1998 Annual Report - Four Seasons Hotels and Resorts

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)16. S E G M E N T E D I N F O R M A T I O N:The Corporation has two distinct operating segments: Hotel Management Operations and Hotel Ownership Operations.Under its Hotel Management Operations segment, the Corporation generally supervises all aspects of hotel operations onbehalf of the hotel owners, including hotel sales and marketing, hotel reservations, hotel accounting, purchasing, budgetingand the hiring, training and supervising of staff. For providing these services, the Corporation typically receives a base feecalculated as a percentage of gross revenues of the hotel. In addition, the Corporation may receive incentive fees based onthe operating performance of the hotel. Generally, the hotel owners, and not the Corporation, fund substantially all capitalexpenditures and working capital of the hotel, including all employment and operating costs. This segment also includesthe licensing and managing of vacation ownership projects. The Corporation is entitled to receive a fee for the use of itsbrand name in connection with these projects, and for services provided in the oversight of the sales and marketing of thevacation ownership units. In addition, the Corporation will receive a fee from the owners of the vacation ownership unitsfor services provided in the ongoing management of these units.Under its Hotel Ownership Operations segment, the Corporation had an equity interest in seven hotels undermanagement, one vacation ownership property and five projects under construction as at December 31, 1998. Earnings areprimarily derived from the consolidation of its wholly-owned interests in two hotels and distributions from its other equityinterests. Generally, the Hotel Ownership Operations segment is labour intensive and is subject to greater economicfluctuations than the Hotel Management Operations segment. Hotel ownership returns can be materially affected bychanges in travel patterns, local wage rate factors, the level of capital spending that is required to appropriately maintainand renew the hotel, volatility of construction costs, the availability of hotel financing and changes in interest rates. TheCorporation structures its ownership interests separately from its management interests so as to enable the Corporation todispose of ownership interests as sale opportunities arise, without affecting its management interests.(a) Consolidated revenues:1998 1997Hotel Hotel Total Hotel Hotel TotalManagement Ownership consolidated Management Ownership consolidatedrevenues revenues revenues revenues revenues revenuesUnited States $ 82,740 $ 92,401 $ 175,141 $ 67,358 $ 101,879 $ 169,237Canada 6,723 34,356 41,079 5,577 33,792 39,369United Kingdom and Europe 17,041 — 17,041 5,700 — 5,700Asia/Pacific 20,443 2,030 22,473 27,361 5,991 33,352126,947 128,787 255,734 105,996 141,662 247,658Less inter-segment revenues (6,956) — (6,956) (7,265) — (7,265)$ 119,991 $ 128,787 $ 248,778 $ 98,731 $ 141,662 $ 240,39380Four Seasons Hotels Inc.