Air Canada 2007 Annual Report Download - page 59

Management’s Discussion and Analysis of Results and Financial Condition
59
Best Estimate of Employer Contributions
Based upon an agreement between Air Canada and representatives of the unionized and non-unionized employees and
retirees with respect to the funding of the domestic registered plans, which agreement is subject to approval of the Offi ce of
the Superintendent of Financial Institutions (Canada) (“OSFI”), the actual 2006 and 2007 contributions were as follows:
($ millions)
2007
Contributions
2006
Contributions
Past service cost for registered pension plans $ 134 $ 224
Current service cost for registered pension plans 160 140
Other pension arrangements(1) 84 83
Air Canada(2) $ 378 $ 447
(1) Includes retirement compensation arrangements, supplemental plans and international plans.
(2) Includes obligations relating to employees who have been assigned to related parties.
Jazz’s employer contributions amounted to $8 million in 2006 and $4 million for the period January 1, 2007 up to May 24, 2007.
As previously discussed, the Corporation recovers costs relating to some employees who have been contractually assigned
to ACTS Aero and Aeroplan. The cost recovery relating to Air Canada’s sponsored defi ned pension plans amounted to
$23 million for 2007 and $33 million for 2006. The cost recovery relating to Air Canada’s sponsored future benefi t plans
amounted to $17 million for 2007 and $23 million for 2006.
Sensitivity Analysis
Sensitivity analysis on the 2007 pension expense based on different actuarial assumptions with respect to discount rate and
expected return on plan assets is as follows:
Impact on 2007 pension expense in $ millions
0.25 percentage point
Decrease Increase
Discount rate on obligation assumption $ 12 $ (12 )
Long-term rate of return on plan assets assumption $ 27 $ (27 )
Assumed health care cost trend rates have a signifi cant effect on the amounts reported for the health care plans. A 9.25%
annual rate of increase in the per capita cost of covered health care benefi ts was assumed for 2007 (9.75% was assumed
for 2006). The rate is assumed to decrease gradually to 5% by 2013. A one percentage point increase in assumed health
care trend rates would have increased the service and interest costs by $1 million and the obligation by $16 million.
A one percentage point decrease in assumed health care trend rates would have decreased the service and interest costs by
$1 million and the obligation by $16 million.
Income Taxes
The Corporation utilizes the liability method of accounting for income taxes under which future income tax assets and
liabilities are recognized for the estimated future income tax consequences attributable to differences between the fi nancial
statement carrying value amount and the tax basis of assets and liabilities. Management uses judgment and estimates in
determining the appropriate rates and amounts in recording future taxes, giving consideration to timing and probability.
Actual taxes could signifi cantly vary from these estimates as a result of future events, including changes in income tax law
or the outcome of reviews by tax authorities and related appeals. The resolution of these uncertainties and the associated
fi nal taxes may result in adjustment to the Corporation’s tax assets and tax liabilities.
Future income tax assets are recognized to the extent that realization is considered more likely than not. The Corporation
considers past results, current trends and outlooks for future years in assessing realization of income tax assets.