Air Canada 2006 Annual Report Download - page 29

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9. FINANCIAL AND CAPITAL MANAGEMENT
9.1 Financial Position
The Corporation's combined consolidated statement of financial position includes the accounts of certain
entities which are not legally controlled by Air Canada, including Jazz and certain aircraft and engine leasing
entities and fuel facility corporations. While the assets and liabilities of these entities are included in Air
Canada’s combined consolidated financial statements, there is no recourse to Air Canada for the liabilities of
the separate legal entities except to the extent of any existing obligations under agreements such as the Jazz
CPA or guarantees. The information in the discussion of financial position has been presented on a
consolidated basis. Creditors of Jazz have no recourse to Air Canada with respect to Jazz's recognized
liabilities.
Consolidated Summary
As at December 31, 2006, current assets have increased $1,811 million since December 31, 2005, largely due
to an increase in cash, cash equivalents and short-term investments of $909 million, reflecting in part the net
proceeds from the Air Canada IPO of $187 million and the proceeds of $1,156 million from the transfer of
investments to ACE as further described in Note 1 to Air Canada’s combined consolidated financial statements.
Current assets also include a future income tax asset of $345 million arising from a tax loss utilization strategy,
offset by a tax payable of $345 million, and a prepaid maintenance asset of $535 million with ACTS LP
(“ACTS”), both of which were related to the Air Canada IPO. Property and equipment increased $495 million
mainly due to additions, primarily aircraft, offset by depreciation. Intangible assets decreased $617 million
mainly due to the reversal by ACE of future income tax valuation allowance which results in a pro-rata reduction
to Air Canada’s intangible asset. Refer to Note 8 to Air Canada’s combined consolidated financial statements
for additional information.
As at December 31, 2006, current liabilities have increased $1,187 million, largely reflecting an increase in
current portion of long-term debt and current taxes payable of $345 million relating to the Air Canada IPO.
Long-term debt and capital lease obligations increased $200 million and included the impact of certain financing
activities, as described under "Financial and Capital Management — Liquidity and Working Capital" in this
MD&A, as well as the favourable impact of a stronger Canadian dollar on US dollar debt and capital leases.
Prior to the completion of the Air Canada IPO, it was determined that a portion of valuation allowance recorded
by ACE should be reversed as it was more likely than not that certain future income tax assets of $504 million,
which a valuation allowance had been recorded against at the time of fresh start reporting, would be realized.
Consistent with the income tax accounting policy of Air Canada while it was wholly-owned by ACE, the reversal
of the valuation allowance by ACE results in a reduction of Air Canada’s intangible assets (on a pro-rata basis)
of $374 million.
Refer to section 9.6 of this MD&A for the Corporation’s projected planned and committed capital expenditures
and for the impact these expenditures will have on property and equipment and long-term debt in the future.
29
Management's Discussion and Analysis of Results and Financial Condition