1997 Annual Report - Four Seasons Hotels and Resorts

The recoverability of the unamortized cost of trademarks, trade names and hotel management contracts is periodicallyevaluated to determine whether such costs will be recovered from future operations. The Corporation bases theseevaluations upon the projected future fee stream on an undiscounted basis. If the undiscounted fee streams are insufficientto recover the remaining net book value, then the undiscounted fee stream is used as the revised carrying value, and awrite-down for the difference is recorded as a charge to amortization expense. Events that cause impairment to individualhotel management contracts, such as termination or sale, result in write-offs as the events occur.(f) Deferred charges:The Corporation defers development costs directly relating to the negotiation, structuring and execution of new contractsrelating to projects which, in management’s judgment, have a high probability of opening. When the property is opened,these deferred charges are reclassified to “Investment in management contracts.” If the project is abandoned, any deferredcharges are written off. The deferred charges associated with new management contracts developed by the Corporation areamortized on a straight-line basis over a 10-year period commencing when the hotel is opened.(g) Cash and cash equivalents:The Corporation’s investments in cash and cash equivalents are highly liquid, with maturities of less than 30 days. Theseinvestments are bank deposits and guaranteed investment certificates with the Corporation’s primary banker.(h) Use of estimates:The preparation of financial statements in conformity with generally accepted accounting principles requires managementto make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during theperiod. Actual results could differ from those estimates.The most significant estimates that the Corporation is required to make relate to the recoverability of its investmentsin (i) long-term receivables, (ii) hotel partnerships and corporations, (iii) management contracts, and (iv) trademarks andtrade names.The estimated recoverable amounts of these investments usually depend upon estimates of the profitability of therelated managed hotels, which, in turn, depend upon assumptions regarding future conditions in the general or localhospitality industry, competition from other hotels, changes in travel patterns, and other factors that affect the hotels’ grossoperating revenue (which is the factor on which the Corporation’s base management fee revenues are normally based) andnet operating profit (which is the factor on which the Corporation’s incentive management fee revenues are normally based).The estimates of recoverable amounts of these investments may also depend upon assumptions regarding local realestate market conditions, property and income taxes, interest rates and the availability, cost and terms of financing, the impactof present or future legislation or regulation, and other factors affecting the profitability and saleability of the hotels.These assumptions are limited by the availability of reliable comparable data and the uncertainty of predictionsconcerning future events. Accordingly, by their nature, estimates of recoverable amounts are subjective and do not necessarilyresult in precise determinations. Should the underlying assumptions change, the estimated recoverable amounts couldchange by a material amount.59Four Seasons Hotels Inc.