Air Canada 2006 Annual Report Download - page 81

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I) EMPLOYEE PROFIT SHARING PLAN
The Corporation has an employee profit sharing plan. Payments are calculated annually on full calendar year
results and recorded throughout the year as a charge to salary and wage expense based on the estimated
annual payment under the plan.
J) STOCK-BASED COMPENSATION PLANS
Certain employees of the Corporation participate in ACE, Air Canada and/or Jazz stock based compensation
plans, as described in Note 11.
The fair value of stock options or units granted to Corporation employees is recognized as compensation
expense and a credit to contributed surplus on a straight line basis over the applicable vesting period. For a
stock option or unit award attributable to an employee who is eligible to retire at the grant date, the fair value of
the stock option or unit award is expensed on the grant date. For a stock option or unit award attributable to an
employee who will become eligible to retire during the vesting period, the fair value of the stock option or unit
award is recognized over the period from the grant date to the date the employee becomes eligible to retire. The
amount of compensation cost recognized at any date at least equals the value of the vested portion of the
options at that date.
ACE, Air Canada and Jazz maintain employee share and unit purchase plans for shares of ACE, Air Canada
and units of Jazz. Under these plans, contributions by the Corporation’s employees are matched to a specific
percentage by the Corporation. Upon the closing of the Air Canada IPO described in Note 1, Air Canada
employees are limited to participating in the Air Canada plan and not the ACE plan. These contributions are
included in salaries, wages and benefits expense.
K) MAINTENANCE AND REPAIRS
Maintenance and repair costs are charged to operating expenses as incurred, with the exception of
maintenance and repair costs related to return conditions on short-term aircraft leases, which are accrued over
the term of the lease.
L) OTHER OPERATING EXPENSES
Included in other operating expenses are expenses related to building rent and maintenance, terminal handling,
professional fees and services, crew meals and hotels, advertising and promotion, insurance costs, credit card
fees, ground costs for Air Canada Vacations packages, and other expenses. Expenses are recognized as
incurred.
M) FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Under the Corporation's risk management policy, derivative financial instruments are used only for risk
management purposes, not for generating trading profits. When the Corporation utilizes derivatives in hedge
accounting relationships, the Corporation identifies, designates and documents those transactions and regularly
tests the transactions to demonstrate effectiveness in order to continue hedge accounting. To the extent that a
derivative financial instrument does not qualify for hedge accounting or for those that are not designated as
hedges, the fair value of the derivative financial instrument is recorded in the combined consolidated statement
of financial position and changes in its fair value are recorded in income in the period when the change occurs.
Changes in the fair value of foreign currency forward contracts, option agreements and currency swap
agreements used for foreign exchange risk management but not designated as hedges for accounting
purposes, are recorded in foreign exchange gain (loss). These contracts are included in the combined
consolidated statement of financial position at fair value in Accounts receivable and Accounts payable and
accrued liabilities.
The Corporation from time to time enters into interest rate swaps to manage the risks associated with interest
rate movement on US and Canadian floating rate debt and investments, including anticipated debt transactions.
Changes in the fair value of these swap agreements, which are not designated as hedges for accounting
purposes, are recognized in income in Other non-operating income and are recorded on the combined
consolidated statement of financial position in Other assets and Other long-term liabilities.
81
Combined Consolidated Financial Statements 2006