1998 Annual Report - Four Seasons Hotels and Resorts

ANNUAL INFORMATION FORM(continued)M A N A G E M E N T’ S D I S C U S S I O N A N D A N A L Y S I SF I N A N C I A LO B J E C T I V E SThe key financial objectives of the Corporation over the next few years can be summarized as follows:• Achieve earnings per share growth of 20% per annum over the long term.• Achieve a return on capital deployed of at least 10% over the Corporation’s long-term cost of capital.• Achieve 90% of the Corporation’s earnings from its hotel management business, which includes managementof vacation ownership developments and the management and royalty fees relating to the Regent brand.• Make available 70% or more of the Corporation’s annual operating cash flow for investments in new projects thatprovide long-term opportunities for growth in management or royalty fees.• Maintain an investment grade balance sheet and a low cost of capital to facilitate future financing of the Corporation’sgrowth initiatives.• Focus on ongoing improvements in operating profit margins at both the hotel and corporate level to maximize returnson capital without additional investment.• Maintain tax efficiency as the Corporation transitions to a taxable position in the year 2000.G ROWTHO B J E C T I V E SThe key growth objectives of the Corporation over the next few years can be summarized as follows:• Achieve growth of the Four Seasons brand through the addition of new hotels and resorts under management,additional vacation ownership opportunities, and selected luxury residential projects.• Identify and pursue opportunities to utilize the Corporation’s free cash flow to acquire the managementof existing unbranded hotels, or groups of hotels, to enhance long-term earnings growth and shareholder value.• Maintain and enhance Four Seasons REVPAR growth rates, to maximize the internal growth potential ofthe Corporation.• Identify and pursue opportunities that allow the Corporation to maintain its high profit margins in, and cash flowfrom, its hotel management operations and earn appropriate returns on invested capital.• Identify and coordinate with Carlson, opportunities to franchise and manage hotels under the Regent brand.• Consider other opportunities for growth that represent a consistent and productive extension of the Four Seasonsand Regent brands.R I S K M A N A G E M E N T O B J E C T I V E SThe key risk management objectives of the Corporation over the next few years can be summarized as follows:• Identify and diversify the number of equity and debt sources available to the Corporation, to permit the Corporationto continue its growth without overextending its capital needs.• Ensure that the risks and benefits of new investments are consistent with the Corporation’s key financial objectives,through the careful consideration and review by the Corporation’s Management Committee.• Mitigate business cycle risks through both geographic diversity and the business mix of (i) hotel managementagreements, (ii) vacation ownership management and royalty agreements, (iii) franchising and management revenuerelating to the Regent brand, and (iv) hotel and vacation ownership investments.• Utilize appropriate currency hedging activities to minimize the risks associated with foreign currency exposures.30Four Seasons Hotels Inc.