Air Canada 2007 Annual Report Download - page 85

Consolidated Financial Statements and Notes
85
In accordance with the Canadian Institute of Chartered Accountants’ Emerging Issue Committee Abstract No. 89, Exchange
of Ownership Interests between Enterprises under Common Control – Wholly and Partially-Owned Subsidiaries, the 2006
comparative fi nancial statements of Air Canada combine the assets and liabilities, results of operations and cash fl ows of
Air Canada and all of the affi liates combined with Air Canada as noted above as if they had been combined from September
30, 2004, the date Air Canada and the affi liates emerged from proceedings under the Companies’ Creditors Arrangement Act
(the “CCAA”). The shareholders’ equity refl ects the shareholders’ equity of Air Canada adjusted for the above transactions,
as applicable. Refer to Note 3 for additional information.
Accounting for Jazz
Air Canada is party to a capacity purchase agreement with Jazz (the “Jazz CPA”) as described in Note 19. Under the Jazz CPA,
the Corporation provides a minimum daily utilization guarantee and a minimum capacity guarantee to Jazz, pays certain
variable costs of operating Jazz aircraft and is obligated to cover the costs of certain aircraft return obligations related to
Jazz aircraft covered under the Jazz CPA. The Corporation does not hold any partnership units of Jazz. Due to the terms of
the Jazz CPA, Jazz is deemed to be a variable interest entity. The Corporation was deemed to be the primary benefi ciary of
Jazz up until May 24, 2007. As a result, the consolidated fi nancial statements of the Corporation include the results of Jazz
up until that date, as a business segment of Air Canada.
As a result of ACE’s distribution of units of Jazz Air Income Fund on May 24, 2007 ACE’s ownership interest in Jazz Air Income
Fund was reported to be reduced from 58.8% to 49.0%. This ownership interest was, as reported, further reduced to 20.1%
on October 16, 2007 and to 9.5% on January 24, 2008. Jazz Air Income Fund holds all of the outstanding units of Jazz. The
May 24, 2007 distribution by ACE gave rise to a reconsideration of who should consolidate Jazz, and as a result, Jazz Air
Income Fund was deemed to be the primary benefi ciary of Jazz under AcG-15 Consolidation of Variable Interest Entities.
As of the May 24, 2007 distribution date, the Corporation therefore no longer consolidates Jazz. Prospective from the date
of deconsolidation, the Corporation has one reportable segment.
The Consolidated statement of fi nancial position as at December 31, 2007 does not include the fi nancial position of Jazz.
The comparative December 31, 2006 Consolidated statement of fi nancial position included the following items related to
Jazz:
■ Cash and cash equivalents of $135 and Other current assets of $109;
■ Long-lived assets of $239;
■ Current liabilities of $213;
■ Long-term debt of $115;
■ Non-controlling interest of $162; and
■ Other long-term liabilities of $71.
As a result of the deconsolidation of Jazz, the Corporation recorded an adjustment of $82 as a credit to contributed surplus.
This credit consists of the Corporation’s initial negative investment in Jazz of $78, which had not previously reversed as none
of the income of Jazz is distributed to Air Canada, and a future income tax credit of $4.
The cash fl ow impact during 2007 of the Corporation’s deconsolidation of Jazz of $138 refl ects the Jazz cash being removed
from the Consolidated statement of fi nancial position of the Corporation and classifi ed as a cash outfl ow from investing
activities.
Notwithstanding that the Corporation is no longer the primary benefi ciary of Jazz effective May 24, 2007, Air Canada
continues to hold a signifi cant variable interest in Jazz through the contractual arrangements with Jazz as described in
Note 16 (Commitments) and Note 19 (Related Party Transactions).