Air Canada 2008 Annual Report Download - page 24
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2008 Air Canada Annual Report
24
Non-operating expense amounted to $44 million in the fourth quarter of 2008
Non-operating expense amounted to $44 million in the fourth quarter of 2008 compared to non-operating expense of $52
million in the fourth quarter of 2007. Factors contributing to the year-over-year change in fourth quarter non-operating
expense included:
• Gainsrelatingtofairvalueadjustmentsonderivativesinstrumentsamountedto$32millioninthefourthquarter
of 2008 versus a loss of $1 million in the same quarter of 2007. The non-cash mark-to-market gain on financial
instruments of $32 million recorded in the fourth quarter of 2008 represented a gain of $19 million related to the
fair value of fuel derivatives as well as other gains on interest rate swaps. Refer to section 12 of this MD&A for
additional information on Air Canada’s derivative instruments.
• An increase in net interest expense of $24 million, the result of a lower amount of capitalized interest related
to new aircraft and a decrease in interest income due to both lower cash balances and lower rates of return. A
decrease in interest expense, largely driven by lower financing costs on the Boeing 777 aircraft commitments due
to the favourable impact of the pre-delivery financing arranged in the fourth quarter of 2007, lower interest rates
on floating rate debt compared to the fourth quarter of 2007 was offset by the financing of additional aircraft year-
over-year and the unfavourable impact of a weaker Canadian dollar versus the US dollar in the fourth quarter of
2008.
Net losses on foreign exchange amounted to $527 million in the fourth quarter of 2008
Net losses on foreign exchange amounted to $527 million in the fourth quarter of 2008 compared to gains of $20 million
in the fourth quarter of 2007. The losses in the fourth quarter of 2008 were attributable to a weaker Canadian dollar at
December 31, 2008 compared to September 30, 2008, partially offset by gains of $174 million related to foreign currency
derivatives. The December 31, 2008 noon day exchange rate was $1US = Cdn $1.2246 while the September 30, 2008 noon
day exchange rate was $1US = Cdn $1.0599.
Provision of income taxes of $6 million in the fourth quarter of 2008
Air Canada recorded a provision for income taxes of $6 million in the fourth quarter of 2008. The tax provision reflected
future income tax that has been reclassified from other comprehensive income to income for realized gains on fuel
derivatives. The recovery of future income taxes on the 2008 loss has been offset by a valuation allowance. The provision
for income taxes was $2 million in the fourth quarter of 2007 as income tax was favourably impacted by a credit related to
changes in federal corporate income tax rates during the period amounting to $12 million, after consideration of a valuation
allowance.