Westjet 2015 Annual Report Download - page 79

Notes to Consolidated Financial Statements
As at and for the years ended December 31, 2015 and 2014
(Stated in thousands of Canadian dollars, except percentage, ratio, share and per share amounts)
WestJet Annual Report 2015 | 77
3. Capital management
The Corporation’s policy is to maintain a strong capital base in order to maintain investor, creditor and market confidence and to
sustain the future development of the airline. The Corporation manages its capital structure and makes adjustments in light of
changes in economic conditions and the risk characteristics of the underlying assets.
In order to manage the capital structure, the Corporation may, from time to time, purchase shares for cancellation pursuant to
normal course issuer bids, issue new shares, pay dividends and adjust current and projected debt levels.
In the management of capital, the Corporation includes shareholders’ equity (excluding hedge reserves), long-term debt, cash
and cash equivalents and the Corporation’s off-balance-sheet obligations related to its aircraft operating leases, all of which are
presented in detail below.
The Corporation monitors its capital structure on a number of bases, including cash to trailing 12 months revenue, adjusted
debt-to-equity and adjusted net debt to earnings before net finance cost, taxes, depreciation and amortization and aircraft
leasing (EBITDAR). EBITDAR is a non-GAAP financial measure commonly used in the airline industry to evaluate results by
excluding differences in tax jurisdictions and in the method an airline finances its aircraft. In addition, the Corporation will adjust
EBITDAR for non-operating gains and losses on derivatives and foreign exchange. The calculation of EBITDAR is a measure that
does not have a standardized meaning prescribed under IFRS and therefore may not be comparable to similar measures
presented by other issuers. The Corporation adjusts debt to include its off-balance-sheet aircraft operating leases. To derive a
present-value debt equivalent, common industry practice is to multiply the trailing 12 months of aircraft leasing expense by a
multiplier. The Corporation uses a multiplier of 7.5. The Corporation defines adjusted net debt as adjusted debt less cash and
cash equivalents. The Corporation defines equity as total shareholders’ equity, excluding hedge reserves.
2015
2014
Change
Cash to trailing 12 months revenue
Cash and cash equivalents
1,183,797
1,358,071
(174,274)
Trailing 12 months revenue
4,029,265
3,976,552
52,713
Cash to trailing 12 months revenue(v)
29.4%
34.2%
(4.8 pts)
Adjusted debt-to-equity
Long-term debt(i)
1,174,833
1,188,663
(13,830)
Off-balance-sheet aircraft leases(ii)
1,305,668
1,368,375
(62,707)
Adjusted debt
2,480,501
2,557,038
(76,537)
Total shareholders’ equity
1,959,993
1,777,502
182,491
Add: Hedge reserves
(1,903)
3,179
(5,082)
Adjusted equity
1,958,090
1,780,681
177,409
Adjusted debt-to-equity(v)
1.27
1.44
(11.8%)
Adjusted net debt to EBITDAR
Adjusted debt (as above)
2,480,501
2,557,038
(76,537)
Less: Cash and cash equivalents
(1,183,797)
(1,358,071)
174,274
Adjusted net debt
1,296,704
1,198,967
97,737
Net earnings
367,530
283,957
83,573
Add:
Net finance cost(iii)
38,136
34,768
3,368
Taxes
152,728
106,350
46,378
Depreciation and amortization
264,921
226,740
38,181
Aircraft leasing
174,089
182,450
(8,361)
Other(iv)
9,499
2,064
7,435
EBITDAR
1,006,903
836,329
170,574
Adjusted net debt to EBITDAR(v)
1.29
1.43
(9.8%)
(i) At December 31, 2015, long-term debt includes the current portion of long-term debt of $ 141,572 (December 31, 2014 – $159,843) and long-term
debt of $ 1,033,261 (December 31, 2014 – $1,028,820).
(ii) Off-balance-sheet aircraft leases is calculated by multiplying the trailing 12 months of aircraft leasing expense by 7.5. At December 31, 2015, the
trailing 12 months of aircraft leasing costs totaled $174,089 (December 31, 2014 – $182,450).
(iii) At December 31, 2015, net finance cost includes the trailing 12 months of finance income of $15,529 (December 31, 2014 – $17,070) and the trailing
12 months of finance cost of $53,665 (December 31, 2014 – $51,838).
(iv) At December 31, 2015, other includes the trailing 12 months foreign exchange loss of $10,326 (December 31, 2014 – loss of $2,064) and trailing 12
months non-operating gain on derivatives of $827 (December 31, 2014 – $nil).
(v) The Corporation has internal guidelines for cash to trailing 12 months revenue of approximately 30%, an adjusted debt-to-equity measure of no more
than 2.5 and an adjusted net debt to EBITDAR measure of no more than 2.5. The Corporation’s internal guidelines are not related to any covenants.