1997 Annual Report - Four Seasons Hotels and Resorts

Income Tax ExpenseThe Corporation’s effective tax rate in 1997 was 3.8%, compared with a 6.2% effective tax rate in 1996. The low effectivetax rate is due primarily to the utilization of the benefits of the unrecorded tax losses created by the write-down in hotelinvestment values in 1993 and 1995. The utilization of these unrecorded tax losses is expected to keep the effective tax ratebelow 10% for the next two years.Net Earnings and Earnings per ShareNet earnings and earnings per share in 1997 were $40.8 million and $1.24 per share, respectively. Excluding the $12.0 millionloss on repurchase of debt, normalized net earnings were $52.8 million and normalized earnings per share were $1.61 in1997. Net earnings in 1996 were $29.9 million and net earnings per share were $1.04. The 76.8% increase in normalizednet earnings and 54.8% increase in normalized earnings per share resulted from strong growth in hotel managementoperations, and an increase in hotel ownership earnings primarily due to the consolidation of The Pierre in New York andthe Four Seasons Hotel Vancouver in 1997, offsetting lower management and ownership earnings from the Corporation’sAsian hotels, and lower net interest costs resulting from declining debt levels, lower interest rates and increased interestincome in 1997.Year ended December 31, 1996 compared to year ended December 31, 1995Hotel Management OperationsFee RevenuesFee revenues increased $6.3 million or 7.1% to $94.7 million in 1996, compared to $88.5 million in 1995. The increase isattributable to increased incentive fees of $5.0 million, a $2.4 million net gain realized on the termination of The RegentFiji management contract and an increase in other fees of $4.6 million. The growth in fee revenues was primarily offset bythe termination of management contracts for Regent hotels in Melbourne, Auckland, London and Fiji, the Inn on the Parkin Toronto and the Clift in San Francisco (which together accounted for a reduction of $4.2 million of fee revenues).Adjusting for the effect of these terminated management contracts and the effect of newly opened hotels and developmentprojects, fee revenues would have increased $9.6 million or 12.4% in 1996, compared to 1995. Incentive fees contributed20.2% of the total fee revenues in 1996, compared to 16.8% in 1995.Total revenues of all managed hotels increased to $1.9 billion in 1996, compared to $1.8 billion in 1995. Growthin revenue was driven by continued strong performance in all major geographic markets. Fully opened hotels undermanagement by the Corporation during all of both 1995 and 1996 showed an average increase of approximately 12% inREVPAR compared to 1995, primarily as a result of an increase in room rates. The strong REVPAR increases realizedin 1996, combined with enhanced operating efficiencies, resulted in increases of approximately 21% in the gross operatingprofit of fully opened hotels in 1996, compared to 1995.General and Administrative ExpensesGeneral and administrative expenses increased $2.3 million or 6.4% in 1996, compared to 1995, partly as a result of theincentives earned by management in respect of the financial performance of the Corporation in 1996. No profit-basedincentives were earned in 1995.37Four Seasons Hotels Inc.