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\fFamily Dollar, Inc FAMILY DOLLAR, INC (FDO - NYSE) COMPANY OVERVIEW Family Dollar Inc., is a discount retail chain operator in the United States. Family Dollar offers a core assortment of name-brand and quality consumable merchandise supplemented by fashion and seasonal merchandise. A Fortune 500 company that is based in Matthews, North Carolina, FDO operates more than 6,500 stores in 44 states. The Company's merchandise assortment includes consumables, home products, apparel and accessories, and seasonal and electronics. The Company's products include apparel, food, cleaning and paper products, home decor, beauty and health aids, toys, pet products, automotive products, domestics, seasonal goods and electronics. ****************************************************************************** Price (12/04/08) Common $24.21 Est. inst. Ownership 91.6% Basic shares outstand. 139.70m Insider's Holdings 8.17.0% 52 - Week price range $ 14.62 - 32.50 Current Ratio 1.257:1 Est. float 134.94m Book Value per share $8.977 Selected Annual Data FY 08/31 $(000) Revenue Earnings EPS (diluted) P/E 2006A $ 6,394.8 $ 195.1 $ 1.26 N/A 2007 A $ 6834.3 $ 242.9 $ 1.62 N/A 2008A $ 6983.6 $ 233.07 $ 1.66 14.59 X 2009E $ 7,240.0 $ 239.0 $ 1.71 14.15 X 2010E $ 7,550.0 $ 260.0 $ 1.87 12.95 X Company Highlights Family Dollar (FDO) shares are up 42% this year, not only bucking the 37% drop in the Standard & Poor's 500 but ranking it as the top performer in the index. Family Dollar is recognized on Forbes' 25 growing retail list. In an effort to drive sales, Family Dollar is looked on to maintain a merchandising focus on food and other consumables, to improve its treasure hunt assortments, and to increase the number of stores that accept food stamp and credit-card payments. Balancing these positive factors against a challenging economic environment, same-store sales to rise 2% in fiscal 2009. Coupled with the company's plan to open 125 net new stores, which we estimate will bring its total store count up to 6,696 and increase its total selling square footage by 2%, we project net sales to rise 4% in fiscal 2009, to $7.28 billion. PARTNERSHIP In 2007 family Dollar signed a multi-year agreement with News America Marketing, a division of News Corporation. This agreement created a partnership between Family Dollar and News America Marketing, which delivers a wide array of in-store marketing programs under the Smart Source brand name. Essentially, News America Marketing became the exclusive third-party provider of marketing programs at Family Dollar and will offer its portfolio of Smart Source instore programs. FDO's strong performance in the consumer packaged goods market was an important consideration for this move. It reflected FDO's emphasis on providing its customers with great values on products they need every day. This partnership enabled the company to improve the customer's shopping experience and reaffirm their mission of being a compelling place to shop. The intention was for News America to be able to implement its full range of products throughout FDO's stores. The Smart Source portfolio includes at-shelf coupon dispensers, shelf messaging and floor advertising on an exclusive basis. FDO also partnered with Locus Telecommunications under an agreement that made it easier for Locus's customers to recharge their O2[SM] Wireless service throughout the US. Family Dollar's marketing strategy allows it to attract a broad demographic of consumers looking for high-quality goods and services at great prices. This makes it ideally suited for a partnership of this sort. This arrangement provides convenience to FDO'S customers by providing the products they need right in their neighborhood. In October 2008, the company formed an alliance with Febreze, a leading line of home freshening products. Under the agreement, Febreze will be sent by donation to 150,000 troops stationed abroad. The agreement was supposed to be in effect until Veteran's Day, and under it Febreze and Family Dollar will donate one bottle of Febreze to go for every Febreze item purchased at Family Dollar stores nationwide, up to 150,000 bottles. The product donation was supported by two months of in-store merchandising at every Family Dollar store nationwide. Promotional elements include product displays, signage and Febreze inclusion in monthly circulars distributed to Family Dollar customers, including discount offers ranging from $1.50 $5.00 off Febreze products. STRATEGY During 2008, particularly in the first part of the year, Family Dollar's strategy of adjusting its product mix, controlling costs and improving store-manager training has been particularly effective and allowed it to reap the rewards of improved financial performance and appreciation in the price of its stock. This was partially due to its efficient monitoring of gross margin and expenses. While doing these things the company managed to enhance the quality of its stores as well. It is expected that this will be continued during the 2009 fiscal year as there are plans to renovate a significant number of stores and to also enhance the technology in many stores which will allow a larger number of stores to accept credit cards. During the fourth quarter of 2008 Family Dollar adjusted its product mix to include more consumables such as laundry detergent and food. A component of this strategy was to lessen the focus on discretionary items like electronics and household goods. In this regard, they reduced their inventories of discretionary items during this period. This shift from discretionary products towards consumables (which provide lower profit margins) need to be constantly monitored though to see if there is any need for possible revisions as conditions change. To better streamline their overall strategy, the company recently promoted Dorlisa K. Flur to executive vice president, strategy and marketing. FDO stated goal here was to fortify the connections between their customer communications and customer research efforts. The overall intent is for the marketing strategy to lead to eventual better performance financially. The private label strategy of the company should also be augmented by incorporating more inputs from customers. FINANCIAL PERFORMANCE 2006-2008 In the fiscal year ended august 2007, revenues increased to $6.83 billion which represented an increase of 6.93% over the previous year. The consumables category accounted for most of the sales generated in that fiscal year, followed by home products, apparel and accessories and seasonal and electronics. Earnings increased by 24.5% over the same period, partially due to the fact that FDO was able to manage their cost of sales and other expenses so that these items did not increase by more than the increase in revenues. On a per share basis, earnings increased from $1.26 to $1.62. In the following fiscal year to august 2008, revenue growth was only 2.2% (up to 6.98 billion) whereas cost of sales and other expenses increased by a greater proportion. Consequently, there was a fall in overall earnings by 4%. This therefore represented a decline in performance from the year before, where earnings had seen significant growth. Earnings per share however, showed a marginal increase to $1.66, due to a reduction in the shares outstanding. In that fiscal year, most sales were generated by the consumables category particularly, the food group. This was driven by company's food strategy. Recent Results (Last Four Quarters) In the first quarter of the fiscal year ended August 2008 (quarter ended December 2007) sales were strongest in the Consumables category, mostly food sales. The electronics and Seasonal category also posted strong sales. FDO did not do as well in the Home Products and Apparel categories. Revenues were $1.683 billion, a 5.2 % increase over the corresponding period for the year before. Net income for the same period was $51.9 million, a 4% reduction from the corresponding period the previous year. The earnings per share showed just only a marginal increase from $0.36 to $0.37. In the quarter ended March 1 2008, revenues of $1.833million represented a 5.9% reduction from the same period one year before. Earnings declined by a substantial 30% during this period also, which translated to a fall in earnings per share from $0.60 to $0.45 (25%). During the first half of the fiscal year, the company strengthened their assortments in key consumable categories, and reduced their emphasis within the discretionary categories. They also reassessed their cost structure for greater efficiency. The aim was to improve their financial performance in the second half of the year. FDO implemented strategies to drive sales which were intended to stimulate earnings growth in the second half of the year. An emphasis on cutting costs and reducing inventory shrinkage was also an important part of the strategy. These initiatives, in addition to stimulus checks given by government, and increased advertising, helped to boost fourth quarter sales in the second half of the year. In the third quarter ended May, revenues earned amounted to $1.702million, a 2.8% increase over the corresponding period for the previous year. This resulted in a 7.1% increase in net income and an increase in earnings per share from $0.40 to $0.46. Projections for Next Two years Current Fiscal year ending August 2009 There seems to be a brighter outlook for the upcoming year though as experts expect revenues to grow by 3.7% (to $7.24 billion), which is expected to translate to an improvement in overall earnings to approximately $239 million. Earnings per share are expected to increase from $1.66 to $1.71. In fiscal 2009 the company expects to make investments to strengthen their value and convenience proposition while also enhancing the customer's shopping experience. They intend to aggressively invest to drive revenues and manage risk. With the enhanced capabilities developed through the Project Accelerate initiative, they expect to build on the improvements made in fiscal 2008 and improve inventory productivity while also managing merchandise markdowns. Also continuing to monitor its cost structure is a priority. By aiming to source products from different parts of the world, it hopes to provide customers with quality products while trying to lower its overall sourcing costs. For the fiscal year ending August 2009, the Company expects net sales to increase by 3% to 5% as compared with the fiscal year ended August 30, 2008 and expects to open approximately 200 new stores. Capital expenditures for fiscal 2009 are expected to be between $140 million and $160 million. It is also expected that additional investments in support of the Company's key technology initiatives will be made. Anticipating continued strong sales of consumable merchandise and continued management of expense growth, the Company expects earnings per share will be between $1.58 and $1.78 in fiscal 2009. The increase in revenues of 6.9% was due to a 0.9% increase comparable stores sale, strong performance in the consumables division and sales from new stores. The operating profit was $388.6 million in the fiscal year 2007, an increase of 7.3% over 2006. Fiscal Year Ending August 2010 For the fiscal year ending August 2010, revenue are projected to increase by a further 4.3%, up to $7.55billion, while earnings are expected to grow to approximately $260million, showing positive prospects of continued growth. The earnings per shares are expected to show a corresponding increase from $1.71 to $1.87. Table 1 CONSOLIDATED INCOME STATEMENT & PROJECTIONS (in thousands- except per share amounts) FY 8/31 2007A 2008A 2009E 2010E Total Revenue 6,834,305 6,983,628 7,240,000 7,550,000 Cost of Revenue 4,512,242 4,637,826 4,730,583 4,825,194 Gross Profit 2,322,063 2,345,802 2,509,417 2,724,806 1,933,430 1,980,496 2,095,365 2,225,277 388,633 365,306 414,053 499,528 Total Other Income/Expenses Net 10,690 11,042 11,263 11,488 Earnings Before Interest And Taxes 399,323 376,348 425,316 511,017 Interest Expense (17,427) (14,586) (16,045) (17,649) Income Before Tax 381,896 361,762 409,271 493,367 Income Tax Expense 139,042 128,689 145,700 175,639 Net Income From Continuing Ops 242,854 233,073 263,570 317,729 1.63 1.66 1.71 1.87 149,141 140,193 154,212 169,634 Selling General and Administrative Operating Income or Loss Income from continuing operations Net income per common share- basic Weighted average shares- basic The total Revenue was increased by 6% from 2007 and 2008 and the cost of revenue was steadily increased by 2% based on the Company's strength and the products and services offered. Selling general & administrative had a steady increase of 5.8% in 2009 and 6.2% in 2010 (129,912). The earnings before interest and taxes decreased by 5.7 %.. Total other income/ expenses becomes an expense and was increased steadily by 2%, the interest expense also had a 10% increase for both years. The Company's income tax is 36% of income before tax. CAPITALIZATION AND OTHER ASSET AND LIABILITY ANALYSIS During fiscal 2008, the Company generated $515.7 million in operating cash flow compared with $415.8 million in fiscal 2007. An analysis of their cash flow statement reveals that this cash generated was utilized in making capital expenditures, dividend payments and interest payments among other things. Capital expenditures increased to $167.9 million, compared with $131.6 million in fiscal 2007. The increase in capital expenditures was partially due to an increase in improvements and upgrades made to existing stores. Also, increased investments were made relating to the operation of the Company's Store of the Future technology initiative. During fiscal 2008, the Company paid $67.4 million, or $0.49 per share, in dividends compared to $65.8 million, or $0.45 per share, in fiscal 2007. Working capital fell to $275.1 million at August 2008. At this date though, the Company had approximately $158.5 million in cash and cash equivalents. This represented a significant improvement in their overall cash position over the year before, as it translates to an increase in cash and cash equivalents of $71.3 million. At this date, overall current assets were $1.34 billion. Total long term debt amounted to $250million, while total stockholders' equity was $1.25 billion. Therefore, with a debt/equity ratio of 0.199, the company is not profoundly indebted at this time relatively speaking. Consequently, their interest expense is relatively low, compared to their earnings before interest and taxes. The times interest earned ratio would therefore indicate that they are fairly comfortable at meeting interest payments. Their $1.25billion in equity amounts to about $8.97 per share. Table 11 8/30/2008 Consolidated Balance Sheet (in thousands, except per share ) ASSETS LIABILITIES AND EQUITY Cash and cash equivalents 158,502 Accounts Payable 570,699 Merchandise Inventories 1,032,685 Accrued liabilities 496,820 Deferred income taxes Income tax refund receivable Prepayments &other cur asst 87,715 Income Taxes 1,466 Total Current Assets 1,344,091 Total Current liabilities 1,068,985 Property & equipment, net 1,071,883 Long term debt 250,000 Investment securities 222,104 Deferred income taxes 50,998 Other Assets 23,704 Income taxes Shareholders equity: Preferred stock, $1 par 37,716 Common Stock, $10 par 14,413 7,007 58,182 Capital in excess of par 166,669 Retained earnings 1,170,652 Acc other comprehensive loss (4,862) 1,346,872 TOTAL ASSETS 2,661,782 Less: Common stock in treasury 92,789 Total shareholders' equity 1,254,083 TOTAL LIABILITIES AND EQUITY 2,661,782 RISKS AND CONCERNS One of the major risks facing the company at present relates to the adverse, unstable economic environment within which it has to operate. These conditions could affect the company directly or indirectly by negatively affecting consumer spending. With the American economy in a general recession, many companies have seen their access to credit severely restricted, often resulting in either bankruptcy or substantial job cuts. FDO has to strategically position itself so as to be better able to militate against these potentially harmful conditions. That being the case, there are potential opportunities to be capitalized on by Family Dollar. Another concern is the competition that faces the company within the industry in which it operates. Failure to anticipate and effectively manage competition could potentially restrict its revenues, chances for long term growth, and ultimately its profitability and long term viability. RECOMMENDATIONS AND CONCLUSIONS Discount stores like Family Dollar stand to benefit from the current conditions which include rising prices, job losses and many companies filing for bankruptcy. It is comparably priced to its competitors and offers a competitive value compared to its growth prospects. It is therefore recommended that this stock is a good prospect to buy at present, especially for investors with low risk tolerance. Its beta is 0.11, which makes it particularly attractive to risk adverse investors. The stock was trading at $19.23 at the end of December 2007 and had increased to $24.21 at present, an increase of approximately 30%. This occurred in a period when the Dow Jones Industrial has fallen significantly. The stock price is even expected to continue growing into next year. Its price/earnings ratio compares favorably to other top companies operating in the same industry. At present it leads the industry in projected earnings per share growth also. Its return to equity of 19.19% is amongst the top four in that industry and adds to its attractiveness to potential stockholders. Its dividend yield of 1.9% is also amongst the in that industry. JetBlue (JBLU, NASDAQ) COMPANY OVERVIEW JetBlue is a successful airline corporation, with headquarters in the United States. It offers flyers competitive airfares that include optimal luxury. Although a relatively young company, having been founded in 1998, it has proven to be profitable in its operations and marketing strategies. Where consumers would typically pay significantly more for in flight amenities such as Wi-Fi, individual televisions, meals, and extra leg-room, JetBlue offers these amenities and more at an affordable cost. It currently services 87 cities within 27 states in addition to 17 countries in Latin America and the Caribbean. Summary Financials Price (Common - 11/22/15) Basic Shares Outstanding 52 Week - Price Range Est. Float Gross Margin P/E Current $24.76 315.06M $12.35 - $27.36 312.79M 13.22 22.15 Debt to Equity Return on Equity Current Ratio Book Value per Share Operating Margin Return on invested capital 107.55 17.20 0.62:1 9.58:1 9.25 8.26 Selected Annual Data Selected Annual Data YEAR Revenue Net Income EPS P/E 2014 $5,817,000 $401,000 $1.19 $20.81 X 2015 (E) $6,400,000 $665,080 $1.93 $12.83 X 2016 (E) $7,000,000 $761,800 $2.23 $11.10 X Highlights JetBlue is currently experiencing profitability in today's stock market. As it does so, the company is making additions and improvements to its services. JetBlue is currently expanding its area of daily, roundtrip service to Barbados from Fort Lauderdale, FL. This move indicates a strong financial network with the city of Fort Lauderdale and the country of Barbados. JetBlue has been able to garner industry-wide attention as an upcoming airline leader. Overall, customer satisfaction has been consistently positive and widespread. Additionally, it has turned to philanthropic endeavours in order to support the community. The Soar with Reading program helps bring books to underprivileged schools and children, fostering an environment in which teachers have ample books to promote reading skills. The Community Connection program was created by JetBlue to support its crewmembers by granting organizations of their choice a travel gift for every 25 hours that they volunteer. JetBlue's operations are affected by changes in the price and availability of fuel. Risk was estimated to be a 10% increase in December 31, 2014 for the cost per gallon of fuel. This increase would possibly result in an increase of fuel expense in the amount of nearly $175 million for 2015. JetBlue anticipates that its non-fuel unit costs will grow less than two percent in 2015 and over time. This slow increase in non-fuel unit costs will help to offset costs from maintenance checks and landing gear overhauls. Description JetBlue operates within the airline industry which is highly competitive and can be greatly affected by a variety of issues including economic downturn, weather conditions, and politics. Fuel prices greatly affect the industry as well, which results in price fluctuations. JetBlue is known for offering competitive prices to consumers for high-value flight services. In addition, JetBlue offers international flights to the Caribbean and Latin America. The competitive prices and product offerings have ensured long-term sustainability within the sometimes volatile airline industry. Operations JetBlue has instituted advanced operational procedures to ensure brand consistency and maintain consumer engagement. According to its 2014 Annual Report, JetBlue's operational highlights included product enhancements, fleet changes, networking, new partnerships, and upholding quality customer service. JetBlue has been able to add some of the latest aircraft models, such as the Airbus A321 aircraft with the Mint layout, to its fleet. Additionally, it has deferred several aircraft orders to after 2020, which will coincide with the arrival of the most modern aircrafts. Such strategic operational decisions indicate a thorough understanding of consumer needs regarding flight transportation. JetBlue currently operates 214 aircrafts and is the proud sponsor of the New York Jets, using a custom green tailfin for select aircrafts. All of their aircrafts service 87 cities within 27 states, in addition to 17 countries in Latin America and the Caribbean. Product Enhancements In terms of product enhancements, JetBlue introduced Mint, a luxury flying option for JetBlue passengers. In Mint cabin aircrafts, 16 seats recline fully, 4 of which are enclosed in private suites. A product enhancement such as this appeals to consumers who wish to partake in a more exclusive and high-end flying experience. Fly-Fi is an additional product offering that JetBlue has continued to implement across its aircrafts. This internet service is a critical highlight of JetBlue; consumers with technological devices often seek free public internet access. Networking The ability of airlines to profit from networking with various cities is crucial to the airline's survival. In 2014, JetBlue networked with officials in Broward County, FL to expand its ability to offer more flights to the Fort Lauderdale-Hollywood airport. Also, JetBlue purchased 24 high density slots, which allows scheduled air-traffic flights specifically for the airline. With increased flight availability and ensured air-traffic, JetBlue is establishing itself as a reliable airline with secure flight operations. NEW PARTNERSHIPS JetBlue has been able to create new partnerships while also maintaining existing ones. JetBlue's TrueBlue rewards program enables members to earn points from their travels with the airline. By partnering with South African Airways, TrueBlue members can now earn points from traveling to South Africa. In addition, members can choose to donate some of their points to various charities, who can in turn use them for charity-related travels. Customer Service The airline industry is a service industry. Without positive consumer flight experiences, airlines would struggle to remain in existence. JetBlue has been awarded top honors for its outstanding customer service. For example, it was awarded by J.D. Power and Associates for the tenth consecutive year as the Highest in Airline Customer Satisfaction among Low-Cost Carriers. It was additionally recognized by Airline Ratings as the Best Low Cost Airline - The Americas, receiving 7/7 stars for safety, and 5/5 stars for its product offering for the second consecutive year. JetBlue has truly established itself as a leader in its dedication to serving consumers and ensuring their satisfaction. STRATEGY JetBlue's mission is to engage consumers through differentiation and stay at the forefront of technological advancements. More specifically, the airline company aims to continue to grow in high-value geography, invest in industry leading products, and provide award winning services via its 15,000 dedicated employees, whom it refers to as crewmembers. It plans to continue to differentiate itself and attract a greater mix of customers, ensuring further profitable growth. In order to fulfill its mission, JetBlue plans to introduce new passenger amenities, invest in new aircrafts, expand its John F. Kennedy International Airport terminal, continue to work with authorities in new travel cities, and maintain its recognition as a leader in airline customer service. JetBlue's primary strategy is to offer a differentiated flying experience for passengers. By offering products such as Even More Speed, Even More Space, and JetBlue Getaways, JetBlue is distinguishing itself in its ability to provide luxury flight capabilities at affordable, competitive pricing. All of these components are available within the domestic U.S. (New York, Boston, Los Angeles, Florida), Caribbean countries, and Latin American countries. Most recently, it began offering flights to Cleveland, OH and Reno, NV. In terms of its pricing strategy, JetBlue offers four price-point options for consumers: Blue, Blue Plus, Blue Flex, and Mint. Blue is a base option, with competitive fares and one carry-on option. Blue Plus enables passengers to check one additional bag. Blue Flex offers the ability to check multiple bags at competitive pricing. Mint is similar to Blue Flex, yet also consists of the previously mentioned extended seats that are enclosed in a private on-board suite. Lastly, JetBlue also participates in code-sharing, which enables the company to place its name and flight number on aircrafts operated by other airlines. Strategic implementation of all of these offerings contributes to the company's long-term success. Management JetBlue was founded by David Neeleman in the late 1990's. The current President and CEO of JetBlue is Robin Hayes. His career in the airline industry began with many years as a Vice President of British Airways. He became CEO in February of 2015, after previously serving as JetBlue's Vice President and Chief Commercial Officer between 2008 and 2013. Mark Powers serves as JetBlue's Chief Financial Officer. Powers's main responsibilities include aircraft transactions, cash management, corporate finance, execution of JetBlue's financial strategy, real estate and sourcing units. The Executive Vice President of Operations is Jeff Martin, who is responsible for flight operations, technical operations, system operations, safety, and security. Martin oversees the safe and secure operation of the airline's 850 daily flights and fleet of nearly 200 aircrafts. Martin worked with Southwest Airlines prior to joining JetBlue. Markets Domestically, JetBlue has six focus cities; New York, Boston, Fort Lauderdale-Hollywood, Orlando, Long Beach, and San Juan, Puerto Rico. However, it operates in 87 cities within 27 states and 17 countries in Latin America/Caribbean. Additionally, JetBlue regularly seeks new routes to existing destinations to decrease travel time. As JetBlue expands its services, it is increasingly garnering a presence as a global brand. Consumer awareness is key for growth and its marketing campaigns utilize many promotional formats including; social media, television spots, and online advertising. JetBlue has also participated in various events and programs locally to push the brand image even further. As a newcomer in the airline industry, JetBlue recognizes the need to remain ahead of its competitors. These airlines include Southwest Airlines, United Airlines, and American Airlines. In an industry that generated billions of dollars last year, these competitors have taken the lead in dominating domestic air travel. While they've been in existence for much longer, JetBlue has the advantage of entering the industry with trendy in-flight options and mass customer appeal. JetBlue has established itself as a main contender and will continue to lay the groundwork for airline improvements, which its competitors will follow. According to the IATA (2015), the airline industry made $733B in 2014. This is on-trend for the steady growth that the industry has experienced over the last decade. FINANCIAL PEFORMANCE 2012-2014 The fiscal year ended 2013 was a record-breaking year for JetBlue as they delivered strong financial results. Their customer-base exceeded 30 million which allowed them to generate record revenues of over $5 billion. This is evident by an increase in net income of 31% over the previous year with an annual record of $168 million. In addition, JetBlue was able to generate over $120 million of positive free cash flow, making 2013 their fifth consecutive year of profitability. These strong financial results were evident in their stock price which increased nearly 50% during 2013, outpacing the S&P 500. On a per share basis, earnings per basic share increased from $0.45 to $0.59. Overall, the operating margin increased from 7.5% to 7.9%. In the following fiscal year to December 2014, revenue growth increased by 8 billion from the previous year. Growing net income by 38% year-over-year to an annual record of $232 million which excludes their $241 million gain from sale of their subsidiary LiveTV. During this financial year they continued to strengthen their balance sheet, lowering their net-debt-to-capital ratio by 6.5 points. In addition, return on invested capital increased by one percentage point to 6.3%. Their financial performance was once again reflected by their stock price which increased by a further 35% to nearly 85% during 2014, outpacing the S&Ps 500's yearly again. Recent Results (Last Four Quarters) In the first quarter of the fiscal year 2014, JetBlue reported operating income of $41 million, a 31% decrease over the corresponding period for 2013. A drastic decrease in net income of 71% was also reported over the corresponding period for the year before. Operating revenues for the same period was $1.3 billion, a reduction of $50 million from the corresponding period the previous year. Yield per passenger mile in the first quarter was 14.20 cents, up 1.8% compared to the first quarter of 2013. Quarter 2 yielded better results as total revenue increased 11.8% year-over-year. Increase in revenue passenger miles and yield led to a 12.3% increase in passenger revenue. Operating profit margin increased from 7.6% to 9.4%. whilst net profit margin increased by 14.8%. In the third quarter, revenues earned amounted to $1.5 billion. This resulted in an 11% increase in net income and an increase in earnings per diluted share from $0.21 to $0.24. In the fourth quarter, operating income was $169 million, a 47% increase over the corresponding period for the year before. Net income for the same period was $88 million, an 87% increase from the corresponding period the previous year. Interest expense for the quarter declined 9.3%, or $3 million as a result of JetBlue reducing its debt throughout the year. Projections for Next Two years Current Fiscal year ending December 2015 The company anticipates a brighter year as revenues are expected to grow by $583,000 in 2015, a percentage increase of 10% year-over-year from 2014 due to proper execution of their network strategy and successful implementation of fair options. This is expected to translate into an increase in net income of $264,080. Earnings per share are expected to increase by $0.74 to $1.93. During fiscal year 2015, the company expects to implement initiatives in order to enhance their customers' experience such as the availability of Wi-Fi on all their fleets without additional cost to the customer. They anticipate that their network maturity will continue to drive superior net revenue increases. Margins are expected to continue to expand across the network even if they grow their capacities faster than the industry average. They expect revenues to continue to grow and success to be reaped as they expand their Mint services to the Caribbean. For the fiscal year ending December 2015, the company had projected an operating income of 65 million but have already exceeded that and is expected to achieve that of $1,139,200 by year end. In addition, fair options revenue which was launched in June is expected to increase to at least 80 million at the end of the fiscal year. The increase in overall performance is due to on time performance and driving efficient capacity growth. Fiscal Year Ending December 2016 For the fiscal year ending December 2016, revenue are projected to further increase by 9.4% to $7,000,000 with an overall net income of $761,800 which is reflective of continued growth. In fiscal 2016 the company expects to make investments to strengthen their value and improve their overall standing such as the introduction of their Mint service to Boston and also seasonal service to Barbados in 2016. Also, the company intends to co-brand their credit card partnership from American Express to a Magna Card. Thus, earnings per share is expected to increase from $1.93 to $2.23. CONSOLIDATED INCOME STATEMENT AND PROJECTIONS Table 1 (in thousands - except per share amounts) FY 12/31 2014A 2015E 2016E Total Revenue 5,817,000 6,400,000 7,000,000 Cost of Revenue 2,775,000 2,508,800 3,080,000 Gross Profit 3,042,000 3,891,200 3,920,000 2,207,000 2,432,000 2,520,000 320,000 320,000 350,000 2,527,000 2,752,000 2,870,000 515,000 1,139,200 1,050,000 Total Other Income/ Expenses Net 242,000 4,000 232,000 Earnings before Interest and Taxes 757,000 1,143,200 1,282,000 Interest Expense (134,000) (120,000) (110,000) Income before Tax 623,000 1,023,200 1,172,000 Income Tax Expense 222,000 358,120 410,200 Net Income from Continuing Operations 401,000 665,080 761,800 Net Income per Common Share - Basic 1.19 1.93 2.23 Net Income Applicable to Common Shares 336,400 344,000 341,000 Operating Expenses: Selling and Administrative Others Total Operating Expenses Operating Income and Loss Income from Continuing Operations The total revenue was increased by 10% from 2014 to 2015 and the cost of revenue was decreased by 9.6% leading to an overall increase in gross profit by 27.9%. Selling and administrative expenses is expected to increase by 10.2% in 2015 with a smaller percentage increase of 3.6% in 2016. This is nevertheless reflected by an increase of $88,000 in 2016. Earnings before interest and taxes are expected to increase by 51% in 2015 whereas total other income/expenses net are expected to reduce significantly by $238,000. The company's income tax expense was retained at a standard rate of 35% over the three-year period. CAPITALIZATION AND OTHER ASSET AND LIABILITY ANALYSIS During fiscal year 2014, JetBlue generated $912 million in Net Cash from its operating activities. Revenue growth increased by 7% year-over-year compared to 2013. Net income was $401 million, a record for the company that indicated a notable 139% increase from 2013. JetBlue spent $806 million in capital expenditures and $127 million in pre-delivery deposits for flight equipment, compared to $615 million and $22 million in 2013, respectively. As a result of these expenditures in 2014, JetBlue was placed in a free cash flow deficit in the amount of -$21 million. This deficit is largely due to two capital leases that JetBlue is contractually obligated to. With a debt/equity ratio amount of 1.13, which is typical for such a corporation, JetBlue's risk is high, yet investors and creditors have a relatively similar stake in the company. JetBlue ended 2014 with cash and cash equivalents amounting to $341 million, $367 million in investment securities, $600 million between two lines of credit, $2,855 million in liabilities, and $2,529 million in equity. Based on the financial projections, balance sheet, and the 2014 Annual Report, JetBlue has sufficient liquidity as a result of its cash and cash equivalents, investment securities, and lines of available credit. Its ability to balance cash flow is continuing to improve and generate returns for stockholders. JetBlue Consolidated Balance Sheet (12/31/2014) (in millions) ASSETS Cash & Cash Equivalents Investment Securities Inventory Receivables Deferred Income Taxes Prepayments on Expenses Other Assets TOTAL CURRENT ASSETS Plant, Property and Equipment: Flight Equipment Predelivery of Flight Equipment Deposits Other Plant, Property & Equipment Assets Constructed for Others Other Assets Depreciation TOTAL ASSETS $341,000,000 $367,000,000 $46,000,000 $136,000,000 $174,000,000 $135,000,000 $1,000,000 $1,200,000,000 $6,233,000,000 $207,000,000 $816,000,000 $561,000,000 $567,000,000 $1,745,000,000 $7,839,000,000 LIABILITIES & STOCKHOLDER'S EQUITY Accounts Payable Air Traffic Liabilities Accrued Liabilities Maturity of Long-Term Debts & Capital Leases TOTAL CURRENT LIABILITIES Deferred Taxes Construction Long-Term Debts Other Liabilities TOTAL NON-CURRENT LIABILITIES Stockholder's Equity: Additional Paid-in Capital Retained Earnings Common Stock Treasury Stock Cost Other Comprehensive Loss TOTAL STOCKHOLDER'S EQUITY TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $208,000,000 $973,000,000 $490,000,000 $265,000,000 $1,936,000,000 $832,000,000 $487,000,000 $1,968,000,000 $87,000,000 $3,374,000,000 $1,711,000,000 $1,002,000,000 $4,000,000 ($125,000,000) ($63,000,000) $2,529,000,000 $7,839,000,000 RISKS AND CONCERNS One of the major risks facing the company is that of an extremely competitive industry characterized by low profit margins, high fixed costs and significant price competition. Unanticipated shortfalls in expected revenues as a result of price competition could negatively impact their financial results and thus impede their profitable growth strategy. Another concern is a high dependence on the availability of fuel which is subject to price volatility which could result in a curtailment of scheduled services and could have a material adverse effect on their financial conditions and results of operations. They also face risks affiliated with their presence in international markets such as political or economic instability as well as failure to comply with existing legal and regulatory requirements. Failure to effectively deal with these issues could adversely affect their business operations. Of grave concern is the fact that if JetBlue is unable to attract and retain qualified personnel or fail to maintain its company culture, its business could be harmed. As a result, the company may be faced with an inability to implement growth plans thus inhibiting their competitive ability. RECOMMENDATIONS AND CONCLUSIONS JetBlue has demonstrated its ability to grow and generate profits within an industry that is difficult to enter. With numerous airlines available to consumers, it has been able to distinguish itself and offer amenities to consumers at attractive prices. This continued success and profitability are evident in its stock price, making it an ideal investment. The 62% growth in EPS between 2014 and the projected 2015 calculation is on par with NASDAQ's current strength. Furthermore, its price/earnings ratio is projected to be 11.59 for 2016, nearly double the P/E of competitors American Airlines and United Airlines. Its return on equity is 21.28%, lower than its larger competitors, yet strong for its size. Such strength is a great sign for investors and indicates strong future earnings. JetBlue has a profitable future and is an ideal investment