TORONTO, Aug. 2, 2002 - Four Seasons Hotels
Inc. (TSX Symbol "FSH"; NYSE Symbol "FS") today reported its results for
the second quarter ended June 30, 2002. Net earnings decreased 35.7% to
$18.1 million ($0.52 basic earnings per share and $0.48 diluted earnings
per share) for the three months ended June 30, 2002, as compared to $28.2
million ($0.80 basic earnings per share and $0.72 diluted earnings per
share) for the comparable period in 2001.
For the six months ended June 30, 2002, net earnings decreased 42.8%
to $25.8 million ($0.74 basic earnings per share and $0.70 diluted earnings
per share), as compared to $45.2 million ($1.29 basic earnings per share
and $1.17 diluted earnings per share) for the comparable period in 2001.
"Our results, as expected, continue to reflect a slowdown in the lodging
industry globally and, more specifically, the continued weakness in corporate
travel demand. In this challenging environment we are continuing to follow
our established business model and we are doing this profitably. We believe
this strategy positions us well for the expected economic recovery and
the period leading up to that recovery," said Isadore Sharp, Chairman and
Chief Executive Officer. "We are introducing more Four Seasons properties
to new key markets, enhancing our ability to attract business to our new
and existing properties and continuing to deliver the unparalleled service
our customers expect."
OPERATING RESULTS
During the quarter, those markets that are more dependent upon business
travel continued to underperform relative to other markets in which the
Company operates. In addition, certain of the US city centre hotels experienced
reduced Middle Eastern travel demand. However, overall leisure travel demand
remained relatively strong, a trend reflected in the RevPAR results of
the majority of the Company's resorts, with the exception of the Company's
two resorts in Bali, which were affected by reduced travel to Indonesia.
Generally business travel within Europe was not as weak as that experienced
in the US, and hotels such as Paris and Milan (that typically have a balance
of business and leisure travel) realized RevPAR improvements during the
second quarter.
"Although certain of the hotels, including Paris and Milan, and the
majority of the resorts under Four Seasons management are experiencing
strong demand levels, the majority of our city centre hotels, particularly
within the US, continue to operate in a challenging environment," said
Wolf Hengst, President Worldwide Hotel Operations. "Booking windows have
stayed relatively short, making it difficult to forecast demand levels.
As a result, we remain cautious in our outlook for the remainder of 2002."
RevPAR(1), on a US dollar basis, for worldwide Core Hotels(2) decreased
5.8% during the second quarter of 2002, as compared to the same period
in 2001. This decline was consistent with the Company's expectation of
a 4% to 6% decline for the quarter. The RevPAR decline was attributable
primarily to lower occupancy levels and a 2.6% decline in average daily
room rate during the second quarter of 2002, as compared to the same period
in 2001. The decline in average daily room rate was a result of a change
in sales mix, with fewer suites and deluxe rooms being sold in the quarter,
combined with a greater proportion of negotiated rate volume business.
The Company is continuing its strategy of maintaining the high level of
product and services it has consistently provided to its customers without
compromising room rates within a category. This strategy should allow the
Company to maintain its industry-leading service reputation and average
daily room rates in the near term and set the stage for improved RevPAR
results as demand strengthens and as corporate business travel returns
to more normal levels.
Worldwide Core Hotels gross operating margin(3) declined 2.3 percentage
points from 36.6% in the second quarter of 2001 to 34.3% in the second
quarter of 2002. The decline in gross operating margin was attributable,
in part, to the contraction of hotel revenue, but was also influenced by
increases in insurance, energy and employee benefit costs.
For the first six months of 2002, RevPAR, on a US dollar basis, for
worldwide Core Hotels decreased 8.9% and the gross operating margin declined
2.8 percentage points from 35.6% to 32.8%, as compared to the same period
in 2001.
During the second quarter of 2002, RevPAR for US Core Hotels, on a US
dollar basis, decreased 7.7% and the gross operating margin declined 2.8
percentage points to 33% from 35.8%, as compared to the same period in
2001. New York and Boston continued to be among the most difficult markets
as a result of reduced levels of business travel. For the first six months
of 2002, RevPAR for US Core Hotels, on a US dollar basis, decreased 10.2%,
and the gross operating margin declined 3.5 percentage points to 30.8%
from 34.3%, as compared to the same period in 2001.
In the second quarter of 2002, RevPAR for Canada/Mexico/Caribbean Core
Hotels, on a US dollar basis, decreased by 5.4% and the gross operating
margin declined 2.2 percentage points from 35.4% to 33.2%, as compared
to the same quarter in 2001. For the first six months of 2002, Canada/Mexico/Caribbean
Core Hotels experienced a decrease in RevPAR, on a US dollar basis, of
8.5% and the gross operating margin declined 3.4 percentage points from
38.2% to 34.8%, as compared to the same period in 2001.
RevPAR for the Europe/Middle East Core Hotels, on a US dollar basis,
was essentially flat and the gross operating margin declined 1 percentage
point from 41.4% to 40.4% in the second quarter of 2002, as compared to
the same period in 2001. During the quarter there was a divergence of operating
performance within the Europe/Middle East Core Hotels. Four Seasons hotels
in Paris and Milan both experienced occupancy levels in excess of 80% as
a result of strong demand from both leisure and business travelers. Four
Seasons hotels in Cairo and Istanbul experienced occupancy declines of
over 15% as a result of generally weak travel demand in those markets.
For the six months ended June 30, 2002, RevPAR for the Europe/Middle
East Core Hotels, on a US dollar basis, decreased 3.9% and the gross operating
margin improved from 38.0% to 38.2%, as compared to the same period in
2001. The Europe/Middle East Core Hotels experienced a decrease in RevPAR
of 5.1%, on a local currency basis, for the second quarter of 2002, as
compared to the same period in 2001. On a local currency basis, RevPAR
for Europe/Middle East Core Hotels decreased 4.7% during the first half
of 2002, as compared to the same period in 2001.
For the second quarter of 2002, RevPAR for the Asia/Pacific Core Hotels,
on a US dollar basis, decreased 2.2% and the gross operating margin declined
2.1 percentage points from 37.4% to 35.3%, as compared to the second quarter
of 2001. The Company's properties under management in Tokyo, Sydney and
Bangkok performed well relative to other Four Seasons hotels in the region
during the quarter. The hotels and resorts in Singapore and Bali experienced
RevPAR declines in excess of 15% as a result of weak travel demand, particularly
from the US.
RevPAR for the Asia/Pacific Core Hotels decreased by 7.9%, on a US dollar
basis, for the first six months of 2002, as compared to the same period
in 2001, and the gross operating margin declined 2.1 percentage points
from 37.7% to 35.6%, on a US dollar basis. The Asia/Pacific Core
Hotels experienced a RevPAR decrease of 5.9%, on a local currency basis,
during the second quarter of 2002, as compared to the same period in 2001.
On a local currency basis, RevPAR for the Asia/Pacific Core Hotels decreased
8% in the first six months of 2002, as compared to the same period in 2001.
The Company's worldwide resort portfolio experienced a US dollar RevPAR
decline of 3.3% in the second quarter of 2002, as compared to the same
period in 2001. Resort occupancies declined on average by 2.9 occupancy
points to 72.4%, while the average daily room rate of US$387 was essentially
flat, as compared to the second quarter of 2001. For the six months ended
June 30, 2002, the Company's resort portfolio experienced a US dollar RevPAR
decline of 4.2%, as compared to the same period in 2001, as occupancies
declined on average by 3 percentage points and the average daily room rate
was essentially flat at US$424, as compared to the same period in 2001.
MANAGEMENT OPERATIONS
Management fee revenues decreased 18.2% to $39.9 million for the quarter
ended June 30, 2002, and decreased 19.6% to $75.9 million for the six months
ended June 30, 2002, as compared to the same periods in 2001. As expected,
RevPAR declined on a worldwide basis, which reduced profitability of the
hotels under management and negatively affected the Company's profit-based
incentive fees during the second quarter of 2002, as compared to the second
quarter of 2001.
Incentive fees declined by 35% during the quarter, which represented
$3.9 million of the fee decline experienced during the second quarter of
2002. Reduced incentive fees caused by lower profitability of the hotels
under management accounted for $6.8 million of the fee decline during the
first six months of 2002.
A portion of the decline in fee revenues was caused by the Company ceasing
to manage The Regent Hong Kong on June 1, 2001. During the second
quarter of 2001, the fee revenues from The Regent Hong Kong were $926,000.
The decline in fee revenues was also attributable, in part, to a reduction
in fees received from Four Seasons residential projects. The sales of residential
projects were negatively affected by lower demand levels caused by the
weakening economic conditions in the United States, although average achieved
selling prices of the units increased by 36% in the second quarter of 2002,
as compared to the second quarter of 2001.
As a result of these reductions in fee revenues and to increases in
general and administrative costs, which were in line with inflation, Four
Seasons' management earnings, before other operating items, for the second
quarter of 2002 decreased 28.2% to $24 million, as compared to $33.5 million
in the second quarter of 2001. Management earnings before other operating
items for the six months ended June 30, 2002 were $44.9 million, a 28.8%
decrease as compared to $63.1 million for the same period in 2001.
The management operations profit margin (4) for the quarter ended June
30, 2002 declined to 60.1%, as compared to 68.5% for the same period in
2001, and was 59.2% for the six months ended June 30, 2002, as compared
to 66.8% for the same period in 2001. On a full year basis, the Company
expects the profit margin on its management business to be comparable to
the 59.3% profit margin achieved for the full year of 2001.
OWNERSHIP OPERATIONS (5)
Ownership operations losses, before other operating items, were $249,000
in the second quarter of 2002, as compared to earnings of $721,000 in the
second quarter of 2001. The weaker economic conditions in New York continued
to negatively affect the Company's ownership interest in The Pierre. The
Pierre's RevPAR declined by 18.9% during the second quarter of 2002, as
compared to the second quarter of 2001, which resulted in a reduction of
operating earnings at this hotel. |
The Pierre
Fifth Avenue at 61st Street
New York, New York
|
Ownership operations losses, before other operating items, for the first
six months of 2002 were $8.4 million, as compared to losses of $4.4 million
for the comparable period in 2001. The Pierre accounted for a substantial
portion of this decline year over year, reflecting the particularly difficult
conditions in the New York market.
OTHER INCOME/EXPENSE
Other income, net for the second quarter was $2.8 million compared
to $3.4 million for the same period in 2001. The Company realized a net
foreign exchange accounting gain in the second quarter of 2002 of $3.6
million, as compared to a $1.5 million loss in the second quarter of 2001.
The Company attempts to minimize the impact of fluctuations in foreign
currencies through the use of foreign exchange forward contracts. The gain
in the second quarter of 2002 was the result of a significant strengthening
of various currencies against the Canadian and US dollar, relating primarily
to the Company's working capital position and other monetary assets. In
light of the unusual volatility in foreign currencies experienced during
the quarter, the Company increased the proportion of its working capital
and other monetary assets that are hedged.
During the second quarter of 2001 the Company recognized a $4.7 million
gain relating to the reversal of provisions in connection with its investment
in Four Seasons Hotel Prague, the sale of which closed in the third quarter
of 2001.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense for the second quarter of 2002
was $3.6 million and $7.1 million for the six months ended June 30, 2002,
as compared to $3.7 million and $7.7 million respectively, for the same
periods in 2001. The decrease in depreciation and amortization expense
was primarily attributable to a change in the accounting standard relating
to goodwill and other intangible assets that became effective January 1,
2002 and is discussed in note 1(a) to the second quarter consolidated financial
statements. This decrease was partially offset by additional depreciation
and amortization expense on new management contracts. If the new accounting
standard had been in place during the second quarter of 2001, net earnings
would have reflected an improvement of $729,000 ($0.03 basic earnings per
share or $0.02 diluted earnings per share), as compared to the same period
in 2001, due to lower amortization expense. Similarly, for the six month
period ended June 30, 2001, net earnings would have reflected an improvement
of $1.5 million ($0.05 basic earnings per share or $0.03 diluted earnings
per share), as compared to the same period in 2001, as a result of lower
amortization expense (see reconciliation in note 1(a) to the second quarter
consolidated financial statements).
NET INTEREST INCOME
Net interest income for the quarter ended June 30, 2002 was $956,000,
as compared to net interest income of $3.3 million for the same period
in 2001, primarily due to lower interest rates earned on short-term cash
deposits, offset by reduced interest expense resulting from the redemption
of $100 million principal amount of unsecured debentures in November 2001.
In addition, higher interest
income was realized in the second quarter of 2001 from interest on
receivables relating to the Prague and Scottsdale properties, which were
subsequently repaid in 2001.
For the six months ended June 30, 2002, net interest income was $3 million,
as compared to net interest income of $4.8 million for the same period
in 2001.
INCOME TAX EXPENSE
The Company's effective tax rate in both the second quarter and the
first six months ended June 30 of 2002 and the comparable periods in 2001
was 24%.
BALANCE SHEET
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. The loans or investments will only be made where
the overall economic return to Four Seasons justifies the investment. As
a part of its ongoing balance sheet evaluation, the Company has reviewed
each investment and has determined that the book value of none of these
loans or investments is impaired as at June 30, 2002.
The Company is, however, currently in a 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 on a US$5 million
loan owed to the Company that is secured by a second mortgage and that
is registered against the hotel. Formal notice of the default has been
given to the owner. The dispute has been referred to arbitration
and the Company currently has no reason to believe that its loan is not
appropriately secured, provided due process of law is respected. Due to
the ongoing financial difficulties of the owner of the Caracas hotel and
the resulting working capital deficiencies at the hotel, Four Seasons Hotel
Caracas ceased taking guest reservations as at June 12, 2002. The Company
is pursuing all available remedies with the objective of protecting its
management rights and its loan and allowing the hotel to resume its operations
on a sound financial basis. The Company's total balance sheet exposure
to the Caracas property is $10.9 million.
Cash and cash equivalents continue to be the single largest asset on
the Company's balance sheet. The Company's cash and cash equivalents were
$207.3 million as at June 30, 2002, as compared to $210.4 million as at
December 31, 2001.
Long-term obligations were $119.4 million as at June 30, 2002 and December
31, 2001. The Company's debt position consists primarily of its zero coupon
convertible debt that matures in 2029 and that is redeemable by the Company
at any time after September 2004 (the terms and conditions of the convertible
notes are more fully described in the Company's 2001 Annual Report).
The Company has investment grade ratings from each of the bond rating
agencies that cover the Company. Recently, Moody's confirmed its investment
grade rating and changed its outlook for the Company from "negative" to
"stable". Moody's has indicated that the improvement in the outlook was
due to Four Seasons' rebound from the initial negative impact of the events
of September 11th in line with overall industry trends, the reduction in
debt levels and Moody's expectation that the Company is unlikely to face
any material impairment with respect to its on or off-balance sheet hotel-related
receivables or investments.
CASH FLOW
The Company generated $6.2 million of cash from operations in the second
quarter of 2002 and $13.9 million during the six months ended June 30,
2002, as compared to $27.6 million and $58.6 million, respectively, for
the same periods in 2001. During the quarter, the Company funded $6.8 million
in new management opportunities. The Company expects total capital spending
and dividends in 2002 to be approximately the same as in 2001 (approximately
$73.2 million). During the remainder of 2002, the Company expects to make
investments in a number of Four Seasons projects, including Sedona, Jackson
Hole, Costa Rica and Sao Paulo.
LEASE AND CONTINGENT COMMITMENTS
As discussed in the Company's 2001 Annual Report, the Company has certain
lease and contingent commitments. There has been no material change to
these commitments through the first six months of 2002 and the Company
does not anticipate any material change in respect of these commitments
over the remainder of this fiscal year.
CURRENT OPERATING OUTLOOK
The Company expects that the remainder of the year will continue to
be challenging due to the ongoing weakness in corporate travel demand,
which continues to negatively affect a number of the Company's key properties.
The recent, significant declines and ongoing volatility in global equity
markets are also expected to impede the recovery of the global economy
and corporate profits generally. The uncertainty regarding the timing and
extent of recovery makes it particularly difficult at this time to develop
forward-looking information about which one can be confident.
In the current environment, the Company has revised its estimates to
reduce the RevPAR and net earnings expectations over the remainder of the
year. On a full-year basis, the Company expects its average daily room
rates for 2002 to be comparable with both 2000 and 2001.
Based on these revised assumptions, the Company expects fee revenues
on a full year basis to be approximately the same as those achieved in
2001, as compared to our initial expectation that fee revenues would increase
by 5% in 2002. General and administrative expenses are expected to continue
to remain generally unchanged compared to 2001 on a full year basis.
Accordingly, the Company expects that the management operations profit
margin for the full year 2002 also will remain comparable to the 2001 profit
margin of 59.3%.
The continued weak global economic conditions, combined with delays
in the start of construction of the Four Seasons Residence Club Sedona
at Seven Canyons, also are expected to result in the fees from the Company's
residential business being $7.4 million below the Company's business plan
expectations for 2002.
With the weak economic conditions experienced through June 30, 2002
in New York and their impact on The Pierre, the Company expects ownership
operations losses for the full year 2002 to be approximately $11.5 million,
which is approximately $3 million greater than was anticipated at the beginning
of this year.
Accordingly, the Company is revising downwards its expected full year
diluted earnings per share guidance to $1.47 to $1.57 from $1.72 to $1.76.
The following table provides updated quarterly earnings guidance for
the remainder of 2002:
Change in Worldwide RevPAR Diluted
versus prior year
Earnings Per Share
First Quarter (Actual)
(12%)
$0.21
Second Quarter (Actual)
(5.8%)
$0.48
Third Quarter (Estimate)
2% to 3%
$0.24 - $0.28
Fourth Quarter (Estimate)
15% to 17%
$0.54 - $0.60
Full Year of 2002 (Estimate)
flat to (3%)
$1.47 - $1.57
During the quarter, the owner of the Four Seasons Olympic Hotel Seattle
began marketing the hotel for sale. The owner is asserting that the hotel
can be sold without the Company's management agreement. The Company strongly
disagrees with the owner's assertion and does not believe the hotel can
be sold unencumbered by the Company's management.
The Regent Hotel Jakarta has been closed since February 2002 as a result
of damage from extensive flooding. The timing on the re-opening of the
hotel is uncertain pending resolution of discussions with the insurer regarding
the expenses relating to the repairs and interruption of business of the
hotel.
For the year ended December 31, 2001, the management fees from Four
Seasons Olympic Hotel Seattle and The Regent Hotel Jakarta represented
less than 2.5% of total fee revenues for that year. For the six months
ended June 30, 2002, the management fees from Four Seasons Olympic Hotel
Seattle and The Regent Hotel Jakarta represented approximately 1.6% of
total fee revenues for that period.
NEW UNIT GROWTH
Four Seasons is continuing to expand its international presence with
several new projects. To date in 2002, new Four Seasons properties have
opened in Shanghai and Sharm el Sheikh. Later this year, the Company expects
to open Four Seasons hotels in Amman, Riyadh and Tokyo at Marunouchi. Looking
out over the next 24 months, the Company expects to open new Four Seasons
hotels and resorts in Budapest, Hampshire, England, Istanbul at the Bosphorus,
Jackson Hole, Exuma and Miami. A full list of the Company's properties
under construction or advanced development is provided in a schedule attached
to this press release.
"We continue to expect the pace of openings of our hotels and resorts
over the next two years to be very strong, and are continuing to have the
opportunity to consider a number of very exciting new projects," said Kathleen
Taylor, President Worldwide Business Operations. "We continue to see interest
in developing and building luxury projects, and our development partners
have been able to continue to secure financing in connection with these
new hotels."
CONCLUSION
"We believe the recent confirmation by Moody's of Four Seasons investment
grade rating and a change of outlook to "stable" from "negative" is consistent
with the financial strength of the Company, which combined with our new
unit growth program positions Four Seasons extremely well for the ultimate
recovery in business conditions internationally," said Douglas Ludwig,
Chief Financial Officer
and Executive Vice President.
All dollar amounts referred to in this press release are Canadian dollars
unless otherwise noted. The financial statements are prepared in accordance
with Canadian generally accepted accounting principles.
FOUR SEASONS HOTELS INC.
CONSOLIDATED BALANCE SHEETS
As at
As at
(Unaudited)
June 30, December 31,
(In thousands of dollars)
2002 2001
ASSETS
Current assets:
Cash and cash equivalents
$ 207,321 $ 210,421
Receivables
85,947 78,450
Inventory
2,679 3,074
Prepaid expenses
4,995 2,492
300,942 294,437
Long-term receivables
207,407 201,453
Investments in hotel partnerships
and corporations
136,565 141,005
Fixed assets
51,897 50,715
Investment in management contracts
202,758 201,460
Investment in trademarks and trade
names
(note 1(a))
6,482 33,784
Future income tax assets
14,590 17,745
Other assets
40,867 39,782
$ 961,508 $ 980,381
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $ 36,723
$ 50,813
Long-term obligations
due within one year
555 1,188
37,278 52,001
Long-term obligations
118,875 118,244
Shareholders' equity (note 2):
Capital stock
324,347 319,460
Convertible notes
178,543 178,543
Contributed surplus
4,784 4,784
Retained earnings
283,275 285,619
Equity adjustment from
foreign
currency translation
14,406 21,730
805,355 810,136
$ 961,508 $ 980,381
See accompanying notes to consolidated
financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Six months ended
(In thousands of dollars
June 30,
June 30,
except per share amounts)
2002 2001
2002 2001
Consolidated revenues
(note 3)
$ 80,964 $ 90,185 $ 145,545
$ 168,968
-----------------------------------------------
-----------------------------------------------
MANAGEMENT OPERATIONS
Revenues (note 4)
$ 39,934 $ 48,824 $ 75,926
$ 94,483
General and
administrative expenses
(15,925) (15,373) (31,009)
(31,414)
24,009 33,451
44,917 63,069
OWNERSHIP OPERATIONS
Revenues
42,214 43,291
71,804 77,546
Distributions from
hotel investments
465 225
571 417
Expenses:
Cost of sales
and expenses
(41,279) (40,640) (77,974)
(78,917)
Fees to Management
Operations
(1,649) (2,155) (2,756)
(3,478)
(249) 721
(8,355) (4,432)
Earnings before other
operating items
23,760 34,172
36,562 58,637
Depreciation and
amortization
(3,639) (3,728) (7,144)
(7,667)
Other income, net
2,765 3,368
1,624 3,640
Earnings from operations
22,886 33,812
31,042 54,610
Interest income, net
956 3,268
2,966 4,811
Earnings before
income taxes
23,842 37,080
34,008 59,421
Income tax expense:
Current
(3,007) (8,298) (4,387)
(13,009)
Future
(2,715) (601)
(3,775) (1,252)
-----------------------------------------------
(5,722) (8,899) (8,162)
(14,261)
Net earnings
$ 18,120 $ 28,181 $ 25,846
$ 45,160
-----------------------------------------------
-----------------------------------------------
Basic earnings per share
$ 0.52 $ 0.80
$ 0.74 $ 1.29
Diluted earnings per share $
0.48 $ 0.72 $
0.70 $ 1.17
See accompanying notes to consolidated
financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF CASH PROVIDED
BY OPERATIONS
Three months ended Six months ended
(Unaudited)
June 30,
June 30,
(In thousands of dollars)
2002 2001
2002 2001
Cash provided by (used in) operations:
MANAGEMENT OPERATIONS
Earnings before other
operating items
$ 24,009 $ 33,451 $ 44,917
$ 63,069
Items not requiring
an outlay of funds
374 290
744 460
Working capital
provided by
Management Operations
24,383 33,741
45,661 63,529
OWNERSHIP OPERATIONS
Earnings (loss) before
other operating items
(249) 721
(8,355) (4,432)
Items not requiring
an outlay of funds
- -
- 2,657
Working capital provided
by (used in)
Ownership Operations
(249) 721
(8,355) (1,775)
24,134 34,462
37,306 61,754
Interest received
2,746 3,423
8,151 10,736
Interest paid
(138) (140)
(425) (3,541)
Current income tax paid
(4,446) (4,446) (8,892)
(8,892)
Change in non-cash
working capital
(13,258) (5,373) (18,251)
(4,312)
Other
(2,847) (373)
(4,011) 2,852
-----------------------------------------------
Cash provided
by operations
$ 6,191 $ 27,553 $ 13,878
$ 58,597
-----------------------------------------------
-----------------------------------------------
See accompanying notes to consolidated
financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended Six months ended
(Unaudited)
June 30,
June 30,
(In thousands of dollars)
2002 2001
2002 2001
Cash provided by (used in):
Operations:
$ 6,191 $ 27,553 $ 13,878
$ 58,597
-----------------------------------------------
Financing:
Long-term obligations
including
current portion
(159) (224)
(799) (275)
Issuance of shares
724 1,353
4,887 1,641
Dividends paid
- -
(1,815) (1,813)
Cash provided by
(used in) financing
565 1,129
2,273 (447)
Capital investments:
Long-term receivables
(7,543) (6,641) (8,151)
(28,589)
Hotel investments
(1,100) (3,017) (1,682)
(5,059)
Disposal of hotel
investments
5,455 -
5,455 18,425
Purchase of fixed assets
(2,740) (1,934) (5,730)
(3,894)
Investments in trademarks
and trade names
and
management contracts
(1,809) (746)
(2,199) (7,356)
Other assets
(2,407) (1,581) (6,093)
(2,415)
Cash used in capital
investments
(10,144) (13,919) (18,400)
(28,888)
-----------------------------------------------
Increase (decrease) in
cash and cash equivalents
(3,388) 14,763 (2,249)
29,262
Decrease in cash due to
unrealized foreign
exchange loss
(1,017) (2,678)
(851) (1,663)
Cash and cash equivalents,
beginning of period
211,726 233,614 210,421
218,100
Cash and cash equivalents,
end of period
$ 207,321 $ 245,699 $ 207,321 $ 245,699
-----------------------------------------------
-----------------------------------------------
See accompanying notes to consolidated
financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF RETAINED
EARNINGS
Six months ended
(Unaudited)
June 30,
(In thousands of dollars)
2002 2001
Retained earnings, beginning of period
$ 285,619 $ 202,760
Effect of adoption of new standard
on
accounting for intangible assets
(note 1(a)) (26,366)
-
259,253 202,760
Net earnings
25,846 45,160
Dividends declared
(1,824) (1,812)
Retained earnings, end of period
$ 283,275 $ 246,108
See accompanying notes to consolidated
financial statements.
FOUR SEASONS HOTELS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of dollars except per
share amounts)
These interim consolidated financial
statements do not include all
disclosures required by Canadian generally
accepted accounting principles
for annual financial statements and
should be read in conjunction with
the Company's annual consolidated
financial statements for the year ended
December 31, 2001.
1. Significant accounting policies:
The significant accounting
policies used in preparing these interim
consolidated financial
statements are consistent with those used in
preparing the Company's
annual consolidated financial statements for
the year ended December
31, 2001, except as disclosed below:
(a) Intangible assets
Effective January 1, 2002, the Company adopted the new accounting
standard for goodwill and other intangible assets as established
by the Canadian Institute of Chartered Accountants ("CICA")
without restatement of prior periods. Intangible assets with
indefinite useful lives are no longer amortized but are subject to
impairment tests on at least an annual basis. Potential impairment
of an intangible asset is determined by comparing the asset's
carrying value to its fair value. Any loss resulting from
impairment tests effective January 1, 2002 must be recognized as a
charge to opening retained earnings. Impairment arising subsequent
to January 1, 2002 will be recognized as a charge to income.
Intangible assets which do not have indefinite lives are amortized
over their useful lives. These intangible assets are subject to an
annual impairment test comparing carrying values to net
recoverable amounts.
During the first quarter of 2002, in accordance with the new
accounting standard, the Company completed its review of its
existing intangible assets. That review determined that its
investment in the rights to the Regent trade name, which was
transferred to Carlson Hospitality Worldwide ("Carlson") in 1997
in exchange for the entitlement to receive payments from Carlson
based on a percentage of gross royalty revenue of new development
projects, has an indefinite useful life. As required by the new
standard, the Company tested this intangible asset for impairment
as at January 1, 2002 under the new fair value based impairment
methodology, and determined that its fair value was less than its
carrying amount. As a result, the Company recorded during the
first quarter of 2002 a decrease to retained earnings of $26,366,
a decrease to investment in trademarks and trade names of $27,042
and an increase to future income tax assets of $676.
The Company has determined that none of its other intangible
assets have indefinite lives and accordingly, amortizes such
intangible assets over their estimated useful lives. Prior to
2002, the Company amortized its investment in management contracts
on a straight-line basis over the terms of the contracts to a
maximum of 40 years. Effective January 1, 2002, as required under
the new accounting standard, the Company amortizes its investment
in management contracts over the actual term of the contracts in
proportion to the benefits received.
For the three months and six months ended June 30, 2001, had the
Regent trade name transferred to Carlson not been amortized and
had the amortization of investment in management contracts been
adjusted for the change in estimated useful lives, the reported
net earnings, basic earnings per share and diluted earnings per
share would be adjusted as follows:
Three months ended Six Months ended
June 30, 2001
June 30, 2001
Basic Diluted
Basic Diluted
Earnings Earnings Earnings
Earnings
Net Per Per
Net Per Per
Earnings Share Share Earnings
Share Share
Reported
amounts $28,181 $0.80
$0.72 $45,160 $1.29 $1.17
Trade name
amortization
(net of income
tax recovery of
$5 and $10,
respectively) 190 0.01
0.01 380 0.01
0.01
Management
contract
amortization
(net of income
tax recovery of
$79 and $160,
respectively) 539 0.02
0.01 1,090 0.04
0.02
Adjusted
amounts $28,910 $0.83
$0.74 $46,630 $1.34 $1.20
(b) Foreign currency
translation and hedging relationships
Effective January 1, 2002, the CICA amended the accounting
standard for foreign currency translation by eliminating the
requirement to defer and amortize unrealized translation gains and
losses on long-term foreign currency denominated monetary items
with a fixed or determinable life. Due to the hedging
relationships established by the Company during 2001 relating to
its long-term receivables, long-term obligations, investments in
self-sustaining foreign operations and foreign exchange forward
contracts, the adoption by the Company of the amendment to the
standard on accounting for foreign currency translation did not
have an impact on the Company for the six months ended June 30,
2002.
In addition, in December 2001, the CICA issued an accounting
guideline relating to hedging relationships. The guideline
establishes requirements for the identification, documentation,
designation and effectiveness of hedging relationships, which will
be effective for fiscal years beginning on or after July 1, 2002.
The Company has not yet determined the impact of the
implementation of this guideline on its 2003 consolidated
financial statements.
(c) Stock-based compensation
and other stock-based payments
Effective January 1, 2002, the CICA issued a new standard relating
to the accounting for stock-based compensation and other stock-
based payments. The new accounting standard requires the use of a
fair value based method to account for stock-based payments to non-
employees, and for employee awards that are direct awards of
stock, cash or other assets, or are stock appreciation rights that
call for settlement by the issuance of equity instruments, granted
on or after January 1, 2002.
As permitted by the new standard, the Company has opted to
continue to use its existing policy under which no compensation
expense is recorded on the grant of stock options to employees.
Consideration paid by employees on the exercise of stock options
or the purchase of shares is recorded as capital stock. The new
accounting standard does, however, require additional disclosures
for options granted to employees, including disclosure of pro
forma earnings and pro forma earnings per share as if the fair
value based accounting method had been used to account for
employee stock options.
Accordingly, the compensation element of stock options issued by
the Company during the first six months of 2002, based on the fair
value of the options on the date of grant, has been estimated
using a Black-Scholes option pricing model with the following
assumptions: risk-free interest rates ranging from 4.29% to 5.20%;
semi-annual dividend per Limited Voting Shares of $0.055;
volatility factors of the expected market price of the Company's
Limited Voting Shares ranging from 47.4% to 49.8%; and expected
lives of the options ranging between 4 and 7 years, depending on
the level of the employee who was granted stock options.
For the three months and six months ended June 30, 2002, assuming
the Company had accounted for its stock options issued under the
fair value based method, pro forma net earnings would have been
$17,905 and $25,624, respectively, pro forma basic earnings per
share would have been $0.51 and $0.73, respectively, and pro forma
diluted earnings per share would have been $0.48 and $0.70,
respectively. In calculating pro forma net earnings and pro forma
basic and diluted earnings per share, stock options issued prior
to January 1, 2002 have been excluded from the fair value based
accounting method.
2. Shareholders' equity:
As at June 30, 2002,
the Company has outstanding Variable Multiple
Voting and Limited
Voting Shares of 35,162,262 and outstanding stock
options of 5,728,347
(weighted average exercise price of $52.09). In
addition, the Company
has 655,404 convertible notes outstanding, each
of which may be
converted into 5.284 Limited Voting Shares of the
Company. The Company,
however, has the right to acquire for cash the
notes that a holder
has required to be so converted. Holders also have
the right to require
the Company to purchase all or a portion of their
notes on September
23, 2004, September 23, 2009 and September 23, 2014
in consideration
for Limited Voting Shares having a fair value equal
to the issue price
plus accrued interest to the date of purchase. The
Company has the
right to acquire for cash all or a portion of the
notes that a holder
has required to be so purchased. Also, on or after
September 23, 2004,
the Company may redeem for cash all or a portion
of the notes.
3. Consolidated revenues:
Consolidated revenues
for Four Seasons Hotels Inc. are comprised of
revenues from Management
Operations, revenues from Ownership
Operations, distributions
from hotel investments, less fees from
Ownership Operations
to Management Operations.
4. Revenues under management:
Total revenues under
management were $752,481 for the three months
ended June 30, 2002
($786,649 for the three months ended June 30,
2001), and $1,438,419
for the six months ended June 30, 2002
($1,537,174 for
the six months ended June 30, 2001). Total revenues
under management
consist of rooms, food and beverage, telephone and
other revenues of
all the hotels and resorts which the Company
manages. Approximately
67% of the fee revenues earned by the Company
were calculated
as a percentage of the total revenues under management
of all hotels and
resorts.
5. Seasonality:
The Company's 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. The
Company's ownership
operations are particularly affected by seasonal
fluctuations, with
lower revenue, operating profit and cash flow in
the first quarter;
ownership operations 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.
Management operations
are also seasonal in nature, as fee revenues are
affected by the
seasonality of hotel 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
those months and
may be offset to a greater extent as the portfolio of
resort properties
managed by the Company increases.
In 2002, this normal
seasonality is also heightened by the ongoing
impact from the
September 11th terrorist attacks, the war on terrorism
and the weak US
economy, which adversely affected the normal decision
cycle for first
and second quarter business travel and meetings and
leisure travel.
FOUR SEASONS
HOTELS INC.
SUMMARY OF HOTEL OPERATING DATA -
CORE HOTELS(1)
Three months ended
June 30,
(Unaudited)
2002 2001 Variance
Worldwide
No. of Properties
45 45
-
No. of Rooms
12,575 12,575
-
Occupancy(2)
69.3% 71.7% (2.4%)
ADR(3)
- in US dollars
$293 $301 (2.6%)
- in equivalent Canadian dollars $455
$463 (1.7%)
RevPAR(4) - in US dollars
$203 $216 (5.8%)
- in equivalent Canadian dollars $315
$332 (5.0%)
Gross operating margin(5)
34.3% 36.6% (2.3%)
United States
No. of Properties
22 22
-
No. of Rooms
6,971 6,971
-
Occupancy(2)
72.1% 73.9% (1.8%)
ADR(3)
- in US dollars
$322 $341 (5.4%)
- in equivalent Canadian dollars $500
$524 (4.5%)
RevPAR(4) - in US dollars
$232 $252 (7.7%)
- in equivalent Canadian dollars $360
$387 (6.9%)
Gross operating margin(5)
33.0% 35.8% (2.8%)
Canada/Mexico/Caribbean
No. of Properties
5 5
-
No. of Rooms
1,341 1,341
-
Occupancy(2)
68.3% 70.8% (2.5%)
ADR(3)
- in US dollars
$252 $257 (1.9%)
- in equivalent Canadian dollars $391
$395 (1.0%)
RevPAR(4) - in US dollars
$172 $182 (5.4%)
- in equivalent Canadian dollars $267
$280 (4.6%)
Gross operating margin(5)
33.2% 35.4% (2.2%)
Asia/Pacific
No. of Properties
10 10
-
No. of Rooms
2,715 2,715
-
Occupancy(2)
64.2% 65.9% (1.7%)
ADR(3)
- in US dollars
$168 $167 0.3%
- in equivalent Canadian dollars $261
$257 1.2%
RevPAR(4) - in US dollars
$108 $110 (2.2%)
- in equivalent Canadian dollars $167
$170 (1.4%)
Gross operating margin(5)
35.3% 37.4% (2.1%)
Europe/Middle East
No. of Properties
8 8
-
No. of Rooms
1,548 1,548
-
Occupancy(2)
66.5% 72.6% (6.1%)
ADR(3)
- in US dollars
$402 $371 8.3%
- in equivalent Canadian dollars $624
$571 9.3%
RevPAR(4) - in US dollars
$267 $269 (0.8%)
- in equivalent Canadian dollars $415
$414 0.1%
Gross operating margin(5)
40.4% 41.4% (1.0%)
1 The term "Core Hotels" means
hotels and resorts under management for
the full year of
both 2002 and 2001. Changes from the 2001/2000 Core
Hotels are the additions
of Four Seasons Resort Nevis and Four Seasons
Hotel Cairo at The
First Residence, and the deletion of The Regent
Jakarta (which closed
for repairs in February 2002 following damage
from extensive flooding).
2 Occupancy percentage is defined
as the total number of rooms occupied
divided by the total
number of rooms available.
3 ADR is defined as average
daily room rate per room occupied.
4 RevPAR is defined as average
room revenue per available room. RevPAR
is a commonly used
indicator of market performance for hotels and
resorts and represents
the combination of the average daily room rate
and the average
occupancy rate achieved during the period. RevPAR
does not include
food and beverage or other ancillary revenues
generated by a hotel
or resort.
5 Gross operating margin represents
gross operating profit as a percent
of gross operating
revenue.
FOUR SEASONS HOTELS INC.
SUMMARY OF HOTEL OPERATING DATA -
CORE HOTELS(1)
Six months ended
June 30,
(Unaudited)
2002 2001 Variance
Worldwide
No. of Properties
45 45
-
No. of Rooms
12,575 12,575
-
Occupancy(2)
66.8% 71.3% (4.5%)
ADR(3)
- in US dollars
$294 $302 (2.8%)
- in equivalent Canadian dollars $461
$463 (0.3%)
RevPAR(4) - in US dollars
$196 $215 (8.9%)
- in equivalent Canadian dollars $308
$330 (6.6%)
Gross operating margin(5)
32.8% 35.6% (2.8%)
United States
No. of Properties
22 22
-
No. of Rooms
6,971 6,971
-
Occupancy(2)
69.0% 73.2% (4.2%)
ADR(3)
- in US dollars
$325 $341 (4.7%)
- in equivalent Canadian dollars $511
$523 (2.3%)
RevPAR(4) - in US dollars
$224 $250 (10.2%)
- in equivalent Canadian dollars $352
$383 (7.9%)
Gross operating margin(5)
30.8% 34.3% (3.5%)
Canada/Mexico/Caribbean
No. of Properties
5 5
-
No. of Rooms
1,341 1,341
-
Occupancy(2)
64.0% 69.5% (5.5%)
ADR(3)
- in US dollars
$286 $288 (0.8%)
- in equivalent Canadian dollars $448
$441 1.7%
RevPAR(4) - in US dollars
$183 $200 (8.5%)
- in equivalent Canadian dollars $287
$306 (6.2%)
Gross operating margin(5)
34.8% 38.2% (3.4%)
Asia/Pacific
No. of Properties
10 10
-
No. of Rooms
2,715 2,715
-
Occupancy(2)
65.0% 69.1% (4.1%)
ADR(3)
- in US dollars
$165 $168 (2.1%)
- in equivalent Canadian dollars $259
$258 0.4%
RevPAR(4) - in US dollars
$107 $116 (7.9%)
- in equivalent Canadian dollars $168
$178 (5.6%)
Gross operating margin(5)
35.6% 37.7% (2.1%)
Europe/Middle East
No. of Properties
8 8
-
No. of Rooms
1,548 1,548
-
Occupancy(2)
62.9% 68.3% (5.4%)
ADR(3)
- in US dollars
$378 $363 4.2%
- in equivalent Canadian dollars $593
$555 6.9%
RevPAR(4) - in US dollars
$238 $248 (3.9%)
- in equivalent Canadian dollars $374
$379 (1.4%)
Gross operating margin(5)
38.2% 38.0% 0.2%
1 The term "Core Hotels" means
hotels and resorts under management for
the full year of
both 2002 and 2001. Changes from the 2001/2000 Core
Hotels are the additions
of Four Seasons Resort Nevis and Four Seasons
Hotel Cairo at The
First Residence, and the deletion of The Regent
Jakarta (which closed
for repairs in February 2002 following damage
from extensive flooding).
2 Occupancy percentage is defined
as the total number of rooms occupied
divided by the total
number of rooms available.
3 ADR is defined as average
daily room rate per room occupied.
4 RevPAR is defined as average
room revenue per available room. RevPAR
is a commonly used
indicator of market performance for hotels and
resorts and represents
the combination of the average daily room rate
and the average
occupancy rate achieved during the period. RevPAR
does not include
food and beverage or other ancillary revenues
generated by a hotel
or resort.
5 Gross operating margin represents
gross operating profit as a percent
of gross operating
revenue.
FOUR SEASONS HOTELS INC.
SUMMARY OF HOTEL OPERATING DATA -
ALL MANAGED HOTELS
As at
June 30,
(Unaudited)
2002 2001 Variance
Worldwide
No. of Properties
55 50
5
No. of Rooms
15,181 14,112 1,069
United States
No. of Properties
23 22
1
No. of Rooms
7,248 6,971 277
Canada/Mexico/Caribbean/South America
No. of Properties
8 6
2
No. of Rooms
1,762 1,553 209
Asia/Pacific
No. of Properties
13 12
1
No. of Rooms
4,062 3,619 443
Europe/Middle East
No. of Properties
11 10
1
No. of Rooms
2,109 1,969 140
FOUR SEASONS HOTELS INC.
SCHEDULED OPENING OF HOTELS UNDER
CONSTRUCTION OR
IN ADVANCED STAGES OF DEVELOPMENT
Hotel/Resort/Residence Club and Location(1)
Approx. No. Scheduled
of Rooms Opening
Four Seasons Hotel Alexandria, Egypt(x)
120 2004
Four Seasons Hotel Amman, Jordan
195 2002
Four Seasons Hotel Beirut, Lebanon
287 2005
Four Seasons Hotel Budapest, Hungary
179 2003
Four Seasons Hotel Nile Plaza, Cairo,
Egypt(x)
374 2004
Four Seasons Resort Costa Rica, Costa
Rica(x)
179 2004
Four Seasons Hotel Doha, Qatar(x)
235 2004
Four Seasons Resort Exuma, The Bahamas(x)
180 2003
Four Seasons Hotel Florence, Italy
116 2004
Four Seasons Hotel Hampshire, England
134 2003
Four Seasons Hotel Hong Kong, Hong
Kong(x)
400 2004
Four Seasons Hotel Istanbul at the
Bosphorus, Turkey 170
2004
Four Seasons Resort Jackson Hole,
WY, USA(x)
124 2003
Four Seasons Hotel Miami, FL, USA(x)
222 2003
Four Seasons Hotel Palo Alto, CA,
USA
200 2004
Four Seasons Resort Provence at Terre
Blanche, France(x) 115 2003
Four Seasons Resort Puerto Rico, Puerto
Rico(x)
250 2005
Four Seasons Residence Club Punta
Mita, Mexico(x)
35 2005
Four Seasons Hotel Riyadh, Saudi Arabia(x)
234 2002
Four Seasons Hotel Sao Paulo, Brazil
125 2003
Four Seasons Residence Club Sedona
at
Seven Canyons, AZ, USA(x)
20 2005
Four Seasons Hotel Tokyo at Marunouchi,
Japan
57 2002
Four Seasons Resort Whistler, B.C.,
Canada(x)
271 2004
(x)Expected to include a residential
component
1 Information concerning hotels,
resorts and Residence Clubs under
construction or
under development is based upon agreements and letters
of intent and may
be subject to change. The dates of scheduled opening
have been estimated
by management based upon information provided by
the various developers.
There can be no assurance that the date of
scheduled opening
will be achieved or that these projects will be
completed. The process
and risks associated with the management of new
properties are dealt
with in greater detail in the Company's Annual
Report.
(1) RevPAR is defined as average room revenue per available
room. RevPAR
is a commonly
used indicator of market performance for hotels and
resorts and
represents the combination of 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.
(2) The term "Core Hotels" means hotels
and resorts under management for
the full year
of both 2002 and 2001. Changes from the 2001/2000 Core
Hotels are
the additions of Four Seasons Resort Nevis and Four
Seasons Hotel
Cairo at The First Residence, and the deletion of The
Regent Jakarta
(which closed for repairs in February 2002 following
damage from
extensive flooding).
(3) Gross operating margin represents
gross operating profit as a percent
of gross operating
revenue.
(4) The management operations profit
margin represents management earnings, before other operating items, as
a percent of management operations revenue.
(5) Included in ownership operations
earnings (losses) are the
consolidated
revenues and expenses from the Company's 100% interest
in The Pierre
in New York, Four Seasons Hotel Vancouver, Four Seasons
Hotel Berlin,
distributions from minority ownership interests in
properties
that Four Seasons manages and corporate overhead expenses. |
This press release 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 and expectations
that are not historical facts.
With a history spanning four decades and a portfolio that now extends
around the world, Four Seasons Hotels and Resorts is the world's leading
operator of luxury hotels, currently managing 55 properties in 25 countries. |