Air Canada 2010 Annual Report Download - page 96

2010 Air Canada Annual Report
96
period. Compensation expense is adjusted for subsequent changes in the market value of Air Canada common shares and
management’s estimate of the number of PSUs that are expected to vest. Refer to Note 15 for a description of derivative
instruments used by the Corporation to hedge the cash flow exposure to PSUs.
Air Canada also maintains an employee share purchase plan. Under this plan, contributions by the Corporation’s employees
are matched to a specific percentage by the Corporation. Employees must remain with the Corporation until March 31 of
the subsequent year for vesting of the Corporation’s contributions. These contributions are included in Wages, salaries, and
benefits expense as earned.
J) MAINTENANCE AND REPAIRS
Maintenance and repair costs for both leased and owned aircraft, including line maintenance, component overhaul and
repair, and maintenance checks, 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. Line
maintenance consists of routine daily and weekly scheduled maintenance inspections and checks, overhaul and repair
involves the inspection or replacements of major parts, and maintenance checks consist of more complex inspections and
servicing of the aircraft.
K) 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.
L) FINANCIAL INSTRUMENTS
Under the Corporation’s risk management policy, derivative financial instruments are used only for risk management
purposes and not for generating trading profits.
Financial assets and financial liabilities, including derivatives, are recognized on the Consolidated Statement of Financial
Position when the Corporation becomes a party to the contractual provisions of the financial instrument or non-financial
derivative contract. All financial instruments are required to be measured at fair value on initial recognition except for
certain related party transactions. Measurement in subsequent periods is dependent upon the classification of the financial
instrument as held-for-trading, held-to-maturity, available-for-sale, loans and receivables, or other financial liabilities. The
held-for-trading classification is applied when an entity is “trading” in an instrument or alternatively, the standard permits
that any financial instrument be irrevocably designated as held-for-trading. The held-to-maturity classification is applied
only if the asset has specified characteristics and the entity has the ability and intent to hold the asset until maturity. For
financial instruments classified as other than held-for-trading, transaction costs are added to the initial fair value of the
related financial instrument.
Financial assets and financial liabilities classified as held-for-trading are measured at fair value with changes in those fair
values recognized in Non-operating income (expense). Financial assets classified as held-to-maturity, loans and receivables,
or other financial liabilities are measured at amortized cost using the effective interest rate method. Investments in equity
instruments classified as available-for-sale that do not have a quoted market price in an active market are measured at cost.
The Corporation enters into interest rate, foreign currency, and fuel derivatives and share forward contracts to manage the
associated risks. Derivative instruments are recorded on the Consolidated Statement of Financial Position at fair value,
including those derivatives that are embedded in financial or non-financial contracts. Changes in the fair value of derivative
instruments are recognized in Non-operating income (expense) with the exception of foreign exchange risk management
contracts, which are recorded in Foreign exchange gain (loss), and fuel derivatives designated as effective cash flow hedges,
as further described below. These contracts are included in the Consolidated Statement of Financial Position at fair value
in Prepaid expenses and other current assets, Deposits and other assets, Accounts payable and accrued liabilities, or Other
long-term liabilities based on the terms of the contractual agreements. All cash flows associated with purchasing and
selling derivatives are classified as operating cash flows in the Consolidated Statement of Cash Flow.