Four Seasons Hotels Inc. reports results for fourth quarter and year end 2003

TORONTO, Four Seasons Hotels Inc. (TSX Symbol "FSH"; NYSE Symbol "FS") today reported its results for the fourth quarter of 2003 and for the year ended December 31, 2003.

"2003 ended very differently than it began," said Isadore Sharp, Chairman and Chief Executive Officer. "The second half of the year saw an upswing in travel demand, as signs of economic recovery became clearer, while during the first half of the year travel was severely disrupted as a result of war, terrorism, SARS and economic uncertainty. The Company's 2003 financial results reflect that environment. As travel demand trends continue to improve, we anticipate a stronger financial performance in 2004."

Net earnings for the quarter ended December 31, 2003 were $11.7 million ($0.33 basic earnings per share and $0.32 diluted earnings per share), as compared to $7.6 million ($0.22 basic and diluted earnings per share) for the quarter ended December 31, 2002.

For the year ended December 31, 2003, net earnings were $5.4 million ($0.15 basic and diluted earnings per share), as compared to $21.2 million ($0.61 basic earnings per share and $0.59 diluted earnings per share) for the year ended December 31, 2002.

The decline in net earnings for the year ended December 31, 2003, as compared to the year ended December 31, 2002, is attributable primarily to a non-cash, unrealized foreign exchange loss for accounting purposes (in contrast to a non-cash, unrealized foreign exchange gain in 2002), increased losses from ownership operations and a write-down of the Company's fixed asset investment in Four Seasons Hotel Berlin, which losses and write-downs were offset by lower legal and enforcement costs relating to the disputes with the owners of the hotels in Seattle and Caracas in 2003 as compared to those costs in the prior year. The financial results for 2002 also were affected by asset impairment charges relating to the Company's investments in Four Seasons hotels in Caracas and Sydney.

Excluding these items (other than losses from ownership operations), adjusted(1) net earnings for the year ended December 31, 2003 were $28.5 million ($0.81 basic earnings per share and $0.79 diluted earnings per share), as compared to adjusted(1) net earnings for the year ended December 31, 2002 of $38.6 million ($1.10 basic earnings per share and $1.07 diluted earnings per share).

Cash flow from operations improved by $12.3 million to $21.9 million in the fourth quarter of 2003, as compared to $9.6 million in the same period in 2002 ($0.62 per share in the fourth quarter of 2003, as compared to $0.27 per share in the same period in 2002). For the year ended December 31, 2003, cash flow from operations also improved to $66 million, as compared to $41.8 million in the same period in 2002 ($1.89 per share for the year ended December 31 2003, as compared to $1.19 per share in the same period in 2002).

"2003 was the third, and we hope last, year of a very difficult period for the lodging industry. We are pleased that our management business showed continued resiliency, and that we were able to come out of this cycle in a strong position financially and operationally," said Douglas L. Ludwig, Chief Financial Officer and Executive Vice President. "Despite the extremely challenging operating conditions in 2003, we achieved a 58% improvement in cash flow from operations, generating $66 million. We have maintained our balance sheet strength, and have been able to continue to meet our objective of funding new management opportunities with cash generated by our existing management business."

OPERATING ENVIRONMENT

The Company continues to operate at or above market occupancy levels in most of its locations. Maintaining superior product and service levels has allowed the Company to generally maintain, and in some cases improve, its room rates. During the Company's negotiations with corporate accounts for 2004, overall rates were in line with or, in some cases, slightly better than those negotiated rates for 2003. The Company currently expects its full year achieved room rates in 2004 to be near the 2003 levels.

Four Seasons' customer base consists of business travellers, corporate groups and leisure travellers. Over the past three years, travel demand was negatively affected as the lodging industry dealt with the impact of terrorism, war, a weak economy and Severe Acute Respiratory Syndrome (SARS). Economic indicators suggest that the US economy began to show signs of recovery in mid-2003 and continued to recover further during the fourth quarter of 2003. Concurrently, business travel demand improved in many US and international markets, although it remains below levels achieved prior to 2001, which marked the beginning of the current downturn in travel demand. Notwithstanding the improvement in demand, both business and leisure travel is generally still being booked on a short lead-time.

The recovery in non-room related revenues at the hotels and resorts are lagging behind the recovery seen in room revenues. This pattern is consistent with prior economic cycles during which other ancillary revenues, including food, beverage and catering, recovered further into the economic recovery than room revenue.

Overall gross operating margins(2) at the hotels under management continued to be constrained as increased costs related to labour, workers compensation, health benefits, energy and insurance have not been completely offset by RevPAR(3) improvements. The Company expects that further significant cost increases, particularly relating to energy, insurance and workers compensation, will continue to put pressure on gross operating profit performance in 2004. For gross operating margins to remain at the same level as those realized in 2003, the Company estimates that RevPAR will need to increase by 4% to 5% in 2004. This level of RevPAR growth in 2004 is within the range of lodging industry experts' forecasts for 2004 of 3% to 6% improvements.

Please see the accompanying "Summary of Hotel Operating Data" for regional RevPAR and gross operating margin statistics by geographic region.

Worldwide Core Hotels

The 11.9% increase in RevPAR, on a US dollar basis, for the quarter ended December 31, 2003, as compared to the same period in 2002, for the Company's worldwide Core Hotels(4) reflects improvements in each of the regions in which the Company manages hotels and resorts. This is the first quarter since the middle of 2000 that all regions have experienced improved operating trends, on a US dollar basis; and the Company believes this reflects the beginning of a broader recovery in travel demand. As a result of the cost pressures noted above, gross operating margin for worldwide Core Hotels increased modestly from 27.8% in the fourth quarter of 2002 to 28.4% in the same period in 2003.

For the full year 2003, RevPAR of worldwide Core Hotels, on a US dollar basis, increased 2%, as compared to 2002. On a local currency basis, RevPAR of worldwide Core Hotels was essentially flat. On a full year basis, RevPAR performance varied significantly among regions, with the US outperforming the other regions. The full year occupancy decline in 2003, as compared to 2002, for worldwide Core Hotels was attributable principally to lower occupancy levels in the first half of the year, which was caused for the most part by travel disruption relating to the war, terrorism, SARS and lower demand related to a weak economy. This decline in occupancy was offset partially by a 4.3% increase, on a US dollar basis, in average daily room rate for the full year 2003, as compared to the same period in 2002. On a local currency basis, average room rates for worldwide Core Hotels increased 1.4%.

US Core Hotels

With the exception of Chicago, Philadelphia, Atlanta and Aviara, the US Core Hotels had RevPAR improvements in the quarter ended December 31, 2003, as compared to the same period in 2002. However, even the properties under management in these four locations continued to take more than their fair revenue market share(5) of business during the fourth quarter. The more modest improvement in RevPAR of 2.9% at the US Core Hotels in 2003, as compared to 2002 on a full year basis, reflects strong improvements in RevPAR in the last half of the year as increased travel demand offset weaker results in the first half of 2003. Exceptions to this improvement in RevPAR were Houston, Boston, Chicago, Washington and, to a lesser extent, New York, which did not have the same occupancy improvements as other markets, in part, because of increased supply in, and reduced convention traffic to, these cities.

Gross operating margins at the US Core Hotels were essentially flat in the fourth quarter of 2003, as compared to the same period in 2002, as increased labour, workers compensation, health benefits, energy and insurance costs negatively affected flow-through. On a full-year basis, the impact of these increased costs on gross operating margins was more significant, due to the weaker revenue growth at the hotels in the first half of 2003.

Europe/Middle East Core Hotels

With the exception of hotels under management in Paris and Istanbul, the Core Hotels under management in Europe/Middle East had occupancy improvements in the fourth quarter of 2003, as compared to the fourth quarter of 2002. Travel demand in Istanbul was negatively affected by the terrorist attacks in that market in early November. Four Seasons Hotel George V Paris experienced solid results with occupancy in excess of the average for the region, but realized an occupancy decline for the fourth quarter on a year-over-year basis. This hotel experienced an exceptional fourth quarter in 2002 as occupancy levels in October 2002 were almost 90%.

Although achieved average room rates for Europe/Middle East Core Hotels in the fourth quarter of 2003 increased 10.6% on a US dollar basis, as compared to the same period in 2002, on a local currency basis, achieved average room rates were essentially unchanged. Rate improvements achieved in certain hotels under management, including London, Lisbon and Dublin were offset by modest rate declines at hotels under management in Paris and Istanbul. On a local currency basis, RevPAR for the Europe/Middle East Core Hotels increased 7.3% during the fourth quarter of 2003, as compared to the same period in 2002. On both a US dollar basis and a local currency basis, the Europe/Middle East Core Hotels' RevPAR improvement in 2003, compared to the full year 2002, reflects the increases realized in the last six months of 2003, offset by the weakness in travel demand experienced in the first six months of the year, particularly in Cairo and Istanbul where travel was affected primarily by the war in Iraq.

Gross operating margins in the region were essentially flat in the quarter, as compared to the same period in 2002, as a result of increased energy and labour costs. Gross operating margins declined for the full year, as compared to 2002, as the impact of these cost increases was magnified by weaker revenues in the first half of 2003.

Other Americas/Caribbean Core Hotels

During the fourth quarter of 2003, RevPAR of the Company's Core Hotels in Other Americas/Caribbean increased 20.3% over the fourth quarter of 2002, on a US dollar basis, as a result of broad based demand improvement. With the exception of Four Seasons Hotel Toronto, which is in a market that is still recovering from the impact of SARS, all of the Core Hotels under management in this region experienced occupancy gains. Although Vancouver is also recovering from the impact of SARS, the fourth quarter is historically a slower travel period for that market, and therefore the lingering effects of SARS did not have the same impact as in Toronto, which historically has strong demand in the fourth quarter relative to the rest of the year. On a local currency basis, achieved room rates in the region increased 2.8%, as compared to the fourth quarter of 2002.

RevPAR for the full year 2003, as compared to 2002, on both a US dollar basis and local currency basis, was essentially unchanged as the weaker results in the first six months of 2003, resulting primarily from the impact of SARS on travel demand for Toronto and Vancouver, were offset by the stronger RevPAR results in the second half of the year.

Asia/Pacific Core Hotels

Virtually all of the hotels under the Company's management in the Asia/Pacific region contributed to a RevPAR improvement for the region of 23.9% in the fourth quarter of 2003, as compared to the same period in 2002, on a US dollar basis, as travel demand in the region continued to improve. Demand remained relatively weak in Bali as the impact of the terrorist event on that island in October 2002 lingers. Full-year RevPAR declined 9.2% in 2003, as compared to 2002, on a US dollar basis, reflect the devastating impact of SARS on that region in the first half of 2003. On a local currency basis, RevPAR improved 12% in the fourth quarter and declined 15.6% for the full year of 2003, as compared to the same periods in 2002.

Gross operating margins in the region improved from 35.1% in the fourth quarter of 2002 to 37.4% in the same period in 2003, reflecting the relatively low labour cost in the region and RevPAR improvements. Consistent with the full year RevPAR declines, gross operating profits declined in the full year.

"We are pleased that our properties are experiencing an improvement in demand," said Wolf Hengst, President Worldwide Hotel Operations. "Many of the hotels and resorts under our management are dealing with significant increases in certain costs that are largely outside the control of management, including labour, workers compensation, health benefits, energy and insurance. However, assuming travel demand continues to improve, we believe revenue improvements should help absorb these additional costs and we should begin to see margin improvements over the course of this year."

MANAGEMENT OPERATIONS

Management revenues increased 3.2% to $40.6 million for the quarter ended December 31, 2003, as compared to $39.3 million for the same period in 2002. The increase in management revenues is attributable to an improvement in fees from recently opened hotels and resorts including the Four Seasons hotels in Amman, Riyadh, Shanghai and the addition of fees from the Four Seasons resorts in Jackson Hole and Sharm el Sheik.

These improvements were offset by a decline of approximately $1.3 million in fees related to currency conversion, as the Canadian dollar strengthened primarily against the US dollar and pound sterling. In addition, incentive fees declined approximately $1.3 million, primarily as a result of reduced incentive fees from the US hotels (including Chicago and Philadelphia) in the three months ended December 31, 2003, as compared to the same period in 2002. Incentive fees are typically calculated based on the adjusted gross operating profits of the hotels and resorts under management, and the US hotels had reduced profitability as the hotels incurred additional costs related primarily to labour, workers compensation, health benefits, energy and insurance.

Management revenues increased 1.3% to $149.8 million for the year ended December 31, 2003, as compared to $147.9 million for 2002. Increases in management fees from new and recently opened hotels were offset by a currency- related decline in fees of approximately $600,000 relating to US dollar, Euro and pound sterling-denominated fees and reduced fees from the Company's residential business. In addition, the Company's management incentive fees decreased to $20.9 million for the year ended December 31, 2003, as compared to $25.1 million in 2002. The Company earned incentive fees from 33 of the 60 hotels and resorts under its management during 2003, as compared to 33 of its 57 hotels and resorts in 2002. Incentive fees declined primarily due to the lower levels of profitability at certain properties under management, resulting from higher costs related primarily to labour, workers compensation, health benefits, energy and insurance.

General and administrative expenses increased by 12.4% to $19.9 million for the fourth quarter of 2003 and increased 6.6% to $70.2 million for the year ended December 31, 2003, in each case as compared to the same periods in 2002. A large portion of these increases in general and administrative expenses in the fourth quarter ($1.1 million) and for the full year 2003 ($1.8 million) was attributable to items relating to relocation and severance and other atypical expenses at certain regional offices.

As a result of the items described above, management earnings before other operating items decreased to $20.7 million in the fourth quarter of 2003, as compared to $21.6 million in the fourth quarter of 2002, and to $79.5 million for the year ended December 31, 2003, as compared to $82 million in 2002.

For the quarter ended December 31, 2003, the Company's management operations profit margin(6) was 50.9%, as compared to 54.9% for the same period in 2002. For the year ended December 31, 2003, the Company's management operations profit margin was 53.1%, as compared to 55.4% in 2002. Excluding the impact of foreign currency on fee revenues described above (approximately $1.3 million in the quarter and $600,000 for the full year 2003) and the items relating to relocation and severance ($1.1 million in the quarter and $2.1 million for the full year 2003), management operations profit margin would have been 54.9% in the fourth quarter of 2003 and 54.7% for the full year 2003.

OWNERSHIP OPERATIONS(7)

In the fourth quarter of 2003, ownership losses before other operating items were $2.0 million, as compared to ownership losses before other operating items of $4.6 million in the fourth quarter of 2002. The improvement in ownership losses is primarily attributable to the Company ceasing to accrue rent expense for Four Seasons Hotel Berlin from August 2003, as discussed below.

Ownership losses before other operating items were $30.1 million for the year ended December 31, 2003, as compared to ownership losses before other operating items of $19.6 million for the year ended December 31, 2002. The increase in the full year loss over the prior year is attributable primarily to increased losses at The Pierre ($4.9 million) and Four Seasons Hotel Vancouver ($3.2 million) and reduced distributions from other hotel investments ($1.2 million).

Operating earnings at The Pierre were essentially flat in the fourth quarter of 2003, as compared to the fourth quarter of 2002. Although the hotel had RevPAR gains in the quarter driven by both occupancy and rate improvements, as a result of increased costs and a modest decline in catering revenues, earnings were essentially unchanged. For the full year ended December 31, 2003, the increased losses were attributable primarily to lower revenues from banqueting and ancillary revenues and higher labour, workers compensation, health benefits, energy and insurance costs.

Operating losses at Four Seasons Hotel Vancouver were essentially unchanged during the fourth quarter of 2003, as compared to the same period in 2002. Primarily as a result of travel disruption relating to SARS, Four Seasons Hotel Vancouver experienced weak operating conditions, with RevPAR, on a local currency basis, declining 11.6% for the full year of 2003, as compared to the same period in 2002, resulting in the operating loss at Four Seasons Hotel Vancouver increasing by $3.2 million.

The Company's obligation to fund any stipulated minimum lease payments at Four Seasons Hotel Berlin was limited to a maximum amount of approximately euro 11 million and was supported by a letter of credit. The Company reached its maximum funding obligation during the third quarter of 2003 and accordingly, the letter of credit has been released. Since the Company ceased funding shortfalls on the stipulated minimum lease payments, the lease payments made have been limited to the cash flow generated by the hotel. As a result, effective the first quarter of 2004, the landlord will be entitled to terminate the lease.

Primarily as a result of not accruing the stipulated minimum lease payments for Four Seasons Hotel Berlin during the fourth quarter of 2003, the operating results from this hotel for that quarter improved by $2.9 million, as compared to the fourth quarter of 2002. The benefit of the reduction in rent expense was however reduced by lower revenues at the hotel, resulting from a significant decline in occupancy for the full year 2003 (primarily as a result of new supply in that market), as compared to 2002, and increased labour, heath benefits, energy and insurance costs. The Company wrote down its fixed asset investment in the hotel to nil in the fourth quarter of 2003, resulting in a $3.2 million expense that is included in other operating items.

In 2004, the Company will continue to consolidate the revenue and expenses of Four Seasons Hotel Berlin. However, the stipulated minimum lease payments beyond what can be funded by the hotel's operation will not be paid or accrued. As a result, the Company expects the earnings from Four Seasons Hotel Berlin to be nil throughout the year.

The Company is in discussions with the landlords of The Pierre, Four Seasons Hotel Berlin and Four Seasons Hotel Vancouver to determine what, if any, alternatives may be available to change or restructure the Company's investments in these hotels. There can be no assurance that acceptable alternative arrangements will be agreed upon with respect to any or all of these hotels.

OTHER INCOME/EXPENSE

Other income for the fourth quarter of 2003 was $178,000, as compared to other expense of $2.8 million for the same period in 2002. For the full year of 2003, other expense was $25.8 million, as compared to other expense of $22.9 million in 2002.

                                  Three months ended       Years ended
  (Unaudited)                        December 31,          December 31,
  (In millions of dollars)         2003       2002       2003       2002
  

  Asset impairment charge, net
   of recoveries(x)              $   (2.3)   $  (1.9)  $  (11.1)  $  (26.5)
  Foreign exchange gain (loss)        2.5        0.5      (14.7)       5.0
  Decline in value life
   insurance policies                   -       (1.4)         -       (1.4)
  

  Other income (expense), net    $    0.2   $   (2.8)  $  (25.8)  $  (22.9)
  
  
  (x) Includes legal and enforcement costs relating to Caracas and Seattle
      (2003 and 2002), asset impairment charge on Four Seasons Hotel Sydney
      (2002) and Four Seasons Hotel Caracas (2003 and 2002), writedown of
      Four Seasons Hotel Berlin (2003) and loss on sale of vacant land in
      Toronto (2002), net of recoveries on items previously provided for.

  Legal and Enforcement Costs

Included in other expenses during the fourth quarter of 2002 are legal and enforcement costs of approximately $1.8 million incurred in connection with the Company's disputes relating to the Four Seasons hotels in Caracas and Seattle, which are described below. Included in other expense during the year ended December 31, 2003 are legal and enforcement costs of $9.5 million in connection with the disputes with the owners of the Four Seasons hotels in Caracas and Seattle. Other expense for the year ended December 31, 2002 includes an asset impairment charge for Four Seasons Hotel Caracas and Four Seasons Hotel Sydney and legal and enforcement costs relating to the Company's investments in Four Seasons Hotel Caracas and Four Seasons Olympic Hotel Seattle which, in the aggregate, were $25 million.

Four Seasons Olympic Hotel Seattle

During the second quarter of 2003, the Company and the owner of Four Seasons Olympic Hotel Seattle settled their disagreement, which was subject to arbitration, concerning the management of the hotel. Under the settlement, Four Seasons concluded its management of Four Seasons Olympic Hotel upon the sale of the hotel, which occurred on August 1, 2003. On closing of the sale of the hotel, the Company received an initial payment, which included its share of the sale proceeds as a result of its minority ownership interest in the hotel. The Company will also receive annual payments over the next several years, subject to certain conditions being met, that are not materially different from the fees that the Company would have otherwise earned during this period under its previous management contract for that property. The Company believes that a fair and equitable settlement has been reached and that the payments under the settlement agreement will, in aggregate, compensate it for the near-term value of its management contract as it works to obtain a new management opportunity in Seattle. A portion of this payment has been included in net earnings for 2003.

Four Seasons Hotel Caracas

The Company is in dispute with the owner of Four Seasons Hotel Caracas regarding a variety of matters relating to the completion and ongoing operation of the hotel, including the default of a US$5 million loan owed to the Company. During the second quarter of 2003, the Company received a judgment in the legal proceedings against the owner, which involved the protection of its proprietary materials. The court found against the owner on all matters, including illegal computer "hacking" and unlawful and unauthorized use of the Company's proprietary information, and ordered that the owner pay to the Company damages totalling US$4.9 million, plus legal costs and expenses of US$1.4 million. The owner has appealed the judgment from the legal proceeding, but has not stayed execution pending appeal. Therefore, the Company is moving to enforce the judgment from the legal proceeding against the owner, but has not recorded any receivable arising from the judgment as at December 31, 2003. In addition, the arbitration hearing in respect of the other contractual breaches of the management contract by the owner was completed during the third quarter of 2003 and a decision is pending.

Foreign Exchange Gain/Loss

Included in other income for the fourth quarter of 2003 is a foreign exchange gain of $2.5 million. The foreign exchange gain is primarily due to the translation of the Company's Australian dollars and pounds sterling net monetary assets, as the Canadian dollar weakened relative to those currencies during the quarter. This foreign exchange gain was partially offset by foreign exchange losses on the translation of the Company's US-dollar net monetary assets due to the strengthening of the Canadian dollar against the US dollar, as discussed below.

Other expense for the full year 2003 also includes a $14.7 million non-cash, unrealized foreign exchange loss, as compared to a $5.0 million non-cash, unrealized foreign exchange gain for the same period in 2002. The non-cash, unrealized foreign exchange loss for accounting purposes for the year ended December 31, 2003 arose as the result of the translation to Canadian dollars at the end of each month at current exchange rates of the Company's non-Canadian dollar-denominated net monetary assets not included in the Company's designated self-sustaining operations. Net monetary assets are the sum of the Company's foreign currency-denominated assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, long-term receivables and long-term obligations, as determined under Canadian generally accepted accounting principles (GAAP).

From an economic perspective, the Company looks to offset its net monetary asset position against the full obligation of its convertible notes. Under Canadian GAAP, the convertible notes were allocated between long-term obligations and shareholders' equity. At the time of issuance, the portion allocated to long-term obligations and included in net monetary assets was US$46.7 million, and US$125.8 million was allocated to shareholders' equity. If the portion of the convertible notes included in shareholders' equity was revalued at the current exchange rates, which is not contemplated under Canadian GAAP, the result of this revaluation would have been a non-cash, unrealized foreign exchange gain for accounting purposes of $36.1 million for the year ended December 31, 2003, more than offsetting the non-cash, unrealized foreign exchange loss for accounting purposes otherwise recorded. On this basis, the Company believes it has an appropriate economic hedge of its net monetary assets and liabilities. For a further discussion of the convertible notes see "Liquidity and Capital Resources" below.

The Canadian dollar strengthened by 18.2% (28.7 cents) during 2003 against the US dollar, causing the majority of the non-cash, unrealized foreign exchange loss for accounting purposes.

NET INTEREST INCOME/EXPENSE

The Company had net interest income of $962,000 in the fourth quarter of 2003, as compared to net interest expense of $266,000 in the fourth quarter of 2002. Net interest is a combination of $3.7 million interest income and $2.8 million interest expense in the fourth quarter of 2003. For the same period in 2002, interest income was $4.8 million, interest expense was $3.3 million and the Company incurred a cost of $1.8 million relating to the purchase of forward exchange contracts.

The decrease in interest income of $1.1 million is primarily due to lower interest earned on loans to certain properties and lower interest earned on short-term cash deposits in the fourth quarter of 2003, as compared to the fourth quarter of 2002.

For the same reasons as discussed above for the fourth quarter, net interest income for the year ended December 31, 2003 was $3.4 million, as compared to $3.2 million for the same period in 2002. The components of net interest income were interest income of $14.4 million and interest expense of $11.1 million, partially offset by income relating to the purchase of forward exchange contracts of $136,000 in 2003, as compared to $18.3 million, $11.6 million and an expense of $3.5 million, respectively, during the same period in 2002.

INCOME TAX EXPENSE

The Company's effective tax rate for the quarter ended December 31, 2003 was 27.9%, as compared to 24% for the same period in 2002. The Company's effective tax rate for the year ended December 31, 2003 was 55.2%, as compared to 24% in 2002. The increase in the tax rate in the fourth quarter and full year of 2003 was due to a portion of the non-cash, unrealized foreign exchange losses for accounting purposes not being tax-effected as it will not be realized for tax purposes.

As a result of the regional office income generally being taxed at rates lower than the Canadian statutory income tax rate, the Company expects its income tax rate to be approximately 24% in 2004 on income other than unusual items like foreign exchange gains and losses, which may have a different tax treatment.

STOCK OPTION EXPENSE

Stock option expense for the fourth quarter and full year 2003 was $368,000 and $893,000, respectively, as compared to nil for the same periods in 2002.

The Canadian Institute Chartered Accountants Handbook Section 3870 - Stock-based Compensation and Other Stock-based Payments was amended in December 2003 to require entities to account for employee stock options using the fair value-based method, beginning January 1, 2004. Under the fair value- based method, compensation cost of an award is measured at fair value at the date of grant and is expensed over the stock option's vesting period, with a corresponding increase to contributed surplus. In accordance with one of the transitional alternatives permitted under amended Section 3870, the Company has adopted the fair value-based method prospectively to all employee stock options granted on or after January 1, 2003. Options granted prior to that date continue, as permitted by the new rules, to be accounted for using the settlement method. Under the settlement method, no compensation expense is recorded on the grant of stock options, and consideration paid on the exercise of stock options or the purchase of shares is recorded as capital stock.

The allocation of the full year stock option expense of $893,000 among the four quarters of 2003 is as follows: first quarter (quarter ending March 31, 2003) - $15,000, second quarter (quarter ending June 30, 2003) - $144,000, third quarter (quarter ending September 30, 2003) - $366,000 and fourth quarter (quarter ending December 31, 2003) - $368,000. The quarterly results to be reported in the Company's 2003 annual filing will reflect this allocation.

LIQUIDITY AND CAPITAL RESOURCES

As at December 31, 2003, the Company's cash and cash equivalents were $170.7 million, as compared to total cash and cash equivalents of $165 million as at December 31, 2002. A significant amount of the Company's cash reserves are in US dollars and as a result, a large portion of the Company's cash reserves showed a year-over-year decline when translated to Canadian dollars for financial reporting purposes due to currency movements during 2003.

Long-term obligations were $120.3 million as at December 31, 2003, as compared to $129.1 million as at December 31, 2002. The Company's debt position consists primarily of that portion of its convertible notes that is characterized as debt for accounting purposes. The decrease in long-term obligations was primarily due to the foreign currency translation of the US dollar debt component of the convertible notes.

The Company is entitled to redeem its convertible notes commencing in September 2004 for cash equal to the issue price plus accrued interest calculated at 4 1/2% per annum. Holders of the notes have conversion rights, which they can exercise at any time before the maturity date or date of redemption of the notes, pursuant to which they can require the Company to issue to them 5.284 Limited Voting Shares for each US$1,000 principal amount of notes. The holders of notes also can require the Company to repurchase the notes in September 2004 for an amount equal to the issue price plus accrued interest calculated at 4 1/2% per annum. This right also may be exercised in September 2009 and September 2014. The Company has a choice of funding its obligation in connection with the conversion or purchase of the notes at the option of the holder with cash or shares. The rights of the Company and the noteholders relating to the convertible notes are more fully described in the Company's 2002 Annual Report.

It is possible that the Company may redeem some or all of the notes, especially if the current interest rate and general business environment continues. A cash redemption in September 2004 of all outstanding notes would require a cash payment to the noteholders of approximately US$215.5 million, assuming that the holders did not exercise their right to convert their notes before the redemption date. If the Company redeems the notes, it may replace the financing provided by the notes with a combination of debt (which could be raised in various means, including bank lines and/or the issuance of additional notes or convertible notes) and/or the utilization of cash reserves.

CASH FLOW

During the fourth quarter of 2003, the Company generated $21.9 million from operations, as compared to $9.6 million for the same period in 2002. The increase in cash from operations of $12.3 million in 2003 resulted primarily from a reduction in working capital of $9.3 million, a decrease in cash used in ownership operations of $2.8 million and a decrease in legal and enforcement costs paid in 2003 of $1.6 million, partially offset by a decrease in cash contributed by management operations of $1.3 million.

The Company generated $66 million of cash from operations during the year ended December 31, 2003, as compared to $41.8 million for the year ended December 31, 2002. The increase in cash from operations of $24.2 million in 2003 resulted primarily from a reduction in working capital of $33 million and a decrease in income tax paid in 2003 of $10.4 million, partially offset by an increase in cash used in ownership operations of $10 million, and an increase in legal and enforcement costs paid in 2003 of $4.5 million.

A part of the Company's business strategy is to invest a portion of available cash to obtain new management agreements or enhance existing management arrangements. These loans or investments will only be made where the overall economic return to the Company is expected to justify the loan or investment. During the year ended December 31, 2003, the Company made investments in a variety of projects, including Costa Rica, Buenos Aires, Jackson Hole, Whistler and Scottsdale Residence Club. For the quarter and year ended December 31, 2003, the Company funded $5.2 million and $42.6 million, respectively, in management opportunities, including amounts advanced as loans receivable, investment in hotel partnerships and investment in management contracts ($26.7 million and $56 million, respectively, for the same periods in 2002). The Company currently expects to fund in the range of US$50 million to US$60 million in 2004 in management opportunities such as Geneva, Hampshire and Palo Alto, which may be augmented by additional investments in other properties if appropriate opportunities become available.

Total fixed asset expenditures were $13.9 million in the fourth quarter of 2003 and $19.3 million for the year ended December 31, 2003, as compared to $21.8 million and $31.1 million, respectively, for the same periods in 2002. During the fourth quarter of 2003, the Company purchased land for $11.2 million relating to its corporate office expansion. During the fourth quarter of 2002, $17.6 million was expended by the Company in connection with the purchase of land relating to its investment in its project in Orlando, Florida.

During 2002, the Company generated $4.6 million from the disposition of its interest in the Inn on the Park vacant land in Toronto. Also during 2002, the Company made normal course purchases of 337,600 of its Limited Voting Shares through the facilities of The Toronto Stock Exchange and the New York Stock Exchange for a total purchase price, including commissions, of approximately $16.5 million ($7.7 million in the fourth quarter of 2002). During 2003, the Company did not make any normal course purchases.

FOUR SEASONS PROPERTIES - RECENT AND EXPECTED OPENINGS

Over the past four months, the Company has added four new Four Seasons hotels and resorts in Miami, Jackson Hole, Exuma and Costa Rica, as well as adding a third Four Seasons Residence Club in Jackson Hole. Four Seasons is continuing to expand its international presence with several new projects. During the next 12 months, the Company expects to open new hotels and resorts in Budapest, Hampshire (England), Cairo, Doha, Langkawi (Malaysia), Provence (France), Whistler (British Columbia) and Lanai (Hawaii). A full list of the Company's properties under construction or advanced development is provided in a schedule attached to this press release. Recent additions to the development list include two new projects in Lanai.

"The Four Seasons collection is continuing to expand. We have some great recent additions to the Four Seasons portfolio, including our first mountain resort in Jackson Hole, as well as Four Seasons Resort Great Exuma at Emerald Bay and Four Seasons Resort Costa Rica. Each will offer an exceptional destination resort experience," said Kathleen Taylor, President Worldwide Business Operations. "We have a very busy year ahead of us as we expect to open a record number of Four Seasons properties in one year, adding nine exciting destinations to our network around the world."

LOOKING AHEAD

Travel trends have continued to improve early in the first quarter of 2004. Although January is a historically weak period for business travel, the Company's worldwide RevPAR for the month increased nearly 8% on a US dollar basis, as compared to January 2003. The Europe/Middle East segment realized the strongest improvements in occupancy during January 2004. In January, the Company continued to realize higher achieved room rates in each of the geographic regions of operation. This is consistent with the continued improvement in economic indicators for most of the major global economies. At this time, the Company expect to see these positive demand trends and pricing improvements continue through the first quarter of 2004.

The Company expects that the improving economic environment should translate into continued improvement in travel demand, particularly business travel. The Company also expects that leisure travel demand, which overall has been more resilient in the past few years than to business travel, will remain stable. On a full-year basis, the Company continues to expect its average daily room rates for 2004 to meet or exceed the rates achieved in 2003. The Company also expects its business model to perform at or above industry levels consistent with past experience. However, the Company is not providing any specific guidance for earnings per share for 2004, or any quarter thereof at this time.

CONCLUSION

"Four Seasons has enhanced its competitive position over the past three years. Notwithstanding the very difficult operating conditions experienced by the lodging industry, we maintained our strategic direction. We continued to focus on our guests and the consistent and cost effective execution of the finest service in the industry," said Isadore Sharp, Chairman and Chief Executive Officer. "We believe that our commitment to this strategy will benefit Four Seasons shareholders and the owners of the properties that we manage as the lodging industry experiences the improved travel demand that we have now begun to see."

  1.  Adjusted net earnings is equal to net earnings (loss) plus (i)
      foreign exchange loss, less (ii) foreign exchange gain, plus (iii)
      asset impairment charge, plus (iv) loss on sale of hotel investment,
      each tax-effected as applicable. Adjusted net earnings, as calculated
      by the Company, may not be comparable to adjusted net earnings used
      by other companies, which may be calculated differently. In addition,
      adjusted net earnings is not intended to represent net earnings as
      defined by Canadian GAAP and should not be considered an alternative
      to net earnings or any other measure of performance prescribed by
      Canadian GAAP. It is included because the Company's management
      believes it can assist in the period-over-period comparability of the
      Company's financial performance.

      A reconciliation of net earnings to adjusted net earnings is
      as follows:



                                 Three months ended        Years ended
      (Unaudited)                    December 31,          December 31,
      (In thousands of dollars)    2003       2002       2003       2002
      

      Net earnings               $ 11,704   $  7,637   $  5,384   $ 21,231
      Adjustments:
        Foreign exchange loss
         (gain)                    (2,476)      (510)    14,703     (5,036)
        Net asset impairment
         charge(x)                  2,298      3,145     11,080     26,396
        Loss on sale of hotel
         investment                     -         50          -      1,409
        Restructuring change            -         91          -         91
      Tax effect of adjustments      (552)      (666)    (2,659)    (5,486)
                               
      Adjusted net earnings    $    10,974  $  9,747   $ 28,508   $ 38,605
                               
                               
      Adjusted basic earnings
       per share               $      0.31  $   0.28   $   0.81   $   1.10
                               
                               
      Adjusted diluted
       earnings per share      $      0.30  $   0.28   $   0.79   $   1.07
                               
                               
      (x) Includes legal and enforcement costs.


  2.  Gross operating margin represents gross operating profit as a percent
      of gross operating revenue.

  3.  RevPAR is defined as average room revenue per available room. RevPAR
      is a commonly used indicator of market performance for hotels and
      resorts and represents the combination of the average daily room rate
      and the average occupancy rate achieved during the period. RevPAR
      does not include food and beverage or other ancillary revenues
      generated by a hotel or resort. The Company reports RevPAR as it is
      the most commonly used measure in the lodging industry to measure the
      period-over-period performance of comparable properties.

  4.  The term "Core Hotels" means hotels and resorts under management for
      the full year of both 2003 and 2002. Changes from the 2002/2001 Core
      Hotels are the additions of Four Seasons Hotel San Francisco, Four
      Seasons Hotel Dublin, Four Seasons Hotel Buenos Aires and Four
      Seasons Resort Carmelo, and the deletion of Four Seasons Olympic
      Hotel Seattle.

  5.  Fair revenue market share as determined by Smith Travel Research,
      which is based on the RevPAR Index comparing the Company to a
      competitive set of peer companies determined by the Company.

  6.  The management operations profit margin represents management
      operations earnings before other operating items, as a percent of
      management operations revenue.

  7.  Included in ownership operations are the consolidated revenues and
      expenses from the Company's 100% leasehold interests in The Pierre in
      New York, Four Seasons Hotel Vancouver and Four Seasons Hotel Berlin,
      distributions from other ownership interests in properties that Four
      Seasons manages and corporate overhead expenses related, in part, to
      these ownership interests.