1998 Annual Report - Four Seasons Hotels and Resorts

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)(b) Equity offering:On February 12, 1997, FSHI completed the issuance of 4,370,000 LVS for gross proceeds of $122,360. The net proceedsfrom the sale of the LVS, after deducting estimated offering expenses and underwriters’ commission, were $113,699.The Corporation used the net proceeds of the offering to repay all outstanding borrowings under the bank creditfacility in 1997 (note 10(b)), to fund a loan in connection with acquiring the long-term management agreement for theHôtel George V in Paris (note 4(b)), to invest in new hotel projects and for general working capital purposes.(c) Equity adjustment from foreign currency translation:The increase in the equity adjustment from foreign currency translation is primarily caused by changes in the exchangerates used to translate the Corporation’s net investment in self-sustaining foreign operations, offset by an amounttransferred to “Foreign exchange gain” relating to the reduction of the Corporation’s net investment in Regent (note 12).12. F O R E I G N E X C H A N G E G A I N:(a) During 1998, the Corporation reduced its net investment in its self-sustaining foreign subsidiary, Regent. The reductionwas related to a capital restructuring whereby Regent repaid capital of approximately US$50,000 to the Corporation.A foreign exchange gain of $7,778, which is equivalent to the proportional amount (relating to the reduction in the netinvestment of Regent) of the foreign exchange gain accumulated in “Equity adjustment from foreign currencytranslation” in shareholders’ equity, was recognized in income.(b) The remainder of the foreign currency gain of $6,191 relates primarily to unrealized foreign currency translation gainson unhedged long-term receivables denominated in foreign currencies, primarily pound sterling and French francs, andtranslation gains and losses on intercompany amounts with self-sustaining foreign operations.13. I N C O M E T A X E S:Income tax expense shown in the consolidated statements of operations varies from the amount computed by applying thecombined Canadian federal and provincial tax rates as follows:1998 1997Earnings before income taxes $ 71,128 $ 42,374Items not deductible 14,737 7,940Earnings subject to tax $ 85,865 $ 50,314Expected Canadian federal and provincial statutory tax rate 41.5% 41.5%Expected income tax expense $ (35,634) $ (20,880)Reduction in income tax due to lower foreign tax rates 3,669 3,143Tax benefits of prior years’ losses 30,486 16,302Other 53 (169)Income tax expense $ (1,426) $ (1,604)The tax benefits relating to the provision for losses on hotel investments and related assets of $95,000 recorded in1995 and $127,000 recorded in 1993 were not recognized at that time. The tax treatment of these losses will not bedetermined until the underlying assets are disposed of. The tax benefits of these provisions will be recorded in the year(s) inwhich the benefits are realized.76Four Seasons Hotels Inc.