Air Canada 2014 Annual Report Download - page 136

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136136 2014 Annual Report
The Corporation views capital as the sum of Long-
term debt and finance leases, capitalized operating
leases, Non-controlling interests, and the market
value of the Corporation’s outstanding shares
(“market capitalization”). The Corporation 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
7.0, 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.
Market capitalization is based on the closing price
of Air Canada’s shares multiplied by the number of
outstanding shares. 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 adjusted net
debt. Adjusted net debt is calculated as the sum
of Long-term debt and finance lease obligations
and capitalized operating leases 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
• To monitor 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,
issuing debt or equity securities, and repurchasing
outstanding shares, all subject to market conditions
and the terms of the underlying agreements or other
legal restrictions.
The total capital and adjusted net debt as at
December 31 is calculated as follows:
2014 2013
Long-term debt and finance leases $ 4,732 $ 3,959
Current portion of long-term debt
and finance leases
484 374
5,216 4,333
Capitalized operating leases 2,191 2,226
Adjusted debt 7,4 07 6,559
Non-controlling interests 68 63
Market capitalization 3,401 2,108
TOTAL CAPITAL $ 10,876 $ 8,730
Adjusted debt $ 7,4 07 $ 6,559
Less Cash and cash equivalents and
Short-term investments
(2,275) (2,208)
ADJUSTED NET DEBT $ 5,132 $ 4,351
Total capital has increased by $2,146, which reflects
an increase in market capitalization due to a higher
Air Canada share price, as well as the impact of higher
debt levels as the Corporation continues to invest in
new aircraft.
21. CAPITAL DISCLOSURES