May 8, 2003 - Four Seasons Hotels Inc. (TSX Symbol "FSH"; NYSE Symbol
"FS") today reported its results for the first quarter ended March 31,
2003. For the three months ended March 31, 2003, the net loss was $9.3
million ($0.27 basic and diluted loss per share), as compared to net earnings
of $7.7 million ($0.22 basic earnings per share and $0.21 diluted earnings
per share) for the first quarter of 2002. The decline in net earnings is
primarily attributable to a non-cash, unrealized foreign exchange loss
for accounting purposes, increased losses from ownership operations, and
unusual legal and other enforcement costs. Cash flow from operations was
$21.8 million in the first quarter of 2003, as compared to $7.7 million
in the same period in 2002 ($0.63 per share in the first quarter of 2003,
as compared to $0.22 per share in the same period in 2002).
"During the first quarter the travel industry faced many challenges,
including a weak economic environment, military conflict in Iraq, heightened
terrorist alerts and concerns regarding Severe Acute Respiratory Syndrome
(SARS) in certain regions," commented Isadore Sharp, Chairman and Chief
Executive Officer. "These challenges negatively affected our current results,
but we remain confident about our short-term and our long-term plans and
are firm in our commitment to expand the Four Seasons network. We continue
to focus on our hallmark service and working with strong partners to create
new Four Seasons properties in North America and around the world. Over
the past 18 months, through the most difficult circumstances, this business
strategy has been proven to be successful as we have maintained our industry
leading room rates and improved market share in the majority of the locations
in which we operate."
OPERATING ENVIRONMENT
Seasonality
Four Seasons 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. Typically, the fourth quarter
is the strongest quarter for the majority of the properties, although this
was not true in 2002 as a result of the difficult economic environment
and geopolitical instability.
The Company's ownership operations are particularly affected by seasonal
fluctuations, with lower revenue, operating profit and cash flow in the
first quarter. As a result, ownership operations typically incur an operating
loss in the first quarter of each year.
Management operations are also impacted by seasonal patterns, as fee
revenues are affected by the seasonality of hotel and resort revenues and
operating results. Urban hotels generally experience lower revenues and
operating results in the first quarter. However, this negative impact on
management revenues is offset, to some degree, by increased travel to the
Company's resorts in the period.
Hotel Operating Results
Four Seasons customer base consists of business travellers, corporate
groups and leisure travellers. Delayed recovery in the US and global economies,
along with military action in Iraq and SARS, have negatively affected travel
on a global basis. As a result, during the quarter ended March 31, 2003,
hotels and resorts 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. Both the
resort and urban properties continued to experience booking patterns with
very short lead times throughout the first quarter of 2003.
RevPAR(1), on a US dollar basis, for worldwide Core Hotels(2) decreased
1.1% during the first quarter of 2003, as compared to the same period in
2002. The RevPAR decline was attributable to lower occupancy levels related
to travel disruption and lower demand. Four Seasons is continuing to perform
at or above market occupancy rates in most locations. Maintaining the high
level of product and services consistently provided to customers has allowed
the Company to maintain its achieved room rates in the first quarter, thereby
enhancing RevPAR. The Company currently expects its full year achieved
room rates to be at, or near, the record levels set in 2000 and which were
maintained in 2001 and 2002.
Gross operating margin(3) for worldwide Core Hotels declined 5.2 percentage
points during the first quarter of 2003. The gross operating margin for
worldwide Core Hotels was 24.5% in the first quarter of 2003, as compared
to 29.7% for the same period in 2002. These declines were primarily attributable
to reduced occupancy levels and significant increases in costs associated
with health benefits, energy and insurance. In order to contain hotel operating
costs, the Company continues to thoroughly review its operations with a
view to achieving savings without negatively affecting the guest experience.
For example, in respect of staffing costs, which are typically the highest
component of hotel operating costs, savings may be found through attrition,
holiday taking, voluntary leave, sabbaticals, job sharing, and in some
instances, reducing staff, and in the Company's international hotels, expatriate
costs reductions.
RevPAR, on a US dollar basis, in US Core Hotels decreased 1.9% in the
first quarter of 2003, as compared to the same period in 2002. Although
certain markets in the US, including most resort locations, experienced
reasonable demand levels, the majority of US markets continued to experience
weak demand. The US markets that experienced the greatest RevPAR
declines during the first quarter of 2003 were New York, Boston, Washington
and Houston. As a result of the Company's 100% leasehold interest in The
Pierre, weak demand in New York in particular affects the Company's results.
Hotels under management in Las Vegas, San Francisco and Hawaii performed
well relative to the US hotel and resort group. The gross operating margin
for US Core Hotels declined 5.2 percentage points in the first quarter
of 2003 to 22.4%, as compared to 27.6% in the first quarter of 2002, as
a result of the items noted above with respect to worldwide Core Hotels.
RevPAR, on a US dollar basis, in Other Americas/Caribbean Core Hotels
decreased 2.8% in the first quarter of 2003, as compared to the same period
in 2002, primarily as a result of low business demand levels in the Company's
Vancouver and Toronto properties. The Company's hotels under management
in Canada and South America experienced very weak demand. RevPAR, on a
local currency basis, in Other Americas/Caribbean Core Hotels improved
7.3% in the first quarter of 2003, as compared to the same period in 2002.
The variance in RevPAR, on a local currency basis compared to US dollar
basis, is primarily attributable to the relative weakness of the Mexican
peso to the US dollar in the first quarter of 2003, as compared to the
same period in 2002. The gross operating margin for Other Americas/Caribbean
Core Hotels decreased 2.8 percentage points to 31% in the first quarter
of 2003, as compared to 33.8% in the first quarter of 2002, as a result
of a decline in occupancy and the cost increases noted above with respect
to worldwide Core Hotels.
RevPAR, on a US dollar basis, in Europe/Middle East Core Hotels increased
5.8% in the first quarter of 2003, as compared to the same period
in 2002. On a
US dollar basis, achieved room rates increased 16.5% primarily
as a result of the local currencies of the Europe/Middle East Core Hotels
(and in particular the British Pound and Euro) strengthening relative to
the US dollar. On a local currency basis, RevPAR in Europe/Middle East
Core Hotels decreased by 9.0% in the first quarter of 2003, as compared
to the first quarter of 2002. With the exception of the Company's two London
hotels, which had modest declines in achieved room rate, each of the Europe/Middle
East Core Hotels had achieved room rate increases on a local currency basis.
The conflict in Iraq affected the majority of the Europe/Middle East Core
Hotels as average occupancy was approximately 50% during the quarter, as
compared to 55.2% for the same period in 2002. The gross operating margin
for Europe/Middle East Core Hotels decreased 8 percentage points to 24%
in the first quarter of 2003, as compared to 32% in the first quarter of
2002, primarily as a result of the cost increases noted above with respect
to worldwide Core Hotels. As a result of operating cost differences, profitability
of the hotels within the region varied significantly.
RevPAR, on a US dollar basis, in Asia/Pacific Core Hotels decreased
3.2% in the first quarter of 2003, as compared to the same period in 2002.
On a local currency basis, the Asia/Pacific Core Hotels realized a RevPAR
decrease of approximately 9.2%. Demand levels for the Company's resorts
under management in Bali have not yet recovered from the terrorist attack
on that island in October of last year. The gross operating margin for
Asia/Pacific Core Hotels decreased 5.1 percentage points to 29.6% in the
first quarter of 2003, as compared to 34.7% in the first quarter of 2002,
primarily as a result of the cost increases noted above with respect to
worldwide Core Hotels and lower occupancy levels.
The Company's worldwide resort portfolio included in the Core Hotels
(the "Core Resorts") realized a US dollar RevPAR decline of 2.0% in the
first quarter of 2003, as compared to the first quarter of 2002. The Core
Resorts average occupancy declined by 4.4 occupancy points to 68.9% primarily
as a result of large occupancy losses at the two resorts in Bali. Achieved
room rates in the Core Resorts increased by 4.2% to approximately US$480
in the first quarter of 2003, as compared to the first quarter of 2002.
The gross operating margin for the Core Resorts decreased 3.2 percentage
points to 36.7% in the first quarter of 2003, as compared to 39.9% in the
first quarter of 2002, primarily as a result of the cost increases noted
above with respect to worldwide Core Hotels.
Severe Acute Respiratory Syndrome (SARS)
During the first quarter of 2003, the impact of SARS negatively affected
the results of the Company's properties in Singapore, Shanghai and Toronto
as a result of disrupted travel to those cities during the last two weeks
of March. The impact of SARS on travel during the second quarter
of 2003 is difficult to predict. While the Company's four properties in
the destinations noted continue to be the most affected, SARS is disrupting
travel generally throughout Asia/Pacific, with the exception of Sydney
and the resort in the Maldives. Expected occupancy for worldwide
Core Hotels for April of 2003 prior to concerns relating to SARS was in
the 65% range; however, actual occupancy was in the 55% range with the
majority of the decline coming from Asian hotels.
"Our management team and our hotel general managers are an extremely
seasoned group who average more than sixteen years with the Company. They
have learned from past economic cycles and global and regional disruptions
how to carefully manage circumstances to control costs without compromising
service. As importantly, we are continuing our sales efforts and
maintaining strong relationships with our key customers. Experience has
shown that maintaining our product and service standards in difficult economic
conditions allows us to keep or enhance our market share and pricing integrity,"
said Wolf Hengst, President Worldwide Hotel Operations. "Our hotel general
managers will adapt and modify their business plans and execution to meet
the current pressures. We remain confident that we will be able to perform
at RevPAR and profitability margins that meet or exceed the industry in
these most challenging operating conditions."
MANAGEMENT OPERATIONS
Management fee revenues were $36.2 million in the first quarter of
2003, as compared to $36 million in the first quarter of 2002. Although
there was an increase in base management and royalty fees in the first
quarter of 2003, this increase was offset by a decline in profit-based
incentive fees. This decline was the result of reduced profitability of
the hotels under management caused, in part, by the increase in health
care, energy and insurance costs noted above, and the decline in occupancy
caused by the difficult operating environment.
General and administrative expenses increased 10.4% in the first quarter
of 2003, and include the 2002 cost of living payroll increase for corporate
employees that was implemented in mid-2002, as well as the 2003 cost of
living payroll increase for corporate employees which was implemented during
the first quarter of 2003. In addition, there was a budgeted increase in
sales, marketing and central reservation expenses, which are generally
funded by the sales, marketing and reservation charges paid by each hotel.
As a result of the items described above, the Company's management
earnings, before other operating items, for the first quarter of 2003 decreased
6.4% to $19.6 million, as compared to $20.9 million in the first quarter
of 2002. The Company's management operations profit margin(4) was 54% in
the first quarter of 2003, as compared to 58.1% in the first quarter of
2002.
OWNERSHIP OPERATIONS (5)
Ownership operations lost $13.2 million, before other operating items,
in the first quarter of 2003, as compared to a loss of $8.1 million in
the first quarter of 2002. The loss in both years is due to normal seasonality
of demand levels in the Company's ownership assets compounded by continued
weakness in the New York, Berlin and Vancouver markets.
The weaker economic conditions in New York continued to negatively
affect the Company's ownership interest in The Pierre. The Pierre's RevPAR
declined 11.7% in the first quarter of 2003, as compared to the first quarter
of 2002. This RevPAR decline was partly the result of occupancy decreasing
from 59.4% in the first quarter of 2002 to 55.6% in the first quarter of
2003. The Pierre's achieved room rates also declined by 5.6% primarily
because of lower suite occupancy during the quarter. The first quarter
2003 operating loss at The Pierre increased by $2.7 million, as compared
to the first quarter of 2002. Although there continues to be weak
travel demand in New York, it is a market that is expected to recover reasonably
quickly when there is a sustained improvement in the US economy. An improvement
in demand in New York is expected to have an immediate positive impact
on the results of The Pierre.
Four Seasons Hotel Vancouver also experienced weak operating conditions,
with RevPAR declining 10.7% for the first quarter of 2003, as compared
to the same period in 2002. The operating loss at Four Seasons Hotel Vancouver
increased by $678,000 in the first quarter of 2003, as compared to the
first quarter of 2002.
The loss from Four Seasons Hotel Berlin increased $951,000 in the first
quarter of 2003, as compared to the first quarter of 2002, as a result
of increased lease costs at that property and lower operating profits.
The Company's obligation to fund any lease shortfalls at Four Seasons Hotel
Berlin is limited to a maximum of approximately (euro) 11 million, of which
the remaining balance is approximately (euro) 725,000 at March 31, 2003.
The Company is not obligated to fund any additional lease shortfalls in
excess of the (euro) 725,000. However, the landlord may terminate the lease
if minimum rent is not paid.
The Company is beginning discussions with each of these landlords to
determine what, if any, alternatives may be available to reduce Four Seasons
financial exposure.
OTHER INCOME/EXPENSE
Other expense for the first quarter of 2003 were $12.9 million, as
compared to $1.1 million for the same period in 2002. Included in the 2003
other expense is an $8.3 million foreign exchange loss, which is a non-cash,
unrealized foreign exchange loss relating to the balance sheet, as compared
to $1.1 million for the same period in 2002. The Company has, from time
to time, hedged this foreign exchange exposure. Because of the volatility
in various currencies (in particular the Canadian dollar), the cost of
hedging the exposures was very high during the first quarter and, as a
result, the Company chose not to incur a significant cash cost to protect
the non-cash impact of the currency fluctuations.
Also included in other expense during the first quarter of 2003 are
legal and other enforcement costs of $4.6 million in connection with the
disputes with the owners of Four Seasons hotels in Caracas and Seattle,
as compared to nil for the same period in 2002. These disputes are described
in detail in the Company's 2002 Annual Report. The Company expects to incur
approximately an additional $4.5 million in legal and other fees for the
balance of 2003 in connection with these issues.
NET INTEREST EXPENSE/INCOME
During the first quarter of 2003, the Company had net interest income
of $683,000, as compared to $2 million in the first quarter of 2002. Net
interest is a combination of approximately $3.6 million interest income
and approximately $2.9 million interest expense in the first quarter of
2003, as compared to $5.1 million and $3.1 million, respectively, for the
same period in 2002. The reduction in interest income is attributable to
lower cash reserves and lower interest earned on loans to certain properties.
INCOME TAX EXPENSE
The non-cash, unrealized foreign exchange loss of $8.3 million included
in the first quarter of 2003 financial results is not tax effected since
it will never be realized for tax purposes. As a result, the Company's
effective tax rate in the first quarter of 2003 was approximately 3%, as
compared to the effective tax rate of 24% in the first quarter of 2002.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $154.2 million as at March
31, 2003, as compared to $165 million as at December 31, 2002.
Long-term obligations decreased from $129.1 million as at December
31, 2002 to $ 124.6 million as at March 31, 2003, primarily due to foreign
currency translation which was partially offset by accreted interest on
the Company's convertible debt. The Company's debt position consists primarily
of its zero coupon convertible debt that matures in 2029 and that is redeemable
by the Company at any time after September 2004. The convertible debt can
be put to the Company by the holders at three different times beginning
in September 2004. In all cases, the Company can satisfy its obligations
in respect of this debt on the exercise of the put or call right by the
payment of cash or the issuance of Limited Voting Shares.
The Company recently increased availability under its committed bank
credit facilities by US$12.5 million, and now has facilities of US$212.5
million, of which US$112.5 million expires in April 2004 and US$100.0 million
expires in July 2004. No amounts have been borrowed under these facilities
to date; however, US$35.2 million in letters of credit were issued but
undrawn as at March 31, 2003. The Company believes that cash on hand, internally
generated cash flow and funds available under the bank credit facilities
are more than adequate to finance all of its normal operating needs and
commitments to new investments related to current growth objectives.
During the first quarter of 2003, Moody's Investors Service assigned
an investment grade rating with a stable outlook to the Company. The Company's
ratings from Standard & Poor's and Dominion Bond Rating Service remain
at investment grade. However, as a result of macro events, it is possible
that the rating agencies may downgrade the rating or outlook for many of
the lodging companies.
CASH FLOW AND CAPITAL EXPENDITURES
During the first quarter of 2003, the Company generated $21.8 million
from operations, as compared to $7.7 million for the same period in 2002.
While the contribution from the Company's management and ownership operations
declined, there was a $17.7 million change in non-cash working capital
and a $4.4 million decrease in income tax installments paid resulting in
a $14.1 million increase in cash from operations. These increases were
partially offset by a $5.1 million increase in cash used in ownership operations,
a $1.6 million increase in legal and other enforcement costs paid in connection
with the Company's investments in the Four Seasons hotels in Caracas and
Seattle and a $1.3 million decrease in interest received.
A part of the Company's business strategy is to invest a portion of
available cash to obtain new management agreements or enhance existing
management arrangements. These loans or investments will only be made where
the overall economic return to Four Seasons is expected to justify the
investment.
During the quarter, the Company funded $13.7 million in new management
opportunities, including amounts advanced as loans receivable and investments
in hotel partnerships such as Costa Rica and Residence Club projects. 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. The Company did not fund any significant
investments during the first quarter of 2002.
COMMITMENTS
As discussed in the Company's 2002 Annual Report, the Company has certain
pension, lease and other commitments. There has been no material change
to these commitments through the first quarter of 2003, and the Company
does not anticipate any material change in respect of these commitments
over the remainder of this fiscal year, other than the elimination of a
commitment in respect of the lease for Four Seasons Hotel Berlin.
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 ended March 31, 2003, if the Company were to have adopted
the fair value based method, the impact would have been an increased compensation
expense of $885,000 (2002 - $7,000) and an increase in basic and diluted
loss per share of $0.02 (2002 - nil).
UNIT GROWTH
During the first quarter of 2003, the Company opened Four Seasons Hotel
Riyadh. Late in the second quarter of 2003, the Company expects to reopen
Four Seasons Hotel Prague, which has been closed for repairs after sustaining
flood damage in August of 2002. The Regent Hotel Jakarta, which has also
been closed as a result of flood damage, is under repair and should reopen
later this year. During the last half of the year, the Company expects
to open new hotels and resorts in Exuma, Budapest, Hampshire, Jackson Hole
and Miami.
"The current environment has not changed the quality of our pipeline.
Our capital partners are still eager to invest in high-quality projects.
A good example is the recently announced acquisition by HRH Prince Alwaleed
of the Hotel des Bergues in Geneva, which Four Seasons will manage once
the hotel is reopened after a proposed renovation," commented Kathleen
Taylor, President Worldwide Business Operations. "We continue to be excited
about the new Four Seasons destinations that we are expecting to add this
year and in the years ahead."
Four Seasons Hotels and Resorts is the world's largest operator of
luxury hotels. The Company currently manages 58 hotels and resorts and
two Residence Clubs in 27 countries. The Company currently has 22 new Four
Seasons projects under construction or in advanced stages of development.
Of the 20 new hotels and resorts, 11 are expected to include a residential
component within the project, in addition to the announced Four Seasons
Residence Club Punta Mita and Four Seasons Private Residences Whistler.
Please see the schedule attached listing the properties under construction
or in advanced stages of development and anticipated opening dates for
these properties.
LOOKING AHEAD
The Company's business plan for 2003 continues to focus on those aspects
of the business that it believes provide the greatest potential contribution
to long-term cash flow, and which have proven to be successful over the
past 18 months, including continued opening of new Four Seasons properties,
maintaining and enhancing market share, and maintaining room rates. In
addition, we are focused on increasing the RevPAR and profitability of
the new and recently opened Four Seasons properties.
Four Seasons expects to open five new managed properties in the balance
of 2003 or the early part of 2004. The average term of the management contracts
for these properties is almost 70 years and these management contracts
are expected to provide the Company with significant long-term fee income.
During 2003, the gross operating margins at the hotels and resorts
under management are expected to decline due to cost increases for expenses
such as employee benefits and energy, which affect all hospitality businesses.
Given geopolitical and global economic concerns, as well as the concern
regarding SARS, it is extremely difficult to forecast with any accuracy
occupancy levels for 2003. If occupancy levels continue to decline in 2003,
as compared to 2002, the hotel gross operating margins are likely to contract
further.
Total capital spending is expected to be approximately US$45 million
to US$55 million in 2003, including investments funded or planned for Costa
Rica, Whistler, Hampshire and Jackson Hole. When paid, this amount will
releases letters of credit totalling $20.2 million securing the commitment
of the Company to invest in two of these projects as disclosed under "Other
Commitments" in the Company's 2002 Annual Report.
As a result of the high levels of uncertainty in the macroeconomic
and political environment, the Company is declining to give a specific
forecast for earnings per share for 2003 or any quarter thereof at this
time. The Company expects its full year achieved room rates to be at, or
near, the record levels set in 2000 and which were maintained in 2001 and
2002, and in general, consistent with past experience, the Company expects
its business model to perform at or above industry levels.
CONCLUSION
"Macro factors continue to negatively affect our current earnings,
and the business environment is extraordinarily difficult at this time.
However, we believe our business model is stable. Our management business
generates cash which we use to expand our network by investing in new opportunities.
This managed growth, coupled with our strong balance sheet, is expected
to allow us to work through these difficult times, positioning us well
for the expected recovery in travel demand," commented Douglas L. Ludwig,
Chief Financial Officer and Executive Vice President.
FOUR SEASONS HOTELS INC.
CONSOLIDATED BALANCE SHEETS
As at As at
(Unaudited)
March 31, December 31,
(In thousands of
dollars)
2003 2002
ASSETS
Current assets:
Cash
and cash equivalents
$ 154,200 $ 165,036
Receivables
78,310 85,594
Inventory
2,684 2,609
Prepaid
expenses
7,855 4,718
243,049 257,957
Long-term receivables
201,894 207,106
Investments in hotel
partnerships
and corporations
151,903 146,362
Fixed assets
73,778 74,593
Investment in management
contracts
212,852 222,835
Investment in trademarks
and trade names
6,213 6,329
Future income tax
assets
15,529 17,460
Other assets
38,649 37,982
$ 943,867 $ 970,624
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts
payable and accrued liabilities
$ 49,397 $ 40,362
Long-term
obligations due within one year
2,562 2,668
51,959 43,030
Long-term obligations
(note 2)
122,072 126,386
Shareholders' equity
(note 3):
Capital
stock
321,732 321,601
Convertible
notes
178,543 178,543
Contributed
surplus
4,636 4,636
Retained
earnings
254,743 264,016
Equity
adjustment from foreign
currency translation
10,182 32,412
769,836 801,208
$ 943,867 $ 970,624
See accompanying
notes to consolidated financial statements.
FOUR SEASONS HOTELS
INC.
CONSOLIDATED STATEMENTS
OF OPERATIONS
Three months ended
(Unaudited)
March 31,
(In thousands of
dollars except per share amounts) 2003
2002
Consolidated revenues
(note 4)
$ 61,014 $ 64,581
MANAGEMENT OPERATIONS
Revenues (note 5)
$ 36,230 $ 35,992
General and administrative
expenses
(16,655) (15,084)
19,575 20,908
OWNERSHIP OPERATIONS
Revenues
25,778 29,590
Distributions from
hotel investments
- 106
Expenses:
Cost
of sales and expenses
(37,973) (36,695)
Fees
to Management Operations
(994) (1,107)
(13,189) (8,106)
Earnings before
other operating items
6,386 12,802
Depreciation and
amortization
(3,710) (3,505)
Other expense (note
6)
(12,908) (1,141)
Earnings (loss)
from operations
(10,232) 8,156
Interest income,
net
683 2,010
Earnings (loss)
before income taxes
(9,549) 10,166
Income tax recovery
(expense):
Current
2,374 (1,380)
Future
(2,098) (1,060)
276 (2,440)
Net earnings (loss)
$ (9,273) $ 7,726
Basic earnings (loss)
per share
$ (0.27) $ 0.22
Diluted earnings
(loss) per share
$ (0.27) $ 0.21
See accompanying
notes to consolidated financial statements.
FOUR SEASONS HOTELS
INC.
CONSOLIDATED STATEMENTS
OF CASH PROVIDED BY OPERATIONS
Three months ended
(Unaudited)
March 31,
(In thousands of
dollars)
2003 2002
Cash provided by
(used in) operations:
MANAGEMENT OPERATIONS
Earnings before
other operating items
$ 19,575 $ 20,908
Items not requiring
an outlay of funds
403 370
Working capital
provided by
Management
Operations
19,978 21,278
OWNERSHIP OPERATIONS
Loss before other
operating items
(13,189) (8,106)
6,789 13,172
Interest received,
net
3,896 5,118
Current income tax
paid
- (4,446)
Change in non-cash
working capital
12,743 (4,993)
Other
(1,610) (1,164)
Cash provided by
operations
$ 21,818 $ 7,687
See accompanying
notes to consolidated financial statements.
FOUR SEASONS HOTELS
INC.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
Three months ended
(Unaudited)
March 31,
(In thousands of
dollars)
2003 2002
Cash provided by
(used in):
Operations
$ 21,818 $ 7,687
Financing:
Long-term
obligations,
including current portion
42 (640)
Issuance
of shares
131 4,163
Dividends
paid
(1,809) (1,815)
Cash provided by
(used in) financing
(1,636) 1,708
Capital investments:
Long-term
receivables
(5,806) (608)
Hotel
investments
(8,368) (582)
Purchase
of fixed assets
(3,881) (2,990)
Investment
in trademarks, trade names and
management contracts
(216) (390)
Other
assets
(2,601) (3,686)
Cash used in capital
investments
(20,872) (8,256)
Increase (decrease)
in cash and cash equivalents
(690) 1,139
Increase (decrease)
in cash and cash equivalents
due to unrealized
foreign exchange gain (loss) (10,146)
166
Cash and cash equivalents,
beginning of period 165,036
210,421
Cash and cash equivalents,
end of period
$ 154,200 $ 211,726
See accompanying
notes to consolidated financial statements.
FOUR SEASONS HOTELS
INC.
CONSOLIDATED STATEMENTS
OF RETAINED EARNINGS
Three months ended
(Unaudited)
March 31,
(In thousands of
dollars)
2003 2002
Retained earnings,
beginning of period
$ 264,016 $ 259,253
Net earnings (loss)
(9,273) 7,726
Retained earnings,
end of period
$ 254,743 $ 266,979
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, 2002.
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, 2002.
2. Bank credit facilities:
The Company recently
increased availability under its committed bank credit facilities by US$12.5
million, and now has facilities of US$212.5 million, of which US$112.5
million expires in April 2004 and US$100.0 million expires in July 2004.
No amounts have been borrowed under these facilities to date; however,
US$35.2 million in letters of credit were issued but undrawn as at March
31, 2003.
3. Shareholders'
equity:
As at March 31,
2003, the Company has outstanding Variable Multiple Voting and Limited
Voting Shares of 34,885,732 and outstanding stock options of 5,864,037
(weighted average exercise price of $52.25).
4. Consolidated
revenues:
Consolidated revenues
for Four Seasons Hotels Inc. comprise revenues from Management Operations,
revenues from Ownership Operations and distributions from hotel investments,
less fees from Ownership Operations to Management Operations.
5. Revenues under
management:
Total revenues under
management were $659,248 for the three months ended March 31, 2003 ($685,938
for the three months ended March 31, 2002). 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
69% of the fee revenues earned by the Company were calculated as a percentage
of the total revenues under management of all hotels and resorts.
6. Other expense:
Included in other
expense for the three months ended March 31, 2003 is a net foreign exchange
loss of $8,267 (2002 - $1,141) related to the foreign currency translation
gains and losses on unhedged net asset and liability positions, primarily
in US dollars, euros, pounds sterling and Australian dollars, and foreign
exchange gains and losses incurred by the Company's foreign self-sustaining
subsidiaries.
Also included in
other expense for the three months ended March 31, 2003 are legal and other
enforcement costs of $4,641 (2002 - nil) in connection with the disputes
with the owners of Four Seasons hotels in Caracas and Seattle. These disputes
are described in detail in the Company's 2002 Annual Report.
7. Stock-based compensation
and other stock-based payments
Section 3870, issued
by The Canadian Institute of Chartered Accountants, 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 under
Canadian generally accepted accounting principles, the Company does not
record compensation expense 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.
For the three months
ended March 31, 2003, 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 loss would
have been $10,158 (2002 - pro forma net earnings of $7,719), pro forma
basic loss per share would have been $0.29 (2002 - pro forma basic earnings
per share of $0.22), and pro forma diluted loss per share would have been
$0.29 (2002 - pro forma diluted earnings per share of $0.21). In accordance
with Canadian generally accepted accounting principles, in calculating
the pro forma disclosures, only stock options granted after December 31,
2001 were included in the fair value-based accounting method.
The compensation
element of stock options issued by the Company during the three months
ended March 31, 2003 and 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 in 2003 ranging from 4.80% to 5.02% (2002 - 4.29%); semi-annual dividend
per Limited Voting Share of $0.055 for both periods; volatility factors
of the expected market price of the Company's Limited Voting Shares in
2003 ranging from 45% to 46% (2002 - 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. For the options granted during the three
months ended March 31, 2003 and 2002, the weighted average fair value of
options at the grant date was $23.68 and $30.50, respectively. 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.
8. Guarantees:
In January 2003,
the Canadian Institute of Chartered Accountants issued Accounting Guideline
No. 14, "Disclosure of Guarantees" ("AcG-14"), that requires a company
to disclose certain "guarantees" as defined in AcG-14. Other than
the commitments and contingencies discussed in the Company's annual consolidated
financial statements for the year ended December 31, 2002 (please refer
to note 14 thereof), the Company is not aware of any other "guarantees"
pursuant to which it may be required to fund any material amounts, and
accordingly no amounts have been recorded in the financial statements in
respect thereof. The Company's assessment of its potential liability could
change in the future as a result of currently unforseen circumstances.
9. 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. Typically, the fourth quarter is the
strongest quarter for the majority of the properties, although this was
not true in 2002 as a result of the difficult economic environment and
geopolitical instability.
The Company's ownership
operations are particularly affected by seasonal fluctuations, with lower
revenue, operating profit and cash flow in the first quarter. As a result,
ownership operations typically incur an operating loss in the first quarter
of each year.
Management operations
are also impacted by seasonal patterns, as fee revenues are affected by
the seasonality of hotel and resort revenues and operating results. Urban
hotels generally experience lower revenues and operating results in the
first quarter. However, this negative impact on management revenues generally
is offset, to some degree, by increased travel to resorts in the period.
FOUR
SEASONS HOTELS INC.
SUMMARY OF HOTEL
OPERATING DATA - CORE HOTELS(1)
Three months ended
March 31,
(Unaudited)
2003 2002 Variance
Worldwide
No.
of Properties
49 49
-
No.
of Rooms
13,320 13,320
-
Occupancy(2)
60.8% 62.7% (1.9%)
ADR(3)
- in US dollars
$298 $292 2.0%
- in equivalent Canadian dollars $450
$465 (3.2%)
RevPAR(4)
- in US dollars
$181 $183 (1.1%)
- in equivalent Canadian dollars $273
$291 (6.1%)
Gross
operating margin(5)
24.5% 29.7% (5.2%)
United States
No.
of Properties
23 23
-
No.
of Rooms
7,248 7,248
-
Occupancy(2)
64.2% 64.9% (0.7%)
ADR(3)
- in US dollars
$325 $328 (0.8%)
- in equivalent Canadian dollars $491
$522 (5.8%)
RevPAR(4)
- in US dollars
$209 $213 (1.9%)
- in equivalent Canadian dollars $315
$339 (6.9%)
Gross
operating margin(5)
22.4% 27.6% (5.2%)
Other Americas/Caribbean
No.
of Properties
7 7
-
No.
of Rooms
1,550 1,550
-
Occupancy(2)
53.8% 55.5% (1.7%)
ADR(3)
- in US dollars
$318 $317 0.2%
- in equivalent Canadian dollars $480
$504 (4.9%)
RevPAR(4)
- in US dollars
$171 $176 (2.8%)
- in equivalent Canadian dollars $258
$280 (7.7%)
Gross
operating margin(5)
31.0% 33.8% (2.8%)
Europe/Middle East
No.
of Properties
9 9
-
No.
of Rooms
1,807 1,807
-
Occupancy(2)
50.1% 55.2% (5.1%)
ADR(3)
- in US dollars
$392 $336 16.5%
- in equivalent Canadian dollars $591
$534 10.6%
RevPAR(4)
- in US dollars
$196 $186 5.8%
- in equivalent Canadian dollars $296
$295 0.5%
Gross
operating margin(5)
24.0% 32.0% (8.0%)
Asia/Pacific
No.
of Properties
10 10
-
No.
of Rooms
2,715 2,715
-
Occupancy(2)
62.7% 65.8% (3.1%)
ADR(3)
- in US dollars
$164 $162 1.5%
- in equivalent Canadian dollars $248
$257 (3.6%)
RevPAR(4)
- in US dollars
$103 $106 (3.2%)
- in equivalent Canadian dollars $156
$169 (8.1%)
Gross
operating margin(5)
29.6% 34.7% (5.1%)
(1) The term "Core
Hotels" means hotels and resorts under management for
the full year of both 2003 and 2002. Changes from the 2002/2001 Core Hotels
are the additions of Four Seasons Hotel San Francisco, Four Seasons Hotel
Dublin, Four Seasons Hotel Buenos Aires and Four Seasons Resort Carmelo.
(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.
The Company reports RevPAR as it is the most commonly used measure in the
lodging industry to measure the period-over-period performance of comparable
properties.
(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
March 31,
(Unaudited)
2003 2002 Variance
Worldwide
No.
of Properties
58 54
4
No.
of Rooms
15,682 15,041 641
United States
No.
of Properties
23 23
-
No.
of Rooms
7,248 7,248
-
Other Americas/Caribbean
No.
of Properties
8 8
-
No.
of Rooms
1,762 1,762
-
Europe/Middle East
No.
of Properties
13 10
3
No.
of Rooms
2,553 1,969
584
Asia/Pacific
No.
of Properties
14 13
1
No.
of Rooms
4,119 4,062
57
FOUR SEASONS HOTELS
INC.
SCHEDULED OPENING
OF PROPERTIES UNDER CONSTRUCTION OR
IN ADVANCED STAGES
OF DEVELOPMENT
Hotel/Resort/Residence
Club and Location(1,2)
Approximate
Number Scheduled
of Rooms Opening
Four Seasons Hotel
Alexandria, Egypt(x)
120 2005
Four Seasons Hotel
Beirut, Lebanon
234 2006
Four Seasons Hotel
Gresham Palace 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(x)
300 2004
Four Seasons Hotel
Doha, Qatar(x)
235 2004
Four Seasons Hotel
Florence, Italy
118 2005
Four Seasons Hotel
Geneva, Switzerland
110 2005
Four Seasons Resort
Great Exuma at Emerald Bay,
The Bahamas(x)
219 2003
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 Resort
Whistler, B.C., Canada
271 2004
Four Seasons Private
Residences Whistler, B.C.,
Canada(x)
35 2005
(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 prior to the completion of the project.
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. In particular, in the case where a property is scheduled
to open near the end of a year, there is a greater possibility that the
year of opening could be changed. 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 cannot be established at this time.
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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.
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 future years; expected investment spending; and
similar statements concerning anticipated future events and expectations
that are not historical facts.
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