Westjet 2014 Annual Report Download - page 71

Notes to Consolidated Financial Statements
As at and for the years ended December 31, 2014 and 2013
(Stated in thousands of Canadian dollars, except percentage, ratio, share and per share amounts)
WestJet Annual Report 2014 │ 69
3. Capital management
The Corporation’s policy is to maintain a strong capital base in order to maintain investor, creditor and market confidence and to
sustain the future development of the airline. The Corporation manages its capital structure and makes adjustments in light of
changes in economic conditions and the risk characteristics of the underlying assets.
In order to maintain the capital structure, the Corporation may, from time to time, purchase shares for cancellation pursuant to
normal course issuer bids, issue new shares, pay dividends and adjust current and projected debt levels.
In the management of capital, the Corporation includes shareholders’ equity (excluding hedge reserves), long-term debt, cash
and cash equivalents and the Corporation’s off-balance-sheet obligations related to its aircraft operating leases, all of which are
presented in detail below.
The Corporation monitors its capital structure on a number of bases, including cash to trailing 12 months revenue, adjusted
debt-to-equity and adjusted net debt to earnings before net finance cost, taxes, depreciation and amortization and aircraft
leasing (EBITDAR). EBITDAR is a non-GAAP financial measure commonly used in the airline industry to evaluate results by
excluding differences in tax jurisdictions and in the method an airline finances its aircraft. In addition, the Corporation will adjust
EBITDAR for non-operating gains and losses on derivatives and foreign exchange. The calculation of EBITDAR is a measure that
does not have a standardized meaning prescribed under IFRS and therefore may not be comparable to similar measures
presented by other issuers. The Corporation adjusts debt to include its off-balance-sheet aircraft operating leases. To derive a
present-value debt equivalent, common industry practice is to multiply the trailing 12 months of aircraft leasing expense by a
multiplier. The Corporation uses a multiplier of 7.5. The Corporation defines adjusted net debt as adjusted debt less cash and
cash equivalents. The Corporation defines equity as total shareholders’ equity, excluding hedge reserves.
2014 2013 Change
Cash to trailing 12 months revenue
Cash and cash equivalents 1,358,071 1,256,005 102,066
Trailing 12 months revenue 3,976,552 3,662,197 314,355
Cash to trailing 12 months revenue
(v)
34.2% 34.3% (0.1pts)
Adjusted debt-to-equity
Long-term debt
(i)
1,188,663 878,395 310,268
Off-balance-sheet aircraft leases
(ii)
1,368,375 1,317,345 51,030
Adjusted debt
2,557,038
2,195,740
361,298
Total shareholders’ equity 1,777,502 1,589,840 187,662
Add: Hedge reserves 3,179 (105) 3,284
Adjusted equity 1,780,681 1,589,735 190,946
Adjusted debt-to-equity
(v)
1.44 1.38 4.3%
Adjusted net debt to EBITDAR
Adjusted debt (as above) 2,557,038 2,195,740 361,298
Less: Cash and cash equivalents (1,358,071) (1,256,005) (102,066)
Adjusted net debt
1,198,967
939,735
259,232
Net earnings 283,957 268,722 15,235
Add:
Net finance cost(iii)
34,768 25,599 9,169
Taxes 106,350 103,363 2,987
Depreciation and amortization 226,740 200,840 25,900
Aircraft leasing 182,450 175,646 6,804
Other
(iv)
2,064 (1,136) 3,200
EBITDAR 836,329 773,034 63,295
Adjusted net debt to EBITDAR
(v)
1.43 1.22 17.2%
(i) At December 31, 2014, long-term debt includes the current portion of long-term debt of $159,843 (December 31, 2013 – $189,191) and long-term
debt of $1,028,820 (December 31, 2013 – $689,204).
(ii) Off-balance-sheet aircraft leases is calculated by multiplying the trailing 12 months of aircraft leasing expense by 7.5. At December 31, 2014, the
trailing 12 months of aircraft leasing costs totaled $182,450 (December 31, 2013 – $175,646).
(iii) At December 31, 2014, net finance cost includes the trailing 12 months of finance income of $17,070 (December 31, 2013 – $17,848) and the trailing
12 months of finance cost of $51,838 (December 31, 2013 – $43,447).
(iv) At December 31, 2014, other includes the trailing 12 months foreign exchange loss of $2,064 (December 31, 2013 – gain of ($1,136)).
(v) The Corporation has internal guidelines for a cash to trailing 12 months revenue of approximately 30 per cent, an adjusted debt-to-equity measure of
less than 3.00 and an adjusted net debt to EBITDAR measure of less than 3.00. The Corporation’s internal guidelines are not related to any covenants.