Air Canada 2014 Annual Report Download - page 82

82 2014 Annual Report
RETURN ON INVESTED CAPITAL
Air Canada uses Return on invested capital (or ROIC) to assess the efficiency with which it allocates its capital
to generate returns. Return is based on Adjusted net income (loss) (as defined above), excluding interest
expense and implicit interest on operating leases. Invested capital includes (i) average year-over-year total
assets, net of average year-over-year non-interest-bearing operating liabilities, and (ii) the value of capitalized
operating leases (calculated by multiplying annualized aircraft rent by 7). 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.
In the second quarter of 2014, Air Canada changed its approach in calculating invested capital from a financing
method to an operating method. Management believes this change provides more relevant information as the
return is based on the book value of invested capital used for operations and is not subject to changes in the
market price of Air Canada’s outstanding shares. For comparative purposes, the information as at December 31,
2013 provided below reflects this new methodology.
The following table provides Air Canada’s return on invested capital for the periods indicated:
CANADIAN DOLLARS IN MILLIONS,
EXCEPT WHERE INDICATED
DECEMBER 31,
2014
DECEMBER 31,
2013 $ CHANGE
NET INCOME FOR THE PERIOD ATTRIBUTABLE TO
SHAREHOLDERS (TRAILING 12 MONTHS) $ 100 $ 6 $ 94
Remove:
One-time payments - ACPA (1) 30 -30
Benefit plan amendments (2) -(82) 82
Tax-related provision adjustments (3) (41) -(41)
Impairment charge (4) -30 (30)
Foreign exchange loss 307 120 187
Interest expense charge (5) -95 (95)
Net financing expense relating to employee benefits 134 208 (74)
(Gain) loss on fuel and other derivatives 1(37) 38
ADJUSTED NET INCOME (TRAILING 12 MONTHS) $ 531 $ 340 $ 191
Adjusted for:
Interest expense (6) 322 302 20
Implicit interest on operating leases (7) 153 156 (3)
ADJUSTED INCOME BEFORE INTEREST (TRAILING 12
MONTHS) $ 1,006 $ 798 $ 208
Invested capital:
Working capital, excluding current portion of long-term debt
and finance leases 449 357 92
Long-term non-financial assets 6,676 6,014 662
Maintenance provisions (726) (614) (112)
Other operating long-term liabilities (295) (348) 53
Capitalized operating leases (8) 2,191 2,226 (35)
INVESTED CAPITAL $ 8,295 $ 7,635 $ 660
RETURN ON INVESTED CAPITAL (%) 12.1% 10.5% 1.6 pp
1 In 2014, one-time payments totaling $30 million were made to ACPA members under a collective agreement concluded in October 2014.
2 In 2013, Air Canada recorded an operating expense reduction of $82 million related to changes to early retirement provisions in Air Canada’s defined benefit pension plans.
3 In 2014, Air Canada recorded favourable tax-related provision adjustments of $41 million.
4 In 2013, Air Canada recorded impairment charges amounting to $30 million.
5 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.
6 Interest expense excludes the non-recurring interest expense charge on the repayment of the senior secured notes recognized in 2013 as described in (5) 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 Capitalized operating leases are calculated by multiplying the trailing 12 months of aircraft rent by 7. Aircraft rent totaled $313 million for the 12 months ended December 31, 2014
(for the 12 months ended December 31, 2013 - $318 million).