1997 Annual Report - Four Seasons Hotels and Resorts

ANNUAL INFORMATION FORM(continued)M A N A G E M E N T’ S D I S C U S S I O N A N D A N A L Y S I SF I N A N C I A LO B J E C T I V E SThe financial objectives of the Corporation over the next few years can be summarized as follows:• Identify and pursue opportunities that allow the Corporation to maintain high profit margins in and cash flow fromits hotel management operations and earn significant returns on invested capital.• Continue to improve profitability of existing hotels under management.• Identify and pursue opportunities to acquire the management of existing unbranded hotels, or groups of hotels, whichutilize the Corporation’s cash flow to enhance long-term earnings growth.• Continue to develop the vacation ownership business which is expected to provide substantial fee revenues and returnson invested capital.• Identify and coordinate with Carlson opportunities to franchise and manage hotels under the Regent brand.• Maintain an investment grade balance sheet and low cost of capital to facilitate future financing of the Corporation’sgrowth initiatives.O V E R V I E W O F 1997The Corporation has achieved a number of important strategic objectives over the past 12 months. The equity issuein February and the corporate debt refinancing in July (described below) significantly strengthened the Corporation’sbalance sheet, which should allow Four Seasons to continue to pursue an aggressive growth program. The key financialaccomplishments include the following:• Normalized net earnings increased 76.8% to $52.8 million ($1.61 earnings per share), compared to net earningsof $29.9 million for 1996 ($1.04 earnings per share). This improvement reflects continued growth in the hotelmanagement business, strong ownership earnings from The Pierre Hotel in New York and the Four Seasons Hotel Vancouver,which were both consolidated effective December 30, 1996, and lower interest costs resulting from declining debt levelsand the refinancing of high-yield debt with investment grade debt.• Hotel management operations contributed 81% of total earnings before other operating items.• The profit margin on hotel management operations increased to over 60% for the first time.• REVPAR for Core Hotels in North America and Europe increased approximately10%. Management fee revenues from hotels in North America and Europe represented Capital Structureapproximately 74% of fee revenue in 1997.(percent)• The Corporation successfully acquired the management contracts for the Four Seasons1993Hotel, The Ritz Lisbon and the Four Seasons Hotel Atlanta. Also, during the year26the Four Seasons Resort Aviara opened and renovations began at the Hôtel George V,74which will reopen during 1999 as the Four Seasons Hotel, George V Paris.• In February 1997, FSHI issued 4,370,000 Limited Voting Shares for net proceeds of1997approximately $114 million. The Limited Voting Shares of FSHI also began tradingon the New York Stock Exchange under the ticker symbol “FS.”• The Corporation redeemed US$101.5 million of its 9-1/8% Notes, due July 1, 2000,using cash generated from its operations, together with proceeds of the equity issuanceand the successful placement of $100 million 6% debentures due July 2, 2002.• The Corporation’s long-term debt, net of cash, decreased from $225 million as at36742664DebtEquity28Four Seasons Hotels Inc.