Air Canada 2014 Annual Report Download - page 63

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2014 Management’s Discussion and Analysis 63 2014 Management’s Discussion and Analysis
SENSITIVITY ANALYSIS
Sensitivity analysis is based on changing one assumption while holding all other assumptions constant. In
practice, this may be unlikely to occur, and changes in some of the assumptions may be correlated. When
calculating the sensitivity of the defined benefit obligation to variations in significant actuarial assumptions,
the same method (present value of the defined benefit obligation calculated with the projected unit credit
method at the end of the reporting period) has been applied as for calculating the liability recognized in the
consolidated statement of financial position.
Sensitivity analysis on 2014 pension expense and net financing expense relating to pension benefit liabilities
based on different actuarial assumptions with respect to discount rate, is set out below. The effects on each
pension plan of a change in an assumption are weighted proportionately to the total plan obligation to
determine the total impact for each assumption presented.
0.25 PERCENTAGE POINT
DECREASE INCREASE
DISCOUNT RATE ON OBLIGATION ASSUMPTION
Pension expense $ 17 $ (16)
Net financing expense relating to pension benefit liabilities 18 (8)
TOTAL $ 35 $ (24)
INCREASE (DECREASE) IN PENSION OBLIGATION $ 652 $ (630)
An increase of one year life expectancy would
increase the pension benefit obligation by
$447 million.
Assumed health care cost trend rates have a
significant effect on the amounts reported for the
health care plans. A 5.5% annual rate of increase in
the per capita cost of covered health care benefits
was assumed for 2014 (2013 – 6.0%). The rate
is assumed to decrease to 5% by 2019. A one
percentage point increase in assumed health care
trend rates would have increased the total of current
service and interest costs by $5 million and the
obligation by $61 million. A one percentage point
decrease in assumed health care trend rates would
have decreased the total of current service and
interest costs by $4 million and the obligation by
$60 million.
A 0.25 percentage point decrease in discount rate
would have increased the total of current and interest
costs by $1 million and the obligation by $52 million.
A 0.25 percentage point increase in discount rate
would have decreased the total of current and interest
costs by $1 million and the obligation by $41 million.
IMPAIRMENT CONSIDERATIONS OF
LONG-LIVED ASSETS
Long-lived assets include property and equipment,
definite lived intangible assets, indefinite lived
intangible assets and goodwill. Assets that have
an indefinite useful life, including goodwill, are
tested annually for impairment or when events
or circumstances indicate that the carrying value
may not be recoverable. Assets that are subject
to depreciation or amortization are reviewed
for impairment whenever events or changes in
circumstances indicate that the carrying amount
may not be recoverable. When required, an
impairment test is performed by comparing the
carrying amount of the asset or cash generating
unit to their recoverable amount. Recoverable
amount is calculated as the higher of an asset’s or
cash-generating unit’s fair value less costs to sell
and its value in use. For the purpose of assessing
impairment, assets are grouped at the lowest levels
for which there are separately identifiable cash flows
(cash-generating units or CGUs). Management has
determined that the appropriate level for assessing