Westjet 2005 Annual Report Download - page 30

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28
YOUR OWNERS’ MANUAL
Compensation
WestJetters have embraced and benefited from our
compensation strategy of aligning corporate success with
personal success. With the many challenges we overcame
in 2005, our people’s belief and faith in WestJet never
faltered as evidenced by the fact that participation in our
employee share purchase plan remained constant at 86%,
although contribution levels slightly declined from 13%
of base salaries in 2004 to 12% in 2005. Our matching
expense in 2005 was $21.7 million, a 16.0% increase from
2004’s $18.7 million.
Our salary and benefit costs, as a percentage of our
total expenses, remained unchanged at approximately
19% in 2005 and 2004. Our salary and benefit costs on a
per-ASM basis increased 12.9% to 2.36 cents in 2005
compared to 2.09 cents in 2004, and the number of
full-time equivalent employees increased by 6.5% at
year-end 2005 over 2004.
We recorded $6.0 million in profit share expense
during the year, which is based on year-to-date margin,
subject to approval by the Board of Directors, and is paid
out in May and November annually.
Foreign Exchange
The Canadian dollar continued to strengthen throughout
the year, ending the year at $0.86 relative to the US dollar.
WestJet’s exposure to the US dollar primarily relates to
aircraft lease payments, jet fuel, airport operations at our
US destinations and certain maintenance costs.
To minimize our risk in foreign exchange movements
related to our US-dollar operating expenditures, we
carry US-dollar cash and cash equivalents to meet these
obligations. On average, we had a balance of approximately
US $29 million in cash and cash equivalents on hand
throughout the year. As a result of the strengthening
Canadian dollar during 2005, we incurred a total foreign
exchange loss of $2.7 million, primarily as a result of
these cash balances.
We have entered into a contract to purchase US $2.5
million per month at a forward rate of 1.22 for the payment
period from March 2005 to February 2006 to hedge a
portion of our committed US dollar lease payments during
the same period. The estimated fair market value of the
remaining portion of the contract as at December 31, 2005
was a loss of $300,000.
We estimate that for every $0.01 downward movement
in the Canadian dollar in relation to the US dollar (e.g. $0.83
to $0.82), our pre-tax operating expense increases by
approximately $6.0 million.
Income Taxes
Our operations span across several tax jurisdictions,
which subjects our income to various rates of tax. As well,
the computation of the provision for income taxes involves
the interpretation of legislation and regulations that are
in constant states of change. As a result, taxes paid or
recovered can ultimately be different from those estimated.
The current tax recovery of $7.4 million, combined
with the future tax provision of $35.3 million, resulted in a
Matt Engelhardt
Tax Manager