Three months ended
March 31
-------------------------------------------------------------------------
2003 2002 Variance
-------------------------------------------------------------------------
OWNED
HOTELS
-------------------------------------------------------------------------
Worldwide
-------------------------------------------------------------------------
RevPAR $ 115.25 $ 115.83 (0.5%)
-------------------------------------------------------------------------
ADR 196.12 188.61 4.0%
-------------------------------------------------------------------------
Occupancy 58.8% 61.4% (2.6 points)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Canada
-------------------------------------------------------------------------
RevPAR $ 86.27 $ 83.20 3.7%
-------------------------------------------------------------------------
ADR 141.25 128.85 9.6%
-------------------------------------------------------------------------
Occupancy 61.1% 64.6% (3.5 points)
-------------------------------------------------------------------------
------------------------------------------------------------------------
U.S. and International
-------------------------------------------------------------------------
RevPAR $ 141.38 $ 145.43 (2.8%)
-------------------------------------------------------------------------
ADR 249.42 248.42 0.4%
-------------------------------------------------------------------------
Occupancy 56.7% 58.5% (1.8 points)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FAIRMONT
MANAGED HOTELS
-------------------------------------------------------------------------
Worldwide
-------------------------------------------------------------------------
RevPAR $ 91.97 $ 95.88 (4.1%)
-------------------------------------------------------------------------
ADR 163.83 159.68 2.6%
-------------------------------------------------------------------------
Occupancy 56.1% 60.0% (3.9 points)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Canada
-------------------------------------------------------------------------
RevPAR $ 66.42 $ 65.72 1.1%
-------------------------------------------------------------------------
ADR 119.37 109.54 9.0%
-------------------------------------------------------------------------
Occupancy 55.6% 60.0% (4.4 points)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
U.S. and International
-------------------------------------------------------------------------
RevPAR $ 120.51 $ 130.03 (7.3%)
-------------------------------------------------------------------------
ADR 212.56 216.34 (1.7%)
-------------------------------------------------------------------------
Occupancy 56.7% 60.1% (3.4 points)
-------------------------------------------------------------------------
DELTA MANAGED
HOTELS
-------------------------------------------------------------------------
Worldwide
-------------------------------------------------------------------------
RevPAR $ 47.52 $ 42.74 11.2%
-------------------------------------------------------------------------
ADR 82.25 77.70 5.9%
-------------------------------------------------------------------------
Occupancy 57.8% 55.0% 2.8 points
-------------------------------------------------------------------------
Comparable
hotels and resorts are considered to be properties that were fully open
under FHR management for at least the entire current and prior period.
Comparable hotels and resorts statistics exclude properties under major
renovation that would have a significant adverse effect on the properties'
primary operations. No hotels were excluded due to the impact of major
renovations.
1. EBITDA is defined as earnings
before interest, taxes, amortization,
other income
and expenses and reorganization and corporate expenses.
Income from
investments and other is included in EBITDA. Management
considers
EBITDA to be a meaningful indicator of hotel operations,
however, it
is not a defined measure of operating performance under
Canadian generally
accepted accounting principles ("GAAP"). FHR's
calculation
of EBITDA may be different than the calculation used by
other entities.
2. Operating revenues are defined
as revenues before other revenues from
managed and
franchised properties. Other revenues from managed and
franchised
properties consist of the recovery of expenditures made on
behalf of
such properties primarily for marketing and reservation
services as
specified in the management and franchise agreements. As
such, management
considers operating revenues to be a more meaningful
indicator
of its operations, however, it is not a defined measure of
operating
performance under Canadian GAAP. FHR's calculation of
operating
revenues may be different than calculations used by other
entities.
Fairmont Hotels & Resorts Inc.
Consolidated Balance Sheets
(Stated in millions of U.S. dollars)
(Unaudited)
ASSETS
March 31 December 31
2003 2002
------------ ------------
Current assets
Cash and cash equivalents
$ 50.3 $
49.0
Accounts receivable
57.7 47.0
Inventory
13.6 12.5
Prepaid expenses and other
12.5 10.9
------------ ------------
134.1 119.4
Investments in partnerships and
corporations (note 3)
49.0 68.9
Investment in Legacy Hotels Real
Estate Investment Trust
97.8 96.4
Non-hotel real estate
88.0 88.8
Property and equipment
1,577.6 1,441.1
Goodwill
126.1 123.0
Intangible assets
205.2 201.7
Other assets and deferred charges
85.2 83.7
------------ ------------
$ 2,363.0 $ 2,223.0
------------ ------------
------------ ------------
LIABILITIES
Current liabilities
Accounts payable and accrued
liabilities $ 105.5
$ 102.7
Taxes payable
9.4 5.3
Dividends payable
- 2.4
Current portion of long-term
debt
73.5 72.3
------------ ------------
188.4 182.7
Long-term debt
536.5 463.2
Other liabilities
85.9 81.4
Future income taxes
99.1 96.4
------------ ------------
909.9 823.7
------------ ------------
Shareholders' equity (note 4)
1,453.1 1,399.3
------------ ------------
$ 2,363.0 $ 2,223.0
------------ ------------
------------ ------------
Fairmont Hotels & Resorts Inc.
Consolidated Statements of Income
(Stated in millions of U.S. dollars)
(Unaudited)
Three Months ended
March 31
2003 2002
------------ ------------
Revenues
Hotel ownership operations
$ 140.4 $ 123.8
Management operations
8.6 6.3
Real estate activities
18.9 12.3
------------ ------------
Operating revenues
167.9 142.4
Other revenues from managed
and
franchised properties
7.0 6.6
------------ ------------
174.9 149.0
Expenses
Hotel ownership operations
105.5 84.7
Management operations
3.9 4.4
Real estate activities
9.6 11.8
------------ ------------
Operating expenses
119.0 100.9
Other expenses from managed
and
franchised properties
7.0 6.6
------------ ------------
126.0 107.5
Income (loss) from investments and
other
(6.7) (3.4)
------------ ------------
Operating income before undernoted
items
42.2 38.1
Amortization
16.3 13.7
Other (income) expenses, net
- (6.7)
Reorganization and corporate expenses
- (0.2)
Interest expense, net
5.9 4.5
------------ ------------
Income before income tax expense and
non-controlling interest
20.0 26.8
------------ ------------
Income tax expense
Current
5.3 4.2
Future
2.2 8.8
------------ ------------
7.5 13.0
------------ ------------
Non-controlling interest
- 0.2
------------ ------------
Net income
$ 12.5 $
13.6
------------ ------------
Weighted average number of common shares
outstanding (in millions) (note
4)
Basic
79.3 78.6
Diluted
80.0 80.0
Basic earnings per common share
$ 0.16 $ 0.17
Diluted earnings per common share
$ 0.16 $ 0.17
Fairmont Hotels & Resorts Inc.
Consolidated Statements of Cash Flows
(Stated in millions of U.S. dollars)
(Unaudited)
Three Months ended
March 31
2003 2002
------------ ------------
Cash provided by (used in)
Operating activities
Net income
$ 12.5 $
13.6
Items not affecting cash
Amortization of property
and equipment
15.6 13.1
Amortization of intangible
assets
0.7 0.6
(Income) loss from investments
and other
6.7 3.4
Future income taxes
2.2 8.8
Non-controlling interest
- 0.2
Other
2.7 (5.2)
Change in non-hotel real estate
7.4 8.3
Changes in non-cash working capital
items
(note 5)
(11.7) (8.1)
------------ ------------
36.1 34.7
------------ ------------
Investing activities
Additions to property and equipment
(15.8) (31.2)
Acquisitions, net of cash acquired
(note 3)
6.0
-
Investments in partnerships and corporations
(0.1)
-
------------ ------------
(9.9) (31.2)
------------ ------------
Financing activities
Issuance of long-term debt
123.5 39.0
Repayment of long-term debt
(142.5) (23.4)
Issuance of common shares
- 0.4
Repurchase of common shares
(5.0) (0.7)
Dividends paid
(2.4) (1.6)
------------ ------------
(26.4) 13.7
------------ ------------
Effect of exchange rate changes on
cash
1.5 (1.4)
------------ ------------
Increase in cash
1.3 15.8
Cash - beginning of period
49.0 52.7
------------ ------------
Cash - end of period
$ 50.3 $
68.5
------------ ------------
------------ ------------
Fairmont Hotels & Resorts Inc.
Consolidated Statements of Retained Earnings (Deficit)
(Stated in millions of U.S. dollars)
(Unaudited)
Three Months ended
March 31
2003 2002
------------ ------------
Balance - Beginning of period
$ 38.5 $ (19.6)
Net income
12.5 13.6
------------ ------------
51.0 (6.0)
Repurchase of common shares (note 4)
(1.2)
-
------------ ------------
Balance - End of period
$ 49.8 $
(6.0)
------------ ------------
------------ ------------
Fairmont Hotels & Resorts Inc.
Notes to Consolidated Financial Statements
(Stated in millions of U.S. dollars)
(Unaudited)
1. Fairmont Hotels & Resorts
Inc. ("FHR") has operated and owned hotels
and resorts
for 115 years and currently manages properties
principally
under the Fairmont and Delta brands. At March 31, 2003,
FHR managed
80 luxury and first-class hotels. FHR owns 83.5% of
Fairmont Hotels
Inc. ("Fairmont"), which at March 31, 2003, managed
41 luxury
Fairmont branded properties in major city centers and key
resort destinations
throughout Canada, the United States, Mexico,
Bermuda, Barbados
and the United Arab Emirates. Delta Hotels Limited
("Delta"),
a wholly owned subsidiary of FHR, managed or franchised 39
Canadian hotels
and resorts at March 31, 2003.
In addition
to hotel and resort management, at March 31, 2003, FHR
had hotel
ownership interests ranging from approximately 20% to 100%
in 23 properties,
located in Canada, the United States, Mexico,
Bermuda and
Barbados. FHR also has an approximate 35% equity interest
in Legacy
Hotels Real Estate Investment Trust ("Legacy"), which owns
22 hotels
and resorts across Canada and one in the United States. FHR
also owns
real estate properties that are suitable for either
commercial
or residential development.
Results for
the quarter ended March 31, 2003 are not necessarily
indicative
of the results that may be expected for the full year due
to seasonal
and short-term variations. Revenues are typically higher
in the second
and third quarters versus the first and fourth quarters
of the year
in contrast to fixed costs such as amortization and
interest,
which are not significantly impacted by seasonal or short-
term variations.
2. These interim consolidated
financial statements do not include all
disclosures
as required by Canadian generally accepted accounting
principles
for annual consolidated financial statements and should be
read in conjunction
with the audited consolidated financial
statements
for the year ended December 31, 2002 presented in the
annual report.
The accounting policies used in the preparation of
these interim
consolidated financial statements are consistent with
the accounting
policies used in the December 31, 2002 audited
consolidated
financial statements, except as discussed below.
Long-lived
assets
Effective January
1, 2003, FHR adopted the new recommendations of The
Canadian Institute
of Chartered Accountants ("CICA") with respect to
accounting
for the impairment of long-lived assets. This standard
requires that
long-lived assets be reviewed for impairment whenever
events or
changes in circumstances indicate that the carrying amount
of an asset
may not be recoverable. Long-lived assets are grouped at
the lowest
level for which identifiable cash flows are largely
independent,
when testing for and measuring impairment. Under the new
standard,
a two-step process will determine the impairment of long-
lived assets
held for use, with the first step determining when
impairment
is recognized and the second step measuring the amount of
the impairment.
Impairment losses will be recognized when the
carrying amount
of long-lived assets exceeds the sum of the
undiscounted
cash flows expected to result from their use and
eventual disposition
and will be measured as the amount by which the
long-lived
asset's carrying amount exceeds its fair value. Adoption
of this new
standard did not have an impact on FHR's financial
position,
results of operations or cash flows.
Also effective
January 1, 2003, FHR adopted the new CICA
recommendations
relating to the disposal of long-lived assets and
discontinued
operations. Subject to certain criteria, long-lived
assets and
any associated assets or liabilities that management
expects to
dispose of by sale will now be classified as held for
sale. The
related results of operations from these assets classified
as held for
sale will be reported in discontinued operations if
certain criteria
are met, with reclassification of prior year's
related operating
results. Assets to be disposed of are reported at
the lower
of the carrying amount or fair value less costs to sell.
Adoption of
this new standard did not have an impact on FHR's
financial
position, results of operations or cash flows.
3. Acquisition
In February
2003, FHR acquired the remaining 50% equity interest in
The Fairmont
Copley Plaza Boston from entities controlled by Prince
Alwaleed Bin
Talal Bin Abdulaziz Al Saud of Saudi Arabia. The total
purchase price
for 100% of The Fairmont Copley Plaza Boston,
including
the 50% already owned, was approximately $117.0 and was
satisfied
by the issuance of one million common shares at a fair
market value
of $21.49 per share, the assumption of a mortgage at
$64.5 and
cash paid of $30.7. FHR purchased the initial 50% equity
interest in
the hotel in July 2001 for cash. The acquisition was
accounted
for using the step purchase method, and 100% of the results
of the hotel
have been included in the consolidated statements of
income from
February 10, 2003. Certain acquisition costs have been
estimated
in the purchase price equation and have not yet been
finalized.
The mortgage is secured by substantially all assets and an
assignment
of auxiliary rents of The Fairmont Copley Plaza Boston, is
due March
1, 2006 and bears interest at floating rates based on LIBOR
plus 225 basis
points. In order to hedge against exposures to
increases
in
interest rates, FHR has entered into an interest rate
hedge to cap
the LIBOR rate at 6.5%.
The total cost
of the hotel, including the 50% interest already
owned, acquisition
costs of $0.5 less cash acquired of $14.8, has
been allocated
to the tangible assets acquired and liabilities
assumed on
the basis of their respective estimated fair values on the
acquisition
date, as follows:
Land
$ 25.1
Building
77.8
Furniture, fixtures and equipment
2.5
Long-term debt
(64.5)
Current assets
3.2
Current liabilities
(6.8)
------------
$ 37.3
------------
4. Shareholders' equity
March 31, December 31,
2003 2002
------------ ------------
Common shares
$ 1,208.8 $ 1,191.5
Contributed
surplus
141.9 141.9
Foreign currency
translation adjustments
52.6 27.4
Retained earnings
49.8 38.5
------------ ------------
$ 1,453.1 $ 1,399.3
------------ ------------
The diluted
weighted-average number of common shares outstanding is
calculated
as follows:
Three Months ended
March 31
2003 2002
------------ ------------
(in millions)
Weighted-average
number of common
shares
outstanding - basic
79.3 78.6
Stock options
0.7 1.4
------------ ------------
Weighted-average
number of common
shares
outstanding - diluted
80.0 80.0
------------ ------------
Under a normal
course issuer bid, FHR may repurchase for cancellation
up to approximately
7.8 million or 10% of its outstanding common
shares. The
amounts and timing of repurchases are at FHR's discretion
and, under
the current program, can be made until October 2, 2003.
During the
three months ended March 31, 2003, FHR repurchased 249,400
shares for
total consideration of $5.0, of which, $3.8 was charged to
common shares,
and $1.2 was charged to retained earnings. During the
three months
ended March 31, 2003, FHR issued 1,950 shares pursuant
to the Key
Employee Stock Option Plan ("KESOP"). At March 31, 2003,
79,532,172
common shares were outstanding (2002 - 78,622,459).
During the
three months ended March 31, 2003, no stock options were
granted. Assuming
FHR elected to recognize the cost of its stock-
based compensation
based on the estimated fair value of stock options
granted after
January 1, 2002, net income and basic and diluted
earnings per
share would have been:
Three Months ended
March 31
2003 2002
------------ ------------
Reported net
income
$ 12.5 $
13.6
Net income
assuming fair value
method
used
$ 12.3 $
13.6
Assuming fair
value method used
Basic earnings
per share
$ 0.16 $ 0.17
Diluted earnings
per share
$ 0.15 $ 0.17
5. Changes in non-cash working
capital:
Three months ended
March 31
2003 2002
------------ ------------
Decrease (increase)
in current assets
Accounts receivable
$ (9.7) $ (5.8)
Inventory
(0.8) 0.3
Prepaid expenses
and other
(0.9) (2.7)
Increase (decrease)
in current liabilities
Accounts payable
and accrued liabilities
(3.0) 0.7
Taxes payable
2.7 (0.6)
------------ ------------
$ (11.7) $ (8.1)
------------ ------------
6. In February 2003, FHR completed
a $120.0 financing secured by
substantially
all assets and an assignment of auxiliary rents of The
Fairmont Kea
Lani Maui. The mortgage is due March 1, 2006 and bears
interest at
the greater of 4.25% and LIBOR plus 310 basis points. In
order to hedge
against exposures to increases in interest rates, FHR
has entered
into an interest rate hedge to cap the LIBOR rate at
9.0%.
7. Certain of the prior period
figures have been reclassified to conform
with the presentation
adopted for 2003.
8. Guarantees
Significant
guarantees that have been provided to third parties
include the
following:
Debt guarantees
FHR has provided
guarantees totalling $10.6 million related to debts
incurred by
hotels in which it holds a minority equity interest. In
the event
that one of these hotels fails to meet certain financial
obligations,
the lenders may draw upon these guarantees. The term of
these guarantees
is equal to the term of the related debts, which are
all due on
demand. FHR has collateral security on the underlying
hotel assets
if the guarantees are drawn upon. No amount has been
recorded in
the financial statements for amounts owing under these
guarantees.
Business dispositions
In the sale
of all or a part of a business, we may agree to indemnify
against claims
for FHR's past business practices in the areas of tax
and environmental
matters. The term of such indemnification is
subject to
certain actions that are under the control of the acquirer
and the amount
of the indemnification is not limited. The nature of
these indemnification
agreements prevents us from estimating the
maximum potential
liability we could be required to pay to counter
parties. FHR
has accruals in its financial statements of
approximately
$31 million related to potential claims under the
indemnifications.
Director and
officer indemnification agreements
FHR has entered
into indemnification agreements with its current and
former directors
and officers to indemnify them, to the extent
permitted
by law, against any and all charges, costs, expenses,
amounts paid
in settlement and damages incurred by the directors and
officers as
a result of any lawsuit or any other judicial,
administrative
or investigative proceeding in which the directors and
officers are
sued as a result of their service. These indemnification
claims will
be subject to any statutory or other legal limitation
period. The
nature of the indemnification agreements prevents FHR
from making
a reasonable estimate of the maximum potential amount it
could be required
to pay to counter parties. FHR has purchased
directors'
and officers' liability insurance. No amount has been
recorded in
the financial statements with respect to these
indemnification
agreements.
Other indemnification
agreements
In the normal
course of operations, FHR may provide indemnification
agreements,
other than those listed above, to counterparties that
would require
FHR to compensate them for costs incurred as a result
of changes
in laws and regulations or as a result of litigation
claims or
statutory sanctions that may be suffered by the
counterparty
as a consequence of the transaction. The terms of these
indemnification
agreements will vary based upon the contract. The
nature of
the indemnification agreements prevents FHR from making a
reasonable
estimate of the maximum potential amount it could be
required to
pay to counter parties. No amount has been recorded in
the financial
statements with respect to these indemnification
agreements.
9. Segmented Information
FHR has five
reportable operating segments in two core business
activities,
ownership and management operations. The segments are
hotel ownership,
investment in Legacy, real estate activities,
Fairmont and
Delta. Hotel ownership consists of real estate interests
ranging from
approximately 20% to 100% in 23 properties. The
investment
in Legacy consists of an approximate 35% equity interest
in Legacy,
which owns 22 hotels and resorts across Canada and one in
the United
States. Real estate activities consists primarily of two
large undeveloped
land blocks in Toronto and Vancouver. Fairmont is a
North American
luxury hotel and resort management company and Delta
is a Canadian
first-class hotel and resort management company.
The performance
of all segments is evaluated primarily on earnings
before interest
taxes and amortization ("EBITDA"), which is defined
as income
before interest, taxes, amortization, other income and
expenses and
reorganization and corporate expenses. It includes
income from
investments and other. Amortization, other income and
expenses,
reorganization and corporate expenses, interest and income
taxes are
not allocated to the individual segments. All transactions
among operating
segments are conducted at fair market value.
The following
tables present revenues, EBITDA, total assets and
capital expenditures
for FHR's reportable segments:
Three Months ended March 31, 2003
-----------------------------------------------------------
Ownership
Management
--------------------------- --------------
Inter-
Real
segment
Hotel
estate Fair-
Elimina-
Ownership Legacy activities mont Delta tion (a)
Total
--------- ------- --------- ------ ------- ------- --------
Operating
revenues
$ 140.4 $ - $ 18.9 $ 10.4 $
3.1 $ (4.9) $ 167.9
Other
revenues
from
managed
and
franchised
properties
- -
- 4.8 2.2
- 7.0
--------
174.9
Income
(loss)
from
investments
and
other (0.4) (6.3)
- -
- - (6.7)
EBITDA
29.6 (6.3) 9.3
7.1 2.5 -
42.2
Total
assets
(b) 1,983.5 97.8 89.8 328.6
69.5 (206.2) 2,363.0
Capital
expen-
ditures
15.6 -
- 0.2 -
- 15.8
Three Months ended March 31, 2002
-----------------------------------------------------------
Ownership
Management
--------------------------- --------------
Inter-
Real
segment
Hotel
estate Fair-
Elimina-
Ownership Legacy activities mont Delta tion (a)
Total
--------- ------- --------- ------ ------- ------- --------
Operating
revenues
$ 123.8 $ - $ 12.3
8.8 2.2 $ (4.7) $ 142.4
Other
revenues
from
managed
and
franchised
properties
- -
- 4.7 1.9
- 6.6
--------
149.0
Income (loss)
from
investments
and
other 1.1 (4.5)
- -
- - (3.4)
EBITDA
35.5 (4.5) 0.5
5.2 1.4 -
38.1
Total
assets
(b) 1,734.4 54.0 89.9 195.9
71.2 (225.7) 1,919.7
Capital
expen-
ditures
29.9 -
- 1.3 -
- 31.2
(a) Revenues
represent management fees that are charged by Fairmont
of $4.8 (2002 - $4.6) and Delta of $0.1 (2002 - $0.1) to the
hotel ownership operations, which are eliminated on
consolidation. Total assets represent the elimination of
intersegment loans net of corporate assets.
(b) Hotel
ownership assets include $35.7 (2002 - $58.3) of
investments accounted for using the equity method. |
