1998 Annual Report - Four Seasons Hotels and Resorts

Four Seasons, as the current or previous owner or operator of certain hotels, could be liable for clean-up ofcontamination and other corrective action under various laws, ordinances and regulations relating to environmentalmatters. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for,the condition requiring environmental response. The presence of contamination from hazardous or toxic substances, or thefailure to properly remediate a contaminated property, may affect an owner’s ability to sell or rent the property, to use theproperty for its intended purpose, or to borrow using the property as collateral. Persons who arrange for the disposal ortreatment of hazardous or toxic substances also may be liable for the cost of removal or remediation of substances at thedisposal or treatment facility regardless of whether the facility is or was owned or operated by them. In connection with theoperation and ownership of various hotels, Four Seasons could be held liable for the cost of remedial action with respect toenvironmental matters. Four Seasons is not aware of any potential material environmental liabilities for which Four Seasonswill be responsible with respect to any of the hotels in which it currently has, or previously had, an ownership interest.Pursuant to the management agreements to which Four Seasons is a party, the owner is responsible for the costs andexpenses of the employees at each hotel and for all costs, expenses and liabilities incurred in connection with the operation ofthe hotel, including compliance with government regulations. However, Four Seasons may be contingently liable for certainliabilities in respect of which it does not maintain insurance, including certain workers’ compensation claims, environmentalliabilities and, in respect of hotels in the United States, claims arising under the Americans with Disabilities Act.Four Seasons generally obtains indemnities from the owners of the hotels that it manages in respect of these liabilities.The value of those indemnities is dependent upon the financial condition of the owners that have provided them.Political RiskFour Seasons currently manages and/or has an equity interest in hotels and resorts in 18 countries and currently hasdevelopment plans to open hotels and resorts in 10 additional countries. In certain of these countries, from time to time,the related assets and revenues may be exposed to political risk.InsuranceAll hotels and resorts managed by Four Seasons are insured against property damage, business interruption and liability atthe expense of the owner of the hotel. Under these policies Four Seasons also is insured against loss of fee income in theevent of a temporary business interruption at any of the hotels and resorts that it manages. In addition, Four Seasonsobtains indemnities from the owners of the hotels that it manages in respect of damages caused by acts, omissions andliabilities of the employees of the hotel or of Four Seasons, other than damages resulting from certain actions of FourSeasons and certain senior management personnel. If Four Seasons were held liable for amounts exceeding the limitsof its insurance coverage or for claims outside the scope of that coverage, its business, results of operations and financialconditions could be materially and adversely affected.Currency ExposureFour Seasons has entered into management agreements with respect to hotels throughout the world and reports its resultsin Canadian dollars; however, its relevant currency risk is in US dollars, as more than half of its revenues and assetscurrently are US dollar denominated or, in the case of fee revenues and dividend distributions from The Regent HongKong, are pegged to the US dollar. In 1998, approximately 72% of the Corporation’s consolidated revenues were US dollardenominated or pegged to the US dollar, compared to 74% in 1997. Four Seasons manages this currency exposure through51Four Seasons Hotels Inc.