Air Canada 2013 Annual Report Download - page 46

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2013 Air Canada Annual Report
46
The following table provides the consolidated calculation of free cash flow for Air Canada for the periods indicated:
Fourth Quarter Full Year
(Canadian dollars in millions) 2013 2012 $ Change 2013 2012 $ Change
Cash flows from (used for) operating activities $ 68 $ 70 $ (2) $731 $ 643 $ 88
Additions to property, equipment and intangible assets (344) (91) (253) (962) (444) (518)
Free cash flow(1) $ (276) $ (21) $ (255) $(231) $ 199 $ (430)
(1) Free cash flow is a non-GAAP financial measure used by Air Canada and may not be comparable to measures presented by other public companies. Air Canada considers
free cash flow to be an indicator of the financial strength and performance of its business because it shows how much cash is generated from the business after investing in
capital assets, which is available to meet ongoing financial obligations, including repaying debt and reinvesting in Air Canada.
Free cash flow
Free cash flow declined $255 million in the fourth quarter of 2013 and $430 million in the full year 2013 compared to the
same periods in 2012. While operating cash flows improved year-over-year, which was consistent with the improvement in
operating earnings, free cash flow was impacted by the addition of four Boeing 777-300ER aircraft delivered in 2013 (two
aircraft delivered in the fourth quarter of 2013). These aircraft were financed through the proceeds from the private offering
of enhanced equipment trust certificates, which is further described in section 9.6 of this MD&A.
Net cash flows from (used in) financing activities
Proceeds from borrowings amounted to $304 million in the fourth quarter of 2013 ($1,973 million in the full year 2013). As
further described in section 9.8 of this MD&A, in 2013, Air Canada completed financings of new senior secured notes and a
new senior secured credit facility, resulting in net proceeds of approximately $1,300 million. Air Canada received proceeds of
$304 million representing the portion of the proceeds under the private offering of enhanced equipment trust certificates
(further described in section 9.6 of this MD&A) available upon the delivery of the third and fourth Boeing 777-300ER aircraft
in November and December 2013. Reduction of long-term debt and finance lease obligations amounted to $238 million in the
fourth quarter of 2013 ($1,646 million in the full year 2013), which included debt repayments of $70 million during the fourth
quarter of 2013 ($1,127 million for the full year 2013) related to the existing senior secured notes, as further described in
section 9.8 of this MD&A.
9.6. Capital Expenditures and Related Financing Arrangements
Private Offering of Enhanced Equipment Trust Certificates
On May 9, 2013, Air Canada completed a private offering of three tranches of enhanced equipment trust certificates with a
combined aggregate face amount of US$715 million, in connection with the financing of five new Boeing 777-300ER aircraft.
Four of these five Boeing 777 aircraft were delivered in June, August, November and December 2013, respectively, with the
remaining aircraft scheduled for delivery in February 2014. The trust certificates have a weighted average interest rate of
approximately 4.7% per annum.
Boeing
As at December 31, 2013, Air Canada had outstanding purchase commitments with Boeing for the acquisition of 37
Boeing 787 aircraft. The first six deliveries are scheduled for 2014 and the remaining 31 between 2015 and 2019. Air Canada
has purchase options for 13 Boeing 787 aircraft (entitling Air Canada to purchase aircraft based on previously determined
pricing and delivery positions) and purchase rights for 10 Boeing 787 aircraft (entitling Air Canada to purchase aircraft based
on Boeing’s then current pricing).
Air Canada has financing commitments covering 31 of the 37 Boeing 787 firm aircraft orders. The financing terms for 28 out
of the 31 covered aircraft is for 80% of the aircraft delivery price and the term to maturity is 12 years with straight-line
principal repayments. For the remaining three out of the 31 covered aircraft, the financing under the commitment covers up
to 90% of the capital expenditure and the term to maturity is 15 years with principal payments made on a mortgage style
basis resulting in equal installment payments of principal and interest over the term to maturity.