Air Canada 2013 Annual Report Download - page 44

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2013 Air Canada Annual Report
44
At December 31, 2013, Property and equipment amounted to $5,073 million, an increase of $362 million from December 31,
2012. The increase in Property and equipment was mainly due to additions to property and equipment of $957 million in
2013, largely offset by the impact of depreciation and impairment expense of $530 million. The additions to Property and
equipment included flight equipment purchases of $595 million, which included four Boeing 777-300ER aircraft which were
delivered in June, August, November and December 2013, respectively, capitalized maintenance costs of $102 million, and
purchase deposits and assets under development of $152 million.
At December 31, 2013, Pension and other benefit liabilities decreased $1,999 million from December 31, 2012. The decrease
in the pension and other benefit liabilities was the result of several factors including an increase in the discount rates used to
value the liabilities, a 13.8% return on pension plan assets during 2013, the impact of pension benefit plan amendments and
past service cash payments of $220 million made during 2013, partially offset by the impact of a change in mortality
assumptions. Refer to section 9.7 of this MD&A for additional information on Air Canada’s pension funding obligations.
9.3. Adjusted Net Debt
The following table reflects Air Canada’s adjusted net debt balances as at December 31, 2013 and as at December 31, 2012.
(Canadian dollars in millions, except where indicated) December 31, 2013 December 31, 2012 $ Change
Total long-term debt and finance leases $3,959 $3,259 $ 700
Current portion of long-term debt and finance leases 374 499 (125)
Total long-term debt and finance leases, including current portion 4,333 3,758 575
Less cash, cash equivalents and short-term investments (2,208) (1,973) (235)
Net debt $2,125 $1,785 $ 340
Capitalized operating leases(1) 2,226 2,352 (126)
Adjusted net debt $4,351 $4,137 $ 214
EBITDAR (excluding benefit plan amendments) $1,433 $1,320 $ 113
Adjusted net debt to EBITDAR ratio 3.0 3.1 (0.1)
(1) Adjusted net debt is a non-GAAP financial measure used by Air Canada and may not be comparable to measures presented by other public companies. Adjusted net debt is
a key component of the capital managed by Air Canada and provides management with a measure of its net indebtedness. Air Canada includes capitalized operating leases
which is a measure commonly used in the industry to ascribe a value to obligations under operating leases. Common industry practice is to multiply annualized aircraft rent
expense by 7.0. This definition of capitalized operating leases is used by Air Canada and may not be comparable to similar measures presented by other public companies.
Aircraft rent was $318 million for the twelve months ended December 31, 2013 and $336 million for the twelve months ended December 31, 2012.
At December 31, 2013, total long-term debt and finance leases, including current portion, amounted to $4,333 million, an
increase of $575 million from December 31, 2012. The increase was mainly due to the proceeds received under the private
offering of new senior secured notes and a new senior secured credit facility, net of the repayment of the existing senior
secured notes. In addition, Air Canada took delivery of four Boeing 777-300ER aircraft which were financed under the private
offering of enhanced equipment trust certificates, which is further discussed in section 9.8 of this MD&A. The unfavourable
impact of a weaker Canadian dollar as at December 31, 2013 compared to December 31, 2012 on Air Canada’s foreign
currency denominated debt (mainly U.S. dollars), which accounted for an increase of $209 million, was also a contributing
factor to the increase to long-term debt and finance leases.
Adjusted net debt amounted to $4,351 million at December 31, 2013, an increase of $214 million from December 31, 2012,
mainly due to the higher long-term debt and finance lease balances as described above, partially offset by higher cash
balances. At December 31, 2013, the adjusted net debt to EBITDAR ratio amounted to 3.0 versus a ratio of 3.1 at December 31,
2012. Air Canada uses this ratio to manage its financial leverage risk and has an objective to maintain the ratio below 3.5.
At December 31, 2013, Air Canada’s weighted average cost of capital (WACC) was approximately 9.3%. WACC is based on an
estimate by management and consists of an estimated cost of equity of 20% and an average cost of debt and finance leases
of 6%.