Air Canada 2006 Annual Report Download - page 75

For the years ended December 31, 2006 and 2005
(currencies in millions – Canadian dollars)
1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS
A) INITIAL PUBLIC OFFERING
The accompanying combined consolidated statement of financial position and combined consolidated
statements of operations and cash flows are of Air Canada (the “Corporation”), a subsidiary of ACE Aviation
Holdings Inc. ("ACE").
In conjunction with the initial public offering of Air Canada (the “Air Canada IPO”), which closed on November
24, 2006:
§ Prior to the Air Canada IPO and in connection with internal planning by the ACE group of entities, Air
Canada prepaid an amount of approximately $595 to ACTS Limited Partnership (“ACTS”) for the
estimated equivalent of 12 months of service to be rendered by ACTS starting on November 1, 2006.
The amount of such prepayment was immediately loaned back by ACTS to Air Canada through a non-
interest bearing loan. The loan is repayable in installments equal to the amount that would otherwise be
payable by Air Canada to ACTS for services to be rendered, starting on November 1, 2006. This is
considered to be a non-cash transaction in substance and have been excluded from the combined
consolidated statement of cash flows.
§ ACE transferred to Air Canada all of its interests in Air Canada Ground Handling, all of its interests in
Air Canada Cargo and 51% of its interests in Touram Limited Partnership (“Air Canada Vacations”) in
consideration for the issuance to ACE of additional common shares of Air Canada. In addition, ACE
exchanged all the preferred shares it held in Air Canada for common shares of Air Canada at an
exchange ratio equal to the price of shares sold in the Air Canada IPO resulting in the issuance of
additional common shares. No effect is given to this transaction in these combined consolidated
financial statements as the preferred shares would be classified as equity. Following these
transactions, ACE held 90,476,190 common shares in the restructured Air Canada immediately prior to
the offering.
§ For consideration of $673, special investments in ACTS were transferred to ACE from Air Canada and
were recorded in Contributed surplus (refer to Excluded Inter-company Investments section below).
§ Inter-company accounts between ACE and Air Canada were settled that resulted in an increase to
Cash and cash equivalents of $170, a reduction to Deposits and other assets of $269 (consisting of an
advance of $186 and a note receivable on the transfer of the Jazz investment of $83), a reduction to
Accounts receivable of $41 and a reduction of Long-term debt of $140.
§ The Air Canada IPO consisted of an offering by Air Canada of an aggregate of 9,523,810 variable
voting shares and voting shares for gross proceeds of $200 ($187 net of offering costs of $13) and a
secondary offering by ACE of an aggregate of 15,476,190 variable voting shares and voting shares for
gross proceeds of $325 ($304 net of offering costs of $21). The offering costs incurred were allocated
between ACE and Air Canada on a pro rata basis in relation to size of the aggregate offering. Air
Canada did not receive any proceeds from the secondary offering from ACE.
In accordance with Emerging Issue Committee Abstract No. 89, Exchange of Ownership Interests between
Enterprises under Common Control – Wholly and Partially-Owned Subsidiaries, these financial statements of
Air Canada combine the assets and liabilities, results of operations and cash flows of Air Canada and all of the
affiliates combined with Air Canada as noted above as if they had been combined from September 30, 2004,
the date Air Canada and the affiliates emerged from proceedings under the Companies’ Creditors Arrangement
Act (the “CCAA”). The assets and liabilities have been combined at their carrying values in the respective
companies. The shareholders’ equity reflects the shareholders’ equity of Air Canada adjusted for the above
transactions, as applicable.
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Combined Consolidated Financial Statements 2006