1998 Annual Report - Four Seasons Hotels and Resorts

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)The financial statements of foreign investments designated as self-sustaining operations are translated into Canadiandollars as follows:(i) Assets and liabilities at rates of exchange on the balance sheet date; and(ii) Revenue and expense items at average rates of exchange in effect during the year.The resulting exchange gains and losses are deferred and included in a separate component of shareholders’ equity.A gain or loss equivalent to a proportionate amount of the exchange gains and losses accumulated in the separatecomponent of shareholders’ equity is recognized in income when there has been a reduction in the net investment resultingfrom a sale of part or all of the Corporation’s interest in the foreign operation, or a reduction in the shareholders’ equity ofthe foreign operation as a result of dividend distributions or other capital transactions.(d) Capital assets:Land, buildings, furniture, fixtures, equipment and leasehold interests and improvements are recorded at cost lessaccumulated depreciation and amortization.The cost of hotel management contracts acquired as part of the acquisition of Regent in 1992 represents the presentvalue at the time of acquisition of the estimated future net cash flows expected to be received over the estimated lives of thecontracts.Prior to January 1, 1998, the cost of trademarks and trade names included the estimated fair value of the “Regent”trademark and trade name at the date of the Regent acquisition. Subsequently, the cost of trademarks and trade namesincludes the portion of the net book value that relates to the rights to the “Regent” name transferred to Carlson HospitalityWorldwide (note 8(a)).The cost of trademarks and trade names also include the cost of registering the “Four Seasons” trademarks and tradenames throughout the world.(e) Depreciation and amortization of capital assets:Depreciation of buildings is recorded on a straight-line basis over 40 years.Depreciation of furniture, fixtures and equipment is recorded on a straight-line basis at rates which will fullydepreciate the assets over their estimated useful lives. The estimated composite useful lives for furniture, fixtures andequipment range from 3 to 20 years.Amortization of leasehold interests and improvements is recorded on a straight-line basis over the terms of the leases.The costs allocated to trademarks and trade names are amortized on a straight-line basis over a 40-year period.The costs allocated to the hotel management contracts acquired as part of the Regent acquisition are amortized on astraight-line basis over the remaining terms of the contracts, which ranged from 8 to 40 years, with an average of 27 years,at the date of acquisition.The recoverability of the unamortized cost of trademarks, trade names and hotel management contracts is periodicallyevaluated to determine whether such costs will be recovered from future operations. The Corporation bases theseevaluations upon the projected future fee stream on an undiscounted basis. If the undiscounted fee streams are insufficientto recover the remaining net book value, then the undiscounted fee stream is used as the revised carrying value, and awrite-down for the difference is recorded. Events that cause impairment to individual hotel management contracts, such astermination or sale, result in write-offs as the events occur.66Four Seasons Hotels Inc.