Air Canada 2014 Annual Report Download - page 49

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49
2014 Management’s Discussion and Analysis 49
2014 Management’s Discussion and Analysis
At December 31, 2014, the adjusted net debt to EBITDAR ratio amounted to 3.1 versus a ratio of 3.0 at
December 31, 2013. 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, 2014, Air Canada’s weighted average cost of capital (“WACC”), on a pre-tax basis, was
approximately 10.1%. WACC is based on an estimate by management and consists of an estimated cost of
equity of 20.1% and an average cost of debt and finance leases of 5.6%.
Unsecured Financing
In April 2014, Air Canada completed a private offering of US$400 million of 7.75% senior unsecured notes
due 2021 (the “Notes”). Air Canada received net proceeds of approximately $432 million from the sale of
the Notes. The Notes were sold at par and provide for interest payable semi-annually. The Notes are senior
unsecured obligations of Air Canada and are guaranteed on a senior unsecured basis by one of Air Canada’s
subsidiaries.
9.4. WORKING CAPITAL
The following table provides information on Air Canada’s working capital balances as at December 31, 2014 and
as at December 31, 2013.
CANADIAN DOLLARS IN MILLIONS DECEMBER 31, 2014 DECEMBER 31, 2013 $ CHANGE
Cash, cash equivalents and short-term investments $ 2,275 $ 2,208 $ 67
Accounts receivable 656 589 67
Other current assets 547 491 56
Accounts payable and accrued liabilities (1,259) (1,129) (130)
Advance ticket sales (1,794) (1,687) (107)
Current portion of long-term debt and finance leases (484) (374) (110)
NET WORKING CAPITAL $ (59) $ 98 $ (157)
The net negative working capital of $59 million at December 31, 2014 represented a decrease of $157 million
from December 31, 2013 and was largely due to capital expenditures of $1,501 million (or $732 million net of
the financing drawn upon the delivery of the fifth Boeing 777-300ER aircraft and the six Boeing 787-8 aircraft
received in 2014) and pension funding payments of $445 million. Air Canada also repaid a revolving credit
facility in the amount of $182 million as the liquidity was no longer required, which decreased net working
capital by this amount. These factors were largely offset by the impact of strong operating results, with cash
from operations of $941 million, as well as the proceeds from the US$400 million senior unsecured notes
completed in the second quarter of 2014.