously filed with the SEC as an exhibit and incorporated by reference from our Registration Statement on Form F-1, filed June 15, 2006, File No. 333-135031. | |
** | Previously filed with the SEC as an exhibit and incorporated by reference from our Registration Statement on Form F-1, filed November 28, 2005, as amended on December 1, 2005 and December 13, 2005, File No. 333-129967. | |
† | The Registrant was granted confidential treatment for portions of this exhibit. | |
†† | The Registrant has requested confidential treatment for portions of this exhibit. |
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COPA HOLDINGS, S.A. | ||||
By: | /s/ Pedro Heilbron | |||
Name: | Pedro Heilbron | |||
Title: | Chief Executive Officer |
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Pages | ||||
Audited Consolidated Financial Statements | ||||
F-2 | ||||
F-3 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
F-8 | ||||
Schedules | ||||
S-1 | ||||
S-2 |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
THE BOARD OF DIRECTORS AND SHAREHOLDERS
COPA HOLDINGS, S. A.
We have audited the accompanying consolidated balance sheets of Copa Holdings, S. A. (“the Company”) and its subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries at December 31, 2007 and 2006, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated May 5, 2008 expressed an unqualified opinion thereon.
/s/ Ernst and Young
Panama City, Republic of Panama
May 5, 2008
F-2
Table of Contents
As of December 31, | ||||||||
2007 | 2006 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 285,858 | $ | 169,880 | ||||
Short-term investments | 22,500 | 27,500 | ||||||
Total cash, cash equivalents and short-term investments | 308,358 | 197,380 | ||||||
Accounts receivable, net of allowance for doubtful accounts of of $8,157 and $7,305 as of December 31, 2007 and 2006, respectively | 73,389 | 60,319 | ||||||
Accounts receivable from related parties | 780 | 1,818 | ||||||
Expendable parts and supplies, net of allowance for obsolescence of of $35 and $21 as of December 31, 2007 and 2006, respectively | 14,088 | 8,667 | ||||||
Prepaid expenses | 25,574 | 16,590 | ||||||
Other current assets | 13,547 | 5,877 | ||||||
Total Current Assets | 435,736 | 290,651 | ||||||
Investments | 17,038 | 29,032 | ||||||
Property and Equipment: | ||||||||
Owned property and equipment: | ||||||||
Flight equipment | 1,188,641 | 857,598 | ||||||
Other | 50,909 | 43,713 | ||||||
1,239,550 | 901,311 | |||||||
Less: Accumulated depreciation | (137,367 | ) | (104,178 | ) | ||||
1,102,183 | 797,133 | |||||||
Purchase deposits for flight equipment | 64,079 | 65,150 | ||||||
Total Property and Equipment | 1,166,262 | 862,283 | ||||||
Other Assets: | ||||||||
Prepaid pension asset | 1,034 | 645 | ||||||
Goodwill | 24,201 | 21,779 | ||||||
Other intangible assets | 35,484 | 31,933 | ||||||
Other assets | 27,496 | 18,692 | ||||||
Total Other Assets | 88,215 | 73,049 | ||||||
Total Assets | $ | 1,707,251 | $ | 1,255,015 | ||||
F-3
Table of Contents
CONSOLIDATED BALANCE SHEETS (continued)
(In US$ thousands, except share and per share data)
As of December 31, | ||||||||
2007 | 2006 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Current maturities of long-term debt | $ | 110,658 | $ | 91,453 | ||||
Accounts payable | 57,468 | 47,627 | ||||||
Accounts payable to related parties | 10,824 | 8,819 | ||||||
Air traffic liability | 153,422 | 116,812 | ||||||
Taxes and interest payable | 36,644 | 31,490 | ||||||
Accrued expenses payable | 52,233 | 32,104 | ||||||
Other current liabilities | 3,740 | 11,268 | ||||||
Total Current Liabilities | 424,989 | 339,573 | ||||||
Non-Current Liabilities: | ||||||||
Long-term debt | 732,209 | 529,802 | ||||||
Post employment benefits liability | 1,894 | 1,701 | ||||||
Other long-term liabilities | 9,775 | 7,713 | ||||||
Deferred tax liabilities | 6,747 | 4,557 | ||||||
Total Non-Current Liabilities | 750,625 | 543,773 | ||||||
Total Liabilities | 1,175,614 | 883,346 | ||||||
Shareholders’ Equity: | ||||||||
Class A common stock — 30,966,430 shares issued, 30,159,719 outstanding, no par value | 20,586 | 20,501 | ||||||
Class B common stock — 12,778,125 shares issued and outstanding, no par value | 8,722 | 8,722 | ||||||
Additional paid in capital | 8,064 | 3,340 | ||||||
Retained earnings | 491,599 | 343,390 | ||||||
Accumulated other comprehensive Income (loss) | 2,666 | (4,284 | ) | |||||
Total Shareholders’ Equity | 531,637 | 371,669 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 1,707,251 | $ | 1,255,015 | ||||
F-4
Table of Contents
Years Ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
Operating Revenue: | ||||||||||||
Passenger revenue | $ | 967,066 | $ | 798,901 | $ | 563,520 | ||||||
Cargo, mail and other | 60,198 | 52,259 | 45,094 | |||||||||
1,027,264 | 851,160 | 608,614 | ||||||||||
Operating Expenses: | ||||||||||||
Aircraft fuel | 265,387 | 217,730 | 149,303 | |||||||||
Salaries and benefits | 116,691 | 91,382 | 69,730 | |||||||||
Passenger servicing | 82,948 | 64,380 | 50,622 | |||||||||
Commissions | 65,930 | 57,808 | 45,087 | |||||||||
Maintenance, material and repairs | 51,249 | 50,057 | 32,505 | |||||||||
Reservations and sales | 48,229 | 38,212 | 29,213 | |||||||||
Aircraft rentals | 38,636 | 38,169 | 27,631 | |||||||||
Flight operations | 43,958 | 33,740 | 24,943 | |||||||||
Depreciation | 35,328 | 24,874 | 19,857 | |||||||||
Landing fees and other rentals | 27,017 | 23,929 | 17,909 | |||||||||
Other | 55,093 | 44,758 | 32,622 | |||||||||
Special fleet charges | 7,309 | — | — | |||||||||
Gain from involuntary conversion | (8,019 | ) | — | — | ||||||||
829,756 | 685,039 | 499,422 | ||||||||||
Operating Income | 197,508 | 166,121 | 109,192 | |||||||||
Non-operating Income (Expense): | ||||||||||||
Interest costs | (44,332 | ) | (29,150 | ) | (21,629 | ) | ||||||
Interest capitalized | 2,570 | 1,712 | 1,089 | |||||||||
Interest income | 12,193 | 7,257 | 3,544 | |||||||||
Other, net | 10,987 | 185 | 395 | |||||||||
(18,582 | ) | (19,996 | ) | (16,601 | ) | |||||||
Income before Income Taxes | 178,926 | 146,125 | 92,591 | |||||||||
Provision for Income Taxes | 17,106 | 12,286 | 9,592 | |||||||||
Net Income | $ | 161,820 | $ | 133,839 | $ | 82,999 | ||||||
Earnings per share: | ||||||||||||
Basic | $ | 3.77 | $ | 3.13 | $ | 1.94 | ||||||
Diluted | $ | 3.72 | $ | 3.10 | $ | 1.94 |
F-5
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(US$ Thousands) | ||||||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||||||
Common Stock | Additional | Other | ||||||||||||||||||||||||||||||
(Non-par value) | Issued Capital | Paid in | Retained | Comprehensive | ||||||||||||||||||||||||||||
Class A | Class B | Class A | Class B | Capital | Earnings | Income (Loss) | Total | |||||||||||||||||||||||||
At December 31, 2004 | 30,034,375 | 12,778,125 | $ | 20,501 | $ | 8,722 | $ | — | $ | 144,932 | $ | — | $ | 174,155 | ||||||||||||||||||
Net Income | 82,999 | 82,999 | ||||||||||||||||||||||||||||||
Other comprehensive loss: | ||||||||||||||||||||||||||||||||
Foreign currency translation | (1,218 | ) | (1,218 | ) | ||||||||||||||||||||||||||||
Total comprehensive income | 81,781 | |||||||||||||||||||||||||||||||
Dividends declared | (10,069 | ) | (10,069 | ) | ||||||||||||||||||||||||||||
At December 31, 2005 | 30,034,375 | 12,778,125 | 20,501 | 8,722 | — | 217,862 | (1,218 | ) | 245,867 | |||||||||||||||||||||||
Net Income | 133,839 | 133,839 | ||||||||||||||||||||||||||||||
Other comprehensive loss: | ||||||||||||||||||||||||||||||||
Net change in fair value of derivative instruments | (3,998 | ) | (3,998 | ) | ||||||||||||||||||||||||||||
Foreign currency translation | 1,861 | 1,861 | ||||||||||||||||||||||||||||||
Total comprehensive income | 131,702 | |||||||||||||||||||||||||||||||
Restricted stock Plan | 3,340 | 3,340 | ||||||||||||||||||||||||||||||
Actuarial loss (Adoption of FAS 158), net of tax of $84 | (929 | ) | (929 | ) | ||||||||||||||||||||||||||||
Dividends declared | — | — | (8,311 | ) | (8,311 | ) | ||||||||||||||||||||||||||
At December 31, 2006 | 30,034,375 | 12,778,125 | 20,501 | 8,722 | 3,340 | 343,390 | (4,284 | ) | 371,669 | |||||||||||||||||||||||
Issuance of stock | 125,344 | 85 | (85 | ) | — | |||||||||||||||||||||||||||
Net Income | 161,820 | 161,820 | ||||||||||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||
Net change in fair value of derivative instruments | 3,998 | 3,998 | ||||||||||||||||||||||||||||||
Foreign currency translation | 2,954 | 2,954 | ||||||||||||||||||||||||||||||
Total comprehensive income | 6,952 | |||||||||||||||||||||||||||||||
Restricted stock plan | 4,809 | 4,809 | ||||||||||||||||||||||||||||||
Actuarial loss, net of current period loss and amortization | (2 | ) | (2 | ) | ||||||||||||||||||||||||||||
Other | (50 | ) | (50 | ) | ||||||||||||||||||||||||||||
Dividends declared | (13,561 | ) | (13,561 | ) | ||||||||||||||||||||||||||||
At December 31, 2007 | 30,159,719 | 12,778,125 | $ | 20,586 | $ | 8,722 | $ | 8,064 | $ | 491,599 | $ | 2,666 | $ | 531,637 | ||||||||||||||||||
F-6
Table of Contents
Years Ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
Cash flows from operating activities | ||||||||||||
Net income | $ | 161,820 | $ | 133,839 | $ | 82,999 | ||||||
Adjustments for: | ||||||||||||
Deferred income taxes | 2,352 | (328 | ) | (885 | ) | |||||||
Depreciation | 35,328 | 24,874 | 19,857 | |||||||||
(Gain) / Loss on sale of property, equipment and involuntary conversion | (9,579 | ) | (612 | ) | (1,340 | ) | ||||||
Special fleet charges | 6,300 | — | — | |||||||||
Provision for doubtful accounts | 4,276 | 3,764 | 813 | |||||||||
Provision for obsolescence of expendable parts and supplies | 12 | 12 | 3 | |||||||||
Derivative instruments mark to market | (6,291 | ) | 4,496 | (165 | ) | |||||||
Stock compensation | 4,809 | 3,340 | — | |||||||||
Changes in: | ||||||||||||
Accounts receivable | (14,805 | ) | (15,317 | ) | (11,256 | ) | ||||||
Accounts receivable from related parties | 1,256 | (1,661 | ) | (448 | ) | |||||||
Other current assets | (14,149 | ) | (8,690 | ) | 282 | |||||||
Restricted cash | (1 | ) | 110 | (3,698 | ) | |||||||
Other assets | (7,835 | ) | (3,412 | ) | (7,601 | ) | ||||||
Accounts payable | 7,611 | 2,699 | (4,336 | ) | ||||||||
Accounts payable to related parties | 1,671 | 975 | 4,017 | |||||||||
Air traffic liability | 35,215 | 30,658 | 27,766 | |||||||||
Other liabilities | 13,951 | 18,721 | 9,360 | |||||||||
Net cash provided by operating activities | 221,941 | 193,468 | 115,368 | |||||||||
Cash flows from investing activities | ||||||||||||
Acquisition of investments | (500 | ) | (32,988 | ) | (48,298 | ) | ||||||
Proceeds from redemption of investments | 17,495 | 22,906 | 20,662 | |||||||||
Advance payments on aircraft purchase contracts | (62,128 | ) | (58,697 | ) | (49,461 | ) | ||||||
Acquisition of property and equipment | (304,013 | ) | (193,330 | ) | (63,308 | ) | ||||||
Disposal of property and equipment | 2,354 | 3,129 | 2,804 | |||||||||
Insurance proceeds on involuntary conversion | 12,034 | — | ||||||||||
Purchase of AeroRepublica, net of acquired cash | — | — | (22,285 | ) | ||||||||
Net cash flows used in investing activities | (334,758 | ) | (258,980 | ) | (159,886 | ) | ||||||
Cash flows from financing activities | ||||||||||||
Proceeds from loans and borrowings | 329,147 | 254,559 | 68,423 | |||||||||
Payments on loans and borrowings | (87,291 | ) | (77,246 | ) | (46,929 | ) | ||||||
Issuance of bonds | — | — | 27,504 | |||||||||
Redemption of bonds | — | (27,504 | ) | — | ||||||||
Dividends declared and paid | (13,561 | ) | (8,311 | ) | (10,069 | ) | ||||||
Net cash flows provided by financing activities | 228,295 | 141,498 | 38,929 | |||||||||
Effect of exchange rate change on cash | 500 | (212 | ) | 29 | ||||||||
Net increase (decrease) in cash and cash equivalents | 115,978 | 75,774 | (5,560 | ) | ||||||||
Cash and cash equivalents at January 1st | 169,880 | 94,106 | 99,666 | |||||||||
Cash and cash equivalents at December 31 | $ | 285,858 | $ | 169,880 | $ | 94,106 | ||||||
Supplemental disclosure of cash flow information | ||||||||||||
Interest paid, net of amount capitalized | $ | 40,108 | $ | 26,779 | $ | 21,126 | ||||||
Income taxes paid | 16,553 | 11,284 | 7,411 | |||||||||
Investing and financing activities not affecting cash: | ||||||||||||
Settlement of debt through insurance proceed on involuntary conversion | 22,820 | — | - |
F-7
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F-8
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-9
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years | ||||
Building | 20 to 40 | |||
Jet aircraft | 30 | |||
Jet engines | 30 | |||
Ground property and equipment | 5 to 10 | |||
Furniture, fixture, equipment and others | 5 to 10 | |||
Software rights and licenses | 3 to 8 | |||
Aircraft rotables | 10 to 30 | |||
Leasehold improvements | Lesser of remaining lease term or useful life |
F-10
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-11
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-12
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-13
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-14
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-15
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2007 | 2006 | |||||||
Long-term fixed rate debt | $ | 376.4 | $ | 347.6 | ||||
(Secured fixed rate indebtedness due through 2019 Effective rates ranged from 3.98% to 6.75%) | ||||||||
Long-term variable rate debt | 431.6 | 247.4 | ||||||
(Secured variable rate indebtedness due through 2019 Effective rates ranged from 4.25% to 7.20%) | ||||||||
Medium-term variable rate debt | 34.9 | 26.3 | ||||||
(Unsecured variable rate indebtedness due in 2009 Weighted average rate of 4.71% to 6.41%) | ||||||||
Sub-total | 842.9 | 621.3 | ||||||
Less current maturities | 110.7 | 91.5 | ||||||
Long-term debt less current maturities | $ | 732.2 | $ | 529.8 | ||||
Maturities of long-term debt for the next five years are as follows (in millions): | ||||||||
Year ending December 31, | ||||||||
2008 | $ | 110.7 | ||||||
2009 | 67.3 | |||||||
2010 | 60.8 | |||||||
2011 | 60.5 | |||||||
2012 | 84.2 | |||||||
Thereafter | $ | 459.4 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-17
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Operating Leases | ||||||||
Aircraft | Non-Aircraft | |||||||
Year ending December 31, | ||||||||
2008 | $ | 37.5 | $ | 7.4 | ||||
2009 | 41.1 | 6.5 | ||||||
2010 | 40.5 | 5.5 | ||||||
2011 | 37.3 | 4.8 | ||||||
2012 | 32.6 | 4.4 | ||||||
Later years | 103.7 | 10.3 | ||||||
Total minimum lease payments | $ | 292.7 | $ | 38.9 | ||||
F-18
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-19
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-20
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2007 | 2006 | |||||||||||||||
Weighted-Average | Weighted-Average | |||||||||||||||
Grant-Date | Grant-Date | |||||||||||||||
Shares | Fair Value | Shares | Fair Value | |||||||||||||
Non-vested at beginning of year | 917,050 | $ | 21.10 | — | — | |||||||||||
Granted | 16,955 | 53.14 | 935,650 | 21.10 | ||||||||||||
Vested | (125,344 | ) | 21.10 | — | — | |||||||||||
Forfeited | (1,950 | ) | 21.10 | (18,600 | ) | 21.10 | ||||||||||
Non-vested at end of year | 806,711 | $ | 21.77 | 917,050 | $ | 21.10 | ||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shares | ||||
Outstanding at January 1, 2007 | — | |||
Granted | 35,657 | |||
Exercised | — | |||
Forfeited or expired | — | |||
Outstanding at December 31, 2007 | 35,657 | |||
December 31, | ||||||||||||||||
2007 | 2006 | 2005 | ||||||||||||||
Income available to common stockholders for both, basic and diluted EPS | US$ | 161.8 | 133.8 | 83.0 | ||||||||||||
Weighted average common shares outstanding applicable to basic EPS | 42,907,967 | 42,812,500 | 42,812,500 | |||||||||||||
Basic earnings per share | US$ | 3.77 | 3.13 | 1.94 | ||||||||||||
Weighted average common shares outstanding applicable to diluted EPS | 42,907,967 | 42,812,500 | 42,812,500 | |||||||||||||
Effect of dilutive shares: | ||||||||||||||||
Non-vested Stock Plan | 555,792 | 422,053 | 0 | |||||||||||||
Adjusted weighted average common shares outstanding applicable to diluted EPS | 43,463,759 | 43,234,553 | 42,812,500 | |||||||||||||
Diluted earnings per share | US$ | 3.72 | 3.10 | 1.94 | ||||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Foreign | Derivatives | |||||||||||||||
Currency | Financial | |||||||||||||||
Translation | Pensions | Instruments | Total | |||||||||||||
Balance as of December 31, 2005 | $ | (1.2 | ) | — | — | $ | (1.2 | ) | ||||||||
Foreign Currency Translation | 1.8 | — | — | 1.8 | ||||||||||||
Unrealized gain (loss) on derivatives instruments | — | — | (4.0 | ) | (4.0 | ) | ||||||||||
Impact of adoption of SFAS 158, net of tax of $0.1 | — | (0.9 | ) | — | (0.9 | ) | ||||||||||
Balance as of December 31, 2006 | 0.6 | (0.9 | ) | (4.0 | ) | (4.3 | ) | |||||||||
Foreign Currency Translation | 3.0 | 3.0 | ||||||||||||||
Unrealized gain (loss) on derivatives instruments | — | 4.0 | 4.0 | |||||||||||||
SFAS 158 Unrecognized actuarial loss of the period | — | (0.1 | ) | — | (0.1 | ) | ||||||||||
Amortization of actuarial loss | — | 0.1 | — | 0.1 | ||||||||||||
Balance as of December 31, 2007 | $ | 3.6 | $ | (0.9 | ) | $ | 0.0 | $ | 2.7 | |||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-24
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2007 | 2006 | 2005 | ||||||||||
Panama | ||||||||||||
Current | $ | 1.3 | $ | 1.1 | $ | 0.8 | ||||||
Deferred | — | — | — | |||||||||
Foreign | ||||||||||||
Current | 13.4 | 11.5 | 7.9 | |||||||||
Deferred | 2.4 | (0.3 | ) | 0.9 | ||||||||
Total | 17.1 | 12.3 | $ | 9.6 | ||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amount | Percentage | |||||||||||||||||||||||
2007 | 2006 | 2005 | 2007 | 2006 | 2005 | |||||||||||||||||||
Provision for income taxes at Panamanian statutory rates | $ | 53.7 | $ | 43.8 | $ | 27.8 | 30.0 | % | 30.0 | % | 30.0 | % | ||||||||||||
Panamanian gross tax election | (13.6 | ) | (12.4 | ) | (8.9 | ) | (7.6 | %) | (8.5 | %) | (9.6 | %) | ||||||||||||
Difference in Panamanian statutory rates and non-Panamanian statutory rates | (23.0 | ) | (19.1 | ) | (9.3 | ) | (12.8 | %) | (13.1 | %) | (10.0 | %) | ||||||||||||
Provision for income taxes | $ | 17.1 | $ | 12.3 | $ | 9.6 | 9.6 | % | 8.4 | % | 10.4 | % | ||||||||||||
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2007 | 2006 | |||||||
Deferred tax liabilities: | ||||||||
Intangible Assets | $ | (11.7 | ) | $ | (10.5 | ) | ||
Maintenance reserves | (1.8 | ) | (1.7 | ) | ||||
(13.5 | ) | (12.2 | ) | |||||
Deferred tax assets: | ||||||||
Property and Equipment | 6.3 | 6.8 | ||||||
Post-employment benefit obligation | 0.0 | 0.1 | ||||||
Allowance for doubtful accounts | 0.9 | 1.5 | ||||||
Expendable parts and supplies | 0.4 | 0.6 | ||||||
Prepaid expenses | 0.1 | 0.4 | ||||||
Others | 2.9 | 2.1 | ||||||
10.6 | 11.5 | |||||||
Net deferred tax liabilities | (2.9 | ) | (0.7 | ) | ||||
Less: Current deferred tax assets | 3.8 | 3.9 | ||||||
Non current deferred tax liabilities | $ | (6.7 | ) | $ | (4.6 | ) | ||
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2007 | 2006 | |||||||
Accumulated benefit obligation | $ | 3.1 | $ | 2.8 | ||||
Projected benefit obligation at beginning of year | $ | 3.4 | $ | 2.9 | ||||
Service cost | 0.4 | 0.3 | ||||||
Interest cost | 0.2 | 0.2 | ||||||
Actuarial losses | 0.0 | 0.4 | ||||||
Benefits paid | (0.4 | ) | (0.4 | ) | ||||
Projected benefit obligation at end of year | $ | 3.6 | $ | 3.4 | ||||
2007 | 2006 | |||||||
Fair value of plan assets at beginning of year | $ | 4.0 | $ | 3.4 | ||||
Actual return on plan assets | 0.2 | 0.2 | ||||||
Employer contributions | 0.9 | 0.8 | ||||||
Benefits paid | (0.4 | ) | (0.4 | ) | ||||
Fair value of plan assets at end of year | $ | 4.7 | $ | 4.0 | ||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2007 | 2006 | |||||||
Noncurrent benefit asset | $ | 1.1 | $ | 0.6 | ||||
Net overfunded amount recognized in balance sheet | 1.1 | 0.6 | ||||||
Unrecognized net actuarial gain (loss) | — | — | ||||||
Funded status of the plans — net overfunded | $ | 1.1 | $ | 0.6 | ||||
2007 | ||||
Actuarial losses of current period | $ | 0.1 | ||
Amortization of actuarial losses into net periodic benefit expense | (0.1 | ) | ||
Total recognized in other comprehensive income | $ | 0.0 |
2007 | 2006 | 2005 | ||||||||||
Service cost | $ | 0.4 | $ | 0.3 | $ | 0.3 | ||||||
Interest cost | 0.2 | 0.2 | 0.1 | |||||||||
Expected return on plan assets | (0.2 | ) | (0.1 | ) | (0.1 | ) | ||||||
Actuarial loss | 0.1 | 0.0 | 0.0 | |||||||||
Net periodic benefit expense | $ | 0.5 | $ | 0.4 | $ | 0.3 | ||||||
2007 | 2006 | |||||||
Weighted average assumed discount rate | 5.54 | % | 5.54 | % | ||||
Weighted average rate of compensation increase | 3.25 | % | 3.25 | % |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2007 | 2006 | 2005 | ||||||||||
Weighted average assumed discount rate | 5.54 | % | 5.50 | % | 5.75 | % | ||||||
Expected long-term rate of return on plan assets | 5.00 | % | 4.50 | % | 4.00 | % | ||||||
Weighted average rate of compensation increase | 3.25 | % | 3.25 | % | 3.50 | % |
Future contribution payments: | ||||
2008 | $ | 0.8 | ||
Future benefit payments: | ||||
2008 | $ | 0.7 | ||
2009 | $ | 0.6 | ||
2010 | $ | 0.7 | ||
2011 | $ | 0.6 | ||
2012 | $ | 0.6 | ||
Remaining five years | $ | 2.6 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2007 | 2006 | 2005 | ||||||||||
Operating Revenues: | ||||||||||||
Copa Segment | $ | 806.2 | $ | 676.2 | $ | 505.7 | ||||||
AeroRepública segment | 226.0 | 175.9 | 103.0 | |||||||||
Elimnations | (4.9 | ) | (0.9 | ) | (0.1 | ) | ||||||
Consolidated | $ | 1,027.3 | $ | 851.2 | $ | 608.6 | ||||||
Depreciation: | ||||||||||||
Copa Segment | $ | 30.7 | $ | 23.7 | $ | 19.3 | ||||||
AeroRepública segment | 4.6 | 1.2 | 0.6 | |||||||||
Consolidated | $ | 35.3 | $ | 24.9 | $ | 19.9 | ||||||
Aircraft Rentals: | ||||||||||||
Copa Segment | $ | 27.8 | $ | 23.9 | $ | 22.1 | ||||||
AeroRepública segment | 14.8 | 14.6 | 5.5 | |||||||||
Elimnations | (4.0 | ) | (0.3 | ) | 0.0 | |||||||
Consolidated | $ | 38.6 | $ | 38.2 | $ | 27.6 | ||||||
Operating income: | ||||||||||||
Copa Segment | $ | 171.7 | $ | 166.6 | $ | 103.0 | ||||||
AeroRepública segment | 25.8 | (0.5 | ) | 6.1 | ||||||||
Consolidated | $ | 197.5 | $ | 166.1 | $ | 109.1 | ||||||
Interest expense: | ||||||||||||
Copa Segment | $ | (33.8 | ) | $ | (25.2 | ) | $ | (18.3 | ) | |||
AeroRepública segment | (8.0 | ) | (2.2 | ) | (2.2 | ) | ||||||
Consolidated | $ | (41.8 | ) | $ | (27.4 | ) | $ | (20.5 | ) | |||
Interest income: | ||||||||||||
Copa Segment | $ | 11.7 | $ | 6.9 | $ | 3.4 | ||||||
AeroRepública segment | 0.5 | 0.4 | 0.2 | |||||||||
Consolidated | $ | 12.2 | $ | 7.3 | $ | 3.6 | ||||||
Income (loss) before income taxes: | ||||||||||||
Copa Segment | $ | 165.6 | $ | 155.5 | $ | 89.8 | ||||||
AeroRepública segment | 13.3 | (9.4 | ) | 2.8 | ||||||||
Consolidated | $ | 178.9 | $ | 146.1 | $ | 92.6 | ||||||
Total Assets at End of Period: | ||||||||||||
Copa Segment | $ | 1,546.6 | $ | 1,168.1 | ||||||||
AeroRepública segment | 256.3 | 132.9 | ||||||||||
Elimnations | (95.6 | ) | (46.0 | ) | ||||||||
Consolidated | $ | 1,707.3 | $ | 1,255.0 | ||||||||
Capital Expenditures: | ||||||||||||
Copa Segment | $ | 250.5 | $ | 222.0 | $ | 109.9 | ||||||
AeroRepública segment | 115.6 | 30.0 | 2.9 | |||||||||
Consolidated | $ | 366.1 | $ | 252.0 | $ | 112.8 | ||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2007 | 2006 | 2005 | ||||||||||
North America | $ | 152.1 | $ | 131.2 | $ | 86.9 | ||||||
Central America and Caribbean | 162.3 | 157.0 | 125.3 | |||||||||
South America | 573.6 | 450.3 | 303.2 | |||||||||
Panama | 139.3 | 112.7 | 93.2 | |||||||||
Total operating revenue | $ | 1,027.3 | $ | 851.2 | $ | 608.6 | ||||||
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
THE BOARD OF DIRECTORS AND SHAREHOLDERS
COPA HOLDINGS, S.A.
We have audited the consolidated financial statements of Copa Holdings, S.A. (the “Company”) and subsidiaries as of December 31, 2007 and 2006, and for each of the three years in the period ended December 31, 2007, and have issued our report thereon dated May 5, 2008 (included elsewhere in this Annual Report Form 20F). Our audits also included the financial statement schedule II - Valuation and Qualifying Accounts listed in Item 18 of this Annual Report. This schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young
Panama City, Republic of Panama
May 5, 2008
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Balance at | Additions | Deductions | ||||||||||||||
Beginning of | Charged To | from | Balance at | |||||||||||||
Description | Year | Expense | Reserves | End of Year | ||||||||||||
(in thousands) | ||||||||||||||||
2007 | �� | |||||||||||||||
Allowance for Doubtful Accounts | $ | 7,305 | $ | 4,276 | $ | (3,424 | )(a) | $ | 8,157 | |||||||
Allowance for Obsolescence of Expendable Parts and Supplies | 21 | 14 | 0 | 35 | ||||||||||||
2006 | ||||||||||||||||
Allowance for Doubtful Accounts | $ | 4,911 | $ | 3,764 | ($1,370 | )(a) | $ | 7,305 | ||||||||
Allowance for Obsolescence of Expendable Parts and Supplies | 9 | 12 | 0 | 21 | ||||||||||||
2005 | ||||||||||||||||
Allowance for Doubtful Accounts | $ | 4,713 | $ | 812 | ($614 | )(a) | $ | 4,911 | ||||||||
Allowance for Obsolescence of Expendable Parts and Supplies | 1,739 | 3 | (1,733 | ) | 9 | |||||||||||
General Sales Agent Contract Termination Reserves | 1,300 | 0 | (1,300 | ) | 0 |
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10.47† | Supplemental Agreement No. 14 dated as of August 31, 2007 to the Boeing Purchase Agreement Number 2191 dated November 25, 1998 between the Boeing Company and Copa Holdings, S.A. | |||
10.48† | Supplemental Agreement No. 15 dated as of February 21, 2008 to the Boeing Purchase Agreement Number 2191 dated November 25, 1998 between the Boeing Company and Copa Holdings, S.A. | |||
12.1 | Certification of the Chief Executive Officer, pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934. | |||
12.2 | Certification of the Chief Financial Officer, pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934. | |||
13.1 | Certification of Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||
13.2 | Certification of the Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
† | The Registrant has requested confidential treatment for portions of this exhibit. |