TORONTO, May 6, 2004 - Four Seasons Hotels Inc. (TSX Symbol "FSH";
NYSE Symbol "FS") today reported its results for the first quarter ended
March 31, 2004.
Overview of the Quarter (results for the three months ended March 31,
2004, as compared to the same period in 2003)
As described in greater detail in the accompanying Management's Discussion
and Analysis for the three months ended March 31, 2004:
-
Net earnings were $11.5 million ($0.33 basic earnings per share and $0.31
diluted earnings per share), as compared to a net loss of $9.3 million
($0.27 basic and diluted loss per share) for the first quarter of 2003.
-
Adjusted(1) net earnings were $7.7 million ($0.22 basic adjusted earnings
per share and $0.21 diluted adjusted earnings per share), as compared to
adjusted net earnings of $2.5 million ($0.07 basic adjusted and diluted
adjusted earnings per share) for the first quarter of 2003.
-
RevPAR(2) of worldwide Core Hotels(3) increased 14.1%, on a US dollar basis.
-
Gross operating margins(4) at worldwide Core Hotels increased 330 basis
points to 28.0%.
-
Profits under management increased 30.4%, on a US dollar basis.
-
Management fee revenues (excluding reimbursed costs) increased 13.9%.
-
Ownership losses declined $3.5 million or 26.3%.
Also during the quarter, Four Seasons opened Four Seasons Resort Costa
Rica at Peninsula Papagayo and Four Seasons Resort Provence at Terre Blanche.
"The recovery in travel demand accelerated throughout the first quarter
and has continued into April. If current trends continue, we anticipate
that 2004 will be a year of substantial rebound for the lodging industry
and for Four Seasons," said Douglas L. Ludwig, Chief Financial Officer
and Executive Vice President. "We are pleased to continue to report industry-leading
RevPAR and profitability at the properties under our management. Although
the first quarter is typically the quietest quarter for business travel,
the momentum of business travel demand has continued to improve. We believe
that our continuing focus on the guest experience, whether for a business
or leisure related stay, will translate into continued RevPAR and profitability
growth."
"This is a very exciting time for Four Seasons as we anticipate benefiting
from the combination of an improving economic outlook and the scheduled
opening of a number of important new Four Seasons properties this year,"
commented Isadore Sharp, Chairman and Chief Executive Officer. "In the
past twelve months, we have added six new projects to our portfolio, including
our first mountain resort in Jackson Hole and our first European resort
in the south of France at Terre Blanche. By the end of 2005, we expect
to add another 14 projects, including Four Seasons hotels in Budapest and
Hong Kong, and resorts in Whistler and Langkawi."
FIRST QUARTER OF 2004
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis ("MD&A") for the three
months ended March 31, 2004 is provided as of May 5, 2004. It should be
read in conjunction with the interim consolidated financial statements
for that period and the MD&A for the year ended December 31, 2003 and
the audited consolidated financial statements for that period. Except as
disclosed in this MD&A, there has been no material change in the information
disclosed in the MD&A for the year ended December 31, 2003. A summary
of consolidated revenues, management earnings, ownership and corporate
operations earnings and net earnings for the past eight quarters can be
found in note 5.
Operational and Financial Review and Analysis
Seasonality
Four Seasons hotels and resorts are affected by normally recurring seasonal
patterns and, for most of the properties, demand is usually lower in the
period from December through March compared to the remainder of the year.
Typically, the first quarter is the weakest quarter and the fourth quarter
is the strongest quarter for the majority of the properties.
Our ownership operations are particularly affected by seasonal fluctuations,
with lower revenue, higher operating losses and lower cash flow in the
first quarter. As a result, ownership operations usually incur an operating
loss in the first quarter of each year.
Management operations are also impacted by seasonal patterns, as 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 our resorts
in the period.
Hotel Operating Results
First Quarter 2004 increase over
(decrease from) First Quarter 2003
(percentage change, on US dollar basis)
Gross Gross
Operating Operating
Revenue Profit
Region
RevPAR (GOR)
(GOP)
Worldwide Core Hotels
14.1% 14.9%
30.4%
US Core Hotels
8.6% 8.7%
13.8%
Other Americas/Caribbean Core Hotels
20.3% 20.5%
40.6%
Europe/Middle East Core Hotels
30.2% 35.6%
88.9%
Asia/Pacific Core Hotels
14.5% 15.9%
32.6% |
Underlying these operating results:
-
Revenue improvements and cost management efforts at the properties resulted
in the significant increase in margins (although there was continued pressure
on profit margins due to higher costs relating primarily to labour (including
health care, benefits and worker's compensation), energy and insurance).
The most significant improvements were realized in Europe/Middle East,
in particular, the properties in the Middle East, where labour cost pressures
were relatively lower.
-
Business and leisure travel demand improved in the majority of the markets
in which we operate, although January and February are traditionally not
strong months for business travel demand.
-
Group meetings and travel demand did not improve in the quarter, with the
exception of the Las Vegas market. As a result, properties that typically
derive the larger portion of their business from group travel (including
Aviara and the Ritz Carlton Chicago) experienced RevPAR declines.
-
Properties under management in Las Vegas, Los Angeles, Houston, San Francisco,
Washington, New York and Palm Beach performed particularly well on a RevPAR
basis, relative to the average for the region.
-
In the Other Americas/Caribbean region, the properties under management
in South America and the resorts in the region reflected improved demand.
The hotels under management in Toronto and Vancouver experienced weak demand
in the quarter, which is typical for the period.
-
All of the properties in the Europe/Middle East had RevPAR improvements
as a result of strong demand in the quarter.
-
The two properties in Bali realized improvements in occupancy levels (although
they remain below the levels realized prior to the terrorist attacks on
the island in 2002), achieved rates in excess of US$320 and were profitable.
Management Operations
Management fee revenues (excluding reimbursed costs(6)) increased 13.9%,
or $4.1 million, to $33.4 million in the first quarter of 2004, as compared
to $29.3 million in the first quarter of 2003. This increase was the result
of the improvement in revenues under management stemming from RevPAR and
other revenue increases at the Core Hotels under management and an increase
in fees from recently opened hotels.
Incentive fees increased approximately 25% in the first quarter of 2004,
as compared to the same period in 2003, with 31 of the hotels and resorts
under management accruing incentive fees as compared to 27 during the same
period last year. The increase in incentive fees was attributable to the
improvement in gross operating profits at the properties under management
in each of the geographic regions in which we operate.
General and administrative expenses (excluding reimbursed costs) increased
11.5% to $10.9 million in the first quarter of 2004, as compared to the
same period in 2003. The increase related primarily to cost of living increases
for corporate employees that were implemented during the first quarter
of 2004, and an increase in the number of employees at our corporate office
(primarily in the design and procurement department) to handle the significant
growth in our portfolio.
As a result of the items described above, our management earnings before
other operating items for the first quarter of 2004 increased 15.1% to
$22.5 million, as compared to $19.6 million in the first quarter of 2003.
Our management operations profit margin(7) (excluding reimbursed costs)
increased to 67.5% in the first quarter of 2004, as compared to 66.8% in
the first quarter of 2003.
As a result of adopting the Canadian Institute of Chartered Accountants
("CICA") Section 1100, "Generally Accepted Accounting Principles", which
was issued in 2003 and was effective for 2004, in the first quarter of
2004, we began recording all reimbursed costs in revenue on a gross, rather
than net, basis. These costs include marketing, reservations, and advertising
charges, as well as the out-of-pocket expense charges, which we charge
to properties under management on a cost recovery basis. For the first
quarter of 2003, reimbursed costs have also been reclassified on a consistent
basis and included in revenues.
Ownership and Corporate Operations(8)
Losses from ownership and corporate operations before other operating
items declined $3.5 million to $9.7 million in the first quarter of 2004,
as compared to a loss of $13.2 million in the first quarter of 2003.
RevPAR at The Pierre increased primarily as a result of a 15% improvement
in occupancy in the first quarter of 2004, as compared to the same period
in 2003, reflecting higher travel demand in New York. As a result, the
loss at The Pierre declined $1.9 million in the first quarter of 2004,
as compared to the first quarter of 2003.
Since reaching our maximum funding obligation of the stipulated minimum
lease payments at Four Seasons Hotel Berlin in August of 2003, the lease
payments in 2004 have been limited to the cash flow generated by the hotel.
This resulted in a decline of $1.8 million in the operating loss from Four
Seasons Hotel Berlin in the first quarter of 2004. In 2004, we have continued
to consolidate the revenue and expenses of Four Seasons Hotel Berlin. However,
the stipulated minimum lease payments beyond amounts which can be funded
by the hotel's operation will not be accrued. As a result, we expect any
earnings or losses from Four Seasons Hotel Berlin to be immaterial throughout
the year.
We continue to be in discussions with the landlords of The Pierre, Four
Seasons Hotel Berlin and Four Seasons Hotel Vancouver to determine what,
if any, alternatives may be available to modify or restructure our investments
in these hotels. There can be no assurance that acceptable alternative
arrangements will be agreed upon with respect to any or all of these hotels.
Stock Option Expense
Stock option expense for the first quarter of 2004 was $413,000, as
compared to $15,000 for the same period in 2003. Stock option expense is
allocated between Management Operations ($195,000) and Ownership and Corporate
Operations ($218,000).
Other Income (Expense)
Other income for the first quarter of 2004 was $4.3 million, as compared
to an expense of $12.9 million for the same period in 2003.
Included in other income for the first quarter of 2004 was a $4.6 million
foreign exchange gain, which is a non-cash, unrealized foreign exchange
gain, compared to an $8.3 million foreign exchange loss for the same period
in 2003. These foreign exchange gains and losses arose from the translation
to Canadian dollars at current exchange rates at the end of each month
of our non-Canadian dollar-denominated net monetary assets that are not
included in our designated self-sustaining subsidiaries, and foreign exchange
gains and losses on net monetary assets incurred by our designated foreign
self-sustaining subsidiaries. Net monetary assets are the sum of our foreign
currency-denominated monetary assets and liabilities, which consist primarily
of cash and cash equivalents, accounts receivable, long-term receivables
and long-term obligations, as determined under Canadian generally accepted
accounting principles (GAAP).
From an economic perspective, we look to offset our net monetary asset
position against the full obligation of our outstanding convertible notes
described below under "Liquidity and Capital Resources". Under Canadian
GAAP, the convertible notes are allocated between long-term obligations
and shareholders' equity. The portion allocated to long-term obligations
and included in net monetary assets was US$46.7 million, and US$125.8 million
was allocated to shareholders' equity at the time of issuance. If the portion
of the convertible notes included in shareholders' equity was revalued
at the current exchange rates, which is not contemplated under Canadian
GAAP, the result of this revaluation would have been a non-cash, unrealized
foreign exchange loss of $2.3 million for the first quarter of 2004. We
believe we currently have an appropriate economic hedge of our net monetary
assets and liabilities. For a further discussion of the convertible notes,
see "Liquidity and Capital Resources".
Also included in other expense during the first quarter of 2003 were
legal and other enforcement costs of $4.6 million in connection with the
dispute with the owners of Four Seasons hotels in Caracas and Seattle.
The Seattle dispute was settled and although still outstanding, any future
expenses associated with the Caracas dispute are not expected to be significant.
These disputes are more fully described in the MD&A and the audited
consolidated financial statements for the year ended December 31, 2003.
Net Interest Income
During the first quarter of 2004, we had net interest income of $1.1
million, as compared to $683,000 in the first quarter of 2003. Net interest
income is a combination of approximately $4.1 million in interest income
and approximately $3.0 million in interest expense in the first quarter
of 2004, as compared to $3.6 million and $2.9 million, respectively, for
the same period in 2003. The increase in interest income is primarily attributable
to higher interest income from loans to managed properties.
Income Tax Expense
Our effective tax rate in the first quarter of 2004 was 22%, as compared
to an effective tax rate of 3% in the first quarter of 2003. The variation
from our expected 24% tax rate is the result of certain items not being
tax effected, including a portion of the unrealized foreign exchange gains
and losses, since they will never be realized for tax purposes. In addition,
stock option expense is not deductible for Canadian tax purposes and, as
such, is not tax effected.
Net Earnings and Earnings per Share
Net earnings for the quarter ended March 31, 2004 were $11.5 million
($0.33 basic earnings per share and $0.31 diluted earnings per share),
as compared to a net loss of $9.3 million ($0.27 basic and diluted loss
per share) for the quarter ended March 31, 2003.
Liquidity and Capital Resources
Our cash and cash equivalents were $174.3 million as at March 31, 2004,
as compared to $170.7 million as at December 31, 2003.
Long-term obligations (as determined under Canadian GAAP) increased
from $120.1 million as at December 31, 2003 to $124.2 million as at March
31, 2004, primarily due to accreted interest on our convertible notes and
foreign exchange translation. As discussed above, in Other Income (Expense),
under Canadian GAAP, a portion of our convertible notes is included in
equity.
In 2003, we increased availability under our committed bank credit facilities
by US$12.5 million and we now have US$212.5 million of committed bank credit
facilities, all of which expire in July 2004. We are currently in the process
of negotiating the extension of these credit facilities. As at March 31,
2004, no amounts were borrowed under these credit facilities. However,
approximately US$28 million of letters of credit were issued under those
facilities. No amounts have been drawn under these letters of credit.
We believe that, absent unusual opportunities, these bank credit facilities,
when combined with cash on hand and internally generated cash flow, should
be more than adequate to allow us to finance our normal operating needs
and anticipated investment commitments related to our current growth objectives.
During 1999, we issued US$655.5 million principal amount at maturity
(September 23, 2029) of convertible notes for gross proceeds of US$172.5
million. The net proceeds of the issuance, after deducting offering expenses
and underwriters' commission, were US$166 million. We are entitled to redeem
the convertible notes commencing in September 2004 for cash equal to the
issue price plus accrued interest calculated at 4 1/2% per annum. Holders
of the notes have conversion rights, which they can exercise at any time
before the maturity date or date of redemption of the notes, pursuant to
which they can require us to issue to them 5.284 Limited Voting Shares
for each US$1,000 principal amount of notes. The holders of notes also
can require us to repurchase the notes in September 2004 for an amount
equal to the issue price plus accrued interest calculated at 4 1/2% per
annum. This right is also available in September 2009 and September 2014.
We have a choice of settling our obligation, in connection with the conversion
or purchase of the notes at the option of the holder, with cash or Limited
Voting Shares.
As described above, we may redeem all or a portion of the notes at any
time on or after September 23, 2004 for cash at the issue price plus accrued
interest (calculated at 4 1/2% per annum) to the date of purchase. It is
possible that we may redeem some or all of the notes, especially in the
current interest rate environment. A cash redemption in September 2004
of all outstanding notes would require a cash payment to the note holders
of approximately US$215.5 million, assuming that the holders did not exercise
their right to convert their notes before the redemption date. If we redeem
the notes, we may replace the financing provided by the notes with a combination
of debt (which could be raised by various means, including bank lines and/or
the issuance of additional notes or convertible notes) and/or the utilization
of cash and cash equivalents. We filed a shelf registration statement and
prospectus during the first quarter that would accommodate a public offering
of various debt instruments (including convertible debt) in a principal
amount of up to US$250 million.
Contractual Obligations and Other Commitments
As discussed in the MD&A for the year ended December 31, 2003, we
have contractual obligations and other commitments, including certain pension
and lease commitments. There has been no material change to these commitments
through the first quarter of 2004 and, other than as discussed above relating
to the potential put/call relating to our convertible notes and funding
relating to our management opportunities described under "Financing Activities/Investing
Activities" below, we do not anticipate any material change in respect
of these commitments over the remainder of the current year.
Cash From Operations
During the first quarter of 2004, we generated $4.9 million from operations,
as compared to $21.8 million for the same period in 2003. The decrease
in cash from operations of $16.9 million in 2004 resulted primarily from
an increase in working capital of $24.3 million, partially offset by a
decrease in cash used in ownership and corporate operations of $3.7 million
and an increase in cash contributed by management operations of $3.1 million.
Financing Activities/Investing Activities
Part of our business strategy is to invest a portion of available cash
to obtain management agreements or enhance existing management arrangements.
These investments in, or advances in respect of or to owners of, properties
are made where we believe that the overall economic return to Four Seasons
justifies the investment or advance.
During the quarter, we funded $6.8 million in management opportunities,
including amounts advanced as loans receivable and investments in hotel
partnerships such as Whistler. This level of investment was consistent
with our business plan, with the investments being made to secure new long-term
management agreements or to enhance existing management arrangements. During
the remaining three quarters of 2004, we expect to fund US$45 million to
US$55 million in respect of investments in, or advances to, various projects,
including properties in Palo Alto and Washington.
Outstanding Share Data
Outstanding as
Designation
at May 3, 2004
Variable Multiple Voting Shares(a)
3,832,172
Limited Voting Shares
31,612,218
Options to acquire Limited Voting Shares:
Outstanding
5,627,139
Exercisable
2,808,603
Convertible Notes(b)
US$211.7 million(c)
(a) Convertible into Limited Voting Shares at any
time at the option of the holder on a one-for-one basis.
(b) Subject to adjustment in certain circumstances,
each US$1,000 principal amount of notes is convertible, at the option of
the holder, into 5.284 Limited Voting Shares (3,463,155 Limited Voting
Shares in aggregate). We have the right to acquire notes that are tendered
for conversion for cash equal to the then fair market value of the underlying
Limited Voting Shares.
(c) This amount is equal to the issue price of the
convertible notes plus accrued interest calculated at 4.5% per annum.
Looking Ahead
The MD&A for the year ended December 31, 2003 provided certain forward-looking
information regarding our expectations for 2004. Travel continues to be
booked close to the actual travel dates. This pattern, although having
modestly improved during the first quarter of 2004, continues to make it
difficult to predict future travel patterns with certainty.
Based on the travel trends that we experienced in the first quarter
of 2004 and that we currently are observing, we would expect the second
quarter of this year to reflect improvements over both the second quarter
of 2003 (which was significantly affected by the war in Iraq and SARS)
and the first quarter of 2004. We currently are expecting that these demand
improvements should result in RevPAR for worldwide Core Hotels in the second
quarter increasing by more than 15%, as compared to the same period last
year. We expect that the majority of this improvement will result from
the occupancy rebounding in the Asia/Pacific region from 30% in second
quarter of 2003, to in excess of 60% and in Europe/Middle East region from
50%, in second quarter of 2003, to in excess of 65%. Additionally, we expect
that pricing improvements will be realized in all geographic regions in
the second quarter of 2004. We expect that these improvements should allow
us to realize gross operating margin improvements of more than 200 basis
points in the second quarter of 2004, as compared to the second quarter
of 2003.
Changes in Accounting Policies
In December 2001, the CICA issued an accounting guideline relating to
hedging relationships. The guideline establishes requirements for the identification,
documentation, designation and effectiveness of hedging relationships and
was effective for fiscal years beginning on or after July 1, 2003. Effective
January 1, 2004, we ceased designating our US dollar forward contracts
as hedges of our US dollar revenues. These contracts were entered into
during 2002, and all of these contracts will mature during 2004. The foreign
exchange gains on these contracts of $14.6 million, which were deferred
prior to January 1, 2004, will be recognized throughout 2004 as an increase
of fee revenues. Effective January 1, 2004, our US dollar forward contracts
are being marked-to-market on a monthly basis with the resulting changes
in fair values being recorded as a foreign exchange gain or loss. The impact
of ceasing to designate our US dollar forward contracts as hedges of our
US dollar revenues was to decrease net earnings by $171,000 for the three
months ended March 31, 2004 and to increase receivables by $10.7 million
and accounts payable and accrued liabilities by $11 million as at March
31, 2004.
Effective January 1, 2004, we also adopted the following accounting
standards, Accounting for Asset Retirement Obligations, Impairment of Long-Lived
Assets, Revenue Recognition and Revenue Arrangements with Multiple Deliverables,
all of which are more fully described in the MD&A for the year ended
December 31, 2003. The application of these accounting treatments did not
have an impact on our interim financial statements. See also note 1 to
the interim consolidated financial statements.
Critical Accounting Estimates
Under Canadian GAAP, we are required to make estimates when we account
for and report assets, liabilities, revenues and expenses, and contingencies.
We are also required to evaluate the estimates that we use.
We base our estimates on past experience and other factors that we believe
are reasonable under the circumstances. Because this process of estimation
involves varying degrees of judgment and uncertainty, the amounts currently
reported in the financial statements could, in the future, prove to be
inaccurate.
We believe the following critical accounting estimates are the more
significant judgments and estimates used in the preparation of our consolidated
financial statements.
Recoverability of Investments
Estimates are required to be used by management to assess the recoverability
of our investments in long-term receivables, hotel partnerships and corporations,
management contracts, and trademarks and trade names.
Long-term receivables are reviewed for impairment when significant events
or circumstances including, but not limited to, the following occur: changes
in general economic trends, defaults in interest or principal payments,
deterioration in a borrower's financial condition or creditworthiness (including
severe losses in the current year or recent years), or a significant decline
in the value of the security underlying a loan. We measure the impairment
of long-term receivables based on the present value of expected future
cash flows (discounted at the original effective interest rate) or the
estimated fair value of the collateral. If an impairment exists, we establish
a specific allowance for doubtful long-term receivables for the difference
between the recorded investment and the present value of the expected future
cash flows or the estimated fair value of the collateral. We apply this
impairment policy individually to all long-term receivables and do not
aggregate long-term receivables for the purpose of applying this policy.
For investments in hotel partnerships and corporations, we determine
if there is an impairment in value by reviewing periodic independent valuations
and the undiscounted cash flows of the related property. In the event of
a decline in value of the investment that is other than temporary, the
investment is written down to its estimated recoverable amount.
Investments in management contracts and investments in trademarks and
trade names are evaluated on at least an annual basis to determine whether
the net book value will be recovered from future operations. We base these
evaluations upon the projected future net fee stream related to the respective
property on an undiscounted basis. If the undiscounted cash flows are insufficient
to recover the remaining net book value, then the undiscounted cash flows
are used as the revised carrying value, and a write-down for the difference
is recorded.
Estimates of recoverable amounts and future cash flows are based on
estimates of the profitability of the related managed properties, which,
in turn, depend upon assumptions regarding future conditions in the general
or local hospitality industry, including competition from other hotels,
changes in travel patterns, and other factors that affect the properties'
gross operating revenue and profits. Estimates of recoverable amounts and
future cash flows may also depend upon, among other things, periodic independent
valuations, assumptions regarding local real estate market conditions,
property and income taxes, interest rates and the availability, cost and
terms of financing, the impact of present or future legislation or regulation,
debt incurred by the properties that rank ahead of us, owners' termination
rights under the terms of the management agreements, disputes with owners,
and other factors affecting the profitability and saleability of the properties
and our investments.
These assumptions, estimates and evaluations are subject to the availability
of reliable comparable data, ongoing geopolitical concerns and the uncertainty
of predictions concerning future events. Accordingly, estimates of recoverable
amounts and future cash flows are subjective and may not ultimately be
achieved. Should the underlying circumstances change, the estimated recoverable
amounts and future cash flows could change by a material amount.
Income Taxes
We account for income taxes using the liability method and calculate
our income tax provision based on the expected tax treatment of transactions
recorded in our consolidated financial statements. Under this method, future
tax assets and liabilities are recognized based on differences between
the bases of assets and liabilities used for financial statement and income
tax purposes, using substantively enacted tax rates. In determining the
current and future components of the tax provision, management interprets
tax legislation in a variety of jurisdictions and makes assumptions about
the expected timing of the reversal of future tax assets and liabilities.
If our interpretations differ from those of the tax authorities, enacted
tax rates change or the timing of reversals is not as anticipated, the
tax provision could materially increase or decrease in future periods.
In measuring the amount of future income tax assets and liabilities
we are periodically required to develop estimates of the tax basis of assets
and liabilities. In circumstances where the applicable tax laws and regulations
are either unclear or subject to ongoing varying interpretations, changes
in these estimates could occur that could materially affect the amounts
of future income tax assets and liabilities recorded in our consolidated
financial statements. For the year ended December 31, 2003, the most significant
tax bases estimate that would be affected by differences in interpretation
of tax laws was the accumulated net operating losses carried forward of
$30.6 million.
For every material future tax asset, we evaluate the likelihood of whether
some portion or all of the asset will not be realized. This evaluation
is based on, among other things, expected levels of future taxable income
and the pattern and timing of reversals of temporary timing differences
that give rise to future tax assets and liabilities. If, based on the weight
of available evidence, we determine that it is more likely than not (a
likelihood of more than 50%) that all or some portion of a future tax asset
will not be realized, we record a valuation allowance against that asset.
For the year ended December 31, 2003, the future income tax asset was $13.2
million, net of a valuation allowance of $3.0 million.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands of dollars
Three months ended
except per share amounts)
March 31,
2004
2003
(restated - note 1(a))
Consolidated revenues (note 5)
$ 73,679 $
68,881
MANAGEMENT OPERATIONS
Revenues:
Fee revenues
$ 33,377 $
29,305
Reimbursed costs (note
1(c))
14,486 14,792
47,863 44,097
Expenses:
General and administrative
expenses
(10,856) (9,736)
Reimbursed costs (note
1(c))
(14,486) (14,792)
(25,342) (24,528)
22,521 19,569
OWNERSHIP AND CORPORATE OPERATIONS
Revenues
26,795 25,778 Expenses:
Cost of sales and expenses
(35,390) (37,802)
Fees to Management Operations
(1,129) (1,174)
(9,724) (13,198)
Earnings before other operating items
12,797 6,371
Depreciation and amortization
(3,625) (3,710)
Other income (expense), net (note
6)
4,321 (12,908)
Earnings (loss) from operations
13,493 (10,247)
Interest income, net
1,148
683
Earnings (loss) before income taxes
14,641 (9,564)
Income tax recovery (expense):
Current
(2,788) 2,374
Future
(379) (2,098)
(3,167)
276
Net earnings (loss)
$ 11,474 $
(9,288)
Basic earnings (loss) per share
(note 4)
$ 0.33 $
(0.27)
----------------------------
----------------------------
Diluted earnings (loss) per share
(note 4)
$ 0.31 $
(0.27)
----------------------------
----------------------------
See accompanying notes to consolidated
financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED BALANCE SHEETS
As at As at
March 31, December 31,
(In thousands of dollars)
2004
2003
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$ 174,269 $ 170,725
Receivables (note 1(b))
109,278 88,636
Inventory
2,072 2,169
Prepaid expenses
6,236 3,780
291,855 265,310
Long-term receivables
201,632 197,635
Investments in hotel partnerships
and
corporations
159,104 157,638
Fixed assets
78,778 75,789
Investment in management contracts
204,078 203,670
Investment in trademarks and trade
names
5,716 5,757
Future income tax assets
12,851 13,230
Other assets
27,508 27,631
$ 981,522 $ 946,660
----------------------------
----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities (note
1(b))
$ 73,703 $
61,045
Long-term obligations
due within
one year
2,612 2,587
76,315 63,632
Long-term obligations (notes 2 and
3) 121,592
117,521
Shareholders' equity (note 4):
Capital stock
333,306 329,274
Convertible notes (note
3)
178,543 178,543
Contributed surplus
5,942 5,529
Retained earnings
277,228 265,754
Equity adjustment from
foreign
currency translation
(11,404) (13,593)
783,615 765,507
$ 981,522 $ 946,660
----------------------------
----------------------------
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)
2004
2003
Cash provided by (used in) operations:
MANAGEMENT OPERATIONS
Earnings before other operating items
$ 22,521 $
19,569
Items not requiring an outlay of
funds
514
409
Working capital provided by
Management
Operations
23,035 19,978
OWNERSHIP AND CORPORATE OPERATIONS
Loss before other operating items
(9,724) (13,198)
Items not requiring an outlay of funds
218
9
Working capital used in
Ownership and Corporate Operations
(9,506) (13,189)
13,529 6,789
Interest received, net
3,732 3,896
Change in non-cash working capital
(11,547) 12,743
Other
(805) (1,610)
Cash provided by operations
$ 4,909 $
21,818
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)
2004
2003
Cash provided by (used in):
Operations:
$ 4,909 $
21,818
----------------------------
Financing:
Long-term obligations
including current
portion
116
42
Issuance of shares
4,032
131
Dividends paid
(1,833) (1,809)
Cash provided by (used in) financing
2,315 (1,636)
Capital investments:
Long-term receivables
876 (5,806)
Hotel investments
(1,278) (8,368)
Purchase of fixed assets
(4,359) (3,881)
Investments in trademarks,
trade
names and management
contracts
(367) (216)
Other assets
(1,109) (2,601)
Cash used in capital investments
(6,237) (20,872)
Increase (decrease) in cash and cash
equivalents
987 (690)
Increase (decrease) in cash due to unrealized foreign exchange gain (loss)
2,557 (10,146)
Cash and cash equivalents, beginning
of
period
170,725 165,036
----------------------------
Cash and cash equivalents, end of period
$ 174,269 $ 154,200
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)
2004
2003
Retained earnings, beginning of period
$ 265,754 $ 264,016
Net earnings (loss)
11,474 (9,288)
Retained earnings, end of period
$ 277,228 $ 254,728
See accompanying notes to consolidated
financial statements.
FOUR SEASONS HOTELS INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
(In thousands of dollars except share
amounts)
In these interim consolidated financial
statements, the words "we", "us", "our", and other similar words are references
to Four Seasons Hotels Inc. and its consolidated subsidiaries. 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 our annual
consolidated financial statements for the year ended December 31, 2003.
1. Significant accounting policies:
The significant accounting policies
used in preparing these interim consolidated financial statements are consistent
with those used in preparing our annual consolidated financial statements
for the year ended December 31, 2003, except as disclosed below:
(a) Stock-based compensation and other
stock-based payments:
In December 2003, the Canadian Institute
of Chartered Accountants ("CICA") amended Section 3870 to require entities
to account for employee stock options using the fair value-based method,
beginning January 1, 2004. In accordance with one of the transitional alternatives
permitted under amended Section 3870, we prospectively adopted in December
2003 the fair value-based method with respect to all employee stock options
granted on or after January 1, 2003. Accordingly, options granted
prior to that date continue to be accounted for using the settlement method.
The prospective application of adopting the fair value-based method effective
January 1, 2003 has been applied retroactively in our consolidated financial
statements, and amounts for the three months ended March 31, 2003 have
been restated. The impact of this change for the three months ended March
31, 2004 was to decrease net earnings by $413 (2003 - $15) and to decrease
basic and diluted earnings per share by $0.01 (2003 - nil).
The fair value of stock options granted
in the three months ended March 31, 2004 has been estimated using a Black-Scholes
option pricing model with the following assumptions: risk-free interest
rates ranging from 2.96% to 3.81% (2003 - 4.80% to 5.02%); semi-annual
dividend per Limited Voting Share of $0.055 (2003 - $0.055); volatility
factor of the expected market price of our Limited Voting Shares of 30%
(2003 - 32%); and expected lives of the options in 2004 and 2003 ranging
between four and seven years, depending on the level of the employee who
was granted stock options. For the options granted in the three months
ended March 31, 2004, the weighted average fair value of the options at
the grant dates was $27.00 (2003 - $15.96). For purposes of stock option
expense and pro forma disclosures, the estimated fair value of the options
is amortized to compensation expense over the options' vesting period.
Section 3870 requires pro forma disclosure
of the effect of the application of the fair value-based method to employee
stock options granted on or after January 1, 2002 and not accounted for
using the fair value-based method. For the three months ended March 31,
2004 and 2003, if we had applied the fair value-based method to options
granted from January 1, 2002 to December 31, 2002, our net earnings (loss)
and basic and diluted earnings (loss) per share would have been adjusted
to the pro forma amounts indicated below:
(Unaudited)
Three months ended
(In thousands of dollars
March 31,
except per share amounts)
2004
2003
Stock option expense included in compensation
expense
$ (413) $
(15)
Net earnings (loss), as reported
$ 11,474 $
(9,288)
Additional expense that would have
been
recorded if all outstanding
stock options
granted during 2002 had been
expensed
(859) (862)
Pro forma net earnings (loss)
$ 10,615 $ (10,150)
Earnings (loss) per share:
Basic, as reported
$ 0.33 $
(0.27)
Basic, pro forma
0.30 (0.29)
Diluted, as reported
0.31 (0.27)
Diluted, pro forma
0.29 (0.29)
(b) Hedging relationships:
In December 2001, the CICA issued an
accounting guideline relating to hedging relationships. The guideline establishes
requirements for the identification, documentation, designation and effectiveness
of hedging relationships and was effective for fiscal years beginning on
or after July 1, 2003. Effective January 1, 2004, we ceased designating
our US dollar forward contracts as hedges of our US dollar revenues. These
contracts were entered into during 2002, and all of these contracts will
mature during 2004. The foreign exchange gains on these contracts of $14,552,
which were deferred prior to January 1, 2004, will be recognized in 2004
as an increase of fee revenues over the course of the year.
Effective January 1, 2004, our US
dollar forward contracts are being marked-to-market on a monthly basis
with the resulting changes in fair values being recorded as a foreign exchange
gain or loss. The impact of ceasing to designate our US dollar forward
contracts as hedges of our US dollar revenues was to decrease net earnings
by $171 for the three months ended March 31, 2004 and to increase receivables
by $10,731 and accounts payable and accrued liabilities by $10,967 as at
March 31, 2004.
(c) Reimbursed costs:
As a result of adopting Section 1100,
"Generally Accepted Accounting Principles", which was issued by the CICA
in July 2003, and was effective January 1, 2004, we have included the reimbursement
of all out-of-pocket expenses in both revenues and expenses instead of
recording certain reimbursed costs as a "net" amount. The change in the
accounting treatment of reimbursed costs resulted in an increase of both
revenues and expenses for the three months ended March 31, 2004 of $7,174
(2003 - $7,867), but did not have an impact on net earnings. In addition,
for the three months ended March 31, 2003, fee revenues and general and
administrative expenses included certain other reimbursed costs of $6,925.
These have been reclassified to reimbursed costs in both revenues and expenses
to conform with the financial statement presentation adopted in 2004.
(d) Impairment of long-lived assets:
In December 2002, the CICA issued Section
3063, "Impairment of Long-Lived Assets". This new section establishes standards
for the recognition, measurement and disclosure of the impairment of long-lived
assets, and replaces the write-down provisions of Section 3061, "Property,
Plant and Equipment". In accordance with Section 3063, long-lived assets,
such as property, plant and equipment and purchased intangibles subject
to amortization, are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to estimated undiscounted
future cash flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment
charge is recognized equal to the amount by which the carrying amount of
the asset exceeds the fair value of the asset. The implementation of Section
3063, effective January 1, 2004, did not have an impact on our consolidated
financial statements for the three months ended March 31, 2004.
(e) Accounting for asset retirement
obligations:
In March 2003, the CICA issued Section
3110, "Accounting for Asset Retirement Obligations". Section 3110 requires
companies to record the fair value of an asset retirement obligation as
a liability in the year in which they incur a legal obligation associated
with the retirement of tangible long-lived assets that result from the
acquisition, construction, development and/or normal use of the assets.
Companies are also required to record a corresponding asset that is depreciated
over the life of the asset. Subsequent to the initial measurement of the
asset retirement obligation, the obligation will be adjusted at the end
of each period to reflect the passage of time and changes in the estimated
future cash flows underlying the obligation. The implementation of Section
3110, effective January 1, 2004, did not have an impact on our consolidated
financial statements for the three months ended March 31, 2004.
(f) Revenue recognition:
In December 2003, the Emerging Issues
Committee ("EIC") of the CICA issued Abstract EIC-141, "Revenue Recognition",
which provides revenue recognition guidance. The implementation of EIC-141,
effective January 1, 2004, did not have an impact on our consolidated financial
statements for the three months ended March 31, 2004.
(g) Revenue arrangements with
multiple deliverables:
In December 2003, the EIC issued Abstract
EIC-142, "Revenue Arrangements with Multiple Deliverables", which addresses
accounting for arrangements, entered into after December 31, 2003, where
an enterprise will perform multiple revenue generating activities. The
implementation of EIC-142 did not have an impact on our consolidated financial
statements for the three months ended March 31, 2004.
2. Bank credit facilities:
We have committed bank credit facilities
of US$212,500, which expire in July 2004. No amounts have been borrowed
under these facilities to date; however, approximately US$28,000 in letters
of credit were issued under these facilities as at March 31, 2004. No amounts
have been drawn under these letters of credit.
3. Convertible notes:
During 1999, we issued US$655,519 principal
amount at maturity (September 23, 2029) of convertible notes for gross
proceeds of US$172,500. The net proceeds of the issuance, after deducting
offering expenses and underwriters' commission, were US$166,000. As at
March 31, 2004, our consolidated balance sheet includes $91,265 (US$69,641)
of convertible notes in long-term obligations and $178,543 of convertible
notes in shareholders' equity. We are entitled to redeem the convertible
notes commencing in September 2004 for cash equal to the issue price plus
accrued interest calculated at 4 1/2% per annum. Holders of the notes have
conversion rights, which they can exercise at any time before the maturity
date or date of redemption of the notes, pursuant to which they can require
us to issue to them 5.284 Limited Voting Shares for each one thousand US
dollar principal amount of notes. The holders of notes also can require
us to repurchase the notes in September 2004 for an amount equal to the
issue price plus accrued interest calculated at 4 1/2% per annum. This
right is also available in September 2009 and September 2014. We
have a choice of settling our obligation, in connection with the conversion
or purchase of the notes at the option of the holder, with cash or Limited
Voting Shares.
As described above, we may redeem
all or a portion of the notes at any time on or after September 23, 2004
for cash at the issue price plus accrued interest (calculated at 4 1/2%
per annum) to the date of purchase. It is possible that we may redeem some
or all of the notes, especially if current interest rates continue. A cash
redemption in September 2004 of all outstanding notes would require a cash
payment to the note holders of approximately US$215,500, assuming that
the holders did not exercise their right to convert their notes before
the redemption date. If we redeem the notes, we may replace the financing
provided by the notes with a combination of debt (which could be raised
by various means, including bank lines and/or the issuance of additional
notes or convertible notes) and/or the utilization of cash and cash equivalents.
We filed a shelf registration statement and prospectus during the first
quarter that would accommodate a public offering of various debt instruments
(including convertible debt) in a principal amount of up to US$250,000.
4. Shareholders' equity:
As at March 31, 2004, we have outstanding
Variable Multiple Voting Shares ("VMVS") of 3,832,172, outstanding Limited
Voting Shares ("LVS") of 31,611,338 and outstanding stock options of 5,635,379
(weighted average exercise price of $54.93).
A reconciliation of the net earnings
(loss) and weighted average number of VMVS and LVS used to calculate basic
earnings (loss) per share and diluted earnings (loss) per share is as follows:
Three months ended
(Unaudited)
March 31,
(In thousands of dollars)
2004
2003
Net earnings Shares Net loss
Shares
Basic earnings (loss)
per share:
Net earnings (loss)
and number of shares
$ 11,474 35,289,622 $ (9,288) 34,882,670
Effect of assumed dilutive conversions:
Stock option plan
- 1,435,122
- -
Diluted earnings (loss)
per share:
Net earnings (loss)
and number of shares
$ 11,474 36,724,744 $ (9,288) 34,882,670
The diluted earnings (loss) per share
calculation excluded the effect of the assumed conversions of 1,407,796
stock options to LVS, under our stock option plan, during the three months
ended March 31, 2004 (2003 - 5,864,037 stock options), as the inclusion
of these conversions resulted in an anti- dilutive effect. In addition,
the dilution relating to the conversion of our convertible notes to 3,463,155
LVS, by application of the "if-converted method", has been excluded from
the calculation as the inclusion of this conversion resulted in an anti-dilutive
effect for the three months ended March 31, 2004 and 2003.
5. Consolidated revenues:
Consolidated revenues for Four Seasons
Hotels Inc. comprise revenues from Management Operations, revenues from
Ownership and Corporate Operations and distributions from hotel investments,
less fees from Ownership and Corporate Operations to Management Operations.
6. Other income (expense), net:
Included in other income (expense),
net for the three months ended March 31, 2004 is a net foreign exchange
gain of $4,630 (2003 - net foreign exchange loss of $8,267) related to
the foreign currency translation gains and losses on unhedged net monetary
asset and liability positions, primarily in US dollars, euros, pounds sterling
and Australian dollars, and foreign exchange gains and losses incurred
by our foreign self-sustaining subsidiaries.
Also included in other income (expense),
net for the three months ended March 31, 2004 are legal and enforcement
costs of $217 (2003 - $4,611) in connection with the disputes with the
owners of the Four Seasons hotels in Caracas and Seattle.
7. Seasonality:
Our hotels and resorts are affected
by normally recurring seasonal patterns and, for most of the properties,
demand is usually lower in the period from December through March compared
to the remainder of the year. Typically, the first quarter is the
weakest quarter and the fourth quarter is the strongest quarter for the
majority of the properties.
Our ownership operations are particularly
affected by seasonal fluctuations, with lower revenue, higher operating
losses and lower 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 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 our resorts in the period.
FOUR SEASONS HOTELS INC.
SUMMARY OF HOTEL OPERATING DATA -
CORE HOTELS(1)
Three months ended
March 31,
(Unaudited)
2004 2003
Variance
Worldwide
No. of Properties
51 51
-
No. of Rooms
13,460 13,460
-
Occupancy(2)
64.9% 60.4%
4.5%
ADR(3) - in US dollars
$ 314 $
295 6.3%
RevPAR(4) - in US dollars
$ 203 $
178 14.1%
Gross operating margin(5)
28.0% 24.7%
3.3%
United States
No. of Properties
21 21
-
No. of Rooms
6,587 6,587
-
Occupancy(2)
68.0% 65.0%
3.0%
ADR(3) - in US dollars
$ 346 $
333 3.9%
RevPAR(4) - in US dollars
$ 235 $
216 8.6%
Gross operating margin(5)
24.1% 23.0%
1.1%
Other Americas/Caribbean
No. of Properties
7 7
-
No. of Rooms
1,534 1,534
-
Occupancy(2)
59.7% 53.8%
5.9%
ADR(3) - in US dollars
$ 344 $
318 8.4%
RevPAR(4) - in US dollars
$ 206 $
171 20.3%
Gross operating margin(5)
36.2% 31.0%
5.2%
Europe/Middle East
No. of Properties
11 11
-
No. of Rooms
2,133 2,133
-
Occupancy(2)
61.1% 47.2%
13.9%
ADR(3) - in US dollars
$ 373 $
371 0.6%
RevPAR(4) - in US dollars
$ 228 $
175 30.2%
Gross operating margin(5)
30.9% 22.2%
8.7%
Asia/Pacific
No. of Properties
12 12
-
No. of Rooms
3,206 3,206
-
Occupancy(2)
63.7% 62.9%
0.8%
ADR(3) - in US dollars
$ 190 $
168 13.2%
RevPAR(4) - in US dollars
$ 121 $
106 14.5%
Gross operating margin(5)
32.9% 28.8%
4.1%
1. The term "Core Hotels" means
hotels and resorts under management for the full year of both 2004 and
2003. However, if a "Core Hotel" has undergone or is undergoing an extensive
renovation program in one of those years that materially affects the operation
of the property in that year, it ceases to be included as a "Core Hotel"
in either year. Changes from the 2003/2002 Core Hotels are the additions
of Four Seasons Hotel Amman, Four Seasons Resort Sharm el Sheikh, Four
Seasons Hotel Shanghai and Four Seasons Hotel Tokyo at Marunouchi and the
deletion of Four Seasons Biltmore Resort (Santa Barbara), which is undergoing
an extensive renovation program in 2004.
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. We report 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)
2004 2003
Variance
Worldwide
No. of Properties
62 58
4
No. of Rooms
15,994 15,648
346
United States
No. of Properties
24 23
1
No. of Rooms
7,145 7,250
(105)
Other Americas/Caribbean
No. of Properties
10 8
2
No. of Rooms
2,082 1,746
336
Europe/Middle East
No. of Properties
14 13
1
No. of Rooms
2,658 2,543
115
Asia/Pacific
No. of Properties
14 14
-
No. of Rooms
4,109 4,109
-
FOUR SEASONS HOTELS INC.
REVENUES UNDER MANAGEMENT - ALL MANAGED
HOTELS
Three months ended
(Unaudited)
March 31,
(In thousands of dollars)
2004 2003
Revenues under management(1)
$ 698,711 $ 659,248
1. Revenues under management
consist of rooms, food and beverage, telephone and other revenues of all
the hotels and resorts which we manage. Approximately 67% of the fee revenues
(excluding reimbursed costs) we earned were calculated as a percentage
of the total revenues under management of all hotels and resorts.
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 of Rooms
Scheduled 2004/2005 Openings
Four Seasons Hotel Beijing, China
325
Four Seasons Hotel Gresham Palace
Budapest, Hungary
175
Four Seasons Hotel Cairo at Nile Plaza,
Egypt(x)
375
Four Seasons Hotel Damascus, Syria
300
Four Seasons Hotel Doha, Qatar
235
Four Seasons Hotel Geneva, Switzerland
100
Four Seasons Hotel Hampshire, England
135
Four Seasons Hotel Hong Kong, Hong
Kong(x)
390
Four Seasons Resort Lanai at Koele,
HI, USA
100
Four Seasons Resort Lanai at Manele
Bay, HI, USA
250
Four Seasons Resort Langkawi, Malaysia
90
Four Seasons Hotel Palo Alto, CA,
USA
200
Four Seasons Resort Whistler, B.C.,
Canada
240
Four Seasons Private Residences Whistler,
B.C., Canada
35
Beyond 2005
Four Seasons Hotel Alexandria, Egypt(x)
120
Four Seasons Hotel Baltimore, MD,
USA(x)
200
Four Seasons Hotel Beirut, Lebanon
230
Four Seasons Resort Bora Bora, French
Polynesia
100
Four Seasons Hotel Florence, Italy
115
Four Seasons Hotel Istanbul at the
Bosphorus, Turkey
170
Four Seasons Hotel Kuwait City, Kuwait
225
Four Seasons Hotel Mumbai, India
200
Four Seasons Resort Puerto Rico, Puerto
Rico(x)
250
Four Seasons Residence Club Punta
Mita, Mexico
35
(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 our 2003 Annual Report.
2. We have made an investment
in Orlando, which we expect to include a Four Seasons Residence Club and/or
a Four Seasons branded residential component. The financing for this project
has not yet been completed and therefore a scheduled opening date cannot
be established at this time. We have also made an investment in Sedona
at Seven Canyons in Arizona in connection with a potential Residence Club.
The developer is working on a plan to finalize that project, however, there
is no certainty that it will come to fruition as a Four Seasons property
or the potential impact of those plans on Four Seasons' investment.
Additional Information
Additional information about us (including our most recent
annual information form and our MD&A for the year ended December 31,
2003) is available on SEDAR at http://www.sedar.com.
1. Adjusted net earnings is equal
to net earnings (loss) plus (i) foreign exchange loss, less (ii) foreign
exchange gain, plus (iii) asset impairment charge, each tax-effected as
applicable. Adjusted net earnings, as we calculate it, may not be comparable
to adjusted net earnings used by other companies, which may be calculated
differently. In addition, adjusted net earnings is not intended to represent
net earnings as defined by Canadian GAAP and should not be considered an
alternative to net earnings or any other measure of performance prescribed
by Canadian GAAP. It is included because we believe it can assist in the
period-over-period comparability of our financial performance.
A reconciliation of net earnings (the nearest GAAP measure
to adjusted net earnings) to adjusted net earnings is as follows:
Three months ended
(Unaudited)
March 31,
(In thousands
of dollars)
2004 2003
Net earnings
(loss)
$ 11,474 $ (9,288)
Adjustments:
Foreign exchange loss (gain)
(4,630) 8,267
Net asset impairment charge(x)
309 4,641
Tax effect
of adjustments
591 (1,114)
Adjusted net
earnings
$ 7,744 $ 2,506
Adjusted basic
earnings per share
$ 0.22 $
0.07
Adjusted diluted
earnings per share $
0.21 $ 0.07
(x) Includes
legal and enforcement costs.
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 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. RevPAR is the most commonly used
measure in the lodging industry to measure the period-over-period performance
of comparable properties.
3. The term "Core Hotels" means
hotels and resorts under management for the full year of both 2004 and
2003. However, if a "Core Hotel" has undergone or is undergoing an extensive
renovation program in one of those years that materially affects the operation
of the property in that year, it ceases to be included as a "Core Hotel"
in either year. Changes from the 2003/2002 Core Hotels are the additions
of Four Seasons Hotel Amman, Four Seasons Resort Sharm el Sheikh, Four
Seasons Hotel Shanghai and Four Seasons Hotel Tokyo at Marunouchi and the
deletion of Four Seasons Biltmore Resort (Santa Barbara), which is undergoing
an extensive renovation program in 2004.
4. Gross operating margin represents
gross operating profit as a percentage of gross operating revenue.
5. Eight Quarter Summary:
(In millions of
dollars except per
share amounts)
1st Quarter 4th Quarter 3rd Quarter
2nd Quarter
2004 2003(a)2003(a) 2002 2003(a) 2002 2003(a) 2002
Consolidated
revenues(b)
$73.7 $68.9 $86.0 $88.4 $70.3 $71.6
$78.2 $89.8
Earnings (loss)
before other
operating items:
Management
operations
22.5 19.6 20.7 21.6 18.8
15.5 20.5 24.0
Ownership and
corporate operations
(9.7) (13.2) (2.0) (4.6) (9.4) (6.6) (5.5)
(0.2)
Net earnings
(loss):
Total
$11.5 $(9.3) $11.7 $ 7.6 $ 4.4 $(12.3) $(1.4) $18.1
Basic earnings
(loss) per
share(c)
$0.33 $(0.27) $0.33 $0.22 $0.13 $(0.35)$(0.04) $0.52
Diluted earnings
(loss) per
share(c)
$0.31 $(0.27) $0.32 $0.22 $0.12 $(0.35)$(0.04) $0.48
(a) In December 2003, the CICA amended
Section 3870 of its Handbook to require entities to account for employee
stock options using the fair value-based method, beginning January 1, 2004.
In accordance with one of the transitional alternatives permitted under
amended Section 3870, in the fourth quarter of 2003 we prospectively adopted
the fair value-based method with respect to all employee stock options
granted on or after January 1, 2003. Accordingly, options granted prior
to that date continue to be accounted for using the settlement method,
and results for each of the quarters in 2002 have not been restated.
In accordance with the new standard, however, the reported results for
the first three quarters of 2003 are required to be restated. The prospective
application of adopting the fair value-based method effective January 1,
2003 resulted in the following restatements: 1st Quarter 2003 - no effect
on net loss or basic and diluted loss per share; 2nd Quarter 2003 - increase
in net loss of $0.1 million and no effect on basic and diluted loss per
share; 3rd Quarter and 4th Quarter 2003 - in each quarter, a decrease in
net earnings of $0.4 million and a decrease in basic and diluted earnings
per share of $0.01 for each quarter.
(b) As a result of adopting Section
1100, "Generally Accepted Accounting Principles", which was issued by the
CICA in July 2003, and was effective January 1, 2004, we have included
the reimbursement of all out-of-pocket expenses in both revenues and expenses
instead of recording certain reimbursed costs as a "net" amount. As a result
of this change, consolidated revenues have been restated as follows:
1st Quarter
2003 - increase of $7.9 million; 2nd Quarter 2003 - increase of $8.4 million;
3rd Quarter 2003 - increase of $8.0 million; 4th Quarter 2003 - increase
of $10.8 million; 2nd Quarter 2002 - increase of $8.8 million; 3rd Quarter
2002 - increase of $9.4 million; 4th Quarter 2002 - increase of $11.5 million.
(c) Quarterly computations of per
share amounts are made independently on a quarter-by-quarter basis and
may not be identical to annual computations of per share amounts.
6. The following table illustrates
the impact of adopting the new accounting standard (CICA Section 1100 -
"Generally Accepted Accounting Principles", as it relates to the reimbursement
of out-of-pocket costs) on a pro forma basis in the quarters for 2003 as
if the new standard was applicable during that time.
2003
First Second Third
Fourth
(In thousands
of dollars) Quarter Quarter
Quarter Quarter
Revenues:
Fee revenues
$ 29,305 $ 29,351 $ 28,822 $ 33,052
Cost reimbursements
previously included
in fee revenues(x) 6,925
7,381 7,395
7,525
Additional cost
reimbursements
7,867 8,381
7,990 10,804
Total revenues
44,097 45,113 44,207
51,381
Operating
costs and
expenses:
General and
administrative expenses 9,736
8,901 9,980 12,391
Reimbursed costs
14,792 15,762 15,385
18,329
Total expenses
24,528 24,663 25,365
30,720
Total earnings
from
Management
operations
before
other operating
items
$ 19,569 $ 20,450 $ 18,842 $ 20,661
(x) Sales and
marketing fees were included in both fee revenues and
general and administrative expenses in 2003 and earlier years.
7. The management operations
profit margin represents management operations earnings before other operating
items, as a percent of management operations revenue.
8. Included in ownership and
corporate operations are the consolidated revenues and expenses from our
100% leasehold interests in The Pierre in New York, Four Seasons Hotel
Vancouver and Four Seasons Hotel Berlin, distributions from other ownership
interests in properties that Four Seasons manages and corporate overhead
expenses related, in part, to these ownership interests.
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.
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This press release contains "forward-looking statements" within the meaning
of federal securities laws, including RevPAR, profit margin and earnings
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 results.
With a history spanning four decades and a portfolio that extends worldwide,
Four Seasons Hotels and Resorts is the world's leading operator of luxury
hotels, currently managing 62 properties in 29 countries.
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