Westjet 2004 Annual Report Download - page 34

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WESTJET ANNUAL REPORT 2004
Our expenditures denominated in US dollars primarily
relate to certain maintenance costs, jet fuel and aircraft
lease payments.
In order to minimize our exposure to foreign-exchange
movements related to our US dollar operating
expenditures, we carry US dollar cash and cash
equivalents to meet these obligations. Throughout the
year, we had on average a balance of approximately
US $35 million in cash and cash equivalents. As a
result of the strengthened Canadian dollar in 2004,
we incurred a total foreign exchange loss of $3.2
million, primarily as a result of these cash balances.
More than offsetting the affect of the Canadian dollar
movement on our US dollar cash balances is the
impact of the foreign-exchange-rate movement on
our US dollar purchases such as our aircraft, fuel and
maintenance.
We estimate for every $0.01 downward movement in
the Canadian dollar in relation to the US dollar (e.g.
$0.83 to $0.82), our operating expenses would increase
by approximately $6.9 million. Conversely, for every
$0.01 upward movement in the Canadian dollar in
relation to the US dollar (e.g. $0.82 to $0.83) our
operating expenses would decrease by approximately
$6.9 million.
Income Taxes
Our total tax expense differed from the statutory tax rate
due to the inclusion of certain non-deductible expenses.
These expenses included the non-deductibility of stock-
based compensation expense for tax purposes, which
was effective for our 2004 fiscal year but not the previous
year. Offsetting our current tax recovery are large
corporations and capital taxes of $3.7 million, which
increased from $1.7 million in the prior year due to the
increases in our debt levels and shareholders' equity.
During 2005, the Alberta corporate tax rate, which is
currently at 11.5%, may be changed as Alberta has
promised to lower the rate to 8% if doing so is
affordable. With the current surpluses enjoyed by
Alberta, we anticipate some form of rate reduction
effective April 1; however, we are not confident that it
will decrease fully to 8%. Any decreases will result in
a revaluation of WestJet's future tax liability, which will
be a favourable adjustment to the future tax expense
should this legislation be enacted.
Fourth Quarter 2004
Operating Results in Review
Our fourth quarter operations are normally characterized
by a decrease in demand for air travel due to the severe
winter conditions we experience in Canada. Weak
demand is usually alleviated somewhat by increased
bookings from guests travelling to visit family and
friends during the holidays in December. Unfortunately,
lower yield during the fourth quarter of 2004 negated
the uplift in guest revenues we would normally realize
Roz Goldsworthy, Flight Attendant Vince Lamb, Sales Super Agent
34
“We ended 2004 with a solid cash position
of $148.5 million…”