1997 Annual Report - Four Seasons Hotels and Resorts

ANNUAL INFORMATION FORM(continued)M ANAGEMENT’ S D ISCUSSION AND A NALYSIS9080706050403020100Operating Cash Flow ($ millions)Operating Cash FlowCash flow from operations was $64.8 million in 1997, compared to $43.7 million in 1996.95 96 97 98 TargetThe working capital generated from hotel management operations was $7.4 million higher in1997 than in 1996, reflecting the improvement in hotel management earnings discussed above.The working capital generated from hotel ownership operations was $10.7 million higher in1997 than in 1996, primarily as a result of improved hotel management and hotel ownershipearnings in 1997. Net interest paid decreased by $10 million in 1997, compared to 1996,due to lower debt levels and interest rates and an increase in interest income in 1997.These increases were offset by a change in non-cash working capital of $7.4 million in 1997,compared to 1996.For the year ended December 31, 1996, cash flow from operations was $43.7 million,compared to $38.7 million for 1995. The working capital generated from hotel managementoperations was $4.5 million higher in 1996 than in 1995. This improvement was more thanoffset by a reduction in working capital generated from hotel ownership operations of $8.3 millionin 1996, due to the sale of the Corporation’s 50% interest in the Four Seasons Hotel Londonin 1995. Net interest paid decreased by $4.8 million in 1996, compared to 1995, due to lowerdebt levels and interest rates.Operating cash flow is expected to increase to more than $75 million in 1998. The Corporation expects thatapproximately 80% of cash generated from operations will be expended to generate new revenue streams.Fixed Asset Additions and ImprovementsOwners of hotels managed by Four Seasons are contractually responsible for funding the capital requirements of the hotels,including major guest room and common area renovations, and for maintaining capital reserves to fund ongoing annualmaintenance capital expenditures required by the management agreements. The owners annually spend an average of 4% ofgross revenues of the hotels on capital expenditures to maintain properties at the Four Seasons standard (other than in newlyconstructed or recently renovated properties where the annual amounts generally range from 1% to 2% in the years ofoperation following opening and major refurbishment). Additional funds are made available for special capital projects asrequired to maintain the luxury standards specified in the Four Seasons’ hotel management agreements. Capital expendituresare funded primarily by working capital generated from hotel operations and through advances from the hotel owners.Four Seasons’ share of capital expenditures were $10.5 million, $1.3 million and $2.4 million in 1997, 1996 and 1995,respectively, for its consolidated hotels and corporate offices. The increase in capital expenditures in 1997, compared to1996 related primarily to the consolidation of The Pierre in New York and the Four Seasons Hotel Vancouver in 1997.In addition, these hotels undertook major capital programs. Four Seasons’ share of capital expenditures was immaterial forthose hotels in which Four Seasons has a minority equity interest or pursuant to management contract obligations.For 1998, Four Seasons has budgeted capital expenditures of approximately $8 million in its consolidated hotels andcorporate offices.Investments in and Advances to Managed and Owned HotelsThe Corporation received $13 million net cash proceeds in January 1997 upon the closing of the sale of the Four SeasonsHotel Toronto.40Four Seasons Hotels Inc.