Air Canada 2013 Annual Report Download - page 81

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2013 Management’s Discussion and Analysis
81
Return on Invested Capital
Air Canada uses Return on invested capital to assess the efficiency with which it allocates its capital to generate returns.
Return is based on Adjusted net income (loss) (as defined in the section above), excluding interest expense and implicit
interest on operating leases. Invested capital includes average long-term debt, average finance lease obligations, the value of
capitalized operating leases (calculated by multiplying annualized aircraft rent expense by 7) and the average market
capitalization of Air Canada’s outstanding shares. This measure is not a recognized measure for financial statement
presentation under GAAP, does not have a standardized meaning and may not be comparable to similar measures presented
by other public companies.
(Canadian dollars in millions, except where indicated) December 31, 2013 December 31, 2012 $ Change
Net income (loss) for the period attributable to shareholders of
Air Canada (trailing 12 months) $6 $(140) $146
Remove:
Benefit plan amendments(1) (82) (127) 45
Impairment charge(2) 30 – 30
Foreign exchange (gain) loss 120 (106) 226
Interest charge(3) 95 – 95
Net financing expense relating to employee benefits 208 288 (80)
Gain (loss) on financial instruments recorded at fair value (37) 20 (57)
Loss on investment in Aveos(4) – 65 (65)
Discontinued operations – Aveos(5) – 55 (55)
Adjusted net income (trailing 12 months) $340 $55 $285
Adjusted for:
Interest expense(6) 302 304 (2)
Implicit interest on operating leases(7) 156 165 (9)
Adjusted income before interest (trailing 12 months) $798 $524 $274
Invested capital:
Average long-term debt and finance leases(8) 4,046 3,942 104
Average market capitalization 1,014 328 686
Capitalized operating leases(9) 2,226 2,352 (126)
Invested capital $7,286 $6,622 $664
Return on invested capital (%) 11.0% 7.9% 3.1 pp
(1) In 2013, Air Canada recorded an operating expense reduction of $82 million related to amendments to defined benefit pension plans. In 2012, Air Canada recorded an
operating expense reduction of $127 million related to changes to the terms of the ACPA collective agreement pertaining to retirement age.
(2) In 2013, Air Canada recorded an impairment charge of $30 million, of which $24 million related to Airbus A340-300 aircraft.
(3) In 2013, Air Canada recorded an interest charge of $95 million related to the purchase of its senior secured notes which were to become due in 2015 and 2016.
(4) In 2012, Air Canada recorded a loss on its investments in Aveos of $65 million.
(5) In 2012, Air Canada recorded a liability of $55 million, which was charged to Discontinued Operations, related to Air Canada’s commitment under an employee separation
program.
(6) Interest expense excludes the non-recurring interest expense charge on the repayment of the senior secured notes recognized in the third quarter of 2013 as described in (3)
above.
(7) Interest implicit on operating leases is equal to 7.0% of 7 times the trailing 12 months of aircraft rent. 7.0% is a proxy and does not necessarily represent the actual implicit
interest on operating leases for any given period.
(8) Average long-term debt and finance leases include the current portion and long-term portion.
(9) Capitalized operating leases are calculated by multiplying the trailing 12 months of aircraft rent by 7. Aircraft rent totaled $318 million for the twelve months ended
December 31, 2013 (December 31, 2012 – $336 million).