Air Canada 2014 Annual Report Download - page 94

94 2014 Annual Report
or sublease revenues are recognized on a straight
line basis over the term of the lease or sublease.
Rental revenue from operating leases and subleases
amounted to $35 in 2014 (2013 – $53).
In certain subleases of aircraft to Jazz and Sky Regional,
for accounting purposes, the Corporation acts as an
agent and accordingly reports the sublease revenues
net against aircraft rent expense as the terms of the
sublease match the terms of the Corporation’s lease.
The Corporation acts as lessee and sublessor in
these matters.
G. EMPLOYEE BENEFITS
The cost of pensions, other post-retirement and
post-employment benefits earned by employees is
actuarially determined annually as at December 31.
The cost is determined using the projected unit credit
method and assumptions including market interest
rates, salary escalation, retirement ages of employees,
mortality rates and health care costs.
Past service costs are recognized in the period of a plan
amendment, irrespective of whether the benefits have
vested. Gains and losses on curtailments or settlements
are recognized in the period in which the curtailment or
settlement occurs.
The current service cost and any past service cost,
gains and losses on curtailments or settlements
are recorded in Wages, salaries and benefits. The
interest arising on the net benefit obligations are
presented in Net financing expense relating to
employee benefits. Net actuarial gains and losses,
referred to as remeasurements, are recognized in
other comprehensive income and deficit without
subsequent reclassification to income.
Certain of the Corporation’s pension plans are subject
to minimum funding requirements. The liability
in respect of minimum funding requirements is
determined using the projected minimum funding
requirements, based on management’s best
estimates of the actuarially determined funded
status of the plan, market discount rates and salary
escalation estimates. The liability in respect of the
minimum funding requirement and any subsequent
remeasurement of that liability are recognized
immediately in other comprehensive income and
deficit without subsequent reclassification to income.
H. EMPLOYEE PROFIT SHARING PLANS
The Corporation has employee profit sharing plans.
Payments are calculated based on full calendar year
results and an expense recorded throughout the year
as a charge to Wages, salaries and benefits based on
the estimated annual payments under the plans.
I. SHARE-BASED COMPENSATION PLANS
Certain employees of the Corporation participate in
Air Canada’s Long-term Incentive Plan, which provides
for the grant of stock options, performance share
units (“PSUs”) and restricted share units (“RSUs”),
as further described in Note 14. PSUs and RSUs are
notional share units which are exchangeable, on a
one-to-one basis, as determined by the Board of
Directors based on factors such as the remaining
number of shares authorized under the Long-term
Incentive Plan as described in Note 14, for Air Canada
shares, or the cash equivalent. The options, PSUs and
RSUs granted contain time and/or performance based
vesting features as those further described in Note 14.
The fair value of stock options with a graded vesting
schedule is determined based on different expected
lives for the options that vest each year, as it would
be if the award were viewed as several separate
awards, each with a different vesting date, and it
is accounted for over the respective vesting period
taking into consideration forfeiture estimates. For a
stock option award attributable to an employee who
is eligible to retire at the grant date, the fair value of
the stock option award is expensed on the grant date.
For a stock option award attributable to an employee
who will become eligible to retire during the vesting
period, the fair value of the stock option award is
recognized over the period from the grant date to
the date the employee becomes eligible to retire. The
Corporation recognizes compensation expense and
a corresponding adjustment to Contributed surplus
equal to the fair value of the equity instruments
granted using the Black-Scholes option pricing
model taking into consideration forfeiture estimates.
Compensation expense is adjusted for subsequent
changes in management’s estimate of the number of
options that are expected to vest.
Grants of PSUs and RSUs are accounted for as equity
settled instruments. Accordingly, the Corporation
recognizes compensation expense offset by
Contributed surplus equal to the market value of
an Air Canada common share at the date of grant
on a straight line basis over the applicable vesting
period, taking into consideration forfeiture estimates.
Compensation expense is adjusted for subsequent
changes in management’s current estimate of the
number of PSUs and RSUs that are expected to
vest. Refer to Note 17 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