Air Canada 2008 Annual Report Download - page 141

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Consolidated Financial Statements and Notes
141
16. CAPITAL DISCLOSURES
The Corporation views capital as the sum of Long-term debt and capital leases, Non-controlling interest, Capitalized
operating leases, and Shareholders’ equity. The Corporation currently has pre-delivery financing arranged, which is related
to future deliveries, and, as the aircraft have not yet been delivered, this debt is excluded from the capital base. The
Company includes capitalized operating leases, which is a measure commonly used in the industry ascribing a value to
obligations under operating leases. The value is based on annualized aircraft rent expense multiplied by 7.5, which is a factor
commonly used in the airline industry. The measure used may not necessarily reflect the fair value or net present value
related to the future minimum lease payments as the measure is not based on the remaining contractual payments and
the factor may not recognize discount rates implicit in the actual leases or current rates for similar obligations with similar
terms and risks. This definition of capital is used by management and may not be comparable to measures presented by
other public companies.
The Corporation also monitors its ratio of adjusted net debt to net debt plus Shareholders’ equity. Adjusted net debt is
calculated as the sum of Long-term debt and capital leases, Non-controlling interest, Capitalized operating leases, and
Shareholders’ equity less Cash and cash equivalents and Short-term investments.
The Corporation’s main objectives when managing capital are:
• tostructurerepaymentobligationsinlinewiththeexpectedlifeoftheCorporation’sprincipalrevenuegenerating
assets;
• toensuretheCorporationhasaccesstocapitaltofundcontractualobligationsastheybecomedueandtoensure
adequate cash levels to withstand deteriorating economic conditions;
• tomaintainanappropriatebalancebetweendebtsuppliedcapitalversusinvestorsuppliedcapitalasmeasuredby
the adjusted net debt to net debt plus equity ratio; and
• tomaintaintheCorporation’screditratingstofacilitateaccesstocapitalmarketsatcompetitiveinterestrates.
In order to maintain or adjust the capital structure, the Corporation may adjust the type of capital utilized, including
purchase versus lease decisions, defer or cancel aircraft expenditures by not exercising available options or selling current
aircraft options, and issuing debt or equity securities, all subject to market conditions and the terms of the underlying third
party agreements.
The total capital as at December 31, 2008 and December 31, 2007 is calculated as follows:
2008 2007
Long-term debt and capital leases $ 4,691 $ 4,006
Current portion of long-term debt and capital leases 663 413
5,354 4,419
Non-controlling interest 190 184
Capitalized operating leases 2,093 2,115
Less pre-delivery financing included in long-term debt (81) (521)
Adjusted debt and non-controlling interest 7,556 6,197
Shareholders’ equity 762 2,443
Total Capital $ 8,318 $ 8,640
Adjusted debt and non-controlling interest $ 7,556 $ 6,197
Less Cash and cash equivalents and Short-term investments (1,005) (1,239)
Adjustednetdebtandnon-controllinginterest $ 6,551 $ 4,958
Adjustednetdebttoadjustednetdebtplusshareholders’equityratio 89.6% 67.0%