EXHIBIT 1
[FOUR SEASONS LOGO]
FOUR SEASONS HOTELS INC.
FORM 51-102F2
ANNUAL INFORMATION FORM
MARCH 14TH, 2005
TABLE OF CONTENTS
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PAGE
BUSINESS OF FOUR SEASONS......................................................1
MANAGEMENT OPERATIONS.........................................................2
Hotels and Resorts.........................................................2
Management...............................................................2
Sales, Marketing, Advertising and Reservations...........................3
Residence Clubs and Other Branded Residential Properties...................3
Management Resources.......................................................4
Employees..................................................................4
OWNERSHIP OPERATIONS..........................................................4
INTELLECTUAL PROPERTY.........................................................5
BUSINESS AND GROWTH STRATEGY..................................................5
Growth from Existing Properties............................................6
RevPAR Statistics - Core Hotels............................................6
New Hotel and Resort Opportunities.........................................6
Residence Clubs and Other Branded Residential Properties...................7
Capital Deployment.........................................................7
COMPETITIVE STRENGTHS.........................................................7
Strong Brand Recognition...................................................7
Superior Hotel Operating Results...........................................8
Strategic Relationships....................................................8
Management Focus...........................................................8
Global Presence............................................................8
Strong Management Team.....................................................9
FOUR SEASONS PORTFOLIO........................................................9
Description of Hotels, Resorts and Residence Clubs.........................9
Properties under Construction or Development..............................13
SUMMARY HOTEL OPERATING DATA.................................................15
OPERATING RISKS..............................................................17
Geopolitical, Economic and Lodging Industry Conditions....................17
Competition...............................................................17
Dependence on Management Agreements.......................................18
Dependence on Property Owners.............................................19
Risk Associated with Expansion, Growth and New Construction...............19
Investments in and Advances to Managed and Owned Properties...............19
Debt Rating Risks.........................................................20
Government Regulation.....................................................20
Political Risk............................................................21
Insurance.................................................................21
Legal Proceedings.........................................................21
Currency Exposure.........................................................22
Seasonality...............................................................22
Intellectual Property.....................................................23
Risks Associated with Residence Club Business.............................23
Dependence on Key Employees...............................................23
MATERIAL CONTRACTS...........................................................23
CORPORATE INFORMATION........................................................24
Description of Share Capital..............................................24
Dividends...............................................................24
Rights on Dissolution...................................................24
Voting Rights...........................................................24
Take-Over Bid Protection................................................25
(i)
Conversion..............................................................25
Modifications, Subdivisions and Consolidation...........................25
Transfer Agent and Registrar..............................................25
Market for Securities.....................................................25
Dividend Policy...........................................................26
Convertible Senior Notes..................................................26
Ratings...................................................................26
DIRECTORS AND OFFICERS.......................................................27
EXPERTS......................................................................29
AUDIT COMMITTEE INFORMATION..................................................30
Audit Committee Charter...................................................30
Composition of Audit Committee............................................30
Education and Experience..................................................30
Pre-Approval Policies and Procedures......................................30
Audit and Audit-Related Fees..............................................31
Tax Fees..................................................................31
All other Fees............................................................31
CORPORATE CHART..............................................................32
ADDITIONAL INFORMATION.......................................................32
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FORWARD LOOKING STATEMENTS
This document contains "forward-looking statements" within the meaning of
federal securities laws, including RevPAR, profit margin and earning trends;
statements concerning the number of lodging properties expected to be added in
this and future years; expected investment spending; and similar statements
concerning anticipated future events, results, circumstances, performance or
expectations that are not historical facts. These statements are not guarantees
of future performance and are subject to numerous risks and uncertainties,
including those described in our management's discussion and analysis and in
this document. 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 document are qualified by these cautionary statements. These
statements are made as of the date of this document 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.
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ALL AMOUNTS REFERRED TO IN THIS DOCUMENT ARE IN CANADIAN DOLLARS UNLESS
OTHERWISE NOTED. THIS DOCUMENT CONTAINS REFERENCES TO OUR CONSOLIDATED
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 AND
RELATED MANAGEMENT'S DISCUSSION AND ANALYSIS, WHICH ARE AVAILABLE ON
SEDAR AT WWW.SEDAR.COM.
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(ii)
FOUR SEASONS HOTELS INC.
Four Seasons Hotels Inc. was incorporated under the BUSINESS CORPORATIONS ACT
(Ontario) on January 6, 1978.(1) Our registered and principal office is located
at 1165 Leslie Street, Toronto, Ontario, Canada M3C 2K8. Our Limited Voting
Shares are listed on the Toronto Stock Exchange under the symbol FSH.SV and on
the New York Stock Exchange under the symbol FS.
BUSINESS OF FOUR SEASONS
Four Seasons is one of the world's leading managers of luxury hotels and
resorts, with a portfolio of 64 luxury hotel and resort properties (containing
approximately 16,400 guest rooms) and three Residence Clubs. (Interval and
fractional ownership projects that are known as "Four Seasons Residence Clubs"
are referred to as "Residence Clubs".) These properties are operated primarily
under the Four Seasons and Regent brand names in principal cities and resort
destinations in 28 countries in North America, the Caribbean, Europe, Asia,
Australia, the Middle East and South America. In addition, 26 properties to be
operated under the Four Seasons brand name are under construction or development
in a further nine countries around the world. Nine of these new properties are
to include a Residence Club or other residential component. (For a chart
summarizing the hotels, resorts, Residence Clubs and Four Seasons branded
residential projects that are managed by us and under construction or
development to be managed by us, see "Four Seasons Portfolio".) Our goal is to
offer business and leisure travelers the finest accommodation in each
destination in which we operate.
We earn income primarily from management, and to a significantly lesser extent,
ownership operations. Under our management agreements, we generally oversee, as
agent for the property owner all aspects of the day-to-day operations of each
hotel and resort on behalf of its owner, including sales and marketing,
advertising, reservations, accounting, purchasing, budgeting and the hiring,
training and supervising of staff. In addition, we generally provide owners with
strategic management services, assistance with the sourcing of financing and
development of new hotels and resorts, advice with respect to the design and
construction of new or renovated hotels and resorts, assistance with the
refurbishment of hotels and resorts, support and advice with respect to
management information technology systems and database applications, and a
centralized purchasing system for goods. For providing these services, we
generally receive a variety of fees, including a base fee, an incentive fee, a
sales and marketing charge, an advertising charge, a reservation charge, and
purchasing and pre-opening fees. The base fee usually is calculated as a
percentage of the total revenues of the property. Incentive fees typically are
based on the property's profitability. (See "Management Operations".)
To further capitalize on the value of the Four Seasons brand, we license and
manage Residence Clubs and other Four Seasons branded residential projects. We
generally receive fees for the use of the Four Seasons brand in connection with
the sale of the interests in these projects and for services provided in the
oversight of the sales and marketing activities. In addition, we receive fees
from the owners of the interests for services provided in the ongoing management
of these projects.
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1 The articles of Four Seasons Hotels Inc. were restated in 1986 to consolidate
prior amendments and were amended in 1989 to subdivide each Subordinate
Voting Share and each Multiple Voting Share on a 2:1 basis and to create an
unlimited number of special shares designated as First Preference Shares and
Second Preference Shares. In 1996 the articles were further amended to
re-designate the Subordinate Voting Shares as Limited Voting Shares and to
create 4,171,924 special shares designated as Variable Multiple Voting
Shares, which replaced and have substantially the same rights, privileges,
restrictions and conditions as did the Multiple Voting Shares, except that
the number of votes per Variable Multiple Voting Share generally increases as
Limited Voting Shares are issued and dividends on the Variable Multiple
Voting Shares will be in an amount per share equal to 50% of the dividends
per Limited Voting Share.
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As part of our business strategy, we make 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 where the overall
economic return justifies the investment or loan. We generally seek to limit our
total long-term capital exposure to no more than 20% of the total equity
required for a property and typically can choose to have our ownership interest
diluted if additional capital is required. We attempt to structure our ownership
interests separately from our management interests to enable us to dispose of
ownership interests as opportunities arise, without affecting our management
interests.
MANAGEMENT OPERATIONS
HOTELS AND RESORTS
MANAGEMENT
We generally manage our hotels and resorts on behalf of our property owners
pursuant to separate management agreements for each property. Under these
management agreements, we generally oversee, as agent for the property owner,
all aspects of the day-to-day operations of each hotel and resort on behalf of
the owner, including hiring, training and supervising staff, maintaining sales
and marketing, as well as advertising, efforts and providing accounting,
purchasing and budgeting functions, providing support for management information
technology systems and database applications, and providing for the safekeeping,
repair and maintenance of physical assets. We perform these services within the
guidelines contained in annual operating and capital plans that are submitted to
the owners of the hotels and resorts during the last quarter of the preceding
year for their review and approval. For these services, we generally earn a
number of fees including base fees equal to a percentage of gross revenues and
incentive fees based on the profits of the hotel or resort.
We have the ability to earn incentive fees in 61 of the 64 hotels and resorts
under our management. These incentive fees are based on the profits of the hotel
or resort as determined in accordance with the relevant management agreement.
Incentive fees were earned from 35 of our 63 hotels and resorts under management
during 2004, as compared to 33 of our 60 hotels and resorts under management in
2003.
We generally supervise purchasing at the hotels and resorts that we manage to
maintain a uniform quality of goods purchased and to control hotel operating
costs. We maintain a centralized purchasing system and receive a fee calculated
as a percentage of the cost of goods purchased when this system is utilized by
the hotels and resorts under management.
Although the hotel and resort owners are generally responsible for financing and
managing the development of the hotels and resorts, we typically play a
significant pre-opening role. We provide advice with respect to the design,
construction and fitting out specifications of the hotels and resorts during the
development stage to ensure that they meet Four Seasons' standards and earn a
variety of fees for these pre-opening services. We may also assist owners in
connection with the refurbishment of the hotels and resorts after opening in
return for a refurbishing fee.
Under our management agreements, the hotel or resort owner is responsible for
funding the hotel's or resort's operating costs, capital expenditures and
working capital requirements, including the salaries and benefits of all
employees. The owner typically is required to set aside a percentage of the
gross revenue of the hotel or resort each year as a reserve for capital
expenditures. Those percentages typically range from 3% to 5% of hotel or resort
annual gross operating revenues. We propose an operating plan and capital
expenditure budget to the owner for approval on an annual basis. All structural
changes, major refurbishing programs and major repairs generally require the
separate approval of owners prior to implementation and may be carried out by us
or a third party.
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Total fee revenues are geographically diversified around the world. The United
States is the only geographic segment which contributed more than 40% of all our
fee revenues in 2004. The diversification of our fee revenues has increased
significantly over the past 10 years. With the opening of hotels and resorts
currently under construction and development around the world, we expect greater
diversification of fee revenues in the future.
SALES, MARKETING, ADVERTISING AND RESERVATIONS
We are responsible for the development of overall sales and marketing strategies
for our portfolio of branded hotels and resorts, which includes enhancing
international awareness of the Four Seasons brand and developing local market
potential for specific hotels and resorts. Our marketing efforts are coordinated
through our headquarters in Toronto and are targeted at the luxury segment of
the market worldwide. Our customer mix consists of business travelers, groups
(including corporate and incentive), and leisure travelers. These customer
segments accounted for an estimated 32%, 30% and 38%, respectively, of total
room nights in 2004. Our corporate marketing staff oversees planning and
implementation of hotel and resort marketing programs and also the training and
development for the global sales force and the hotel sales and marketing staff.
We also provide supplementary oversight sales support to the four Regent hotels
that we manage (see "Intellectual Property") with core marketing services for
the Regent brand being provided by Carlson Hospitality Group of Minneapolis.
We have a global sales force of approximately 50 sales professionals in 16
offices worldwide including, Atlanta, Bahrain, Chicago, Dallas, Dubai,
Frankfurt, Hong Kong, London, Los Angeles, New York, Paris, Singapore, Sydney,
Tokyo, San Francisco and Washington, D.C. Key objectives of our sales force are
to attract groups and corporate business travelers for the hotels and resorts,
as well as to establish personal contact with nationally recognized travel
agencies. In addition, a total of over more than 450 sales professionals are
employed locally at hotels and resorts that we manage. Our local marketing
strategy is concentrated on developing rooms and food and beverage business for
hotels and resorts locally and regionally, and promoting the hotel or resort as
a centre of community activity with a view to increasing revenues from local
sources.
We also provide an international corporate advertising program that develops and
places advertising for Four Seasons branded hotels and resorts and oversees
promotional programs which benefit all the properties. Our advertisements are
designed to enhance consumer awareness of our luxury service and the value that
such services provide to the business and leisure traveler.
We staff one reservation centre for all Four Seasons branded hotels and resorts,
while Carlson Hospitality Group provides core reservation services for the
Regent hotels. In addition, our global reservation network provides reservation
services in the local language in 28 markets in major North American, Asian and
European cities. Electronic reservations are another key part of our global
distribution network, as our reservation systems are fully integrated with
international airline booking systems. The Internet is a growing distribution
channel which is supported by our website - WWW.FOURSEASONS.COM. Our website
accepts on-line reservations and also refers guests to other reservation
channels.
We receive corporate sales and marketing charges, centralized reservation
service charges and corporate advertising charges from our hotels and resorts,
thereby enabling us to recover substantially all of the costs of providing these
services.
RESIDENCE CLUBS AND OTHER BRANDED RESIDENTIAL PROPERTIES
We manage the Residence Clubs and other Four Seasons branded and serviced
residential projects pursuant to management agreements under which we oversee
the management of the day-to-day operations of the completed projects and for
which we receive an ongoing management fee from the owners of interests. We also
oversee the sales and marketing of the Residence Club interests and are
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responsible for the branding of the Residence Clubs and the other Four Seasons
branded residential projects. For these services we receive fees generally based
on a percentage of the selling price of the interests.
MANAGEMENT RESOURCES
Each of our properties is managed by a General Manager and supported by a
Regional Vice President (who is also a General Manager), and other corporate
Vice Presidents. The size of each property's management team and its hourly
staff varies, based on the size and business volume of the particular property.
Property management monitors staffing levels on an ongoing basis to optimize
service standards and labour productivity.
A General Manager is responsible for supervising the day-to-day operations of a
single property, is a full-time employee at that property, and is compensated in
part based on the operational performance of that property. Our General Managers
report directly to one of 16 Regional Vice Presidents or directly to the Senior
Vice President, Operations, the President Europe/Middle East, or the Executive
Vice President, Operations. Area Directors of Finance and Regional IT Directors,
each of whom is a full-time employee at a property that we manage, also devote a
portion of their time to regional activities and providing assistance to other
properties that we manage. Corporate Area Directors or Vice Presidents of Human
Resources and Marketing complete each regional support team. We believe that our
regional management structure is a key component in our ability to deliver and
maintain the highest and most consistent standards of product quality and
service at each of our properties in a cost effective manner, especially as we
expand globally.
From the corporate level, we provide each of our properties with the benefits of
management services delivered by our network of highly experienced executives,
corporate personnel and area managers. We also provide or arrange assistance and
training to each property's employees for administration, operations, rooms and
guest service, reservations, maintenance and engineering, human resources and
benefits. Other services arranged by us include advice and assistance with
accounting, tax, legal, risk management, treasury, information technology,
internal audit and credit services.
EMPLOYEES
We directly employ and are financially responsible for approximately 500
individuals at the various corporate offices, the worldwide sales offices and
the central reservations offices. In addition, there are approximately 30,900
employees located at the 64 hotels and resorts and three Residence Clubs that we
manage. All costs relating to property-based employees, including wages,
salaries and health and insurance benefits, are the responsibility of the
property owners and are generally paid out of the operating cash flow of the
property. Management and corporate staff share responsibility for the selection
and training of property-based employees and for ensuring, through progressive
career development, an adequate supply of mobile, qualified and experienced
staff to match the growth of our operations internationally. Maintenance of
employee communication, motivation and morale at high levels is necessary to
meet the expectations of our clientele. In this context, we have devoted
significant effort to developing customized hiring practices, training and
career development programs and approaches.
Employees at 22 hotels and resorts that we manage are covered by collective
bargaining agreements.
OWNERSHIP OPERATIONS
We hold ownership interests in, or have made advances in respect of or to, 30 of
the 64 hotels and resorts and all three of the Residence Clubs that we currently
manage, including a 100% leasehold interest in each of The Pierre in New York
and Four Seasons Hotel Vancouver. We hold secured cash
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flow loans in connection with Four Seasons Hotel London(2) and have advances
outstanding in connection with various properties, including Four Seasons Hotel
George V Paris, Four Seasons Hotel Sydney, Four Seasons Hotel San Francisco,
Four Seasons Resort Nevis and Four Seasons Hotel Hampshire.
We work closely with owners and investors in developing new properties and
acquiring existing luxury properties that we will manage. To the extent
required, we will make investments or advances to secure long-term management
contracts with a view to expanding or enhancing our management business and
where we believe the overall economic return to us justifies the investment or
advance. We generally seek to limit our total long-term capital exposure to no
more than 20% of the total equity required for a property. We structure our
investments to be able to have our interest diluted if additional capital is
required. We attempt to structure our ownership interests separately from our
management interests so as to be able to dispose of an ownership interest as
sale opportunities arise, without affecting our management interests.
INTELLECTUAL PROPERTY
In the highly competitive service industry in which we operate, trade names,
trademarks, service marks and logos are very important in the sales and
marketing of those services. We have a significant number of trade names,
trademarks, service marks and logos, and significant time and effort are
expended each year on surveillance, registration and protection of our trade
names, trademarks, service marks and logos, which we believe have become
synonymous in the lodging industry with a standard of attention to detail and an
unwavering dedication to excellence.
We have an arrangement with Carlson Hospitality Group pursuant to which Carlson
owns and has the exclusive right to use the Regent name, and related names,
trademarks, service marks and logos for new development. Pursuant to this
arrangement we retain the right to use the Regent name and related marks and
logos at the four Regent properties we manage and, in consideration for the
transfer of the ownership rights in the Regent name and related marks and logos,
we receive fixed annual payments from Carlson. The costs associated with the
maintenance of the Regent brand and marks are the obligation of Carlson.
BUSINESS AND GROWTH STRATEGY
Our core business strategy continues to be to enhance our industry position and
overall profitability through a focused, international expansion program that
capitalizes on the strengths of our core management operations and the value of
our brand name. We intend to continue to focus on growth and to seek to utilize
our competitive strengths to increase earnings, cash flow, property owners'
returns, and shareholder value by continuing to improve the operating
performance of our existing property portfolio, by generating profitable growth
through the acquisition of new management contracts and by capitalizing on
opportunities to leverage our luxury brand name through compatible business
extensions such as Four Seasons branded residential products.
We believe that the strength of our brand name, our global marketing presence
and our operational expertise result in average room revenue per available room
(RevPAR)(3) premiums and strong operating
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2 See note 3(a) and (b) to Four Seasons' consolidated financial statements.
3 RevPAR is a commonly used indicator of market performance for hotels and
resorts and represents the combination of the average daily room rate and the
average occupancy rate achieved during the period. RevPAR does not include
food and beverage or other ancillary revenues generated by a hotel or resort.
RevPAR is the most commonly used measure in the lodging industry to measure
the period-over-period performance of comparable properties.
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profitability for luxury hotels and resorts that we manage and provide us with a
competitive advantage in obtaining new management contracts worldwide. RevPAR
for Core Hotels(4) in the United States during 2004 was US$244, 54% higher than
the RevPAR of the United States luxury segment as compiled by Smith Travel
Research.
From 2001 through the latter part of 2003, the travel industry worldwide
operated in a challenging environment. Further tumultuous events for the travel
industry occurred in the first half of 2003: acts of terrorism, war in Iraq and
infectious diseases. The impact of these factors, in addition to a weak global
economic environment, had a significant negative impact on travel demand
throughout the world. In 2004 broad based improvements in travel demand were
realized on a world wide basis. Gross operating profit margins of the Core
Hotels under management also improved by 240 basis points to 29.3%. These
improvements in hotel operating results allowed us to increase our earnings
before other operating items by 60.6% to $79.4 million.
GROWTH FROM EXISTING PROPERTIES
We believe opportunities will exist for growth within our existing and newly
opened properties by increasing overall market share and RevPAR, thereby
improving the properties' profitability and, in turn, our fee revenues and
ownership earnings. From 2003 to 2004, on a US dollar basis, RevPAR for all Core
Hotels increased by 15.5%. During this period, on a US dollar basis, RevPAR for
Core Hotels in the United States, Other Americas/Caribbean, Europe, the Middle
East and Asia Pacific increased 8.7%, 18.2%, 20.6%, 52.9% and 31.9%,
respectively. On a local currency basis, as compared to 2003, RevPAR for Other
Americas/Caribbean, Europe, the Middle East and Asia/Pacific Core Hotels
increased 18.0%, 10.0%, 58.7% and 27.6%, respectively.
REVPAR STATISTICS - CORE HOTELS
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REGION OCCUPANCY AVERAGE ROOM REVPAR
RATE
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(In US$) 2004 2003 2004 2003 2004 2003
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Worldwide 68.5% 61.9% $332 $308 $211 $183
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United States 70.5% 68.1% $346 $330 $244 $225
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Other 64.2% 56.1% $302 $285 $180 $152
Americas/Caribbean
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Europe 63.0% 59.5% $520 $459 $343 $285
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Middle East 70.5% 47.7% $171 $159 $121 $ 79
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Asia/Pacific 68.7% 56.7% $258 $238 $127 $ 97
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NEW HOTEL AND RESORT OPPORTUNITIES
Having established a network of luxury hotels in many of the world's key
financial centres, we expect our future expansion to occur primarily in
locations that satisfy our objectives of better servicing the travel needs of
our existing customer base and attracting new international business travelers
to our managed
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4 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 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.
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hotels and resorts worldwide. We expect that future growth will primarily
be in the form of new hotels and resorts, or the conversion of existing hotels
and resorts, in Europe, the Middle East, South America and Asia/India, as well
as selected urban and resort locations in the United States and the Caribbean.
We plan to increase the number of resorts that we manage to serve the leisure
travel needs of our customers, which is expected to reduce the seasonality of
our cash flows. We currently have 26 new properties under construction or
development and are evaluating numerous other management opportunities in
various locations around the world.
We believe that we will continue to have the opportunity to consider and enter
into appropriate new hotel and resort management agreements as a result of our
competitive strengths. In 2004, we began operations at Four Seasons Hotel
Gresham Palace Budapest, Four Seasons Hotel Cairo at Nile Plaza, Four Seasons
Resort Costa Rica, Four Seasons Resort Provence at Terre Blanche and Four
Seasons Resort Whistler, and in early 2005, we began operations at Four Seasons
Hotel Hampshire. We also expect to begin operating five additional hotels and
resorts in 2005 or early 2006. (For details on these and other hotels and
resorts under construction or advanced stages of development, see "Four Seasons
Portfolio -- Properties under Construction or Development".)
RESIDENCE CLUBS AND OTHER BRANDED RESIDENTIAL PROPERTIES
As part of our program to capitalize on the value of the Four Seasons brand, we
have embarked on opportunities such as additional Residence Clubs and other
branded and serviced residential projects. Typically, these residential projects
will be integrated with our managed hotels and resorts. (See discussion under
"Management Operations -- Residence Clubs and Other Branded Residential
Properties".) During 2004, interests were available for initial sale in
Residence Clubs or other branded and serviced residential projects in Aviara,
California; Scottsdale, Arizona; Punta Mita, Mexico; San Francisco, California;
Nevis, West Indies; Jackson Hole, Wyoming; Miami, Florida; Great Exuma, the
Bahamas; and Whistler, British Columbia. We anticipate pursuing similar
initiatives in a number of our future resort and urban developments.
CAPITAL DEPLOYMENT
Consistent with our business strategy, we do not generally require large amounts
of capital to maintain existing management agreements or our ownership
positions, which are typically minority interests. As a result, in 2004, we
utilized a majority of the operating cash flow to make investments that allowed
us to obtain new or enhanced management agreements. As at December 31, 2004 we
had $272.5 million in cash and cash equivalents and additional financing
available under our bank credit facilities. (For details of those credit
facilities see "Liquidity and Capital Resources" in Management's Discussion and
Analysis.)
COMPETITIVE STRENGTHS
The hotel industry is highly competitive. We believe that our competitive
position is strengthened by the barriers to entry into the luxury segment of the
hotel management business. Those barriers to entry include the time and
significant capital resources required to establish a well recognized and
respected luxury brand name and to obtain management contracts for luxury
properties in strategic markets worldwide. We also believe that we have
developed a unique service culture, depth of management expertise, and multiple
capital resources over our more than 41-year history that would be difficult for
others to replicate.
STRONG BRAND RECOGNITION
Our properties are widely recognized for the exceptional quality of their guest
facilities, service and atmosphere, and have been named more frequently than any
other competitor among the world's best
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hotels and travel experiences by INSTITUTIONAL INVESTOR, CONDE NAST
TRAVELER, ZAGAT and others. We believe that our brand name recognition cannot
easily be replicated by others, as it has been created over 40 years through the
exceptional experiences provided by Four Seasons global list of unique
properties of the highest quality.
SUPERIOR HOTEL OPERATING RESULTS
We generally achieve RevPAR and operating profit margins for hotels and resorts
that we manage that are above the average achieved in the luxury segment of the
lodging industry. We believe that we attract owners and developers of luxury
hotels and resorts worldwide as a result of the superior financial performance
of the hotels and resorts that we manage.
STRATEGIC RELATIONSHIPS
Strategic relationships are an important source of financing for the development
opportunities required to expand our management operations. We have established
relationships with numerous institutional and private equity sources that invest
in and develop luxury properties. Several of the existing owners have an
ownership interest in more than one Four Seasons hotel or resort, including five
owners that have interests in four or more properties.
In 1994, a company controlled by His Royal Highness Prince Alwaleed Bin Talal
Bin Abdulaziz Al Saud purchased a significant minority position in Four Seasons
Hotels Inc. Prince Alwaleed or companies controlled by him (collectively,
"Kingdom"), own a majority interest in Four Seasons Hotel London, Four Seasons
Hotel George V Paris and Four Seasons Hotel Riyadh, with Four Seasons having
made advances in respect of the former two hotels. Kingdom also holds minority
interests in the Four Seasons Resort Aviara, California, Four Seasons Hotel
Amman, Four Seasons Resort Sharm el Sheikh and Four Seasons Hotel Cairo at Nile
Plaza and has invested, or is expected to make investments, in a number of
additional properties at various stages of development that we expect to manage
under the Four Seasons brand name, such as the Four Seasons hotels or resorts
being developed in Alexandria, Damascus, Beirut and Geneva. All of our
transactions with Kingdom are conducted at arm's length.
MANAGEMENT FOCUS
We are principally a global hotel and resort management company. Management
agreements for the hotels and resorts that we manage generally are long-term,
having an average remaining term of approximately 52 years, including extension
periods available at our option. The average term of the management contracts
for the five new properties expected to open in 2005 or early in 2006 is 53
years. (For a chart summarizing, among other things, the hotels and resorts
under construction or development by Four Seasons that are expected to open in
2005 or early 2006 see "Four Seasons Portfolio -- Properties under Construction
or Development".)
GLOBAL PRESENCE
We manage a global portfolio of 64 luxury hotels and resorts and three Residence
Clubs in 28 countries in North America, the Caribbean, Europe, Asia, Australia,
the Middle East and South America. 26 additional properties to be operated under
the Four Seasons name are under construction or development in a further nine
countries around the world. Nine of these new properties are to include a
Residence Club or other residential component. Hotels that we currently manage
are located in major international financial centres, such as London, New York,
Paris, Chicago, Washington, Los Angeles, Tokyo, Milan, Shanghai, Singapore,
Toronto and Sydney, as well as in emerging international markets, such as Dublin
and Mexico City. We also manage resorts in world-class destinations, such as
Bali, California, Costa Rica, Hawaii, Mexico, Nevis and Whistler and have
Residence Clubs in active sales and operation in California, Arizona and
Wyoming. We anticipate that we will continue to expand in urban
- 8 -
and resort destinations where consumer demand warrants a luxury property.
In 2004, approximately 53%, 12%, 17%, 4% and 14% of our management revenues were
derived from hotels and resorts in the United States, Asia/Pacific, Europe,
Middle East, and Other Americas/Caribbean, respectively. We maintain a fully
integrated global reservation and sales office system that provides
international sales coverage for our properties.
STRONG MANAGEMENT TEAM
Our corporate executive management team consists of nine individuals who are
responsible for our global strategic direction and who have an average of
approximately 23 years of experience with us. This team is supported by 26
corporate Vice Presidents, who are responsible for various aspects of our daily
operations, as well as by 67 General Managers and Regional Vice Presidents, who
together have an average of approximately 15.4 years of experience with us. We
have a fundamental strategy of developing our senior management team, to the
extent possible, from within in order to ensure consistency of our service
culture and work ethic.
FOUR SEASONS PORTFOLIO
Our properties are comprised of luxury hotels, resorts, Residence Clubs and
other serviced and branded residential projects whose target customers are
principally business travelers, corporate and incentive groups and discerning
leisure travelers. Our urban hotels generally are centrally located in the
commercial and financial districts of the world's leading cities in North
America, South America, Asia, Europe and the Middle East. Our luxury resorts,
Residence Clubs and other serviced and branded residential projects are located
in world-class leisure destinations and provide extensive recreational and
meeting facilities to attract upscale leisure travelers and groups.
DESCRIPTION OF HOTELS, RESORTS AND RESIDENCE CLUBS
The following table provides an overview of the properties that we currently
manage:
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APPROXIMATE APPROXIMATE
NUMBER OF EQUITY
ROOMS/UNITS INTEREST(1)
- -------------------------------------------------------------------------
UNITED STATES
- -------------------------------------------------------------------------
Four Seasons Hotel Atlanta, GEORGIA 244 --
- -------------------------------------------------------------------------
Four Seasons Hotel Austin, TEXAS 291 --
- -------------------------------------------------------------------------
Four Seasons Resort Aviara, 329 7.3%(2)
CALIFORNIA
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Four Seasons Residence Club Aviara, 120 7.3%(2)
CALIFORNIA
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The Regent Beverly Wilshire (Beverly 395 --
Hills), CALIFORNIA
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Four Seasons Biltmore Resort (Santa 213 --
Barbara), CALIFORNIA
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Four Seasons Hotel Boston, 272 --
MASSACHUSETTS(3)
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Four Seasons Hotel Chicago, ILLINOIS 343 --
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The Ritz-Carlton Hotel Chicago, 435 --
ILLINOIS
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Four Seasons Hotel Houston, TEXAS(3) 404 --
- -------------------------------------------------------------------------
Four Seasons Resort Hualalai at 243 --
Historic Ka'upulehu, HAWAII
- -------------------------------------------------------------------------
Four Seasons Resort Jackson Hole, 146 10%(2),(5)
WYOMING(3)
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Four Seasons Residence Club Jackson 16(4) 10%(2)
Hole, WYOMING
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Four Seasons Resort and Club Dallas 357 --
at Las Colinas, TEXAS
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Four Seasons Hotel Las Vegas, NEVADA 424 --
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- 9 -
- -------------------------------------------------------------------------
APPROXIMATE APPROXIMATE
NUMBER OF EQUITY
ROOMS/UNITS INTEREST(1)
- -------------------------------------------------------------------------
Four Seasons Hotel Los Angeles, 285 --(5)
CALIFORNIA
- -------------------------------------------------------------------------
Four Seasons Resort Maui at Wailea, 377 --
HAWAII
- -------------------------------------------------------------------------
Four Seasons Hotel Miami, FLORIDA 221 4.7%(2)
- -------------------------------------------------------------------------
Four Seasons Hotel Newport Beach, 295 --
CALIFORNIA
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Four Seasons Hotel New York, NEW YORK 362 --
- -------------------------------------------------------------------------
Four Seasons Resort Palm Beach, 210 --
FLORIDA
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Four Seasons Hotel Philadelphia, 364 --
PENNSYLVANIA
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The Pierre in New York, NEW YORK 201(6) 100%(7)
- -------------------------------------------------------------------------
Four Seasons Hotel San Francisco, 277 --
CALIFORNIA(3)
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Four Seasons Resort Scottsdale at 210 3.9%(2),(5),(8)
Troon North, ARIZONA
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Four Seasons Residence Club 44 14.2%(2),(5)
Scottsdale at Troon North, ARIZONA
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Four Seasons Hotel Washington, 211 --
DISTRICT OF COLUMBIA
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OTHER AMERICAS/CARIBBEAN
- -------------------------------------------------------------------------
Four Seasons Hotel Buenos Aires, 165 --
ARGENTINA
- -------------------------------------------------------------------------
Four Seasons Resort Carmelo, URUGUAY 44 --
- -------------------------------------------------------------------------
Four Seasons Resort Costa Rica at 165 11.4%(7)
Peninsula Papagayo, COSTA RICA(3)
- -------------------------------------------------------------------------
Four Seasons Resort Great Exuma at 183 --
Emerald Bay, THE BAHAMAS(3)
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Four Seasons Hotel Mexico City, 240 --
MEXICO
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Four Seasons Resort Nevis, WEST 196 --
INDIES(3)
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Four Seasons Resort Punta Mita, 140 --
MEXICO(3)
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Four Seasons Hotel Toronto, ONTARIO, 380 --
CANADA
- -------------------------------------------------------------------------
Four Seasons Hotel Vancouver, BRITISH 376 100%(7)
COLUMBIA, CANADA
- -------------------------------------------------------------------------
Four Seasons Resort Whistler, BRITISH 273 --(5)
COLUMBIA, CANADA
- -------------------------------------------------------------------------
ASIA/PACIFIC
- -------------------------------------------------------------------------
Four Seasons Resort Bali at Jimbaran 147 --
Bay, INDONESIA
- -------------------------------------------------------------------------
Four Seasons Resort Bali at Sayan, 60 --
INDONESIA(3)
- -------------------------------------------------------------------------
Four Seasons Hotel Bangkok, THAILAND 340 --
- -------------------------------------------------------------------------
Four Seasons Resort Chiang Mai, 80 --
THAILAND
- -------------------------------------------------------------------------
Four Seasons Hotel Jakarta, INDONESIA(3) 365 2%(2),(10)
- -------------------------------------------------------------------------
The Regent Kuala Lumpur, MALAYSIA 468 --
- -------------------------------------------------------------------------
Four Seasons Resort Maldives at Kuda 106 --
Huraa, MALDIVES
- -------------------------------------------------------------------------
Four Seasons Hotel Shanghai, PEOPLE'S 439 21.2%(2),(5),(9)
REPUBLIC OF CHINA
- -------------------------------------------------------------------------
Four Seasons Hotel Singapore, 254 --
SINGAPORE
- -------------------------------------------------------------------------
The Regent Singapore, SINGAPORE 441 --
- -------------------------------------------------------------------------
Four Seasons Hotel Sydney, AUSTRALIA 531 15.2%(7)
- -------------------------------------------------------------------------
Grand Formosa Regent Taipei, TAIWAN 538 --
- -------------------------------------------------------------------------
Four Seasons Hotel Tokyo at 283 --
Chinzan-so, JAPAN
- -------------------------------------------------------------------------
Four Seasons Hotel Tokyo at 57 --
Marunouchi, JAPAN
- -------------------------------------------------------------------------
MIDDLE EAST
- -------------------------------------------------------------------------
Four Seasons Hotel Amman, JORDAN 193 1.6%(2)
- -------------------------------------------------------------------------
Four Seasons Hotel Cairo at The First 269 --
Residence, EGYPT(3)
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Four Seasons Hotel Cairo at Nile 365 7.8%(2)
Plaza, EGYPT(3)
- -------------------------------------------------------------------------
Four Seasons Hotel Riyadh, SAUDI 249 --
ARABIA
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- 10 -
- -------------------------------------------------------------------------
APPROXIMATE APPROXIMATE
NUMBER OF EQUITY
ROOMS/UNITS INTEREST(1)
- -------------------------------------------------------------------------
Four Seasons Resort Sharm el Sheikh, 136 --
EGYPT(3)
- -------------------------------------------------------------------------
EUROPE
- -------------------------------------------------------------------------
Four Seasons Hotel Gresham Palace 179 18.3%(2)
Budapest, HUNGARY
- -------------------------------------------------------------------------
Four Seasons Hotel Dublin, IRELAND 259 --
- -------------------------------------------------------------------------
Four Seasons Hotel Hampshire, ENGLAND 133 --(5)
- -------------------------------------------------------------------------
Four Seasons Hotel Istanbul, TURKEY 65 --(11)
- -------------------------------------------------------------------------
Four Seasons Hotel The Ritz Lisbon, 282 --
PORTUGAL
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Four Seasons Hotel Canary Wharf, 142 --(12)
ENGLAND
- -------------------------------------------------------------------------
Four Seasons Hotel London, ENGLAND 220 12.5%(5),(7),(13)
- -------------------------------------------------------------------------
Four Seasons Hotel Milan, ITALY 118 --
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Four Seasons Hotel George V Paris, 245 --
FRANCE
- -------------------------------------------------------------------------
Four Seasons Hotel Prague, CZECH 161 --(5)
REPUBLIC
- -------------------------------------------------------------------------
Four Seasons Resort Provence at Terre 115 --
Blanche, FRANCE(3)
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1 In the ordinary course, we make investments in, or advances in respect of
or to owners of, properties to obtain new management agreements or to
enhance existing management agreements where we believe the overall
economic return to us will justify the investment or advance. We generally
seek to limit our total long-term capital exposure to no more than 20% of
the total equity required for a property. For a description of our
investments in, or advances made in respect of or to owners, of properties
and other commitments in respect of existing properties, including the
equity investments listed in this chart, see "Balance Sheet Review and
Analysis" and "Liquidity and Capital Resources".
2 Freehold interest.
3 This project includes, or is expected to include, a Four Seasons Residence
Club or a Four Seasons branded residential component.
4 Four Seasons Residence Club Jackson Hole, Wyoming may have up to 40
units at full build out.
5 In addition to providing management services to this property, we have a
guarantee or other off-balance sheet commitment in respect of this
property. See "Off-Balance Sheet Arrangements -- Guarantees and
Commitments".
6 Includes approximately 30 cooperative suites leased from individual owners
and operated as hotel rooms.
7 Leasehold interest.
8 We have a preferred profits interest derived from previously existing
subordinated loans to the resort or property of approximately US$17.4
million in aggregate plus a loan in the amount of US$6.0 million to an
entity that owns approximately 85% of the entity that owns the hotel.
9 We anticipate that we will reduce our equity interest through a sale to
a third party.
10 The Regent Jakarta was re-branded as Four Seasons Hotel Jakarta
effective July 14, 2004.
11 Subject to satisfaction of certain conditions, we may acquire an 18%
leasehold interest in conjunction with a proposed expansion and renovation
of Four Seasons Hotel Istanbul.
12 We have made a loan of (pound)3 million to the owner of the Four Seasons
Hotel Canary Wharf, which is convertible into an equity interest in the
hotel on the occurrence of certain events.
- 11 -
13 Four Seasons Hotels Limited ("FSHL") is the tenant of the land and
premises constituting Four Seasons Hotel London. FSHL has entered into a
sublease of the hotel with the entity on whose behalf we manage the hotel.
The annual rent payable by FSHL under the lease is the same as the annual
rent that is payable by the sub-tenant pursuant to the sublease.
Indirectly, we now hold a 12.5% ownership interest in the sub-tenant.
- 12 -
PROPERTIES UNDER CONSTRUCTION OR DEVELOPMENT
We currently have 26 properties under construction or development that are to be
operated under the Four Seasons name. We expect nine of those properties to
include a Residence Club or other residential branded component. The following
table provides an overview of these properties:
- --------------------------------------------------------------------------------
CAPITAL
COMMITMENT
NOT YET FUNDED
TOTAL CAPITAL AS AT MARCH 14,
APPROXIMATE COMMITMENT 2005
HOTEL/RESORT/RESIDENCE CLUB NUMBER OF (IN (IN
AND LOCATION(1),(2) ROOMS/UNITS MILLIONS) MILLIONS)
- --------------------------------------------------------------------------------
SCHEDULED 2005/2006 OPENINGS
- --------------------------------------------------------------------------------
Four Seasons Hotel Alexandria, 125 -- --
EGYPT(3)
- --------------------------------------------------------------------------------
Four Seasons Hotel Damascus, 305 US$5 --
SYRIA
- --------------------------------------------------------------------------------
Four Seasons Hotel Doha, QATAR(3) 230 US$4(4) US$4
- --------------------------------------------------------------------------------
Four Seasons Hotel Florence, 120 (euro)10(4) (euro)10
ITALY
- --------------------------------------------------------------------------------
Four Seasons Hotel Geneva, 100 US$19 US$15.4
SWITZERLAND
- --------------------------------------------------------------------------------
Four Seasons Hotel Hong Kong, 395 -- --
PEOPLE'S REPUBLIC OF CHINA(3)
- --------------------------------------------------------------------------------
Four Seasons Resort Lanai at 100 -- --
Koele, HAWAII, USA
- --------------------------------------------------------------------------------
Four Seasons Resort Lanai at 250 -- --
Manele Bay, HAWAII, USA
- --------------------------------------------------------------------------------
Four Seasons Resort Langkawi, 90 -- --
MALAYSIA
- --------------------------------------------------------------------------------
Four Seasons Resort Maldives 115 US$4 US$4
at Landaa Giraavaru, MALDIVES
- --------------------------------------------------------------------------------
Four Seasons Hotel Mumbai, 235 -- --
INDIA
- --------------------------------------------------------------------------------
Four Seasons Residence Club 35 US$36.8 US$35.7
Punta Mita, MEXICO(5)
- --------------------------------------------------------------------------------
Four Seasons Hotel Silicon 200 US$6.7 US$0.8
Valley at East Palo Alto,
CALIFORNIA, USA
- --------------------------------------------------------------------------------
Four Seasons Private Residences 35 -- --
Whistler, BRITISH COLUMBIA,
CANADA(6)
- --------------------------------------------------------------------------------
BEYOND 2006
- --------------------------------------------------------------------------------
Four Seasons Hotel Baltimore, 200 US$5 US$5
MARYLAND, USA(3)
- --------------------------------------------------------------------------------
Four Seasons Hotel Beijing, 325 US$1 US$1
PEOPLE'S REPUBLIC OF CHINA
- --------------------------------------------------------------------------------
Four Seasons Hotel Beirut, 235 US$5 US$5
LEBANON
- --------------------------------------------------------------------------------
Four Seasons Resort Bora Bora, 105 US$6.5(4) US$6.5
FRENCH POLYNESIA
- --------------------------------------------------------------------------------
Four Seasons Hotel Dubai, 250 -- --
UNITED ARAB EMIRATES(3)
- --------------------------------------------------------------------------------
Four Seasons Hotel Istanbul at 170 US$12(7) US$10.5
the Bosphorus, TURKEY
- --------------------------------------------------------------------------------
Four Seasons Hotel Kuwait 225 -- --
City, KUWAIT
- --------------------------------------------------------------------------------
Four Seasons Hotel Moscow, 210 US$10 US$10
RUSSIA(3)
- --------------------------------------------------------------------------------
Four Seasons Hotel Moscow 80 US$5 US$5
Kamenny Island, RUSSIA(3)
- --------------------------------------------------------------------------------
Four Seasons Resort Puerto 250 US$10 US$10
Rico, PUERTO RICO(3)
- --------------------------------------------------------------------------------
- 13 -
- --------------------------------------------------------------------------------
CAPITAL
COMMITMENT
NOT YET FUNDED
TOTAL CAPITAL AS AT MARCH 14,
APPROXIMATE COMMITMENT 2005
HOTEL/RESORT/RESIDENCE CLUB NUMBER OF (IN (IN
AND LOCATION(1),(2) ROOMS/UNITS MILLIONS) MILLIONS)
- --------------------------------------------------------------------------------
Four Seasons Hotel Seattle, 150 US$5 US$5
WASHINGTON, USA(3)
- --------------------------------------------------------------------------------
Four Seasons Resort Vail, 120 US$6 US$6
COLORADO, USA
- --------------------------------------------------------------------------------
1 Information concerning hotels, resorts and Residence Clubs or other
residential branded components under construction or under development is
based upon agreements and letters of intent and may change prior to the
completion of the project. We have estimated the dates of scheduled
openings based upon information provided by the various developers. There
can be no assurance that the dates of scheduled openings will be achieved,
that estimated capital commitments will not change or that these projects
will be completed. In particular, 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.
2 We have made an investment in Orlando, Florida, 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.
3 We expect this project to include a Four Seasons Residence Club and/or a
Four Seasons branded residential component.
4 All or a portion of the capital commitment is to be provided by way of an
operating deficit loan that may or may not be required to be funded. In
the case of Four Seasons Hotel Doha, Four Seasons Hotel Florence and Four
Seasons Resort Bora Bora, we do not expect the operating deficit loans
that we are to provide to exceed US$4 million, (euro)10 million and US$4
million, respectively, if they are funded.
5 Four Seasons Residence Club Punta Mita remains under development
adjacent to Four Seasons Resort Punta Mita.
6 Four Seasons Private Residences Whistler are under development adjacent
to Four Seasons Resort Whistler.
7 This capital commitment relates to our purchase of an equity interest in
Four Seasons Hotel Istanbul at the Bosphorus as well as the existing Four
Seasons Hotel Istanbul.
- 14 -
SUMMARY HOTEL OPERATING DATA
The following table sets forth certain summary operating data in the years shown
for hotels and resorts that we manage.
- --------------------------------------------------------------------------------
(Unaudited) 2004 2003 2002
- --------------------------------------------------------------------------------
ALL MANAGED HOTELS
- --------------------------------------------------------------------------------
Worldwide
- --------------------------------------------------------------------------------
No. of properties 63(1) 60 57
- --------------------------------------------------------------------------------
No. of rooms 16,378(1) 15,726 15,433
- --------------------------------------------------------------------------------
United States
- --------------------------------------------------------------------------------
No. of properties 24 24 23
- --------------------------------------------------------------------------------
No. of rooms 7,109 7,145 7,248
- --------------------------------------------------------------------------------
Other Americas/Caribbean
- --------------------------------------------------------------------------------
No. of properties 10 9 8
- --------------------------------------------------------------------------------
No. of rooms 2,162 1,929 1,762
- --------------------------------------------------------------------------------
Asia/Pacific
- --------------------------------------------------------------------------------
No. of properties 14 14 14
- --------------------------------------------------------------------------------
No. of rooms 4,109 4,109 4,119
- --------------------------------------------------------------------------------
Europe
- --------------------------------------------------------------------------------
No. of properties 10(1) 9 9
- --------------------------------------------------------------------------------
No. of rooms 1,786(1) 1,696 1,698
- --------------------------------------------------------------------------------
Middle East
- --------------------------------------------------------------------------------
No. of properties 5 4 3
- --------------------------------------------------------------------------------
No. of rooms 1,212 847 606
- --------------------------------------------------------------------------------
MANAGED HOTELS (EXCLUDING RECENTLY
OPENED PROPERTIES)(2)
- --------------------------------------------------------------------------------
Worldwide
- --------------------------------------------------------------------------------
No. of properties 51 50 46
- --------------------------------------------------------------------------------
No. of rooms 13,559 13,423 12,834
- --------------------------------------------------------------------------------
Occupancy(3) 66.8% 61.9% 64.6%
- --------------------------------------------------------------------------------
ADR(4) US$307 US$299 US$289
- --------------------------------------------------------------------------------
RevPAR(5) US$205 US$185 US$187
- --------------------------------------------------------------------------------
Gross operating margin(6) 29.1% 26.7% 30.0%
- --------------------------------------------------------------------------------
United States
- --------------------------------------------------------------------------------
No. of properties 19 22 22
- --------------------------------------------------------------------------------
No. of rooms 6,108 6,800 6,971
- --------------------------------------------------------------------------------
Occupancy(3) 70.5% 67.6% 66.7%
- --------------------------------------------------------------------------------
ADR(4) US$346 US$331 US$321
- --------------------------------------------------------------------------------
RevPAR(5) US$244 US$224 US$214
- --------------------------------------------------------------------------------
Gross operating margin(6) 25.6% 24.9% 28.0%
- --------------------------------------------------------------------------------
Other Americas/Caribbean
- --------------------------------------------------------------------------------
No. of properties 7 7 5
- --------------------------------------------------------------------------------
No. of rooms 1,541 1,534 1,341
- --------------------------------------------------------------------------------
Occupancy(3) 64.2% 56.1% 63.8%
- --------------------------------------------------------------------------------
ADR(4) US$280 US$271 US$261
- --------------------------------------------------------------------------------
RevPAR(5) US$180 US$152 US$167
- --------------------------------------------------------------------------------
Gross operating margin(6) 29.8% 26.7% 30.9%
- --------------------------------------------------------------------------------
Asia/Pacific
- --------------------------------------------------------------------------------
No. of properties 13 11 10
- --------------------------------------------------------------------------------
No. of rooms 3,571 3,149 2,715
- --------------------------------------------------------------------------------
Occupancy(3) 63.4% 56.6% 63.9%
- --------------------------------------------------------------------------------
ADR(4) US$183 US$165 US$164
- --------------------------------------------------------------------------------
RevPAR(5) US$116 US$93 US$105
- --------------------------------------------------------------------------------
Gross operating margin(6) 32.3% 29.5% 33.7%
- --------------------------------------------------------------------------------
- 15 -
- --------------------------------------------------------------------------------
(Unaudited) 2004 2003 2002
- --------------------------------------------------------------------------------
Europe
- --------------------------------------------------------------------------------
No. of properties 8 8 8
- --------------------------------------------------------------------------------
No. of rooms 1,492 1,535 1,536
- --------------------------------------------------------------------------------
Occupancy(3) 63.5% 59.5% 59.9%
- --------------------------------------------------------------------------------
ADR(4) US$529 US$459 US$376
- --------------------------------------------------------------------------------
RevPAR(5) US$336 US$285 US$243
- --------------------------------------------------------------------------------
Gross operating margin(6) 34.7% 31.2% 33.6%
- --------------------------------------------------------------------------------
Middle East
- --------------------------------------------------------------------------------
No. of properties 4 2 1
- --------------------------------------------------------------------------------
No. of rooms 847 405 271
- --------------------------------------------------------------------------------
Occupancy(3) 65.6% 47.7% 50.0%
- --------------------------------------------------------------------------------
ADR(4) US$182 US$159 US$204
- --------------------------------------------------------------------------------
RevPAR(5) US$119 US$79 US$102
- --------------------------------------------------------------------------------
Gross operating margin(6) 37.9% 33.6% 48.8%
- --------------------------------------------------------------------------------
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.
2 Includes hotels and resorts that were fully open and that we managed
throughout a particular year and during the last quarter of the prior
year. This data is used when information for more than two years is
provided. However, if a "Managed Hotel" has undergone or is undergoing an
extensive renovation program during the aforementioned period, it ceases
to be included as a "Managed Hotel" for that particular year.
3 Occupancy percentage is defined as the total number of rooms occupied
divided by the total number of rooms available.
4 ADR is defined as average daily room rate per room occupied.
5 RevPAR is defined as average room revenue per available room. RevPAR is a
commonly used indicator of market performance for hotels and resorts and
represents the combination of the average daily room rate and the average
occupancy rate achieved during the period. RevPAR does not include food
and beverage or other ancillary revenues generated by a hotel or resort.
RevPAR is the most commonly used measure in the lodging industry to
measure the period-over-period performance of comparable properties.
6 Gross operating margin represents gross operating profit as a percentage
of gross operating revenue.
- 16 -
OPERATING RISKS
Our business is subject to many risks and uncertainties, including those
discussed below.
GEOPOLITICAL, ECONOMIC AND LODGING INDUSTRY CONDITIONS
We focus exclusively on the luxury segment of the lodging industry, which is
subject to operating risks inherent in the industry. These risks include, among
other things:
o changes in general, local and industry-specific economic and financial
conditions, such as the airline industry,
o periodic overbuilding in the industry or a specific market,
o varying levels of demand for rooms and related services (including
food and beverage and function space),
o competition from other properties,
o changes in travel patterns,
o the recurring need for renovation, refurbishment and improvement of
hotel and resort properties,
o changes in wages, benefits, prices, construction and maintenance,
insurance and operating costs that may result from inflation or
otherwise,
o government regulations,
o changes in taxes and interest rates,
o currency fluctuations,
o the availability and cost of financing for operating or capital
requirements,
o natural disasters,
o extreme weather conditions,
o labour disputes,
o infectious diseases, and
o war, civil unrest, terrorism, international conflict and political
instability.
We operate and own luxury hotels, resorts and serviced and branded residential
projects in many areas of the world and our revenues are dependent upon the
results of the individual properties. The conditions listed above can have, and
have from time to time had, a significant adverse impact upon individual
properties or particular regions. A period of economic recession or downturn in
any of the world's primary outbound travel markets could materially and
adversely affect, and have from time to time materially and adversely affected,
our business, results of operations and financial condition, including fee
revenue and ownership earnings. An economic downturn generally affects ownership
results to a significantly greater degree than management results due to the
high fixed costs associated with hotel ownership.
COMPETITION
The luxury segment of the hotel and resort industry is subject to intense
competition, both for guests and for the acquisition of new management
agreements. Competition for guests arises primarily from other
- 17 -
luxury hotel chains, individual luxury hotels and resorts and a limited
number of luxury properties operated by larger hotel chains. That competition is
primarily based on, among other things, brand name recognition, location, room
rates and quality of service and accommodations. Demographic, geographic and
other changes in specific market conditions could materially and adversely
affect the convenience or desirability of the locales in which hotels and
resorts that we manage are located.
We compete for management opportunities with other hotel operators. We believe
that our ability to obtain management agreements is based primarily on the value
and quality of our management services, brand name recognition and the economic
advantages to the hotel owner of retaining our management services and using our
brand name. We also believe that an owner's assessment of the economic
advantages of retaining our management services and using our brand name is, in
part, a function of the success of the hotels and resorts currently under
management by us. Competitive factors also include relationships with hotel
owners and investors, marketing support, reservation system capacity and the
ability to make investments that may be necessary to obtain management
agreements. Our failure to compete successfully for expansion opportunities or
to attract and maintain relationships with current hotel owners could materially
and adversely affect our business, results of operations and financial
condition.
DEPENDENCE ON MANAGEMENT AGREEMENTS
Management agreements expire in the ordinary course, and may in certain
circumstances be renegotiated and be subject to termination upon the occurrence
of specified events. Failure to obtain new management agreements or maintain
existing management agreements could materially and adversely affect our
business, results of operations and financial condition. We manage hotels and
resorts for various owners subject to the terms of each property's management
agreements. Those agreements generally can be terminated by the non-defaulting
party upon default in payment or unremedied failure to comply with the terms of
the agreements unless, in most cases, such default or unremedied failure was
caused by typical FORCE MAJEURE events. Most of the management agreements are
subject to performance tests that, if not met, could allow the agreements to be
terminated by the owner prior to the expiration of their respective terms. The
failure to maintain the standards specified in the agreement or to meet the
other terms and conditions of an agreement, including a performance test, could
result in the loss or cancellation of a management agreement. Typically, but not
in all cases, we have certain rights to cure a default to avoid termination.
Substantially all of the management agreements include typical FORCE MAJEURE
events, which, if they were to occur would prevent the termination of the
management agreements. Some management agreements also can be terminated subject
to a payment to us if the property is sold by the owner to a new owner who does
not wish to retain the existing agreement.
In the event of bankruptcy involving a property and foreclosure, a management
agreement may be terminated in most jurisdictions, unless the lender has
executed a non-disturbance agreement that is enforceable under applicable
bankruptcy laws. We generally have non-disturbance agreements with the lenders
to owners of hotels and resorts that we manage. Where no non-disturbance
agreement is in place or where it is not enforceable under applicable bankruptcy
laws, the risk of loss of a management agreement increases where debt that
cannot be serviced adequately is incurred by the owner at the property level. In
some jurisdictions, particularly in the United States, management agreements
have been construed by courts to create an agency relationship that is
terminable by the owner, notwithstanding any provision of the agreement that
purports to make the agreement not terminable under such circumstances. In such
circumstances, we would generally have an unsecured claim for breach of contract
against the owner of the hotel or its trustee in bankruptcy.
Management agreements for hotels and resorts we manage currently have remaining
terms (including extension periods at our election) averaging approximately 52
years. Renewal of management agreements at the end of their term is the subject
of negotiation between us and the relevant owners.
- 18 -
There can be no assurance that any particular management agreement or
agreements will be renewed or with respect to the terms and conditions of any
renewal.
DEPENDENCE ON PROPERTY OWNERS
As a result of our strategic decision to focus on management as opposed to
ownership of hotel and resort properties, our growth opportunities are dependent
in part on our ability to establish and maintain satisfactory relationships and
enhance those relationships with existing and new property owners. Those growth
opportunities are also dependent on access to capital by these investors. In
2004, no owner had interests in any combination of hotels, resorts and serviced
and branded residential properties managed by Four Seasons that represented in
excess of 10% of our total consolidated revenues. A failure by us to maintain
satisfactory relationships with any owner or owners of a significant number of
properties could have a material adverse effect on our business, results of
operations and financial condition.
RISK ASSOCIATED WITH EXPANSION, GROWTH AND NEW CONSTRUCTION
An element of our business strategy is to increase the number of hotels and
resorts under management. That expansion is dependent upon a number of factors,
including the identification of appropriate management opportunities, competing
successfully for the management agreements relating to those opportunities,
availability of financing for new developments and timely completion of
construction of new hotels and resorts (or the refurbishment of existing
properties) that are, or are to be, managed by us.
From time to time, the hotel industry has experienced periods during which
financial institutions generally have been reluctant to provide financing for
the construction of real estate properties, including hotels and resorts. There
can be no assurance that we will be able to obtain financing for projects or
that the terms on which such financing can be obtained will be acceptable to us.
The inability to obtain financing for a project could cause cancellation of, or
short-term interruption in, the progress or completion of properties under
construction or development.
Additionally, any construction project entails significant construction risks
that could delay or result in a substantial increase in the cost of
construction. The opening of newly constructed properties, in particular, is
contingent upon, among other things, receipt of all required licences, permits
and authorizations, including local land use permits, building and zoning
permits, health and safety permits and liquor licences. Changes or concessions
required by regulatory authorities could also involve significant additional
costs and delays or prevent completion of construction or opening of a project.
As a result of the global nature of our business, these regulatory matters arise
in a number of jurisdictions, many of which have distinctive regulatory regimes.
INVESTMENTS IN AND ADVANCES TO MANAGED AND OWNED PROPERTIES
We have made investments in, and/or advances in respect of or to owners of,
several of the hotels and resorts that we manage, to enable us to acquire the
management agreements for those properties or to enhance the terms of those
agreements. Currently, we hold an ownership or leasehold interest in, or have
made advances in respect of, 30 of the 64 hotels and resorts that we manage,
including a 100% leasehold interest in each of Four Seasons Hotel Vancouver and
The Pierre in New York. We also have made, or expect to make in the near term,
investments in, or advances in respect of or to owners of, 17 of the 26
properties under construction or development. In addition, we have an investment
in three Four Seasons Residence Club properties. The book value of total
investments and advances as at December 31, 2004 was approximately $564 million.
In addition to the risks associated with the operation of a hotel, we are
subject to risks generally related to owning and leasing real estate in
connection with these properties. These risks include, among others,
- 19 -
adverse changes in general or local economic conditions, local real estate
market conditions, property and income taxes, interest rates, the availability,
cost and terms of financing, the financial stability of the property owner,
liability for long-term lease obligations, the availability and costs of
insurance coverage, the potential for uninsured casualty and other losses, the
impact of present or future legislation or regulation (including those relating
to the environment), adverse changes in zoning laws and other regulations, civil
unrest, terrorism, war and political instability. In addition, these investments
in real estate are relatively illiquid and our ability to dispose of our
ownership interests, particularly our leasehold interests, in response to
changes in economic or other conditions may be limited. Further, advances to
owners of properties are typically subordinated and, in any event, may be
subject to loss in the event of insolvency of the owner to which an advance was
made. Any of these factors could result in material operating losses by us or a
particular hotel or resort and possibly the whole or partial loss of our equity
investment in the property or the inability to collect advances outstanding.
Holding an interest in a hotel also introduces risks associated with funding of
capital expenditures and incurring our proportionate share of any operating
losses. Where cash and working capital reserves provided by hotel operations are
insufficient, debt service, major repairs, renovations, refurbishments,
alterations or other capital expenditures generally must be funded by the owners
of the hotels and resorts, including us in some cases.
DEBT RATING RISKS
Our corporate rating is currently investment grade (BBB-) as rated by Standard &
Poor's. Our senior unsecured debt is currently rated by three debt rating
agencies (Standard & Poor's: BBB- with stable outlook; Moody's: Baa3 with stable
outlook; Dominion Bond Rating Services: BBB- with stable outlook). As a result
of current global economic and political events, it is possible that the rating
agencies may downgrade the rating and/or outlook for many of the lodging
companies, which would result in an increase in our borrowing costs. In
addition, pricing of any amounts drawn under our syndicated bank credit
facilities (which are undrawn but under which US$10.9 million of letters of
credit were issued at December 31, 2004) includes a spread to LIBOR ranging
between 0.875% and 2.25%, depending upon the ratings from Standard & Poor's and
Moody's and certain financial ratios.
GOVERNMENT REGULATION
We are subject to laws, ordinances and regulations relating to, among other
things, taxes, environmental matters, the preparation and sale of food and
beverages, accessibility for disabled persons and general building and zoning
requirements in the various jurisdictions in which we manage hotels and resorts.
Owners and managers of hotels and resorts also may be subject to laws governing
the relationship with employees, including minimum wage requirements, overtime,
working conditions and work permit requirements. Compliance with these laws can
affect the revenues and profits of hotels and resorts managed by us or could
materially and adversely affect our business, results of operations and
financial condition.
Four Seasons, as the current or previous owner or operator of certain hotels,
could be liable for investigation and clean-up of contamination and other
corrective or remedial action under various laws, ordinances and regulations
relating to environmental matters. These laws often impose liability without
regard to whether the owner or operator knew of, or was responsible for, the
condition requiring environmental response and whether the party is currently or
formerly the owner or manager of the property. The presence of contamination
from hazardous or toxic substances, or the failure to properly remediate a
contaminated property, may affect the ability to use the property for its
intended purpose, to sell or rent the property, or to borrow using the property
as collateral. Persons who arrange for the disposal or treatment of hazardous or
toxic substances also may be liable for the cost of removal or remediation of
substances at the disposal or treatment facility. In connection with the
operation and ownership of various properties, we could be held liable for the
cost of remedial action with respect to environmental matters. We are not aware
of any potential material environmental liabilities for which we
- 20 -
will be responsible with respect to any of the properties which we
currently manage or previously managed.
Pursuant to the management agreements to which we are a party, the owner is
responsible for the costs and expenses of the employees at each hotel and for
all costs, expenses and liabilities incurred in connection with the operation of
the hotel, including compliance with government regulations. However, as the
manager, we may be contingently liable for certain liabilities in respect of
which we do not maintain insurance, including certain workers' compensation
claims, environmental liabilities and, in respect of hotels in the United
States, claims arising under the AMERICANS WITH DISABILITIES ACT.
We generally obtain indemnities from the owners of the hotels that we manage in
respect of these liabilities. The value of those indemnities is dependent upon,
among other things, the financial condition of the owners who have provided
them.
POLITICAL RISK
We currently manage and/or have an equity interest in hotels and resorts in 28
countries and currently have development plans to open hotels and resorts in
nine additional countries around the world. In certain of these countries, from
time to time, the related assets and revenues may be exposed to political and
other risks associated with foreign investment. In some jurisdictions, at
certain times, there may be a risk that we may have difficulty enforcing our
contractual rights relating to our assets including our non-disturbance
agreements and any security relating to our loan receivables if due process of
law is not respected.
INSURANCE
All hotels and resorts managed by us are required to be insured against property
damage, business interruption and liability at the expense of the owner of the
property. Under these policies we are also typically insured against loss of fee
income in the event of a temporary business interruption at any of the hotels
and resorts that we manage. In addition, we obtain indemnities from the owners
of the hotels and resorts that we manage in respect of damages caused by acts,
omissions and liabilities of the employees of the property or of Four Seasons,
other than damages resulting from certain actions of Four Seasons and certain
senior management personnel. If we were held liable for amounts exceeding the
limits of our insurance coverage or for claims outside the scope of that
coverage or if the indemnities were insufficient for any reason, including as a
result of the owner's or indemnitor's financial condition, our business, results
of operations and financial condition could be materially and adversely
affected.
Events of September 11, 2001 severely affected an already tightening insurance
market. Premiums have increased and underwriters are imposing increasingly
restrictive terms and conditions. All lines of coverage generally have been
affected; however, commercial properties generally continue to be the most
difficult to insure. Exposures for terrorism, cyber perils and toxic mould are
now common exclusions.
LEGAL PROCEEDINGS
In the ordinary course of our business, we are named as a defendant in legal
proceedings resulting from incidents taking place at properties we own or
manage. We maintain comprehensive liability insurance and also require owners to
maintain adequate insurance coverage. We believe such coverage to be of a nature
and amount sufficient to ensure that we are adequately protected from suffering
material financial loss as a result of such claims.
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CURRENCY EXPOSURE
We have entered into management agreements with respect to hotels throughout the
world and record sales and liabilities in the local currencies for many of these
hotels. We report our results in Canadian dollars. However, our most relevant
currency risk is in US dollars, as more than half of our revenues and assets
currently are US dollar-denominated, as are the majority of our long-term
obligations and investment commitments. As a result, our results and financial
position are affected by foreign exchange rate fluctuations and, most
significantly, changes in the value of the US dollar through both translation
risk (which is the risk that financial statements for a particular period or as
of a certain date depend on the prevailing exchange rate of the various
currencies against the US dollar) and transaction risk (which is the risk that
the currency of costs and liabilities fluctuates in relation to the currency of
revenues and assets, which may materially and adversely affect our business,
results of operations and financial condition). With respect to the translation
risk, the fluctuations of currencies against the Canadian dollar can be
substantial, and our reported results could fluctuate materially and have
fluctuated materially as a result of foreign exchange fluctuations.
We endeavour to match foreign currency revenues to costs, liabilities and
investment commitments to provide a natural hedge against translation and
transaction risks, although there can be no assurance that these measures will
be effective in the management of those risks. We also endeavour to manage our
currency exposure through, among other things, the use of foreign exchange
forward contracts. In addition, certain currencies are subject to exchange
controls or are not freely tradeable and as a result are relatively illiquid. We
attempt to minimize our foreign currency risk by monitoring our cash position,
keeping fee receivables current, monitoring the political and economic climate
and considering whether to insure convertibility risk in each country in which
we manage a property. In certain hotels, the foreign currency risks are further
mitigated by pricing room rates in US dollars. However, no assurances can be
given as to whether our strategies relating to currency exposure will be
successful or that foreign exchange fluctuations will not materially adversely
affect our business, results of operations and financial condition.
SEASONALITY
Our hotels and resorts are affected by normally recurring seasonal patterns and,
for most of the properties, demand is lower in December through March than
during the remainder of the year.
Management operations are seasonal in nature, as fee revenues are affected by
the seasonality of hotel and resort revenues and operating results. Urban hotels
generally experience lower revenues and operating results in the first quarter,
which has a negative impact on management revenues. However, this negative
impact on management revenues generally is offset, to some degree, by increased
travel to resorts in that quarter and may be offset to a greater extent as the
portfolio of resort properties that we manage increases. In 2002, this normal
seasonality was also affected by the delayed recovery in the global economy, and
ongoing geopolitical concerns, which have continued to negatively affect
business travel on a global basis. In addition, specific local events can cause,
and from time to time have caused, unanticipated disruptions to the operations
of certain of our properties.
Our ownership operations are particularly affected by seasonal fluctuations,
with lower revenue, operating profit and cash flow in the first quarter;
ownership positions typically incur an operating loss in the first quarter of
each year. Typically, the fourth quarter is the strongest quarter for the
majority of the hotels, although this was not true in 2001, as a result of the
terrorist attacks in the United States, nor in 2002, as a result of the
difficult economic environment and continued geopolitical instability.
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INTELLECTUAL PROPERTY
In the highly competitive service industry in which we operate, trade names,
trademarks, service marks and logos are very important in the sales and
marketing of those services. We have a significant number of trade names,
trademarks, service marks and logos, and significant time and effort are
expended each year on surveillance, registration and protection of our trade
names, trademarks, service marks and logos. The loss or infringement of any of
our trade names, trademarks, service marks or logos could have a material and
adverse effect on our business, results of operations and financial condition.
RISKS ASSOCIATED WITH RESIDENCE CLUB BUSINESS
We currently operate three Residence Clubs. We are expanding our presence in the
luxury segment of the interval and fractional ownership industry, with a number
of other projects under development. Our ability to successfully develop and
sell interests in Residence Clubs that are built, and the various fees earned by
us from each Residence Club project, could be materially and adversely affected
by one or any combination of the factors described in this "Operating Risks"
section. Additionally, the laws of many jurisdictions in which we may sell
interests in our Residence Clubs grant purchasers the right to rescind the
purchase contract at any time within a statutory rescission period. Although we
believe that we are in compliance in all material respects with applicable laws
and regulations to which Residence Club marketing, sales and operations
currently are subject, changes in these requirements or a determination by a
regulatory authority that we are not in compliance could materially and
adversely affect our business, results of operations and financial condition.
Additionally, if a purchaser of an ownership interest in a Residence Club
defaults, we may not recover the marketing, selling and general administrative
costs related to that sale.
DEPENDENCE ON KEY EMPLOYEES
Our success depends in part on the continued service of our senior executives,
who have an average of 22 years of experience with us. In particular, our senior
management is responsible for the development and/or maintenance of ongoing
relationships with new and existing investors in the properties that are managed
by us. The unanticipated departure of individuals responsible for those
relationships could have a material and adverse effect on, among other things,
relationships affecting properties that are, or that may be, managed by us.
MATERIAL CONTRACTS
Except for the following, since January 1, 2002, we did not enter into any
material contracts, other than contracts in the ordinary course of business that
still are in effect and material to Four Seasons:
o Indenture dated as of June 18, 2004 between Four Seasons and the Bank
of Nova Scotia Trust Company of New York, as trustee, under which we
may from time to time issue unsecured debentures, notes or other
evidences of indebtedness in an unlimited amount, issuable in series,
and
o a First Supplemental Indenture dated as of June 18, 2004 relating to
the issue of our 1.875% Convertible Senior Notes due 2024 in the
aggregate principal amount of US$250,000,000, all of which were issued
pursuant to a prospectus supplement dated June 14, 2004 to a
prospectus of Four Seasons dated April 6, 2004.
See "Corporate Information -- Convertible Senior Notes" for details of the terms
of convertibility of these notes. Copies of the documents referred to above are
available on WWW.SEDAR.COM.
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CORPORATE INFORMATION
DESCRIPTION OF SHARE CAPITAL
Our authorized share capital consists of an unlimited number of First Preference
Shares, issuable in series, an unlimited number of Second Preference Shares,
issuable in series, 3,725,698 Variable Multiple Voting Shares and an unlimited
number of Limited Voting Shares. At March 14, 2005, 3,725,698 Variable Multiple
Voting Shares, 32,883,188 Limited Voting Shares and options to purchase
4,575,143 Limited Voting Shares were outstanding.
The following is a summary of the material attributes of our Variable Multiple
Voting Shares and Limited Voting Shares.
DIVIDENDS
The dividends declared and paid on our Variable Multiple Voting Shares will be
in amounts per share equal to 50% of the dividends declared and paid on our
Limited Voting Shares, regardless of whether the number of votes attaching to
the Variable Multiple Voting Shares is further increased.
RIGHTS ON DISSOLUTION
In the event of the liquidation, dissolution or winding up of FSHI, the holders
of Limited Voting Shares and Variable Multiple Voting Shares will be entitled,
share for share, to receive, on a PRO RATA basis, all of the assets of FSHI
remaining after payment of all of its liabilities, subject to the preferential
rights of any shares ranking prior to the Limited Voting Shares and Variable
Multiple Voting Shares.
VOTING RIGHTS
The holders of Limited Voting Shares and Variable Multiple Voting Shares will be
entitled to receive notice of any meeting of our shareholders and to attend and
vote thereat, except those meetings where only the holders of shares of another
class or of a particular series are entitled to vote. Each Limited Voting Share
will entitle the holder to one vote. Each Variable Multiple Voting Share
currently entitles the holder to that number of votes that results in the
aggregate votes attaching to the Variable Multiple Voting Shares representing
approximately 64.55% of the votes attaching to the Variable Multiple Voting
Shares and the Limited Voting Shares, in the aggregate. The number of votes
attaching to the Variable Multiple Voting Shares adjusts concurrently with the
issue of additional Limited Voting Shares in order to maintain this voting
control. Holders of Limited Voting Shares are entitled, voting separately as a
class, to elect two members of our board of directors annually.
Under the provisions attaching to the Variable Multiple Voting Shares, beginning
with the annual meeting held in 2000 and every three years thereafter, the
continued application of this adjusting mechanism is subject to ratification by
the holders of our Limited Voting Shares. The adjusting mechanism was last
ratified by shareholders at the annual and special meeting of shareholders in
2003. If the maintenance of the adjustment mechanism is not confirmed by a
simple majority of the votes cast by the holders of Limited Voting Shares (other
than "prescribed holders" of Limited Voting Shares), any issue of Limited Voting
Shares after that time (other than the issue of Limited Voting Shares pursuant
to a right, option or similar obligation granted prior to that time) will not
result in a further adjustment in the number of votes attaching to the Variable
Multiple Voting Shares. Additionally, the continued application of the
adjustment mechanism will be subject to ratification after any transfer of
Variable Multiple Voting Shares that results in a person other than a member of
the Sharp Family (as defined in the articles of FSHI) holding Variable Multiple
Voting Shares or after Isadore Sharp ceases to be the Chief Executive Officer.
For these purposes, the "prescribed holders" of Limited Voting Shares shall be:
(a) any person or company that beneficially owns, directly or indirectly,
Variable Multiple Voting Shares; (b) any person or
- 24 -
company that beneficially owns, directly or indirectly, securities carrying
more than 20% of the votes attaching to all of our outstanding voting
securities; (c) any associate, insider or affiliate (as defined in the
SECURITIES ACT (Ontario)) of any person or company referred to in (b); (d) any
of our affiliates (as defined in the SECURITIES ACT (Ontario)); (e) any person
or company that, alone or in concert with others, effectively controls FSHI; and
(f) if all of (b), (d) and (e) are inapplicable, all directors and officers of
FSHI and their associates (as defined in the SECURITIES ACT (Ontario)). To our
knowledge, the prescribed holders are Triples Holdings Limited, Isadore Sharp
and Rosalie Sharp.
TAKE-OVER BID PROTECTION
Variable Multiple Voting Shares will be converted automatically into Limited
Voting Shares upon any transfer thereof, except (i) a transfer within the
immediate family of Isadore Sharp (so long as the family beneficially owns a
majority of the outstanding Variable Multiple Voting Shares) or (ii) a transfer
of a majority of the outstanding Variable Multiple Voting Shares to a purchaser
who has offered to purchase all outstanding Variable Multiple Voting Shares and
will, as a result, have acquired a majority of the outstanding Variable Multiple
Voting Shares and who offers to purchase all outstanding Limited Voting Shares
for a per share consideration equal to that offered for the Variable Multiple
Voting Shares.
Triples Holdings Limited, which owns all of the outstanding Variable Multiple
Voting Shares, has entered into an agreement with Montreal Trust Company of
Canada, as trustee for the benefit of the holders of the Limited Voting Shares,
that has the effect of preventing transactions that otherwise would deprive the
holders of Limited Voting Shares of rights under applicable provincial take-over
bid legislation to which they would have been entitled if the Variable Multiple
Voting Shares had been Limited Voting Shares.
CONVERSION
Variable Multiple Voting Shares are convertible into Limited Voting Shares on a
one-for-one basis at any time at the option of the holder.
MODIFICATIONS, SUBDIVISIONS AND CONSOLIDATION
Modifications to the provisions attaching to the Variable Multiple Voting Shares
as a class, or to the Limited Voting Shares as a class, will require the
separate affirmative vote of two-thirds of the votes cast at a meeting of the
holders of the shares of the respective class. No subdivision or consolidation
of the Variable Multiple Voting Shares or of the Limited Voting Shares may take
place unless the Limited Voting Shares or the Variable Multiple Voting Shares,
as the case may be, are concurrently subdivided or consolidated in the same
proportion. If we propose to grant rights to holders of shares of any class, as
a class, to acquire additional voting or participating securities (or securities
convertible into voting or participating securities), the holders of the Limited
Voting Shares and the Variable Multiple Voting Shares shall for the purposes of
that distribution be deemed to be holders of shares of the same class.
TRANSFER AGENT AND REGISTRAR
The registrar and transfer agent for our Limited Voting Shares in Canada is
Computershare Trust Company of Canada, Toronto, Ontario, Canada.
MARKET FOR SECURITIES
Our Limited Voting Shares are listed on the Toronto and New York stock
exchanges. The following table sets forth the high and low closing prices and
trading volumes of the Limited Voting Shares as reported by these exchanges
during the periods indicated, according to published reports:
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- --------------------------------------------------------------------------------
NYSE TSX
PRICE RANGE PRICE RANGE
----------- -----------
2004 HIGH US$ LOW US$ VOLUME HIGH CDN$ LOW CDN$ VOLUME
- --------------------------------------------------------------------------------
January.......... $52.89 $49.61 3,842,100 $70.06 $63.13 412,500
February......... $56.85 $51.75 2,758,500 $76.50 $68.50 444,113
March............ $56.75 $50.77 4,611,200 $75.00 $67.25 616,665
April............ $56.75 $51.90 2,838,500 $77.00 $69.05 578,586
May.............. $55.45 $51.42 3,543,900 $76.57 $70.08 329,532
June............. $60.85 $52.02 8,271,100 $81.30 $70.20 764,159
July............. $62.99 $58.51 5,110,200 $83.26 $77.00 342,566
August........... $61.07 $55.33 6,089,900 $82.48 $72.50 524,624
September........ $64.31 $57.04 4,121,500 $81.75 $74.67 1,042,175
October.......... $68.53 $64.08 4,063,900 $86.00 $82.45 576,448
November......... $72.56 $66.91 4,120,200 $87.11 $80.88 871,435
December......... $84.50 $70.55 6,828,200 $104.72 $98.11 1,257,876
On March 14, 2005 the last reported sale prices of the Limited Voting Shares on
the NYSE and TSX were US$70.84 and Cdn$85.46 per share, respectively.
DIVIDEND POLICY
It is our policy to pay a semi-annual dividend to holders of our Limited Voting
Shares and Variable Multiple Voting Shares. In each of the years 2002, 2003 and
2004 we paid semi-annual cash dividends of $0.055 per Limited Voting Share and
$0.0275 per Variable Multiple Voting Share. There are no restrictions currently
that prevent us from continuing to pay dividends on this basis. We do not expect
to change our dividend policy in 2005.
CONVERTIBLE SENIOR NOTES
On June 18, 2004 we completed a public offering of US$250 million principal
amount of 1.875% convertible senior notes due July 30, 2024. The notes will be
convertible into Limited Voting Shares at an initial conversion rate of 13.9581
shares per US$1,000 principal amount in certain circumstances, including those
in which the Limited Voting Shares have traded for more than 130% of the
conversion price for a specified period, the notes have had 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, the notes have been called for
redemption, or a specified corporate transaction or a fundamental change has
occurred.
RATINGS
Our US$250 million of convertible senior notes have been assigned the following
ratings:
Standard & Poor's: BBB- with a stable rating outlook. As defined by Standard &
Poor's, an obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation. The rating is modified by a minus sign, which is used to show
relative standing within this rating category. The rating outlook, which
assesses the potential direction of the credit rating over the intermediate to
longer term, is stable, which means the rating is not likely to change.
Moody's Investors Service: Baa3 with a stable rating outlook. As defined by
Moody's, obligations rated Baa are subject to moderate credit risk. They are
considered medium-grade and as such may possess certain speculative
characteristics. The modifier 3 indicates a ranking in the lower end of the
rating category. The rating outlook means the rating is not likely to change in
the medium term (18 to 36 months).
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Dominion Bond Rating Services ("DBRS"): BBB with a stable rating trend. As
defined by DBRS, long-term debt rated BBB is of adequate credit quality.
Protection of interest and principal is considered acceptable, but the entity is
fairly susceptible to adverse changes in financial and economic conditions, or
there may be other adverse conditions present which reduce the strength of the
entity and its rated securities. The absence of either a "high" or "low"
designation indicates the rating is in the middle of the rating category. The
rating trend is designed to give the investor an understanding of DBRS' opinion
regarding the outlook for the rating.
Credit ratings are meant to give an indication of the risk that a borrower will
not fulfill its full obligations in a timely manner, with respect to both
interest and principal commitments. The ratings are current opinions of the
relative credit risk of fixed-income obligations with an original maturity of
one year or more. Such ratings reflect both the likelihood of default and any
financial loss suffered in the event of default. Credit ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances. The issued credit rating is not a
recommendation to purchase, sell, or hold a financial obligation, inasmuch as it
does not comment as to market price or suitability for a particular investor.
DIRECTORS AND OFFICERS
The following table sets forth certain information regarding each of FSHI's
executive officers and directors:
- --------------------------------------------------------------------------------
NAME AND RESIDENCE POSITION WITH FSHI PRINCIPAL OCCUPATION
- --------------------------------------------------------------------------------
Isadore Sharp Chairman, Chief Chairman and Chief
ONTARIO, CANADA Executive Officer Executive Officer, Four
and Director Seasons Hotels Limited
- --------------------------------------------------------------------------------
Brent Belzberg(1) Director Managing Partner,
ONTARIO, CANADA Torquest Partners Inc.(2)
- --------------------------------------------------------------------------------
H. Roger Garland Director Corporate Director
ONTARIO, CANADA
- --------------------------------------------------------------------------------
Nan-b de Gaspe Director Co-Chair, Business
Beaubien(1),(3),(4) Families Foundation(5)
QUEBEC, CANADA and Co-Chair, Philbeau
Company(6)
- --------------------------------------------------------------------------------
Charles S. Henry(4),(7) Director President, Hotel
NEW YORK, USA Capital Advisers, Inc.(8)
- --------------------------------------------------------------------------------
Heather Munroe-Blum(4) Director Principal and Vice
QUEBEC, CANADA Chancellor, McGill
University(9)
- --------------------------------------------------------------------------------
Ronald W. Osborne(10) Director Corporate Director
ONTARIO, CANADA
- --------------------------------------------------------------------------------
J. Robert S. Prichard(3),(4) Lead Director President and Chief
ONTARIO, CANADA Executive Officer, Torstar
Corporation(11)
- --------------------------------------------------------------------------------
Lionel H. Schipper(1),(10) Director President, Schipper
ONTARIO, CANADA Enterprises Inc.(6)
- --------------------------------------------------------------------------------
Anthony Sharp Director President, Sharpwise Ltd.
ONTARIO, CANADA (12)
- --------------------------------------------------------------------------------
Benjamin Swirsky(10) Director Chairman and Chief
ONTARIO, CANADA Executive Officer,
Beswir Properties Inc.(6)
- --------------------------------------------------------------------------------
Shuichiro Tamaki Director Executive Vice
TOKYO, JAPAN President, Japan-Mexico
Hotel Investment Co., Ltd.
(13)
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
NAME AND RESIDENCE POSITION WITH FSHI PRINCIPAL OCCUPATION
- --------------------------------------------------------------------------------
Simon M. Turner(1),(7) Director Principal, Hotel
NEW YORK, USA Capital Advisers, Inc.(8)
- --------------------------------------------------------------------------------
Sarah Cohen Vice President, Vice President,
ONTARIO, CANADA Corporate Counsel Corporate Counsel and
and Assistant Assistant Secretary,
Secretary Four Seasons Hotels
Limited
- --------------------------------------------------------------------------------
Wolf H. Hengst President, President, Worldwide
ONTARIO, CANADA Worldwide Hotel Hotel Operations, Four
Operations Seasons Hotels Limited
- --------------------------------------------------------------------------------
Douglas L. Ludwig Executive Vice Executive Vice
ONTARIO, CANADA President, Chief President, Chief
Financial Officer Financial Officer and
and Treasurer Treasurer, Four Seasons
Hotels Limited
- --------------------------------------------------------------------------------
Craig O. Reith Vice President, Vice President, Finance
ONTARIO, CANADA Finance and and Assistant
Assistant Treasurer Treasurer, Four Seasons
Hotels Limited
- --------------------------------------------------------------------------------
Kathleen Taylor President, President, Worldwide
ONTARIO, CANADA Worldwide Business Business Operations,
Operations Four Seasons Hotels
Limited
- --------------------------------------------------------------------------------
Randolph Weisz Executive Vice Executive Vice
ONTARIO, CANADA President, General President, General
Counsel and Counsel and Secretary,
Secretary Four Seasons Hotels
Limited
- --------------------------------------------------------------------------------
1 Member of the Human Resources Committee.
2 Private equity fund manager.
3 Elected by the holders of the Limited Voting Shares.
4 Member of the Corporate Governance Committee.
5 Non-profit foundation.
6 Investment holding company.
7 Nominee of Kingdom, which has the right pursuant to an agreement with
Triples Holdings Limited and Isadore Sharp to elect two directors to the
FSHI Board of Directors.
8 Hotel investment advisory firm.
9 Educational institute.
10 Member of the Audit Committee.
11 Media and publishing company.
12 Real estate/resort development company.
13 Real estate holding company.
Isadore Sharp has served as a director of FSHI and its predecessor corporation
since January 9, 1978. H. Roger Garland and Benjamin Swirsky were elected to the
board of directors of FSHI's predecessor corporation on October 1, 1985. Lionel
H. Schipper was appointed to the board of directors on February 18, 1988.
Shuichiro Tamaki was appointed to the board of directors on April 18, 1991.
Charles S. Henry was appointed to the board of directors on November 11, 1994.
J. Robert S. Prichard was appointed to the board of directors on March 6, 1996.
Nan-b de Gaspe Beaubien was elected to the board of directors on May 23, 1997.
Anthony Sharp was appointed to the board of directors on August 25, 1999. Simon
M. Turner was re-appointed to the board of directors on February 14, 2002. Brent
Belzberg and Heather Munroe-Blum were appointed to the board of directors on
November 7, 2002. Ronald W. Osborne was elected to the board of directors on May
21, 2003.
- 28 -
All of the directors will hold office until the next annual meeting of
shareholders, or until their successors are elected or appointed.
All our executive officers and directors have held their principal occupations
for more than five years with the exception of the following. Brent Belzberg was
President and CEO of Harrowston Inc. prior to February 2002. Heather Munroe-Blum
was a Professor at the University of Toronto prior to December 31, 2002 and was
Vice-President, Research and International Relations at the University of
Toronto prior to June 1, 2002. H. Roger Garland was Vice Chairman of Four
Seasons Hotels Limited prior to December 29, 2000. Ronald W. Osborne was
President and Chief Executive Officer of Ontario Power Corporation prior to
December 4, 2003. J. Robert S. Prichard was Professor of Law and President
Emeritus, University of Toronto prior to July 1, 2001 and President, University
of Toronto prior to June 30, 2000. Shuichiro Tamaki was Advisor, Jowa
Corporation prior to June 26, 2000. Kathleen Taylor was President, Worldwide
Business Operations and Secretary prior to February 15, 2001. Randolph Weisz was
Senior Vice President and General Counsel of Four Seasons Hotels Limited prior
to August 6, 2002. Sarah Cohen was Corporate Counsel of Four Seasons Hotels
Limited prior to February 15, 2001.
Heather Munroe-Blum served on the board of directors of Livent Inc. from June
1998 through November 27, 1998. On November 18, 1998, Livent Inc. filed a
voluntary petition under Chapter 11 of the US Bankruptcy Code. On November 19,
1998, Livent Inc. filed for protection under the COMPANIES CREDITORS ARRANGEMENT
ACT. Additionally, on August 28, 1998 the Ontario Securities Commission made an
order pursuant to section 127(5) of the SECURITIES ACT (Ontario) that trading in
securities of Livent Inc. cease immediately for a period of 15 days on the
grounds that there was not sufficient information in the marketplace on which
investors could make informed decisions as to the purchase or sale of the
securities of Livent Inc. That order was extended, with the consent of Livent
Inc., on September 11, 1998. That cease trade order was revoked by the Ontario
Securities Commission on November 19, 1998.
Ronald W. Osborne served on the board of directors of Air Canada from May of
1999 to September of 2004. In September 2004 Air Canada completed a
court-sanctioned restructuring process and implemented a plan of arrangement
under the corporate and insolvency laws of Canada.
Kathleen Taylor was formerly a director of The T. Eaton Company Limited which,
in 1999, completed a court-sanctioned reorganization pursuant to a plan of
compromise and arrangement under the corporate and insolvency laws of Ontario
and Canada, respectively. As a result of this situation, trading of the common
shares of Eaton's was suspended by the Toronto Stock Exchange on August 23, 1999
and the common shares were ultimately delisted in connection with the
implementation of the reorganization.
Our directors and executive officers, as a group, own beneficially, directly or
indirectly, or exercise control or direction over, the following number of
Limited Voting Shares and Variable Multiple Voting Shares:
- --------------------------------------------------------------------------------
DESCRIPTION OF CLASS NUMBER OF SHARES PERCENTAGE OF CLASS
- --------------------------------------------------------------------------------
Limited Voting Shares 180,128 0.547%
- --------------------------------------------------------------------------------
Variable Multiple Voting Shares 3,725,698 100%
- --------------------------------------------------------------------------------
EXPERTS
Our auditors are KPMG LLP, who have prepared the auditors report to our
shareholders on our consolidated financial statements for the year ended
December 31, 2004.
- 29 -
AUDIT COMMITTEE INFORMATION
AUDIT COMMITTEE CHARTER
Our Board of Directors has approved a written charter for the Audit Committee,
the text of which is set out in Schedule "A". Our Audit Committee charter may
also be viewed on our website at WWW.FOURSEASONS.COM.
COMPOSITION OF AUDIT COMMITTEE
The members of the Audit Committee are Ronald Osborne (Chair), Lionel H.
Schipper and Benjamin Swirsky. Our Board of Directors, upon the recommendation
of the Corporate Governance Committee, has determined that all members of the
Audit Committee are financially literate and independent.
EDUCATION AND EXPERIENCE
Ronald W. Osborne (Chair), B.A., F.C.A. - Mr. Osborne is a former partner and
member of several prominent Chartered Accountants firms and has held positions
as President, Chief Executive Officer and Chief Financial Officer at four
Canadian public companies. Mr. Osborne currently serves on the board of a number
of Canadian public companies and community organizations. In addition to serving
as the Chair of the Audit Committee at Four Seasons, Mr. Osborne is the Chair of
the Audit Committee at another Canadian public company, the Chair of the Audit
Committee at one of Canada's largest real estate investment trusts, and a member
of the Audit Committee at two other Canadian public companies.
Lionel H. Schipper, C.M., Q.C. - Mr. Schipper received his B.A. and L.L.B. from
the University of Toronto and is a former partner of a major Toronto law firm,
where he specialized in corporate finance and securities law. Since retiring
from the firm he has been actively involved in the investment business as
President of a private firm. Mr. Schipper has for more than 20 years served as a
director of numerous public companies some of whose shares have been listed on
the New York Stock Exchange and the Toronto Stock Exchange. Mr. Schipper
currently serves on the board of directors at two Canadian public companies, is
the Vice-Chair of the Centre for Research in Neurodegenerative Diseases at the
University of Toronto and is an Honourary Director of the Baycrest Centre
Foundation.
Benjamin Swirsky, B. Comm., L.L.B., F.C.A. - Mr. Swirsky has held positions
as the President and Chief Executive Officer at four Canadian public
companies and is a former senior partner and member of a prominent Chartered
Accountants firm. Mr. Swirsky has served on the Board of Four Seasons and/or
its predecessor corporation since 1985, and currently serves on the board of
directors of several Canadian public companies.
PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee has considered whether the provision of services by KPMG LLP
other than audit services is compatible with maintaining the independence of
KPMG LLP. The Audit Committee has determined that the provision of certain
services is consistent with that independence and has adopted a policy that
restricts us from engaging KPMG LLP for certain categories of non-audit services
and requires pre-approval by the Audit Committee of audit services and other
services that KPMG LLP is not restricted by this policy from providing. The
services provided by, and fees paid to, KPMG LLP in 2004 were in compliance with
this policy.
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AUDIT AND AUDIT-RELATED FEES
Audit fees charged by KPMG LLP totalled $1,468,759 in 2004 and $769,800 in 2003.
Audit-related fees charged by KPMG LLP totalled $104,001 in 2004 and $88,800 in
2003. Audit-related fees include fees for assurance and related services that
are reasonably related to the performance of the audit or review of our annual
financial statements and are not reported as part of audit fees, including audit
of employee retirement benefit plan, advice with respect to internal controls
and other assurance reports.
TAX FEES
Fees charged by KPMG LLP for tax services, including tax compliance, tax advice
and tax planning, totalled approximately $254,606 in 2004 and $374,700 in 2003.
These services consisted of tax compliance (including the review of tax returns,
assistance with questions regarding tax audits and preparation of certain
employee tax returns), and tax planning and advisory services relating to common
forms of domestic and international taxation.
ALL OTHER FEES
Fees charged by KPMG LLP for other services not described above totalled nil in
2004 and $2,200 in 2003.
- 31 -
CORPORATE CHART
The following chart illustrates our corporate structure, and includes
corporations in which we have a significant interest, either directly or
indirectly, and their jurisdictions of incorporation or organization.
FOUR SEASONS HOTELS INC.
(ONTARIO CORPORATION)
|
FOUR SEASONS HOTELS LIMITED(A)
(ONTARIO CORPORATION) 100%(B)
|
|-----FOUR SEASONS HOTELS AND RESORTS B.V.(C)
| (NETHERLANDS CORPORATION) 100%(B)
|
|-----FOUR SEASONS HOTELS AND RESORTS ASIA PACIFIC PTE LTD.(C)
| (SINGAPORE CORPORATION) 100%(D)
|
|-----FOUR SEASONS HOTELS (BARBADOS) LTD.
| (BARBADOS CORPORATION) 100%(B)
|
|-----FOUR SEASONS HOTELS (U.S.) INC.
(DELAWARE CORPORATION) 100%(B)
Notes
A. The management of Four Seasons hotels in North America is generally
carried out by Four Seasons Hotels Limited.
B. Direct.
C. The management of Four Seasons hotels outside North America and
Regent hotels is generally carried out by Four Seasons Hotels and
Resorts B.V. and Four Seasons Hotels and Resorts Asia Pacific Pte
Ltd.
D. Indirect.
ADDITIONAL INFORMATION
Additional information about us, including directors' and officers' remuneration
and indebtedness, principal holders of our securities and options to purchase
securities is contained in our Management Information Circular prepared for the
most recent annual meeting of our shareholders. Additional financial information
is provided in our Consolidated Financial Statements for the year ended December
31, 2004 and related Management's Discussion and Analysis. Such information and
other information about us may be found at WWW.SEDAR.COM.
- 32 -
SCHEDULE "A"
[FOUR SEASONS LOGO]
FOUR SEASONS HOTELS INC.
AUDIT COMMITTEE CHARTER
PURPOSE
The Audit Committee is appointed by the Board of Directors of the Company to
assist the Board in its oversight and evaluation of:
o the quality and integrity of the financial statements of the Company,
o the compliance by the Company with legal and regulatory requirements in
respect of financial disclosure,
o the qualification, independence and performance of the Company's
independent auditors, and
o the performance of the Company's Chief Financial Officer and internal
auditor.
In addition, the Audit Committee provides an avenue for communication between
the internal auditor, the independent auditor, financial management, other
employees and the Board of Directors concerning accounting and auditing matters.
The Audit Committee is directly responsible for the appointment, compensation,
retention (and termination) and oversight of the work of the independent auditor
(including oversight of the resolution of any disagreements between management
and the independent auditor regarding financial reporting) for the purpose of
preparing audit reports or performing other audit, review or attest services for
the Company.
The Audit Committee is not responsible for:
o planning or conducting audits,
o certifying or determining the completeness or accuracy of the Company's
financial statements or that those financial statements are in accordance
with generally accepted accounting principles, or
o guaranteeing the report of the Company's independent auditor.
The fundamental responsibility for the Company's financial statements and
disclosure rests with management. It is not the duty of the Audit Committee to
conduct investigations, to itself resolve disagreements (if any) between
management and the independent auditor or to assure compliance with applicable
legal and regulatory requirements.
AS IN EFFECT MARCH 2005
- 2 -
REPORTS
The Audit Committee shall report to the Board of Directors of the Company on a
regular basis and, in any event, before the public disclosure by the Company of
its quarterly and annual financial results. The reports of the Audit Committee
shall include any issues of which the Committee is aware with respect to the
quality or integrity of the Company's financial statements, its compliance with
legal or regulatory requirements, and the performance and independence of the
Company's internal auditor and independent auditor.
The Committee also shall prepare, as required by applicable law, any audit
committee report required for inclusion in the Company's publicly filed
documents.
COMPOSITION
The members of the Audit Committee shall be three or more individuals who are
appointed (and may be replaced) by the Board of Directors of the Company on the
recommendation of the Company's Corporate Governance Committee. Each of the
members of the Audit Committee shall meet the Company's categorical standards
for director independence and the experience requirements of the Toronto Stock
Exchange, the New York Stock Exchange and applicable legislation (including the
rules promulgated by Canadian securities regulators and the SARBANES-OXLEY ACT
OF 2002) and, without limitation, shall be financially literate (or acquire that
familiarity within a reasonable period after appointment). At least one member
of the Audit Committee shall be a "financial expert", as contemplated by the
rules promulgated by Canadian securities regulators and the SARBANES-OXLEY ACT.
No member of the Audit Committee shall:
o accept (directly or indirectly) any consulting, advisory or other
compensatory fee from the Company or any of its subsidiaries(1) (other
than remuneration for acting in his or her capacity as a director) or be
an "affiliated person"(2) of the Company or any of its subsidiaries, or
o concurrently serve on the audit committee of more than three other public
companies without the prior approval of the Audit Committee, the Corporate
Governance Committee and the Board of Directors and their determination
that such simultaneous service would not impair the ability of the member
to effectively serve on the Audit Committee.
A majority of the members of the Audit Committee shall be "resident Canadians",
as contemplated by the BUSINESS CORPORATIONS ACT (Ontario).
RESPONSIBILITIES
INDEPENDENT AUDITORS
The Audit Committee shall:
- ------------------------------
1 A company is a subsidiary of another company if it is controlled, directly
or indirectly, by that other company (through one or more intermediaries or
otherwise).
2 An "affiliate" of a person is a person that, directly or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with the first person.
AS IN EFFECT MARCH 2005
- 3 -
o Recommend the appointment and the compensation of, and, if appropriate,
terminate the independent auditor, subject to such board and shareholder
approval as is required under the BUSINESS CORPORATIONS ACT.
o Obtain confirmation from the independent auditor that it ultimately is
accountable, and will report directly, to the Audit Committee and the
Board of Directors of the Company.
o Oversee the independent auditor and the resolution of any disagreements
between management and the independent auditor regarding financial
reporting.
o Adopt policies and procedures for the pre-approval of the retention of the
independent auditor by the Company and any of its subsidiaries for all
audit and permitted non-audit services (subject to any restrictions on
such services imposed by the Toronto Stock Exchange, the New York Stock
Exchange or applicable legislation), including procedures for the
delegation of authority to provide such approval to one or more members of
the Audit Committee.
o At least annually, review the qualifications, performance and independence
of the independent auditor. In doing so, the Audit Committee should, among
other things, undertake the measures set forth in Appendix A.
THE AUDIT PROCESS, FINANCIAL STATEMENTS AND RELATED DISCLOSURE
The Audit Committee shall, as it determines to be appropriate:
o Meet with management and/or the independent auditor to review and discuss,
- the planning and staffing of the audit by the independent auditor,
- before public disclosure, the Company's annual audited financial
statements and quarterly financial statements, the Company's
accompanying disclosure of Management's Discussion and Analysis and
earnings press releases and make recommendations to the Board of
Directors as to their approval and dissemination of those statements
and disclosure,
- financial information and earnings guidance provided to analysts and
rating agencies: this review need not be done on a case by case basis
but may be done generally (consisting of a discussion of the types of
information disclosed and the types of presentations made) and need not
take place in advance of the disclosure,
- any significant financial reporting issues and judgments made in
connection with the preparation of the Company's financial statements,
including any significant changes in the selection or application of
accounting principles, any major issues regarding auditing principles
and practices, and the adequacy of internal controls that could
significantly affect the Company's financial statements,
- all critical accounting policies and practices used,
- all alternative treatments of financial information within GAAP that
have been
AS IN EFFECT MARCH 2005
- 4 -
discussed with management, ramifications of the use of such alternative
disclosures and treatments, and the treatment preferred by the
independent auditor,
- the use of "pro forma" or "adjusted" non-GAAP information,
- the effect of new regulatory and accounting pronouncements,
- the effect of any material off-balance sheet structures, transactions,
arrangements and obligations (contingent or otherwise) on the Company's
financial statements,
- any disclosures concerning any weaknesses or any deficiencies in the
design or operation of internal controls or disclosure controls made to
the Audit Committee in connection with certification of forms by the
Chief Executive Officer and/or the Chief Financial Officer for filing
with applicable securities regulators,
- the adequacy of the Company's internal accounting controls and
management information systems and its financial, auditing and
accounting organizations and personnel (including any fraud involving
an individual with a significant role in internal controls or
management information systems) and any special steps adopted in light
of any material control deficiencies, and
- the establishment, and periodic review, of procedures for the review of
disclosures of financial information extracted or derived from the
Company's financial statements.
o Review with management, the Company's guidelines and policies with respect
to risk assessment and the Company's major financial risk exposures and
the steps management has taken to monitor and control such exposures.
o Review with the independent auditor,
- the quality, as well as the acceptability of the accounting principles
that have been applied,
- any problems or difficulties the independent auditor may have
encountered during the provision of its audit services, including any
restrictions on the scope of activities or access to requested
information and any significant disagreements with management, any
management letter provided by the independent auditor or other material
communication (including any schedules of unadjusted differences) to
management and the Company's response to that letter or communication,
and
- any changes to the Company's significant auditing and accounting
principles and practices suggested by the independent auditor, internal
auditor or other members of management.
AS IN EFFECT MARCH 2005
- 5 -
INTERNAL AUDIT FUNCTION
The Audit Committee shall, as it determines appropriate:
o Review the experience and qualifications, and consider the appointment and
replacement by management, of the senior internal auditing personnel.
o Review the scope of internal audit work plans for the year.
o Review the significant reports to management prepared by the internal
auditors and management's responses, including a summary report of major
findings by the internal auditors (including an explanation of the factors
considered in determining the audit scope), major risk factors, a list and
the circumstances of any occurrences of fraud that have been identified,
and confirmation that no limitations have been placed on the scope for, or
nature of, the internal audit.
o Discuss with the independent auditors the internal audit function,
o Discuss with the internal auditor the adequacy of the Company's internal
accounting controls and its financial, auditing and accounting
organizations and personnel.
COMPLIANCE
The Audit Committee shall, as it determines appropriate:
o Obtain reports from management and the Company's senior internal auditing
personnel that the Company's subsidiary/foreign affiliated entities are in
conformity with applicable legal requirements and the Company's Code of
Business Conduct and Ethics including disclosures of insider and
affiliated party transactions.
o Review with management and the independent auditor any correspondence with
regulators or governmental agencies and any employee complaints or
published reports, which raise material issues regarding the Company's
financial statements or accounting policies.
o Advise the Board of Directors of the Company with respect to the Company's
policies and procedures regarding compliance with applicable laws and
regulations and with the Company's Code of Business Conduct and Ethics.
o Review with the Company's General Counsel legal matters that may have a
material impact on the financial statements, the Company's compliance
policies and any material reports or inquiries received from regulators or
governmental agencies.
o Establish procedures for,
- the receipt, retention and treatment of complaints regarding
accounting, internal accounting controls or auditing matters, and
AS IN EFFECT MARCH 2005
- 6 -
- the confidential, anonymous submission by employees of the Company with
concerns regarding any accounting or auditing matters.
DELEGATION
To avoid any confusion, the Audit Committee responsibilities identified above
are the sole responsibility of the Audit Committee and may not be allocated to a
different committee.
MEETINGS
The Audit Committee shall meet at least quarterly and more frequently as
circumstances require. All members of the Audit Committee should strive to be at
all meetings. The Audit Committee shall meet separately, periodically, with
management, the internal auditors and the independent auditors and may request
any member of the Company's Management Committee or the Company's outside
counsel or independent auditor to attend meetings of the Committee or with any
members of, or advisors to, the Committee. The Audit Committee also may meet
with the investment bankers, financial analysts and rating agencies that provide
services to, or follow, the Company.
The Audit Committee may form and delegate authority to individual members and
subcommittees of the Audit Committee where the Committee determines it is
appropriate to do so.
INDEPENDENT ADVICE
In discharging its mandate, the Audit Committee shall have the authority to
retain (and authorize the payment by the Company of) and receive advice from
special legal, accounting or other advisors as the Audit Committee determines to
be necessary to permit it to carry out its duties.
ANNUAL EVALUATION
At least annually, the Audit Committee shall, in a manner it determines to be
appropriate:
o Conduct a review and evaluation of the performance of the Committee and
its members, including the compliance of the Audit Committee with this
Charter.
o Review and assess the adequacy of its Charter and recommend to the Board
of Directors any improvements to this Charter that the Committee
determines to be appropriate.
AS IN EFFECT MARCH 2005
APPENDIX A
----------
o Review the experience and qualifications of the senior members of the
independent auditor's team.
o Discuss with the independent auditor its internal quality-control
procedures.
o Confirm with the independent auditor that it is in compliance with
applicable legal, regulatory and professional standards relating to
auditor independence.
o Review and approve clear policies for the hiring by the Company of
employees or former employees of the independent auditor.
o Review periodic reports from the independent auditor regarding its
independence and consider whether there are any non-audit services or
relationships that may affect the objectivity and independence of the
independent auditor and, if so, recommend that the Board of Directors of
the Company take appropriate action to satisfy itself of the independence
of the independent auditor.
o Obtain and review such report(s) from the independent auditor as may be
required by applicable legal and regulatory requirements.
AS IN EFFECT MARCH 2005