Four Seasons Hotel (NYSE:FS)
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Four Seasons Hotels Inc. reports results for fourth quarter and
year end 2004
TORONTO, Feb. 25 /PRNewswire-FirstCall/ -- Four Seasons Hotels Inc. (TSX
Symbol "FSH.SV"; NYSE Symbol "FS") today reported its results for the fourth
quarter of 2004 and for the year ended December 31, 2004.
"2004 marked an important year for Four Seasons. We had a significant rebound
in our profitability that came on the heels of almost three of the most
difficult years in the history of the lodging industry. During 2004, we
achieved near record levels of RevPAR(1) growth and entered into more letters
of intent relating to new management opportunities than we ever have in a
single year," said Isadore Sharp, Chairman and Chief Executive Officer. "We
believe that this demonstrates the strength of Four Seasons market position and
strategy, as well as our potential for future growth. With the hotels and
resorts we currently have under construction and the agreements signed this
year, we are confident that we will have 100 properties under management within
the next five to seven years."
Highlights of the Fourth Quarter and Year Ended December 31, 2004:
- RevPAR of worldwide Core Hotels(2) increased over 15% for the year
ended December 31, 2004, as compared to 2003.
- Net earnings increased 517.2% for the year ended December 31, 2004 to
$33.2 million, as compared to $5.4 million in 2003.
- Net earnings increased 33% for the quarter ended December 31, 2004 to
$15.6 million, as compared to $11.7 million for the same period in
2003.
- The gross operating margin(3) of our worldwide Core Hotels increased
by 240 basis points to 29.3% for the year ended December 31, 2004, as
compared to 2003.
- Management operations profit margin(4) improved by 330 basis points to
69.3% for the year ended December 31, 2004, as compared to 2003. We
retained 85% of every dollar of incremental management fee revenues
earned in 2004 as compared to management fee revenues earned in 2003.
- Working capital generated by management operations increased to over
$100 million for the year ended December 31, 2004, as compared to
$81 million in 2003.
- Cash and cash equivalents increased by over $100 million to
$272.5 million as at December 31, 2004, as compared to December 31,
2003.
"The fundamentals of our management business model are extremely solid. We
continue to generate significant amounts of cash; more than enough to satisfy
our currently anticipated needs for our management operations growth program,"
said Douglas L. Ludwig, Chief Financial Officer and Executive Vice President.
"We are also very pleased with our hotel operating results and our earnings on
a full-year basis. The translation for accounting purposes of our US dollar fee
revenues to Canadian dollars - and some unusual events at certain hotels, which
predominantly affected incentive fees - had a negative impact on our fourth
quarter earnings. However the outlook for 2005 is very encouraging, and if
current trends continue, we expect a better pricing environment in which we
expect RevPAR to improve by more than 10% and our hotel profit margins are
anticipated to improve by more than 200 basis points."
"During 2004, we signed 12 letters of intent, more than we have ever achieved
in any single year. The pace of new opportunities continues to be very strong
in 2005," said Kathleen Taylor, President Worldwide Business Operations. "We
are fortunate to work with capital partners and hotel owners who share our
excitement and interest in expanding the Four Seasons brand to new markets.
Both the number and the quality of these projects are exceptional. They will
enhance the Four Seasons brand, which we expect will attract even more
opportunities for the future."
Operating Environment
---------------------
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 than 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 compared to the other quarters. As a result, ownership operations
usually incur an operating loss in the first quarter of each year.
Management operations are also 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. However, this negative
impact on management revenues is offset to some degree by increased travel to
our resorts in the period.
Hotel Operating Results
-------------------------------------------------------------------------
Three months ended Year ended
December 31, 2004 December 31, 2004
increase over increase over
(decrease from) (decrease from)
three months ended year ended
December 31, 2003 December 31, 2003
(percentage change, (percentage change,
on US dollar basis) on US dollar basis)
-------------------------------------------------------------------------
Gross Gross Gross Gross
Operating Operating Operating Operating
Revenue Profit Revenue Profit
Region RevPAR (GOR) (GOP) RevPAR (GOR) (GOP)
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Worldwide Core
Hotels 10.7% 10.1% 10.7% 15.5% 14.2% 24.0%
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US Core Hotels 10.6% 9.7% 13.5% 8.7% 7.6% 8.9%
-------------------------------------------------------------------------
Other Americas/
Caribbean Core
Hotels 7.7% 6.2% (1.1)% 18.2% 16.5% 30.2%
-------------------------------------------------------------------------
Europe Core
Hotels 12.7% 17.1% 20.1% 20.6% 21.3% 31.6%
-------------------------------------------------------------------------
Middle East
Core Hotels 12.3% 15.3% 9.0% 52.9% 58.3% 120.6%
-------------------------------------------------------------------------
Asia/Pacific
Core Hotels 10.8% 7.6% 4.6% 31.9% 24.8% 48.6%
-------------------------------------------------------------------------
Underlying these operating results:
- RevPAR for worldwide Core Hotels increased 15.5% in 2004, as compared
to 2003, reflecting the improvement in demand in most of the markets.
Gross operating margins improved 240 basis points from 26.9% in 2003
to 29.3% in 2004. For the fourth quarter of 2004, RevPAR for worldwide
Core Hotels increased 10.7%, as compared to the same period in 2003,
and gross operating margins remained relatively unchanged at 29.5%, as
compared to 29.4% in the fourth quarter of 2003. During the fourth
quarter of each year, typically in December, the hotels and resorts
under management accrue the bonus component of annual compensation for
many of their employees. For many of the hotels and resorts under
management, this negatively affected the profit margin in the fourth
quarter of 2004, as compared to the fourth quarter of 2003, since
there was not a profit component to the bonus for these hotels and
resorts in 2003.
- Virtually all the US Core Hotels under management realized RevPAR
improvements in both the fourth quarter and full year of 2004.
Exceptions for the fourth quarter included Four Seasons Hotel San
Francisco, where a city-wide labour dispute during the quarter
disrupted travel to that market, and Houston, where the area is
absorbing significant new supply. Hotels under management in Las
Vegas, Los Angeles, New York and Philadelphia, amongst others,
outperformed the average RevPAR improvement of the Core Hotels in the
region while hotels under management in Dallas and The Ritz-Carlton
Chicago had more modest RevPAR gains. Gross operating margins in
the region improved 90 basis points for the fourth quarter of 2004,
as compared to the fourth quarter of 2003, as cost increases,
particularly related to energy, health care and workers' compensation,
continued to absorb some of the RevPAR improvement.
- The 8.7% improvement in RevPAR at the US Core Hotels in 2004, as
compared to 2003 was the result of occupancy improvements from 68.1%
to 70.5% and a 5% increase in achieved room rate. On a full-year
basis, gross operating margins for the region remained at
approximately the same level as last year.
- Strong RevPAR improvements in the fourth quarter of 2004 at the hotels
under management in South America helped to boost the average RevPAR
improvement in the Other Americas/Caribbean region, as RevPAR for the
other hotels in the region remained relatively unchanged from the
fourth quarter of 2003. Gross operating margins in the region
decreased 200 basis points as improvements in South America were
offset by declines elsewhere in the region, in particular in Nevis.
Gross operating margins in Nevis were unusually high in the fourth
quarter of 2003 as a result of the accrual by the resort of
revenue related to coastal levies from the government in that quarter.
- RevPAR for the Other Americas/Caribbean region improved 18.2% in 2004,
as compared to 2003, as a result of an 810 basis point increase in
occupancy and a 5.7% increase in achieved room rate. All of the
properties in the region experienced occupancy improvements.
- For the fourth quarter of 2004, RevPAR increases in the European
region reflected strong operating results at the hotels under
management in Paris and London, primarily driven by achieved room rate
improvements. Gross operating profits for the region as a whole
increased, primarily due to the performance at the hotels in Paris and
London.
- On a full-year basis, the 20.6% improvement in RevPAR in 2004 from
2003 in the European region was also partially due to the significant
negative impact that the war in Iraq had on travel in 2003.
- RevPAR improvements in the fourth quarter of 2004 at the Middle East
Core Hotels were primarily driven by increased occupancy at our
properties in Amman and Sharm el Sheikh. Although gross operating
margins in the region declined slightly in the quarter, as a result of
a decline at Four Seasons Hotel Cairo at The First Residence, gross
operating profits increased 9%, as compared to the same period in
2003, primarily as a result of a larger contribution from Four Seasons
Hotel Amman. In the fourth quarter of 2003, Four Seasons Hotel Cairo
at The First Residence benefited from a one-time adjustment to the
shared cost allocations for prior periods made by the owner of this
mixed-use project. These adjustments had a positive effect on the
profit margin and incentive management fees in the fourth quarter
of 2003.
- Occupancy at the Middle East Core Hotels improved on a full-year basis
from 47.7% in 2003 to 70.5% in 2004, which when combined with a 7.5%
increase in achieved room rate, resulted in a 52.9% increase in
RevPAR. In 2004, gross operating profits for the region demonstrated
the strong profitability in the region with a 120.6% improvement over
2003.
- The majority of the hotels under management in the Asia/Pacific region
had strong RevPAR improvements for the fourth quarter of 2004.
Exceptions were the hotels in Sydney, Tokyo at Chinzan-so and Kuala
Lumpur, which experienced modestly lower occupancy in the fourth
quarter of 2004, as compared to the same period in 2003. The hotels
under management in Bali, Bangkok, Shanghai and Tokyo at Marunouchi
had very strong RevPAR improvements as a result of both occupancy and
achieved room rate gains. Gross operating profits increased modestly
reflecting these RevPAR improvements. Due to the tsunami in Southeast
Asia on December 26, 2004, Four Seasons Resort Maldives at Kuda Huraa
was closed; however, there was no material financial impact on the
other Four Seasons properties in the Asia/Pacific region.
- In 2004, on a full-year basis, a large portion of the 31.9% increase
in RevPAR at the properties under management in the Asia/Pacific
region reflected a recovery from the negative impact of SARS in the
region in 2003. This was particularly so in our properties in Shanghai
and Singapore. In addition, the properties in Bali continue to improve
after the lingering impact of terrorist attacks on that island in
October of 2002.
Financial Review and Analysis
-----------------------------
Three months and year ended December 31, 2004 compared to
three months and year ended December 31, 2003
---------------------------------------------
Management Operations
For the three months ended December 31, 2004, management fee revenues
(excluding reimbursed costs(5)) increased 4.0%, or $1.3 million, to $34.4
million, as compared to $33.1 million in the same period last year. The decline
of the US dollar relative to the Canadian dollar reduced our US dollar-
denominated management fee revenues (excluding reimbursed costs) by $795,000.
The US fee revenues are used to pay US dollar expenses, including interest, and
to fund our US dollar investment obligations and are not typically converted
into Canadian dollars.
For the year ended December 31, 2004, management fee revenues (excluding
reimbursed costs) increased 21.0%, or $25.3 million, to $145.8 million, as
compared to $120.5 million for 2003. This increase was the result of the RevPAR
and other revenue increases at the Core Hotels under management and an increase
in fees from recently opened hotels. The decline of the US dollar relative to
the Canadian dollar did not have a material impact on our US dollar-denominated
management fee revenues for the full year due to the forward contracts then in
place.
For the three months ended December 31, 2004, incentive fees were essentially
unchanged from the same period in 2003. Incentive fees were negatively affected
as the result of the translation of US dollar-denominated incentive fees into
Canadian dollars, and by greater compensation costs incurred at the hotels and
resorts and accrued during the fourth quarter. This increased compensation
expense resulted from the majority of the hotels and resorts exceeding their
business plans in 2004, which triggered greater profit participation for the
employees than had been incurred in 2003. In addition, certain expenditures
that were incurred at some of the hotels and resorts under management during
December 2004 to improve longer-term profitability also resulted in reduced
incentive fees. This included capital programs that negatively affected
operations in the fourth quarter of 2004 at certain hotels, including
properties in Scottsdale, Washington D.C. and Las Vegas.
While incentive fee improvement on a full-year basis was strong, it was
negatively affected by lower than expected incentive fees during the fourth
quarter, as discussed above, and hurricane activity in Florida and the
Caribbean in the third quarter.
General and administrative expenses (excluding reimbursed costs) decreased 1.6%
to $12.2 million in the fourth quarter of 2004 from $12.4 million for the same
period in 2003. General and administrative expenses (excluding reimbursed
costs) increased 9.2% to $44.8 million for the year ended December 31, 2004
from $41 million for 2003. During 2004, as a result of the improved economic
and business environment, we held several regional and company-wide management
meetings, some of which had been postponed for the past three years. The cost
of these meetings, together with management compensation relating to profit
participation accounted for the majority of the increase. This management
compensation cost was accrued throughout 2004 and there was not a similar
entitlement in 2003.
As a result of the items described above, our management earnings before other
operating items for the fourth quarter of 2004 increased to $22.2 million, as
compared to $20.7 million in the fourth quarter of 2003, and for the year ended
December 31, 2004 increased 27.1% to $101 million, as compared to $79.5 million
for the year ended December 31, 2003. Our management operations profit margin
(excluding reimbursed costs) increased to 64.5% in the fourth quarter of 2004,
as compared to 62.5% in the fourth quarter of 2003, and 69.3% for the full year
of 2004, as compared to 66% for the full year of 2003. We retained 85% of every
dollar of incremental management fee revenues earned in 2004 as compared to
management fee revenues earned in 2003.
Ownership and Corporate Operations(6)
Operating losses from ownership and corporate operations before other operating
items increased $1.8 million to a loss of $3.8 million in the fourth quarter of
2004, as compared to a loss of $2 million in the fourth quarter of 2003. The
majority of the increase in ownership and corporate operations loss during the
fourth quarter of 2004, as compared to the fourth quarter of 2003, was
attributable to a reversal of lease costs at Four Seasons Berlin in 2003, which
is discussed below, and increased expenses related to compliance costs,
including internal control documentation and other processes related to the
Sarbanes-Oxley Act and other recent US and Canadian requirements.
Operating results from ownership and corporate operations before other
operating items improved $8.4 million (28.1%) to a loss of $21.6 million in the
year ended December 31, 2004, as compared to a loss of $30.1 million for 2003.
The Pierre
Operating earnings at The Pierre improved $0.8 million to $1.7 million in the
fourth quarter of 2004, as compared to $0.9 million in the same period last
year. RevPAR at The Pierre increased 8.5% in the fourth quarter of 2004, as
compared to the same period in 2003. The Pierre had committed a large portion
of its rooms to conference business during the fourth quarter of 2004. The room
rates on this business were negotiated prior to the strong improvement in
travel demand in New York and, as a result, The Pierre's achieved room rates
increased more modestly than might otherwise have been possible in this
stronger demand environment. For the year ended December 31, 2004, RevPAR at
The Pierre increased 14.6%, as a result of both occupancy and room rate gains,
as compared to 2003, reflecting higher travel demand in New York. As a result,
the operating results at The Pierre improved $5.6 million to a loss of $4.2
million in 2004, as compared to 2003.
Four Seasons Hotel Vancouver
RevPAR at Four Seasons Hotel Vancouver remained unchanged during the fourth
quarter of 2004, as compared to the same period in 2003. Operating results at
that hotel improved approximately $0.3 million to a loss of $1 million in the
fourth quarter of 2004, as compared to the same period last year. As a result
of occupancy improvements, RevPAR at Four Seasons Hotel Vancouver increased
8.7% for the year ended December 31, 2004, as compared to 2003. Consequently,
the operating results at that hotel improved $1.7 million to a loss of $2.8
million in 2004, as compared to 2003.
Berlin
In September 2004, the landlord terminated our lease of Four Seasons Hotel
Berlin, and we ceased managing the hotel. Since reaching our maximum funding
obligation of the stipulated minimum lease payments at Four Seasons Hotel
Berlin in August of 2003, the lease payments had been limited to the cash flow
generated by the hotel. During the fourth quarter of 2003, lease payments that
had been accrued beyond cash flow generated by the hotel were reversed
resulting in $1.4 million of operating earnings in that period. During the
fourth quarter of 2004, operating results were nil, resulting in a decline of
$1.4 million compared to the same period last year. On a full-year basis, 2004
operating earnings were nil as compared to an operating loss of $3.8 million
for the same period in 2003.
Other Income/Expense, Net
Other income, net for the fourth quarter of 2004 was $6.2 million, as compared
to $178,000 for the same period in 2003. Other expense, net for the year ended
December 31, 2004 was $16.1 million, as compared to $25.8 million for the same
period in 2003.
Foreign Exchange
Other income for the fourth quarter of 2004 includes a $6.4 million net foreign
exchange gain, compared to a $2.5 million net foreign exchange gain for the
same period in 2003. Included in other expense for the year ended December 31,
2004 is a $3.6 million net foreign exchange gain, compared to a $14.7 million
net foreign exchange loss for 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
which are not included in our designated self-sustaining subsidiaries; they
also reflect local currency 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 GAAP.
Redemption of the Liquid Yield Option Notes ("LYONs")
Included in other expense for 2004 was a loss of $14.6 million related to the
redemption of the LYONs during the third quarter of 2004. We also recognized a
gain of $8.2 million relating to the redemption of the equity component of the
LYONs. This gain was recorded in contributed surplus in the third quarter of
2004. As discussed below under "Financing Activities", we redeemed all of our
LYONs for US$328.73 cash per US$1,000 principal amount at maturity (the
redemption price being the issue price plus interest that was accrued but
unpaid to but excluding September 23, 2004) for an aggregate payment of
US$215.5 million ($275.7 million).
Disposition of Hotel Investments/Settlement of Loan Receivable
During 2004, we sold the majority of our investment in Four Seasons Hotel
Amman, all of our investment in Four Seasons Resort Whistler, all of our
ownership interest in land relating to Four Seasons Resort Scottsdale and
settled our loan receivable from Sedona resulting in a total net loss of $4.6
million. The majority of the loss was related to the settlement of the loan
receivable from Sedona and legal costs incurred to finalize the transactions.
Also included in other expense for the year ended December 31, 2004 were legal
and other enforcement costs of $0.3 million that were incurred in connection
with the disputes with the owners of Four Seasons hotels in Caracas and
Seattle, as compared to other expenses of $9.5 million for the same period in
2003. The Seattle dispute was settled in July 2003. Although the dispute with
the owner of the Caracas hotel is outstanding, future expenses associated with
the Caracas dispute are not expected to be significant. These disputes are more
fully described in the Management's Discussion and Analysis ("MD&A") for the
year ended December 31, 2003. Other expense in 2003 also included an expense of
$3.2 million related to the write-down of our fixed asset investment in the
Four Seasons Hotel Berlin lease to nil.
Net Interest Income/Expense
During the fourth quarter of 2004, we had net interest expense of $187,000, as
compared to net interest income of $962,000 in the fourth quarter of 2003. Net
interest expense is a combination of $4.1 million in interest income and $4.3
million in interest expense in the fourth quarter of 2004, as compared to $3.7
million and $2.8 million, respectively, for the same period in 2003. The
increase in interest income in comparison to the fourth quarter of 2003 was
primarily attributable to increased cash and cash equivalents as a result of
the issuance of the convertible senior notes in June 2004. The increase in
interest expense was primarily attributable to the variance in interest costs
relating to the convertible senior notes in the fourth quarter of 2004, as
compared to the interest costs relating to the LYONs in the fourth quarter of
2003. As discussed below in "Liquidity and Capital Resources", although the
convertible senior notes have a 1.875% interest rate attached to them, for
accounting purposes the convertible senior notes are bifurcated into debt and
equity components, and a notional interest rate is applied to the portion that
is allocated to debt. While the notional interest rate of 5.33% that is applied
to the debt component of the convertible senior notes (as described under
"Financing Activities") is lower than the notional rate of 9.2% 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.
For the year ended December 31, 2004, we had net interest income of $1.5
million, as compared to $3.4 million in 2003. Net interest income is a
combination of $16.9 million in interest income and $15.4 million in interest
expense in 2004, as compared to $14.4 million and $11 million, respectively,
for 2003.
Income Tax Expense
Our income tax expense during the fourth quarter and full year of 2004 was $4.9
million and $16.3 million, respectively, (effective tax rate of 23.9% and
32.9%, respectively) as compared to an income tax expense of $4.5 million
(effective tax rate of 27.9%) and $6.6 million for the same periods in 2003
(effective tax rate of 55.2%).
The variation from our expected 24% tax rate is the result of certain items not
being tax effected, including the non-taxable amounts related to the redemption
of the LYONs in 2004 and, in 2004 and 2003, a portion of the 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. In 2004, the impact of these items was partially
offset by a reduction in the tax rate related to the utilization of certain
losses, which previously had not been recorded. Excluding these items, our tax
rate would have been our expected 24%.
Net Earnings and Earnings per Share
Net earnings for the quarter ended December 31, 2004 were $15.6 million ($0.43
basic earnings per share and $0.41 diluted earnings per share), as compared to
net earnings of $11.7 million ($0.33 basic earnings per share and $0.32 diluted
earnings per share) for the quarter ended December 31, 2003. Net earnings for
the year ended December 31, 2004 were $33.2 million ($0.93 basic earnings per
share and $0.89 diluted earnings per share), as compared to net earnings of
$5.4 million ($0.15 basic and diluted earnings per share) for the year ended
December 31, 2003.
Liquidity and Capital Resources
-------------------------------
Financing Activities
During 1999, we issued LYONs for US$655.5 million principal amount at maturity
(September 23, 2029) 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 were entitled to redeem the LYONs
commencing in September 2004 for cash equal to the issue price plus accrued
interest calculated at 4 1/2% per annum. As discussed above in "Other
Income/Expense, Net", during the third quarter of 2004, we exercised this right
and redeemed all of our LYONs for US$328.73 cash per US$1,000 principal amount
at maturity (the redemption price being the issue price plus interest that was
accrued but unpaid to but excluding September 23, 2004) for an aggregate
payment of US$215.5 million ($275.7 million).
During the second quarter of 2004, we issued US$250 million ($341.1 million)
principal amount of convertible senior notes. We used a majority of the net
proceeds from the issue of the convertible senior notes to repay the LYONs and
intend to use the remainder for general corporate purposes, including the
making of investments in, or advances in respect of or to owners of, properties
with a view to obtaining new management agreements or enhancing existing
management agreements. These notes bear interest at the rate of 1.875% per
annum (payable semi-annually in arrears on January 30 and July 30 to holders of
record on January 15 and July 15, beginning January 30, 2005) and will mature
on July 30, 2024, unless earlier redeemed or repurchased. The notes are
convertible into our Limited Voting Shares at an initial conversion rate of
13.9581 shares per US$1,000 principal amount (equal to a conversion price of
approximately US$71.64 ($86.23) per Limited Voting Share), subject to
adjustments including those in which (i) the Limited Voting Shares have traded
for more than 130% of the conversion price for a specified period, (ii) the
notes have a trading price of less than 95% of the market price of the Limited
Voting Shares into which they may be converted for a specified period, (iii) we
call the notes for redemption, or (iv) specified corporate transactions or a
"fundamental change" occur. We may choose to settle conversion in our Limited
Voting Shares, cash or a combination of our Limited Voting Shares and cash.
Holders of the notes will have the right to require us to purchase for their
principal amount plus accrued and unpaid interest the notes on July 30, 2009,
July 30, 2014 and July 30, 2019 and in connection with certain events. Subject
to conversion rights, we will have the right to redeem the convertible senior
notes for their principal amount, plus any accrued and unpaid interest,
beginning August 4, 2009.
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 US$211.8 million ($288.9 million), which was estimated based
on the present value of a US$250 million ($341.1 million) bond maturing in
2009, yielding 5.33% per annum, compounded semi-annually, and paying a coupon
of 1.875% per annum) and an equity component (representing the value of the
conversion feature of the convertible senior notes).
In connection with the offering of the convertible senior notes, we entered
into a five-year interest rate swap with an initial notional amount of US$211.8
million ($288.9 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 US$9 million ($11.3 million). The book value of the
interest rate swap at the date of termination was approximately $2 million. The
recognition of the resulting gain was deferred and is being amortized over the
next 4.75 years, which would have been the remaining swap term. This will
result in an effective interest rate for accounting purposes of 4.7% for 2005.
Taking into account the net present value of the termination of the swap,
including the $9.3 million gain, the economic interest cost associated with the
convertible senior notes is less than 1%.
In November 2004, we finalized a new committed bank credit facility of US$125
million ($150.5 million), which expires September 2007, and replaced a credit
facility of US$100 million ($120.4 million). As at December 31, 2004, no
amounts were borrowed under the credit facility. However, approximately US$10.9
million ($13.1 million) of letters of credit were issued under the facility. No
amounts have been drawn under these letters of credit. We believe that, absent
unusual opportunities, this bank 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.
Cash and cash equivalents were $272.5 million as at December 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 $303.3 million as at December 31, 2004,
primarily as a result of the issuance of the convertible senior notes in the
second quarter, net of the redemption of the LYONs in the third quarter and
foreign exchange translation.
Cash From Operations
During the three months and year ended December 31, 2004, we generated cash of
$39.7 million and $57.4 million from operations, respectively, as compared to
generating cash of $21.9 million and $66 million, respectively, for the same
periods in 2003.
The increase in cash from operations of $17.8 million in the fourth quarter of
2004, as compared to the same period in 2003, resulted primarily from the
proceeds received on termination of the interest rate swap of $11.3 million, a
decrease in working capital of $3.3 million, an increase in current income tax
received of $3.2 million and an increase in cash contributed by management
operations of $1.7 million, partially offset by cash used in ownership and
corporate operations of $1.7 million.
The decrease in cash from operations of $8.6 million in 2004, as compared to
2003, resulted primarily from the cash applied to the interest accreted for
accounting purposes of $33.1 million related to the redemption of the LYONs in
the third quarter of 2004 and an increase in working capital of $26.3 million
(primarily as a result of a larger income tax refund that was received in 2003
and an increase in the accrual related to incentive fee improvements and
improved fees from residential projects), partially offset by an increase in
cash contributed by management operations of $22.3 million, the proceeds
received on termination of the interest rate swap of $11.3 million, a decrease
in cash used in ownership and corporate operations of $9.2 million and a
decrease in legal and enforcement costs paid of $8.1 million.
Investing/Divesting Activities
Part of our business strategy is to invest 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 2004, we funded $93.6 million in such management opportunities,
including amounts advanced as loans receivable and investments in hotel
properties such as Hampshire, Whistler, Palo Alto, Jackson Hole and Exuma. 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 2004, we also sold the majority of our 8% ownership interest in Four
Seasons Hotel Amman, all of our ownership interest in Four Seasons Resort
Whistler, all of our ownership interest in land relating to Four Seasons Resort
Scottsdale and settled our loan receivable from the property in Sedona. On a
full-year basis, we received total proceeds from asset dispositions of
approximately $58 million and realized a loss of approximately $4.6 million.
In 2005, we expect to fund approximately US$90 million in respect of
investments in, or advances to, various projects, including Geneva and
Damascus, plus additional funding in Buenos Aires and Exuma and the expansion
of corporate office facilities. We anticipate selling two or more interests in
properties during 2005, from which we expect to receive approximately $20
million.
Outstanding Share Data
-------------------------------------------------------------------------
Outstanding as at
Designation February 17, 2005
-------------------------------------------------------------------------
Variable Multiple Voting Shares(a) 3,725,698
-------------------------------------------------------------------------
Limited Voting Shares 32,883,188
-------------------------------------------------------------------------
Options to acquire Limited Voting Shares:
-------------------------------------------------------------------------
Outstanding 5,801,297
-------------------------------------------------------------------------
Exercisable 2,755,841
-------------------------------------------------------------------------
Convertible Senior Notes issued
June 2004 and due 2024(b) US$250.2 million(c)
(Canadian equivalent $307.2 million)
-------------------------------------------------------------------------
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 described
under "Financing Activities".
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
-------------
Based on the travel trends that we experienced in 2004 and that we currently
are observing, if current trends continue, we expect RevPAR, on a US dollar
basis, for worldwide Core Hotels in the first quarter of 2005 and the full year
2005 to increase by more than 10%, both as compared to their respective periods
in 2004. We expect that this improvement will result from occupancy and pricing
improvements in all geographic regions in 2005. We expect our full-year gross
operating profit under management in our worldwide Core Hotels to increase more
than 200 basis points in 2005.
Additional Information
----------------------
A summary of consolidated revenues, management earnings, ownership and
corporate operations and net earnings for the past eight quarters can be found
in note 7. Additional information about us (including our most recent annual
information form, MD&A and our audited financial statements for the year ended
December 31, 2003) is available on SEDAR at http://www.sedar.com/.
The financial information presented in this release remains subject to
additional review and final year-end closing procedures performed by the
Company and the completion of the year-end audit by its external auditors. Four
Seasons expects that its audited financial results will be finalized in March
2005 and the Company will file its financial statements and MD&A with the
securities regulators shortly thereafter.
----------------------------------------
1. 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
per room occupied 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.
2. 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 Hotel Berlin, Four Seasons Resort Santa
Barbara, Four Seasons Resort Scottsdale at Troon North and Four
Seasons Hotel Washington, DC, the last three of which were undergoing
extensive renovation programs that began in 2004.
3. Gross operating margin represents gross operating profit as a
percentage of gross operating revenue.
4. The management operations profit margin represents management
operations earnings before other operating items, as a percentage of
management operations revenue, excluding reimbursed costs.
5. The following table illustrates the impact of adopting the new
accounting standard (Canadian Institute of Chartered Accountants
("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
-------------------------------------------------
(In thousands of First Second Third Fourth
Canadian dollars) Quarter Quarter Quarter Quarter
-------------------------------------------------------------------------
Revenues:
-------------------------------------------------------------------------
Fee revenues $29,305 $29,351 $28,823 $33,051
-------------------------------------------------------------------------
Cost reimbursements
previously included
in fee revenues(x) 6,925 7,381 7,395 7,526
-------------------------------------------------------------------------
Additional cost
reimbursements 11,526 11,190 10,469 12,891
-------------------------------------------------------------------------
Total revenues 47,756 47,922 46,687 53,468
-------------------------------------------------------------------------
Operating costs
and expenses:
-------------------------------------------------------------------------
General and
administrative
expenses 9,736 8,901 9,981 12,390
-------------------------------------------------------------------------
Reimbursed costs 18,451 18,571 17,864 20,417
-------------------------------------------------------------------------
Total expenses 28,187 27,472 27,845 32,807
-------------------------------------------------------------------------
Total earnings from
Management operations
before other
operating items $19,569 $20,450 $18,842 $20,661
-------------------------------------------------------------------------
(x) Marketing and reservation fees were included in both fee revenues and
general and administrative expenses in 2003 and earlier years.
6. 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.
7. Eight Quarter Summary:
-------------------------------------------------------------------------
(In millions of
Canadian dollars
except per Fourth Third Second First
share amounts) Quarter Quarter Quarter Quarter
-------------------------------------------------------------------------
2004 2003(a) 2004 2003(a) 2004 2003(a) 2004 2003(a)
-------------------------------------------------------------------------
Consolidated
revenues(b) $84.8 $87.9 $82.7 $72.6 $97.0 $80.8 $75.3 $72.4
-------------------------------------------------------------------------
Earnings (loss)
before other
operating items:
-------------------------------------------------------------------------
Management
operations 22.2 20.7 26.3 18.8 30.1 20.5 22.5 19.6
-------------------------------------------------------------------------
Ownership and
corporate
operations (3.8) (2.0) (6.4) (9.4) (1.7) (5.5) (9.7) (13.2)
-------------------------------------------------------------------------
Net earnings
(loss):
-------------------------------------------------------------------------
Total $15.6 $11.7 $(11.1) $4.4 $17.3 $(1.4) $11.5 $(9.3)
-------------------------------------------------------------------------
Basic earnings
(loss) per
share(c) $0.43 $0.33 $(0.31) $0.13 $0.49 $(0.04) $0.33 $(0.27)
-------------------------------------------------------------------------
Diluted
earnings
(loss) per
share(c) $0.41 $0.32 $(0.31) $0.12 $0.46 $(0.04) $0.31 $(0.27)
-------------------------------------------------------------------------
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:
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 $11.3 million; 2nd Quarter 2003 -
increase of $10.9 million; 3rd Quarter 2003 - increase of
$10.3 million; 4th Quarter 2003 - increase of $12.6 million.
Consolidated revenues is comprised of the following:
-------------------------------------------------------------------------
(In millions of Fourth Third Second First
Canadian dollars) Quarter Quarter Quarter Quarter
-------------------------------------------------------
2004 2003 2004 2003 2004 2003 2004 2003
-------------------------------------------------------------------------
Revenues from
Management
Operations $54.1 $53.5 $54.8 $46.7 $60.1 $47.9 $49.6 $47.8
-------------------------------------------------------------------------
Revenues from
Ownership and
Corporate
Operations 32.5 36.0 29.2 27.0 38.2 34.4 26.8 25.8
-------------------------------------------------------------------------
Distributions
from hotel
investments 0.0 0.0 0.0 0.2 0.4 0.0 0.0 0.0
-------------------------------------------------------------------------
Fees from
Ownership and
Corporate
Operations to
Management
Operations (1.7) (1.6) (1.3) (1.3) (1.7) (1.5) (1.1) (1.2)
-------------------------------------------------------------------------
$84.8 $87.9 $82.7 $72.6 $97.0 $80.8 $75.3 $72.4
-------------------------------------------------------------------------
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.
All dollar amounts referred to in this news release are in Canadian dollars
unless otherwise noted. The financial statements are prepared in accordance
with Canadian GAAP.
This news 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, 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 management's
discussions and analysis. 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.
We will hold a conference call to discuss the results today at 1:30 p.m.
(Eastern Standard Time).
To access the call dial: 1 (800) 404-8949 (U.S.A. and Canada)
1 (416) 641-6714 (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 21228858.
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.
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 personalized 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 64 hotels in 28 countries, and
more than 20 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
(In thousands of Three months ended Years ended
Canadian dollars December 31, December 31,
except per share
amounts) 2004 2003 2004 2003
-------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
Consolidated
revenues (note 5) $ 84,842 $ 87,885 $ 339,788 $ 313,580
---------------------------------------------------
---------------------------------------------------
MANAGEMENT OPERATIONS
Revenues:
Fee revenues $ 34,357 $ 33,051 $ 145,831 $ 120,530
Reimbursed costs
(note 1(c)) 19,733 20,417 72,716 75,303
---------------------------------------------------
54,090 53,468 218,547 195,833
---------------------------------------------------
Expenses:
General and
administrative
expenses (12,186) (12,390) (44,783) (41,008)
Reimbursed costs
(note 1(c)) (19,733) (20,417) (72,716) (75,303)
---------------------------------------------------
(31,919) (32,807) (117,499) (116,311)
---------------------------------------------------
22,171 20,661 101,048 79,522
---------------------------------------------------
OWNERSHIP AND
CORPORATE OPERATIONS
Revenues 32,479 36,020 126,726 123,214
Distributions from
hotel investments - - 398 153
Expenses:
Cost of sales and
expenses (34,560) (36,395) (142,872) (147,816)
Fees to Management
Operations (1,727) (1,603) (5,883) (5,620)
---------------------------------------------------
(3,808) (1,978) (21,631) (30,069)
---------------------------------------------------
Earnings before other
operating items 18,363 18,683 79,417 49,453
Depreciation and
amortization (3,981) (3,592) (15,281) (15,011)
Other income (expense),
net (note 6) 6,248 178 (16,095) (25,783)
---------------------------------------------------
Earnings from
operations 20,630 15,269 48,041 8,659
Interest income
(expense), net (187) 962 1,494 3,350
---------------------------------------------------
Earnings before
income taxes 20,443 16,231 49,535 12,009
---------------------------------------------------
Income tax recovery
(expense):
Current (5,002) (2,833) (11,680) (2,395)
Future 126 (1,924) (4,623) (4,460)
Increase in future
income tax assets - 230 - 230
---------------------------------------------------
(4,876) (4,527) (16,303) (6,625)
---------------------------------------------------
Net earnings $ 15,567 $ 11,704 $ 33,232 $ 5,384
---------------------------------------------------
---------------------------------------------------
Basic earnings per
share (note 4) $ 0.43 $ 0.33 $ 0.93 $ 0.15
---------------------------------------------------
---------------------------------------------------
Diluted earnings
per share (note 4) $ 0.41 $ 0.32 $ 0.89 $ 0.15
---------------------------------------------------
---------------------------------------------------
See accompanying notes to consolidated financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED BALANCE SHEETS
As at As at
December 31, December 31,
(In thousands of Canadian dollars) 2004 2003
-------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 272,467 $ 170,725
Receivables 98,143 88,636
Inventory 1,732 2,169
Prepaid expenses 3,588 3,780
-------------------------
375,930 265,310
Long-term receivables 215,517 197,635
Investments in hotel partnerships and
corporations 158,079 157,638
Fixed assets 72,143 75,789
Investment in management contracts 218,180 203,670
Investment in trademarks and trade names 5,325 5,757
Future income tax assets (note 3(b)) 4,466 13,230
Other assets 36,185 27,631
-------------------------
$ 1,085,825 $ 946,660
-------------------------
-------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 72,716 $ 61,045
Long-term obligations due within one year 4,533 2,587
-------------------------
77,249 63,632
Long-term obligations (notes 2 and 3) 304,590 117,521
Shareholders' equity (note 4):
Capital stock 379,227 329,274
Convertible notes (note 3) 50,373 178,543
Contributed surplus (note 3(b)) 11,402 5,529
Retained earnings 295,218 265,754
Equity adjustment from foreign currency
translation (32,234) (13,593)
-------------------------
703,986 765,507
-------------------------
$ 1,085,825 $ 946,660
-------------------------
-------------------------
See accompanying notes to consolidated financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF CASH PROVIDED BY OPERATIONS
Three months ended Years ended
(In thousands of December 31, December 31,
Canadian dollars) 2004 2003 2004 2003
-------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
Cash provided by
(used in) operations:
MANAGEMENT OPERATIONS
Earnings before other
operating items $ 22,171 $ 20,661 $ 101,048 $ 79,522
Items not requiring
an outlay of funds 589 377 2,204 1,476
---------------------------------------------------
Working capital
provided by
Management Operations 22,760 21,038 103,252 80,998
---------------------------------------------------
OWNERSHIP AND
CORPORATE OPERATIONS
Loss before other
operating items (3,808) (1,978) (21,631) (30,069)
Items not requiring
an outlay of funds 355 189 1,221 467
---------------------------------------------------
Working capital used
in Ownership and
Corporate Operations (3,453) (1,789) (20,410) (29,602)
---------------------------------------------------
19,307 19,249 82,842 51,396
Interest received, net 1,722 2,341 9,887 10,426
Interest paid on
redemption of
convertible notes
(note 3(b)) - - (33,057) -
Proceeds received on
termination of
interest rate swap
(note 3(a)) 11,267 - 11,267 -
Current income tax
received 3,212 - 427 -
Change in non-cash
working capital 4,627 1,339 (12,607) 13,709
Other (397) (1,048) (1,396) (9,528)
---------------------------------------------------
Cash provided by
operations $ 39,738 $ 21,881 $ 57,363 $ 66,003
---------------------------------------------------
---------------------------------------------------
See accompanying notes to consolidated financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended Years ended
(In thousands of December 31, December 31,
Canadian dollars) 2004 2003 2004 2003
-------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
Cash provided by
(used in):
Operations: $ 39,738 $ 21,881 $ 57,363 $ 66,003
---------------------------------------------------
Financing:
Issuance of
convertible notes
(note 3(a)) - - 329,273 -
Redemption of
convertible notes
(note 3(b)) - - (242,644) -
Other long-term
obligations
including
current portion (86) (136) (105) (200)
Issuance of shares 24,796 3,759 42,824 7,673
Dividends paid - - (3,690) (3,622)
---------------------------------------------------
Cash provided by
financing 24,710 3,623 125,658 3,851
---------------------------------------------------
Capital investments:
Long-term receivables (10,839) 3,052 (21,270) (6,394)
Hotel investments (1,840) (678) (48,529) (8,580)
Disposal of hotel
investments (note 6) 2,951 - 49,994 1,529
Fixed assets (2,946) (13,931) (8,360) (19,331)
Investments in
trademarks and
trade names and
management contracts (2,925) (536) (16,093) (2,116)
Other assets (6,884) (321) (10,683) (5,181)
---------------------------------------------------
Cash used in capital
investments (22,483) (12,414) (54,941) (40,073)
---------------------------------------------------
Increase in cash and
cash equivalents 41,965 13,090 128,080 29,781
Decrease in cash and
cash equivalents due
to unrealized foreign
exchange loss (2,421) (3,769) (26,338) (24,092)
Cash and cash
equivalents,
beginning of period 232,923 161,404 170,725 165,036
---------------------------------------------------
Cash and cash
equivalents,
end of period $ 272,467 $ 170,725 $ 272,467 $ 170,725
---------------------------------------------------
---------------------------------------------------
See accompanying notes to consolidated financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Years ended
December 31,
(In thousands of Canadian dollars) 2004 2003
-------------------------------------------------------------------------
(Unaudited)
Retained earnings, beginning of period $ 265,754 $ 264,016
Net earnings 33,232 5,384
Dividends declared (3,768) (3,646)
-------------------------
Retained earnings, end of period $ 295,218 $ 265,754
-------------------------
-------------------------
See accompanying notes to consolidated financial statements.
FOUR SEASONS HOTELS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of Canadian 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 annual consolidated financial
statements for the year ended December 31, 2003.
The financial information presented in these interim consolidated
financial statements remains subject to additional review and final
year-end closing procedures performed by the Company and the completion
of the year-end audit by its external auditors. We expect that our
audited financial results will be finalized in March 2005 and will file
our financial statements with the securities regulators shortly
thereafter.
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. In 2003, the prospective
application of adopting the fair value-based method effective
January 1, 2003 was applied retroactively in our consolidated
financial statements for the three months and year ended December 31,
2003.
The fair value of stock options granted in the year ended
December 31, 2004 has been estimated using the Black-Scholes option
pricing model with the following assumptions: risk-free interest
rates ranging from 2.96% to 4.39% (2003 - 4.44% to 5.02%);
semi-annual dividend per Limited Voting Share in 2004 and 2003 of
$0.055; volatility factor of the expected market price of our Limited
Voting Shares ranging from 28% to 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 year ended December 31, 2004,
the weighted average fair value of the options at the grant dates was
$25.32 (2003 - $18.46). For the options granted in the three months
ended December 31, 2003, the weighted average fair value of the
options at the grant dates was $23.08. No stock options were granted
during the three months ended December 31, 2004. 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 and year ended
December 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 and basic and diluted earnings per share would have
been adjusted to the pro forma amounts indicated below:
(In thousands
of Canadian Three months ended Years ended
dollars except December 31, December 31,
per share amounts) 2004 2003 2004 2003
---------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
Stock option
expense
included in
compensation
expense $ (611) $ (368) $ (2,113) $ (893)
---------------------------------------------------
---------------------------------------------------
Net earnings,
as reported $ 15,567 $ 11,704 $ 33,232 $ 5,384
Additional
expense that
would have been
recorded if all
outstanding stock
options granted
during 2002 had
been expensed (847) (863) (3,407) (3,450)
---------------------------------------------------
Pro forma net
earnings $ 14,720 $ 10,841 $ 29,825 $ 1,934
---------------------------------------------------
Earnings per
share:
Basic, as
reported $ 0.43 $ 0.33 $ 0.93 $ 0.15
Basic, pro
forma 0.41 0.31 0.84 0.06
Diluted, as
reported 0.41 0.32 0.89 0.15
Diluted, pro
forma 0.39 0.30 0.80 0.05
---------------------------------------------------
(b) Hedging relationships:
The CICA issued Accounting Guideline No. 13, "Hedging Relationships",
which 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
matured during 2004. The foreign exchange gains on these contracts
of $14,552, which were deferred prior to January 1, 2004, were
recognized in 2004 as an increase of fee revenues over the course of
the year. Effective January 1, 2004, our 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. The
impact of ceasing to designate our US dollar forward contracts as
hedges of our US dollar revenues was to decrease net earnings by
$515 and nil, respectively, for the three months and year ended
December 31, 2004. No further contracts have been entered into
subsequently.
(c) Reimbursed costs:
As a result of adopting Section 1100, "Generally Accepted Accounting
Principles", which was issued by the CICA, 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 and year ended
December 31, 2004 of $12,037 and $42,021, respectively (2003 -
$12,891 and $46,077, respectively), but did not have an impact on
net earnings. In addition, for the three months and year ended
December 31, 2003, each of fee revenues and general and
administrative expenses included certain other reimbursed costs of
$7,526 and $29,226, respectively. 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:
The CICA issued Section 3063, "Impairment of Long-Lived Assets",
which 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 and year ended December 31, 2004.
(e) Accounting for asset retirement obligations:
The CICA issued Section 3110, "Accounting for Asset Retirement
Obligations", which 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 and year ended December 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 and year ended December 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 and year ended December 31,
2004.
2. Bank credit facility:
During 2004, we finalized a new committed bank credit facility of
US$125 million ($150,500), which expires in September 2007. Borrowings
under this credit facility bear interest at LIBOR plus a spread ranging
between 0.875% and 2.25%, depending upon certain criteria specified in
the loan agreement. As at December 31, 2003, we had bank credit
facilities of US$212.5 million ($255,800), which expired in 2004. As at
December 31, 2004, no amounts were borrowed under this credit facility.
However, approximately US$10.9 million ($13,100) of letters of credit
were issued under this credit facility as at December 31, 2004. No
amounts have been drawn under these letters of credit.
3. Long-term obligations:
As at As at
December 31, December 31,
(In thousands of Canadian dollars) 2004 2003
-------------------------------------------------------------------------
(Unaudited)
Convertible notes, issued in 2004(a) $ 259,155 $ -
Convertible notes, issued in 1999(b) - 88,029
Deferred gain on termination of interest
rate swap(a) 8,760 -
Accrued benefit liability and other obligations 41,208 32,079
-------------------------
309,123 120,108
Less amounts due within one year (4,533) (2,587)
-------------------------
$ 304,590 $ 117,521
-------------------------
-------------------------
(a) In June 2004, we issued US$250 million ($341,100) principal amount of
convertible senior notes. The net proceeds of the issuance, after
deducting offering expenses and underwriters' commission, were
approximately US$241.3 million ($329,273). These notes bear interest
at the rate of 1.875% per annum (payable semi-annually in arrears on
January 30 and July 30 to holders of record on January 15 and
July 15, beginning January 30, 2005), and will mature on July 30,
2024, unless earlier redeemed or repurchased. The notes are
convertible into Limited Voting Shares of Four Seasons Hotels Inc. at
an initial conversion rate of 13.9581 shares per each one thousand US
dollar principal amount (equal to a conversion price of approximately
US$71.64 ($86.23) per Limited Voting Share), subject to adjustments
including those in which (i) the Limited Voting Shares have traded
for more than 130% of the conversion price for a specified period,
(ii) the notes have a trading price of less than 95% of the market
price of the Limited Voting Shares into which they may be converted
for a specified period, (iii) we call the notes for redemption, or
(iv) specified corporate transactions or a "fundamental change"
occur. In connection with a "fundamental change" on or prior to
July 30, 2009, on conversion holders of notes will be entitled to
receive additional Limited Voting Shares having a value equal to the
aggregate of the make whole premium they would have received if the
notes were purchased plus an amount equal to any accrued but unpaid
interest. We may choose to settle conversion (including any make
whole premium) in Limited Voting Shares, cash or a combination of
Limited Voting Shares and cash (at our option).
On or after August 4, 2009, we may (at our option) redeem all or a
portion of the notes, in whole or in part, for cash at 100% of their
principal amount, plus any accrued and unpaid interest. On each of
July 30, 2009, 2014 and 2019, holders may require us to purchase all
or a portion of their notes at 100% of their principal amount, plus
any accrued and unpaid interest. We will pay cash for any notes so
purchased on July 30, 2009. Repurchases made on July 30, 2014 and
July 30, 2019 may be made (at our option) in cash, Limited Voting
Shares or a combination of cash and Limited Voting Shares. Upon the
occurrence of certain designated events, we will be required to make
an offer to purchase the notes at 100% of their principal amount plus
any accrued and unpaid interest, and, in the case of a "fundamental
change" that is also a "change of control" occurring on or before
July 30, 2009, we also will pay a make whole premium. We may choose
to pay the purchase price (including any make whole premium) for
notes in respect of which our offer is accepted in (at our option)
cash, Limited Voting Shares, securities of the surviving entity (if
Four Seasons Hotels Inc. is not the surviving corporation), or a
combination of cash and shares or securities.
In accordance with Canadian GAAP, the notes are bifurcated on our
financial statements into a debt component (representing the
principal value of a bond of US$211.8 million ($288,918), which was
estimated based on the present value of a US$250 million ($341,100)
bond maturing in 2009, yielding 5.33% per annum, compounded
semi-annually, and paying a coupon of 1.875% per annum) and an equity
component (representing the value of the conversion feature of the
notes). Accordingly, net proceeds have been allocated $288,918 to
long-term obligations and $50,373 to shareholders' equity. The
offering expenses and underwriters' commission of approximately
$10,018 relating to the debt component, are recorded in other assets.
The debt component of the notes will increase for accounting purposes
at the compounded interest rate of 5.33%, less the coupon paid of
1.875% per annum.
In connection with the offering, we had entered into an interest rate
swap agreement to July 30, 2009 with an initial notional amount of
US$211.8 million ($288,918), pursuant to which we had agreed to
receive interest at a fixed rate of 5.33% per annum and pay interest
at six-month LIBOR in arrears plus 0.4904%. We had designated the
interest rate swap as a fair value hedge of the notes. As a result,
we were accounting for the payments under the interest rate swap on
an accrual basis, which resulted in an effective interest rate (for
accounting purposes) on the hedged notes of six-month LIBOR in
arrears plus 0.4904%.
In October 2004, we terminated the interest rate swap agreement and
received proceeds of US$9 million ($11,267). The book value of the
interest rate swap at the date of termination was $2,024. The gain of
$9,243 was deferred for accounting purposes and is being amortized
over the next 4.75 years, which would have been the remaining swap
term. During 2004, $483 of the deferred gain was amortized and
recorded as a reduction of interest expense.
(b) 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 were 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. In September 2004, we
redeemed for cash all these convertible notes for US$328.73 per each
one thousand US dollar principal amount at maturity (the redemption
price being the issue price plus interest that was accrued but
unpaid) for an aggregate payment of US$215.5 million ($275,701).
In accordance with Canadian GAAP, we allocated the consideration paid
on the redemption to the liability and equity components of the
convertible notes based on their relative fair values at the date of
the redemption. We recognized a pre-tax accounting loss of $14,611
related to the debt component of the convertible notes (representing
the difference between the carrying value of the debt component and
the relative fair value of the debt component and calculated at the
present value of the amount due on maturity, using an assumed 25-year
interest rate of 8.474% per annum, compounding semi-annually). This
loss was recorded in other expense, net in the consolidated
statements of operations. In addition, at the interest rate noted
above, we recognized a pre-tax accounting gain on the extinguishment
of the equity component of the convertible notes of $8,160. The gain
was recorded in contributed surplus. The tax impact of the redemption
of both the liability and equity components of the convertible notes
was a decrease to future income tax assets and a decrease to
contributed surplus of $4,141. The net after-tax impact on
shareholders' equity from the redemption of both the debt and equity
components of the convertible notes was a reduction of $10,592.
In accordance with Canadian GAAP, the cash paid on redemption of the
convertible notes relating to the interest accreted from September
1999 to September 2004, for accounting purposes, of US$25.8 million
($33,057) on the convertible notes has been recorded in the
consolidated statements of cash provided by operations. The remaining
cash paid on redemption of US$189.7 million ($242,644) has been
recorded under "Financing" in the consolidated statements of cash
flows.
4. Shareholders' equity:
As at December 31, 2004, we have outstanding Variable Multiple Voting
Shares ("VMVS") of 3,725,698, outstanding Limited Voting Shares ("LVS")
of 32,882,948 and outstanding stock options of 4,564,583 (weighted
average exercise price of $59.33).
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:
(Unaudited) Three months ended
(In thousands of December 31,
Canadian dollars) 2004 2003
-------------------------------------------------------------------------
Net earnings Shares Net earnings Shares
-------------------------------------------------------------------------
Basic earnings
per share amounts $ 15,567 36,104,399 $ 11,704 35,146,473
Effect of assumed
dilutive conversions:
Stock option plan - 1,686,109 - 1,489,773
-------------------------------------------------------------------------
Diluted earnings
per share amounts $ 15,567 37,790,508 $ 11,704 36,636,246
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Years ended
(In thousands of December 31,
Canadian dollars) 2004 2003
-------------------------------------------------------------------------
(Unaudited)
Net earnings Shares Net earnings Shares
-------------------------------------------------------------------------
Basic earnings
per share amounts $ 33,232 35,647,986 $ 5,384 34,996,389
Effect of assumed
dilutive conversions:
Stock option plan - 1,666,230 - 870,135
-------------------------------------------------------------------------
Diluted earnings
per share amounts $ 33,232 37,314,216 $ 5,384 35,866,524
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The diluted earnings per share calculation excluded the effect of the
assumed conversions of 59,000 and 847,876 stock options to LVS, under our
stock option plan, during the three months and year ended December 31,
2004, respectively (2003 - 1,440,996 and 1,958,842 stock options,
respectively), as the inclusion of these conversions resulted in an
anti-dilutive effect. In addition, the dilution relating to the assumed
conversion of our convertible notes (issued in 1999 and subsequently
redeemed in 2004) (note 3(b)) to 3,463,155 LVS, by application of the
"if-converted method", has been excluded from the calculation for 2004
and 2003 as the inclusion of this conversion resulted in an anti-dilutive
effect for the three months and years ended December 31, 2004 and 2003.
There was no dilution relating to the convertible senior notes issued in
2004 (note 3(a)) as the contingent conversion price was not reached
during the periods.
5. Consolidated revenues:
Three months ended Years ended
(In thousands of December 31, December 31,
Canadian dollars) 2004 2003 2004 2003
-------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
Revenues from
Management
Operations $ 54,090 $ 53,468 $ 218,547 $ 195,833
Revenues from
Ownership and
Corporate Operations 32,479 36,020 126,726 123,214
Distribution from
hotel investments - - 398 153
Fees from Ownership
and Corporate
Operations to
Management Operations (1,727) (1,603) (5,883) (5,620)
---------------------------------------------------
$ 84,842 $ 87,885 $ 339,788 $ 313,580
---------------------------------------------------
---------------------------------------------------
6. Other income (expense), net:
Included in other income (expense), net for the year ended December 31,
2004 is the loss on the redemption of the debt component of our
convertible notes (issued in 1999) of $14,611 (note 3(b)).
In addition, other income (expense), net for the three months and year
ended December 31, 2004 includes a net foreign exchange gain of $6,424
and $3,615, respectively (2003 - net foreign exchange gain of $2,476 and
a net foreign exchange loss of $14,703, respectively) 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.
During the year ended December 31, 2004, we sold all of our investment in
Four Seasons Resort Whistler, the majority of our 8% investment in Four
Seasons Hotel Amman and all our ownership interest in land relating to
Four Seasons Resort Scottsdale for proceeds of approximately $50,000, and
exited from our proposed project in Sedona, resulting in a total net loss
from these transactions of $4,610. The majority of the loss related to
the settlement of our loan receivable from Sedona and for legal costs
incurred to finalize the dispositions. During the three months ended
December 31, 2003, we wrote down our fixed asset investment in Four
Seasons Hotel Berlin to nil, resulting in an expense of $3,174.
Also included in other income (expense), net for the three months and
year ended December 31, 2004 are legal and enforcement costs of nil and
$273, respectively (2003 - $795 and $9,475 respectively), in connection
with the disputes with the owners of the Four Seasons hotels in Caracas
and Seattle.
7. Pension benefit expense:
The pension benefit expense, after allocation to managed properties, for
the three months and year ended December 31, 2004 was $810 and $3,074,
respectively (2003 - $542 and $2,670, respectively).
8. 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 compared to other quarters. As a result,
ownership operations usually incur an operating loss in the first quarter
of each year.
Management operations are also 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, as
compared to other quarters. 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
December 31,
(Unaudited) 2004 2003 Variance
-------------------------------------------------------------------------
Worldwide
No. of Properties 48 48 -
No. of Rooms 12,784 12,784 -
Occupancy(2) 69.0% 66.0% 3.0pts.
ADR(3) - in US dollars $344 $322 6.8%
RevPAR(4) - in US dollars $219 $198 10.7%
Gross operating margin(5) 29.5% 29.4% 0.1pts.
United States
No. of Properties 19 19 -
No. of Rooms 6,108 6,108 -
Occupancy(2) 70.6% 67.3% 3.3pts.
ADR(3) - in US dollars $358 $340 5.2%
RevPAR(4) - in US dollars $255 $230 10.6%
Gross operating margin(5) 26.9% 26.0% 0.9pts.
Other Americas/Caribbean
No. of Properties 7 7 -
No. of Rooms 1,541 1,541 -
Occupancy(2) 62.9% 59.6% 3.3pts.
ADR(3) - in US dollars $322 $308 4.5%
RevPAR(4) - in US dollars $181 $168 7.7%
Gross operating margin(5) 27.5% 29.5% (2.0)pts.
Europe
No. of Properties 7 7 -
No. of Rooms 1,331 1,331 -
Occupancy(2) 59.9% 61.1% (1.2)pts.
ADR(3) - in US dollars $526 $470 11.9%
RevPAR(4) - in US dollars $337 $299 12.7%
Gross operating margin(5) 30.4% 29.6% 0.8pts.
Middle East
No. of Properties 3 3 -
No. of Rooms 598 598 -
Occupancy(2) 67.8% 59.9% 7.9pts.
ADR(3) - in US dollars $168 $163 3.1%
RevPAR(4) - in US dollars $113 $101 12.3%
Gross operating margin(5) 42.5% 44.9% (2.4)pts.
Asia/Pacific
No. of Properties 12 12 -
No. of Rooms 3,206 3,206 -
Occupancy(2) 72.8% 69.8% 3.0pts.
ADR(3) - in US dollars $271 $254 6.7%
RevPAR(4) - in US dollars $143 $129 10.8%
Gross operating margin(5) 36.3% 37.4% (1.1)pts.
-----------------------------------------------
(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 Hotel Berlin, Four Seasons Resort Santa
Barbara, Four Seasons Resort Scottsdale at Troon North and Four
Seasons Hotel Washington, DC, the last three of which are undergoing
extensive renovation programs that began 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 calculated as straight
average for each region.
(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
per room occupied 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
percentage of gross operating revenue.
FOUR SEASONS HOTELS INC.
SUMMARY OF HOTEL OPERATING DATA - CORE HOTELS(1)
Years ended
December 31,
(Unaudited) 2004 2003 Variance
-------------------------------------------------------------------------
Worldwide
No. of Properties 48 48 -
No. of Rooms 12,784 12,784 -
Occupancy(2) 68.5% 61.9% 6.6pts.
ADR(3) - in US dollars $332 $308 7.7%
RevPAR(4) - in US dollars $211 $183 15.5%
Gross operating margin(5) 29.3% 26.9% 2.4pts.
United States
No. of Properties 19 19 -
No. of Rooms 6,108 6,108 -
Occupancy(2) 70.5% 68.1% 2.4pts.
ADR(3) - in US dollars $346 $330 5.0%
RevPAR(4) - in US dollars $244 $225 8.7%
Gross operating margin(5) 25.6% 25.4% 0.2pts.
Other Americas/Caribbean
No. of Properties 7 7 -
No. of Rooms 1,541 1,541 -
Occupancy(2) 64.2% 56.1% 8.1pts.
ADR(3) - in US dollars $302 $285 5.7%
RevPAR(4) - in US dollars $180 $152 18.2%
Gross operating margin(5) 29.8% 26.7% 3.1pts.
Europe
No. of Properties 7 7 -
No. of Rooms 1,331 1,331 -
Occupancy(2) 63.0% 59.5% 3.5pts.
ADR(3) - in US dollars $520 $459 13.5%
RevPAR(4) - in US dollars $343 $285 20.6%
Gross operating margin(5) 33.9% 31.2% 2.7pts.
Middle East
No. of Properties 3 3 -
No. of Rooms 598 598 -
Occupancy(2) 70.5% 47.7% 22.8pts.
ADR(3) - in US dollars $171 $159 7.5%
RevPAR(4) - in US dollars $121 $79 52.9%
Gross operating margin(5) 46.8% 33.6% 13.2pts.
Asia/Pacific
No. of Properties 12 12 -
No. of Rooms 3,206 3,206 -
Occupancy(2) 68.7% 56.7% 12.0pts.
ADR(3) - in US dollars $258 $238 8.6%
RevPAR(4) - in US dollars $127 $96 31.9%
Gross operating margin(5) 33.5% 28.2% 5.3pts.
-----------------------------------------------
(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 Hotel Berlin, Four Seasons Resort Santa
Barbara, Four Seasons Resort Scottsdale at Troon North and Four
Seasons Hotel Washington, DC, the last three of which are undergoing
extensive renovation programs that began 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 calculated as straight
average for each region.
(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
per room occupied 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
percentage of gross operating revenue.
FOUR SEASONS HOTELS INC.
SUMMARY OF HOTEL OPERATING DATA - ALL MANAGED HOTELS
As at
December 31,
(Unaudited) 2004 2003 Variance
-------------------------------------------------------------------------
Worldwide
No. of Properties 63(1) 60 3
No. of Rooms 16,378(1) 15,726 652
United States
No. of Properties 24 24 -
No. of Rooms 7,109 7,145 (36)
Other Americas/Caribbean
No. of Properties 10 9 1
No. of Rooms 2,162 1,929 233
Europe
No. of Properties 10(1) 9 1
No. of Rooms 1,786(1) 1,696 90
Middle East
No. of Properties 5 4 1
No. of Rooms 1,212 847 365
Asia/Pacific
No. of Properties 14 14 -
No. of Rooms 4,109 4,109 -
(1) Since December 31, 2004, we commenced management of Four Seasons
Hotel Hampshire, which has 133 rooms. The property is not reflected
in this table.
FOUR SEASONS HOTELS INC.
REVENUES UNDER MANAGEMENT - ALL MANAGED HOTELS
(Unaudited) Three months ended Years ended
(In thousands of December 31, December 31,
Canadian dollars) 2004 2003 2004 2003
-------------------------------------------------------------------------
Revenues under
management(1) $ 738,044 $ 691,886 $ 2,911,992 $ 2,600,430
---------------------------------------------------
---------------------------------------------------
----------------------
(1) Revenues under management consist of rooms, food and beverage,
telephone and other revenues of all the hotels and resorts which we
manage. Approximately 68% 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 Doha, Qatar(x) 230
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 Langkawi, Malaysia 90
Four Seasons Resort Maldives at Landaa Giraavaru, Maldives 115
Four Seasons Hotel Mumbai, India 235
Four Seasons Hotel Silicon Valley at East Palo Alto, CA, USA 200
Four Seasons Residence Club Punta Mita, Mexico 35
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 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. 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, 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