1997 Annual Report - Four Seasons Hotels and Resorts

MESSAGE TO OUR SHAREHOLDERS1997 WAS A YEAR OF SIGNIFICANT ACCOMPLISHMENTFOR FOUR SEASONS HOTELS AND RESORTSRecord earnings growthFour Seasons Hotels Inc. achieved record earnings in 1997, with normalized netearnings increasing 77% to nearly $53 million or $1.61 per share. This significantimprovement was the result of continued strong internal fee growth, the addition ofnew hotels and resorts to the portfolio, initial fees from our first luxury vacationownership project, and lower net interest costs. Growth in net earnings exceeded ourbusiness plan for the year, despite the serious deterioration in the Asian markets overIsadore SharpChairman and Chief Executive Officer the last six months of 1997.Last year, 81% of our operating earnings were generated by our managementbusiness and we were able to achieve significant improvements in both the profit margins of hotels under managementand overall corporate profitability. The profit margin on our hotel management operations increased by 130 basis points in1997, exceeding 60% for the first time in our history.Strong balance sheet to support future growth initiativesIn February we raised $122 million of equity and listed our shares on the New York Stock Exchange. This equity offeringallowed us to broaden our shareholder base, improve the trading liquidity of our stock, and enhance shareholder value.In July we refinanced our long-term debt position. By replacing our high yield debt with 6% investment grade debt,we reduced significantly our cost of capital and improved the Corporation’s overall financing flexibility.Total debt declined by nearly $100 million to $140 million as at December 31, 1997 and total debt to capitalizationhas improved from 73% at the end of 1996 to approximately 36% at the end of 1997. Net interest coverage has alsoimproved from 3.4 times in 1996 to nearly 9 times in 1997. With these substantial balance sheet improvements, webelieve that the Corporation has the capacity to finance our expansion plan in the years ahead.Important additions to our management portfolioDuring the year, Four Seasons added three new hotels and resorts to its portfolio, including the conversion of existingluxury hotels in Atlanta and Lisbon, and the opening of the new Four Seasons Resort Aviara at Carlsbad in California.1997 also saw the beginning of new Four Seasons projects in Paris, San Francisco, Dublin, Las Vegas and a variety ofother international locations, all of which should help to expand the prominence of the Four Seasons brand in newmarkets, while further diversifying the geographic elements of the Corporation’s operations.2Four Seasons Hotels Inc.