/FIRST AND FINAL ADD - TO113 - Four Seasons Hotels Inc. Earnings/
FOUR SEASONS HOTELS INC. CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In thousands of Three months ended Six months ended
dollars except per June 30, June 30, share amounts) 2004 2003 2004
2003
-------------------------------------------------------------------------
(restated - (restated - note 1(a)) note 1(a)) Consolidated revenues
(note 5) $ 96,953 $ 80,758 $ 172,231 $ 153,118
---------------------------------------------------
--------------------------------------------------- MANAGEMENT
OPERATIONS Revenues: Fee revenues $ 41,549 $ 29,351 $ 74,926 $
58,656 Reimbursed costs (note 1(c)) 18,517 18,571 34,752 37,022
--------------------------------------------------- 60,066 47,922
109,678 95,678 ---------------------------------------------------
Expenses: General and administrative expenses (11,469) (8,901)
(22,325) (18,637) Reimbursed costs (note 1(c)) (18,517) (18,571)
(34,752) (37,022)
--------------------------------------------------- (29,986)
(27,472) (57,077) (55,659)
--------------------------------------------------- 30,080 20,450
52,601 40,019 ---------------------------------------------------
OWNERSHIP AND CORPORATE OPERATIONS Revenues 38,185 34,415 64,980
60,193 Distributions from hotel investments 398 -- 398 -- Expenses:
Cost of sales and expenses (38,633) (38,295) (74,023) (76,097) Fees
to Management Operations (1,696) (1,579) (2,825) (2,753)
--------------------------------------------------- (1,746) (5,459)
(11,470) (18,657)
--------------------------------------------------- Earnings before
other operating items 28,334 14,991 41,131 21,362 Depreciation and
amortization (3,619) (4,064) (7,244) (7,774) Other income
(expense), net (note 6) (3,011) (12,133) 1,310 (25,041)
--------------------------------------------------- Earnings (loss)
from operations 21,704 (1,206) 35,197 (11,453) Interest income, net
666 667 1,814 1,350
--------------------------------------------------- Earnings (loss)
before income taxes 22,370 (539) 37,011 (10,103)
--------------------------------------------------- Income tax
recovery (expense): Current (4,366) (1,759) (7,154) 615 Future
(670) 884 (1,049) (1,214)
--------------------------------------------------- (5,036) (875)
(8,203) (599) ---------------------------------------------------
Net earnings (loss) $ 17,334 $ (1,414) $ 28,808 $ (10,702)
---------------------------------------------------
--------------------------------------------------- Basic earnings
(loss) per share (note 4) $ 0.49 $ (0.04) $ 0.81 $ (0.31)
---------------------------------------------------
--------------------------------------------------- Diluted
earnings (loss) per share (note 4) $ 0.46 $ (0.04) $ 0.78 $ (0.31)
---------------------------------------------------
--------------------------------------------------- See
accompanying notes to consolidated financial statements. FOUR
SEASONS HOTELS INC. CONSOLIDATED BALANCE SHEETS As at As at June
30, December 31, (In thousands of dollars) 2004 2003
-------------------------------------------------------------------------
(Unaudited) ASSETS Current assets: Cash and cash equivalents (note
2) $ 467,230 $ 170,725 Receivables (note 1(b)) 104,452 88,636
Inventory 1,972 2,169 Prepaid expenses 5,026 3,780
------------------------- 578,680 265,310 Long-term receivables
222,888 197,635 Investments in hotel partnerships and corporations
199,702 157,638 Fixed assets 73,513 75,789 Investment in management
contracts 219,343 203,670 Investment in trademarks and trade names
5,662 5,757 Future income tax assets 12,181 13,230 Other assets
35,489 27,631 ------------------------- $1,347,458 $ 946,660
------------------------- ------------------------- LIABILITIES AND
SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and
accrued liabilities (note 1(b)) $ 69,562 $ 61,045 Long-term
obligations due within one year (notes 2 and 3) 2,531 2,587
------------------------- 72,093 63,632 Long-term obligations
(notes 2 and 3) 410,915 117,521 Shareholders' equity (note 4):
Capital stock 340,722 329,274 Convertible notes (note 3) 228,916
178,543 Contributed surplus 6,436 5,529 Retained earnings 292,705
265,754 Equity adjustment from foreign currency translation (4,329)
(13,593) ------------------------- 864,450 765,507
------------------------- $1,347,458 $ 946,660
------------------------- ------------------------- See
accompanying notes to consolidated financial statements. FOUR
SEASONS HOTELS INC. CONSOLIDATED STATEMENTS OF CASH PROVIDED BY
OPERATIONS (Unaudited) Three months ended Six months ended (In
thousands of June 30, June 30, dollars) 2004 2003 2004 2003
-------------------------------------------------------------------------
Cash provided by (used in) operations: MANAGEMENT OPERATIONS
Earnings before other operating items $ 30,080 $ 20,450 $ 52,601 $
40,019 Items not requiring an outlay of funds 481 240 995 649
--------------------------------------------------- Working capital
provided by Management Operations 30,561 20,690 53,596 40,668
--------------------------------------------------- OWNERSHIP AND
CORPORATE OPERATIONS Loss before other operating items (1,746)
(5,459) (11,470) (18,657) Items not requiring an outlay of funds
288 82 506 91 ---------------------------------------------------
Working capital used in Ownership and Corporate Operations (1,458)
(5,377) (10,964) (18,566)
--------------------------------------------------- 29,103 15,313
42,632 22,102 Interest received, net 1,834 1,372 5,566 5,268
Current income tax paid (1,488) - (1,704) - Change in non-cash
working capital (603) 2,639 (12,150) 15,382 Other (124) (4,172)
(713) (5,782) ---------------------------------------------------
Cash provided by operations $ 28,722 $ 15,152 $ 33,631 $ 36,970
---------------------------------------------------
--------------------------------------------------- See
accompanying notes to consolidated financial statements. FOUR
SEASONS HOTELS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Three months ended Six months ended (In thousands of
June 30, June 30, dollars) 2004 2003 2004 2003
-------------------------------------------------------------------------
Cash provided by (used in): Operations: $ 28,722 $ 15,152 $ 33,631
$ 36,970 ---------------------------------------------------
Financing: Long-term obligations including current portion (98)
(72) 18 (30) Issuance of shares 7,416 1,375 11,448 1,506 Issuance
of convertible notes (note 3(a)) 329,273 -- 329,273 -- Dividends
paid -- -- (1,833) (1,809)
--------------------------------------------------- Cash provided
by (used in) financing 336,591 1,303 338,906 (333)
--------------------------------------------------- Capital
investments: Increase in restricted cash (note 2) (75,000) --
(75,000) -- Long-term receivables (20,875) (6,245) (19,999)
(12,051) Hotel investments (37,329) 1,959 (38,607) (6,409) Fixed
assets 1,890 (1,395) (2,469) (5,276) Investments in trademarks and
trade names and management contracts (11,468) (440) (11,835) (656)
Other assets (1,213) (889) (2,322) (3,490)
--------------------------------------------------- Cash used in
capital investments (143,995) (7,010) (150,232) (27,882)
--------------------------------------------------- Increase in net
cash and cash equivalents 221,318 9,445 222,305 8,755 Decrease in
net cash and cash equivalents due to unrealized foreign exchange
loss (3,357) (10,707) (800) (20,853) Cash and cash equivalents,
beginning of period 174,269 154,200 170,725 165,036
--------------------------------------------------- Net cash and
cash equivalents, end of period $ 392,230 $ 152,938 $ 392,230 $
152,938 ---------------------------------------------------
--------------------------------------------------- Supplemental
disclosure of net cash and cash equivalents: Cash and cash
equivalents $ 467,230 $ 152,938 $ 467,230 $ 152,938 Less restricted
cash (note 2) (75,000) -- (75,000) --
--------------------------------------------------- Net cash and
cash equivalents $ 392,230 $ 152,938 $ 392,230 $ 152,938
---------------------------------------------------
--------------------------------------------------- See
accompanying notes to consolidated financial statements. FOUR
SEASONS HOTELS INC. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Six months ended (Unaudited) June 30, (In thousands of dollars)
2004 2003
-------------------------------------------------------------------------
Retained earnings, beginning of period $ 265,754 $ 264,016 Net
earnings (loss) 28,808 (10,702) Dividends declared (1,857) (1,813)
------------------------- Retained earnings, end of period $
292,705 $ 251,501 -------------------------
------------------------- 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
("GAAP") 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
and six months ended June 30, 2003 have been restated. The impact
of this change for the three months and six months ended June 30,
2004 was to decrease net earnings by $494 and $907, respectively
(2003 - $144 and $159, respectively), and to decrease basic
earnings per share by $0.01 and $0.03, respectively (2003 -
increase basic loss per share by nil and $0.01, respectively), and
to decrease diluted earnings per share by $0.01 and $0.02,
respectively (2003 - increase diluted loss per share by nil and
$0.01, respectively). The fair value of stock options granted in
the three months and six months ended June 30, 2004 has been
estimated using the Black-Scholes option pricing model with the
following assumptions: risk-free interest rates ranging from 3.86%
to 4.39% and 2.96% to 4.39%, respectively (2003 - 4.44% to 4.46%
and 4.44% to 5.02%, respectively); semi-annual dividend per Limited
Voting Share of $0.055 for both periods (2003 - $0.055 for both
periods); volatility factor of the expected market price of our
Limited Voting Shares of 28% and ranging from 28% to 30%,
respectively (2003 - 32% for both periods); 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 and six months
ended June 30, 2004, the weighted average fair value of the options
at the grant dates was $24.85 and $25.35, respectively (2003 -
$18.95 and $18.00, 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 six months ended June 30, 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) (In thousands of
Three months ended Six months ended dollars except per June 30,
June 30, share amounts) 2004 2003 2004 2003
---------------------------------------------------------------------
Stock option expense included in compensation expense $ (494) $
(144) $ (907) $ (159)
---------------------------------------------------
--------------------------------------------------- Net earnings
(loss), as reported $ 17,334 $ (1,414) $ 28,808 $ (10,702)
Additional expense that would have been recorded if all outstanding
stock options granted during 2002 had been expensed (853) (863)
(1,712) (1,725) ---------------------------------------------------
Pro forma net earnings (loss) $ 16,481 $ (2,277) $ 27,096 $
(12,427) ---------------------------------------------------
Earnings (loss) per share: Basic, as reported $ 0.49 $ (0.04) $
0.81 $ (0.31) Basic, pro forma 0.46 (0.07) 0.77 (0.36) Diluted, as
reported 0.46 (0.04) 0.78 (0.31) Diluted, pro forma 0.44 (0.07)
0.74 (0.36) --------------------------------------------------- (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, are being 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
$205 and $376, respectively, for the three months and six months
ended June 30, 2004 and to increase receivables by $6,631 and
accounts payable and accrued liabilities by $7,165 as at June 30,
2004. In June 2004, we entered into an interest rate swap agreement
that we have designated as a fair value hedge of the convertible
notes issued in the same month (note 3(a)). (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 and six months ended June 30, 2004 of $10,291 and $19,213,
respectively (2003 - $11,190 and $22,716, respectively), but did
not have an impact on net earnings. In addition, for the three
months and six months ended June 30, 2003, each of fee revenues and
general and administrative expenses included certain other
reimbursed costs of $7,381 and $14,306, respectively. 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 and six months ended June 30, 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 and six months ended June 30, 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 and six months ended June 30, 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 and six months ended June 30, 2004.
2. Bank credit facility: In June 2004, we finalized a committed
bank credit facility of US$100,000, which expires in June 2005 and
replaces bank credit facilities of US$212,500. As at June 30, 2004,
no amounts were borrowed under this credit facility. However,
approximately US$14,000 of letters of credit are currently issued
under this credit facility. No amounts have been drawn under these
letters of credit. We have agreed to maintain a minimum cash
balance of at least $75,000 in our account with the agent for the
facility while any liabilities are owing under this facility. As at
June 30, 2004, cash and cash equivalents includes this $75,000 of
restricted cash. 3. Long-term obligations: As at As at June 30,
December 31, (In thousands of dollars) 2004 2003
---------------------------------------------------------------------
(Unaudited) Convertible notes, issued in 2004(a) $ 284,155 $ --
Convertible notes, issued in 1999(b) 95,397 88,029 Accrued benefit
liability and other obligations 33,894 32,079
------------------------- 413,446 120,108 Less amounts due within
one year (2,531) (2,587) ------------------------- $ 410,915 $
117,521 ------------------------- ------------------------- (a) In
June 2004, we issued US$250,000 (principal amount) convertible
senior notes. The net proceeds of the issuance, after deducting
offering expenses and underwriters' commission, were approximately
US$241,250. These notes bear interest at the rate of 1.875% per
annum (payable semi-annually in arrears on January 30 and July 30
to holders of record on January 15 and July 15, beginning January
30, 2005), and will mature on July 30, 2024, unless earlier
redeemed or repurchased. The notes are convertible into Limited
Voting Shares of Four Seasons Hotels Inc. at an initial conversion
rate of 13.9581 shares per each one thousand US dollar principal
amount (equal to a conversion price of approximately US$71.64 per
Limited Voting Share), subject to adjustments in certain events,
only when (i) the closing price of the Limited Voting Shares
measured over a specified number of trading days is more than 130%
of the conversion price, (ii) the market price of a note measured
over a specified number of trading days is less than 95% of the
closing sale price of the Limited Voting Shares into which they may
be converted, (iii) we call the notes for redemption, or (iv)
certain corporate transactions or a "fundamental change" has
occurred. In connection with a "fundamental change" on or prior to
July 30, 2009, on conversion holders of notes will be entitled to
receive additional Limited Voting Shares having a value equal to
the aggregate of the make whole premium they would have received if
the notes were purchased plus an amount equal to any accrued but
unpaid interest. We may choose to settle conversion (including any
make whole premium) in Limited Voting Shares, cash or a combination
of Limited Voting Shares and cash (at our option). On or after
August 4, 2009, we may (at our option) redeem all or a portion of
the notes, in whole or in part, for cash at 100% of their principal
amount, plus any accrued and unpaid interest. On each of July 30,
2009, 2014 and 2019, holders may require us to purchase all or a
portion of their notes at 100% of their principal amount, plus any
accrued and unpaid interest. We will pay cash for any notes so
purchased on July 30, 2009. Repurchases made on July 30, 2014 and
July 30, 2019, may be made (at our option) in cash, Limited Voting
Shares or a combination of cash and Limited Voting Shares. Upon the
occurrence of certain designated events, we will be required to
make an offer to purchase the notes at 100% of their principal
amount plus any accrued and unpaid interest, and, in the case of a
"fundamental change" that is also a "change of control" occurring
on or before July 30, 2009, we also will pay a make whole premium.
We may choose to pay the purchase price (including any make whole
premium) for notes in respect of which our offer is accepted in (at
our option) cash, Limited Voting Shares, securities of the
surviving entity (if Four Seasons Hotels Inc. is not the surviving
corporation), or a combination of cash and shares or securities. In
accordance with Canadian GAAP, the notes are bifurcated on our
financial statements into a debt component (representing the
principal value of a bond of US$211,754, which was estimated based
on the present value of a US$250,000 bond maturing in 2009,
yielding 5.33% per annum, compounded semi-annually, and paying a
coupon of 1.875% per annum) and an equity component (representing
the value of the conversion feature of the notes). Accordingly, net
proceeds have been allocated $288,918 (US$211,754) to long-term
obligations and $50,373 to shareholders' equity. The offering
expenses and underwriters' commission of approximately $10,018
relating to the debt component, are recorded in other assets. The
debt component of the notes will increase for accounting purposes
at the compounded interest rate of 5.33%, less the coupon paid of
1.875% per annum. In connection with the offering, we have entered
into an interest rate swap agreement to July 30, 2009 with an
initial notional amount of US$211,754, pursuant to which we have
agreed to receive interest at a fixed rate of 5.33% per annum and
pay interest at six-month LIBOR in arrears plus 0.4904%. We have
designated the interest rate swap as a fair value hedge of the
notes. As a result, we are accounting for the payments under the
interest rate swap on an accrual basis, which results in an
effective interest rate (for accounting purposes) on the hedged
notes of six-month LIBOR in arrears plus 0.4904%. (b) 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 June 30, 2004, our
consolidated balance sheet includes $95,397 (US$71,170) 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 are entitled to redeem all or a portion of the
convertible 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. A cash redemption on September
23, 2004 of all the outstanding convertible notes would require a
cash payment to the convertible note holders of approximately
US$215,500, assuming that none of the holders exercised their right
to convert their convertible notes before the redemption date. In
accordance with Canadian GAAP, we allocate the consideration paid
on extinguishment of the convertible notes to the liability and
equity components based on their relative fair values at the date
of the redemption. Depending on interest rates at the date of
redemption, we expect to recognize a pre-tax accounting loss which
could be in the range of $44,000 to $14,000 related to the debt
component of the convertible notes (representing the difference
between the carrying value of the debt component and the allocated
relative fair value of the debt component - estimated as the
present value of these zero- coupon bonds, yielding an assumed
25-year interest rate ranging from 7.5% to 8.5% per annum,
compounding semi-annually). This loss will be recorded in the
statement of operations. In addition, at the interest rates noted
above, we expect to recognize a pre-tax accounting gain on the
extinguishment of the equity component of the convertible notes
which could be in the range of approximately $32,000 to $2,000. The
gain will be recorded directly in retained earnings. The amount of
the gain and loss is extremely sensitive to interest rate changes.
The expected net impact on retained earnings from the
extinguishment of both the debt and equity components of the
convertible notes would be a reduction of approximately $12,000,
although the US to Canadian dollar exchange rates will affect the
net impact. 4. Shareholders' equity: As at June 30, 2004, we have
outstanding Variable Multiple Voting Shares ("VMVS") of 3,832,172,
outstanding Limited Voting Shares ("LVS") of 31,840,458 and
outstanding stock options of 5,498,399 (weighted average exercise
price of $56.19). 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: (Unaudited) Three months ended (In thousands June 30,
of dollars) 2004 2003
---------------------------------------------------------------------
Net earnings Shares Net loss Shares
---------------------------------------------------------------------
Basic earnings (loss) per share: Net earnings (loss) $ 17,334
35,484,874 $ (1,414) 34,913,942 Effect of assumed dilutive
conversions: Stock option plan -- 1,494,286 -- -- Convertible notes
(issued in 1999) 1,343 3,463,155 -- --
---------------------------------------------------------------------
Diluted earnings (loss) per share: Net earnings (loss) and assumed
dilutive conversions $ 18,677 40,442,315 $ (1,414) 34,913,942
---------------------------------------------------------------------
---------------------------------------------------------------------
(Unaudited) Six months ended (In thousands June 30, of dollars)
2004 2003
---------------------------------------------------------------------
Net earnings Shares Net loss Shares
---------------------------------------------------------------------
Basic earnings (loss) per share: Net earnings (loss) $ 28,808
35,386,149 $ (10,702) 34,898,392 Effect of assumed dilutive
conversions: Stock option plan -- 1,467,988 -- -- Convertible notes
(issued in 1999) 2,647 3,463,155 -- --
---------------------------------------------------------------------
Diluted earnings (loss) per share: Net earnings (loss) and assumed
dilutive conversions $ 31,455 40,317,292 $ (10,702) 34,898,392
---------------------------------------------------------------------
---------------------------------------------------------------------
The diluted earnings (loss) per share calculation excluded the
effect of the assumed conversions of 858,196 and 1,015,916 stock
options to LVS, under our stock option plan, during the three
months and six months ended June 30, 2004, respectively (2003 -
6,072,700 and 6,072,700 stock options, respectively), as the
inclusion of these conversions resulted in an anti-dilutive effect.
In addition, the dilution relating to the conversion of our
convertible notes (issued in 1999) (note 3(b)) to 3,463,155 LVS, by
application of the "if- converted method", has been excluded from
the calculation for 2003 as the inclusion of this conversion
resulted in an anti-dilutive effect for the three months and six
months ended June 30, 2003. There was no dilution relating to the
convertible notes issued in 2004 (note 3(a)) as the contingent
conversion price was not reached during the period. 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 and six months
ended June 30, 2004 is a net foreign exchange loss of $2,969 and a
net foreign exchange gain of $1,661, respectively (2003 - net
foreign exchange loss of $9,235 and $17,502, 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 our foreign self-sustaining
subsidiaries. Also included in other income (expense), net for the
three months and six months ended June 30, 2004 are legal and
enforcement costs of $56 and $273, respectively (2003 - $2,889 and
$7,500, respectively), in connection with the disputes with the
owners of the Four Seasons hotels in Caracas and Seattle. 7.
Pension benefit expense: The pension benefit expense, after
allocation to managed properties, for the three months and six
months ended June 30, 2004 was $760 and $1,517, respectively (2003
- $704 and $1,366, respectively). 8. 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 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. 9.
Subsequent events: (a) In July 2004, we sold our 8% interest in
Four Seasons Hotel Amman and our 100% interest in Four Seasons
Resort Whistler (substantially all of which was acquired during the
three months ended June 30, 2004). On a combined basis, we received
proceeds of approximately $47,000, which approximated book value.
We continue to manage the properties under long-term management
contracts. (b) We have been given notice of termination of the
lease of Four Seasons Hotel Berlin by the landlord. Based on the
terms of the new lease entered into by the landlord, as disclosed
to us by the landlord, we will not exercise our right of first
offer in respect of the lease and, as a result, we will likely
cease managing the hotel before the end of the year. The
termination of the lease will result in the write-off of the net
book value of our investment in the hotel of approximately $1,000.
FOUR SEASONS HOTELS INC. SUMMARY OF HOTEL OPERATING DATA - CORE
HOTELS(1) Three months ended June 30, (Unaudited) 2004 2003
Variance
-------------------------------------------------------------------------
Worldwide No. of Properties 51 51 -- No. of Rooms 13,460 13,460 --
Occupancy(2) 69.8% 56.9% 12.9% ADR(3) - in US dollars $ 329 $ 303
8.5% RevPAR(4) - in US dollars $ 216 $ 176 22.7% Gross operating
margin(5) 31.2% 27.4% 3.8% United States No. of Properties 21 21 --
No. of Rooms 6,587 6,587 -- Occupancy(2) 72.8% 70.4% 2.4% ADR(3) -
in US dollars $ 342 $ 326 4.9% RevPAR(4) - in US dollars $ 250 $
231 8.1% Gross operating margin(5) 28.4% 28.9% (0.5%) Other
Americas/Caribbean No. of Properties 7 7 -- No. of Rooms 1,534
1,534 -- Occupancy(2) 66.9% 51.1% 15.8% ADR(3) - in US dollars $
283 $ 270 4.8% RevPAR(4) - in US dollars $ 178 $ 136 30.9% Gross
operating margin(5) 31.2% 24.9% 6.3% Europe No. of Properties 8 8
-- No. of Rooms 1,535 1,535 -- Occupancy(2) 66.3% 58.1% 8.2% ADR(3)
- in US dollars $ 520 $ 451 15.4% RevPAR(4) - in US dollars $ 356 $
272 30.9% Gross operating margin(5) 38.4% 34.2% 4.2% Middle East
No. of Properties 3 3 -- No. of Rooms 598 598 -- Occupancy(2) 69.5%
36.4% 33.1% ADR(3) - in US dollars $ 172 $ 151 13.9% RevPAR(4) - in
US dollars $ 120 $ 57 111.4% Gross operating margin(5) 46.9% 20.3%
26.6% Asia/Pacific No. of Properties 12 12 -- No. of Rooms 3,206
3,206 -- Occupancy(2) 66.7% 35.5% 31.2% ADR(3) - in US dollars $
243 $ 220 10.2% RevPAR(4) - in US dollars $ 117 $ 60 96.7% Gross
operating margin(5) 31.4% 12.7% 18.7%
---------------------------------------------- (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. (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 per room occupied 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 - CORE HOTELS(1) Six months ended June 30,
(Unaudited) 2004 2003 Variance
-------------------------------------------------------------------------
Worldwide No. of Properties 51 51 -- No. of Rooms 13,460 13,460 --
Occupancy(2) 67.3% 58.7% 8.6% ADR(3) - in US dollars $ 332 $ 309
7.3% RevPAR(4) - in US dollars $ 210 $ 177 18.4% Gross operating
margin(5) 29.7% 26.1% 3.6% United States No. of Properties 21 21 --
No. of Rooms 6,587 6,587 -- Occupancy(2) 70.4% 67.7% 2.7% ADR(3) -
in US dollars $ 345 $ 331 4.1% RevPAR(4) - in US dollars $ 242 $
224 8.3% Gross operating margin(5) 26.4% 26.1% 0.3% Other
Americas/Caribbean No. of Properties 7 7 -- No. of Rooms 1,534
1,534 -- Occupancy(2) 63.3% 52.4% 10.9% ADR(3) - in US dollars $
315 $ 298 5.6% RevPAR(4) - in US dollars $ 192 $ 154 25.0% Gross
operating margin(5) 33.8% 28.1% 5.7% Europe No. of Properties 8 8
-- No. of Rooms 1,535 1,535 -- Occupancy(2) 61.9% 54.5% 7.4% ADR(3)
- in US dollars $ 490 $ 425 15.4% RevPAR(4) - in US dollars $ 315 $
243 29.3% Gross operating margin(5) 33.5% 28.9% 4.6% Middle East
No. of Properties 3 3 -- No. of Rooms 598 598 -- Occupancy(2) 69.6%
37.1% 32.5% ADR(3) - in US dollars $ 173 $ 161 7.8% RevPAR(4) - in
US dollars $ 122 $ 64 91.0% Gross operating margin(5) 48.0% 20.6%
27.4% Asia/Pacific No. of Properties 12 12 -- No. of Rooms 3,206
3,206 -- Occupancy(2) 65.2% 49.1% 16.1% ADR(3) - in US dollars $
252 $ 237 6.5% RevPAR(4) - in US dollars $ 119 $ 82 44.4% Gross
operating margin(5) 32.2% 22.2% 10.0%
---------------------------------------------- (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. (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 per room occupied 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 June 30, (Unaudited) 2004
2003 Variance
-------------------------------------------------------------------------
Worldwide No. of Properties 63 58 5 No. of Rooms 16,203 15,648 555
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 2,112 1,746 366 Europe No. of Properties 11 9 2 No. of Rooms
1,990 1,696 294 Middle East No. of Properties 4 4 -- No. of Rooms
847 847 -- 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 Six months ended (Unaudited)
June 30, June 30, (In thousands of dollars) 2004 2003 2004 2003
-------------------------------------------------------------------------
Revenues under management(1) $ 776,939 $ 631,892 $1,475,650
$1,291,140 --------------------------------------------------
-------------------------------------------------- ----------------
(1) Revenues under management consist of rooms, food and beverage,
telephone and other revenues of all the hotels and resorts which we
manage. Approximately 65% 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 Cairo at Nile Plaza, Egypt(x) 375 Four
Seasons Hotel Damascus, Syria 300 Four Seasons Hotel Doha, Qatar
235 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 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
Geneva, Switzerland 100 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, in 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. END FIRST AND
FINAL ADD DATASOURCE: Four Seasons Hotels and Resorts CONTACT:
PRNewswire -- Aug. 10
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