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26 2006 | WestJet Annual Report
The profi t share provision amounted to $20.3 million in 2006, a
236.2% increase over the $6.0 million in the previous year, which
was directly attributable to our increased pre-tax margin.
FOREIGN EXCHANGE
On average, the Canadian dollar was stronger during 2006
compared to 2005, 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 U.S.
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 $37 million in cash and cash
equivalents on hand throughout the year.
We estimate that for every $0.01 movement in the Canadian
dollar in relation to the US dollar (e.g., $0.86 to $0.85), our
pre-tax operating expense would change by approximately
$5.4 million.
INCOME TAXES
Our operations span several tax jurisdictions, which subjects our
income to various rates of taxation. As such, the computation
of the provision for income taxes involves judgments based
on the analysis of several different pieces of legislation and
regulations.
Our effective consolidated income tax rate for 2006 was
approximately 30% of earnings before income taxes, which was
lower than expected. During the second quarter of 2006 the
federal government, along with several provincial governments,
substantively enacted corporate tax rate reductions. The
revaluation of our future tax liability resulted in an approximate
$11.3 million recovery of future income tax expense. The
federal government also eliminated the large corporations’ tax,
effective January 1, 2006, which helped reduce our 2006 cash
tax obligation. Overall, the reductions in tax rates were offset
by higher earnings which led to an increase in a total income
tax expense of $21.8 million as compared to 2005.
Our compensation strategy
encourages employees to
become owners in our company
which inherently creates for
them a vested interest in our
accomplishments.
ALISON BRITTON
Compensation Coordinator
NANCY EATON-DOKE
Compensation Coordinator