Air Canada 2007 Annual Report Download - page 96

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2007 Air Canada Annual Report
96
3. INITIAL PUBLIC OFFERING
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 to ACE 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.
Other transactions in conjunction with the Air Canada IPO, which closed on November 24, 2006, are as follows:
■ 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, 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 was repayable in instalments 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 has been excluded from the Consolidated statement of cash fl ows. This amount was repaid by the
Corporation during the year ended December 31, 2007.
■ 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 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 the 2006 comparative consolidated fi nancial
statements as the preferred shares would be classifi ed 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.
Allocation of Corporate Expenses
For the period prior to November 24, 2006, the consolidated fi nancial statements include an allocation of the general
corporate expenses incurred by ACE based upon the proportion of the Corporation’s consolidated revenues compared to
ACE’s consolidated revenues. The allocation of general corporate expenses to the Corporation includes its proportionate
share of such general corporate expenses incurred by ACE, including executive management, legal, investor relations, treasury,
fi nance, fi nancial reporting, tax, internal audit and human resources services as well as costs of governance, professional fees
and regulatory fi lings, all of which amounted to $11 for the year ended December 31, 2006. This allocation of corporate
expenses was recorded within what was then referred to as the “Air Canada Services” segment and as a credit to Contributed
surplus. The allocation of general corporate expenses ceased on November 24, 2006.
For the period prior to November 24, 2006, the consolidated fi nancial statements do not include an allocation of additional
interest expense on corporate debt issued by ACE which had a weighted average effective interest rate of 12% for the
period ended November 24, 2006. In conjunction with the Air Canada IPO, as described above, the Corporation settled
the outstanding loans due to ACE and its affi liates of $140. The weighted average effective interest rates on these inter-
company loans amounted to 9.36% for the period ended November 24, 2006. Management of the Corporation believes
that the inter-company debt and the rates thereon were appropriate in the circumstances.