Air Canada 2006 Annual Report Download - page 51

($ millions)
2006
Contributions
2005
Contributions
Past service cost for registered pension plans 224
99
Current service cost for registered pension plans 140
127
Other pension arrangements (1) 83
52
Air Canada Services
(2) 447
278
Jazz 8
6
Consolidated 455
284
(1) Includes retirement compensation arrangements, supplemental plans and international plans.
(2) Includes obligations relating to employees who have been assigned to related parties.
As previously discussed, the Corporation recovers costs relating to some employees who have been
contractually assigned to ACTS and Aeroplan. The cost recovery relating to Air Canada’s sponsored defined
pension plans amounted to $33 million for 2006 and $28 million for 2005. The cost recovery relating to Air
Canada’s sponsored future benefit plans amounted to $23 million for 2006 and $24 million for 2005.
Sensitivity Analysis
Sensitivity analysis on the 2006 pension expense based on different actuarial assumptions with respect to
discount rate and expected return on plan assets is as follows:
Impact on 2006 pension expense in $ millions
Decrease Increase
Discount rate on obligation assumption 29 (19)
Long-term rate of return on plan assets assumption 25 (25)
0.25 percentage point
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care
plans. A 9.75 percent annual rate of increase in the per capita cost of covered health care benefits was
assumed for 2006 (10 percent was assumed for 2005). The rate is assumed to decrease gradually to 5 percent
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 $17 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 financial 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 significantly 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 final 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. The benefit of future income taxes that existed at fresh start, including the benefit
recognized by affiliates of the Corporation, and against which a valuation allowance is recorded, amounts to
$1,169 million. For additional information refer to Note 8 to Air Canada’s combined consolidated financial
statements.
Cash Tax Projections
ACE and Air Canada implemented a tax loss utilization strategy prior the Air Canada IPO. Accordingly, certain
tax attributes of Air Canada were transferred to ACE. Notwithstanding, as at December 31, 2006, Air Canada
retains over $3 billion of tax attributes in the form of undepreciated capital cost and other tax attributes to shelter
future taxable income. These tax attributes are expected to increase over the next few years due to capital
expenditures related to aircraft acquisitions. Refer to section 9.6 of this MD&A for additional information on
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Management's Discussion and Analysis of Results and Financial Condition