Air Canada 2012 Annual Report Download - page 24

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2012 Air Canada Annual Report
24
Non-operating expense amounted to $250 million in 2012 compared to non-operating expense of $429 million
in 2011
The following table provides a breakdown of non-operating expense for the periods indicated:
Full Year Change
(Canadian dollars in millions) 2012 2011 $
Foreign exchange gain (loss) $106 $(54) $ 160
Interest income 37 36 1
Interest expense (304) (320) 16
Interest capitalized 18 4 14
Net financing expense relating to employee benefits (16) (16) –
Loss on financial instruments recorded at fair value (20) (63) 43
Loss on investment in Aveos (65) – (65)
Other (6) (16) 10
Total non-operating expense $(250) $(429) $ 179
Factors contributing to the year-over-year change in full year non-operating expense included:
Gains on foreign exchange, related to U.S. denominated long-term debt, which amounted to $106 million in 2012
compared to losses of $54 million in 2011. The gains in 2012 were mainly attributable to a stronger Canadian dollar at
December 31, 2012 when compared to December 31, 2011. The December 31, 2012 closing exchange rate was US$1 =
C$0.9949 while the December 31, 2011 closing exchange rate was US$1 = C$1.017.
A decrease in interest expense of $16 million which was mainly due to lower debt levels. In addition, in 2012, Air Canada
recorded a one-time interest expense reduction of $5 million related to revised estimated cash flows on certain aircraft
financings.
Losses related to fair value adjustments on derivative instruments which amounted to $20 million in 2012 versus losses
of $63 million in 2011. Refer to section 12 of this MD&A for additional information.
In the first quarter of 2012, Air Canada recorded a loss on its investment in Aveos’ parent holding company as a result of
Aveos’ filing for court protection pursuant to the CCAA and ceasing operations in March 2012. As a result, Air Canada reduced
the carrying value of its investment in Aveos’ parent holding company as well as the carrying value of a long term note
receivable from Aveos to nil, and recorded an aggregate loss on investments of $65 million. In addition, in the first quarter of
2012, Air Canada recorded a liability of $55 million, which was charged to Discontinued Operations, related to Air Canada’s
commitment under an employee separation program. For the year ended December 31, 2012, a cash outflow of $26 million
was generated in relation to this separation program. It is expected that remaining payments to settle Air Canada’s
commitment will be finalized in 2013.
Income taxes
The effective tax rate on 2012 income is nil reflecting the benefit of tax shelter available to offset taxable income.