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Four Seasons Hotels Inc. reports first quarter 2005 results
TORONTO, May 5 /PRNewswire-FirstCall/ -- Four Seasons Hotels Inc. (TSX Symbol
"FSH.SV"; NYSE Symbol "FS") today reported its results for the first quarter
ended March 31, 2005.
As previously announced, effective the first quarter of 2005, we have adopted
US dollars as our reporting currency. All amounts disclosed in this news
release (including amounts for prior periods) are in US dollars unless
otherwise noted.(1)
Highlights of the First Quarter of 2005
As described in greater detail in the accompanying Management's Discussion and
Analysis for the three months ended March 31, 2005, in each case as compared to
the same period in 2004:
- RevPAR(2) of worldwide Core Hotels(3) increased 13.8%.
- Gross operating margins(4) at worldwide Core Hotels and at our US
Core Hotels increased 210 basis points to 29.0% and 25.8%,
respectively.
- Revenues under management increased 13.5%.
- Management fee revenues (excluding reimbursed costs(5) and the impact
of forward exchange contracts(6))(7) increased 28.4%, including
incentive fees which increased 33.2%.
- Earnings before other operating items(8) increased 28.4%, and by
78.4%, excluding the impact of the forward exchange contracts.
Additionally, during the quarter we sold approximately 80% of our equity
interest in Four Seasons Residence Club Scottsdale at Troon North.
Subsequent to the end of the first quarter, we sold approximately 53% of our
interest in Four Seasons Hotel Shanghai. We also entered into a currency and
interest rate swap of our convertible senior notes in order to reduce our net
interest costs over the near-term.
"We are very pleased with the operating results in the first quarter, which
reflect continued strong travel demand at the majority of the properties under
our management. While we have had six consecutive quarters of RevPAR growth in
our worldwide Core Hotels, the increase in our incentive fees during this
quarter is evidence that the revenue increases are translating into greater
profitability, with gross operating margins up 210 basis points in the first
quarter," commented Isadore Sharp, Chairman and Chief Executive Officer. "Also
during the quarter, we opened Four Seasons Hotel Hampshire in England and Four
Seasons Resort Langkawi in Malaysia, and more recently, Four Seasons Hotel
Doha. During the remainder of this year, we expect to open six more new Four
Seasons properties. There continues to be strong interest on the part of our
financial partners to develop and own Four Seasons properties, which gives us
tremendous confidence in the value of the Four Seasons brand and our ability to
translate it into long-term shareholder value."
"Excluding the effects of reimbursed costs and the impact of the forward
exchange contracts that were in place in 2004, our financial results for the
quarter were very strong, with management fee revenue growth of 28.4%, and our
earnings before other operating items increasing 78%, as compared to the first
quarter last year," said Douglas L. Ludwig, Chief Financial Officer and
Executive Vice President. "In order to reduce the impact of US dollar
fluctuations relative to the Canadian dollar on our reported financial results,
effective this quarter, we have changed our reporting currency to US dollars.
We believe US dollar-reported results will give a clearer indication of the
relative strength of our management operations as it will reduce the impact of
currency fluctuations on reported revenues from that business. From an economic
perspective, we monitor our cash inflows and outflows to ensure our true
economic exposure to currency fluctuations is carefully managed."
FIRST QUARTER OF 2005
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis ("MD&A") for the three months ended
March 31, 2005 is provided as of May 4, 2005. 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, 2004 and the audited consolidated financial
statements for that period. Except as disclosed in this MD&A, as of May 4,
2005, there has been no material change in the information disclosed in the
MD&A for the year ended December 31, 2004. 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 9.
Effective for the quarter ended March 31, 2005, we have adopted US dollars as
our reporting currency. We have not changed our functional currencies. All
amounts disclosed in this MD&A (including amounts for prior periods) are in US
dollars unless otherwise noted.
Operating Environment
---------------------
Seasonality
Four Seasons hotels and resorts are affected by normally recurring seasonal
patterns and demand is usually lower in the period from December through March
than during the remainder of the year for most of our urban properties.
However, December through March is typically a period of relatively strong
demand at our resorts.
As a result, our management operations are affected by seasonal patterns, both
in terms of revenues and operating results. Urban hotels generally experience
lower revenues and operating results in the first quarter. This negative impact
on management revenues from those properties is offset to some degree by
increased travel to our resorts in the period.
Our ownership operations are particularly affected by seasonal fluctuations,
with lower revenue, higher operating losses and lower cash flow in the first
quarter, as compared to the other quarters.
Hotel Operating Results
-------------------------------------------------------------------------
Three months ended March 31, 2005
increase over (decrease from)
three months ended March 31, 2004
(percentage change, on US dollar basis)
-------------------------------------------------------------------------
Gross Operating Gross Operating
Region RevPAR Revenue (GOR) Profit (GOP)
-------------------------------------------------------------------------
Worldwide Core Hotels 13.8% 11.4% 20.2%
-------------------------------------------------------------------------
US Core Hotels 12.8% 10.1% 20.0%
-------------------------------------------------------------------------
Other Americas/Caribbean
Core Hotels 19.2% 15.3% 25.3%
-------------------------------------------------------------------------
Europe Core Hotels 5.3% 6.9% 2.9%
-------------------------------------------------------------------------
Middle East Core Hotels 25.6% 32.6% 59.1%
-------------------------------------------------------------------------
Asia/Pacific Core Hotels 18.7% 12.0% 17.8%
-------------------------------------------------------------------------
Underlying these operating results:
- RevPAR for worldwide Core Hotels increased 13.8% in the first quarter
of 2005, as compared to the same period in 2004, reflecting
improvements in demand and achieved room rates in most markets.
Revenue improvements and cost management efforts at the properties
under management resulted in the significant increases in gross
operating profits (an increase of 20.2% as compared to the first
quarter of 2004) and gross operating margins (an increase of 210
basis points as compared to the first quarter of 2004), despite
continued pressure on profitability due to higher costs relating
primarily to labour (including health care, benefits and worker's
compensation) and energy.
- During the quarter, group meetings and travel demand improved in the
majority of the markets relative to the same period last year.
Business and leisure demand remained strong during the quarter.
- Virtually all of the US Core Hotels under management realized RevPAR
improvements in the first quarter of 2005, as compared to the same
period in 2004, resulting in a 12.8% increase in RevPAR in that
region. The only exception was Houston, which saw stronger than usual
demand due to the Super Bowl in the first quarter of 2004 and a
subsequent general decline in occupancy levels in the city due to
lower demand levels and the opening of a large hotel in Houston
during 2004. Properties under management in Jackson Hole, Boston,
Miami, Palm Beach, New York, Aviara and Austin realized particularly
strong improvements in RevPAR and gross operating profits, relative
to the average for the region.
- The Other Americas/Caribbean Core Hotels experienced improved demand
and higher achieved room rates, with RevPAR improving 19.2% in the
first quarter of 2005, as compared to the first quarter of 2004. The
increases in RevPAR and gross operating profits were primarily
attributable to strong improvements at the properties in the region,
including Buenos Aires, Carmelo, Exuma and Nevis. The hotels under
management in Canada had more modest RevPAR improvements relative to
the overall results for the region.
- For the first quarter of 2005, RevPAR increases in the Europe Core
Hotels reflected strong operating results at the hotels under
management in Istanbul and Prague relative to the other hotels in the
region. The hotels under management in Lisbon and Canary Wharf
experienced relatively large RevPAR and gross operating profit
declines in the quarter due to lower business and group demand and an
increase in supply in Canary Wharf. This resulted in a relatively
modest gross operating profit increase for the region. Overall demand
in Europe was less robust than in the other regions in which we
manage hotels, in part as a result of a strong Euro relative to the
US dollar.
- RevPAR improvements in the first quarter of 2005 at the Middle East
Core Hotels were primarily driven by a 15.7% increase in achieved
room rates, as compared to the same period in 2004. All of the hotels
in the region experienced improved demand, particularly the hotels
under management in Riyadh and Sharm el Sheikh. The 59.1% improvement
in gross operating profit was driven by a 32.6% increase in revenues,
as well as lower cost pressures relative to other regions.
- All of the Asia/Pacific Core Hotels had RevPAR improvements. The
properties under management in Jakarta, Bali, Chiang Mai, Singapore
and Shanghai had very strong RevPAR improvements as a result of gains
in both occupancy and achieved room rates. Most of the properties in
the region had increases in gross operating profit.
Financial Review and Analysis
-----------------------------
Three months ended March 31, 2005 compared to three months ended
----------------------------------------------------------------
March 31, 2004
--------------
Management Operations
Management fee revenues (excluding reimbursed costs and the $2.7 million impact
of forward exchange contracts) increased 28.4%, or $6.4 million, to $29 million
in the first quarter of 2005, as compared to $22.6 million in the first quarter
of 2004. This increase was the result of the improvement in revenues under
management stemming from RevPAR and other revenue increases at the worldwide
Core Hotels and an increase in fees from recently opened hotels. Management fee
revenues (including reimbursed costs and the impact of forward exchange
contracts) increased 15.7%, or $5.9 million, to $43.6 million in the first
quarter of 2005, as compared to $37.6 million in the first quarter of 2004.
Incentive fees increased 33.2% in the first quarter of 2005, as compared to the
same period in 2004, with 36 of the hotels and resorts under management
accruing incentive fees, as compared to 31 during the same period last year.
The increase in incentive fees was attributable to the improvement in gross
operating profit at the properties under management in each of the geographic
regions in which we operate. All five of our properties under management in the
Middle East accrued incentive fees during the first quarter of 2005, as
compared to three in the first quarter last year.
Several of the hotels and resorts under our management are and will be
undergoing significant renovations during this year. At the end of the first
quarter of 2005, the most significant portion of renovations at Four Seasons
Resort Scottsdale at Troon North, Four Seasons Hotel New York and Four Seasons
Hotel Newport Beach were completed. We expect the renovations at Four Seasons
hotels in Washington and Las Vegas and the resort in the Maldives to be
completed by the end of 2005. Significant renovation programs at other hotels
under management, including Boston, Santa Barbara, Philadelphia and The Regent
Beverly Wilshire are expected to be substantially completed in 2006. The impact
of the renovation programs on management fees in the first quarter of 2005 was
not material, in part as a result of seasonality, in that the first quarter at
many of the properties under renovation is a period of weaker demand relative
to the remainder of the year. Based on the scheduling and staging of these
renovations, we do not expect there to be a material effect on fee revenues on
the subsequent quarters of 2005.
General and administrative expenses (excluding reimbursed costs) increased
18.2% to $9.7 million in the first quarter of 2005, as compared to $8.2 million
for the same period in 2004. General and administrative expenses (including
reimbursed costs) increased 18.1% to $24.3 million in the first quarter of
2005, as compared to $20.6 million for the same period in 2004. The majority of
these costs are in Canadian dollars and, accordingly, a portion of this
increase is attributable to the US dollar having declined relative to the
Canadian dollar since the first quarter of 2004. On a Canadian dollar basis,
general and administrative expenses (excluding reimbursed costs) increased 10%
during the quarter, as compared to the same period last year. The increase in
these costs related primarily to an increase in the number of employees at our
corporate offices to handle the significant unit growth in our portfolio and to
cost of living increases for corporate employees that were implemented during
the first quarter of 2005.
As a result of the items described above, our management operations earnings
before other operating items (excluding reimbursed costs and the impact of
forward exchange contracts) for the first quarter of 2005 increased 34.3% to
$19.3 million, as compared to $14.4 million in the first quarter of 2004. Our
management operations profit margin(10) (excluding reimbursed costs and the
impact of forward exchange contracts) was 66.5% in the first quarter of 2005,
as compared to 63.6% in the first quarter of 2004.
Our management operations earnings before other operating items (including
reimbursed costs and the impact of forward exchange contracts) for the first
quarter of 2005 increased 12.9% to $19.3 million, as compared to $17.1 million
in the first quarter of 2004. Our management operations profit margin
(including reimbursed costs and the impact of forward exchange contracts) was
44.3% in the first quarter of 2005, as compared to 45.4% in the first quarter
of 2004.
Ownership and Corporate Operations(11)
Operating results from ownership and corporate operations before other
operating items improved 7.5% or $0.6 million to a loss of $6.8 million in the
first quarter of 2005, as compared to a loss of $7.4 million in the first
quarter of 2004.
The Pierre
RevPAR at The Pierre increased 23.3% in the first quarter of 2005, as compared
to the same period in 2004, as a result of an 8.7% improvement in occupancy and
a 9.8% increase in achieved room rates. These increases reflected the higher
travel demand in New York, particularly in leisure travel, during the quarter.
As a result, operating results at The Pierre improved by $0.6 million to a loss
of $2 million in the first quarter of 2005, as compared to a loss of $2.6
million in first quarter of 2004.
As previously disclosed, Four Seasons has been in discussions with the landlord
of The Pierre to explore alternatives whereby we could modify or restructure
our leasehold interest in the hotel. Despite these discussions, the parties
have not been able to agree on any modification or restructuring of the lease
arrangements. In recent months, the landlord retained professional advisers to
assist with the evaluation of alternatives, including the possibility of
identifying a replacement lessee and operator for The Pierre. We understand
that the landlord is now in exclusive negotiations with a potential successor
to Four Seasons in both capacities. No definitive agreement has yet been
reached, and any agreement involving an assignment of our leasehold interest in
The Pierre is subject to the approval of the shareholders of the landlord.
Therefore, there can be no assurance at this time that acceptable arrangements
with this potential successor will be concluded.
Four Seasons Hotel Vancouver
RevPAR at Four Seasons Hotel Vancouver increased 13.2% for the three months
ended March 31, 2005, as compared to the same period in 2004, primarily as the
result of an improvement in occupancy and a modest increase in achieved room
rates. Operating results at the hotel remained relatively flat, with a loss of
$2.1 million in the first quarter of 2005, as compared to a loss of $2.0
million in the first quarter of 2004, mainly due to an offsetting reduction in
banquet revenue.
We continue to review our options in respect of Four Seasons Hotel Vancouver to
determine what, if any, alternatives may be available to modify or restructure
our operation of, or investment in, this hotel. There can be no assurance that
acceptable alternative arrangements can be found with respect to this hotel or
as to the terms of any such alternative arrangements.
Corporate Costs, including Compliance Costs
During the first quarter of 2005, our corporate and compliance costs, including
the ongoing implementation of the substantive changes to governance and
disclosure requirements applicable to public companies in the US and Canada,
were essentially unchanged at $2.4 million, as compared to the same period in
2004.
Other Income/Expense, Net
Other expense, net for the first quarter of 2005 was $2.7 million, as compared
to other income, net of $3.3 million for the same period in 2004.
Disposition of Hotel Investments
In March 2005, we sold approximately 80% of our equity interest in Four Seasons
Residence Club Scottsdale at Troon North for proceeds approximating book value.
As a result of the sale, our equity interest in Four Seasons Residence Club
Scottsdale at Troon North is approximately 14% and as such, we will account for
this investment on a cost basis in the future.
Subsequent to the end of the first quarter, we sold approximately 53% of our
equity interest in Four Seasons Hotel Shanghai, which reduced our interest to
approximately 10% and as such, we will account for this investment on a cost
basis in the future. As a result of the sale, we revalued this US dollar
investment at March 31, 2005 at current exchange rates and recorded a loss of
$1.9 million. There will not be any further material impact on our earnings as
a result of this sale.
Foreign Exchange
Other income for the first quarter of 2005 included a $0.4 million foreign
exchange loss, as compared to a $3.5 million foreign exchange gain for the same
period in 2004.
Foreign exchange gains and losses arose primarily from the translation to
Canadian dollars (using current exchange rates at the end of each quarter) of
our foreign currency-denominated net monetary assets, which are not included in
our designated foreign self-sustaining subsidiaries. They also reflected local
currency foreign exchange gains and losses on net monetary assets incurred by
our designated foreign self-sustaining subsidiaries. Net monetary assets is the
difference between our foreign currency-denominated monetary assets and our
foreign currency-denominated monetary liabilities, and consists primarily of
cash and cash equivalents, accounts receivable, long-term receivables and
long-term obligations, as determined under Canadian generally accepted
accounting principles ("GAAP"). In the first quarter of 2004, the majority of
the foreign exchange gain was attributable to the weakening of the Canadian
dollar relative to the pound sterling, whereas in the first quarter of 2005 the
Canadian dollar was generally stable relative to the pound sterling.
Ongoing fluctuations in rates of exchange between currencies will likely result
in future foreign exchange gains or losses.
Net Interest Income
During the first quarter of 2005, we had net interest income of $0.4 million,
as compared to $0.9 million in the first quarter of 2004. Net interest income
is a combination of approximately $3.9 million in interest income and
approximately $3.5 million in interest expense in the first quarter of 2005, as
compared to $3.1 million and $2.2 million, respectively, for the same period in
2004.
The increase in interest income for the first quarter of 2005, as compared to
the same period in 2004, was primarily attributable to increased cash and cash
equivalents as a result of the issuance of our convertible senior notes in June
2004 and higher deposit interest rates.
The increase in interest expense was primarily attributable to the variance in
interest expense relating to the convertible senior notes issued during the
second quarter of 2004, as compared to the interest costs relating to our
previously outstanding Liquid Yield Option Notes ("LYONs") during 2004.
As discussed below in "Liquidity and Capital Resources", although the rate of
interest payable pursuant to the terms of the convertible senior notes is
1.875% per annum, for accounting purposes the convertible senior notes are
bifurcated into debt and equity components under Canadian GAAP, and a notional
interest rate is applied to the portion that is allocated to the debt
component. While the notional interest rate of 5.33% per annum (4.6% per annum
after taking into account the impact of the interest rate swap agreement that
terminated in October 2004 and is described below under "Financing Activities")
that is applied to the debt component of the convertible senior notes (as
described below under "Financing Activities") is lower than the notional rate
of 9.2% per annum that was applied to the LYONs, a larger component of the
convertible senior notes is allocated to debt than was the case with the LYONs.
As a result, for accounting purposes the interest expense associated with the
convertible senior notes is higher than was the case for the LYONs.
Income Tax Expense
Our effective tax rate in the first quarter of 2005 was 27%, as compared to an
effective tax rate of 22% in the first quarter of 2004. The variation from our
expected 24% tax rate is the result of certain items not being tax effected,
including a portion of the foreign exchange gains and losses, since they will
never be realized for tax purposes. Excluding these items, our tax rate would
have been our expected 24%.
Stock Option Expense
Stock option expense for the first quarter of 2005 was $0.5 million, as
compared to $0.3 million for the same period in 2004. In the first quarters of
2005 and 2004, stock option expense was allocated between Management Operations
($0.2 million and $0.1 million, respectively) and Ownership and Corporate
Operations ($0.3 million and $0.2 million, respectively).
Net Earnings and Earnings per Share
Net earnings for the quarter ended March 31, 2005 were $5.2 million ($0.14
basic and diluted earnings per share), as compared to net earnings of $8.7
million ($0.25 basic earnings per share and $0.24 diluted earnings per share)
for the quarter ended March 31, 2004. As described above, net earnings for the
quarter ended March 31, 2005 included $2.3 million loss related to a $0.4
million foreign exchange loss and a $1.9 million loss related to the
revaluation of our equity interest in the Four Seasons Hotel Shanghai as a
result of the sale of the majority of that interest. For the quarter ended
March 31, 2004, net earnings included $6.2 million gain related to a $3.5
million foreign exchange gain and a $2.7 million gain on forward exchange
contracts included in management fee revenues.
Liquidity and Capital Resources
-------------------------------
Financing Activities
During the second quarter of 2004, we issued $250 million principal amount of
convertible senior notes. For details relating to the terms of the convertible
senior notes, please refer to our MD&A for the year ended December 31, 2004.
In accordance with Canadian GAAP, the convertible senior notes are bifurcated
on our financial statements into a debt component (representing the principal
value of a bond of $211.8 million as at June 18, 2004, which was estimated
based on the present value of a $250 million bond maturing in 2009, yielding
5.33% per annum, compounded semi-annually, and paying interest at a rate of
1.875% per annum) and an equity component of $39 million (representing the
value of the conversion feature of the convertible senior notes) as at June 18,
2004. For further details, see note 10(a) to our annual consolidated financial
statements for the year ended December 31, 2004.
In connection with the offering of the convertible senior notes, we entered
into a five-year interest rate swap agreement with an initial notional amount
of $211.8 million, pursuant to which we agreed to receive interest at a fixed
rate of 5.33% per year and pay interest at six-month LIBOR, in arrears, plus
0.4904%. In October 2004, we terminated the interest rate swap agreement and
received proceeds of $9 million. The recognition of the resulting gain was
deferred and is being amortized through to July 30, 2009, which would have been
the maturity date of the swap. This has resulted in an effective interest rate
on the convertible senior notes for accounting purposes of 4.6% for the first
quarter of 2005.
In April 2005, we entered into a new currency and interest rate swap agreement
to July 30, 2009, pursuant to which we have agreed to receive interest at a
fixed rate of 5.33% per annum on an initial notional amount of $215.8 million
(C$269.2 million ) and pay interest at a floating rate of six-month Canadian
Bankers Acceptances ("BA") in arrears plus 1.1% per annum. On July 30, 2009, we
will pay C$311.8 million and receive $250 million under the swap. We have
designated the swap as a fair value hedge of our convertible senior notes. Any
future translation differences on our convertible senior notes from US dollars
to Canadian dollars should not have a material impact on our net earnings. This
swap will allow us to take advantage of lower floating interest rates, which
should result in an economic and accounting savings of approximately 139 basis
points at current six-month BA rates, or approximately $3.0 million on an
annualized, pre-tax basis.
As at March 31, 2005, no amounts were borrowed under our $125 million bank
credit facility. However, approximately $10.9 million of letters of credit were
issued under that facility. No amounts have been drawn under these letters of
credit. We believe that, absent unusual opportunities or developments, this
credit facility, 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.
Our cash and cash equivalents were $198.2 million as at March 31, 2005, as
compared to $226.4 million as at December 31, 2004.
Long-term obligations (as determined under Canadian GAAP) increased from $256.8
million as at December 31, 2004 to $258.6 million as at March 31, 2005,
primarily as a result of the accretion of interest on the convertible senior
notes.
Contractual Obligations and Other Commitments
We have provided certain guarantees and have other similar commitments
typically made in connection with properties under our management totalling a
maximum of $40.9 million. These contractual obligations and other commitments
are more fully described in the MD&A for the year ended December 31, 2004.
Since year-end, we have reduced one of our bank guarantees and extended a new
commitment to one property under our management, resulting in a net decrease in
guarantees and other commitments of $4.6 million. In addition to funding
relating to our management opportunities described under "Investing/Divesting
Activities" below, we expect a net increase in guarantees and other commitments
of approximately $7.0 million over the remainder of the current year.
Cash From Operations
During the first quarter of 2005, we expended $4.6 million in cash in
operations, as compared to generating $3.7 million in cash from operations for
the same period in 2004. This decrease in cash from operations of $8.3 million
resulted primarily from an increase in non-cash working capital of $7.7
million, primarily caused by the settlement of incentive compensation accrued
as at December 31, 2004 and a $2.9 million increase in current income tax paid,
partially offset by an increase in cash contributed by management operations of
$2.4 million and a decrease in cash expended in ownership and corporate
operations of $0.7 million.
Investing/Divesting 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 $27.4 million to properties under development or
management, including amounts advanced as loans receivable to properties in
Geneva, Toronto and Washington, and minor equity interests in properties in
Damascus and Jackson Hole. This level of investment was consistent with our
business plan. During the remaining three quarters of 2005, we expect to fund
up to $75 million in respect of investments in, or advances in respect of or to
owners of, various projects, including properties in Buenos Aires, Punta Mita
and Exuma and a new resort in the Maldives, plus additional funding for the
property in Geneva and the expansion of corporate office facilities.
Cash used in capital investments for the three months ended March 31, 2005 is
net of the proceeds received on the sale of our equity interest in Four Seasons
Residence Club Scottsdale at Troon North (as discussed in "Other
Income/Expense, Net").
Outstanding Share Data
-------------------------------------------------------------------------
Outstanding
as at
Designation April 29, 2005
-------------------------------------------------------------------------
Variable Multiple Voting Shares(a) 3,725,698
-------------------------------------------------------------------------
Limited Voting Shares 32,883,188
-------------------------------------------------------------------------
Options to acquire Limited Voting Shares:
-------------------------------------------------------------------------
Outstanding 4,575,143
-------------------------------------------------------------------------
Exercisable 2,808,761
-------------------------------------------------------------------------
Convertible Senior Notes issued June 2004 and due
2024(b) $251.2 million(c)
-------------------------------------------------------------------------
(a) Convertible into Limited Voting Shares at any time at the option of
the holder on a one-for-one basis.
(b) Details on the convertible senior notes are more fully in our annual
MD&A for the year ended December 31, 2004.
(c) This amount is equal to the issue price of the convertible senior
notes issued June 2004 and due 2024 plus accrued interest calculated
at 1.875% per annum.
Looking Ahead
-------------
If the travel trends that we experienced in 2004 and the first quarter of 2005
continue, and based on current demand reflected in our reservation activity, we
expect RevPAR for worldwide Core Hotels in the second quarter of 2005 and the
full year 2005 to increase by more than 12% and by more than 11%, respectively,
as compared to the corresponding periods in 2004. We expect that this
improvement will result from occupancy and pricing improvements in all
geographic regions. If current trends continue, we expect gross operating
margins of our worldwide Core Hotels to increase more than 220 basis points for
the full year of 2005, as compared to the full year of 2004.
Change in Reporting Currency to US Dollars
------------------------------------------
Effective the first quarter of 2005, we have adopted US dollars as our
reporting currency. All amounts disclosed in this MD&A (including amounts for
prior periods) are in US dollars unless otherwise noted.
The consolidated financial statements in Canadian dollars have been translated
to US dollars using the foreign exchange rates applicable at each balance sheet
date for assets and liabilities, and the weighted average exchange rates of the
corresponding quarters for the consolidated statements of operations,
consolidated statements of cash provided by operations and consolidated
statements of cash flow. Equity transactions have been translated to US dollars
at the historical exchange rates for 2005 and 2004 with opening equity accounts
on January 1, 2004 translated at the exchange rate on that date. These exchange
rates are disclosed in notes 1 and 9. Any resulting exchange gain or loss was
charged or credited to "Equity adjustment from foreign currency translation",
which is included as a separate component of shareholders' equity.
We have not changed the functional currencies of our entities. As a result,
while US dollar reporting will minimize the currency fluctuations related to
the majority of our US dollar management fee revenues, it will not eliminate
foreign currency fluctuations related to our management fees in other
currencies, or the majority of our management operations general and
administrative expenses, which are incurred in Canadian dollars. It will also
not eliminate foreign currency gains and losses related to unhedged net
monetary asset and liability positions.
Changes in Accounting Policies
------------------------------
During the three months ended March 31, 2005, we adopted The Canadian Institute
of Chartered Accountants' ("CICA") new accounting standards on variable
interest entities and temporary controlled investments, as discussed in note 1
to the interim consolidated financial statements. The adoption of these changes
did not have a material impact on our consolidated financial statements.
Additional Information
----------------------
Additional information about us (including our most recent annual information
form, annual MD&A and our audited financial statements for the year ended
December 31, 2004) is available on SEDAR at http://www.sedar.com/.
--------------------------
1. The following Canadian/US dollar foreign exchange rates were used to
translate the specified periods:
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Average foreign Foreign Average foreign Foreign
exchange exchange exchange exchange
rate used for rate as at rate used for rate as at
First Quarter March 31, First Quarter December 31,
2005 2005 2004 2004
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1.22652 1.2096 1.31785 1.2036
---------------------------------------------------------------------
2. RevPAR is defined as average room revenue per available room. It is a
non-GAAP measure. We use RevPAR because it 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. Our calculation of RevPAR may be different than the
calculation used by other lodging companies.
3. The term "Core Hotels" means hotels and resorts under management for
the full year of both 2005 and 2004. 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 2004/2003 Core Hotels are the additions of Four
Seasons Resort Jackson Hole, Four Seasons Hotel Miami, Four Seasons
Resort Great Exuma at Emerald Bay, Four Seasons Hotel Prague, Four
Seasons Hotel Riyadh and Four Seasons Hotel Jakarta, and the deletion
of Four Seasons Resort Maldives at Kuda Huraa (which closed for
repairs in December 2004 following damage from the tsunami in
southeast Asia).
4. Gross operating margin represents gross operating profit as a
percentage of gross operating revenue.
5. Reimbursed costs includes the reimbursement of all out-of-pocket
costs, including sales and marketing and advertising fees.
6. Effective January 1, 2004, we ceased designating our US dollar
forward contracts as hedges of our US dollar fee revenues. These
contracts were entered into during 2002, and all of these contracts
matured during 2004. The foreign exchange gains on these contracts of
$11.2 million, which were deferred prior to January 1, 2004, were
recognized in 2004 as an increase of fee revenues over the course of
the year. Foreign exchange gains on forward exchange contracts were
recorded as increases in management fee revenues in the quarters of
2004 and 2003 as follows:
---------------------------------------------------------------------
First Second Third Fourth
(In millions of US dollars) Quarter Quarter Quarter Quarter
---------------------------------------------------------------------
2004 $2.7 $2.8 $2.6 $3.1
---------------------------------------------------------------------
2003 $0.5 $1.5 $1.4 $2.3
---------------------------------------------------------------------
7. Including the reimbursed costs and forward exchange contracts,
management fee revenues increased 15.7%, or $5.9 million, to
$43.6 million in the first quarter of 2005, as compared to
$37.6 million for the same period in 2004. We provide the information
excluding the above items because the foreign exchange contracts
applied only to the period in 2004 and the reimbursed costs have no
net impact on earnings from management operations.
8. Earnings before other operating items is equal to net earnings plus
(i) income tax expense plus (ii) interest expense less (iii) interest
income plus (iv) other expense less (v) other income plus (vi)
depreciation and amortization. Earnings before other operating items
is not intended to represent cash flow from operations, as defined by
Canadian GAAP, and it should not be considered as an alternative to
net earnings, cash flow from operations or any other measure of
performance prescribed by GAAP. Our earnings before other operating
items may also not be comparable to earnings before other operating
items used by other companies, which may be calculated differently.
We consider earnings before other operating items to be a meaningful
indicator of operations and use it as a measure to assess our
operating performance. It is included because we believe it can be
useful in measuring our ability to service debt, fund capital
expenditures and expand our business. Earnings before other operating
items is also used by investors, analysts and our lenders as a
measure of our financial performance.
9. Eight Quarter Summary:
-------------------------------------------------------------------------
(In millions
of US dollars
except per
share
amounts) First Quarter Fourth Quarter Third Quarter Second Quarter
-------------------------------------------------------------------------
2005 2004 2004 2003(a) 2004 2003(a) 2004 2003(a)
-------------------------------------------------------------------------
Consolidated
revenues(b) $63.1 $57.1 $69.5 $66.8 $63.3 $52.6 $71.4 $57.7
-------------------------------------------------------------------------
Earnings
(loss)
before other
operating
items:
-------------------------------------------------------------------------
Management
operations 19.3 17.1 18.2 15.7 20.1 13.7 22.1 14.6
-------------------------------------------------------------------------
Ownership
and
corporate
operations (6.8) (7.4) (3.1) (1.5) (4.9) (6.8) (1.3) (3.9)
-------------------------------------------------------------------------
Net earnings
(loss):
-------------------------------------------------------------------------
Total $5.2 $8.7 $12.8 $8.9 $(8.5) $3.2 $12.8 $(1.0)
-------------------------------------------------------------------------
Basic
earnings
(loss) per
share(c) $0.14 $0.25 $0.35 $0.25 $(0.24) $0.09 $0.36 $(0.03)
-------------------------------------------------------------------------
Diluted
earnings
(loss) per
share(c) $0.14 $0.24 $0.34 $0.24 $(0.24) $0.09 $0.34 $(0.03)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average
Canadian/
US foreign
exchange
rate used
for
specified
quarter 1.22652 1.31785 1.22033 1.3155 1.30758 1.37927 1.3586 1.39863
-------------------------------------------------------------------------
(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.
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:
Second Quarter 2003 - increase in net loss of $0.1 million and no
effect on basic and diluted loss per share; Third Quarter and Fourth
Quarter 2003 - in each quarter, a decrease in net earnings of
$0.3 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:
Second Quarter 2003 - increase of $7.8 million; Third Quarter 2003 -
increase of $7.5 million; Fourth Quarter 2003 - increase of
$9.6 million.
Consolidated revenues is comprised of the following:
-------------------------------------------------------------------------
First Fourth Third Second
Quarter Quarter Quarter Quarter
(In millions --------------------------------------------------------
of US dollars) 2005 2004 2004 2003 2004 2003 2004 2003
-------------------------------------------------------------------------
Revenues from
Management
Operations $43.6 $37.6 $44.3 $40.6 $41.9 $33.8 $44.2 $34.3
-------------------------------------------------------------------------
Revenues from
Ownership and
Corporate
Operations 20.5 20.3 26.6 27.4 22.4 19.6 28.1 24.6
-------------------------------------------------------------------------
Distributions from
hotel investments 0.0 0.0 0.0 0.0 0.0 0.1 0.3 0.0
-------------------------------------------------------------------------
Fees from
Ownership and
Corporate
Operations to
Management
Operations (1.0) (0.9) (1.4) (1.2) (1.0) (0.9) (1.2) (1.1)
-------------------------------------------------------------------------
$63.1 $57.1 $69.5 $66.8 $63.3 $52.6 $71.4 $57.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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.
10. The management operations profit margin represents management
operations earnings before other operating items, as a percent of
management operations revenue.
11. 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 (until the Berlin lease termination on September 26, 2004),
distributions from other ownership interests in properties that Four
Seasons manages and corporate overhead expenses related, in part, to
these ownership interests.
(x) (x) (x)
All dollar amounts referred to in this news release are US dollars unless
otherwise noted. The financial statements are prepared in accordance with
Canadian generally accepted accounting principles.
(x) (x) (x)
This news release contains "forward-looking statements" within the meaning of
applicable 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, circumstances,
performance or expectations that are not historical facts. These statements are
not guarantees of future performance and are subject to numerous risks and
uncertainties, including those described in our annual information form and in
this news release. Those risks and uncertainties include adverse factors
generally encountered in the lodging industry; the risks associated with world
events, including war, terrorism, international conflicts, natural disasters,
extreme weather conditions, and infectious diseases; general economic
conditions, supply and demand changes for hotel rooms and residential
properties, competitive conditions in the lodging industry, relationships with
clients and property owners, currency fluctuations and the availability of
capital to finance growth. Many of these risks and uncertainties can affect our
actual results and could cause our actual results to differ materially from
those expressed or implied in any forward-looking statement made by us or on
our behalf. All forward-looking statements in this news release are qualified
by these cautionary statements. These statements are made as of the date of
this news release and, except as required by applicable law, we undertake no
obligation to publicly update or revise any forward-looking statement, whether
as a result of new information, future events or otherwise.
(x) (x) (x)
We will hold a conference call today at 11 a.m. (Eastern Daylight Time)
to discuss the first quarter financial results. The details are:
To access the call dial: 1 (800) 289-6406 (U.S.A. and Canada)
1 (416) 641-6653 (outside U.S.A. and Canada)
To access a replay of the call, which will be available for one week
after the call, dial: 1 (800) 558-5253, Reservation Number 21242956.
A live web cast will also be available by visiting
http://www.fourseasons.com/investor.
This web cast will be archived for one month following the call.
(x) (x) (x)
Dedicated to continuous innovation and the highest standards of hospitality,
Four Seasons invented luxury for the modern traveller. From elegant
surroundings of the finest quality, to caring, highly personalised 24- hour
service, Four Seasons embodies a true home away from home for those who know
and appreciate the best. The deeply instilled Four Seasons culture is
personified in its employees - people who share a single focus and are inspired
to offer great service. Founded in 1960, Four Seasons has followed a targeted
course of expansion, opening hotels in major city centers and desirable resort
destinations around the world. Currently with 66 hotels in 29 countries, and 25
properties under development, Four Seasons will continue to lead luxury
hospitality with innovative enhancements, making business travel easier and
leisure travel more rewarding. For more information on Four Seasons, visit
http://www.fourseasons.com/.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) Three months ended
(In thousands of US dollars March 31,
except per share amounts) 2005 2004
-------------------------------------------------------------------------
Consolidated revenues (note 4) $ 63,097 $ 57,121
-------------------------
-------------------------
MANAGEMENT OPERATIONS
Revenues:
Fee revenues (note 4(a)) $ 29,027 $ 25,327
Reimbursed costs 14,544 12,319
-------------------------
43,571 37,646
-------------------------
Expenses:
General and administrative expenses (9,734) (8,238)
Reimbursed costs (14,544) (12,319)
-------------------------
(24,278) (20,557)
-------------------------
19,293 17,089
-------------------------
OWNERSHIP AND CORPORATE OPERATIONS
Revenues 20,517 20,332
Expenses:
Cost of sales and expenses (26,351) (26,854)
Fees to Management Operations (991) (857)
-------------------------
(6,825) (7,379)
-------------------------
Earnings before other operating items 12,468 9,710
Depreciation and amortization (3,029) (2,751)
Other income (expense), net (notes 4(a) and 5) (2,710) 3,279
-------------------------
Earnings from operations 6,729 10,238
Interest income, net 382 871
-------------------------
Earnings before income taxes 7,111 11,109
-------------------------
Income tax expense:
Current (1,924) (2,116)
Future 15 (288)
-------------------------
(1,909) (2,404)
-------------------------
Net earnings $ 5,202 $ 8,705
-------------------------
-------------------------
Basic earnings per share (note 3(a)) $ 0.14 $ 0.25
-------------------------
-------------------------
Diluted earnings per share (note 3(a)) $ 0.14 $ 0.24
-------------------------
-------------------------
See accompanying notes to consolidated financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED BALANCE SHEETS
As at As at
(Unaudited) March 31, December 31,
(In thousands of US dollars) 2005 2004
-------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 198,164 $ 226,377
Receivables 79,940 81,541
Inventory 1,418 1,439
Prepaid expenses 5,564 2,981
-------------------------
285,086 312,338
Long-term receivables 198,180 179,060
Investments in hotel partnerships and
corporations 129,967 131,338
Fixed assets 61,963 59,939
Investment in management contracts 177,512 181,273
Investment in trademarks and trade names 4,363 4,424
Future income tax assets 3,707 3,711
Other assets 28,855 30,064
-------------------------
$ 889,633 $ 902,147
-------------------------
-------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 47,492 $ 60,415
Long-term obligations due within one year 3,744 3,766
-------------------------
51,236 64,181
Long-term obligations (note 2) 254,893 253,066
Shareholders' equity (note 3):
Capital stock 248,995 248,980
Convertible notes 36,920 36,920
Contributed surplus 8,581 8,088
Retained earnings 197,331 192,129
Equity adjustment from foreign
currency translation 91,677 98,783
-------------------------
583,504 584,900
-------------------------
Subsequent events (notes 5 and 9)
$ 889,633 $ 902,147
-------------------------
-------------------------
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 US dollars) 2005 2004
-------------------------------------------------------------------------
Cash provided by (used in) operations:
MANAGEMENT OPERATIONS
Earnings before other operating items $ 19,293 $ 17,089
Items not requiring an outlay of funds 585 390
-------------------------
Working capital provided by Management Operations 19,878 17,479
-------------------------
OWNERSHIP AND CORPORATE OPERATIONS
Loss before other operating items (6,825) (7,379)
Items not requiring an outlay of funds 276 165
-------------------------
Working capital used in Ownership and
Corporate Operations (6,549) (7,214)
-------------------------
13,329 10,265
Interest received, net 1,667 2,831
Current income tax paid (3,106) (164)
Change in non-cash working capital (16,413) (8,762)
Other (113) (447)
-------------------------
Cash provided by (used in) operations $ (4,636) $ 3,723
-------------------------
-------------------------
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 US dollars) 2005 2004
-------------------------------------------------------------------------
Cash provided by (used in):
Operations: $ (4,636) $ 3,723
-------------------------
Financing:
Long-term obligations including
current portion 132 88
Issuance of shares 5,617 3,060
Dividends paid (1,558) (1,391)
-------------------------
Cash provided by financing 4,191 1,757
-------------------------
Capital investments:
Long-term receivables (20,465) 665
Hotel investments (7,180) (970)
Disposal of hotel investment (note 5) 5,346 -
Fixed assets (3,607) (3,308)
Investments in trademarks and trade names
and management contracts (131) (278)
Other assets (51) (842)
-------------------------
Cash used in capital investments (26,088) (4,733)
-------------------------
Increase (decrease) in cash and cash equivalents (26,533) 747
Increase (decrease) in cash and cash equivalents
due to unrealized foreign exchange gain (loss) (1,680) 133
Cash and cash equivalents, beginning of period 226,377 132,099
-------------------------
Cash and cash equivalents, end of period $ 198,164 $ 132,979
-------------------------
-------------------------
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 US dollars) 2005 2004
-------------------------------------------------------------------------
Retained earnings, beginning of period $ 192,129 $ 169,364
Net earnings 5,202 8,705
-------------------------
Retained earnings, end of period $ 197,331 $ 178,069
-------------------------
-------------------------
See accompanying notes to consolidated financial statements.
FOUR SEASONS HOTELS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of US 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 ("GAAP") for annual financial statements
and should be read in conjunction with our most recently prepared annual
consolidated financial statements for the year ended December 31, 2004.
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, 2004, except as disclosed below:
(a) Change in reporting currency:
We have historically prepared our consolidated financial statements
in Canadian dollars. Effective for the three months ended March 31,
2005, we have adopted US dollars as our reporting currency. With the
majority of our management fee revenues in US dollars, reporting in
US dollars should reduce the volatility on reported results relating
to the impact of fluctuations in the rate of exchange between the US
and Canadian dollar relating to these revenues and, as a result, we
believe it will provide our financial statement users with more
meaningful information. We have not changed the functional currency
of Four Seasons Hotels Inc., which remains Canadian dollars, or the
functional currencies of any of its subsidiaries.
The consolidated financial statements in Canadian dollars have been
translated to US dollars using the foreign exchange rates applicable
at each balance sheet date for assets and liabilities, and the
weighted average exchange rates of the corresponding quarters for the
consolidated statements of operations, consolidated statements of
cash provided by operations and consolidated statements of cash
flows. Equity transactions have been translated to US dollars at the
historical exchange rates with opening equity accounts on January 1,
2003 translated at the exchange rate on that date. Any resulting
exchange gain or loss was charged or credited to "Equity adjustment
from foreign currency translation" included as a separate component
of shareholders' equity.
(b) Variable interest entities:
The Canadian Institute of Chartered Accountants ("CICA") issued
Accounting Guideline No. 15, "Consolidation of Variable Interest
Entities" ("AcG-15"), which establishes criteria to identify variable
interest entities ("VIE") and the primary beneficiary of such
entities. Entities that qualify as VIEs must be consolidated by their
primary beneficiary. Effective January 1, 2005, we adopted AcG-15 and
have concluded that we do not have to consolidate any interest under
AcG-15.
(c) Investments in hotel partnerships and corporations:
In conjunction with the issuance of Section 3475, "Disposal of Long-
Lived Assets and Discontinued Operations", the CICA eliminated the
exception from consolidation for a temporary controlled subsidiary.
Beginning January 1, 2005, we were required to either equity account
or consolidate our temporary investments in which we have over a 20%
equity interest. In March 2005, we sold the majority of our equity
interest in Four Seasons Residence Club Scottsdale at Troon North
(note 5), and in April 2005, we sold the majority of our equity
interest in Four Seasons Hotel Shanghai. As a result of the sales,
our equity interests in each property was reduced to less than 20%.
The change in accounting for these temporary investments did not have
a material impact on our consolidated financial statements for the
three months ended March 31, 2005.
2. Bank credit facility:
We have a committed bank credit facility of $125,000, which expires in
September 2007. As at March 31, 2005, no amounts were borrowed under this
credit facility. However, approximately $10,900 of letters of credit were
issued under this credit facility as at March 31, 2005. No amounts have
been drawn under these letters of credit.
3. Shareholders' equity:
As at March 31, 2005, we have outstanding Variable Multiple Voting Shares
("VMVS") of 3,725,698, outstanding Limited Voting Shares ("LVS") of
32,883,188 and outstanding stock options of 4,575,143 (weighted average
exercise price of C$59.33 ($49.05)).
(a) Earnings per share:
A reconciliation of the net earnings and weighted average number of
VMVS and LVS used to calculate basic and diluted earnings per share
is as follows:
Three months ended
(Unaudited) March 31,
(In thousands of US dollars) 2005 2004
---------------------------------------------------------------------
Net Net
earnings Shares earnings Shares
---------------------------------------------------------------------
Basic earnings per
share amounts $ 5,202 36,608,763 $ 8,705 35,289,622
Effect of assumed
dilutive conversions:
Stock option plan - 1,535,543 - 1,435,122
---------------------------------------------------------------------
Diluted earnings
per share amounts $ 5,202 38,144,306 $ 8,705 36,724,744
---------------------------------------------------------------------
---------------------------------------------------------------------
The diluted earnings per share calculation excluded the effect of the
assumed conversions of 9,000 stock options to LVS, under our stock
option plan, during the three months ended March 31, 2005 (2004 -
1,407,796 stock options), as the inclusion of these conversions would
have resulted in an anti-dilutive effect. There was no dilution
relating to the convertible senior notes issued in 2004, as the
contingent conversion price was not reached during the period. In
addition, the dilution relating to the conversion of our convertible
notes (issued in 1999 and redeemed in September 2004) to
3,463,155 LVS, by application of the "if-converted method", has been
excluded from the calculation as the inclusion of this conversion
would have resulted in an anti-dilutive effect for the three months
ended March 31, 2004.
(b) Stock-based compensation:
We use the fair value-based method to account for 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.
There were no stock options granted in the three months ended
March 31, 2005. The fair value of stock options granted in the three
months ended March 31, 2004 was estimated using the Black-Scholes
option pricing model with the following assumptions: risk-free
interest rates ranging from 2.96% to 3.81%; semi-annual dividend per
LVS of C$0.055; volatility factor of the expected market price of our
LVS of 30%; 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 in the three months
ended March 31, 2004, the weighted average fair value of the options
at the grant dates was C$27.00 ($20.49). 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.
Pro forma disclosure is required to show 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, 2005
and 2004, if we had applied the fair value-based method to options
granted from January 1, 2002 to December 31, 2002, our net earnings
and basic and diluted earnings per share would have been adjusted to
the pro forma amounts indicated below:
(Unaudited) Three months ended
(In thousands of US dollars March 31,
except per share amounts) 2005 2004
---------------------------------------------------------------------
Stock option expense included
in compensation expense $ (494) $ (313)
------------------------
------------------------
Net earnings, as reported $ 5,202 $ 8,705
Additional expense that would have been
recorded if all outstanding stock options
granted during 2002 had been expensed (691) (652)
------------------------
Pro forma net earnings $ 4,511 $ 8,053
------------------------
Earnings per share:
Basic, as reported $ 0.14 $ 0.25
Basic, pro forma 0.12 0.23
Diluted, as reported 0.14 0.24
Diluted, pro forma 0.12 0.22
------------------------
4. Consolidated revenues:
Three months ended
(Unaudited) March 31,
(In thousands of US dollars) 2005 2004
-------------------------------------------------------------------------
Revenues from Management Operations(a) $ 43,571 $ 37,646
Revenues from Ownership and
Corporate Operations 20,517 20,332
Fees from Ownership and Corporate
Operations to Management Operations (991) (857)
------------------------
$ 63,097 $ 57,121
------------------------
------------------------
(a) Effective January 1, 2004, we ceased designating our US dollar
forward contracts as hedges of our US dollar fee revenues. These
contracts were entered into during 2002, and all of these contracts
matured during 2004. The foreign exchange gains on these contracts of
$11,201, which were deferred prior to January 1, 2004, were
recognized in 2004 as an increase of fee revenues over the course of
the year. During the three months ended March 31, 2004, we recognized
$2,720 of the deferred gain in fee revenues. We did not hedge any of
our US dollar fee revenues during the three months ended March 31,
2005. In addition, effective January 1, 2004, the US dollar forward
contracts were marked-to-market on a monthly basis with the resulting
changes in fair values being recorded as a foreign exchange gain or
loss and was included in other income (expense), net. This resulted
in a $428 foreign exchange loss for the three months ended March 31,
2004.
5. Other income (expense), net:
Included in other income (expense), net for the three months ended
March 31, 2005 is a net foreign exchange loss of $393 (2004 - net foreign
exchange gain of $3,513) 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 designated foreign
self-sustaining subsidiaries.
In March 2005, we sold the majority of our equity interest in Four
Seasons Residence Club Scottsdale at Troon North for gross proceeds of
$5,346, which approximated book value. As a result of the sale, our
equity interest in the residence club was reduced to approximately 14%.
Subsequent to March 31, 2005, we sold approximately 53% of our equity
interest in Four Seasons Hotel Shanghai, which reduced our interest to
approximately 10%. As a result of the sale, we revalued this US dollar
investment at March 31, 2005 at current exchange rates and recorded a
loss of $1,930, which is included in other income (expense), net, during
the three months ended March 31, 2005.
6. Pension benefit expense:
The pension benefit expense, after allocation to managed properties, for
the three months ended March 31, 2005 was $621 (2004 - $575).
7. Guarantees and other commitments:
We have provided certain guarantees and have other similar commitments
typically made in connection with properties under our management
totalling a maximum of $40,900. These contractual obligations and other
commitments are more fully described in the consolidated financial
statements for the year ended December 31, 2004. Since December 31, 2004,
we have reduced one of our bank guarantees and extended a new commitment
to one property under our management, resulting in a net decrease in
guarantees and other commitments of $4,600.
8. Seasonality:
Our hotels and resorts are affected by normally recurring seasonal
patterns and demand is usually lower in the period from December through
March than during the remainder of the year for most of our urban
properties. However, December through March is typically a period of
relatively strong demand at our resorts.
As a result, our management operations are affected by seasonal patterns,
both in terms of revenues and operating results. Urban hotels generally
experience lower revenues and operating results in the first quarter.
This negative impact on management revenues from those properties is
offset to some degree by increased travel to our resorts in the period.
Our ownership operations are particularly affected by seasonal
fluctuations, with lower revenue, higher operating losses and lower cash
flow in the first quarter, as compared to the other quarters.
9. Currency and interest rate swap:
In April 2005, we entered into a currency and interest rate swap
agreement to July 30, 2009, pursuant to which we have agreed to receive
interest at a fixed rate of 5.33% per annum on an initial notional amount
of $215,842 and pay interest at a floating rate of six-month Canadian
Bankers Acceptance in arrears plus 1.1% per annum on an initial notional
amount of C$269.2 million. On July 30, 2009, we will pay C$311.8 million
and receive $250,000 under the swap. We have designated the swap as a
fair value hedge of our convertible senior notes, which were issued in
2004.
FOUR SEASONS HOTELS INC.
SUMMARY OF HOTEL OPERATING DATA - CORE HOTELS(1)
Three months ended
March 31,
(Unaudited) 2005 2004 Variance
-------------------------------------------------------------------------
Worldwide
No. of Properties 53 53 -
No. of Rooms 14,003 14,003 -
Occupancy(2) 67.2% 62.9% 4.3pts.
ADR(3) - in US dollars $356 $331 7.8%
RevPAR(4) - in US dollars $224 $197 13.8%
Gross operating margin(5) 29.0% 26.9% 2.1pts.
United States
No. of Properties 21 21 -
No. of Rooms 6,475 6,475 -
Occupancy(2) 71.4% 67.5% 3.9pts.
ADR(3) - in US dollars $374 $352 6.3%
RevPAR(4) - in US dollars $264 $234 12.8%
Gross operating margin(5) 25.8% 23.7% 2.1pts.
Other Americas/Caribbean
No. of Properties 8 8 -
No. of Rooms 1,724 1,724 -
Occupancy(2) 65.0% 60.4% 4.6pts.
ADR(3) - in US dollars $411 $375 9.6%
RevPAR(4) - in US dollars $269 $225 19.2%
Gross operating margin(5) 36.1% 33.2% 2.9pts.
Europe
No. of Properties 8 8 -
No. of Rooms 1,492 1,492 -
Occupancy(2) 54.7% 57.9% (3.2)pts.
ADR(3) - in US dollars $497 $456 9.0%
RevPAR(4) - in US dollars $292 $278 5.3%
Gross operating margin(5) 27.3% 28.3% (1.0)pts.
Middle East
No. of Properties 4 4 -
No. of Rooms 847 847 -
Occupancy(2) 72.7% 65.8% 6.9pts.
ADR(3) - in US dollars $219 $189 15.7%
RevPAR(4) - in US dollars $157 $125 25.6%
Gross operating margin(5) 48.0% 40.0% 8.0pts.
Asia/Pacific
No. of Properties 12 12 -
No. of Rooms 3,465 3,465 -
Occupancy(2) 64.3% 56.9% 7.4pts.
ADR(3) - in US dollars $241 $227 6.0%
RevPAR(4) - in US dollars $117 $98 18.7%
Gross operating margin(5) 30.0% 28.5% 1.5pts.
-----------------------------------------------
(1) The term "Core Hotels" means hotels and resorts under management for
the full year of both 2005 and 2004. 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 2004/2003 Core Hotels are the additions of Four
Seasons Resort Jackson Hole, Four Seasons Hotel Miami, Four Seasons
Resort Great Exuma at Emerald Bay, Four Seasons Hotel Prague, Four
Seasons Hotel Riyadh and Four Seasons Hotel Jakarta, and the deletion
of Four Seasons Resort Maldives at Kuda Huraa (which closed for
repairs in December 2004 following damage from the tsunami in
southeast Asia).
(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 calculated as straight
average for each region.
(4) RevPAR is defined as average room revenue per available room. It is a
non-GAAP measure. We use RevPAR because it 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. Our calculation of RevPAR may be different than the
calculation used by other lodging companies.
(5) Gross operating margin represents gross operating profit as a
percentage of gross operating revenue.
FOUR SEASONS HOTELS INC.
SUMMARY OF HOTEL OPERATING DATA - ALL MANAGED HOTELS
As at
March 31,
(Unaudited) 2005 2004 Variance
-------------------------------------------------------------------------
Worldwide
No. of Properties 65(1) 62 3
No. of Rooms 16,602(1) 15,977 625
United States
No. of Properties 24 24 -
No. of Rooms 7,109 7,109 -
Other Americas/Caribbean
No. of Properties 10 10 -
No. of Rooms 2,162 2,101 61
Europe
No. of Properties 11 10 1
No. of Rooms 1,919 1,811 108
Middle East
No. of Properties 5(1) 4 1
No. of Rooms 1,212(1) 847 365
Asia/Pacific
No. of Properties 15 14 1
No. of Rooms 4,200 4,109 91
-----------------------------------------------
(1) Since March 31, 2005, we commenced management of Four Seasons Hotel
Doha, which has 232 rooms. The property is not reflected in this
table.
FOUR SEASONS HOTELS INC.
REVENUES UNDER MANAGEMENT - ALL MANAGED HOTELS
Three months ended
(Unaudited) March 31,
(In thousands of US dollars) 2005 2004
-------------------------------------------------------------------------
Revenues under management(1) $ 601,563 $ 530,190
------------------------
------------------------
-------------------------
(1) Revenues under management consist of rooms, food and beverage,
telephone and other revenues of all the hotels and resorts which we
manage. Approximately 63% 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 2005/2006 openings
----------------------------
Four Seasons Hotel Alexandria, Egypt(x) 125
Four Seasons Hotel Damascus, Syria 305
Four Seasons Hotel Florence, Italy 120
Four Seasons Hotel Geneva, Switzerland 100
Four Seasons Hotel Hong Kong, People's Republic of China(x) 395
Four Seasons Resort Lanai at Koele, HI, USA 100
Four Seasons Resort Lanai at Manele Bay, HI, USA 250
Four Seasons Resort Maldives at Landaa Giraavaru, Maldives 115
Four Seasons Hotel Mumbai, India(x) 235
Four Seasons Residence Club Punta Mita, Mexico 35
Four Seasons Hotel Silicon Valley at East Palo Alto, CA, USA 200
Four Seasons Hotel Westlake Village, CA, USA 270
Four Seasons Private Residences Whistler, B.C., Canada 35
Beyond 2006
-----------
Four Seasons Hotel Baltimore, MD, USA(x) 200
Four Seasons Hotel Beijing, People's Republic of China 325
Four Seasons Hotel Beirut, Lebanon 235
Four Seasons Resort Bora Bora, French Polynesia 105
Four Seasons Hotel Dubai, UAE(x) 250
Four Seasons Hotel Istanbul at the Bosphorus, Turkey 170
Four Seasons Hotel Kuwait City, Kuwait 225
Four Seasons Hotel Moscow, Russia(x) 210
Four Seasons Hotel Moscow Kamenny Island, Russia(x) 80
Four Seasons Resort Puerto Rico, Puerto Rico(x) 250
Four Seasons Hotel Seattle, WA, USA(x) 150
Four Seasons Resort Vail, CO, USA(x) 120
(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 at the time of this report. 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 2004 Annual Report.
(2) We have made an investment in Orlando, in 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.
DATASOURCE: Four Seasons Hotels and Resorts
CONTACT: Douglas L. Ludwig, Chief Financial Officer and Executive Vice
President, (416) 441-4320; Barbara Henderson, Vice President, Corporate
Finance, (416) 441-4329