1998 Annual Report - Four Seasons Hotels and Resorts

Income Tax ExpenseThe Corporation’s effective tax rate in 1997 was 3.8%, as compared with a 6.2% effective tax rate in 1996. The low effectivetax rate is due primarily to the utilization of the benefits of the unrecorded tax losses created by the write-down in hotelinvestment values in 1993 and 1995.Net Earnings and Earnings per ShareNet earnings and earnings per share in 1997 were $40.8 million and $1.24 per share, respectively. Excluding the$12.0 million loss on repurchase of debt, normalized net earnings were $52.8 million and normalized earnings pershare were $1.61 in 1997. Net earnings in 1996 were $29.9 million and net earnings per share were $1.04. The 76.8%increase in normalized net earnings and 54.8% increase in normalized earnings per share resulted from strong growthin hotel management operations, and an increase in hotel ownership earnings primarily due to the consolidation ofThe Pierre in New York and the Four Seasons Hotel Vancouver in 1997, offsetting lower management and ownershipearnings from the Corporation’s Asian hotels, and lower net interest costs resulting from declining debt levels, lowerinterest rates and increased interest income in 1997.L I Q U I D I T YFour Seasons generally funds its capital and operating requirements with cash flow from operations and its available banklines. The Corporation utilizes cash from operations, debt and equity financing to (i) make capital investments to obtainlong-term management agreements and to enhance existing management agreements, (ii) fund its share of hotel capitalimprovements and operating requirements where it holds an equity interest and where the operating cash flow from thesehotels is insufficient to fund these requirements, and (iii) make principal and interest payments on corporate debt.In 1999, based upon the current business plan, the Corporation expects total capital spending of approximately$75 million, including dividends and those items noted on pages 45 and 46, which will be funded from cash on hand andcash generated by operations. In addition to this expected capital spending, the Corporation is also expecting to fundapproximately US$11 million (approximately $17 million) in a resort and vacation ownership project under construction inScottsdale, Arizona and approximately US$12 million (approximately $18 million) relating to the construction of the Four Seasons HotelCapital Spread Analysis (percent)Prague. These two investments would be funded from cash generated25from operations, as well as from the Corporation’s bank credit facilities.20It is the Corporation’s strategic objective to reduce its equity15commitment to the Prague and Scottsdale projects to be consistent10with its more typical minority ownership interest5or loan structures.0-5-10-15-2094 95 96 97Return on Capital Cost of Capital Spread98Annual Data from 1994 through 1998Source: Goldman, Sachs & Co.43Four Seasons Hotels Inc.