| February 27, 2003 - Four Seasons Hotels Inc. (TSX Symbol "FSH"; NYSE
Symbol "FS") today reported its results for the fourth quarter of 2002
and for the year ended December 31, 2002.
Net earnings for the quarter ended December 31, 2002 were $7.6 million
($0.22 basic and diluted earnings per share), as compared to $9.3 million
($0.27 basic and diluted earnings per share) for the quarter ended December
31, 2001.
For the year ended December 31, 2002, net earnings were $21.2 million
($0.61 basic earnings per share and $0.59 diluted earnings per share),
as compared to $86.5 million ($2.48 basic earnings per share and $2.27
diluted earnings per share) for the year ended December 31, 2001. The financial
results for 2002 included asset impairment charges and legal and other
enforcement costs, net of applicable income taxes, of $19.1 million ($0.54
basic and diluted loss per share) relating to the Company's investments
in Four Seasons hotels in Caracas, Sydney and Seattle. On a normalized
basis(1), excluding non-recurring items (primarily the asset impairment
charge and legal and other enforcement costs referred to above), net earnings
for the year ended December 31, 2002 were $42.4 million ($1.21 basic earnings
per share and $1.17 diluted earnings per share).
The 2001 financial results included non-recurring items, including gains
on asset dispositions of $30.4 million, recovery of a loss provision of
$4.8 million, $2.2 million of corporate restructuring costs, and a $2.4
million loss on redemption of the $100 million of 6% debentures. On a normalized
basis(1), net earnings were $56.4 million ($1.61 basic earnings per share
and $1.52 diluted earnings per share) for the year ended December 31, 2001.
"Although international political events have affected our current financial
results, our business strategy remains focussed on those key areas that
we believe will help us build long-term value for our shareholders," said
Isadore Sharp, Chairman and Chief Executive Officer. "By concentrating
on consistent and cost effective execution of the finest customer service
in the industry, we believe we will enhance our competitive position and
continue to raise the bar for others in the luxury segment of our industry."
HOTEL OPERATING RESULTS
Four Seasons' customer base consists of business travellers, corporate
groups and leisure travellers. The delayed recovery in global economies,
particularly in the United States, the continued weakness in the world
equity markets, and ongoing geopolitical concerns, have negatively affected
business travel on a global basis. As a result, during the quarter ended
December 31, 2002, hotels continued to experience lower demand than normal,
particularly from business travellers. Leisure travel demand has shown
more resilience, although this segment is also below historical demand
levels.
Overall, travel is being booked on a short lead-time, which makes forecasting
particularly difficult. During the Company's negotiations with corporate
accounts for 2003, overall rates were in line with those achieved during
2002. However, it appears that many businesses continue to operate cautiously
in an uncertain environment, which is reflected in business travel plans
and expectations.
Notwithstanding the soft demand environment, RevPAR(2) of the Company's
worldwide Core Hotels(3), on a US dollar basis, increased 11.8% and gross
operating profits increased 6.5% during the fourth quarter of 2002, as
compared to the fourth quarter of 2001. The primary reason for this positive
RevPAR comparison is the significant decline in travel in the fourth quarter
of 2001 due to the September 2001 terrorist attacks in the United States.
For the full year of 2002, RevPAR of the Company's worldwide Core Hotels,
on a US dollar basis, decreased 1.9% and gross operating profits decreased
7.7%, as compared to the same period in 2001. The lower relative increase
for the fourth quarter of 2002 of gross operating profits compared to RevPAR
is attributable to increased labour, benefits and energy costs at the majority
of the hotels under management. There was a greater relative decline in
gross operating profits compared to RevPAR for the full year 2002 for the
same reason. These costs are expected to increase modestly during 2003,
with the exception of energy costs, which may increase more significantly
in the event of military action in the Middle East, continued instability
in Venezuela and other market-related conditions. During the fourth quarter
of 2002, the Company's Core Hotels in Canada/Mexico/Caribbean and Europe/Middle
East had a relatively high contribution to their RevPAR improvement from
achieved room rate, in part because of improvements in local currencies
relative to the US dollar in Europe/Middle East. As a result, these hotels
had a better gross operating profit performance relative to the other Core
Hotels since the flowthrough of revenue from rate improvements is higher
than from occupancy gains.
The RevPAR of the US Core Hotels, on a US dollar basis, increased 10.1%
and gross operating profits increased 2.1% during the fourth quarter of
2002, as compared to the fourth quarter of 2001. Within the US, hotels
under management in New York, Chicago and Seattle experienced better relative
demand, compared to the fourth quarter of 2001. However, The Pierre in
New York experienced a decline in achieved average rate as a result of
increased group business, which is typically lower rate business. The Boston,
Houston and Los Angeles hotels continued to experience relatively soft
demand. For 2002, RevPAR of the US Core Hotels, on a US dollar basis, decreased
3.8%, while gross operating profits decreased 11.8%, as compared to 2001.
In the fourth quarter of 2002, RevPAR of the Canada/Mexico/Caribbean
Core Hotels, on a US dollar basis, increased 11%, while gross operating
profits increased 12.8%, as compared to the fourth quarter of 2001. RevPAR
at the two Canadian hotels under management increased modestly, as compared
to the fourth quarter of 2001. The most significant RevPAR increases occurred
at the two hotels under management in Mexico and at Four Seasons Resort
Nevis. On a local currency basis, RevPAR of the Canada/Mexico/Caribbean
Core Hotels increased 15.4% and gross operating profits increased 18.9%
during the fourth quarter of 2002, as compared to the same period in 2001.
For the full year of 2002, the Canada/Mexico/Caribbean Core Hotels RevPAR,
on a US dollar basis, was essentially unchanged and gross operating profits
decreased 3.9%, as compared to the same period in 2001. On a local currency
basis, RevPAR of the Canada/Mexico/Caribbean Core Hotels increased 1.2%
and gross operating profits declined 3% for 2002, as compared to 2001.
The RevPAR of the Europe/Middle East Core Hotels, on a US dollar basis,
increased 21.5% and gross operating profits increased 25.2% in the fourth
quarter of 2002, as compared to the same period in 2001. On a local currency
basis, RevPAR of the Europe/Middle East Core Hotels increased 11.4% and
gross operating profits increased 15.2% for the fourth quarter of 2002,
as compared to 2001. The Four Seasons hotels in Paris, Milan, London and
Istanbul each had significant RevPAR increases during the quarter. The
Four Seasons hotel in Berlin continues to operate in a challenging environment,
with weak demand due to excess supply in that market. For 2002, RevPAR
of the Europe/Middle East Core Hotels, on a US dollar basis, increased
5.7%, as compared to 2001. On a US dollar basis, gross operating profits
increased 6.7% for the full year of 2002, as compared to 2001. On a local
currency basis, RevPAR of the Europe/Middle East Core Hotels was essentially
unchanged and gross operating profits increased 1.6% for 2002, as compared
to 2001.
During the fourth quarter of 2002, RevPAR of the Asia/Pacific Core Hotels,
on a US dollar basis, increased 10% while gross operating profits increased
5.5%, as compared to the fourth quarter of 2001. On a local currency basis,
RevPAR of the Asia/Pacific Core Hotels increased 6.1% while gross operating
profit increased 2.6% in the fourth quarter of 2002, as compared to the
same period in 2001. The majority of the hotels under the Company's management
in the Asia/Pacific region experienced RevPAR improvements. The exceptions
were the two Four Seasons resorts in Bali, where business has been severely
impacted as a result of the terrorist event on that island in October 2002.
It is expected that demand will remain weak in Bali for at least the next
several months as a result of a number of posted travel warnings. During
the fourth quarter of 2002, The Regent hotels in Thailand and the Four
Seasons hotels in Singapore, Sydney and the resort in the Maldives all
experienced significant year-over-year increases, although demand in Singapore
remains reasonably weak. RevPAR of the Asia/Pacific Core Hotels,
on a US dollar basis for 2002, decreased 2.4% and gross operating profits
decreased 6.5%, as compared to 2001. On a local currency basis, RevPAR
of the Asia/Pacific Core Hotels declined 4.2% while gross operating profit
declined 8% for 2002, as compared to 2001.
"Although business conditions remain very challenging, Four Seasons
generally continues to achieve industry leading room rates, while maintaining
or enhancing market share and prudently managing our cost base," said Wolf
Hengst, President Worldwide Hotel Operations. "During 2002 we received
more awards than ever that recognize the excellence of our product offering.
As importantly, we were also included for the sixth consecutive year on
Fortune Magazines' '100 Best Companies to Work For'. Since we believe there
is a critical link between our strategic focus on people and our ability
to achieve the highest guest service standards in the industry, we are
very pleased to be included in this list."
MANAGEMENT OPERATIONS
Fee revenues increased 1.6% to $39.3 million for the quarter ended December
31, 2002, as compared to $38.7 million for the same period in 2001. Fee
revenues in the fourth quarters of 2002 and 2001 were well below historical
levels as a result of the combined impact of weak economic and business
conditions and continuing geopolitical concerns. These factors have caused
significantly lower management incentive fees, which are typically calculated
based on the adjusted gross operating profits of the hotels and resorts
under management, and reduced fees from the Company's residential business.
Fee revenues decreased 8% to $147.9 million for the year ended December
31, 2002, as compared to $160.7 million for 2001. The Company's management
incentive fees decreased 16.5% to $25.1 million for the year ended December
31, 2002, as compared to $30 million in 2001. The Company earned incentive
fees from 33 out of its 57 properties during 2002, as compared to 37 of
its 53 properties in 2001. Incentive fees declined primarily due to the
lower levels of profitability at properties under management, resulting
from the continuation of lower RevPAR and higher costs related primarily
to insurance, labour, benefit and energy.
A portion of the decline in fee revenues resulted from the cessation
of the Company's management of The Regent Hong Kong during 2001. For the
full year of 2001, the fee revenues from The Regent Hong Kong were $2.3
million. A decline in fees from the residential business also contributed
to the decline in fees during the year.
General and administrative expenses decreased by 4.9% to $17.7 million
for the fourth quarter of 2002 and were essentially unchanged for the year
ended December 31, 2002, as compared to the same periods in 2001. The decrease
in the fourth quarter figures reflects the timing of the expenses incurred.
As a result of the items described above, management earnings before
other operating items increased to $21.6 million in the fourth quarter
of 2002, as compared to $20.1 million in the fourth quarter of 2001. Management
earnings before other operating items decreased to $82 million for the
year ended December 31, 2002, as compared to $95.3 million in 2001.
For the quarter ended December 31, 2002, the Company's management operations
profit margin(4) was 54.9%, as compared to 51.9% for the same period in
2001. For 2002, the Company's profit margin on its management operations
was 55.4%, as compared to 59.3% in 2001.
OWNERSHIP OPERATIONS(5)
In the fourth quarter of 2002, ownership losses before other operating
items were $4.6 million, as compared to earnings of $252,000 in the fourth
quarter of 2001. The decline is primarily attributable to increased losses
at Four Seasons Hotel Berlin and reduced earnings from The Pierre.
The decline in operating earnings at The Pierre of $1.1 million in the
fourth quarter of 2002, as compared to the fourth quarter of 2001, was
primarily caused by a lower achieved average room rate and a decrease in
catering revenues, combined with an increase in operating expenses. Although
The Pierre experienced increased occupancy during the fourth quarter of
2002, the higher occupancy was attributable to more group business than
is typical at that hotel, which resulted in a decline in achieved average
room rates. In addition, operating expenses increased during the fourth
quarter of 2002 due primarily to increased insurance, labour, benefit and
energy costs.
The primary reasons for the loss in Berlin were weak demand, a scheduled
increase in rent payments under the lease agreement, and higher operating
costs. Four Seasons Hotel Berlin losses increased approximately $1.4 million
during the fourth quarter of 2002, as compared to the same period in 2001,
primarily as a result of weak demand in a market that has an abundant supply.
Ownership losses before other operating items were $19.6 million for
the year ended December 31, 2002, as compared to ownership losses of $10.2
million for the year ended December 31, 2001. The primary contributors
to the decline were larger operating losses from Four Seasons Hotel Berlin
and The Pierre.
The Pierre's loss from operations for the year 2002 was $4.9 million,
as compared to a loss of $708,000 in 2001 and RevPAR declined by 6.8% in
2002, as compared to 2001. The loss from Four Seasons Hotel Berlin was
$3.9 million in 2002, as compared to $1.5 million in 2001, and RevPAR declined
by 1.4%.
OTHER INCOME/EXPENSE
Other expenses for the fourth quarter of 2002 were $2.8 million, compared
to $3.9 million for the same period in 2001. Included in other expenses
during the fourth quarter of 2002 are legal and other 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. Also included in other expenses is a $1.4 million
charge due to the decline in the value of certain life insurance policies
that the Company holds. Certain components of the cash surrender value
of these policies are linked to equity market indices, which experienced
valuation declines during 2002.
For 2002, other expenses were $22.9 million, as compared to other income
of $30.7 million in 2001. Included in the 2002 expenses are asset impairment
charges and legal and other enforcement costs taken in connection with
the Company's investments in the Four Seasons hotels in Caracas, Sydney
and Seattle, which are described below, offset by a $5 million foreign
exchange gain relating primarily to the Company's foreign currency working
capital position and other unhedged monetary assets. The 2001 financial
results included non-recurring items, including gains on asset dispositions
of $30.4 million, recovery of a loss provision of $4.8 million, $2.2 million
of corporate restructuring costs, and a $2.4 million loss on redemption
of the $100 million of 6% debentures.
The Company is 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 arbitration proceedings
have commenced.
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 has been closed and is expected to remain closed
until the dispute is resolved and the hotel's debt and working capital
arrangements can be restructured to provide sufficient funds to allow the
hotel to operate on the basis specified in the Company's management agreement.
The Company does not anticipate a reopening in the near term while the
necessary reorganization of the capital structure of the hotel remains
outstanding.
As a result of the inability to achieve a timely resolution of the dispute
with the owner, the necessary reorganization of the capital structure of
the hotel and the resulting indefinite closure of the hotel, the Company
recorded an asset impairment charge of approximately $16.1 million relating
to Caracas in the third quarter of 2002, effectively reducing its investment
to nil. This charge includes expenses related to legal and other enforcement
costs. The Company will continue to pursue all available remedies with
the objective of protecting its management rights and its loan and allowing
the hotel to resume operations under Four Seasons management on a sound
financial basis.
In 2002, the owner of the Four Seasons Hotel in Seattle began marketing
the hotel for sale and provided the Company with notice of termination
of its management agreement in connection with the proposed sale. The Company
strongly disagrees with the owner's assertion that it is entitled to sell
the hotel free of the Company's management agreement. In the third quarter
of 2002, the owner commenced arbitration proceedings on the matter. Those
proceedings are ongoing, and a hearing date has been scheduled for the
second quarter of 2003.
During the fourth quarter of 2002, the Company expensed $1.8 million
of legal fees and other enforcement costs in connection with the disputes
in Caracas and Seattle. The Company expects to incur approximately $4 million
to $5 million in legal and other fees in the first half of 2003 in connection
with these issues.
As a result of a lack of improvement in both domestic and international
tourism in Australia, reduced expectations for operating results for Four
Seasons Hotel Sydney, and an independent appraisal received in the third
quarter of 2002 which confirmed that conditions had deteriorated such that
the Company may not fully recover its investment in the hotel, the Company
recorded an asset impairment charge of $7 million relating to its $45.5
million investment in that hotel.
The Company realized a net foreign exchange accounting gain in 2002
of $5 million, as compared to a $44,000 gain in 2001. The Company attempts
to minimize the impact of fluctuations in foreign currencies through the
use of foreign exchange forward contracts. The gain in 2002 was the result
of a significant strengthening of various currencies against the Canadian
dollar, relating primarily to the Company's working capital position and
other unhedged monetary assets.
Included in the 2001 income are gains relating to the disposition of
investments the Company held in The Regent Hong Kong and Four Seasons Hotel
Prague of $30.4 million, as well as an aggregate recovery of $4.8 million
of loss provisions set up in previous years for possible impairment of
certain assets. During the fourth quarter of 2001, the Company recognized
a loss of $2.4 million when it redeemed all of its $100 million of 6% debentures
in accordance with their terms for an aggregate redemption price of $102,118,820
plus accrued and unpaid interest. Also during the fourth quarter and for
the year of 2001, the Company incurred charges of $1.2 million and $2.2
million, respectively, in connection with the restructuring of certain
corporate departments.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense was $3.9 million for the fourth
quarter of 2002 and $14.8 million for the year ended December 31, 2002,
as compared to $4.4 million and $16.2 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 fourth quarter consolidated financial
statements. This decrease was partially offset by additional amortization
expense on new management contracts. If the new accounting standard had
been in place during the fourth quarter of 2001, net earnings for that
quarter would have been increased by $716,000 ($0.01 basic and diluted
loss per share), due to lower amortization expense. Similarly, for the
year ended December 31, 2001, net earnings would have reflected an improvement
of $3.0 million ($0.08 basic earnings per share and $0.07 diluted earnings
per share) as a result of lower amortization expense (see reconciliation
in note 1(a) to the fourth quarter consolidated financial statements).
NET INTEREST EXPENSE/INCOME
The Company had net interest expense of $266,000 in the fourth quarter
of 2002, as compared to income of $211,000 in the fourth quarter of 2001.
Net interest is a combination of $4.8 million interest income, $3.3 million
interest expense and $1.8 million expense relating to the purchase of forward
exchange contracts in the fourth quarter of 2002, as compared to $4.3 million,
$3.5 million and $598,000, respectively, for the same period in 2001.
The change in interest income is primarily due to lower cash and cash
equivalents and lower interest rates earned on short-term cash deposits
in the fourth quarter of 2002, as compared to the fourth quarter of 2001,
offset by a provision against interest income recorded in the fourth quarter
of 2001. The decline in interest expense is the result of the redemption
of $100 million principal amount of unsecured debentures in November 2001
and purchases of additional forward exchange contracts.
For the same reasons as discussed above for the fourth quarter, for
the year ended December 31, 2002 net interest income was $3.2 million,
as compared to $6.7 million for the comparable period in 2001. The components
of net interest were interest income of $18.3 million, interest expense
of $11.6 million and expenses relating to the purchase of forward exchange
contracts of $3.5 million in 2002, as compared to $23.3 million, $15.6
million and $972,000, respectively, during the same period in 2001.
INCOME TAX EXPENSE
The Company's effective tax rate for each of the quarters ended December
31, 2002 and 2001 was 24%. The Company's effective tax rate for the year
ended December 31, 2002 was 24%, as compared to 18.6% in 2001. The lower
effective tax rate for the year 2001 is primarily a result of the gain
realized during the third quarter of 2001 relating to the sale of The Regent
Hong Kong, which was not subject to tax.
Included in tax expense for the fourth quarter of 2001 was a $939,000
expense related to the scheduled reductions in the Canadian federal income
tax rates announced in the fourth quarter of 2001, which will be implemented
over the next several years. The increased tax expense ("Reduction of future
income tax assets") results from the decreased income tax rates being applied
to the ongoing benefit of the Company's future income tax assets.
CASH FLOW AND CAPITAL EXPENDITURES
During the fourth quarter of 2002, the Company generated $9.6 million
from operations, as compared to $157,000 for the same period in 2001. The
increase in cash from operations of $9.4 million in 2002 was primarily
due to a decrease in non-cash working capital of $9 million, a decrease
in income taxes paid of $4.4 million, an increase in cash contributed by
management operations of $1.8 million, partially offset by increased cash
used in ownership operations of $4.8 million and legal and enforcement
costs paid in 2002 of $2.7 million.
The Company generated $41.8 million of cash from operations during the
year ended December 31, 2002, as compared to $75.5 million for the year
ended December 31, 2001. The decrease in cash from operations of $33.7
million in 2002 was primarily due to reduced cash contributed by management
operations of $12.9 million and greater cash used in ownership operations
of $12 million (as discussed above), an increase in non-cash working capital
of $13.1 million and legal and enforcement costs paid in 2002 of $5 million,
partially offset by a decrease in income tax paid of $7.4 million and a
decrease in net interest paid of $3.6 million.
For the quarter and year ended December 31, 2002, the Company funded
$31.8 million and $71 million, respectively, in new management opportunities,
including amounts advanced as loans receivable, investment in hotel partnerships,
investment in management contracts and investment in fixed assets as further
explained below. This level of investment was consistent with the Company's
business plan, with the investments made to secure new long-term management
agreements or to enhance existing management agreements. During the quarter
and year ended December 31, 2002, the Company made investments in a variety
of projects, including Costa Rica, Jackson Hole, Scottsdale Residence Club
and Orlando, amongst others.
Included in total capital investments, including amounts advanced as
loans receivable, investment in hotel partnerships and investment in management
contracts, of $20.1 million and $63.3 million for the quarter and year
ended December 31, 2001, respectively, were approximately $17.3 million
and $53.6 million of investments made during the relevant period, to obtain
new long-term management contracts, including Four Seasons hotels in Miami,
San Francisco, Dublin and Budapest, and to improve the terms of the existing
management agreement at The Regent Bangkok.
Total fixed asset expenditures were $21.8 million in the fourth quarter
of 2002 and $31.1 million for the year ended December 31, 2002, as compared
to $2.8 million and $9.6 million, respectively, for the same periods in
2001. The increases of $19 million in the fourth quarter of 2002 and $21.5
million in the year ended December 31, 2002 were primarily due to the $17.6
million expended by the Company in connection with the purchase of land
relating to its investment in Four Seasons Resort Celebration in Orlando,
Florida. The remaining increase is due to increased fixed asset purchases
by the Company's three consolidated hotels and by various corporate offices.
During 2002, the Company generated $4.6 million from the disposition
of its interest in the Inn on the Park vacant land. During 2001, the Company
also generated $88.6 million from the disposition of its equity investments
in Four Seasons Hotel Prague, Four Seasons Resort Punta Mita and The Regent
Hong Kong.
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. The Company is currently authorized to
make normal course purchases of up to an aggregate of 5% of its issued
and outstanding Limited Voting Shares over a 12-month period.
During the fourth quarter of 2001, the Company redeemed its $100 million
of 6% debentures for an aggregate redemption price of $102.1 million plus
accrued and unpaid interest.
LIQUIDITY AND CAPITAL RESOURCES
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 is expected to justify the
investment. As a part of its ongoing balance sheet evaluation, the
Company has reviewed each investment and has determined that the asset
impairment charges discussed above under "Other Income/Expense" were required
in respect of its investments in Four Seasons hotels in Caracas and Sydney.
As at December 31, 2002, the Company's cash and cash equivalents were
$165 million, as compared to total cash and cash equivalents of $210.4
million as at December 31, 2001. The reduction in cash and cash equivalents
is primarily due to funding of projects relating to new management opportunities,
including Costa Rica, Jackson Hole and Orlando. Long-term obligations were
$129.1 million as at December 31, 2002 as compared to $119.4 million as
at December 31, 2001. The Company's debt position consists primarily
of its zero coupon convertible debt that matures in 2029, which is redeemable
by the Company at anytime after September of 2004. The terms and conditions
of the convertible notes are described more fully in the Company's 2001
Annual Report.
LEASE AND CONTINGENT COMMITMENTS
In connection with certain of its hotel management agreements and projects
under development, the Company provides limited and contingent commitments
in lieu of or as security for additional equity or loan commitments. As
at December 31, 2002, the Company had 11 contingent commitments that could
potentially represent a maximum funding of approximately $56.3 million
in 2003. Approximately six of these commitments totalling $16.6 million
are for potential one-time fundings and three of these commitments totalling
$19.5 million are annual maximum contingent commitments, which are expected
to remain in place for at least the next five years. The remaining two
of these contingent commitments totalling $20.2 million are letters of
credit supporting the equity or loan commitments of the Company in respect
of two projects currently under construction. To the extent it is called
upon to honour any one of these contingent commitments, other than the
two commitments in respect of the investments in the projects currently
under construction, the Company generally has either the right to be repaid
from hotel operations and/or has various forms of security or recourse
to the owner of the property. The Company does not anticipate funding any
amount pursuant to these commitments during 2003, other than the $20.2
million in respect of the two investments in the projects currently under
construction.
Effective January 1, 2002, the Canadian Institute of Chartered Accountants
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.
The resulting expense would increase in future years as additional options
are granted to employees.
As permitted by the new standard, the Company is continuing to apply
its existing accounting 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 Company recognizes that the granting of options to employees represents
a cost, but believes that it is prudent to wait for the anticipated releases
from the various accounting bodies regarding the required accounting treatment
of stock based compensation prior to changing its method of accounting.
For the quarter and year ended December 31, 2002, if the Company were to
have adopted the fair value based method, the impact would have been an
increased compensation expense of $832,000 and $1.8 million, respectively,
a decrease in basic earnings per share of $0.02 and $0.06, respectively,
and a decrease in diluted earnings per share of $0.02 and $0.05, respectively.
DEVELOPMENT UPDATE
During 2003, the Company is scheduled to open six new Four Seasons hotels
and resorts in Riyadh, Budapest, Exuma (the Bahamas), Hampshire (England),
Jackson Hole and Miami. Consistent with the Company's business strategy,
the Company has made and will be making investments in certain of these
properties by way of loans or minority equity investments.
"We continue to be encouraged by the number of quality projects that
are being brought to us by our development partners. We are fortunate to
have partners that have a very long investment horizon and a clear understanding
that it takes many years to design and build a Four Seasons hotel. As a
result, notwithstanding the challenging near-term operating environment,
Four Seasons projects continue to be planned, developed and built," said
Kathleen Taylor, President Worldwide Business Operations. "With six new
Four Seasons hotels scheduled to open in 2003 and a further nine scheduled
to open in 2004, we are in an exciting period of growth for the Four Seasons
brand with the additions of these important new hotels."
LOOKING AHEAD
The Company's business plan objectives for 2003 continue to focus on
those aspects of the business which provide the greatest potential contribution
to long-term free cash flow; including continued opening of new Four Seasons
properties, maintaining and enhancing market share, maintaining room rates
and increasing the rate premiums of the new and recently opened Four Seasons
properties.
In 2003, Four Seasons expects to open six new properties. The average
life of the management contracts for these properties is 71 years. As such,
these management contracts are expected to provide the Company with long-term
significant fee income and no investment obligations in respect of these
properties beyond its initial committed capital.
One of Four Seasons' objectives is to be recognized as the company which
operates the finest hotel in every area in which it is located. A key measurement
of this objective is market share premium. In spite of the economic downturn,
Four Seasons believes that it has maintained or enhanced market share in
each of the regions in which it operates. As an example, as calculated
by Smith Travel Research, where 100 represents fair market share, Four
Seasons improved its market share in the US market from 117 in 2000, to
122 in 2001 and maintained this level in 2002. The objective for 2003 is
to maintain or enhance this market share premium, while maintaining rates.
The Company believes that maintaining rates will be one of the most
important factors in being well-positioned for the increase in travel demand
that should occur with global economic recovery. Over the past two years,
Four Seasons has been generally successful at maintaining room rates at
the levels achieved in 2000, which were the highest room rates ever achieved
by the Company, without sacrificing occupancy to its competitors. During
2003, the Company will focus on maintaining its value arrangement with
its guests by continuing to deliver its exceptional quality of service
and maintaining room rates, while at the same time controlling costs. The
Company will also be focussed on establishing a market leadership position
for each of the 10 new Four Seasons hotels and resorts which opened over
the past 24 months and the six new Four Seasons projects which are expected
to open in 2003 and building rate premiums in those locations.
During 2003, the gross operating profit margins at the hotels and resorts
under management are expected to decline due to cost increases for expenses
such as employee benefits, energy and insurance, which are largely beyond
the control of Four Seasons. The overall impact on margins is expected
to decline by 100 to 150 basis points in 2003. Over the past few years,
the Company has maintained overall gross operating profit margins, which
we believe have led the upper-upscale and luxury segment of the lodging
industry.
Hotel ownership operations are expected to continue to be challenged
by the current operating environment. The operating profitability of The
Pierre, and the Four Seasons hotels in Vancouver and Berlin is unlikely
to improve in 2003. Macro events may cause a greater loss from hotel
ownership operations in 2003 than in 2002. Nevertheless, the Company will
endeavor to improve the operating results of these properties through changes
to their operations or through the restructuring of the relevant leases
in each of the three cases. The Company continues to attempt to mitigate
its exposure to hotel ownership by limiting investments to minority positions
less than 20%.
The Company will continue to pursue legal remedies to enforce its contracts
and security in the disputes with the owners of the Four Seasons hotels
in Seattle and Caracas. The aggregate costs of these arbitrations and related
proceedings in 2003 will likely be in the range of $4 million to $5 million
which are expected to be weighted toward the first half of the year. The
value of the long-term management contracts in these markets justifies
these significant costs. The Company remains confident that an acceptable
resolution will be achieved in both of these disputes.
The Company's effective tax rate is expected to be 24% in 2003.
An important objective for the Company in these uncertain circumstances
is to maintain the strength of its balance sheet. As such, the Company
intends to continue to be disciplined in the allocation of its capital.
The Company will also seek to dispose of certain of its minority positions
which could contribute further cash reserves in the near term. The capital
investment plans for the Company remain focussed on allocating the majority
of its capital for investment opportunities that establish new long-term
contracts in key destinations. Total capital spending is expected to be
approximately US$45 million to US$55 million in 2003, including investments
planned for Costa Rica, Whistler, Hampshire and Jackson Hole. This amount
includes the letters of credit totalling $20.2 million supporting the commitment
of the Company to invest in two of these projects as disclosed under "Lease
and Contingent Commitments".
The current operating environment involves unprecedented levels of uncertainty.
The Company will continue to provide appropriately detailed historic and
current information, as well as management's views on key operating trends,
progress on long-term strategies and other information that is intended
to assist shareholders in assessing the future prospects for Four Seasons
business. However, as a result of the high levels of uncertainty in the
macroeconomic environment, the Company is declining to give a specific
forecast for earnings per share for 2003 at this time. In general, the
Company expects its business model to perform at or above industry levels
consistent with past experience.
CONCLUSION
"The lodging industry continues to experience very challenging demand
conditions, and we expect this to continue in 2003, particularly with the
potential threat of war in the near term," said Douglas L. Ludwig, Chief
Financial Officer and Executive Vice President. "These conditions and their
impact on our industry are impossible to predict with any confidence. We
will continue to focus on building the long-term value potential of Four
Seasons. We are taking steps designed to achieve a rapid improvement of
operating cash flow when the economy turns. We maintain a strong balance
sheet, and we are opening many great new hotels under new long-term management
agreements. We are also preserving the integrity of our room rates and
profit margins so that our incentive fees should rebound significantly
when the lodging industry begins to see occupancy levels increase. We do
not believe that the intrinsic value of Four Seasons has been diminished
by the current environment and we will continue to take steps to maximize
the long-term cash flow potential of the Company."
-------------------------------
1. Normalized net earnings is
equal to net earnings plus
(i) restructuring
costs, plus (ii) loss on redemption of debt, less
(iii) recovery
of losses, less (iv) gain on sale of investments, less
(v) certain
net foreign exchange gains, each tax-affected as
applicable.
A reconciliation
of net earnings to normalized net earnings is as
follows:
Three months ended Years ended
(Unaudited)
December 31, December
31,
(In thousands
of dollars) 2002
2001 2002
2001
---------------------------------------------------------------------
Net earnings
$ 7,637 $ 9,317 $ 21,231
$ 86,486
Normalized adjustments:
Asset impairment charges
and legal and other
enforcement costs
(Caracas/Sydney/Seattle) 1,784
- 25,091
-
Loss (gain) on sale of
hotel investments
50 254
1,409 (30,398)
Non-recurring foreign
exchange gain
- (1,365)
- (1,365)
Provision for
(recovery of) loss 1,361
139 1,305 (4,778)
Loss on redemption of debt -
2,350 -
2,350
Restructuring costs
91 1,173
91 2,172
Tax effect of
normalized
adjustments
(789) (597) (6,695)
1,928
------------------------------------------
Normalized net
earnings $ 10,134 $ 11,271 $
42,432 $ 56,395
------------------------------------------
------------------------------------------
Normalized basic
earnings
per share
$ 0.29 $ 0.32 $
1.21 $ 1.61
------------------------------------------
------------------------------------------
Normalized diluted
earnings
per share $ 0.29
$ 0.32 $ 1.17 $
1.52
------------------------------------------
------------------------------------------
2. 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.
3. 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).
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% leasehold
interests in
The Pierre in New York, Four Seasons Hotel Vancouver and
Four Seasons
Hotel Berlin, distributions from minority ownership
interests in
properties that Four Seasons manages and corporate
overhead expenses.
++++++++
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 STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Years ended
(In thousands of dollars
December 31, December
31,
except per share amounts)
2002 2001
2002 2001
-------------------------------------------------------------------------
Consolidated revenues
(note 3)
$ 76,935 $ 76,934 $ 284,674 $ 303,106
-------------------------------------------
-------------------------------------------
MANAGEMENT OPERATIONS
Revenues (note 4)
$ 39,321 $ 38,698 $ 147,894 $ 160,672
General and administrative
expenses
(17,716) (18,627) (65,903) (65,416)
-------------------------------------------
21,605 20,071 81,991
95,256
-------------------------------------------
OWNERSHIP OPERATIONS
Revenues
38,839 39,245 141,290
147,500
Distributions from hotel
investments
503 955
1,321 1,510
Expenses:
Cost of sales and expenses
(42,244) (37,984) (156,374) (152,663)
Fees to Management
Operations
(1,728) (1,964) (5,831)
(6,576)
-------------------------------------------
(4,630) 252 (19,594)
(10,229)
-------------------------------------------
Earnings before other
operating items
16,975 20,323 62,397
85,027
Depreciation and amortization
(3,885) (4,385) (14,837) (16,242)
Other income (expense), net
(note 5)
(2,776) (3,869) (22,860)
30,698
-------------------------------------------
Earnings from operations
10,314 12,069 24,700
99,483
Interest income (expense),
net
(266) 211
3,235 6,740
-------------------------------------------
Earnings before income taxes
10,048 12,280 27,935
106,223
-------------------------------------------
Income tax recovery (expense):
Current
(3,793) (2,080) (5,743)
(15,711)
Future
1,225 56
(1,118) (3,087)
Reduction of future income
tax assets
157 (939)
157 (939)
-------------------------------------------
(2,411) (2,963) (6,704)
(19,737)
-------------------------------------------
Net earnings
$ 7,637 $ 9,317 $ 21,231
$ 86,486
-------------------------------------------
-------------------------------------------
Basic earnings per share
$ 0.22 $ 0.27 $
0.61 $ 2.48
-------------------------------------------
-------------------------------------------
Diluted earnings per share
$ 0.22 $ 0.27 $
0.59 $ 2.27
-------------------------------------------
-------------------------------------------
See accompanying notes to consolidated
financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED BALANCE SHEETS
As at As at
(Unaudited)
December 31, December 31,
(In thousands of dollars)
2002 2001
-------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents
$ 165,036 $ 210,421
Receivables
85,594 78,450
Inventory
2,609 3,074
Prepaid expenses
4,718 2,492
---------------------------
257,957 294,437
Long-term receivables
207,106 201,453
Investments in hotel partnerships and
corporations
146,362 141,005
Fixed assets
74,593 50,715
Investment in management contracts
222,835 201,460
Investment in trademarks and trade names
(note 1(a))
6,329 33,784
Future income tax assets
17,460 17,745
Other assets
37,982 39,782
---------------------------
$ 970,624 $ 980,381
---------------------------
---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $ 40,362
$ 50,813
Long-term obligations due
within one year 2,668
1,188
---------------------------
43,030 52,001
Long-term obligations
126,386 118,244
Shareholders' equity (notes 1(a) and
2):
Capital stock
321,601 319,460
Convertible notes
178,543 178,543
Contributed surplus
4,636 4,784
Retained earnings
264,016 285,619
Equity adjustment from foreign
currency translation
32,412 21,730
---------------------------
801,208 810,136
---------------------------
$ 970,624 $ 980,381
---------------------------
---------------------------
See accompanying notes to consolidated
financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF CASH PROVIDED
BY OPERATIONS
Three months ended Years ended
(Unaudited)
December 31, December
31,
(In thousands of dollars)
2002 2001
2002 2001
-------------------------------------------------------------------------
Cash provided by
(used in) operations:
MANAGEMENT OPERATIONS
Earnings before other
operating items
$ 21,605 $ 20,071 $ 81,991 $
95,256
Items not requiring an
outlay of funds
732 432
1,805 1,430
-------------------------------------------
Working capital provided by
Management Operations
22,337 20,503 83,796
96,686
-------------------------------------------
OWNERSHIP OPERATIONS
Earnings (loss) before other
operating items
(4,630) 252 (19,594)
(10,229)
Items not requiring
(providing) an outlay
(inflow) of funds
-- (53)
-- 2,604
-------------------------------------------
Working capital provided by
(used in) Ownership
Operations
(4,630) 199 (19,594)
(7,625)
-------------------------------------------
17,707 20,702 64,202
89,061
Interest received
2,039 3,789 12,373
17,898
Interest paid
(194) (2,963) (791)
(9,939)
Current income tax paid
-- (4,446) (10,374) (17,784)
Change in non-cash working
capital
(7,997) (17,015) (19,293) (6,183)
Other
(1,988) 90
(4,354) 2,457
-------------------------------------------
Cash provided by operations
$ 9,567 $ 157 $ 41,763
$ 75,510
-------------------------------------------
-------------------------------------------
See accompanying notes to consolidated
financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended Years ended
(Unaudited)
December 31,
December 31,
(In thousands of dollars)
2002 2001
2002 2001
-------------------------------------------------------------------------
Cash provided by (used in):
Operations:
$ 9,567 $ 157 $ 41,763
$ 75,510
-------------------------------------------
Financing:
Long-term obligations,
including current
portion 2,084 (102,327)
1,139 (102,858)
Issuance of shares
205 1,080 5,653
2,820
Repurchase of shares
(note 2)
(7,741) --
(16,495) --
Dividends paid
-- --
(3,639) (3,625)
-------------------------------------------
Cash used in financing
(5,452) (101,247) (13,342) (103,663)
-------------------------------------------
Capital investments:
Long-term receivables
(5,816) 193 (28,893)
(23,348)
Hotel investments
(3,966) (16,702) (9,451) (22,088)
Disposal of hotel
investments
(249) (2,075) 4,566
88,629
Purchase of fixed assets
(21,801) (2,780) (31,085)
(9,639)
Investment in trademarks,
trade names and management
contracts
(239) (805) (1,598)
(8,212)
Other assets
168 245
(7,809) (6,319)
-------------------------------------------
Cash provided by (used in)
capital investments
(31,903) (21,924) (74,270) 19,023
-------------------------------------------
Decrease in cash and cash
equivalents
(27,788) (123,014) (45,849) (9,130)
Increase (decrease) in cash
and cash equivalents due to
unrealized foreign exchange
gain (loss)
(111) (2,417) 464
1,451
Cash and cash equivalents,
beginning of period
192,935 335,852 210,421
218,100
-------------------------------------------
Cash and cash equivalents,
end of period
$ 165,036 $ 210,421 $ 165,036 $ 210,421
-------------------------------------------
-------------------------------------------
See accompanying notes to consolidated
financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Years ended
(Unaudited)
December 31,
(In thousands of dollars)
2002 2001
-------------------------------------------------------------------------
Retained earnings, beginning of year
$ 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
21,231 86,486
Dividends declared
(3,633) (3,627)
Repurchase of shares (note 2)
(12,835) --
----------------------
Retained earnings, end of year
$ 264,016 $ 285,619
----------------------
----------------------
See accompanying notes to consolidated
financial statements.
FOUR SEASONS HOTELS INC.
NOTES
(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 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, was the only intangible
asset with 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 value. 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 subsequently entered into
a revised agreement with Carlson in
2002, which exchanged the Company's
legal entitlement to receive payments
from Carlson based on a percentage of
gross royalty revenue of new
development projects, for fixed payments
over a 30-year term.
Accordingly, this intangible asset is
being amortized on a straight-line
basis over 30 years.
The Company's other intangible assets
are being amortized 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 year ended December
31, 2001, had the adjusted
value of the Regent trade name transferred
to Carlson been amortized over
30 years 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
Year ended
December 31, 2001
December 31, 2001
-------------------------------------------------------------------------
Basic Diluted
Basic Diluted
Earnings Earnings
Earnings Earnings
Net Per Per
Net Per Per
Earnings Share Share Earnings
Share Share
-------------------------------------------------------------------------
Reported amounts
$9,317 $0.27 $0.27 $86,486
$2.48 $2.27
Trade name
amortization
(net of income
taxes of $3 and
$18, respectively)
132 --
-- 702 0.02
0.02
Management contract
amortization
(net of income taxes
of $82 and $322,
respectively)
584 0.02 0.01
2,265 0.06 0.05
-------------------------------------------------------------------------
Adjusted amounts $10,033
$0.29 $0.28 $89,453 $2.56
$2.34
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(b) Foreign currency translation
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,
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 year ended December
31, 2002.
(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
to purchase Limited Voting
Shares. 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 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
4.01% to 5.20%; semi-annual dividend
per Limited Voting Share of $0.055;
volatility factors of the expected market
price of the Company's Limited
Voting Shares ranging from 47% to 50%;
and expected lives of the options
ranging between four and seven years,
depending on the level of the
employee who was granted stock options.
The weighted average grant date
fair value of options issued in 2002
was $33.76. For purposes of pro
forma disclosures, the estimated fair
value of the options is amortized
to compensation expense over the option's
vesting period, which ranges
from one to five years.
For the three months and year ended December
31, 2002, had compensation
expense for the Company's stock-based
compensation plan been determined
based on the fair value at the grant
dates for stock options issued under
the plan, pro forma net earnings would
have been $6,805 and $19,441,
respectively, pro forma basic earnings
per share would have been $0.20
and $0.55, respectively, and pro forma
diluted earnings per share would
have been $0.20 and $0.54, respectively.
In calculating pro forma net
earnings and pro forma basic and diluted
earnings per share, only stock
options granted after December 31, 2001
(stock options to purchase
511,000 Limited Voting Shares granted
at a weighted average exercise
price of $65.93) were included in the
fair value based accounting method.
All stock options granted during 2002
had an exercise price greater than
the market price per share of the Company's
Limited Voting Shares of
$44.40 as at December 31, 2002.
2. Shareholders' equity:
In 2001, the Company filed its intention
to acquire a maximum of up to
1.5 million Limited Voting Shares through
a normal course issuer bid,
such shares to be bought at market prices
through the facilities of The
Toronto Stock Exchange and the New York
Stock Exchange. During 2002,
337,600 Limited Voting Shares having
average issue proceeds of $3,512
were repurchased for aggregate consideration,
including commissions, of
$16,495. All of the shares repurchased
were cancelled. The $12,983 excess
of the aggregate repurchase price paid
over the average issue price was
allocated as follows: $148 to contributed
surplus, representing the
amount initially credited to contributed
surplus relating to the class of
shares repurchased, and the remaining
$12,835 to retained earnings. The
Company is currently authorized to make
normal course purchases of up to
an aggregate of 5% of its issued and
outstanding Limited Voting Shares
over a 12-month period.
As at December 31, 2002, the Company
has outstanding Variable Multiple
Voting and Limited Voting Shares of
34,875,332 and outstanding stock
options of 5,795,677 (weighted average
exercise price of $52.41). 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
$752,776 for the three months ended
December 31, 2002 ($659,643 for the
three months ended December 31,
2001), and $2,845,361 for the year ended
December 31, 2002 ($2,805,947
for the year ended December 31, 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 68% 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. Other income (expense), net:
Included in other expense for the year
ended December 31, 2002 is an
asset impairment charge of approximately
$16,409 relating to the
Company's investment in Four Seasons
Hotel Caracas, effectively reducing
its investment in the hotel to nil at
December 31, 2002. This charge
includes expenses related to legal and
other enforcement costs incurred
to December 31, 2002. The Company is
in a dispute with the owner of the
hotel regarding a variety of matters
relating to the completion and
ongoing operation of the hotel, including
the default on a US$5,000 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
arbitration proceedings have commenced.
Due to the ongoing financial difficulties
of the owner of the hotel and
the resulting working capital deficiencies
at the hotel, Four Seasons
Hotel Caracas has been closed and is
expected to remain closed until the
dispute is resolved and the hotel's
debt and working capital arrangements
can be restructured to provide sufficient
funds to allow the hotel to
operate on the basis specified in the
Company's management agreement. The
Company does not anticipate a reopening
in the near term as the necessary
reorganization of the capital structure
of the hotel remains outstanding.
The asset impairment charge was required
as a result of the inability to
achieve a timely resolution of the dispute
with the owner and the
necessary reorganization of the capital
structure of the hotel and the
resulting indefinite closure of the
property. The Company will continue
to pursue all available remedies with
the objective of protecting its
management rights and its loan and allowing
the hotel to resume
operations under the Company's management
on a sound financial basis.
Other expense also included an asset
impairment charge of $7,000 relating
to the Company's long-term receivable
from Four Seasons Hotel Sydney. The
charge resulted from a lack of improvement
in both domestic and
international tourism in Australia,
reduced expectations for operating
results for Four Seasons Hotel Sydney,
and a recent independent appraisal
received in 2002 which confirmed that
conditions had deteriorated such
that the Company would not fully recover
its long-term receivable from
the hotel.
During 2002, the owner of Four Seasons
Hotel Seattle began marketing the
hotel for sale and provided the Company
with notice of termination of its
management agreement in connection with
the proposed sale. The Company
strongly disagrees with the owner's
assertion that it is entitled to sell
the hotel free of the Company's management
agreement. The owner has
commenced arbitration proceedings on
the matter. Those proceedings are
ongoing, and a hearing date has been
scheduled for the second quarter of
2003. The Company has incurred approximately
$1,682 in legal and other
enforcement costs in 2002 in connection
with this issue, which is
recorded in other expense.
Included in other income for 2001 was
a gain of $23,985 relating to the
sale of the Company's 25% ownership
interest in the entity which leases
The Regent Hong Kong for gross proceeds
of HK$185,000 (approximately
$36,400). Other income also included
a gain of $6,413 relating to the
sale of the Company's 67% ownership
interest in Four Seasons Hotel Prague
for gross proceeds of $37,400 and the
reversal of provisions of $4,676
previously recorded relating to this
interest.
6. 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 was
also affected by the continued
volatility of the equity markets, a
delayed recovery in the global
economy, and ongoing geopolitical concerns,
which have continued to cause
unprecedented volatility in business
travel on a global basis. Leisure
travel, while generally strong, is also
being negatively affected in
certain areas. In addition to these
more general factors, specific local
events have caused unanticipated disruptions
to the operations of certain
of the Company's properties.
FOUR SEASONS HOTELS INC.
SUMMARY OF HOTEL OPERATING DATA - CORE
HOTELS(1)
Three months ended
December 31,
(Unaudited)
2002 2001 Variance
-------------------------------------------------------------------------
Worldwide
No. of Properties
45 45
-
No. of Rooms
12,575 12,575
-
Occupancy(2)
62.2% 57.5%
4.7%
ADR(3)
- in US dollars
$295 $285
3.3%
- in equivalent
Canadian dollars
$463 $450
2.9%
RevPAR(4) -
in US dollars
$183 $164
11.8%
- in equivalent
Canadian dollars
$288 $259
11.4%
Gross operating margin(5)
28.7% 29.6%
(0.9%)
United States
No. of Properties
22 22
-
No. of Rooms
6,971 6,971
-
Occupancy(2)
64.4% 59.7%
4.7%
ADR(3)
- in US dollars
$327 $321
2.0%
- in equivalent
Canadian dollars
$514 $505
1.7%
RevPAR(4) -
in US dollars
$211 $191
10.1%
- in equivalent
Canadian dollars
$331 $302
9.7%
Gross operating margin(5)
26.8% 28.2%
(1.4%)
Canada/Mexico/Caribbean
No. of Properties
5 5
-
No. of Rooms
1,341 1,341
-
Occupancy(2)
57.3% 55.6%
1.7%
ADR(3)
- in US dollars
$264 $245
7.7%
- in equivalent
Canadian dollars
$415 $386
7.3%
RevPAR(4) -
in US dollars
$151 $136
11.0%
- in equivalent
Canadian dollars
$237 $215
10.6%
Gross operating margin(5)
27.2% 26.4%
0.8%
Europe/Middle East
No. of Properties
8 8
-
No. of Rooms
1,548 1,548
-
Occupancy(2)
57.0% 53.8%
3.2%
ADR(3)
- in US dollars
$409 $357
14.7%
- in equivalent
Canadian dollars
$642 $562
14.3%
RevPAR(4) -
in US dollars
$233 $192
21.5%
- in equivalent
Canadian dollars
$366 $302
21.0%
Gross operating margin(5)
32.3% 31.2%
1.1%
Asia/Pacific
No. of Properties
10 10
-
No. of Rooms
2,715 2,715
-
Occupancy(2)
62.2% 55.1%
7.1%
ADR(3)
- in US dollars
$163 $168
(2.7%)
- in equivalent
Canadian dollars
$256 $264
(3.1%)
RevPAR(4) -
in US dollars
$102 $92
10.0%
- in equivalent
Canadian dollars
$159 $146
9.6%
Gross operating margin(5)
35.1% 36.7%
(1.6%)
(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)
Years ended
December 31,
(Unaudited)
2002 2001 Variance
-------------------------------------------------------------------------
Worldwide
No. of Properties
45 45
-
No. of Rooms
12,575 12,575
-
Occupancy(2)
65.1% 65.7%
(0.6%)
ADR(3)
- in US dollars
$291 $293
(1.0%)
- in equivalent
Canadian dollars
$456 $452
0.7%
RevPAR(4) -
in US dollars
$189 $193
(1.9%)
- in equivalent
Canadian dollars
$296 $297
(0.2%)
Gross operating margin(5)
30.2% 32.3%
(2.1%)
United States
No. of Properties
22 22
-
No. of Rooms
6,971 6,971
-
Occupancy(2)
66.7% 67.1%
(0.4%)
ADR(3)
- in US dollars
$321 $331
(3.1%)
- in equivalent
Canadian dollars
$503 $511
(1.4%)
RevPAR(4) -
in US dollars
$214 $222
(3.8%)
- in equivalent
Canadian dollars
$336 $343
(2.1%)
Gross operating margin(5)
28.0% 30.8%
(2.8%)
Canada/Mexico/Caribbean
No. of Properties
5 5
-
No. of Rooms
1,341 1,341
-
Occupancy(2)
63.8% 63.9%
(0.1%)
ADR(3)
- in US dollars
$261 $261
0.1%
- in equivalent
Canadian dollars
$410 $403
1.7%
RevPAR(4) -
in US dollars
$167 $167
(0.1%)
- in equivalent
Canadian dollars
$261 $257
1.6%
Gross operating margin(5)
30.9% 32.1%
(1.2%)
Europe/Middle East
No. of Properties
8 8
-
No. of Rooms
1,548 1,548
-
Occupancy(2)
60.9% 62.9%
(2.0%)
ADR(3)
- in US dollars
$402 $368
9.2%
- in equivalent
Canadian dollars
$630 $567
11.1%
RevPAR(4) -
in US dollars
$244 $231
5.7%
- in equivalent
Canadian dollars
$383 $357
7.5%
Gross Operating margin(5)
36.9% 36.2%
0.7%
Asia/Pacific
No. of Properties
10 10
-
No. of Rooms
2,715 2,715
-
Occupancy(2)
63.9% 64.3%
(0.4%)
ADR(3)
- in US dollars
$164 $167
(1.9%)
- in equivalent
Canadian dollars
$257 $257
(0.2%)
RevPAR(4) -
in US dollars
$105 $107
(2.4%)
- in equivalent
Canadian dollars
$164 $165
(0.8%)
Gross operating margin(5)
33.7% 36.1%
(2.4%)
(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
December 31,
(Unaudited)
2002 2001 Variance
-------------------------------------------------------------------------
Worldwide
No. of Properties
57 53
4
No. of Rooms
15,433 14,598
835
United States
No. of Properties
23 23
-
No. of Rooms
7,248 7,248
-
Canada/Mexico/Caribbean/South America
No. of Properties
8 8
-
No. of Rooms
1,762 1,762
-
Europe/Middle East
No. of Properties
12 10
2
No. of Rooms
2,304 1,969
335
Asia/Pacific
No. of Properties
14 12
2
No. of Rooms
4,119 3,619
500
FOUR SEASONS HOTELS INC.
SCHEDULED OPENING OF PROPERTIES UNDER
CONSTRUCTION OR
IN ADVANCED STAGES OF DEVELOPMENT
Approximate
Hotel/Resort/Residence Club
Number Scheduled
and Location(1),(2)
of Rooms Opening
Four Seasons Hotel Alexandria, Egypt(x)
120 2005
Four Seasons Hotel Beirut, Lebanon
234 2006
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)
148 2004
Four Seasons Hotel Damascus, Syria
300 2004
Four Seasons Hotel Doha, Qatar(x)
235 2004
Four Seasons Resort Exuma, The Bahamas(x)
219 2003
Four Seasons Hotel Florence, Italy
118 2005
Four Seasons Hotel Hampshire, England
135 2003
Four Seasons Hotel Hong Kong, Hong Kong(x)
390 2005
Four Seasons Hotel Istanbul at the Bosphorus,
Turkey 170 2004
Four Seasons Resort Jackson Hole, WY,
USA(x)
124 2003
Four Seasons Resort Langkawi, Malaysia
100 2004
Four Seasons Hotel Miami, FL, USA(x)
221 2003
Four Seasons Hotel Palo Alto, CA, USA
200 2004
Four Seasons Resort Provence at Terre
Blanche, France 115 2004
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)
249 2003
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 openings
have been estimated by management based upon
information
provided by the various developers. There can be no
assurance that
the date of scheduled opening will be achieved or that
these projects
will be completed. It is possible that an opening date
may be delayed
for many reasons. In the case where a hotel is
scheduled to
open near the end of a year, this could result in the
year of opening
being changed. The process and risks associated with
the management
of new properties are dealt with in greater detail in
the Company's
Annual Report.
(2) The Company has made investments
in Orlando and Sedona at Seven
Canyons in Arizona.
The financing for these projects has not yet been
completed and
therefore scheduled opening dates for these projects
cannot be established
until project financing is completed.
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 extends across
the globe, Four Seasons Hotels and Resorts is the world's leading operator
of luxury hotels, currently managing 57 properties in 26 countries. |
