Air Canada 2012 Annual Report Download - page 92

2012 Air Canada Annual Report
92
Net actuarial gains and losses are recognized immediately in other comprehensive income and deficit without subsequent
reclassification to income. The current service cost and recognized element of any past service cost of employee benefits
expense is recorded in Wages, salaries and benefits. The expected return on plan assets and interest arising on the benefit
obligations are presented net in Net financing expense relating to employee benefits.
Certain of the Corporation's pension plans are subject to minimum funding requirements. The liability in respect of minimum
funding requirements is determined using the projected minimum funding requirements, based on management's best
estimates of the actuarially determined funded status of the plan, market discount rates and salary escalation estimates. The
liability in respect of the minimum funding requirement and any subsequent remeasurement of that liability are recognized
immediately in other comprehensive income and deficit without subsequent reclassification to income.
H) EMPLOYEE PROFIT SHARING PLANS
The Corporation has employee profit sharing plans. Payments are calculated based on full calendar year results and an
expense recorded throughout the year as a charge to Wages, salaries and benefits based on the estimated annual payment
under the plan.
I) SHARE-BASED COMPENSATION PLANS
Certain employees of the Corporation participate in Air Canada’s Long-Term Incentive Plan, which provides for the grant of
stock options and performance share units (“PSUs”), as further described in Note 14. PSUs are notional share units which are
exchangeable, on a one-to-one basis, as determined by the Board of Directors based on factors such as the remaining number
of shares authorized for issuance under the Long-Term Incentive Plan as described in Note 14, for Air Canada shares, or the
cash equivalent. The options and PSUs granted contain both time and performance based vesting features as those further
described in Note 14.
The fair value of stock options with a graded vesting schedule is determined based on different expected lives for the options
that vest each year, as it would be if the award were viewed as several separate awards, each with a different vesting date, and
it is accounted for over the respective vesting period taking into consideration forfeiture estimates. For a stock option award
attributable to an employee who is eligible to retire at the grant date, the fair value of the stock option award is expensed on
the grant date. For a stock option award attributable to an employee who will become eligible to retire during the vesting
period, the fair value of the stock option award is recognized over the period from the grant date to the date the employee
becomes eligible to retire. The Corporation recognizes compensation expense and a corresponding adjustment to Contributed
surplus equal to the fair value of the equity instruments granted using the Black-Scholes option pricing model taking into
consideration forfeiture estimates. Compensation expense is adjusted for subsequent changes in management’s estimate of
the number of options that are expected to vest.
Grants of PSUs are accounted for as cash settled instruments as described in Note 14. Accordingly, the Corporation recognizes
compensation expense at fair value on a straight line basis over the applicable vesting period, taking into consideration
forfeiture estimates. Compensation expense is adjusted for subsequent changes in the fair value of the PSU and
management’s current estimate of the number of PSUs that are expected to vest. The liability related to cash settled PSUs is
recorded in Other long-term liabilities. Refer to Note 17 for a description of derivative instruments used by the Corporation to
hedge the cash flow exposure to PSUs.
Air Canada also maintains an employee share purchase plan. Under this plan, contributions by the Corporation’s employees
are matched to a specific percentage by the Corporation. Employees must remain with the Corporation until March 31 of the
subsequent year for vesting of the Corporation’s contributions. These contributions are expensed in Wages, salaries, and
benefits expense over the vesting period.
J) MAINTENANCE AND REPAIRS
Maintenance and repair costs for both leased and owned aircraft are charged to Aircraft maintenance as incurred, with the
exception of maintenance and repair costs related to return conditions on aircraft under operating lease, which are accrued
over the term of the lease, and major maintenance expenditures on owned and finance leased aircraft, which are capitalized as
described below in Note 2T.