Four Seasons Hotels Inc. reports results for fourth quarter and
year end 2003 TORONTO, Feb. 27 /PRNewswire-FirstCall/ -- Four
Seasons Hotels Inc. (TSX Symbol "FSH"; NYSE Symbol "FS") today
reported its results for the fourth quarter of 2003 and for the
year ended December 31, 2003. "2003 ended very differently than it
began," said Isadore Sharp, Chairman and Chief Executive Officer.
"The second half of the year saw an upswing in travel demand, as
signs of economic recovery became clearer, while during the first
half of the year travel was severely disrupted as a result of war,
terrorism, SARS and economic uncertainty. The Company's 2003
financial results reflect that environment. As travel demand trends
continue to improve, we anticipate a stronger financial performance
in 2004." Net earnings for the quarter ended December 31, 2003 were
$11.7 million ($0.33 basic earnings per share and $0.32 diluted
earnings per share), as compared to $7.6 million ($0.22 basic and
diluted earnings per share)for the quarter ended December 31, 2002.
For the year ended December 31, 2003, net earnings were $5.4
million ($0.15 basic and diluted earnings per share), as compared
to $21.2 million ($0.61 basic earnings per share and $0.59 diluted
earnings per share) for the year ended December 31, 2002. The
decline in net earnings for the year ended December 31, 2003, as
compared to the year ended December 31, 2002, is attributable
primarily to a non-cash, unrealized foreign exchange loss for
accounting purposes (in contrast to a non-cash, unrealized foreign
exchange gain in 2002), increased losses from ownership operations
and a write-down of the Company's fixed asset investment in Four
Seasons Hotel Berlin, which losses and write-downs were offset by
lower legal and enforcement costs relating to the disputes with the
owners of the hotels in Seattle and Caracas in 2003 as compared to
those costs in the prior year. The financial results for 2002 also
were affected by asset impairment charges relating to the Company's
investments in Four Seasons hotels in Caracas and Sydney. Excluding
these items (other than losses from ownership operations),
adjusted(1) net earnings for the year ended December 31, 2003 were
$28.5 million ($0.81 basic earnings per share and $0.79 diluted
earnings per share), as compared to adjusted(1) net earnings for
the year ended December 31, 2002 of $38.6 million ($1.10 basic
earnings per share and $1.07 diluted earnings per share). Cash flow
from operations improved by $12.3 million to $21.9 million in the
fourth quarter of 2003, as compared to $9.6 million in the same
period in 2002 ($0.62 per share in the fourth quarter of 2003, as
compared to $0.27 per share in the same period in 2002). For the
year ended December 31, 2003, cash flow from operations also
improved to $66 million, as compared to $41.8 million in the same
period in 2002 ($1.89 per share for the year ended December 31
2003, as compared to $1.19 per share in the same period in 2002).
"2003 was the third, and we hope last, year of a very difficult
period for the lodging industry. We are pleased that our management
business showed continued resiliency, and that we were able to come
out of this cycle in a strong position financially and
operationally," said Douglas L. Ludwig, Chief Financial Officer and
Executive Vice President. "Despite the extremely challenging
operating conditions in 2003, we achieved a 58% improvement in cash
flow from operations, generating $66 million. We have maintained
our balance sheet strength, and have been able to continue to meet
our objective of funding new management opportunities with cash
generated by our existing management business." OPERATING
ENVIRONMENT The Company continues to operate at or above market
occupancy levels in most of its locations. Maintaining superior
product and service levels has allowed the Company to generally
maintain, and in some cases improve, its room rates. During the
Company's negotiations with corporate accounts for 2004, overall
rates were in line with or, in some cases, slightly better than
those negotiated rates for 2003. The Company currently expects its
full year achieved room rates in 2004 to be near the 2003 levels.
Four Seasons' customer base consists of business travellers,
corporate groups and leisure travellers. Over the past three years,
travel demand was negatively affected as the lodging industry dealt
with the impact of terrorism, war, a weak economy and Severe Acute
Respiratory Syndrome (SARS). Economic indicators suggest that the
US economy began to show signs of recovery in mid-2003 and
continued to recover further during the fourth quarter of 2003.
Concurrently, business travel demand improved in many US and
international markets, although it remains below levels achieved
prior to 2001, which marked the beginning of the current downturn
in travel demand. Notwithstanding the improvement in demand, both
business and leisure travel is generally still being booked on a
short lead-time. The recovery in non-room related revenues at the
hotels and resorts are lagging behind the recovery seen in room
revenues. This pattern is consistent with prior economic cycles
during which other ancillary revenues, including food, beverage and
catering, recovered further into the economic recovery than room
revenue. Overall gross operating margins(2) at the hotels under
management continued to be constrained as increased costs related
to labour, workers compensation, health benefits, energy and
insurance have not been completely offset by RevPAR(3)
improvements. The Company expects that further significant cost
increases, particularly relating to energy, insurance and workers
compensation, will continue to put pressure on gross operating
profit performance in 2004. For gross operating margins to remain
at the same level as those realized in 2003, the Company estimates
that RevPAR will need to increase by 4% to 5% in 2004. This level
of RevPAR growth in 2004 is within the range of lodging industry
experts' forecasts for 2004of 3% to 6% improvements. Please see the
accompanying "Summary of Hotel Operating Data" for regional RevPAR
and gross operating margin statistics by geographic region.
Worldwide Core Hotels The 11.9% increase in RevPAR, on a US dollar
basis, for thequarter ended December 31, 2003, as compared to the
same period in 2002, for the Company's worldwide Core Hotels(4)
reflects improvements in each of the regions in which the Company
manages hotels and resorts. This is the first quarter since the
middleof 2000 that all regions have experienced improved operating
trends, on a US dollar basis; and the Company believes this
reflects the beginning of a broader recovery in travel demand. As a
result of the cost pressures noted above, gross operating margin
for worldwide Core Hotels increased modestly from 27.8% in the
fourth quarter of 2002 to 28.4% in the same period in 2003. For the
full year 2003, RevPAR of worldwide Core Hotels, on a US dollar
basis, increased 2%, as compared to 2002. On a local currency
basis, RevPAR of worldwide Core Hotels was essentially flat. On a
full year basis, RevPAR performance varied significantly among
regions, with the US outperforming the other regions. The full year
occupancy decline in 2003, as compared to 2002, for worldwide Core
Hotels was attributable principally to lower occupancy levels in
the first half of the year, which was caused for the most part by
travel disruption relating to the war, terrorism, SARS and lower
demand related to a weak economy. This decline in occupancy was
offset partially by a 4.3% increase, on a US dollar basis, in
average daily room rate for the full year 2003, as compared to the
same period in 2002. On a local currency basis, average room rates
for worldwide Core Hotels increased 1.4%. US Core Hotels With the
exception of Chicago, Philadelphia, Atlanta and Aviara, the US Core
Hotels had RevPAR improvements in the quarter ended December 31,
2003, as compared to the same period in 2002. However, even the
properties under management in these four locations continued to
take more than their fair revenue market share(5) of business
during the fourth quarter. The more modest improvement in RevPAR of
2.9% at the US Core Hotels in 2003, as compared to 2002 on a full
year basis, reflects strong improvements in RevPAR in the last half
of the year as increased travel demand offset weaker results in the
first half of 2003. Exceptions to this improvement in RevPAR were
Houston, Boston, Chicago, Washington and, to a lesser extent, New
York, which did not have the same occupancy improvements as other
markets, in part, because of increased supply in, and reduced
convention traffic to, these cities. Gross operating margins at the
US Core Hotels were essentially flat in the fourth quarter of 2003,
as compared to the same period in 2002, as increased labour,
workers compensation, health benefits, energy and insurance costs
negatively affected flow-through. On a full-year basis, the impact
of these increased costs on gross operating margins was more
significant, due to the weaker revenue growth at the hotels in the
first half of 2003. Europe/Middle East Core Hotels With the
exception of hotels under management in Paris and Istanbul, the
Core Hotels under management in Europe/Middle East had occupancy
improvements in the fourth quarter of 2003, as compared to the
fourth quarter of 2002. Travel demand in Istanbul was negatively
affected by the terrorist attacks in that market in early November.
Four Seasons Hotel George V Paris experienced solid results with
occupancy in excess of the average for the region, but realized an
occupancy decline for the fourth quarter on a year-over-year basis.
This hotel experienced an exceptional fourth quarter in 2002 as
occupancy levels in October 2002 were almost 90%. Although achieved
average room rates for Europe/Middle East Core Hotels in the fourth
quarter of 2003 increased 10.6% on a US dollar basis, as compared
to the same period in 2002, on a local currency basis, achieved
average room rates were essentially unchanged. Rate improvements
achieved in certain hotels under management, including London,
Lisbon and Dublin were offset by modest rate declines at hotels
under management in Paris and Istanbul. On a local currency basis,
RevPAR for the Europe/Middle East Core Hotels increased 7.3% during
the fourth quarter of 2003, as compared to the same period in 2002.
On both a US dollar basis and a local currency basis, the
Europe/Middle East Core Hotels' RevPAR improvement in 2003,
compared to the full year 2002, reflects the increases realized in
the last six months of 2003, offset by the weakness in travel
demand experienced in the first six months of the year,
particularly in Cairo and Istanbul where travel was affected
primarily by the war in Iraq. Gross operating margins in the region
were essentially flat in the quarter, as compared to the same
period in 2002, as a result of increased energy and labour costs.
Gross operating margins declined for the full year, as compared
to2002, as the impact of these cost increases was magnified by
weaker revenues in the first half of 2003. Other Americas/Caribbean
Core Hotels During the fourth quarter of 2003, RevPAR of the
Company's Core Hotels in Other Americas/Caribbean increased 20.3%
over the fourth quarter of 2002, on a US dollar basis, as a result
of broad based demand improvement. With the exception of Four
Seasons Hotel Toronto, which is in a market that is still
recovering from the impact of SARS, all of the Core Hotels under
management in this region experienced occupancy gains. Although
Vancouver is also recovering from the impact of SARS, the fourth
quarter is historically a slower travel period for that market, and
therefore the lingering effects of SARS did not have the same
impact as in Toronto, which historically has strong demand in the
fourth quarter relative to the rest of the year. On a local
currency basis, achieved room rates in the region increased 2.8%,
as compared to the fourth quarter of 2002. RevPARfor the full year
2003, as compared to 2002, on both a US dollar basis and local
currency basis, was essentially unchanged as the weaker results in
the first six months of 2003, resulting primarily from the impact
of SARS on travel demand for Toronto and Vancouver, were offset by
the stronger RevPAR results in the second half of the year.
Asia/Pacific Core Hotels Virtually all of the hotels under the
Company's management in the Asia/Pacific region contributed to a
RevPAR improvement for the region of 23.9% in the fourth quarter of
2003, as compared to the same period in 2002, on a US dollar basis,
as travel demand in the region continued to improve. Demand
remained relatively weak in Bali as the impact of the terrorist
event on that island in October 2002 lingers. Full-year RevPAR
declined 9.2% in 2003, as compared to 2002, on a US dollar basis,
reflect the devastating impact of SARS on that region in the first
half of 2003. On a local currency basis, RevPAR improved 12% in the
fourth quarter and declined 15.6% for the full year of 2003, as
compared to the same periods in 2002. Gross operating margins in
the region improved from 35.1% in the fourth quarter of 2002 to
37.4% in the same period in 2003, reflecting the relatively low
labour costin the region and RevPAR improvements. Consistent with
the full year RevPAR declines, gross operating profits declined in
the full year. "We are pleased that our properties are experiencing
an improvement in demand," said Wolf Hengst, President Worldwide
Hotel Operations. "Many of the hotels and resorts under our
management are dealing with significant increases in certain costs
that are largely outside the control of management, including
labour, workers compensation, health benefits, energy and
insurance. However, assuming travel demand continues to improve, we
believe revenue improvements should help absorb these additional
costs and we should begin to see margin improvements over the
course of this year." MANAGEMENT OPERATIONS Management revenues
increased 3.2% to $40.6 million for the quarter ended December 31,
2003, as compared to $39.3 million for the same period in 2002. The
increase in management revenues is attributable to an improvement
in fees from recently opened hotels and resorts including the Four
Seasons hotels in Amman, Riyadh, Shanghai and the addition of fees
from the Four Seasons resorts in Jackson Hole and Sharm el Sheik.
These improvements were offset by a decline of approximately $1.3
million in fees related to currency conversion, as the Canadian
dollar strengthened primarily against the US dollar and pound
sterling. In addition, incentive fees declined approximately $1.3
million, primarily as a result of reduced incentive fees from the
US hotels (including Chicago and Philadelphia) in the three months
ended December 31, 2003, as compared to the same period in 2002.
Incentive fees are typically calculated based on the adjusted gross
operating profits of the hotels and resorts under management, and
the US hotels had reduced profitability as the hotels incurred
additional costs related primarily to labour, workers compensation,
health benefits, energy and insurance. Management revenues
increased 1.3% to $149.8 million for the year ended December 31,
2003, as compared to $147.9 million for 2002. Increases in
management fees from new and recently opened hotels were offset by
a currency- related decline in fees of approximately $600,000
relating to US dollar, Euro and pound sterling-denominated fees and
reduced fees from the Company's residential business. In addition,
the Company's management incentive fees decreased to $20.9 million
for the year ended December 31, 2003, as compared to $25.1 million
in 2002. The Company earned incentive fees from 33 of the 60hotels
and resorts under its management during 2003, as compared to 33 of
its 57 hotels and resorts in 2002. Incentive fees declined
primarily due to the lower levels of profitability at certain
properties under management, resulting from higher costs related
primarily to labour, workers compensation, health benefits, energy
and insurance. General and administrative expenses increased by
12.4% to $19.9 million for the fourth quarter of 2003 and increased
6.6% to $70.2 million for the year ended December 31, 2003, in each
case as compared to the same periods in 2002. A large portion of
these increases in general and administrative expenses in the
fourth quarter ($1.1 million) and for the full year 2003 ($1.8
million) was attributable to items relating to relocation and
severance and other atypical expenses at certain regional offices.
As a result of the items described above, management earnings
before other operating items decreased to $20.7 million in the
fourth quarter of 2003, as compared to$21.6 million in the fourth
quarter of 2002, and to $79.5 million for the year ended December
31, 2003, as compared to $82 million in 2002. For the quarter ended
December 31, 2003, the Company's management operations profit
margin(6) was 50.9%, as compared to 54.9% for the same period in
2002. For the year ended December 31, 2003, the Company's
management operations profit margin was 53.1%, as compared to 55.4%
in 2002. Excluding the impact of foreign currency on fee revenues
described above (approximately $1.3 million in the quarter and
$600,000 for the full year 2003) and the items relating to
relocation and severance ($1.1 million in the quarter and $2.1
million for the full year 2003), management operations profit
margin would have been 54.9% in the fourth quarter of 2003 and
54.7% for the full year 2003. OWNERSHIP OPERATIONS(7) In the fourth
quarter of 2003, ownership losses before other operating items were
$2.0 million, as compared to ownership losses before other
operating items of $4.6 million in the fourth quarter of 2002. The
improvement in ownership losses is primarily attributable to the
Company ceasing to accrue rent expense for Four Seasons Hotel
Berlin from August 2003, as discussed below. Ownership losses
before other operating items were $30.1 million for the year ended
December 31, 2003, as compared to ownership losses before other
operating items of $19.6 million for the year ended December 31,
2002. The increase in the full year loss over the prior year is
attributable primarily to increased losses at The Pierre ($4.9
million) and Four Seasons Hotel Vancouver ($3.2 million) and
reduced distributions from other hotel investments ($1.2 million).
Operating earnings at The Pierre were essentially flat in the
fourth quarter of 2003, as compared to the fourth quarter of 2002.
Although the hotel had RevPAR gains in the quarter driven by both
occupancy and rate improvements, as a result of increased costs and
a modest decline in catering revenues, earnings were essentially
unchanged. For the full year ended December 31, 2003, the increased
losses were attributable primarily to lower revenues from
banqueting and ancillary revenues and higher labour, workers
compensation, health benefits, energy and insurance costs.
Operating losses at Four Seasons Hotel Vancouver were essentially
unchanged during the fourth quarter of 2003, as compared to the
same period in 2002. Primarily as a result of travel disruption
relating to SARS, Four Seasons Hotel Vancouver experienced weak
operating conditions, with RevPAR, on a local currency basis,
declining 11.6% for the full year of 2003, as compared to the same
period in 2002, resulting in the operating loss at Four Seasons
Hotel Vancouver increasing by $3.2 million. The Company'sobligation
to fund any stipulated minimum lease payments at Four Seasons Hotel
Berlin was limited to a maximum amount of approximately euro 11
million and was supported by a letter of credit. The Company
reached its maximum funding obligation during the third quarter of
2003 and accordingly, the letter of credit has been released. Since
the Company ceased funding shortfalls on the stipulated minimum
lease payments, the lease payments made have been limited to the
cash flow generated by the hotel. As a result, effective the first
quarter of 2004, the landlord will be entitled to terminate the
lease. Primarily as a result of not accruing the stipulated minimum
lease payments for Four Seasons Hotel Berlin during the fourth
quarter of 2003, the operating results from this hotel for that
quarter improved by $2.9 million, as compared to the fourth quarter
of 2002. The benefit of the reduction in rent expense was however
reduced by lower revenues at the hotel, resulting from a
significant decline in occupancy for the full year 2003 (primarily
as a result of new supply in that market), as compared to 2002, and
increased labour, heath benefits, energy and insurance costs. The
Company wrote down its fixed asset investment in the hotel to nil
in the fourth quarter of 2003, resulting in a $3.2 million expense
that is included in other operating items. In 2004, the Company
will continue to consolidate the revenue and expenses of Four
Seasons Hotel Berlin. However, the stipulated minimum lease
payments beyond what can be funded by the hotel's operation will
not be paid or accrued. As a result, the Company expects the
earnings from Four Seasons Hotel Berlin to be nil throughout the
year. The Company is in discussions with the landlords of The
Pierre, Four Seasons Hotel Berlin and Four Seasons Hotel Vancouver
to determine what, if any, alternatives may be available to change
or restructure the Company's investments in these hotels. There can
be no assurance that acceptable alternative arrangements will be
agreed upon with respect to any or all of these hotels. OTHER
INCOME/EXPENSE Other income for the fourth quarter of 2003 was
$178,000, as compared to other expense of $2.8 million for the same
period in 2002. For the full year of 2003, other expense was $25.8
million, as compared to other expense of $22.9 million in 2002.
Three months ended Years ended (Unaudited) December 31, December
31, (In millions of dollars) 2003 2002 2003 2002
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Asset impairment charge, net of recoveries(x) $ (2.3) $ (1.9) $
(11.1) $ (26.5) Foreign exchange gain (loss) 2.5 0.5 (14.7) 5.0
Decline in value life insurance policies - (1.4) - (1.4)
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Other income (expense), net $ 0.2 $ (2.8) $ (25.8) $ (22.9)
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(x) Includes legal and enforcement costs relating to Caracas and
Seattle (2003 and 2002), asset impairment charge on Four Seasons
Hotel Sydney (2002) and Four Seasons Hotel Caracas (2003 and 2002),
writedown of Four Seasons Hotel Berlin (2003) and loss on sale of
vacant land in Toronto (2002), net of recoveries on items
previously provided for. Legal and Enforcement Costs Included in
other expenses during the fourth quarter of 2002 are legal and
enforcement costs of approximately $1.8 million incurred in
connection with the Company's disputes relating to the Four Seasons
hotels in Caracas and Seattle, which are described below. Included
in other expense during the year ended December 31, 2003 are legal
and enforcement costs of $9.5 million in connection with the
disputes with the owners of the Four Seasons hotels in Caracas and
Seattle. Other expense for the year ended December 31, 2002
includes an asset impairment charge for Four Seasons Hotel Caracas
and Four Seasons Hotel Sydney and legal and enforcement costs
relating to the Company's investments in Four Seasons Hotel Caracas
and Four Seasons Olympic Hotel Seattle which, in the aggregate,
were $25 million. Four Seasons Olympic Hotel Seattle
---------------------------------- During the second quarter of
2003, the Company and the owner of Four Seasons Olympic Hotel
Seattle settled their disagreement, which was subject to
arbitration, concerning the management of the hotel. Under the
settlement, Four Seasons concluded its management of Four Seasons
Olympic Hotel upon the sale of the hotel, which occurred on August
1, 2003. On closing of the sale of the hotel, the Company received
an initial payment, which included its share of the sale proceeds
as a result of its minority ownership interest in the hotel. The
Company will also receive annual payments over the next several
years, subject to certain conditions being met, that are not
materially different from the fees that the Company would have
otherwise earned during this period under its previous management
contract for that property. The Company believes that a fair and
equitable settlement has been reached and that the payments under
the settlement agreement will, in aggregate, compensate it for the
near-term value of its management contract as it works to obtain a
new management opportunity in Seattle. A portion of this payment
has been included in net earnings for 2003. Four Seasons Hotel
Caracas -------------------------- The Company is in dispute with
the owner of Four Seasons HotelCaracas regarding a variety of
matters relating to the completion and ongoing operation of the
hotel, including the default of a US$5 million loan owed to the
Company. During the second quarter of 2003, the Company received a
judgment in the legal proceedings against the owner, which involved
the protection of its proprietary materials. The court found
against the owner on all matters, including illegal computer
"hacking" and unlawful and unauthorized use of the Company's
proprietary information, andordered that the owner pay to the
Company damages totalling US$4.9 million, plus legal costs and
expenses of US$1.4 million. The owner has appealed the judgment
from the legal proceeding, but has not stayed execution pending
appeal. Therefore, the Company is moving to enforce the judgment
from the legal proceeding against the owner, but has not recorded
any receivable arising from the judgment as at December 31, 2003.
In addition, the arbitration hearing in respect of the other
contractual breaches of the management contract by the owner was
completed during the third quarter of 2003 and a decision is
pending. Foreign Exchange Gain/Loss Included in other income for
the fourth quarter of 2003 is a foreign exchange gain of $2.5
million. The foreignexchange gain is primarily due to the
translation of the Company's Australian dollars and pounds sterling
net monetary assets, as the Canadian dollar weakened relative to
those currencies during the quarter. This foreign exchange gain was
partially offset by foreign exchange losses on the translation of
the Company's US-dollar net monetary assets due to the
strengthening of the Canadian dollar against the US dollar, as
discussed below. Other expense for the full year 2003 also includes
a $14.7 million non-cash, unrealized foreign exchange loss, as
compared to a $5.0 million non-cash, unrealized foreign exchange
gain for the same period in 2002. The non-cash, unrealized foreign
exchange loss for accounting purposes for the year ended December
31, 2003 arose as the result of the translation to Canadian dollars
at the end of each month at current exchange rates of the Company's
non-Canadian dollar-denominated net monetary assets not included in
the Company's designated self-sustaining operations. Net monetary
assets are the sum of the Company's foreign currency-denominated
assets and liabilities, which consist primarily of cash and cash
equivalents, accounts receivable, long-term receivables and
long-term obligations, as determined under Canadiangenerally
accepted accounting principles (GAAP). From an economic
perspective, the Company looks to offset its net monetary asset
position against the full obligation of its convertible notes.
Under Canadian GAAP, the convertible notes were allocated between
long-term obligations and shareholders' equity. At the time of
issuance, the portion allocated to long-term obligations and
included in net monetary assets was US$46.7 million, and US$125.8
million was allocated to shareholders' equity. If the portion of
the convertible notes included in shareholders' equity was revalued
at the current exchange rates, which is not contemplated under
Canadian GAAP, the result of this revaluation would have been a
non-cash, unrealized foreign exchange gain for accounting purposes
of $36.1 million for the year ended December 31, 2003, more than
offsetting the non-cash, unrealized foreign exchange loss for
accounting purposes otherwise recorded. On this basis, the Company
believes it has an appropriate economic hedge of its net monetary
assets and liabilities. For a further discussion of the convertible
notes see "Liquidity and Capital Resources" below. The Canadian
dollar strengthened by 18.2% (28.7 cents) during 2003 against the
US dollar, causing the majority of the non-cash, unrealized foreign
exchange loss for accounting purposes. NET INTEREST INCOME/EXPENSE
The Company had net interest income of $962,000 in the fourth
quarter of 2003, as compared to net interest expense of $266,000 in
the fourth quarter of 2002. Net interest is a combination of $3.7
million interest income and $2.8 million interest expense in the
fourth quarter of 2003. For the same period in 2002, interest
income was $4.8 million, interest expense was $3.3 million and the
Companyincurred a cost of $1.8 million relating to the purchase of
forward exchange contracts. The decrease in interest income of $1.1
million is primarily due to lower interest earned on loans to
certain properties and lower interest earned on short-term cash
deposits in the fourth quarter of 2003, as compared to the fourth
quarter of 2002. For the same reasons as discussed above for the
fourth quarter, net interest income for the year ended December 31,
2003 was $3.4 million, as compared to $3.2 millionfor the same
period in 2002. The components of net interest income were interest
income of $14.4 million and interest expense of $11.1 million,
partially offset by income relating to the purchase of forward
exchange contracts of $136,000 in 2003, as compared to $18.3
million, $11.6 million and an expense of $3.5 million,
respectively, during the same period in 2002. INCOME TAX EXPENSE
The Company's effective tax rate for the quarter ended December 31,
2003 was 27.9%, as compared to 24% for the sameperiod in 2002. The
Company's effective tax rate for the year ended December 31, 2003
was 55.2%, as compared to 24% in 2002. The increase in the tax rate
in the fourth quarter and full year of 2003 was due to a portion of
the non-cash, unrealized foreign exchange losses for accounting
purposes not being tax-effected as it will not be realized for tax
purposes. As a result of the regional office income generally being
taxed at rates lower than the Canadian statutory income tax rate,
the Company expects its income tax rate to be approximately 24% in
2004 on income other than unusual items like foreign exchange gains
and losses, which may have a different tax treatment. STOCK OPTION
EXPENSE Stock option expense for the fourth quarter and full year
2003 was $368,000 and $893,000, respectively, as compared to nil
for the same periods in 2002. The Canadian Institute Chartered
Accountants Handbook Section 3870 - Stock-based Compensation and
Other Stock-based Payments was amended in December 2003 to require
entities to account for employee stock options using the fair
value-based method, beginning January 1, 2004. Under the fair
value- based method, compensation cost of an award is measured at
fair value at the date of grant and is expensed over the stock
option's vesting period, with a corresponding increase to
contributed surplus. In accordance with one of the transitional
alternatives permitted under amended Section 3870, the Company has
adopted the fair value-based method prospectively to allemployee
stock options granted on or after January 1, 2003. Options granted
prior to that date continue, as permitted by the new rules, to be
accounted for using the settlement method. Under the settlement
method, no compensation expense is recorded onthe grant of stock
options, and consideration paid on the exercise of stock options or
the purchase of shares is recorded as capital stock. The allocation
of the full year stock option expense of $893,000 among the four
quarters of 2003 is as follows:first quarter (quarter ending March
31, 2003) - $15,000, second quarter (quarter ending June 30, 2003)
- $144,000, third quarter (quarter ending September 30, 2003) -
$366,000 and fourth quarter (quarter ending December 31, 2003) -
$368,000. The quarterly results to be reported in the Company's
2003 annual filing will reflect this allocation. LIQUIDITY AND
CAPITAL RESOURCES As at December 31, 2003, the Company's cash and
cash equivalents were $170.7 million, as compared to total cash and
cash equivalents of $165 million as at December 31, 2002. A
significant amount of the Company's cash reserves are in US dollars
and as a result, a large portion of the Company's cash reserves
showed a year-over-year decline when translated to Canadian dollars
forfinancial reporting purposes due to currency movements during
2003. Long-term obligations were $120.3 million as at December 31,
2003, as compared to $129.1 million as at December 31, 2002. The
Company's debt position consists primarily of that portion of its
convertible notes that is characterized as debt for accounting
purposes. The decrease in long-term obligations was primarily due
to the foreign currency translation of the US dollar debt component
of the convertible notes. The Company is entitled to redeem its
convertible notes commencing in September 2004 for cash equal to
the issue price plus accrued interest calculated at 4 1/2% per
annum. Holders of the notes have conversion rights, which they can
exercise at any time before the maturitydate or date of redemption
of the notes, pursuant to which they can require the Company to
issue to them 5.284 Limited Voting Shares for each US$1,000
principal amount of notes. The holders of notes also can require
the Company to repurchase the notes in September 2004 for an amount
equal to the issue price plus accrued interest calculated at 4 1/2%
per annum. This right also may be exercised in September 2009 and
September 2014. The Company has a choice of funding its obligation
in connection with the conversion or purchase of the notes at the
option of the holder with cash or shares. The rights of the Company
and the noteholders relating to the convertible notes are more
fully described in the Company's 2002 Annual Report. It is possible
that the Company may redeem some or all of the notes, especially if
the current interest rate and general business environment
continues. A cash redemption in September 2004 of all outstanding
notes would require a cash payment to the noteholders of
approximately US$215.5 million, assuming that the holders did not
exercise their right to convert their notes before the redemption
date. If the Company redeems the notes, it may replace the
financing provided by the notes with a combination of debt (which
could be raised in various means, including bank lines and/or the
issuance of additional notes or convertible notes) and/or the
utilization of cash reserves. CASH FLOW During the fourth quarter
of 2003, the Company generated $21.9 million from operations, as
compared to $9.6 million for the same period in 2002. The increase
in cash from operations of $12.3 million in 2003 resulted primarily
from a reduction in working capital of $9.3 million, a decrease in
cash used in ownership operations of $2.8 millionand a decrease in
legal and enforcement costs paid in 2003 of $1.6 million, partially
offset by a decrease in cash contributed by management operations
of $1.3 million. The Company generated $66 million of cash from
operations during the year ended December 31, 2003, as compared to
$41.8 million for the year ended December 31, 2002. The increase in
cash from operations of $24.2 million in 2003 resulted primarily
from a reduction in working capital of $33 million and a decrease
in income tax paid in 2003 of $10.4 million, partially offset by an
increase in cash used in ownership operations of $10 million, and
an increase in legal and enforcement costs paid in 2003 of $4.5
million. A part of the Company's business strategy is to invest a
portion ofavailable cash to obtain new management agreements or
enhance existing management arrangements. These loans or
investments will only be made where the overall economic return to
the Company is expected to justify the loan or investment. During
the yearended December 31, 2003, the Company made investments in a
variety of projects, including Costa Rica, Buenos Aires, Jackson
Hole, Whistler and Scottsdale Residence Club. For the quarter and
year ended December 31, 2003, the Company funded $5.2 million and
$42.6 million, respectively, in management opportunities, including
amounts advanced as loans receivable, investment in hotel
partnerships and investment in management contracts ($26.7 million
and $56 million, respectively, for the same periods in 2002). The
Company currently expects to fund in the range of US$50 million to
US$60 million in 2004 in management opportunities such as Geneva,
Hampshire and Palo Alto, which may be augmented by additional
investments in other properties if appropriate opportunities become
available. Total fixed asset expenditures were $13.9 million in the
fourth quarter of 2003 and $19.3 million for the year ended
December 31, 2003, as compared to $21.8 million and $31.1 million,
respectively, for the same periods in2002. During the fourth
quarter of 2003, the Company purchased land for $11.2 million
relating to its corporate office expansion. During the fourth
quarter of 2002, $17.6 million was expended by the Company in
connection with the purchase of land relating to its investment in
its project in Orlando, Florida. During 2002, the Company generated
$4.6 million from the disposition of its interest in the Inn on the
Park vacant land in Toronto. Also during 2002, the Company made
normal course purchases of 337,600 of its Limited Voting Shares
through the facilities of The Toronto Stock Exchange and the New
York Stock Exchange for a total purchase price, including
commissions, of approximately $16.5 million ($7.7 million in the
fourth quarter of 2002). During 2003, the Company did not make any
normal course purchases. FOUR SEASONS PROPERTIES - RECENT AND
EXPECTED OPENINGS Over the past four months, the Company has added
four new Four Seasons hotels and resorts in Miami, Jackson Hole,
Exuma and Costa Rica, as well as adding a third Four Seasons
Residence Club in Jackson Hole. Four Seasons is continuing to
expand its international presence with several new projects. During
the next 12 months, the Company expects to open new hotels and
resorts in Budapest, Hampshire (England), Cairo, Doha, Langkawi
(Malaysia), Provence (France), Whistler (British Columbia) and
Lanai (Hawaii). A full list of the Company's properties under
construction or advanced development is provided in a schedule
attached to this press release. Recent additions to the development
list include two new projects in Lanai. "The Four Seasons
collection is continuing to expand. We have some great recent
additions to the Four Seasons portfolio, including our first
mountain resort in Jackson Hole, as well as Four Seasons Resort
Great Exuma at Emerald Bay and Four Seasons Resort Costa Rica. Each
will offer an exceptional destination resort experience," said
Kathleen Taylor, President Worldwide Business Operations. "We have
a very busy year ahead of us as we expect to open a record number
of Four Seasons properties in one year, adding nine exciting
destinations to our network around the world." LOOKING AHEAD Travel
trends have continued to improve early in the first quarter of
2004. Although January is a historically weak period for business
travel, the Company's worldwide RevPAR for the month increased
nearly 8% on a US dollar basis, as compared to January 2003. The
Europe/Middle East segment realized the strongest improvements in
occupancy during January 2004. In January, the Company continued to
realize higher achieved room rates in each of the geographic
regions of operation. This is consistent with the continued
improvement in economic indicators for most of the major global
economies. At this time, the Company expect to see these positive
demand trends and pricing improvements continue through the first
quarter of 2004. The Company expects that the improving economic
environment should translate into continued improvement in travel
demand, particularly business travel. The Company also expects that
leisure travel demand, which overall has been more resilient in the
past few years than to business travel, will remain stable. On a
full-year basis, the Company continues to expect its average daily
room rates for 2004 to meet or exceed the rates achieved in 2003.
The Company also expects its business model to perform at or above
industry levels consistent with past experience. However, the
Company is not providing any specific guidance for earnings per
share for 2004, or any quarter thereof at this time. CONCLUSION
"Four Seasons has enhanced its competitive position over the past
three years. Notwithstanding the very difficult operating
conditions experienced by the lodging industry, we maintained our
strategic direction. We continued to focus on our guests and the
consistent and cost effective execution of the finest service in
the industry," said Isadore Sharp, Chairman and Chief Executive
Officer. "We believe that our commitment to this strategy will
benefit Four Seasons shareholders and the owners of the properties
that we manage as the lodging industry experiences the improved
travel demand that we have now begun to see."
-------------------------- 1. Adjusted net earnings is equal to net
earnings (loss) plus (i) foreign exchange loss, less (ii) foreign
exchange gain, plus (iii) asset impairment charge, plus (iv) loss
on sale of hotel investment, each tax-effected as applicable.
Adjusted net earnings, as calculated by the Company, may not be
comparable to adjusted net earnings used by other companies, which
may be calculated differently. In addition, adjusted net earnings
is not intended to represent net earnings as defined by Canadian
GAAP and should not be considered an alternative to net earnings or
any other measure of performance prescribed by Canadian GAAP. It is
included because the Company's management believes it can assist in
the period-over-period comparability of the Company's financial
performance. A reconciliation of net earnings to adjusted net
earnings is as follows: Three months ended Years ended (Unaudited)
December 31, December 31, (In thousands of dollars) 2003 2002 2003
2002
---------------------------------------------------------------------
Net earnings $ 11,704$ 7,637 $ 5,384 $ 21,231 Adjustments: Foreign
exchange loss (gain) (2,476) (510) 14,703 (5,036) Net asset
impairment charge(x) 2,298 3,145 11,080 26,396 Loss on sale of
hotel investment - 50 - 1,409 Restructuring change - 91 - 91 Tax
effect of adjustments (552) (666) (2,659) (5,486)
-------------------------------------------- Adjusted net earnings
$ 10,974 $ 9,747 $ 28,508 $ 38,605
--------------------------------------------
-------------------------------------------- Adjusted basic
earnings per share $ 0.31 $ 0.28 $ 0.81 $ 1.10
--------------------------------------------
-------------------------------------------- Adjusted diluted
earnings per share $ 0.30 $ 0.28 $ 0.79 $ 1.07
--------------------------------------------
-------------------------------------------- (x) Includes legal and
enforcement costs. 2. Gross operating margin represents gross
operating profit as a percent of gross operating revenue. 3. RevPAR
is defined as average room revenue per available room. RevPAR is a
commonly used indicator of market performance for hotels and
resorts and represents the combination of the average daily room
rate and the average occupancy rate achieved during the period.
RevPAR does not include food and beverage or other ancillary
revenues generated by a hotel or resort. The Company reports RevPAR
as it is the most commonly used measure in the lodging industry to
measure the period-over-period performance of comparable
properties. 4. The term "Core Hotels" means hotels and resorts
under management for the full year of both 2003 and 2002. Changes
from the 2002/2001 Core Hotels are the additions of Four Seasons
Hotel San Francisco, Four Seasons Hotel Dublin, Four Seasons Hotel
Buenos Aires and Four Seasons Resort Carmelo, and the deletion of
Four Seasons Olympic Hotel Seattle. 5. Fair revenue market share as
determined by Smith Travel Research, which is based on the RevPAR
Index comparing the Company to a competitive set of peer companies
determined by the Company. 6. The management operations profit
margin represents management operations earnings before other
operating items, as a percent of management operations revenue. 7.
Included in ownership operations are the consolidated revenues and
expenses from the Company's 100% leasehold interests in The Pierre
in New York, Four Seasons Hotel Vancouver andFour Seasons Hotel
Berlin, distributions from other ownership interests in properties
that Four Seasons manages and corporate overhead expenses related,
in part, to these ownership interests. --------------------------
All dollar amounts referred to in this press release are Canadian
dollars unless otherwise noted. The financial statements are
prepared in accordance with Canadian generally accepted accounting
principles. -------------------------- This press release contains
"forward-looking statements" within the meaning of federal
securities laws, including RevPAR, profit margin and earning
trends; statements concerning the number of lodging properties
expected to be added in this and future years; expected investment
spending; and similar statements concerning anticipated future
events, results, circumstances, performance or expectations that
are not historical facts. These statements are not guarantees of
future performance and are subject to numerous risks and
uncertainties, including those described in the Company's annual
information form and management's discussion and analysis. Those
risks and uncertainties include the rate and extent of the current
economic recovery and the rate and extent of the lodging industry's
recovery from the terrorist attacks of September 11, 2001, Severe
Acute Respiratory Syndrome (SARS), the war in Iraq, supply and
demand changes for hotel rooms and residential properties,
competitive conditions in the lodgingindustry, relationships with
clients and property owners, and the availability of capital to
finance growth. Many of these risks and uncertainties can affect
the Company's actual results and could cause the actual results to
differ materially from those expressed or implied in any
forward-looking statement made by, or on behalf of the Company.
These statements are made as of the date of this press release, and
the Company undertakes no obligation to publicly update or revise
any forward-looking statement, whether as a result of new
information, future events or otherwise. --------------------------
The Company expects to hold a conference call today at 10:00 a.m.
(Eastern Standard Time). To access the call dial: 1 (800) 428-5596
(U.S.A. and Canada) 1 (416) 641-6448 (outside U.S.A. and Canada) To
access a replay of the call, which will be available for one week
after the call, dial: 1 (800) 558-5253, Reservation Number
21183362. A live web cast will alsobe available by visiting
http://www.fourseasons.com/investor. This web cast will be archived
for one month following the call. - - - With a history spanning
four decades and a portfolio that extends worldwide, Four Seasons
Hotels and Resorts is the world's leading operator of luxury
hotels, currently managing 61 properties in 29 countries. Four
Seasons Resort Costa Rica, the Company's first property in Costa
Rica, opened January 17, 2004. Four Seasons continues to grow, with
more than 20 projects under construction or development in choice
locations around the world. In the first half of 2004, the Company
expects to open new properties in Budapest, Provence, Whistler,
B.C. and Hampshire, England. In addition to the recognition by
Fortune as one of the 100 Best Companies to Work For for the
seventh consecutive year, Four Seasons continues to have more of
its hotels designated as AAA Five Diamond properties than any other
hotel company and it has the most Mobil Five Star awards in the
industry. The Company is also consistently highly ranked in
readers' surveys in publications such as Conde Nast Traveler,
Travel + Leisure, Institutional Investor, Andrew Harper's Hideaway
Report and the Zagat Survey. Information on the Company and its 43
years ofachievement in the hospitality industry can be accessed
through the Four Seasons Web site at http://www.fourseasons.com/.
FOUR SEASONS HOTELS INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Years ended (In thousands of dollars December
31, December 31, except per share amounts) 2003 2002 2003 2002
-------------------------------------------------------------------------
(Unaudited)(Unaudited)(Unaudited) Consolidated revenues (note 4) $
75,236 $ 76,935 $268,371 $284,674
-------------------------------------------
------------------------------------------- MANAGEMENT OPERATIONS
Revenues $ 40,577 $ 39,321 $149,756 $147,894 General and
administrative expenses (19,916) (17,716) (70,234) (65,903)
------------------------------------------- 20,661 21,605 79,522
81,991 ------------------------------------------- OWNERSHIP
OPERATIONS Revenues 36,020 38,839 123,214 141,290 Distributions
from hotel investments -- 503 153 1,321 Expenses: Cost of sales and
expenses (36,637) (42,244) (148,684) (156,374) Fees to Management
Operations (1,361) (1,728) (4,752) (5,831)
------------------------------------------- (1,978) (4,630)
(30,069) (19,594) -------------------------------------------
Earnings before other operating items 18,683 16,975 49,453 62,397
Depreciation and amortization (3,592) (3,885) (15,011) (14,837)
Other income (expense), net (note 5)178 (2,776) (25,783) (22,860)
------------------------------------------- Earnings from
operations 15,269 10,314 8,659 24,700 Interest income (expense),
net 962 (266) 3,350 3,235
------------------------------------------- Earnings before income
taxes 16,231 10,048 12,009 27,935
------------------------------------------- Income tax recovery
(expense): Current (2,833) (3,793) (2,395) (5,743) Future (1,924)
1,225 (4,460) (1,118) Increase in future income tax assets 230 157
230 157 ------------------------------------------- (4,527) (2,411)
(6,625) (6,704) ------------------------------------------- Net
earnings $ 11,704 $ 7,637 $ 5,384 $ 21,231
-------------------------------------------
------------------------------------------- Basic earnings per
share (note 3) $ 0.33 $ 0.22 $ 0.15 $ 0.61
-------------------------------------------
------------------------------------------- Diluted earnings per
share (note 3) $ 0.32 $ 0.22 $ 0.15 $ 0.59
-------------------------------------------
------------------------------------------- See accompanying notes
to consolidated financial statements. FOUR SEASONS HOTELS INC.
CONSOLIDATED BALANCE SHEETS As at As at December 31, December 31,
(In thousands of dollars) 2003 2002
-------------------------------------------------------------------------
(Unaudited) ASSETS Currentassets: Cash and cash equivalents
$170,725 $165,036 Receivables 88,636 106,361 Inventory 2,169 2,609
Prepaid expenses 3,780 4,718 -------------------------- 265,310
278,724 Long-term receivables 197,635 207,106 Investments in hotel
partnerships and corporations 157,638 146,362 Fixed assets 75,789
74,593 Investment in management contracts203,670 222,835 Investment
in trademarks and trade names 5,757 6,329 Future income tax assets
13,230 17,460 Other assets 27,631 37,982 --------------------------
$946,660 $991,391 --------------------------
-------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities: Accounts payable and accrued liabilities $
61,045 $ 61,129 Long-term obligations due within one year 2,587
2,668 -------------------------- 63,632 63,797 Long-term
obligations (note 2) 117,521 126,386 Shareholders' equity (note 3):
Capital stock 329,274 321,601 Convertible notes 178,543 178,543
Contributed surplus 5,529 4,636 Retained earnings 265,754 264,016
Equity adjustment from foreign currency translation (13,593) 32,412
-------------------------- 765,507 801,208
-------------------------- $946,660 $991,391
-------------------------- -------------------------- See
accompanying notes to consolidated financial statements. FOUR
SEASONS HOTELS INC. CONSOLIDATED STATEMENTS OF CASH PROVIDED BY
OPERATIONS Three months ended Years ended December 31, December 31,
(In thousands of dollars) 2003 2002 2003 2002
-------------------------------------------------------------------------
(Unaudited)(Unaudited)(Unaudited) Cash provided by (used in)
operations: MANAGEMENT OPERATIONS Earnings before other operating
items $ 20,661 $ 21,605 $ 79,522 $ 81,991 Items not requiring an
outlay of funds 377 732 1,476 1,805
------------------------------------------- Working capitalprovided
by Management Operations 21,038 22,337 80,998 83,796
------------------------------------------- OWNERSHIP OPERATIONS
Loss before other operating items (1,978) (4,630) (30,069) (19,594)
Items not requiring an outlay of funds 189 -- 467 --
------------------------------------------- Working capital used in
Ownership Operations (1,789) (4,630) (29,602) (19,594)
------------------------------------------- 19,249 17,707 51,396
64,202 Interest received, net 2,341 1,845 10,426 11,582 Current
income tax paid -- -- -- (10,374) Change in non-cash working
capital 1,339 (7,997) 13,709 (19,293) Other (1,048) (1,988) (9,528)
(4,354) ------------------------------------------- Cash provided
by operations $ 21,881 $ 9,567 $ 66,003 $ 41,763
-------------------------------------------
------------------------------------------- See accompanying notes
to consolidated financial statements. FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS Three months ended Years
ended December 31, December 31, (In thousands of dollars) 2003 2002
2003 2002
-------------------------------------------------------------------------
(Unaudited)(Unaudited)(Unaudited) Cash provided by (used in):
Operations: $ 21,881 $ 9,567 $ 66,003 $ 41,763
------------------------------------------- Financing: Long-term
obligations including current portion (136) 2,084 (200) 1,139
Issuance of shares 3,759 205 7,673 5,653 Repurchase of shares --
(7,741) -- (16,495) Dividends paid -- -- (3,622) (3,639)
------------------------------------------- Cash provided by (used
in) financing 3,623 (5,452) 3,851 (13,342)
------------------------------------------- Capital investments:
Long-term receivables 3,052 (5,816) (6,394) (28,893) Hotel
investments (678) (3,966) (8,580) (9,451) Disposal of hotel
investments -- (249) 1,529 4,566 Purchase of fixed assets (13,931)
(21,801) (19,331) (31,085) Investments in trademarks, trade names
and management contracts (536) (239) (2,116) (1,598) Other assets
(321) 168 (5,181) (7,809)
------------------------------------------- Cash used in capital
investments (12,414) (31,903) (40,073) (74,270)
------------------------------------------- Increase (decrease) in
cash and cash equivalents 13,090 (27,788) 29,781 (45,849) Increase
(decrease) in cash due to unrealized foreign exchange gain (loss)
(3,769) (111) (24,092) 464 Cash and cash equivalents, beginning of
period 161,404 192,935 165,036 210,421
------------------------------------------- Cash and cash
equivalents, end of period $170,725 $165,036 $170,725 $165,036
-------------------------------------------
------------------------------------------- See accompanying notes
to consolidated financial statements. FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Years ended December
31, (In thousands of dollars) 2003 2002
-------------------------------------------------------------------------
(Unaudited) Retained earnings, beginning of period $264,016
$259,253 Net earnings 5,384 21,231 Dividends declared (3,646)
(3,633) Repurchase of shares -- (12,835) ---------------------
Retained earnings, end of period $265,754 $264,016
--------------------- --------------------- See accompanying notes
to consolidated financial statements. FOURSEASONS HOTELS INC. NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands
of dollars except share amounts)
-------------------------------------------------------------------------
These interim consolidated financial statements do not include all
disclosures required by Canadian generally accepted accounting
principles for annual financial statements and should be read in
conjunction with the Company's annual consolidated financial
statements for the year ended December 31, 2002, except as
disclosed in note 6 below. 1. Significant accounting policies: The
significant accounting policies used in preparing these interim
consolidated financial statements are consistent with those used in
preparing the Company's annual consolidated financial statements
for the year ended December 31, 2002, except as disclosed in note
6. 2. Bank credit facilities: In 2003, the Company increased
availability under its committed bank credit facilities by
US$12,500, and now has facilities of US$212,500, of which
US$112,500 expires in April 2004 and US$100,000 expires in July
2004. No amounts have been borrowed under these facilities to date;
however, US$28,100 in letters of credit were issued but undrawn as
at December 31, 2003. 3. Shareholders' equity: As at December 31,
2003, the Company has outstanding Variable Multiple Voting Shares
("VMVS") and Limited Voting Shares ("LVS") of 35,241,592 and
outstanding stock options of 5,836,897(weighted average exercise
price of $53.91). A reconciliation of the net earnings and weighted
average number of VMVS and LVS used to calculate basic earnings per
share and diluted earnings per share is as follows: Three months
ended (Unaudited) December 31, (In thousands of dollars) 2003 2002
-------------------------------------------------------------------------
Net Net earnings Shares earnings Shares
-------------------------------------------------------------------------
Basic earnings per share: Net earnings and number of shares $11,704
35,146,473 $ 7,637 34,871,389 Effect of assumed dilutive
conversions: Stock option plan -- 1,489,773 -- --(x)
-------------------------------------------------------------------------
Diluted earnings per share: Net earnings and number of shares
$11,704 36,636,246 $ 7,637 34,871,389
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Years ended (Unaudited) December 31, (In thousands of dollars) 2003
2002
-------------------------------------------------------------------------
Net Net earnings Shares earnings Shares
-------------------------------------------------------------------------
Basic earnings per share: Net earnings and number of shares $ 5,384
34,996,389 $21,231 35,051,619 Effect of assumed dilutive
conversions: Stock option plan -- 870,135 -- 1,118,953
-------------------------------------------------------------------------
Diluted earnings per share: Net earnings and number of shares $
5,384 35,866,524 $21,231 36,170,572
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(x) The effect of assumed conversions to LVS under the Company's
stock option plan was anti-dilutive and was therefore excluded from
the calculation of diluted earnings per share. 4. Consolidated
revenues: Consolidated revenues for Four Seasons Hotels Inc.
comprise revenues from Management Operations, revenues from
Ownership Operations and distributions from hotel investments, less
fees from Ownership Operations to Management Operations. 5. Other
income (expense), net: Included in other income (expense), net for
the three months and year ended December 31, 2003 is a net foreign
exchange gain of $2,476 and a net foreign exchange loss of $14,703
respectively (2002 - net foreign exchange gain of $510 and $5,036,
respectively) related to the foreign currency translation gains and
losses on unhedged net monetary asset and liability positions,
primarily in US dollars, euros, pounds sterling and Australian
dollars, and foreign exchange gains and losses incurred by the
Company's foreign self-sustaining subsidiaries. Also included in
other income (expense), net for the three months and year ended
December 31, 2003 are legal and enforcement costs of $795 and
$9,475, respectively, in connection with the disputes with the
owners of Four Seasons hotels in Caracas and Seattle. These
disputes are described in detail in the Company's 2002 Annual
Report. During the three months ended December 31, 2003, the
Company also wrote down its fixed asset investment in Four Seasons
Hotel Berlin to nil, resulting in an expense of $3,174. Other
income (expense), net for the three months and year ended December
31, 2002 also included an asset impairment charge and legal and
enforcement costs of $1,784 and $25,091, respectively, related to
the Company's investments in Four Seasons Hotel Caracas, Four
Seasons Hotel Sydney and Four Seasons Olympic Hotel Seattle. 6.
Stock-based compensation and other stock-based payments: In 2002,
as permitted by The Canadian Institute of Chartered Accountants
("CICA") Handbook Section 3870, "Stock-based Compensation and Other
Stock- based Payments", the Company opted to apply the settlement
method of accounting for employee stock options. Under the
settlement method, no compensation expense is recorded on the grant
of stock options to employees to purchase Limited Voting Shares,
and consideration paid by employees on the exercise of stock
options or the purchase of shares is recorded as capital stock. In
December 2003, the CICA amended Section 3870 to require entities to
account for employee stock options using the fair value-based
method, beginning January 1, 2004. Under the fair value-based
method, compensation cost of a stock option is measured at fair
value at the date of grant and is expensed over the stock option's
vesting period, with a corresponding increase to contributed
surplus. When these stock options are exercised, the proceeds,
together with the amount recorded in contributed surplus, are
recorded in capital stock. In accordance with one of the
transitional alternatives permitted under amended Section 3870, the
Company has prospectively adopted the fair value-based method to
all employee stock options granted on or after January 1, 2003.
Accordingly, options granted prior to that date continue to be
accounted for using the settlement method, and results from the
year ended December 31, 2002 have not been restated. For the three
months and year ended December 31, 2003, the prospective
application of adopting the fair value-based method effective
January 1, 2003 resulted in a decrease in net earnings of $368 and
$893, respectively, and a decrease in both basic and diluted
earnings per share of $0.01 and a decrease in basic earnings per
share of $0.03 and a decrease in diluted earnings per share of
$0.02, respectively. The fair value of stock options granted has
been estimated using a Black- Scholes option pricing model with the
following assumptions: risk-free interest rates in 2003 ranging
from 4.44% to 5.02% (2002 - 4.01% to 5.20%); semi-annual dividend
per Limited Voting Share in 2003 and 2002 of $0.055; volatility
factor of the expected market price of the Company's Limited Voting
Shares in 2003 of 32% (2002 - 47% to 50%); and expected lives of
the options in 2003 and 2002 ranging between four and seven years,
depending on the level of the employee who was granted stock
options. For the options granted in 2003 and 2002, the weighted
average fair value of the options at the grant dates were $18.46
and $33.76, respectively. For purposes of stock option expense and
pro forma disclosures, the estimated fair value of the options is
amortized to compensation expense over the options' vesting period.
Section 3870 requires pro forma disclosure of the effect of the
application of the fair value-based method to employee stock
options granted on or after January 1, 2002 and not accounted for
using the fair value-based method. For the three months and years
ended December 31, 2002 and 2003, if the Company had applied the
fair value- based method to options granted from January 1, 2002 to
December 31, 2002, the Company's net earnings and basic and diluted
earnings per share would have been reduced to the pro forma amounts
indicated below: (Unaudited) Three months ended Years ended (In
thousands of dollars December 31, December 31, except per share
amounts) 2003 2002 2003 2002
-------------------------------------------------------------------------
Stock option expense included in compensation expense $ 368 $ -- $
893 $ --
-------------------------------------------------------------------------
Net earnings, as reported $ 11,704 $ 7,637 $ 5,384 $ 21,231
Additional expense that would have been recorded if all outstanding
stock options granted during 2002 had been expensed 863 832 3,450
1,790
-------------------------------------------------------------------------
Pro forma net earnings $ 10,841 $ 6,805 $ 1,934 $ 19,441
-------------------------------------------------------------------------
Earnings per share: Basic, as reported $ 0.33 $ 0.22 $ 0.15 $ 0.61
Basic, pro forma 0.31 0.20 0.06 0.55 Diluted, as reported 0.32 0.22
0.15 0.59 Diluted, pro forma 0.30 0.20 0.05 0.54
-------------------------------------------------------------------------
7. Guarantees, commitments and indemnifications: Guarantees and
commitments -------------------------- As at December 31, 2003, the
Company has provided certain guarantees and has other commitments
in connection with the hotels under management. These include three
bank guarantees in respect of three projects totalling a maximum of
$29,100. The Company has lease commitments in respect of Four
Seasons Hotel London, which are more fully described in the
Company's Annual Report, and Four Seasons Hotel Prague of euro 718.
In addition, the Company has three other commitments totalling
$7,800. The Company also has guaranteed certain obligations of
various directors, officers and employees in the amount of $384,
all of which were entered into before 2002. To the extent it is
called upon to honour any one of these commitments, the Company
generally has either the right to be repaid from hotel operations
and/or has various forms of security or recourse to the owner of
the property. The Company does not anticipate funding any amount
pursuant to these commitments during 2004 and no amount has been
recorded in the consolidated financial statements in respectof
these commitments. The Company's assessment of its potential
liability for such matters could change as a result of, among other
things, the associated risks and uncertainties. Disposition
indemnification arrangements In connection withthe sale of all or a
part of its interest in a property, the Company and its
subsidiaries may agree to indemnify against claims relating to
breaches of specific covenants or representations and warranties.
The maximum amount of the indemnification in these transactions is
generally limited to the purchase price paid for that interest. The
nature of these indemnities prevents the calculation of an exact
amount that may be payable to the indemnified parties. Also, in the
case of two of the Company's dispositions, the Company received
indemnity agreements in its favour, for its existing guarantee
obligations related to the disposed interest that have remained
outstanding notwithstanding the disposition. The Company believes
that the indemnification agreements in its favour will fully
indemnify the Company for any possible payment under these existing
guarantees. Director and officer indemnification arrangements To
the extent permitted by law, the Company and its subsidiaries
indemnify individuals that are, or have been, directors or officers
against certain claims that may be made against them as a result of
their being, or having been, a director or officer at the request
of the Company or its subsidiaries. The Company has purchased
directors' and officers' liability insurance that may be available
in respect of certain of these claims. Other indemnification
arrangements In the ordinary course of their business, the Company
and its subsidiariesenter into other agreements with third parties
that may contain indemnification provisions pursuant to which the
parties to the agreements agree to indemnify one another if certain
events occur (such as, but not limited to, changes in laws and
regulations or as a result of litigation claims or liabilities
which arise in respect of tax or environmental matters). The terms
of the Company's indemnification provisions vary based on the
contract, which (together with the fact that any amounts that could
be payable would be dependent on the outcome of future, contingent
events, the nature and likelihood of which cannot be determined at
this time) precludes the Company from making a reasonable estimate
of the maximum potential amount the Company and its subsidiaries
could be required to pay to counterparties. The Company believes
that the likelihood that it or its subsidiaries would incur
significant liability under these obligations is remote.
Historically, the Company and its subsidiaries have not made any
significant payments under such indemnifications. No amount has
been recorded in the consolidated financial statements with respect
to these indemnification provisions. The Company's assessment of
its potentialliability could change in the future as a result of
currently unforeseen circumstances. Other commitments and
contingencies ----------------------------------- In the ordinary
course of its business, the Company is named as a defendant in
legal proceedings resulting from incidents taking place at hotels
owned or managed by it. The Company maintains comprehensive
liability insurance and also requires hotel owners to maintain
adequate insurance coverage. The Company believes such coverage to
be of a nature and amount sufficient to ensure that it is
adequately protected from suffering any material financial loss as
a result of such claims. 8. Seasonality: The Company's hotels and
resorts are affected by normally recurring seasonal patterns and,
for most of the properties, demand is lower in December through
March than during the remainder of the year. Typically, the fourth
quarter is the strongest quarter for the majority of the
properties, although this was not true in 2002 as a result of the
difficult economic environment and geopolitical instability. The
Company's ownership operations are particularly affected by
seasonal fluctuations, with lower revenue, operating profit and
cash flow in the first quarter. As a result, ownership operations
typically incur an operating loss in the first quarter of each
year. Management operations are also impacted by seasonal patterns,
as fee revenues are affected by the seasonality of hotel and resort
revenues and operating results. Urban hotels generally experience
lower revenues and operating results in the first quarter. However,
this negative impact on management revenues is offset, to some
degree, by increased travel to the Company's resortsin the period.
FOUR SEASONS HOTELS INC. SUMMARY OF HOTEL OPERATING DATA - CORE
HOTELS(1) Three months ended December 31, (Unaudited) 2003 2002
Variance
-------------------------------------------------------------------------
Worldwide No. of Properties 48 48 -- No. of Rooms 12,870 12,870 --
Occupancy(2) 65.4% 61.3% 4.1% ADR(3) - in US dollars $ 311 $ 296
4.9% RevPAR(4) - in US dollars $ 203 $ 182 11.9% Gross operating
margin(5) 28.4% 27.8% 0.6% United States No. of Properties 22 22 --
No. of Rooms 6,798 6,798 -- Occupancy(2) 66.7% 64.3% 2.4% ADR(3) -
in US dollars $ 343 $ 335 2.5% RevPAR(4) - in US dollars $ 229 $
215 6.3% Gross operating margin(5) 25.4% 26.0% (0.6%) Other
Americas/Caribbean No. of Properties 7 7 -- No. of Rooms 1,550
1,550 -- Occupancy(2) 59.6% 53.5% 6.1% ADR(3) - in US dollars $ 281
$ 261 7.9% RevPAR(4) - in US dollars $ 168 $ 139 20.3% Gross
operating margin(5) 29.5% 25.2% 4.3% Europe/Middle East No. of
Properties 9 9 -- No. of Rooms 1,807 1,807 -- Occupancy(2) 59.8%
55.2% 4.6% ADR(3) - in US dollars $ 426 $ 385 10.6% RevPAR(4) - in
US dollars $ 255 $ 213 19.8% Gross operating margin(5) 30.8% 30.1%
0.7% Asia/Pacific No. of Properties 10 10 -- No. of Rooms 2,715
2,715 -- Occupancy(2) 69.2% 62.2% 7.0% ADR(3) - in US dollars $ 182
$ 163 11.5% RevPAR(4) - in US dollars $ 126 $ 102 23.9% Gross
operating margin(5) 37.4% 35.1% 2.3%
------------------------------------- 1. The term "Core
Hotels"means hotels and resorts under management for the full year
of both 2003 and 2002. Changes from the 2002/2001 Core Hotels are
the additions of Four Seasons Hotel San Francisco, Four Seasons
Hotel Dublin, Four Seasons Hotel Buenos Aires and Four Seasons
Resort Carmelo, and the deletion of Four Seasons Olympic Hotel
Seattle. 2. Occupancy percentage is defined as the total number of
rooms occupied divided by the total number of rooms available. 3.
ADR is definedas average daily room rate per room occupied. 4.
RevPAR is defined as average room revenue per available room.
RevPAR is a commonly used indicator of market performance for
hotels and resorts and represents the combination of the
averagedaily room rate and the average occupancy rate achieved
during the period. RevPAR does not include food and beverage or
other ancillary revenues generated by a hotel or resort. The
Company reports RevPAR as it is the most commonly used measure in
the lodging industry to measure the period-over-period performance
of comparable properties. 5. Gross operating margin represents
gross operating profit as a percent of gross operating revenue.
FOUR SEASONS HOTELS INC. SUMMARY OF HOTEL OPERATING DATA - CORE
HOTELS(1) Years ended December 31, (Unaudited) 2003 2002 Variance
-------------------------------------------------------------------------
Worldwide No. of Properties 48 48 -- No. of Rooms 12,870 12,870 --
Occupancy(2) 62.5% 63.9% (1.4%) ADR(3) - in US dollars $ 304 $ 292
4.3% RevPAR(4) - in US dollars $ 190 $ 186 2.0% Gross operating
margin(5) 26.6% 29.3% (2.7%) United States No. of Properties 22 22
-- No. of Rooms 6,798 6,798 -- Occupancy(2) 67.6% 66.6% 1.0% ADR(3)
- in US dollars $ 331 $ 327 1.3% RevPAR(4) - in US dollars $ 224 $
218 2.9% Gross operating margin(5) 24.9% 27.3% (2.4%) Other
Americas/Caribbean No. of Properties 7 7 -- No. of Rooms 1,550
1,550 -- Occupancy(2) 56.1% 58.8% (2.7%) ADR(3) - in US dollars $
271 $ 258 5.0% RevPAR(4) - in US dollars $ 152 $ 152 0.2% Gross
operating margin(5) 26.7% 28.4% (1.7%) Europe/Middle East No. of
Properties 9 9 -- No. of Rooms 1,807 1,807 -- Occupancy(2) 56.4%
58.4% (2.0%) ADR(3) - in US dollars $ 422 $ 380 11.3% RevPAR(4) -
in US dollars $ 238 $ 222 7.5% Gross operating margin(5) 31.3%
34.6% (3.3%) Asia/Pacific No. of Properties 10 10 -- No. of Rooms
2,715 2,715 -- Occupancy(2) 57.5% 63.9% (6.4%) ADR(3) - in US
dollars $ 165 $ 164 1.0% RevPAR(4) - in US dollars $ 95 $ 105
(9.2%) Gross operating margin(5) 29.2% 33.7% (4.5%)
------------------------------------- 1. The term "Core Hotels"
means hotels and resorts under management for the full year of both
2003 and 2002. Changes from the 2002/2001 Core Hotels are the
additions of Four Seasons Hotel San Francisco, Four Seasons Hotel
Dublin, Four Seasons Hotel Buenos Aires and Four Seasons Resort
Carmelo, and the deletion of Four Seasons Olympic Hotel Seattle. 2.
Occupancy percentage is defined as the total number of rooms
occupied divided by the total number of rooms available. 3. ADR is
defined as average daily room rate per room occupied. 4. RevPAR is
defined as average room revenue per available room. RevPAR is a
commonly used indicator of market performance for hotels and
resorts and represents the combination of the average daily room
rate and the average occupancy rate achieved during the period.
RevPAR does not include food and beverage or other ancillary
revenues generated by a hotel or resort. The Company reports RevPAR
as it is the most commonly used measure in the lodging industry to
measure the period-over-period performance of comparable
properties. 5. Gross operating margin represents gross operating
profit as a percent of gross operating revenue. FOUR SEASONS HOTELS
INC. SUMMARY OF HOTEL OPERATING DATA - ALL MANAGED HOTELS As at
December 31, (Unaudited) 2003 2002 Variance
-------------------------------------------------------------------------
Worldwide No. of Properties 60(1) 57 3 No. of Rooms 15,760(1)
15,433 327 United States No. of Properties 24 23 1 No. of Rooms
7,143 7,248 (105) Other Americas/Caribbean No. of Properties 9(1) 8
1 No. of Rooms 1,945(1) 1,762 183 Europe/Middle East No. of
Properties 13 12 1 No. of Rooms 2,553 2,304 249 Asia/Pacific No. of
Properties 14 14 -- No. of Rooms 4,119 4,119 -- 1. Since December
31, 2003, the Company has commenced management of Four Seasons
Resort Costa Rica, which has 153 rooms and is not reflected in this
table. FOUR SEASONS HOTELS INC. REVENUES UNDER MANAGEMENT - ALL
MANAGED HOTELS Three months ended Years ended (Unaudited) December
31, December 31, (In thousands of dollars) 2003 2002 2003 2002
-------------------------------------------------------------------------
Revenues under management(1) $ 691,886 $ 752,776 $2,600,430
$2,845,361 ------------------------------------------------
------------------------------------------------
-------------------------- 1. Revenues under management consist of
rooms, food and beverage, telephone and other revenues of all the
hotels and resorts which the Company manages. Approximately 69% of
the fee revenues earned by the Company were calculated as a
percentage of the total revenues under management of all hotels and
resorts. FOUR SEASONS HOTELS INC. SCHEDULED OPENING OF PROPERTIES
UNDER CONSTRUCTION OR IN ADVANCED STAGES OF DEVELOPMENT
Hotel/Resort/Residence Club and Location(1)(2) Approximate Number
of Rooms Scheduled 2004/2005 Openings ----------------------------
Four Seasons Hotel Gresham Palace Budapest, Hungary 175 Four
Seasons Hotel Nile Plaza, Cairo, Egypt(x) 375 Four Seasons Hotel
Damascus, Syria(x) 300 Four Seasons Hotel Doha, Qatar(x) 235 Four
Seasons Hotel Geneva, Switzerland 110 Four Seasons Hotel Hampshire,
England 135 Four Seasons Hotel Hong Kong, Hong Kong(x) 390 Four
Seasons Hotel Istanbul at the Bosphorus, Turkey 170 Four Seasons
Resort Lanai at Koele, HI, USA 100 Four Seasons Resort Lanai at
Manele Bay, HI, USA 250 Four Seasons Resort Langkawi, Malaysia 90
Four Seasons Hotel Palo Alto, CA, USA 200 Four Seasons Resort
Provence at Terre Blanche, France 115 Four Seasons Resort Whistler,
B.C., Canada 270 Four Seasons Private Residences Whistler, B.C.,
Canada 35 Beyond 2005 ----------- Four Seasons Hotel Alexandria,
Egypt(x) 120 Four Seasons Hotel Baltimore, MD, USA(x) 200 Four
Seasons Hotel Beirut, Lebanon 230 Four Seasons Resort Bora Bora,
French Polynesia 100 Four Seasons Hotel Florence, Italy 115 Four
Seasons Hotel Kuwait City, Kuwait 225 Four Seasons Hotel Mumbai,
India 200 Four Seasons Resort Puerto Rico, Puerto Rico(x) 250 Four
Seasons Residence Club Punta Mita, Mexico 35 (x) Expected to
include a residential component. -------------------------- 1.
Information concerning hotels, resorts and Residence Clubs under
construction or under development is based upon agreements and
letters of intent and may be subject to change prior to the
completion of the project. The dates of scheduled openings have
been estimated by management based upon information provided by the
various developers. There can be no assurance that thedate of
scheduled opening will be achieved or that these projects will be
completed. In particular, in the case where a property is scheduled
to open near the end of a year, there is a greater possibility that
the year of opening could be changed. The process and risks
associated with the management of new properties are dealt with in
greater detail in the Company's Annual Report. 2. The Company has
made investments in Orlando and Sedona at Seven Canyons in Arizona.
The financing for these projects has not yet been completed and
therefore scheduled opening dates cannot be established at this
time. DATASOURCE: Four Seasons Hotels and Resorts CONTACT: Douglas
L. Ludwig, Chief Financial Officer, and Executive Vice President,
(416) 441-4320; Barbara Henderson, Vice President, Taxation and
Investor Relations, (416) 441-4329
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