EXHIBIT 99.1
[FOUR SEASONS LOGO] N E W S
FEBRUARY 25, 2005 CONTACTS: DOUGLAS L. LUDWIG
CHIEF FINANCIAL OFFICER AND
EXECUTIVE VICE PRESIDENT
(416) 441-4320
BARBARA HENDERSON
VICE PRESIDENT, CORPORATE FINANCE
(416) 441-4329
FOUR SEASONS HOTELS INC. REPORTS
RESULTS FOR FOURTH QUARTER AND YEAR END 2004
TORONTO, CANADA --- FOUR SEASONS HOTELS INC. (TSX SYMBOL "FSH.SV"; NYSE SYMBOL
"FS") today reported its results for the fourth quarter of 2004 and for the year
ended December 31, 2004.
"2004 marked an important year for Four Seasons. We had a significant rebound in
our profitability that came on the heels of almost three of the most difficult
years in the history of the lodging industry. During 2004, we achieved near
record levels of RevPAR(1) growth and entered into more letters of intent
relating to new management opportunities than we ever have in a single year,"
said Isadore Sharp, Chairman and Chief Executive Officer. "We believe that this
demonstrates the strength of Four Seasons market position and strategy, as well
as our potential for future growth. With the hotels and resorts we currently
have under construction and the agreements signed this year, we are confident
that we will have 100 properties under management within the next five to seven
years."
HIGHLIGHTS OF THE FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2004:
o RevPAR of worldwide Core Hotels(2) increased over 15% for the year ended
December 31, 2004, as compared to 2003.
o Net earnings increased 517.2% for the year ended December 31, 2004 to
$33.2 million, as compared to $5.4 million in 2003.
o Net earnings increased 33% for the quarter ended December 31, 2004 to
$15.6 million, as compared to $11.7 million for the same period in 2003.
o The gross operating margin(3) of our worldwide Core Hotels increased by
240 basis points to 29.3% for the year ended December 31, 2004, as
compared to 2003.
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o Management operations profit margin(4) improved by 330 basis points to
69.3% for the year ended December 31, 2004, as compared to 2003. We
retained 85% of every dollar of incremental management fee revenues earned
in 2004 as compared to management fee revenues earned in 2003.
o Working capital generated by management operations increased to over $100
million for the year ended December 31, 2004, as compared to $81 million
in 2003.
o Cash and cash equivalents increased by over $100 million to $272.5 million
as at December 31, 2004, as compared to December 31, 2003.
"The fundamentals of our management business model are extremely solid. We
continue to generate significant amounts of cash; more than enough to satisfy
our currently anticipated needs for our management operations growth program,"
said Douglas L. Ludwig, Chief Financial Officer and Executive Vice President.
"We are also very pleased with our hotel operating results and our earnings on a
full-year basis. The translation for accounting purposes of our US dollar fee
revenues to Canadian dollars - and some unusual events at certain hotels, which
predominantly affected incentive fees - had a negative impact on our fourth
quarter earnings. However the outlook for 2005 is very encouraging, and if
current trends continue, we expect a better pricing environment in which we
expect RevPAR to improve by more than 10% and our hotel profit margins are
anticipated to improve by more than 200 basis points."
"During 2004, we signed 12 letters of intent, more than we have ever achieved in
any single year. The pace of new opportunities continues to be very strong in
2005," said Kathleen Taylor, President Worldwide Business Operations. "We are
fortunate to work with capital partners and hotel owners who share our
excitement and interest in expanding the Four Seasons brand to new markets. Both
the number and the quality of these projects are exceptional. They will enhance
the Four Seasons brand, which we expect will attract even more opportunities for
the future."
OPERATING ENVIRONMENT
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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 than 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 compared to the other quarters. As a result, ownership operations
usually incur an operating loss in the first quarter of each year.
Management operations are also affected by seasonal patterns, both in terms of
revenues and operating results. Urban hotels generally experience lower revenues
and operating results in the
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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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Three months ended Year ended December 31,
December 31, 2004 2004
increase over (decrease increase over (decrease
from) from)
three months ended year ended December 31,
December 31, 2003 2003 (percentage
(percentage change, on US change, on US dollar
dollar basis) basis)
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REGION Gross Gross Gross Gross
Operating Operating Operating Operating
Revenue Profit Revenue Profit
RevPAR (GOR) (GOP) RevPAR (GOR) (GOP)
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WORLDWIDE CORE 10.7% 10.1% 10.7% 15.5% 14.2% 24.0%
HOTELS
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US CORE HOTELS 10.6% 9.7% 13.5% 8.7% 7.6% 8.9%
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OTHER AMERICAS/
CARIBBEAN CORE 7.7% 6.2% (1.1)% 18.2% 16.5% 30.2%
HOTELS
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EUROPE CORE 12.7% 17.1% 20.1% 20.6% 21.3% 31.6%
HOTELS
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MIDDLE EAST CORE 12.3% 15.3% 9.0% 52.9% 58.3% 120.6%
HOTELS
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ASIA/PACIFIC 10.8% 7.6% 4.6% 31.9% 24.8% 48.6%
CORE HOTELS
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Underlying these operating results:
o RevPAR for worldwide Core Hotels increased 15.5% in 2004, as compared to
2003, reflecting the improvement in demand in most of the markets. Gross
operating margins improved 240 basis points from 26.9% in 2003 to 29.3% in
2004. For the fourth quarter of 2004, RevPAR for worldwide Core Hotels
increased 10.7%, as compared to the same period in 2003, and gross operating
margins remained relatively unchanged at 29.5%, as compared to 29.4% in the
fourth quarter of 2003. During the fourth quarter of each year, typically in
December, the hotels and resorts under management accrue the bonus component
of annual compensation for many of their employees. For many of the hotels
and resorts under management, this negatively affected the profit margin in
the fourth quarter of 2004, as compared to the fourth quarter of 2003, since
there was not a profit component to the bonus for these hotels and resorts in
2003.
o Virtually all the US Core Hotels under management realized RevPAR
improvements in both the fourth quarter and full year of 2004. Exceptions for
the fourth quarter included Four Seasons Hotel San Francisco, where a
city-wide labour dispute during the quarter disrupted travel to that market,
and Houston, where the area is absorbing significant new supply. Hotels under
management in Las Vegas, Los Angeles, New York and Philadelphia, amongst
others, outperformed the average RevPAR improvement of the Core Hotels in the
region while hotels under management in Dallas and The Ritz-Carlton Chicago
had more modest RevPAR gains. Gross operating margins in the region improved
90 basis points for the fourth quarter of 2004, as compared to the fourth
quarter of 2003, as cost increases,
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particularly related to energy, health care and workers' compensation, con-
tinued to absorb some of the RevPAR improvement.
o The 8.7% improvement in RevPAR at the US Core Hotels in 2004, as compared to
2003 was the result of occupancy improvements from 68.1% to 70.5% and a 5%
increase in achieved room rate. On a full-year basis, gross operating margins
for the region remained at approximately the same level as last year.
o Strong RevPAR improvements in the fourth quarter of 2004 at the hotels under
management in South America helped to boost the average RevPAR improvement in
the Other Americas/Caribbean region, as RevPAR for the other hotels in the
region remained relatively unchanged from the fourth quarter of 2003. Gross
operating margins in the region decreased 200 basis points as improvements in
South America were offset by declines elsewhere in the region, in particular
in Nevis. Gross operating margins in Nevis were unusually high in the fourth
quarter of 2003 as a result of the accrual by the resort of revenue related
to coastal levies from the government in that quarter.
o RevPAR for the Other Americas/Caribbean region improved 18.2% in 2004, as
compared to 2003, as a result of an 810 basis point increase in occupancy and
a 5.7% increase in achieved room rate. All of the properties in the region
experienced occupancy improvements.
o For the fourth quarter of 2004, RevPAR increases in the European region
reflected strong operating results at the hotels under management in Paris
and London, primarily driven by achieved room rate improvements. Gross
operating profits for the region as a whole increased, primarily due to the
performance at the hotels in Paris and London.
o On a full-year basis, the 20.6% improvement in RevPAR in 2004 from 2003 in
the European region was also partially due to the significant negative impact
that the war in Iraq had on travel in 2003.
o RevPAR improvements in the fourth quarter of 2004 at the Middle East Core
Hotels were primarily driven by increased occupancy at our properties in
Amman and Sharm el Sheikh. Although gross operating margins in the region
declined slightly in the quarter, as a result of a decline at Four Seasons
Hotel Cairo at The First Residence, gross operating profits increased 9%, as
compared to the same period in 2003, primarily as a result of a larger
contribution from Four Seasons Hotel Amman. In the fourth quarter of 2003,
Four Seasons Hotel Cairo at The First Residence benefited from a one-time
adjustment to the shared cost allocations for prior periods made by the owner
of this mixed-use project. These adjustments had a positive effect on the
profit margin and incentive management fees in the fourth quarter of 2003.
o Occupancy at the Middle East Core Hotels improved on a full-year basis from
47.7% in 2003 to 70.5% in 2004, which when combined with a 7.5% increase in
achieved room rate, resulted in a 52.9% increase in RevPAR. In 2004, gross
operating profits for the region demonstrated the strong profitability in the
region with a 120.6% improvement over 2003.
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o The majority of the hotels under management in the Asia/Pacific region had
strong RevPAR improvements for the fourth quarter of 2004. Exceptions were
the hotels in Sydney, Tokyo at Chinzan-so and Kuala Lumpur, which experienced
modestly lower occupancy in the fourth quarter of 2004, as compared to the
same period in 2003. The hotels under management in Bali, Bangkok, Shanghai
and Tokyo at Marunouchi had very strong RevPAR improvements as a result of
both occupancy and achieved room rate gains. Gross operating profits
increased modestly reflecting these RevPAR improvements. Due to the tsunami
in Southeast Asia on December 26, 2004, Four Seasons Resort Maldives at Kuda
Huraa was closed; however, there was no material financial impact on the
other Four Seasons properties in the Asia/Pacific region.
o In 2004, on a full-year basis, a large portion of the 31.9% increase in
RevPAR at the properties under management in the Asia/Pacific region
reflected a recovery from the negative impact of SARS in the region in 2003.
This was particularly so in our properties in Shanghai and Singapore. In
addition, the properties in Bali continue to improve after the lingering
impact of terrorist attacks on that island in October of 2002.
FINANCIAL REVIEW AND ANALYSIS
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THREE MONTHS AND YEAR ENDED DECEMBER 31, 2004 COMPARED TO THREE MONTHS AND
YEAR ENDED DECEMBER 31, 2003
MANAGEMENT OPERATIONS
For the three months ended December 31, 2004, management fee revenues (excluding
reimbursed costs(5)) increased 4.0%, or $1.3 million, to $34.4 million, as
compared to $33.1 million in the same period last year. The decline of the US
dollar relative to the Canadian dollar reduced our US dollar-denominated
management fee revenues (excluding reimbursed costs) by $795,000. The US fee
revenues are used to pay US dollar expenses, including interest, and to fund our
US dollar investment obligations and are not typically converted into Canadian
dollars.
For the year ended December 31, 2004, management fee revenues (excluding
reimbursed costs) increased 21.0%, or $25.3 million, to $145.8 million, as
compared to $120.5 million for 2003. This increase was the result of the RevPAR
and other revenue increases at the Core Hotels under management and an increase
in fees from recently opened hotels. The decline of the US dollar relative to
the Canadian dollar did not have a material impact on our US dollar-denominated
management fee revenues for the full year due to the forward contracts then in
place.
For the three months ended December 31, 2004, incentive fees were essentially
unchanged from the same period in 2003. Incentive fees were negatively affected
as the result of the translation of US dollar-denominated incentive fees into
Canadian dollars, and by greater compensation costs incurred at the hotels and
resorts and accrued during the fourth quarter. This increased compensation
expense resulted from the majority of the hotels and resorts exceeding their
business plans in 2004, which triggered greater profit participation for the
employees than had been incurred in 2003. In addition, certain expenditures that
were incurred at some of the hotels and resorts under management during December
2004 to improve longer-term profitability also resulted in reduced incentive
fees. This included capital programs that negatively affected
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operations in the fourth quarter of 2004 at certain hotels, including properties
in Scottsdale, Washington D.C. and Las Vegas.
While incentive fee improvement on a full-year basis was strong, it was
negatively affected by lower than expected incentive fees during the fourth
quarter, as discussed above, and hurricane activity in Florida and the Caribbean
in the third quarter.
General and administrative expenses (excluding reimbursed costs) decreased 1.6%
to $12.2 million in the fourth quarter of 2004 from $12.4 million for the same
period in 2003. General and administrative expenses (excluding reimbursed costs)
increased 9.2% to $44.8 million for the year ended December 31, 2004 from $41
million for 2003. During 2004, as a result of the improved economic and business
environment, we held several regional and company-wide management meetings, some
of which had been postponed for the past three years. The cost of these
meetings, together with management compensation relating to profit participation
accounted for the majority of the increase. This management compensation cost
was accrued throughout 2004 and there was not a similar entitlement in 2003.
As a result of the items described above, our management earnings before other
operating items for the fourth quarter of 2004 increased to $22.2 million, as
compared to $20.7 million in the fourth quarter of 2003, and for the year ended
December 31, 2004 increased 27.1% to $101 million, as compared to $79.5 million
for the year ended December 31, 2003. Our management operations profit margin
(excluding reimbursed costs) increased to 64.5% in the fourth quarter of 2004,
as compared to 62.5% in the fourth quarter of 2003, and 69.3% for the full year
of 2004, as compared to 66% for the full year of 2003. We retained 85% of every
dollar of incremental management fee revenues earned in 2004 as compared to
management fee revenues earned in 2003.
OWNERSHIP AND CORPORATE OPERATIONS(6)
Operating losses from ownership and corporate operations before other operating
items increased $1.8 million to a loss of $3.8 million in the fourth quarter of
2004, as compared to a loss of $2 million in the fourth quarter of 2003. The
majority of the increase in ownership and corporate operations loss during the
fourth quarter of 2004, as compared to the fourth quarter of 2003, was
attributable to a reversal of lease costs at Four Seasons Berlin in 2003, which
is discussed below, and increased expenses related to compliance costs,
including internal control documentation and other processes related to the
Sarbanes-Oxley Act and other recent US and Canadian requirements.
Operating results from ownership and corporate operations before other operating
items improved $8.4 million (28.1%) to a loss of $21.6 million in the year ended
December 31, 2004, as compared to a loss of $30.1 million for 2003.
THE PIERRE
Operating earnings at The Pierre improved $0.8 million to $1.7 million in the
fourth quarter of 2004, as compared to $0.9 million in the same period last
year. RevPAR at The Pierre increased 8.5% in the fourth quarter of 2004, as
compared to the same period in 2003. The Pierre had committed a large portion of
its rooms to conference business during the fourth quarter of 2004.
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The room rates on this business were negotiated prior to the strong improvement
in travel demand in New York and, as a result, The Pierre's achieved room rates
increased more modestly than might otherwise have been possible in this stronger
demand environment. For the year ended December 31, 2004, RevPAR at The Pierre
increased 14.6%, as a result of both occupancy and room rate gains, as compared
to 2003, reflecting higher travel demand in New York. As a result, the operating
results at The Pierre improved $5.6 million to a loss of $4.2 million in 2004,
as compared to 2003.
FOUR SEASONS HOTEL VANCOUVER
RevPAR at Four Seasons Hotel Vancouver remained unchanged during the fourth
quarter of 2004, as compared to the same period in 2003. Operating results at
that hotel improved approximately $0.3 million to a loss of $1 million in the
fourth quarter of 2004, as compared to the same period last year. As a result of
occupancy improvements, RevPAR at Four Seasons Hotel Vancouver increased 8.7%
for the year ended December 31, 2004, as compared to 2003. Consequently, the
operating results at that hotel improved $1.7 million to a loss of $2.8 million
in 2004, as compared to 2003.
BERLIN
In September 2004, the landlord terminated our lease of Four Seasons Hotel
Berlin, and we ceased managing the hotel. Since reaching our maximum funding
obligation of the stipulated minimum lease payments at Four Seasons Hotel Berlin
in August of 2003, the lease payments had been limited to the cash flow
generated by the hotel. During the fourth quarter of 2003, lease payments that
had been accrued beyond cash flow generated by the hotel were reversed resulting
in $1.4 million of operating earnings in that period. During the fourth quarter
of 2004, operating results were nil, resulting in a decline of $1.4 million
compared to the same period last year. On a full-year basis, 2004 operating
earnings were nil as compared to an operating loss of $3.8 million for the same
period in 2003.
OTHER INCOME/EXPENSE, NET
Other income, net for the fourth quarter of 2004 was $6.2 million, as compared
to $178,000 for the same period in 2003. Other expense, net for the year ended
December 31, 2004 was $16.1 million, as compared to $25.8 million for the same
period in 2003.
FOREIGN EXCHANGE
Other income for the fourth quarter of 2004 includes a $6.4 million net foreign
exchange gain, compared to a $2.5 million net foreign exchange gain for the same
period in 2003. Included in other expense for the year ended December 31, 2004
is a $3.6 million net foreign exchange gain, compared to a $14.7 million net
foreign exchange loss for 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 which are
not included in our designated self-sustaining subsidiaries; they also reflect
local currency 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,
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long-term receivables and long-term obligations, as determined under Canadian
GAAP.
REDEMPTION OF THE LIQUID YIELD OPTION NOTES ("LYONs")
Included in other expense for 2004 was a loss of $14.6 million related to the
redemption of the LYONs during the third quarter of 2004. We also recognized a
gain of $8.2 million relating to the redemption of the equity component of the
LYONs. This gain was recorded in contributed surplus in the third quarter of
2004. As discussed below under "Financing Activities", we redeemed all of our
LYONs for US$328.73 cash per US$1,000 principal amount at maturity (the
redemption price being the issue price plus interest that was accrued but unpaid
to but excluding September 23, 2004) for an aggregate payment of US$215.5
million ($275.7 million).
DISPOSITION OF HOTEL INVESTMENTS/SETTLEMENT OF LOAN RECEIVABLE
During 2004, we sold the majority of our investment in Four Seasons Hotel Amman,
all of our investment in Four Seasons Resort Whistler, all of our ownership
interest in land relating to Four Seasons Resort Scottsdale and settled our loan
receivable from Sedona resulting in a total net loss of $4.6 million. The
majority of the loss was related to the settlement of the loan receivable from
Sedona and legal costs incurred to finalize the transactions.
Also included in other expense for the year ended December 31, 2004 were legal
and other enforcement costs of $0.3 million that were incurred in connection
with the disputes with the owners of Four Seasons hotels in Caracas and Seattle,
as compared to other expenses of $9.5 million for the same period in 2003. The
Seattle dispute was settled in July 2003. Although the dispute with the owner of
the Caracas hotel is outstanding, future expenses associated with the Caracas
dispute are not expected to be significant. These disputes are more fully
described in the Management's Discussion and Analysis ("MD&A") for the year
ended December 31, 2003. Other expense in 2003 also included an expense of $3.2
million related to the write-down of our fixed asset investment in the Four
Seasons Hotel Berlin lease to nil.
NET INTEREST INCOME/EXPENSE
During the fourth quarter of 2004, we had net interest expense of $187,000, as
compared to net interest income of $962,000 in the fourth quarter of 2003. Net
interest expense is a combination of $4.1 million in interest income and $4.3
million in interest expense in the fourth quarter of 2004, as compared to $3.7
million and $2.8 million, respectively, for the same period in 2003. The
increase in interest income in comparison to the fourth quarter of 2003 was
primarily attributable to increased cash and cash equivalents as a result of the
issuance of the convertible senior notes in June 2004. The increase in interest
expense was primarily attributable to the variance in interest costs relating to
the convertible senior notes in the fourth quarter of 2004, as compared to the
interest costs relating to the LYONs in the fourth quarter of 2003. As discussed
below in "Liquidity and Capital Resources", although the convertible senior
notes have a 1.875% interest rate attached to them, for accounting purposes the
convertible senior notes are bifurcated into debt and equity components, and a
notional interest rate is applied to the portion that is allocated to debt.
While the notional interest rate of 5.33% that is applied to the debt component
of the convertible senior notes (as described under "Financing Activities") is
lower than the notional rate of 9.2% that was applied to the LYONs, a larger
component of the convertible senior notes is allocated to debt than was the case
with the LYONs. As a result, for accounting purposes the interest expense
associated with the convertible senior notes is higher than was the case for the
LYONs.
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For the year ended December 31, 2004, we had net interest income of $1.5
million, as compared to $3.4 million in 2003. Net interest income is a
combination of $16.9 million in interest income and $15.4 million in interest
expense in 2004, as compared to $14.4 million and $11 million, respectively, for
2003.
INCOME TAX EXPENSE
Our income tax expense during the fourth quarter and full year of 2004 was $4.9
million and $16.3 million, respectively, (effective tax rate of 23.9% and 32.9%,
respectively) as compared to an income tax expense of $4.5 million (effective
tax rate of 27.9%) and $6.6 million for the same periods in 2003 (effective tax
rate of 55.2%).
The variation from our expected 24% tax rate is the result of certain items not
being tax effected, including the non-taxable amounts related to the redemption
of the LYONs in 2004 and, in 2004 and 2003, a portion of the 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. In 2004, the impact of these items was partially
offset by a reduction in the tax rate related to the utilization of certain
losses, which previously had not been recorded. Excluding these items, our tax
rate would have been our expected 24%.
NET EARNINGS AND EARNINGS PER SHARE
Net earnings for the quarter ended December 31, 2004 were $15.6 million ($0.43
basic earnings per share and $0.41 diluted earnings per share), as compared to
net earnings of $11.7 million ($0.33 basic earnings per share and $0.32 diluted
earnings per share) for the quarter ended December 31, 2003. Net earnings for
the year ended December 31, 2004 were $33.2 million ($0.93 basic earnings per
share and $0.89 diluted earnings per share), as compared to net earnings of $5.4
million ($0.15 basic and diluted earnings per share) for the year ended December
31, 2003.
LIQUIDITY AND CAPITAL RESOURCES
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FINANCING ACTIVITIES
During 1999, we issued LYONs for US$655.5 million principal amount at maturity
(September 23, 2029) 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 were entitled to redeem the LYONs commencing in
September 2004 for cash equal to the issue price plus accrued interest
calculated at 4 1/2% per annum. As discussed above in "Other Income/Expense,
Net", during the third quarter of 2004, we exercised this right and redeemed all
of our LYONs for US$328.73 cash per US$1,000 principal amount at maturity (the
redemption price being the issue price plus interest that was accrued but unpaid
to but excluding September 23, 2004) for an aggregate payment of US$215.5
million ($275.7 million).
During the second quarter of 2004, we issued US$250 million ($341.1 million)
principal amount of convertible senior notes. We used a majority of the net
proceeds from the issue of the convertible senior notes to repay the LYONs and
intend to use the remainder for general
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corporate purposes, including the making of investments in, or advances in
respect of or to owners of, properties with a view to obtaining new management
agreements or enhancing existing management agreements. 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 our Limited Voting Shares at an
initial conversion rate of 13.9581 shares per US$1,000 principal amount (equal
to a conversion price of approximately US$71.64 ($86.23) per Limited Voting
Share), subject to adjustments including those in which (i) the Limited Voting
Shares have traded for more than 130% of the conversion price for a specified
period, (ii) the notes have a trading price of less than 95% of the market price
of the Limited Voting Shares into which they may be converted for a specified
period, (iii) we call the notes for redemption, or (iv) specified corporate
transactions or a "fundamental change" occur. We may choose to settle conversion
in our Limited Voting Shares, cash or a combination of our Limited Voting Shares
and cash. Holders of the notes will have the right to require us to purchase for
their principal amount plus accrued and unpaid interest the notes on July 30,
2009, July 30, 2014 and July 30, 2019 and in connection with certain events.
Subject to conversion rights, we will have the right to redeem the convertible
senior notes for their principal amount, plus any accrued and unpaid interest,
beginning August 4, 2009.
In accordance with Canadian GAAP, the convertible senior notes are bifurcated on
our financial statements into a debt component (representing the principal value
of a bond of US$211.8 million ($288.9 million), which was estimated based on the
present value of a US$250 million ($341.1 million) 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 convertible senior notes).
In connection with the offering of the convertible senior notes, we entered into
a five-year interest rate swap with an initial notional amount of US$211.8
million ($288.9 million), pursuant to which we agreed to receive interest at a
fixed rate of 5.33% per year and pay interest at six-month LIBOR, in arrears,
plus 0.4904%. In October 2004, we terminated the interest rate swap agreement
and received proceeds of US$9 million ($11.3 million). The book value of the
interest rate swap at the date of termination was approximately $2 million. The
recognition of the resulting gain was deferred and is being amortized over the
next 4.75 years, which would have been the remaining swap term. This will result
in an effective interest rate for accounting purposes of 4.7% for 2005. Taking
into account the net present value of the termination of the swap, including the
$9.3 million gain, the economic interest cost associated with the convertible
senior notes is less than 1%.
In November 2004, we finalized a new committed bank credit facility of US$125
million ($150.5 million), which expires September 2007, and replaced a credit
facility of US$100 million ($120.4 million). As at December 31, 2004, no amounts
were borrowed under the credit facility. However, approximately US$10.9 million
($13.1 million) of letters of credit were issued under the facility. No amounts
have been drawn under these letters of credit. We believe that, absent unusual
opportunities, this bank credit facility, 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.
Cash and cash equivalents were $272.5 million as at December 31, 2004, as
compared to $170.7 million as at December 31, 2003.
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Long-term obligations (as determined under Canadian GAAP) increased from $120.1
million as at December 31, 2003 to $303.3 million as at December 31, 2004,
primarily as a result of the issuance of the convertible senior notes in the
second quarter, net of the redemption of the LYONs in the third quarter and
foreign exchange translation.
CASH FROM OPERATIONS
During the three months and year ended December 31, 2004, we generated cash of
$39.7 million and $57.4 million from operations, respectively, as compared to
generating cash of $21.9 million and $66 million, respectively, for the same
periods in 2003.
The increase in cash from operations of $17.8 million in the fourth quarter of
2004, as compared to the same period in 2003, resulted primarily from the
proceeds received on termination of the interest rate swap of $11.3 million, a
decrease in working capital of $3.3 million, an increase in current income tax
received of $3.2 million and an increase in cash contributed by management
operations of $1.7 million, partially offset by cash used in ownership and
corporate operations of $1.7 million.
The decrease in cash from operations of $8.6 million in 2004, as compared to
2003, resulted primarily from the cash applied to the interest accreted for
accounting purposes of $33.1 million related to the redemption of the LYONs in
the third quarter of 2004 and an increase in working capital of $26.3 million
(primarily as a result of a larger income tax refund that was received in 2003
and an increase in the accrual related to incentive fee improvements and
improved fees from residential projects), partially offset by an increase in
cash contributed by management operations of $22.3 million, the proceeds
received on termination of the interest rate swap of $11.3 million, a decrease
in cash used in ownership and corporate operations of $9.2 million and a
decrease in legal and enforcement costs paid of $8.1 million.
INVESTING/DIVESTING ACTIVITIES
Part of our business strategy is to invest 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 2004, we funded $93.6 million in such management opportunities, including
amounts advanced as loans receivable and investments in hotel properties such as
Hampshire, Whistler, Palo Alto, Jackson Hole and Exuma. 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 2004, we also sold the majority of our 8% ownership interest in Four
Seasons Hotel Amman, all of our ownership interest in Four Seasons Resort
Whistler, all of our ownership interest in land relating to Four Seasons Resort
Scottsdale and settled our loan receivable from the property in Sedona. On a
full-year basis, we received total proceeds from asset dispositions of
approximately $58 million and realized a loss of approximately $4.6 million.
In 2005, we expect to fund approximately US$90 million in respect of investments
in, or advances to, various projects, including Geneva and Damascus, plus
additional funding in Buenos Aires and Exuma
-11-
and the expansion of corporate office facilities. We anticipate selling two or
more interests in properties during 2005, from which we expect to receive
approximately $20 million.
OUTSTANDING SHARE DATA
- ---------------------------------------------------------------------
DESIGNATION OUTSTANDING AS AT
FEBRUARY 17, 2005
- ---------------------------------------------------------------------
Variable Multiple Voting Shares(a) 3,725,698
- ---------------------------------------------------------------------
Limited Voting Shares 32,883,188
- ---------------------------------------------------------------------
Options to acquire Limited Voting
Shares:
- ---------------------------------------------------------------------
Outstanding 5,801,297
- ---------------------------------------------------------------------
Exercisable 2,755,841
- ---------------------------------------------------------------------
Convertible Senior Notes issued June US$250.2 million (c)
2004 and due 2024(b) (Canadian equivalent $307.2
million)
- ---------------------------------------------------------------------
a) Convertible into Limited Voting Shares at any time at the option of the
holder on a one-for-one basis.
b) Details on the convertible senior notes are more fully described under
"Financing Activities".
c) This amount is equal to the issue price of the convertible senior notes
issued June 2004 and due 2024 plus accrued interest calculated at 1.875%
per annum.
LOOKING AHEAD
- -------------
Based on the travel trends that we experienced in 2004 and that we currently are
observing, if current trends continue, we expect RevPAR, on a US dollar basis,
for worldwide Core Hotels in the first quarter of 2005 and the full year 2005 to
increase by more than 10%, both as compared to their respective periods in 2004.
We expect that this improvement will result from occupancy and pricing
improvements in all geographic regions in 2005. We expect our full-year gross
operating profit under management in our worldwide Core Hotels to increase more
than 200 basis points in 2005.
ADDITIONAL INFORMATION
- ----------------------
A summary of consolidated revenues, management earnings, ownership and corporate
operations and net earnings for the past eight quarters can be found in note 7.
Additional information about us (including our most recent annual information
form, MD&A and our audited financial statements for the year ended December 31,
2003) is available on SEDAR at www.sedar.com.
The financial information presented in this release remains subject to
additional review and final year-end closing procedures performed by the Company
and the completion of the year-end audit by its external auditors. Four Seasons
expects that its audited financial results will be finalized in March 2005 and
the Company will file its financial statements and MD&A with the securities
regulators shortly thereafter.
-12-
_____________________
1. 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. RevPAR is the most commonly used measure in the lodging industry to
measure the period-over-period performance of comparable properties.
2. 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 Hotel Berlin, Four Seasons Resort
Santa Barbara, Four Seasons Resort Scottsdale at Troon North and Four Seasons
Hotel Washington, DC, the last three of which were undergoing extensive
renovation programs that began in 2004.
3. Gross operating margin represents gross operating profit as a percentage of
gross operating revenue.
4. The management operations profit margin represents management operations
earnings before other operating items, as a percentage of management
operations revenue, excluding reimbursed costs.
5. The following table illustrates the impact of adopting the new accounting
standard (Canadian Institute of Chartered Accountants ("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.
- ----------------------------------------------------------------------------
(IN THOUSANDS OF CANADIAN DOLLARS) 2003
- ----------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------
Revenues:
- ----------------------------------------------------------------------------
Fee revenues $29,305 $29,351 $28,823 $33,051
- ----------------------------------------------------------------------------
Cost reimbursements previously 6,925 7,381 7,395 7,526
included in fee revenues*
- ----------------------------------------------------------------------------
Additional cost reimbursements 11,526 11,190 10,469 12,891
- ----------------------------------------------------------------------------
Total revenues 47,756 47,922 46,687 53,468
- ----------------------------------------------------------------------------
Operating costs and expenses:
- ----------------------------------------------------------------------------
General and administrative expenses 9,736 8,901 9,981 12,390
- ----------------------------------------------------------------------------
Reimbursed costs 18,451 18,571 17,864 20,417
- ----------------------------------------------------------------------------
Total expenses 28,187 27,472 27,845 32,807
- ----------------------------------------------------------------------------
Total earnings from Management $19,569 $20,450 $18,842 $20,661
operations before other operating items
- ----------------------------------------------------------------------------
* Marketing and reservation fees were included in both fee revenues and
general and administrative expenses in 2003 and earlier years.
6. 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 (until the Berlin
lease termination on September 26, 2004), distributions from other ownership
interests in properties that Four Seasons manages and corporate overhead
expenses related, in part, to these ownership interests.
-13-
7. Eight Quarter Summary:
- --------------------------------------------------------------------------------
(IN MILLIONS
OF CANADIAN
DOLLARS
EXCEPT PER Fourth Third Second First
SHARE AMOUNTS) Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
2004 2003(a) 2004 2003(a) 2004 2003(a) 2004 2003(a)
- --------------------------------------------------------------------------------
Consolidated $84.8 $87.9 $82.7 $72.6 $97.0 $80.8 $75.3 $72.4
revenues(b)
- --------------------------------------------------------------------------------
Earnings
(loss) before other operating items:
- --------------------------------------------------------------------------------
Management 22.2 20.7 26.3 18.8 30.1 20.5 22.5 19.6
operations
- --------------------------------------------------------------------------------
Ownership
and
corporate (3.8) (2.0) (6.4) (9.4) (1.7) (5.5) (9.7) (13.2)
operations
- --------------------------------------------------------------------------------
Net earnings
(loss):
- --------------------------------------------------------------------------------
Total $15.6 $11.7 $(11.1) $4.4 $17.3 $(1.4) $11.5 $(9.3)
- --------------------------------------------------------------------------------
Basic
earnings
(loss) per $0.43 $ 0.33 $(0.31) $0.13 $0.49 $(0.04) $0.33 $(0.27)
share (c)
- --------------------------------------------------------------------------------
Diluted
earnings
(loss) per $0.41 $ 0.32 $(0.31) $0.12 $0.46 $(0.04) $0.31 $(0.27)
share (c)
- --------------------------------------------------------------------------------
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. 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 $11.3 million; 2nd Quarter 2003 - increase of $10.9 million;
3rd Quarter 2003 - increase of $10.3 million; 4th Quarter 2003 - increase
of $12.6 million.
-14-
Consolidated revenues is comprised of the following:
- --------------------------------------------------------------------------------
(IN MILLIONS OF Fourth Third Second First
CANADIAN DOLLARS) Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
2004 2003 2004 2003 2004 2003 2004 2003
- --------------------------------------------------------------------------------
Revenues from $54.1 $53.5 $54.8 $46.7 $60.1 $47.9 $49.6 $47.8
Management
Operations
- --------------------------------------------------------------------------------
Revenues from
Ownership and
Corporate 32.5 36.0 29.2 27.0 38.2 34.4 26.8 25.8
Operations
- --------------------------------------------------------------------------------
Distributions from 0.0 0.0 0.0 0.2 0.4 0.0 0.0 0.0
hotel investments
- --------------------------------------------------------------------------------
Fees from
Ownership and
Corporate
Operations to (1.7) (1.6) (1.3) (1.3) (1.7) (1.5) (1.1) (1.2)
Management
Operations
- --------------------------------------------------------------------------------
$84.8 $87.9 $82.7 $72.6 $97.0 $80.8 $75.3 $72.4
- --------------------------------------------------------------------------------
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.
* * *
All dollar amounts referred to in this news release are in Canadian dollars
unless otherwise noted. The financial statements are prepared in accordance with
Canadian GAAP.
* * *
This news 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 those described in our annual information form and management's
discussions and analysis. Those risks and uncertainties include adverse factors
generally encountered in the lodging industry; the risks associated with world
events, including war, terrorism, international conflicts, natural disasters,
extreme weather conditions, and infectious diseases; general economic
conditions, supply and demand changes for hotel rooms and residential
properties, competitive conditions in the lodging industry, relationships with
clients and property owners, currency fluctuations 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. All forward-looking statements in this news release are qualified by
these cautionary statements. These statements are made as of the date of this
news 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.
* * *
-15-
We will hold a conference call to discuss the results today at 1:30 p.m.
(Eastern Standard Time).
To access the call dial: 1 (800) 404-8949 (U.S.A. and Canada)
1 (416) 641-6714 (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 21228858.
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.
* * *
Dedicated to continuous innovation and the highest standards of hospitality,
Four Seasons invented luxury for the modern traveller. From elegant surroundings
of the finest quality, to caring, highly personalized 24-hour service, Four
Seasons embodies a true home away from home for those who know and appreciate
the best. The deeply instilled Four Seasons culture is personified in its
employees - people who share a single focus and are inspired to offer great
service. Founded in 1960, Four Seasons has followed a targeted course of
expansion, opening hotels in major city centers and desirable resort
destinations around the world. Currently with 64 hotels in 28 countries, and
more than 20 properties under development, Four Seasons will continue to lead
luxury hospitality with innovative enhancements, making business travel easier
and leisure travel more rewarding. For more information on Four Seasons, visit
www.fourseasons.com.
-16-
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED YEARS ENDED
(IN THOUSANDS OF CANADIAN DOLLARS DECEMBER 31, DECEMBER 31,
EXCEPT PER SHARE AMOUNTS) 2004 2003 2004 2003
- --------------------------------------------------------------------------------
(UNAUDITED)(UNAUDITED)(UNAUDITED)
CONSOLIDATED REVENUES (NOTE 5) $ 84,842 $87,885 $339,788 $313,580
============================================
MANAGEMENT OPERATIONS
REVENUES:
Fee revenues $ 34,357 $33,051 $145,831 $120,530
Reimbursed costs (note 1(c)) 19,733 20,417 72,716 75,303
--------------------------------------------
54,090 53,468 218,547 195,833
--------------------------------------------
EXPENSES:
General and administrative
expenses (12,186) (12,390) (44,783) (41,008)
Reimbursed costs (note 1(c)) (19,733) (20,417) (72,716) (75,303)
--------------------------------------------
(31,919) (32,807) (117,499) (116,311)
--------------------------------------------
22,171 20,661 101,048 79,522
--------------------------------------------
OWNERSHIP AND CORPORATE OPERATIONS
REVENUES 32,479 36,020 126,726 123,214
DISTRIBUTIONS FROM HOTEL INVESTMENTS -- -- 398 153
EXPENSES:
Cost of sales and expenses (34,560) (36,395) (142,872) (147,816)
Fees to Management Operations (1,727) (1,603) (5,883) (5,620)
--------------------------------------------
(3,808) (1,978) (21,631) (30,069)
--------------------------------------------
EARNINGS BEFORE OTHER OPERATING
ITEMS 18,363 18,683 79,417 49,453
DEPRECIATION AND AMORTIZATION (3,981) (3,592) (15,281) (15,011)
OTHER INCOME (EXPENSE), NET (NOTE 6) 6,248 178 (16,095) (25,783)
--------------------------------------------
EARNINGS FROM OPERATIONS 20,630 15,269 48,041 8,659
INTEREST INCOME (EXPENSE), NET (187) 962 1,494 3,350
-------------------------------------------
EARNINGS BEFORE INCOME TAXES 20,443 16,231 49,535 12,009
-------------------------------------------
INCOME TAX RECOVERY (EXPENSE):
Current (5,002) (2,833) (11,680) (2,395)
Future 126 (1,924) (4,623) (4,460)
Increase in future income tax
assets -- 230 -- 230
--------------------------------------------
(4,876) (4,527) (16,303) (6,625)
--------------------------------------------
NET EARNINGS $15,567 $11,704 $33,232 $5,384
============================================
BASIC EARNINGS PER SHARE (NOTE 4) $ 0.43 $ 0.33 $ 0.93 $ 0.15
============================================
DILUTED EARNINGS PER SHARE (NOTE 4) $ 0.41 $ 0.32 $ 0.89 $ 0.15
============================================
See accompanying notes to consolidated financial statements.
-17-
FOUR SEASONS HOTELS INC.
CONSOLIDATED BALANCE SHEETS
AS AT As at
DECEMBER 31, December 31,
(IN THOUSANDS OF CANADIAN DOLLARS) 2004 2003
- ------------------------------------------------------------------------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 272,467 $170,725
Receivables 98,143 88,636
Inventory 1,732 2,169
Prepaid expenses 3,588 3,780
-------------------------------
375,930 265,310
LONG-TERM RECEIVABLES 215,517 197,635
INVESTMENTS IN HOTEL PARTNERSHIPS AND CORPORATIONS 158,079 157,638
FIXED ASSETS 72,143 75,789
INVESTMENT IN MANAGEMENT CONTRACTS 218,180 203,670
INVESTMENT IN TRADEMARKS AND TRADE NAMES 5,325 5,757
FUTURE INCOME TAX ASSETS (NOTE 3(b)) 4,466 13,230
OTHER ASSETS 36,185 27,631
-------------------------------
$1,085,825 $946,660
===============================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 72,716 $ 61,045
Long-term obligations due within one year 4,533 2,587
-------------------------------
77,249 63,632
LONG-TERM OBLIGATIONS (NOTES 2 AND 3) 304,590 117,521
SHAREHOLDERS' EQUITY (NOTE 4):
Capital stock 379,227 329,274
Convertible notes (note 3) 50,373 178,543
Contributed surplus (note 3(b)) 11,402 5,529
Retained earnings 295,218 265,754
Equity adjustment from foreign currency
translation (32,234) (13,593)
-------------------------------
703,986 765,507
-------------------------------
$1,085,825 $946,660
===============================
See accompanying notes to consolidated financial statements.
-18-
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF CASH PROVIDED BY OPERATIONS
THREE MONTHS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF CANADIAN DOLLARS) 2004 2003 2004 2003
- ------------------------------------------------------------------------------
(UNAUDITED)(UNAUDITED) (UNAUDITED)
CASH PROVIDED BY (USED IN) OPERATIONS:
MANAGEMENT OPERATIONS
EARNINGS BEFORE OTHER OPERATING ITEMS $22,171 $20,661 $101,048 $79,522
ITEMS NOT REQUIRING AN OUTLAY OF FUNDS 589 377 2,204 1,476
------------------------------------------
WORKING CAPITAL PROVIDED BY
MANAGEMENT OPERATIONS 22,760 21,038 103,252 80,998
------------------------------------------
OWNERSHIP AND CORPORATE OPERATIONS
LOSS BEFORE OTHER OPERATING ITEMS (3,808) (1,978) (21,631) (30,069)
ITEMS NOT REQUIRING AN OUTLAY OF FUNDS 355 189 1,221 467
------------------------------------------
WORKING CAPITAL USED IN
OWNERSHIP AND CORPORATE OPERATIONS (3,453) (1,789) (20,410) (29,602)
------------------------------------------
19,307 19,249 82,842 51,396
INTEREST RECEIVED, NET 1,722 2,341 9,887 10,426
INTEREST PAID ON REDEMPTION OF
CONVERTIBLE NOTES (NOTE 3(b)) -- -- (33,057) --
PROCEEDS RECEIVED ON TERMINATION OF
INTEREST RATE SWAP (NOTE 3(a)) 11,267 -- 11,267 --
CURRENT INCOME TAX RECEIVED 3,212 -- 427 --
CHANGE IN NON-CASH WORKING CAPITAL 4,627 1,339 (12,607) 13,709
OTHER (397) (1,048) (1,396) (9,528)
------------------------------------------
CASH PROVIDED BY OPERATIONS $39,738 $21,881 $57,363 $66,003
==========================================
See accompanying notes to consolidated financial statements.
-19-
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF CANADIAN DOLLARS) 2004 2003 2004 2003
- ------------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)(UNAUDITED)
CASH PROVIDED BY (USED IN):
OPERATIONS: $39,738 $21,881 $57,363 $66,003
---------------------------------------------
FINANCING:
Issuance of convertible notes
(note 3(a)) -- -- 329,273 --
Redemption of convertible notes
(note 3(b)) -- -- (242,644) --
Other long-term obligations
including current portion (86) (136) (105) (200)
Issuance of shares 24,796 3,759 42,824 7,673
Dividends paid -- -- (3,690) (3,622)
---------------------------------------------
CASH PROVIDED BY FINANCING 24,710 3,623 125,658 3,851
---------------------------------------------
CAPITAL INVESTMENTS:
Long-term receivables (10,839) 3,052 (21,270) (6,394)
Hotel investments (1,840) (678) (48,529) (8,580)
Disposal of hotel investments
(note 6) 2,951 -- 49,994 1,529
Fixed assets (2,946) (13,931) (8,360) (19,331)
Investments in trademarks and trade
names and management contracts (2,925) (536) (16,093) (2,116)
Other assets (6,884) (321) (10,683) (5,181)
---------------------------------------------
CASH USED IN CAPITAL INVESTMENTS (22,483) (12,414) (54,941) (40,073)
---------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 41,965 13,090 128,080 29,781
DECREASE IN CASH AND CASH EQUIVALENTS
DUE TO UNREALIZED FOREIGN
EXCHANGE LOSS (2,421) (3,769) (26,338) (24,092)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 232,923 161,404 170,725 165,036
---------------------------------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $272,467 $170,725 $272,467 $170,725
=============================================
See accompanying notes to consolidated financial statements.
-20-
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
YEARS ENDED
DECEMBER 31,
(IN THOUSANDS OF CANADIAN DOLLARS) 2004 2003
- ------------------------------------------------------------------------
(UNAUDITED)
RETAINED EARNINGS, BEGINNING OF PERIOD $ 265,754 $ 264,016
NET EARNINGS 33,232 5,384
DIVIDENDS DECLARED (3,768) (3,646)
------------------------
RETAINED EARNINGS, END OF PERIOD $ 295,218 $ 265,754
========================
See accompanying notes to consolidated financial statements.
-21-
FOUR SEASONS HOTELS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS OF CANADIAN 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.
The financial information presented in these interim consolidated financial
statements remains subject to additional review and final year-end closing
procedures performed by the Company and the completion of the year-end audit by
its external auditors. We expect that our audited financial results will be
finalized in March 2005 and will file our financial statements with the
securities regulators shortly thereafter.
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. In 2003, the prospective
application of adopting the fair value-based method effective January 1,
2003 was applied retroactively in our consolidated financial statements for
the three months and year ended December 31, 2003.
The fair value of stock options granted in the year ended December 31, 2004
has been estimated using the Black-Scholes option pricing model with the
following assumptions: risk-free interest rates ranging from 2.96% to 4.39%
(2003 - 4.44% to 5.02%); semi-annual dividend per Limited Voting Share in
2004 and 2003 of $0.055; volatility factor of the expected market price of
our Limited Voting Shares ranging from 28% to 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 year ended December 31, 2004, the weighted
average fair value of the options at the grant dates was $25.32 (2003 -
$18.46). For the options granted in the three months ended December 31,
2003, the weighted average fair value of the options at the grant dates was
$23.08. No stock options were granted during the three months ended December
31, 2004. 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.
-22-
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 year ended December 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 and basic and diluted earnings per
share would have been adjusted to the pro forma amounts indicated below:
THREE MONTHS ENDED YEARS ENDED
(IN THOUSANDS OF CANADIAN DOLLARS DECEMBER 31, DECEMBER 31,
EXCEPT PER SHARE AMOUNTS) 2004 2003 2004 2003
- --------------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Stock option expense included
in compensation expense $(611) $(368) $(2,113) $(893)
==============================================
Net earnings, as reported $15,567 $11,704 $33,232 $5,384
Additional expense that would
have been recorded if all
outstanding stock options
granted during 2002 had been
expensed (847) (863) (3,407) (3,450)
----------------------------------------------
Pro forma net earnings $14,720 $10,841 $29,825 $1,934
----------------------------------------------
Earnings per share:
Basic, as reported $ 0.43 $ 0.33 $ 0.93 $ 0.15
Basic, pro forma 0.41 0.31 0.84 0.06
Diluted, as reported 0.41 0.32 0.89 0.15
Diluted, pro forma 0.39 0.30 0.80 0.05
----------------------------------------------
(b) HEDGING RELATIONSHIPS:
The CICA issued Accounting Guideline No. 13, "Hedging Relationships", which
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 matured during 2004. The foreign exchange gains on these
contracts of $14,552, which were deferred prior to January 1, 2004, were
recognized in 2004 as an increase of fee revenues over the course of the
year. Effective January 1, 2004, our US dollar forward contracts were
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 $515 and nil, respectively,
for the three months and year ended December 31, 2004. No further contracts
have been entered into subsequently.
(c) REIMBURSED COSTS:
As a result of adopting Section 1100, "Generally Accepted Accounting
Principles", which was issued by the CICA, 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 year ended December 31, 2004 of $12,037 and $42,021, respectively (2003
- $12,891 and $46,077, respectively), but did not have an impact on net
earnings. In addition, for the three months and year ended December 31,
2003, each of fee revenues and general and administrative expenses included
certain other reimbursed costs of $7,526 and $29,226, respectively. These
have been reclassified to reimbursed costs in both revenues and expenses to
conform with the financial statement presentation adopted in 2004.
-23-
(d) IMPAIRMENT OF LONG-LIVED ASSETS:
The CICA issued Section 3063, "Impairment of Long-Lived Assets", which
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 year ended
December 31, 2004.
(e) ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS:
The CICA issued Section 3110, "Accounting for Asset Retirement Obligations",
which 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
year ended December 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
and year ended December 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 and year ended December 31, 2004.
2. BANK CREDIT FACILITY:
During 2004, we finalized a new committed bank credit facility of US$125 million
($150,500), which expires in September 2007. Borrowings under this credit
facility bear interest at LIBOR plus a spread ranging between 0.875% and 2.25%,
depending upon certain criteria specified in the loan agreement. As at December
31, 2003, we had bank credit facilities of US$212.5 million ($255,800), which
expired in 2004. As at December 31, 2004, no amounts were borrowed under this
credit facility. However, approximately US$10.9 million ($13,100) of letters of
credit were issued under this credit facility as at December 31, 2004. No
amounts have been drawn under these letters of credit.
-24-
3. LONG-TERM OBLIGATIONS:
AS AT As at
DECEMBER 31, December 31,
(IN THOUSANDS OF CANADIAN DOLLARS) 2004 2003
- --------------------------------------------------------------------------------
(UNAUDITED)
Convertible notes, issued in 2004 (a) $ 259,155 $ --
Convertible notes, issued in 1999 (b) -- 88,029
Deferred gain on termination of interest
rate swap (a) 8,760 --
Accrued benefit liability and other obligations 41,208 32,079
------------------------------
309,123 120,108
Less amounts due within one year (4,533) (2,587)
------------------------------
$ 304,590 $ 117,521
==============================
(a) In June 2004, we issued US$250 million ($341,100) principal amount of
convertible senior notes. The net proceeds of the issuance, after deducting
offering expenses and underwriters' commission, were approximately US$241.3
million ($329,273). 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
($86.23) per Limited Voting Share), subject to adjustments including those
in which (i) the Limited Voting Shares have traded for more than 130% of the
conversion price for a specified period, (ii) the notes have a trading price
of less than 95% of the market price of the Limited Voting Shares into which
they may be converted for a specified period, (iii) we call the notes for
redemption, or (iv) specified corporate transactions or a "fundamental
change" occur. 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.
-25-
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$211.8 million ($288,918), which was estimated based on the present
value of a US$250 million ($341,100) 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 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 had entered into an interest rate swap
agreement to July 30, 2009 with an initial notional amount of US$211.8
million ($288,918), pursuant to which we had 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 had designated the interest rate swap as a fair value hedge
of the notes. As a result, we were accounting for the payments under the
interest rate swap on an accrual basis, which resulted in an effective
interest rate (for accounting purposes) on the hedged notes of six-month
LIBOR in arrears plus 0.4904%.
In October 2004, we terminated the interest rate swap agreement and received
proceeds of US$9 million ($11,267). The book value of the interest rate swap
at the date of termination was $2,024. The gain of $9,243 was deferred for
accounting purposes and is being amortized over the next 4.75 years, which
would have been the remaining swap term. During 2004, $483 of the deferred
gain was amortized and recorded as a reduction of interest expense.
(b) 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 were 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. In
September 2004, we redeemed for cash all these convertible notes for
US$328.73 per each one thousand US dollar principal amount at maturity (the
redemption price being the issue price plus interest that was accrued but
unpaid) for an aggregate payment of US$215.5 million ($275,701).
In accordance with Canadian GAAP, we allocated the consideration paid on the
redemption to the liability and equity components of the convertible notes
based on their relative fair values at the date of the redemption. We
recognized a pre-tax accounting loss of $14,611 related to the debt
component of the convertible notes (representing the difference between the
carrying value of the debt component and the relative fair value of the debt
component and calculated at the present value of the amount due on maturity,
using an assumed 25-year interest rate of 8.474% per annum, compounding
semi-annually). This loss was recorded in other expense, net in the
consolidated statements of operations. In addition, at the interest rate
noted above, we recognized a pre-tax accounting gain on the extinguishment
of the equity component of the convertible notes of $8,160. The gain was
recorded in contributed surplus. The tax impact of the redemption of both
the liability and equity components of the convertible notes was a decrease
to future income tax assets and a decrease to contributed surplus of $4,141.
The net after-tax impact on shareholders' equity from the redemption of both
the debt and equity components of the convertible notes was a reduction of
$10,592.
In accordance with Canadian GAAP, the cash paid on redemption of the
convertible notes relating to the interest accreted from September 1999 to
September 2004, for accounting purposes, of US$25.8 million ($33,057) on the
convertible notes has been recorded in the consolidated statements of cash
provided by operations. The remaining cash paid on redemption of US$189.7
million ($242,644) has been recorded under "Financing" in the consolidated
statements of cash flows.
-26-
4. SHAREHOLDERS' EQUITY:
As at December 31, 2004, we have outstanding Variable Multiple Voting Shares
("VMVS") of 3,725,698, outstanding Limited Voting Shares ("LVS") of 32,882,948
and outstanding stock options of 4,564,583 (weighted average exercise price of
$59.33).
A reconciliation of the net earnings and weighted average number of VMVS and LVS
used to calculate basic and diluted earnings per share is as follows:
THREE MONTHS ENDED
DECEMBER 31,
(IN THOUSANDS OF CANADIAN DOLLARS) 2004 2003
- --------------------------------------------------------------------------------
NET EARNINGS SHARES NET EARNINGS SHARES
BASIC EARNINGS PER SHARE AMOUNTS $15,567 36,104,399 $ 11,704 35,146,473
EFFECT OF ASSUMED DILUTIVE
CONVERSIONS:
STOCK OPTION PLAN -- 1,686,109 -- 1,489,773
- --------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE AMOUNTS $15,567 37,790,508 $ 11,704 36,636,246
================================================================================
THREE MONTHS ENDED
DECEMBER 31,
(IN THOUSANDS OF CANADIAN DOLLARS) 2004 2003
- --------------------------------------------------------------------------------
(UNAUDITED)
NET EARNINGS SHARES NET EARNINGS SHARES
BASIC EARNINGS PER SHARE AMOUNTS $33,232 35,647,986 $5,384 34,996,389
EFFECT OF ASSUMED DILUTIVE
CONVERSIONS:
STOCK OPTION PLAN -- 1,666,230 -- 870,135
- --------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE
AMOUNTS $33,232 37,314,216 $5,384 35,866,524
================================================================================
The diluted earnings per share calculation excluded the effect of the assumed
conversions of 59,000 and 847,876 stock options to LVS, under our stock option
plan, during the three months and year ended December 31, 2004, respectively
(2003 - 1,440,996 and 1,958,842 stock options, respectively), as the inclusion
of these conversions resulted in an anti-dilutive effect. In addition, the
dilution relating to the assumed conversion of our convertible notes (issued in
1999 and subsequently redeemed in 2004) (note 3(b)) to 3,463,155 LVS, by
application of the "if-converted method", has been excluded from the calculation
for 2004 and 2003 as the inclusion of this conversion resulted in an
anti-dilutive effect for the three months and years ended December 31, 2004 and
2003. There was no dilution relating to the convertible senior notes issued in
2004 (note 3(a)) as the contingent conversion price was not reached during the
periods.
5. CONSOLIDATED REVENUES:
THREE MONTHS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31,
(IN THOUSANDS OF CANADIAN DOLLARS) 2004 2003 2004 2003
- --------------------------------------------------------------------------------
(UNAUDITED)(UNAUDITED)(UNAUDITED)
Revenues from Management Operations $54,090 $53,468 $218,547 $195,833
Revenues from Ownership and
Corporate Operations 32,479 36,020 126,726 123,214
Distribution from hotel investments -- -- 398 153
Fees from Ownership and Corporate
Operations to Management
Operations (1,727) (1,603) (5,883) (5,620)
---------------------------------------------
$84,842 $87,885 $339,788 $313,580
=============================================
-27-
6. OTHER INCOME (EXPENSE), NET:
Included in other income (expense), net for the year ended December 31, 2004 is
the loss on the redemption of the debt component of our convertible notes
(issued in 1999) of $14,611 (note 3(b)).
In addition, other income (expense), net for the three months and year ended
December 31, 2004 includes a net foreign exchange gain of $6,424 and $3,615,
respectively (2003 - net foreign exchange gain of $2,476 and a net foreign
exchange loss of $14,703, 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.
During the year ended December 31, 2004, we sold all of our investment in Four
Seasons Resort Whistler, the majority of our 8% investment in Four Seasons Hotel
Amman and all our ownership interest in land relating to Four Seasons Resort
Scottsdale for proceeds of approximately $50,000, and exited from our proposed
project in Sedona, resulting in a total net loss from these transactions of
$4,610. The majority of the loss related to the settlement of our loan
receivable from Sedona and for legal costs incurred to finalize the
dispositions. During the three months ended December 31, 2003, we wrote down our
fixed asset investment in Four Seasons Hotel Berlin to nil, resulting in an
expense of $3,174.
Also included in other income (expense), net for the three months and year ended
December 31, 2004 are legal and enforcement costs of nil and $273, respectively
(2003 - $795 and $9,475 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 year ended December 31, 2004 was $810 and $3,074, respectively
(2003 - $542 and $2,670, 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 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 compared to other quarters. As a result, ownership operations
usually incur an operating loss in the first quarter of each year.
Management operations are also affected by seasonal patterns, both in terms of
revenues and operating results. Urban hotels generally experience lower revenues
and operating results in the first quarter, as compared to other quarters.
However, this negative impact on management revenues is offset, to some degree,
by increased travel to our resorts in the period.
-28-
FOUR SEASONS HOTELS INC.
SUMMARY OF HOTEL OPERATING DATA - CORE HOTELS(1)
THREE MONTHS ENDED
DECEMBER 31,
(UNAUDITED) 2004 2003 VARIANCE
- --------------------------------------------------------------------------------
WORLDWIDE
No. of Properties 48 48 --
No. of Rooms 12,784 12,784 --
Occupancy(2) 69.0% 66.0% 3.0pts.
ADR(3) - in US dollars $344 $322 6.8%
RevPAR(4)- in US dollars $219 $198 10.7%
Gross operating margin(5) 29.5% 29.4% 0.1pts.
UNITED STATES
No. of Properties 19 19 --
No. of Rooms 6,108 6,108 --
Occupancy(2) 70.6% 67.3% 3.3pts.
ADR(3) - in US dollars $358 $340 5.2%
RevPAR(4)- in US dollars $255 $230 10.6%
Gross operating margin(5) 26.9% 26.0% 0.9pts.
OTHER AMERICAS/CARIBBEAN
No. of Properties 7 7 --
No. of Rooms 1,541 1,541 --
Occupancy(2) 62.9% 59.6% 3.3pts.
ADR(3) - in US dollars $322 $308 4.5%
RevPAR(4)- in US dollars $181 $168 7.7%
Gross operating margin(5) 27.5% 29.5% (2.0)pts.
EUROPE
No. of Properties 7 7 --
No. of Rooms 1,331 1,331 --
Occupancy(2) 59.9% 61.1% (1.2)pts.
ADR(3) - in US dollars $526 $470 11.9%
RevPAR(4)- in US dollars $337 $299 12.7%
Gross operating margin(5) 30.4% 29.6% 0.8pts.
MIDDLE EAST
No. of Properties 3 3 --
No. of Rooms 598 598 --
Occupancy(2) 67.8% 59.9% 7.9pts.
ADR(3) - in US dollars $168 $163 3.1%
RevPAR(4)- in US dollars $113 $101 12.3%
Gross operating margin(5) 42.5% 44.9% (2.4)pts.
ASIA/PACIFIC
No. of Properties 12 12 --
No. of Rooms 3,206 3,206 --
Occupancy(2) 72.8% 69.8% 3.0pts.
ADR(3) - in US dollars $271 $254 6.7%
RevPAR(4)- in US dollars $143 $129 10.8%
Gross operating margin(5) 36.3% 37.4% (1.1)pts.
_____________________________________________
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 Hotel
Berlin, Four Seasons Resort Santa Barbara, Four Seasons Resort Scottsdale
at Troon North and Four Seasons Hotel Washington, DC, the last three of
which are undergoing extensive renovation programs that began 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 calculated as straight average
for each region.
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
percentage of gross operating revenue.
-29-
FOUR SEASONS HOTELS INC.
SUMMARY OF HOTEL OPERATING DATA - CORE HOTELS(1)
YEARS ENDED
DECEMBER 31,
(UNAUDITED) 2004 2003 VARIANCE
- --------------------------------------------------------------------------
WORLDWIDE
No. of Properties 48 48 --
No. of Rooms 12,784 12,784 --
Occupancy(2) 68.5% 61.9% 6 .6pts.
ADR(3) - in US dollars $332 $308 7.7%
RevPAR(4)- in US dollars $211 $183 15.5%
Gross operating margin(5) 29.3% 26.9% 2.4pts.
UNITED STATES
No. of Properties 19 19 --
No. of Rooms 6,108 6,108 --
Occupancy(2) 70.5% 68.1% 2.4pts.
ADR(3) - in US dollars $346 $330 5.0%
RevPAR(4)- in US dollars $244 $225 8.7%
Gross operating margin(5) 25.6% 25.4% 0.2pts.
OTHER AMERICAS/CARIBBEAN
No. of Properties 7 7 --
No. of Rooms 1,541 1,541 --
Occupancy(2) 64.2% 56.1% 8.1pts.
ADR(3) - in US dollars $302 $285 5.7%
RevPAR(4)- in US dollars $180 $152 18.2%
Gross operating margin(5) 29.8% 26.7% 3.1pts.
EUROPE
No. of Properties 7 7 --
No. of Rooms 1,331 1,331 --
Occupancy(2) 63.0% 59.5% 3.5pts.
ADR(3) - in US dollars $520 $459 13.5%
RevPAR(4)- in US dollars $343 $285 20.6%
Gross operating margin(5) 33.9% 31.2% 2.7pts.
MIDDLE EAST
No. of Properties 3 3 --
No. of Rooms 598 598 --
Occupancy(2) 70.5% 47.7% 22.8pts.
ADR(3) - in US dollars $171 $159 7.5%
RevPAR(4)- in US dollars $121 $79 52.9%
Gross operating margin(5) 46.8% 33.6% 13.2pts.
ASIA/PACIFIC
No. of Properties 12 12 --
No. of Rooms 3,206 3,206 --
Occupancy(2) 68.7% 56.7% 12.0pts.
ADR(3) - in US dollars $258 $238 8.6%
RevPAR(4)- in US dollars $127 $96 31.9%
Gross operating margin(5) 33.5% 28.2% 5.3pts.
____________________________________________
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 Hotel
Berlin, Four Seasons Resort Santa Barbara, Four Seasons Resort Scottsdale
at Troon North and Four Seasons Hotel Washington, DC, the last three of
which are undergoing extensive renovation programs that began 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 calculated as straight average
for each region.
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
percentage of gross operating revenue.
-30-
FOUR SEASONS HOTELS INC.
SUMMARY OF HOTEL OPERATING DATA - ALL MANAGED HOTELS
AS AT
DECEMBER 31,
(UNAUDITED) 2004 2003 VARIANCE
- --------------------------------------------------------------------------------
WORLDWIDE
No. of Properties 63(1) 60 3
No. of Rooms 16,378(1) 15,726 652
UNITED STATES
No. of Properties 24 24 --
No. of Rooms 7,109 7,145 (36)
OTHER AMERICAS/CARIBBEAN
No. of Properties 10 9 1
No. of Rooms 2,162 1,929 233
EUROPE
No. of Properties 10(1) 9 1
No. of Rooms 1,786(1) 1,696 90
MIDDLE EAST
No. of Properties 5 4 1
No. of Rooms 1,212 847 365
ASIA/PACIFIC
No. of Properties 14 14 --
No. of Rooms 4,109 4,109 --
1 Since December 31, 2004, we commenced management of Four Seasons Hotel
Hampshire, which has 133 rooms. The property is not reflected in this table.
FOUR SEASONS HOTELS INC.
REVENUES UNDER MANAGEMENT - ALL MANAGED HOTELS
(UNAUDITED) THREE MONTHS ENDED YEARS ENDED
(IN THOUSANDS OF DECEMBER 31, DECEMBER 31,
CANADIAN DOLLARS) 2004 2003 2004 2003
- --------------------------------------------------------------------------------
REVENUES UNDER MANAGEMENT(1) $738,044 $691,886 $2,911,992 $2,600,430
============================================
1 Revenues under management consist of rooms, food and beverage, telephone
and other revenues of all the hotels and resorts which we manage.
Approximately 68% 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.
-31-
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 2005/2006 OPENINGS
- ----------------------------
Four Seasons Hotel Alexandria, Egypt* 125
Four Seasons Hotel Damascus, Syria 305
Four Seasons Hotel Doha, Qatar* 230
Four Seasons Hotel Florence, Italy 120
Four Seasons Hotel Geneva, Switzerland 100
Four Seasons Hotel Hong Kong, People's Republic of China* 395
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 Resort Maldives at Landaa Giraavaru, Maldives 115
Four Seasons Hotel Mumbai, India 235
Four Seasons Hotel Silicon Valley at East Palo Alto, CA, USA 200
Four Seasons Residence Club Punta Mita, Mexico 35
Four Seasons Private Residences Whistler, B.C., Canada 35
BEYOND 2006
- -----------
Four Seasons Hotel Baltimore, MD, USA* 200
Four Seasons Hotel Beijing, People's Republic of China 325
Four Seasons Hotel Beirut, Lebanon 235
Four Seasons Resort Bora Bora, French Polynesia 105
Four Seasons Hotel Dubai, UAE* 250
Four Seasons Hotel Istanbul at the Bosphorus, Turkey 170
Four Seasons Hotel Kuwait City, Kuwait 225
Four Seasons Hotel Moscow, Russia* 210
Four Seasons Hotel Moscow Kamenny Island, Russia* 80
Four Seasons Resort Puerto Rico, Puerto Rico* 250
Four Seasons Hotel Seattle, WA, USA* 150
Four Seasons Resort Vail, CO, USA 120
* Expected to include a residential component.
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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.
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