Four Seasons Hotels Inc. reports first quarter 2004 results
TORONTO, May 6 /PRNewswire-FirstCall/ -- Four Seasons Hotels Inc.
(TSX Symbol "FSH"; NYSE Symbol "FS") today reported its results for
the first quarter ended March 31, 2004. Overview of the Quarter
(results for the three months ended March 31, 2004, as compared to
the same period in 2003) As described in greater detail in the
accompanying Management's Discussion and Analysis for the three
months ended March 31, 2004: - Net earnings were $11.5 million
($0.33 basic earnings per share and $0.31 diluted earnings per
share), as compared to a net loss of $9.3 million ($0.27 basic and
diluted loss per share) for the first quarter of 2003. -
Adjusted(1) net earnings were $7.7 million ($0.22 basic adjusted
earnings per share and $0.21 diluted adjusted earnings per share),
as compared to adjusted net earnings of $2.5 million ($0.07 basic
adjusted and diluted adjusted earnings per share) for the first
quarter of 2003. - RevPAR(2) of worldwide Core Hotels(3) increased
14.1%, on a US dollar basis. - Gross operating margins(4) at
worldwide Core Hotels increased 330 basis points to 28.0%. -
Profits under management increased 30.4%, on a US dollar basis. -
Management fee revenues (excluding reimbursed costs) increased
13.9%. - Ownership losses declined $3.5 million or 26.3%. Also
during the quarter, Four Seasons opened Four Seasons Resort Costa
Rica at Peninsula Papagayo and Four Seasons Resort Provence at
Terre Blanche. "The recovery in travel demand accelerated
throughout the first quarter and has continued into April. If
current trends continue, we anticipate that 2004 will be a year of
substantial rebound for the lodging industry and for Four Seasons,"
said Douglas L. Ludwig, Chief Financial Officer and Executive Vice
President. "We are pleased to continue to report industry-leading
RevPAR and profitability at the properties under our management.
Although the first quarter is typically the quietest quarter for
business travel, the momentum of business travel demand has
continued to improve. We believe that our continuing focus on the
guest experience, whether for a business or leisure related stay,
will translate into continued RevPAR and profitability growth."
"This is a very exciting time for Four Seasons as we anticipate
benefiting from the combination of an improving economic outlook
and the scheduled opening of a number of important new Four Seasons
properties this year," commented Isadore Sharp, Chairman and Chief
Executive Officer. "In the past twelve months, we have added six
new projects to our portfolio, including our first mountain resort
in Jackson Hole and our first European resort in the south of
France at Terre Blanche. By the end of 2005, we expect to add
another 14 projects, including Four Seasons hotels in Budapest and
Hong Kong, and resorts in Whistler and Langkawi." FIRST QUARTER OF
2004 MANAGEMENT'S DISCUSSION AND ANALYSIS This Management's
Discussion and Analysis ("MD&A") for the three months ended
March 31, 2004 is provided as of May 5, 2004. It should be read in
conjunction with the interim consolidated financial statements for
that period and the MD&A for the year ended December 31, 2003
and the audited consolidated financial statements for that period.
Except as disclosed in this MD&A, there has been no material
change in the information disclosed in the MD&A for the year
ended December 31, 2003. A summary of consolidated revenues,
management earnings, ownership and corporate operations earnings
and net earnings for the past eight quarters can be found in note
5. Operational and Financial Review and Analysis
--------------------------------------------- Operating Environment
Seasonality ----------- Four Seasons hotels and resorts are
affected by normally recurring seasonal patterns and, for most of
the properties, demand is usually lower in the period from December
through March compared to the remainder of the year. Typically, the
first quarter is the weakest quarter and the fourth quarter is the
strongest quarter for the majority of the properties. Our ownership
operations are particularly affected by seasonal fluctuations, with
lower revenue, higher operating losses and lower cash flow in the
first quarter. As a result, ownership operations usually incur an
operating loss in the first quarter of each year. Management
operations are also impacted by seasonal patterns, as 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 our resorts in the period. Hotel Operating
Results -----------------------
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First Quarter 2004 increase over (decrease from) First Quarter 2003
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(percentage change, on US dollar basis)
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Gross Gross Operating Operating Revenue Profit Region RevPAR (GOR)
(GOP)
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Worldwide Core Hotels 14.1% 14.9% 30.4%
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US Core Hotels 8.6% 8.7% 13.8%
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Other Americas/Caribbean Core Hotels 20.3% 20.5% 40.6%
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Europe/Middle East Core Hotels 30.2% 35.6% 88.9%
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Asia/Pacific Core Hotels 14.5% 15.9% 32.6%
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Underlying these operating results: - Revenue improvements and cost
management efforts at the properties resulted in the significant
increase in margins (although there was continued pressure on
profit margins due to higher costs relating primarily to labour
(including health care, benefits and worker's compensation), energy
and insurance). The most significant improvements were realized in
Europe/Middle East, in particular, the properties in the Middle
East, where labour cost pressures were relatively lower. - Business
and leisure travel demand improved in the majority of the markets
in which we operate, although January and February are
traditionally not strong months for business travel demand. - Group
meetings and travel demand did not improve in the quarter, with the
exception of the Las Vegas market. As a result, properties that
typically derive the larger portion of their business from group
travel (including Aviara and the Ritz Carlton Chicago) experienced
RevPAR declines. - Properties under management in Las Vegas, Los
Angeles, Houston, San Francisco, Washington, New York and Palm
Beach performed particularly well on a RevPAR basis, relative to
the average for the region. - In the Other Americas/Caribbean
region, the properties under management in South America and the
resorts in the region reflected improved demand. The hotels under
management in Toronto and Vancouver experienced weak demand in the
quarter, which is typical for the period. - All of the properties
in the Europe/Middle East had RevPAR improvements as a result of
strong demand in the quarter. - The two properties in Bali realized
improvements in occupancy levels (although they remain below the
levels realized prior to the terrorist attacks on the island in
2002), achieved rates in excess of US$320 and were profitable.
Management Operations Management fee revenues (excluding reimbursed
costs(6)) increased 13.9%, or $4.1 million, to $33.4 million in the
first quarter of 2004, as compared to $29.3 million in the first
quarter of 2003. This increase was the result of the improvement in
revenues under management stemming from RevPAR and other revenue
increases at the Core Hotels under management and an increase in
fees from recently opened hotels. Incentive fees increased
approximately 25% in the first quarter of 2004, as compared to the
same period in 2003, with 31 of the hotels and resorts under
management accruing incentive fees as compared to 27 during the
same period last year. The increase in incentive fees was
attributable to the improvement in gross operating profits at the
properties under management in each of the geographic regions in
which we operate. General and administrative expenses (excluding
reimbursed costs) increased 11.5% to $10.9 million in the first
quarter of 2004, as compared to the same period in 2003. The
increase related primarily to cost of living increases for
corporate employees that were implemented during the first quarter
of 2004, and an increase in the number of employees at our
corporate office (primarily in the design and procurement
department) to handle the significant growth in our portfolio. As a
result of the items described above, our management earnings before
other operating items for the first quarter of 2004 increased 15.1%
to $22.5 million, as compared to $19.6 million in the first quarter
of 2003. Our management operations profit margin(7) (excluding
reimbursed costs) increased to 67.5% in the first quarter of 2004,
as compared to 66.8% in the first quarter of 2003. As a result of
adopting the Canadian Institute of Chartered Accountants ("CICA")
Section 1100, "Generally Accepted Accounting Principles", which was
issued in 2003 and was effective for 2004, in the first quarter of
2004, we began recording all reimbursed costs in revenue on a
gross, rather than net, basis. These costs include marketing,
reservations, and advertising charges, as well as the out-of-pocket
expense charges, which we charge to properties under management on
a cost recovery basis. For the first quarter of 2003, reimbursed
costs have also been reclassified on a consistent basis and
included in revenues. Ownership and Corporate Operations(8) Losses
from ownership and corporate operations before other operating
items declined $3.5 million to $9.7 million in the first quarter of
2004, as compared to a loss of $13.2 million in the first quarter
of 2003. RevPAR at The Pierre increased primarily as a result of a
15% improvement in occupancy in the first quarter of 2004, as
compared to the same period in 2003, reflecting higher travel
demand in New York. As a result, the loss at The Pierre declined
$1.9 million in the first quarter of 2004, as compared to the first
quarter of 2003. Since reaching our maximum funding obligation of
the stipulated minimum lease payments at Four Seasons Hotel Berlin
in August of 2003, the lease payments in 2004 have been limited to
the cash flow generated by the hotel. This resulted in a decline of
$1.8 million in the operating loss from Four Seasons Hotel Berlin
in the first quarter of 2004. In 2004, we have continued to
consolidate the revenue and expenses of Four Seasons Hotel Berlin.
However, the stipulated minimum lease payments beyond amounts which
can be funded by the hotel's operation will not be accrued. As a
result, we expect any earnings or losses from Four Seasons Hotel
Berlin to be immaterial throughout the year. We continue to be 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 modify or restructure our
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. Stock Option Expense Stock
option expense for the first quarter of 2004 was $413,000, as
compared to $15,000 for the same period in 2003. Stock option
expense is allocated between Management Operations ($195,000) and
Ownership and Corporate Operations ($218,000). Other Income
(Expense) Other income for the first quarter of 2004 was $4.3
million, as compared to an expense of $12.9 million for the same
period in 2003. Included in other income for the first quarter of
2004 was a $4.6 million foreign exchange gain, which is a non-cash,
unrealized foreign exchange gain, compared to an $8.3 million
foreign exchange loss for the same period in 2003. These foreign
exchange gains and losses arose from the translation to Canadian
dollars at current exchange rates at the end of each month of our
non-Canadian dollar-denominated net monetary assets that are not
included in our designated self-sustaining subsidiaries, and
foreign exchange gains and losses on net monetary assets incurred
by our designated foreign self-sustaining subsidiaries. Net
monetary assets are the sum of our foreign currency- denominated
monetary assets and liabilities, which consist primarily of cash
and cash equivalents, accounts receivable, long-term receivables
and long-term obligations, as determined under Canadian generally
accepted accounting principles (GAAP). From an economic
perspective, we look to offset our net monetary asset position
against the full obligation of our outstanding convertible notes
described below under "Liquidity and Capital Resources". Under
Canadian GAAP, the convertible notes are allocated between
long-term obligations and shareholders' equity. 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 at the time of issuance. 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 loss of $2.3 million for the
first quarter of 2004. We believe we currently have an appropriate
economic hedge of our net monetary assets and liabilities. For a
further discussion of the convertible notes, see "Liquidity and
Capital Resources". Also included in other expense during the first
quarter of 2003 were legal and other enforcement costs of $4.6
million in connection with the dispute with the owners of Four
Seasons hotels in Caracas and Seattle. The Seattle dispute was
settled and although still outstanding, any future expenses
associated with the Caracas dispute are not expected to be
significant. These disputes are more fully described in the
MD&A and the audited consolidated financial statements for the
year ended December 31, 2003. Net Interest Income During the first
quarter of 2004, we had net interest income of $1.1 million, as
compared to $683,000 in the first quarter of 2003. Net interest
income is a combination of approximately $4.1 million in interest
income and approximately $3.0 million in interest expense in the
first quarter of 2004, as compared to $3.6 million and $2.9
million, respectively, for the same period in 2003. The increase in
interest income is primarily attributable to higher interest income
from loans to managed properties. Income Tax Expense Our effective
tax rate in the first quarter of 2004 was 22%, as compared to an
effective tax rate of 3% in the first quarter of 2003. The
variation from our expected 24% tax rate is the result of certain
items not being tax effected, including a portion of the unrealized
foreign exchange gains and losses, since they will never be
realized for tax purposes. In addition, stock option expense is not
deductible for Canadian tax purposes and, as such, is not tax
effected. Net Earnings and Earnings per Share Net earnings for the
quarter ended March 31, 2004 were $11.5 million ($0.33 basic
earnings per share and $0.31 diluted earnings per share), as
compared to a net loss of $9.3 million ($0.27 basic and diluted
loss per share) for the quarter ended March 31, 2003. Liquidity and
Capital Resources ------------------------------- Our cash and cash
equivalents were $174.3 million as at March 31, 2004, as compared
to $170.7 million as at December 31, 2003. Long-term obligations
(as determined under Canadian GAAP) increased from $120.1 million
as at December 31, 2003 to $124.2 million as at March 31, 2004,
primarily due to accreted interest on our convertible notes and
foreign exchange translation. As discussed above, in Other Income
(Expense), under Canadian GAAP, a portion of our convertible notes
is included in equity. In 2003, we increased availability under our
committed bank credit facilities by US$12.5 million and we now have
US$212.5 million of committed bank credit facilities, all of which
expire in July 2004. We are currently in the process of negotiating
the extension of these credit facilities. As at March 31, 2004, no
amounts were borrowed under these credit facilities. However,
approximately US$28 million of letters of credit were issued under
those facilities. No amounts have been drawn under these letters of
credit. We believe that, absent unusual opportunities, these bank
credit facilities, when combined with cash on hand and internally
generated cash flow, should be more than adequate to allow us to
finance our normal operating needs and anticipated investment
commitments related to our current growth objectives. During 1999,
we issued US$655.5 million principal amount at maturity (September
23, 2029) of convertible notes for gross proceeds of US$172.5
million. The net proceeds of the issuance, after deducting offering
expenses and underwriters' commission, were US$166 million. We are
entitled to redeem the 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
maturity date or date of redemption of the notes, pursuant to which
they can require us 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 us 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 is also available in September 2009
and September 2014. We have a choice of settling our obligation, in
connection with the conversion or purchase of the notes at the
option of the holder, with cash or Limited Voting Shares. As
described above, we may redeem all or a portion of the notes at any
time on or after September 23, 2004 for cash at the issue price
plus accrued interest (calculated at 4 1/2% per annum) to the date
of purchase. It is possible that we may redeem some or all of the
notes, especially in the current interest rate environment. A cash
redemption in September 2004 of all outstanding notes would require
a cash payment to the note holders of approximately US$215.5
million, assuming that the holders did not exercise their right to
convert their notes before the redemption date. If we redeem the
notes, we may replace the financing provided by the notes with a
combination of debt (which could be raised by various means,
including bank lines and/or the issuance of additional notes or
convertible notes) and/or the utilization of cash and cash
equivalents. We filed a shelf registration statement and prospectus
during the first quarter that would accommodate a public offering
of various debt instruments (including convertible debt) in a
principal amount of up to US$250 million. Contractual Obligations
and Other Commitments As discussed in the MD&A for the year
ended December 31, 2003, we have contractual obligations and other
commitments, including certain pension and lease commitments. There
has been no material change to these commitments through the first
quarter of 2004 and, other than as discussed above relating to the
potential put/call relating to our convertible notes and funding
relating to our management opportunities described under "Financing
Activities/Investing Activities" below, we do not anticipate any
material change in respect of these commitments over the remainder
of the current year. Cash From Operations During the first quarter
of 2004, we generated $4.9 million from operations, as compared to
$21.8 million for the same period in 2003. The decrease in cash
from operations of $16.9 million in 2004 resulted primarily from an
increase in working capital of $24.3 million, partially offset by a
decrease in cash used in ownership and corporate operations of $3.7
million and an increase in cash contributed by management
operations of $3.1 million. Financing Activities/Investing
Activities Part of our business strategy is to invest a portion of
available cash to obtain management agreements or enhance existing
management arrangements. These investments in, or advances in
respect of or to owners of, properties are made where we believe
that the overall economic return to Four Seasons justifies the
investment or advance. During the quarter, we funded $6.8 million
in management opportunities, including amounts advanced as loans
receivable and investments in hotel partnerships such as Whistler.
This level of investment was consistent with our business plan,
with the investments being made to secure new long-term management
agreements or to enhance existing management arrangements. During
the remaining three quarters of 2004, we expect to fund US$45
million to US$55 million in respect of investments in, or advances
to, various projects, including properties in Palo Alto and
Washington. Outstanding Share Data
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Outstanding as Designation at May 3, 2004
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Variable Multiple Voting Shares(a) 3,832,172
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Limited Voting Shares 31,612,218
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Options to acquire Limited Voting Shares:
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Outstanding 5,627,139
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Exercisable 2,808,603
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Convertible Notes(b) US$211.7 million(c)
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(a) Convertible into Limited Voting Shares at any time at the
option of the holder on a one-for-one basis. (b) Subject to
adjustment in certain circumstances, each US$1,000 principal amount
of notes is convertible, at the option of the holder, into 5.284
Limited Voting Shares (3,463,155 Limited Voting Shares in
aggregate). We have the right to acquire notes that are tendered
for conversion for cash equal to the then fair market value of the
underlying Limited Voting Shares. (c) This amount is equal to the
issue price of the convertible notes plus accrued interest
calculated at 4.5% per annum. Looking Ahead ------------- The
MD&A for the year ended December 31, 2003 provided certain
forward- looking information regarding our expectations for 2004.
Travel continues to be booked close to the actual travel dates.
This pattern, although having modestly improved during the first
quarter of 2004, continues to make it difficult to predict future
travel patterns with certainty. Based on the travel trends that we
experienced in the first quarter of 2004 and that we currently are
observing, we would expect the second quarter of this year to
reflect improvements over both the second quarter of 2003 (which
was significantly affected by the war in Iraq and SARS) and the
first quarter of 2004. We currently are expecting that these demand
improvements should result in RevPAR for worldwide Core Hotels in
the second quarter increasing by more than 15%, as compared to the
same period last year. We expect that the majority of this
improvement will result from the occupancy rebounding in the
Asia/Pacific region from 30% in second quarter of 2003, to in
excess of 60% and in Europe/Middle East region from 50%, in second
quarter of 2003, to in excess of 65%. Additionally, we expect that
pricing improvements will be realized in all geographic regions in
the second quarter of 2004. We expect that these improvements
should allow us to realize gross operating margin improvements of
more than 200 basis points in the second quarter of 2004, as
compared to the second quarter of 2003. Changes in Accounting
Policies ------------------------------ In December 2001, the CICA
issued an accounting guideline relating to hedging relationships.
The guideline establishes requirements for the identification,
documentation, designation and effectiveness of hedging
relationships and was effective for fiscal years beginning on or
after July 1, 2003. Effective January 1, 2004, we ceased
designating our US dollar forward contracts as hedges of our US
dollar revenues. These contracts were entered into during 2002, and
all of these contracts will mature during 2004. The foreign
exchange gains on these contracts of $14.6 million, which were
deferred prior to January 1, 2004, will be recognized throughout
2004 as an increase of fee revenues. Effective January 1, 2004, our
US dollar forward contracts are being marked-to-market on a monthly
basis with the resulting changes in fair values being recorded as a
foreign exchange gain or loss. The impact of ceasing to designate
our US dollar forward contracts as hedges of our US dollar revenues
was to decrease net earnings by $171,000 for the three months ended
March 31, 2004 and to increase receivables by $10.7 million and
accounts payable and accrued liabilities by $11 million as at March
31, 2004. Effective January 1, 2004, we also adopted the following
accounting standards, Accounting for Asset Retirement Obligations,
Impairment of Long- Lived Assets, Revenue Recognition and Revenue
Arrangements with Multiple Deliverables, all of which are more
fully described in the MD&A for the year ended December 31,
2003. The application of these accounting treatments did not have
an impact on our interim financial statements. See also note 1 to
the interim consolidated financial statements. Critical Accounting
Estimates ----------------------------- Under Canadian GAAP, we are
required to make estimates when we account for and report assets,
liabilities, revenues and expenses, and contingencies. We are also
required to evaluate the estimates that we use. We base our
estimates on past experience and other factors that we believe are
reasonable under the circumstances. Because this process of
estimation involves varying degrees of judgment and uncertainty,
the amounts currently reported in the financial statements could,
in the future, prove to be inaccurate. We believe the following
critical accounting estimates are the more significant judgments
and estimates used in the preparation of our consolidated financial
statements. Recoverability of Investments Estimates are required to
be used by management to assess the recoverability of our
investments in long-term receivables, hotel partnerships and
corporations, management contracts, and trademarks and trade names.
Long-term receivables are reviewed for impairment when significant
events or circumstances including, but not limited to, the
following occur: changes in general economic trends, defaults in
interest or principal payments, deterioration in a borrower's
financial condition or creditworthiness (including severe losses in
the current year or recent years), or a significant decline in the
value of the security underlying a loan. We measure the impairment
of long-term receivables based on the present value of expected
future cash flows (discounted at the original effective interest
rate) or the estimated fair value of the collateral. If an
impairment exists, we establish a specific allowance for doubtful
long-term receivables for the difference between the recorded
investment and the present value of the expected future cash flows
or the estimated fair value of the collateral. We apply this
impairment policy individually to all long-term receivables and do
not aggregate long-term receivables for the purpose of applying
this policy. For investments in hotel partnerships and
corporations, we determine if there is an impairment in value by
reviewing periodic independent valuations and the undiscounted cash
flows of the related property. In the event of a decline in value
of the investment that is other than temporary, the investment is
written down to its estimated recoverable amount. Investments in
management contracts and investments in trademarks and trade names
are evaluated on at least an annual basis to determine whether the
net book value will be recovered from future operations. We base
these evaluations upon the projected future net fee stream related
to the respective property on an undiscounted basis. If the
undiscounted cash flows are insufficient to recover the remaining
net book value, then the undiscounted cash flows are used as the
revised carrying value, and a write-down for the difference is
recorded. Estimates of recoverable amounts and future cash flows
are based on estimates of the profitability of the related managed
properties, which, in turn, depend upon assumptions regarding
future conditions in the general or local hospitality industry,
including competition from other hotels, changes in travel
patterns, and other factors that affect the properties' gross
operating revenue and profits. Estimates of recoverable amounts and
future cash flows may also depend upon, among other things,
periodic independent valuations, assumptions regarding local real
estate market conditions, property and income taxes, interest rates
and the availability, cost and terms of financing, the impact of
present or future legislation or regulation, debt incurred by the
properties that rank ahead of us, owners' termination rights under
the terms of the management agreements, disputes with owners, and
other factors affecting the profitability and saleability of the
properties and our investments. These assumptions, estimates and
evaluations are subject to the availability of reliable comparable
data, ongoing geopolitical concerns and the uncertainty of
predictions concerning future events. Accordingly, estimates of
recoverable amounts and future cash flows are subjective and may
not ultimately be achieved. Should the underlying circumstances
change, the estimated recoverable amounts and future cash flows
could change by a material amount. Income Taxes We account for
income taxes using the liability method and calculate our income
tax provision based on the expected tax treatment of transactions
recorded in our consolidated financial statements. Under this
method, future tax assets and liabilities are recognized based on
differences between the bases of assets and liabilities used for
financial statement and income tax purposes, using substantively
enacted tax rates. In determining the current and future components
of the tax provision, management interprets tax legislation in a
variety of jurisdictions and makes assumptions about the expected
timing of the reversal of future tax assets and liabilities. If our
interpretations differ from those of the tax authorities, enacted
tax rates change or the timing of reversals is not as anticipated,
the tax provision could materially increase or decrease in future
periods. In measuring the amount of future income tax assets and
liabilities we are periodically required to develop estimates of
the tax basis of assets and liabilities. In circumstances where the
applicable tax laws and regulations are either unclear or subject
to ongoing varying interpretations, changes in these estimates
could occur that could materially affect the amounts of future
income tax assets and liabilities recorded in our consolidated
financial statements. For the year ended December 31, 2003, the
most significant tax bases estimate that would be affected by
differences in interpretation of tax laws was the accumulated net
operating losses carried forward of $30.6 million. For every
material future tax asset, we evaluate the likelihood of whether
some portion or all of the asset will not be realized. This
evaluation is based on, among other things, expected levels of
future taxable income and the pattern and timing of reversals of
temporary timing differences that give rise to future tax assets
and liabilities. If, based on the weight of available evidence, we
determine that it is more likely than not (a likelihood of more
than 50%) that all or some portion of a future tax asset will not
be realized, we record a valuation allowance against that asset.
For the year ended December 31, 2003, the future income tax asset
was $13.2 million, net of a valuation allowance of $3.0 million.
Additional Information Additional information about us (including
our most recent annual information form and our MD&A for the
year ended December 31, 2003) is available on SEDAR at
http://www.sedar.com/. -------------------------------- 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, each tax-effected as applicable. Adjusted net
earnings, as we calculate it, 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
we believe it can assist in the period-over-period comparability of
our financial performance. A reconciliation of net earnings (the
nearest GAAP measure to adjusted net earnings) to adjusted net
earnings is as follows: Three months ended (Unaudited) March 31,
(In thousands of dollars) 2004 2003
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Net earnings (loss) $ 11,474 $ (9,288) Adjustments: Foreign
exchange loss (gain) (4,630) 8,267 Net asset impairment charge(x)
309 4,641 Tax effect of adjustments 591 (1,114)
-------------------------- Adjusted net earnings $ 7,744 $ 2,506
-------------------------- -------------------------- Adjusted
basic earnings per share $ 0.22 $ 0.07 --------------------------
-------------------------- Adjusted diluted earnings per share $
0.21 $ 0.07 -------------------------- --------------------------
(x) Includes legal and enforcement costs. 2. 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. RevPAR is the most commonly used measure in the
lodging industry to measure the period-over-period performance of
comparable properties. 3. The term "Core Hotels" means hotels and
resorts under management for the full year of both 2004 and 2003.
However, if a "Core Hotel" has undergone or is undergoing an
extensive renovation program in one of those years that materially
affects the operation of the property in that year, it ceases to be
included as a "Core Hotel" in either year. Changes from the
2003/2002 Core Hotels are the additions of Four Seasons Hotel
Amman, Four Seasons Resort Sharm el Sheikh, Four Seasons Hotel
Shanghai and Four Seasons Hotel Tokyo at Marunouchi and the
deletion of Four Seasons Biltmore Resort (Santa Barbara), which is
undergoing an extensive renovation program in 2004. 4. Gross
operating margin represents gross operating profit as a percentage
of gross operating revenue. 5. Eight Quarter Summary:
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(In millions of dollars except per share amounts) 1st Quarter 4th
Quarter 3rd Quarter 2nd Quarter
-------------------------------------------------------------------------
2004 2003(a)2003(a) 2002 2003(a) 2002 2003(a) 2002
-------------------------------------------------------------------------
Consolidated revenues(b) $73.7 $68.9 $86.0 $88.4 $70.3 $71.6 $78.2
$89.8
-------------------------------------------------------------------------
Earnings (loss) before other operating items:
-------------------------------------------------------------------------
Management operations 22.5 19.6 20.7 21.6 18.8 15.5 20.5 24.0
-------------------------------------------------------------------------
Ownership and corporate operations (9.7) (13.2) (2.0) (4.6) (9.4)
(6.6) (5.5) (0.2)
-------------------------------------------------------------------------
Net earnings (loss): Total $11.5 $(9.3) $11.7 $ 7.6 $ 4.4 $(12.3)
$(1.4) $18.1
-------------------------------------------------------------------------
Basic earnings (loss) per share(c) $0.33 $(0.27) $0.33 $0.22 $0.13
$(0.35)$(0.04) $0.52
-------------------------------------------------------------------------
Diluted earnings (loss) per share(c) $0.31 $(0.27) $0.32 $0.22
$0.12 $(0.35)$(0.04) $0.48
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(a) In December 2003, the CICA amended Section 3870 of its Handbook
to require entities to account for employee stock options using the
fair value-based method, beginning January 1, 2004. In accordance
with one of the transitional alternatives permitted under amended
Section 3870, in the fourth quarter of 2003 we prospectively
adopted the fair value-based method with respect 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 for each of the quarters
in 2002 have not been restated. In accordance with the new
standard, however, the reported results for the first three
quarters of 2003 are required to be restated. The prospective
application of adopting the fair value-based method effective
January 1, 2003 resulted in the following restatements: 1st Quarter
2003 - no effect on net loss or basic and diluted loss per share;
2nd Quarter 2003 - increase in net loss of $0.1 million and no
effect on basic and diluted loss per share; 3rd Quarter and 4th
Quarter 2003 - in each quarter, a decrease in net earnings of $0.4
million and a decrease in basic and diluted earnings per share of
$0.01 for each quarter. (b) As a result of adopting Section 1100,
"Generally Accepted Accounting Principles", which was issued by the
CICA in July 2003, and was effective January 1, 2004, we have
included the reimbursement of all out-of-pocket expenses in both
revenues and expenses instead of recording certain reimbursed costs
as a "net" amount. As a result of this change, consolidated
revenues have been restated as follows: 1st Quarter 2003 - increase
of $7.9 million; 2nd Quarter 2003 - increase of $8.4 million; 3rd
Quarter 2003 - increase of $8.0 million; 4th Quarter 2003 -
increase of $10.8 million; 2nd Quarter 2002 - increase of $8.8
million; 3rd Quarter 2002 - increase of $9.4 million; 4th Quarter
2002 - increase of $11.5 million. (c) Quarterly computations of per
share amounts are made independently on a quarter-by-quarter basis
and may not be identical to annual computations of per share
amounts. 6. The following table illustrates the impact of adopting
the new accounting standard (CICA Section 1100 - "Generally
Accepted Accounting Principles", as it relates to the reimbursement
of out-of-pocket costs) on a pro forma basis in the quarters for
2003 as if the new standard was applicable during that time.
---------------------------------------------------------------------
2003 ------------------------------------------- First Second Third
Fourth (In thousands of dollars) Quarter Quarter Quarter Quarter
---------------------------------------------------------------------
Revenues:
---------------------------------------------------------------------
Fee revenues $ 29,305 $ 29,351 $ 28,822 $ 33,052
---------------------------------------------------------------------
Cost reimbursements previously included in fee revenues(x) 6,925
7,381 7,395 7,525
---------------------------------------------------------------------
Additional cost reimbursements 7,867 8,381 7,990 10,804
---------------------------------------------------------------------
Total revenues 44,097 45,113 44,207 51,381
---------------------------------------------------------------------
Operating costs and expenses:
---------------------------------------------------------------------
General and administrative expenses 9,736 8,901 9,980 12,391
---------------------------------------------------------------------
Reimbursed costs 14,792 15,762 15,385 18,329
---------------------------------------------------------------------
Total expenses 24,528 24,663 25,365 30,720
---------------------------------------------------------------------
Total earnings from Management operations before other operating
items $ 19,569 $ 20,450 $ 18,842 $ 20,661
---------------------------------------------------------------------
---------------------------------------------------------------------
(x) Sales and marketing fees were included in both fee revenues and
general and administrative expenses in 2003 and earlier years. 7.
The management operations profit margin represents management
operations earnings before other operating items, as a percent of
management operations revenue. 8. Included in ownership and
corporate operations are the consolidated revenues and expenses
from our 100% leasehold interests in The Pierre in New York, Four
Seasons Hotel Vancouver and Four 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 earnings 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 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 and subsequent terrorist attacks,
Severe Acute Respiratory Syndrome (SARS), the civil unrest in Iraq
and elsewhere, supply and demand changes for hotel rooms and
residential properties, competitive conditions in the lodging
industry, relationships with clients and property owners, and the
availability of capital to finance growth. Many of these risks and
uncertainties can affect our actual results and could cause our
actual results to differ materially from those expressed or implied
in any forward-looking statement made by us or on our behalf. These
statements are made as of the date of this press release and,
except as required by applicable law, we undertake no obligation to
publicly update or revise any forward-looking statement, whether as
a result of new information, future events or otherwise.
--------------- We will hold a conference call today at 10:00 a.m.
(Eastern Daylight Time) to discuss the first quarter financial
results. The details are: To access the call dial: 1 (800) 289-6406
(U.S.A. and Canada) 1 (416) 641-6700 (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
21192385. A live web cast will also be available by visiting
http://www.fourseasons.com/investor. This web cast will be archived
for one month following the call. --------------- On Wednesday, May
12, 2004, Four Seasons will be holding its Annual and Special
Meeting of Shareholders in the Regency Ballroom of Four Seasons
Hotel Toronto, 21 Avenue Road, Toronto, at 10:00 a.m. (Eastern
Daylight Time). The meeting will be broadcast by live web cast at:
http://www.fourseasons.com/investor. The web cast will be archived
for an indefinite period of time. --------------- 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 62 properties in 29 countries.
Four Seasons Resort Provence at Terre Blanche opened March 25,
2004, the company's first resort in Europe. Four Seasons continues
to grow, with more than 20 projects under construction or
development in choice locations around the world. Four Seasons
consistently ranks high in global awards and accolades. In addition
to having the most Mobil Five Star awards in the industry, Four
Seasons was included in Fortune magazine's "100 Best Companies To
Work For" for the seventh year in a row. 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, Gallivanter's Guide and the Zagat
Survey. Information on the company and its 43 years of achievement
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 (Unaudited) (In
thousands of dollars Three months ended except per share amounts)
March 31, 2004 2003
-------------------------------------------------------------------------
(restated - note 1(a)) Consolidated revenues (note 5) $ 73,679 $
68,881 ---------------------------- ----------------------------
MANAGEMENT OPERATIONS Revenues: Fee revenues $ 33,377 $ 29,305
Reimbursed costs (note 1(c)) 14,486 14,792
---------------------------- 47,863 44,097
---------------------------- Expenses: General and administrative
expenses (10,856) (9,736) Reimbursed costs (note 1(c)) (14,486)
(14,792) ---------------------------- (25,342) (24,528)
---------------------------- 22,521 19,569
---------------------------- OWNERSHIP AND CORPORATE OPERATIONS
Revenues 26,795 25,778 Expenses: Cost of sales and expenses
(35,390) (37,802) Fees to Management Operations (1,129) (1,174)
---------------------------- (9,724) (13,198)
---------------------------- Earnings before other operating items
12,797 6,371 Depreciation and amortization (3,625) (3,710) Other
income (expense), net (note 6) 4,321 (12,908)
---------------------------- Earnings (loss) from operations 13,493
(10,247) Interest income, net 1,148 683
---------------------------- Earnings (loss) before income taxes
14,641 (9,564) ---------------------------- Income tax recovery
(expense): Current (2,788) 2,374 Future (379) (2,098)
---------------------------- (3,167) 276
---------------------------- Net earnings (loss) $ 11,474 $ (9,288)
---------------------------- ---------------------------- Basic
earnings (loss) per share (note 4) $ 0.33 $ (0.27)
---------------------------- ---------------------------- Diluted
earnings (loss) per share (note 4) $ 0.31 $ (0.27)
---------------------------- ---------------------------- See
accompanying notes to consolidated financial statements. FOUR
SEASONS HOTELS INC. CONSOLIDATED BALANCE SHEETS As at As at March
31, December 31, (In thousands of dollars) 2004 2003
-------------------------------------------------------------------------
(Unaudited) ASSETS Current assets: Cash and cash equivalents $
174,269 $ 170,725 Receivables (note 1(b)) 109,278 88,636 Inventory
2,072 2,169 Prepaid expenses 6,236 3,780
---------------------------- 291,855 265,310 Long-term receivables
201,632 197,635 Investments in hotel partnerships and corporations
159,104 157,638 Fixed assets 78,778 75,789 Investment in management
contracts 204,078 203,670 Investment in trademarks and trade names
5,716 5,757 Future income tax assets 12,851 13,230 Other assets
27,508 27,631 ---------------------------- $ 981,522 $ 946,660
---------------------------- ----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts
payable and accrued liabilities (note 1(b)) $ 73,703 $ 61,045
Long-term obligations due within one year 2,612 2,587
---------------------------- 76,315 63,632 Long-term obligations
(notes 2 and 3) 121,592 117,521 Shareholders' equity (note 4):
Capital stock 333,306 329,274 Convertible notes (note 3) 178,543
178,543 Contributed surplus 5,942 5,529 Retained earnings 277,228
265,754 Equity adjustment from foreign currency translation
(11,404) (13,593) ---------------------------- 783,615 765,507
---------------------------- $ 981,522 $ 946,660
---------------------------- ---------------------------- See
accompanying notes to consolidated financial statements. FOUR
SEASONS HOTELS INC. CONSOLIDATED STATEMENTS OF CASH PROVIDED BY
OPERATIONS Three months ended (Unaudited) March 31, (In thousands
of dollars) 2004 2003
-------------------------------------------------------------------------
Cash provided by (used in) operations: MANAGEMENT OPERATIONS
Earnings before other operating items $ 22,521 $ 19,569 Items not
requiring an outlay of funds 514 409 ----------------------------
Working capital provided by Management Operations 23,035 19,978
---------------------------- OWNERSHIP AND CORPORATE OPERATIONS
Loss before other operating items (9,724) (13,198) Items not
requiring an outlay of funds 218 9 ----------------------------
Working capital used in Ownership and Corporate Operations (9,506)
(13,189) ---------------------------- 13,529 6,789 Interest
received, net 3,732 3,896 Change in non-cash working capital
(11,547) 12,743 Other (805) (1,610) ----------------------------
Cash provided by operations $ 4,909 $ 21,818
---------------------------- ---------------------------- See
accompanying notes to consolidated financial statements. FOUR
SEASONS HOTELS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Three
months ended (Unaudited) March 31, (In thousands of dollars) 2004
2003
-------------------------------------------------------------------------
Cash provided by (used in): Operations: $ 4,909 $ 21,818
---------------------------- Financing: Long-term obligations
including current portion 116 42 Issuance of shares 4,032 131
Dividends paid (1,833) (1,809) ---------------------------- Cash
provided by (used in) financing 2,315 (1,636)
---------------------------- Capital investments: Long-term
receivables 876 (5,806) Hotel investments (1,278) (8,368) Purchase
of fixed assets (4,359) (3,881) Investments in trademarks, trade
names and management contracts (367) (216) Other assets (1,109)
(2,601) ---------------------------- Cash used in capital
investments (6,237) (20,872) ---------------------------- Increase
(decrease) in cash and cash equivalents 987 (690) Increase
(decrease) in cash due to unrealized foreign exchange gain (loss)
2,557 (10,146) Cash and cash equivalents, beginning of period
170,725 165,036 ---------------------------- Cash and cash
equivalents, end of period $ 174,269 $ 154,200
---------------------------- ---------------------------- See
accompanying notes to consolidated financial statements. FOUR
SEASONS HOTELS INC. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Three months ended (Unaudited) March 31, (In thousands of dollars)
2004 2003
-------------------------------------------------------------------------
Retained earnings, beginning of period $ 265,754 $ 264,016 Net
earnings (loss) 11,474 (9,288) ----------------------------
Retained earnings, end of period $ 277,228 $ 254,728
---------------------------- ---------------------------- See
accompanying notes to consolidated financial statements. FOUR
SEASONS HOTELS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (In thousands of dollars except share amounts)
-------------------------------------------------------------------------
In these interim consolidated financial statements, the words "we",
"us", "our", and other similar words are references to Four Seasons
Hotels Inc. and its consolidated subsidiaries. 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
our annual consolidated financial statements for the year ended
December 31, 2003. 1. Significant accounting policies: The
significant accounting policies used in preparing these interim
consolidated financial statements are consistent with those used in
preparing our annual consolidated financial statements for the year
ended December 31, 2003, except as disclosed below: (a) Stock-based
compensation and other stock-based payments: In December 2003, the
Canadian Institute of Chartered Accountants ("CICA") amended
Section 3870 to require entities to account for employee stock
options using the fair value-based method, beginning January 1,
2004. In accordance with one of the transitional alternatives
permitted under amended Section 3870, we prospectively adopted in
December 2003 the fair value-based method with respect 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. The prospective
application of adopting the fair value-based method effective
January 1, 2003 has been applied retroactively in our consolidated
financial statements, and amounts for the three months ended March
31, 2003 have been restated. The impact of this change for the
three months ended March 31, 2004 was to decrease net earnings by
$413 (2003 - $15) and to decrease basic and diluted earnings per
share by $0.01 (2003 - nil). The fair value of stock options
granted in the three months ended March 31, 2004 has been estimated
using a Black-Scholes option pricing model with the following
assumptions: risk-free interest rates ranging from 2.96% to 3.81%
(2003 - 4.80% to 5.02%); semi-annual dividend per Limited Voting
Share of $0.055 (2003 - $0.055); volatility factor of the expected
market price of our Limited Voting Shares of 30% (2003 - 32%); and
expected lives of the options in 2004 and 2003 ranging between four
and seven years, depending on the level of the employee who was
granted stock options. For the options granted in the three months
ended March 31, 2004, the weighted average fair value of the
options at the grant dates was $27.00 (2003 - $15.96). 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 ended March 31, 2004 and 2003, if we had applied
the fair value-based method to options granted from January 1, 2002
to December 31, 2002, our net earnings (loss) and basic and diluted
earnings (loss) per share would have been adjusted to the pro forma
amounts indicated below: (Unaudited) Three months ended (In
thousands of dollars March 31, except per share amounts) 2004 2003
-------------------------------------------------------------------------
Stock option expense included in compensation expense $ (413) $
(15)
-------------------------------------------------------------------------
Net earnings (loss), as reported $ 11,474 $ (9,288) Additional
expense that would have been recorded if all outstanding stock
options granted during 2002 had been expensed (859) (862)
-------------------------------------------------------------------------
Pro forma net earnings (loss) $ 10,615 $ (10,150)
-------------------------------------------------------------------------
Earnings (loss) per share: Basic, as reported $ 0.33 $ (0.27)
Basic, pro forma 0.30 (0.29) Diluted, as reported 0.31 (0.27)
Diluted, pro forma 0.29 (0.29)
-------------------------------------------------------------------------
(b) Hedging relationships: In December 2001, the CICA issued an
accounting guideline relating to hedging relationships. The
guideline establishes requirements for the identification,
documentation, designation and effectiveness of hedging
relationships and was effective for fiscal years beginning on or
after July 1, 2003. Effective January 1, 2004, we ceased
designating our US dollar forward contracts as hedges of our US
dollar revenues. These contracts were entered into during 2002, and
all of these contracts will mature during 2004. The foreign
exchange gains on these contracts of $14,552, which were deferred
prior to January 1, 2004, will be recognized in 2004 as an increase
of fee revenues over the course of the year. Effective January 1,
2004, our US dollar forward contracts are being marked-to-market on
a monthly basis with the resulting changes in fair values being
recorded as a foreign exchange gain or loss. The impact of ceasing
to designate our US dollar forward contracts as hedges of our US
dollar revenues was to decrease net earnings by $171 for the three
months ended March 31, 2004 and to increase receivables by $10,731
and accounts payable and accrued liabilities by $10,967 as at March
31, 2004. (c) Reimbursed costs: As a result of adopting Section
1100, "Generally Accepted Accounting Principles", which was issued
by the CICA in July 2003, and was effective January 1, 2004, we
have included the reimbursement of all out-of-pocket expenses in
both revenues and expenses instead of recording certain reimbursed
costs as a "net" amount. The change in the accounting treatment of
reimbursed costs resulted in an increase of both revenues and
expenses for the three months ended March 31, 2004 of $7,174 (2003
- $7,867), but did not have an impact on net earnings. In addition,
for the three months ended March 31, 2003, fee revenues and general
and administrative expenses included certain other reimbursed costs
of $6,925. These have been reclassified to reimbursed costs in both
revenues and expenses to conform with the financial statement
presentation adopted in 2004. (d) Impairment of long-lived assets:
In December 2002, the CICA issued Section 3063, "Impairment of
Long-Lived Assets". This new section establishes standards for the
recognition, measurement and disclosure of the impairment of
long-lived assets, and replaces the write-down provisions of
Section 3061, "Property, Plant and Equipment". In accordance with
Section 3063, long-lived assets, such as property, plant and
equipment and purchased intangibles subject to amortization, are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
estimated undiscounted future cash flows expected to be generated
by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized
equal to the amount by which the carrying amount of the asset
exceeds the fair value of the asset. The implementation of Section
3063, effective January 1, 2004, did not have an impact on our
consolidated financial statements for the three months ended March
31, 2004. (e) Accounting for asset retirement obligations: In March
2003, the CICA issued Section 3110, "Accounting for Asset
Retirement Obligations". Section 3110 requires companies to record
the fair value of an asset retirement obligation as a liability in
the year in which they incur a legal obligation associated with the
retirement of tangible long-lived assets that result from the
acquisition, construction, development and/or normal use of the
assets. Companies are also required to record a corresponding asset
that is depreciated over the life of the asset. Subsequent to the
initial measurement of the asset retirement obligation, the
obligation will be adjusted at the end of each period to reflect
the passage of time and changes in the estimated future cash flows
underlying the obligation. The implementation of Section 3110,
effective January 1, 2004, did not have an impact on our
consolidated financial statements for the three months ended March
31, 2004. (f) Revenue recognition: In December 2003, the Emerging
Issues Committee ("EIC") of the CICA issued Abstract EIC-141,
"Revenue Recognition", which provides revenue recognition guidance.
The implementation of EIC-141, effective January 1, 2004, did not
have an impact on our consolidated financial statements for the
three months ended March 31, 2004. (g) Revenue arrangements with
multiple deliverables: In December 2003, the EIC issued Abstract
EIC-142, "Revenue Arrangements with Multiple Deliverables", which
addresses accounting for arrangements, entered into after December
31, 2003, where an enterprise will perform multiple revenue
generating activities. The implementation of EIC-142 did not have
an impact on our consolidated financial statements for the three
months ended March 31, 2004. 2. Bank credit facilities: We have
committed bank credit facilities of US$212,500, which expire in
July 2004. No amounts have been borrowed under these facilities to
date; however, approximately US$28,000 in letters of credit were
issued under these facilities as at March 31, 2004. No amounts have
been drawn under these letters of credit. 3. Convertible notes:
During 1999, we issued US$655,519 principal amount at maturity
(September 23, 2029) of convertible notes for gross proceeds of
US$172,500. The net proceeds of the issuance, after deducting
offering expenses and underwriters' commission, were US$166,000. As
at March 31, 2004, our consolidated balance sheet includes $91,265
(US$69,641) of convertible notes in long-term obligations and
$178,543 of convertible notes in shareholders' equity. We are
entitled to redeem the 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
maturity date or date of redemption of the notes, pursuant to which
they can require us to issue to them 5.284 Limited Voting Shares
for each one thousand US dollar principal amount of notes. The
holders of notes also can require us 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 is also
available in September 2009 and September 2014. We have a choice of
settling our obligation, in connection with the conversion or
purchase of the notes at the option of the holder, with cash or
Limited Voting Shares. As described above, we may redeem all or a
portion of the notes at any time on or after September 23, 2004 for
cash at the issue price plus accrued interest (calculated at 4 1/2%
per annum) to the date of purchase. It is possible that we may
redeem some or all of the notes, especially if current interest
rates continue. A cash redemption in September 2004 of all
outstanding notes would require a cash payment to the note holders
of approximately US$215,500, assuming that the holders did not
exercise their right to convert their notes before the redemption
date. If we redeem the notes, we may replace the financing provided
by the notes with a combination of debt (which could be raised by
various means, including bank lines and/or the issuance of
additional notes or convertible notes) and/or the utilization of
cash and cash equivalents. We filed a shelf registration statement
and prospectus during the first quarter that would accommodate a
public offering of various debt instruments (including convertible
debt) in a principal amount of up to US$250,000. 4. Shareholders'
equity: As at March 31, 2004, we have outstanding Variable Multiple
Voting Shares ("VMVS") of 3,832,172, outstanding Limited Voting
Shares ("LVS") of 31,611,338 and outstanding stock options of
5,635,379 (weighted average exercise price of $54.93). A
reconciliation of the net earnings (loss) and weighted average
number of VMVS and LVS used to calculate basic earnings (loss) per
share and diluted earnings (loss) per share is as follows: Three
months ended (Unaudited) March 31, (In thousands of dollars) 2004
2003
-------------------------------------------------------------------------
Net earnings Shares Net loss Shares
-------------------------------------------------------------------------
Basic earnings (loss) per share: Net earnings (loss) and number of
shares $ 11,474 35,289,622 $ (9,288) 34,882,670 Effect of assumed
dilutive conversions: Stock option plan - 1,435,122 - -
-------------------------------------------------------------------------
Diluted earnings (loss) per share: Net earnings (loss) and number
of shares $ 11,474 36,724,744 $ (9,288) 34,882,670
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The diluted earnings (loss) per share calculation excluded the
effect of the assumed conversions of 1,407,796 stock options to
LVS, under our stock option plan, during the three months ended
March 31, 2004 (2003 - 5,864,037 stock options), as the inclusion
of these conversions resulted in an anti- dilutive effect. In
addition, the dilution relating to the conversion of our
convertible notes to 3,463,155 LVS, by application of the
"if-converted method", has been excluded from the calculation as
the inclusion of this conversion resulted in an anti-dilutive
effect for the three months ended March 31, 2004 and 2003. 5.
Consolidated revenues: Consolidated revenues for Four Seasons
Hotels Inc. comprise revenues from Management Operations, revenues
from Ownership and Corporate Operations and distributions from
hotel investments, less fees from Ownership and Corporate
Operations to Management Operations. 6. Other income (expense),
net: Included in other income (expense), net for the three months
ended March 31, 2004 is a net foreign exchange gain of $4,630 (2003
- net foreign exchange loss of $8,267) 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 our foreign self-sustaining subsidiaries.
Also included in other income (expense), net for the three months
ended March 31, 2004 are legal and enforcement costs of $217 (2003
- $4,611) in connection with the disputes with the owners of the
Four Seasons hotels in Caracas and Seattle. 7. Seasonality: Our
hotels and resorts are affected by normally recurring seasonal
patterns and, for most of the properties, demand is usually lower
in the period from December through March compared to the remainder
of the year. Typically, the first quarter is the weakest quarter
and the fourth quarter is the strongest quarter for the majority of
the properties. Our ownership operations are particularly affected
by seasonal fluctuations, with lower revenue, higher operating
losses and lower 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 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 our resorts in
the period. FOUR SEASONS HOTELS INC. SUMMARY OF HOTEL OPERATING
DATA - CORE HOTELS(1) Three months ended March 31, (Unaudited) 2004
2003 Variance
-------------------------------------------------------------------------
Worldwide No. of Properties 51 51 - No. of Rooms 13,460 13,460 -
Occupancy(2) 64.9% 60.4% 4.5% ADR(3) - in US dollars $ 314 $ 295
6.3% RevPAR(4) - in US dollars $ 203 $ 178 14.1% Gross operating
margin(5) 28.0% 24.7% 3.3% United States No. of Properties 21 21 -
No. of Rooms 6,587 6,587 - Occupancy(2) 68.0% 65.0% 3.0% ADR(3) -
in US dollars $ 346 $ 333 3.9% RevPAR(4) - in US dollars $ 235 $
216 8.6% Gross operating margin(5) 24.1% 23.0% 1.1% Other
Americas/Caribbean No. of Properties 7 7 - No. of Rooms 1,534 1,534
- Occupancy(2) 59.7% 53.8% 5.9% ADR(3) - in US dollars $ 344 $ 318
8.4% RevPAR(4) - in US dollars $ 206 $ 171 20.3% Gross operating
margin(5) 36.2% 31.0% 5.2% Europe/Middle East No. of Properties 11
11 - No. of Rooms 2,133 2,133 - Occupancy(2) 61.1% 47.2% 13.9%
ADR(3) - in US dollars $ 373 $ 371 0.6% RevPAR(4) - in US dollars $
228 $ 175 30.2% Gross operating margin(5) 30.9% 22.2% 8.7%
Asia/Pacific No. of Properties 12 12 - No. of Rooms 3,206 3,206 -
Occupancy(2) 63.7% 62.9% 0.8% ADR(3) - in US dollars $ 190 $ 168
13.2% RevPAR(4) - in US dollars $ 121 $ 106 14.5% Gross operating
margin(5) 32.9% 28.8% 4.1% 1. The term "Core Hotels" means hotels
and resorts under management for the full year of both 2004 and
2003. However, if a "Core Hotel" has undergone or is undergoing an
extensive renovation program in one of those years that materially
affects the operation of the property in that year, it ceases to be
included as a "Core Hotel" in either year. Changes from the
2003/2002 Core Hotels are the additions of Four Seasons Hotel
Amman, Four Seasons Resort Sharm el Sheikh, Four Seasons Hotel
Shanghai and Four Seasons Hotel Tokyo at Marunouchi and the
deletion of Four Seasons Biltmore Resort (Santa Barbara), which is
undergoing an extensive renovation program in 2004. 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. We report 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 March 31, (Unaudited) 2004 2003 Variance
-------------------------------------------------------------------------
Worldwide No. of Properties 62 58 4 No. of Rooms 15,994 15,648 346
United States No. of Properties 24 23 1 No. of Rooms 7,145 7,250
(105) Other Americas/Caribbean No. of Properties 10 8 2 No. of
Rooms 2,082 1,746 336 Europe/Middle East No. of Properties 14 13 1
No. of Rooms 2,658 2,543 115 Asia/Pacific No. of Properties 14 14 -
No. of Rooms 4,109 4,109 - FOUR SEASONS HOTELS INC. REVENUES UNDER
MANAGEMENT - ALL MANAGED HOTELS Three months ended (Unaudited)
March 31, (In thousands of dollars) 2004 2003
-------------------------------------------------------------------------
Revenues under management(1) $ 698,711 $ 659,248
----------------------- 1. Revenues under management consist of
rooms, food and beverage, telephone and other revenues of all the
hotels and resorts which we manage. Approximately 67% of the fee
revenues (excluding reimbursed costs) we earned 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 Beijing, China 325 Four Seasons Hotel Gresham
Palace Budapest, Hungary 175 Four Seasons Hotel Cairo at Nile
Plaza, Egypt(x) 375 Four Seasons Hotel Damascus, Syria 300 Four
Seasons Hotel Doha, Qatar 235 Four Seasons Hotel Geneva,
Switzerland 100 Four Seasons Hotel Hampshire, England 135 Four
Seasons Hotel Hong Kong, Hong Kong(x) 390 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 Whistler, B.C.,
Canada 240 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
Istanbul at the Bosphorus, Turkey 170 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 the date
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 our 2003 Annual Report. 2. We have
made an investment in Orlando, which we expect to include a Four
Seasons Residence Club and/or a Four Seasons branded residential
component. The financing for this project has not yet been
completed and therefore a scheduled opening date cannot be
established at this time. We have also made an investment in Sedona
at Seven Canyons in Arizona in connection with a potential
Residence Club. The developer is working on a plan to finalize that
project, however, there is no certainty that it will come to
fruition as a Four Seasons property or the potential impact of
those plans on Four Seasons' investment. 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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