Four Seasons Hotel (NYSE:FS)
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TORONTO, March 12 /PRNewswire-FirstCall/ -- Four Seasons Hotels Inc. (TSX Symbol "FSH"; NYSE Symbol "FS") today released its results for the three months ended and year ended December 31, 2006. The attached 2006 Management's Discussion and Analysis for the year ended December 31, 2006 and unaudited consolidated financial statements for the three months ended and year ended December 31, 2006 form a part of this news release.
The Company's 2006 Management's Discussion and Analysis, audited consolidated financial statements for the years ended December 31, 2006 and 2005 and audited reconciliation to United States generally accepted accounting principles for the years ended December 31, 2006 and 2005 are available on the Company's website at http://www.fourseasons.com/. In addition, these documents will be available at the Canadian SEDAR website at http://www.sedar.com/ and at the U.S. Securities and Exchange Commission's website at http://www.sec.gov/.
Endnotes can be found at the end of this news release.
Highlights of the Three Months ended and Year ended December 31, 2006(A)
As more fully disclosed in the Company's unaudited consolidated financial statements and Management's Discussion and Analysis, for the three months ended and year ended December 31, 2006, as compared to the same periods in 2005:
Hotel and Resort Operating Results:
- For the three months ended December 31, 2006, RevPAR(B) increased at
our worldwide Core Hotels(C) by 13.9% and at our US Core Hotels by
8.4%. For the year ended December 31, 2006, RevPAR increased at our
worldwide Core Hotels by 11.8% and at our US Core Hotels by 10.2%.
- For the three months ended December 31, 2006, gross operating
margins(D) increased at our worldwide Core Hotels by 310 basis points
to 32.5%, and at our US Core Hotels, gross operating margins
increased by 190 basis points to 30.2%. For the year ended
December 31, 2006, gross operating margins increased at our worldwide
Core Hotels by 220 basis points to 32.4%, and at our US Core Hotels
gross operating margins increased by 180 basis points to 30.4%.
- For the three months ended December 31, 2006, revenues under
management increased 18.5% to $801.6 million from $676.7 million. For
the year ended December 31, 2006, revenues under management increased
15.0% to $2.9 billion from $2.6 billion.
Company Operating Results:
- At December 31, 2006, we had approximately 18,025 rooms under
management, as compared to approximately 17,300 rooms at December 31,
2005.
- As a result of improved results at properties under our management
and, to a lesser extent, an increase in the number of rooms under
management, hotel management fees increased 31.7% in the three months
ended December 31, 2006. For the year ended December 31, 2006, hotel
management fees increased 22.8%.
- Base fees increased 16.6% to $22.4 million in the three months ended
December 31, 2006 and 13.7% to $83.8 million for the year ended
December 31, 2006, principally as a result of RevPAR improvements at
our worldwide Core Hotels and the contribution from recently opened
properties under management.
- As a result of improved profitability and the addition of new
properties under our management, incentive fees increased 79.9% to
$10.8 million for the three months ended December 31, 2006 and 47.7%
to $40.0 million for the year ended December 31, 2006.
- Other fees improved 3.9% for the three months ended December 31, 2006
to $4.2 million and improved 24.7% to $17.5 million for the year
ended December 31, 2006, primarily as a result of an increase in
branded residential royalty fees, which vary from period to period
based on, among other things, the volume of sales closing in those
periods; these fluctuations may be significant.
- General and administrative expenses increased 10.3% to $18.4 million
for the three months ended December 31, 2006, and 7.4% to
$62.4 million for the year ended December 31, 2006.
- Operating earnings before other items(E) increased 57.8% to
$19.3 million for the three months ended December 31, 2006, and 42.7%
to $80.1 million for the year ended December 31, 2006.
- For the three months ended December 31, 2006, net earnings were
$16.9 million ($0.45 basic earnings per share and $0.44 diluted
earnings per share), compared to a net loss of $37.8 million
($1.03 basic and diluted loss per share) for the three months ended
December 31, 2005. For the three months ended December 31, 2005, net
loss included foreign exchange losses, asset provisions and write
downs, and expenses related to the conversion of a defined benefit
plan to a defined contribution retirement plan totaling approximately
$56.8 million.
- For the year ended December 31, 2006, net earnings were $50.3 million
($1.36 basic earnings per share and $1.33 diluted earnings per
share), as compared to net loss of $28.2 million for the same period
in 2005 ($0.77 basic and diluted loss per share). For the year ended
December 31, 2005, net loss included foreign exchange losses, asset
provisions and write downs, and expenses related to the conversion of
a defined contribution retirement plan totaling approximately
$89.2 million.
Going Private Transaction
On February 12, 2007, the Company announced that it has entered into a definitive acquisition agreement to implement the previously announced proposal to take the Company private at a price of $82.00 cash per Limited Voting Share. Following completion of the transaction, Four Seasons would be owned by affiliates of Cascade Investment, L.L.C. (an entity owned by William H. Gates III), Kingdom Hotels International (a company owned by a trust created for the benefit of His Royal Highness Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud and his family), and Isadore Sharp.
A meeting of shareholders to consider the proposed transaction is anticipated to take place in April 2007, in Toronto. A management information circular relating to that meeting is currently expected to be mailed on or about the week of March 12, 2007, to shareholders of record on February 28, 2007, and has been filed with the United States Securities and Exchange Commission and the Canadian Securities Administrators. It is anticipated that the transaction, if approved by shareholders, will be completed in the second quarter of 2007.
Endnotes
----------------------
(A) All amounts disclosed in this news release are in US dollars
unless otherwise noted.
(B) RevPAR is defined as average room revenue per available room. It
is a non-GAAP financial measure and does not have any standardized
meaning prescribed by GAAP. It is, therefore, unlikely to be
comparable to similar measures presented by other issuers. We use
RevPAR because it is a commonly used indicator of market
performance for hotels and resorts and represents the combination
of the average daily room rate and the average occupancy rate
achieved during the period. RevPAR does not include food and
beverage or other ancillary revenues generated by a hotel or
resort. RevPAR is the most commonly used measure in the lodging
industry to measure the period-over-period performance of
comparable properties. Our calculation of RevPAR may be different
than the calculation used by other lodging companies.
(C) The term "Core Hotels" means hotels and resorts under management
for the full year of both 2006 and 2005. 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 2005/2004 Core
Hotels are the additions of Four Seasons Resort Scottsdale at
Troon North, Four Seasons Resort Whistler, Four Seasons Resort
Costa Rica at Peninsula Papagayo, Four Seasons Hotel Gresham
Palace Budapest, Four Seasons Resort Provence at Terre Blanche and
Four Seasons Hotel Cairo at Nile Plaza, and the deletion of The
Regent Kuala Lumpur.
(D) Gross operating margin represents gross operating profit as a
percentage of gross operating revenue.
(E) Operating earnings before other items is equal to net earnings
(loss), plus (i) income tax expense less (ii) income tax recovery
plus (iii) interest expense less (iv) interest income plus (v)
other expenses less (vi) other income plus (vii) depreciation and
amortization. Operating earnings before other items is a non-GAAP
financial measure and does not have any standardized meaning
prescribed by GAAP. It is, therefore, unlikely to be comparable to
similar measures presented by other issuers. We consider operating
earnings before other items to be a meaningful indicator of
operations and use it as a measure to assess our operating
performance. It is included because we believe it can be useful in
measuring our ability to service debt, fund capital expenditures
and expand our business. Operating earnings before other items is
also used by investors, analysts and our lenders as a measure of
our financial performance.
This document contains "forward-looking statements" within the meaning of applicable securities laws, including RevPAR, profit margin and earning trends; statements concerning the number of lodging properties expected to be added in this and future years; expected investment spending; similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts; and statements relating to the proposal to take Four Seasons Hotels Inc. private and anticipated financial results. Various factors and assumptions were applied or taken into consideration in arriving at these statements, which do not take into account the effect that non-recurring or other special items announced after the statements are made may have on our business. These statements are not guarantees of future performance and, accordingly, you are cautioned not to place undue reliance on these statements. These statements are subject to numerous risks and uncertainties, including those described in our annual information form and in this document. (See discussion under "Operating Risks" in our Annual Information Form at page 17, and in our Management's Discussion and Analysis for the year ended December 31, 2006 at page 55.) 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, fluctuations in relative exchange rates of various currencies, supply and demand changes for hotel rooms and residential properties, competitive conditions in the lodging industry, the risks associated with our ability to maintain and renew management agreements and expand the portfolio of properties that we manage, relationships with clients and property owners 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. In addition, actual results and developments relating to the proposal may differ materially from those contemplated by the statements herein, due to, among other things, the risks that the parties will not proceed with the transaction, that the terms of the transaction will differ from those that currently are contemplated, and that the transaction will not be successfully completed for any reason (including the failure to obtain the required approvals or clearances from regulatory authorities and the timing of completion). All forward-looking statements in this document are qualified by these cautionary statements. These statements are made as of the date of this document 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. Additionally, we undertake no obligation to comment on analyses, expectations or statements made by third parties in respect of Four Seasons Hotels Inc., its financial or operating results or its securities or any of the properties that we manage or in which we may have an interest.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) Three months ended Years ended
(In thousands of US dollars December 31, December 31,
except per share amounts) 2006 2005 2006 2005
-------------------------------------------------------------------------
Revenues:
Hotel management fees $ 33,243 $ 25,239 $ 123,866 $ 100,841
Other fees 4,216 4,057 17,521 14,048
Hotel ownership revenues 8,633 7,505 33,374 65,475
Reimbursed costs 23,674 21,697 78,664 67,974
--------------------------------------------
69,766 58,498 253,425 248,338
--------------------------------------------
Expenses:
General and administrative
expenses (18,361) (16,653) (62,428) (58,148)
Hotel ownership cost of
sales and expenses (8,398) (7,897) (32,212) (66,086)
Reimbursed costs (23,674) (21,697) (78,664) (67,974)
--------------------------------------------
(50,433) (46,247) (173,304) (192,208)
--------------------------------------------
Operating earnings before
other items 19,333 12,251 80,121 56,130
Depreciation and amortization (4,723) (2,675) (14,598) (11,187)
Other income (expenses),
net (note 5) 3,184 (56,789) (3,811) (89,208)
Interest income 6,483 5,156 22,405 16,746
Interest expense (3,551) (3,144) (14,910) (11,545)
--------------------------------------------
Earnings (loss) before income
taxes 20,726 (45,201) 69,207 (39,064)
--------------------------------------------
Income tax recovery
(expense) (note 6):
Current (3,246) (1,523) (13,415) (1,912)
Future (601) 8,954 (5,505) 12,753
--------------------------------------------
(3,847) 7,431 (18,920) 10,841
--------------------------------------------
Net earnings (loss) $ 16,879 $ (37,770) $ 50,287 $ (28,223)
--------------------------------------------
--------------------------------------------
Basic earnings (loss) per
share (note 4(a)) $ 0.45 $ (1.03) $ 1.36 $ (0.77)
--------------------------------------------
--------------------------------------------
Diluted earnings (loss) per
share (note 4(a)) $ 0.44 $ (1.03) $ 1.33 $ (0.77)
--------------------------------------------
--------------------------------------------
See accompanying notes to consolidated financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED BALANCE SHEETS
As at As at
(Unaudited) December 31, December 31,
(In thousands of US dollars) 2006 2005
-------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 358,949 $ 242,178
Receivables 67,397 69,690
Inventory 6,096 7,326
Prepaid expenses 3,346 2,950
---------------------------
435,788 322,144
Long-term receivables 153,224 175,374
Investments in hotel partnerships and
corporations (note 2) 65,552 99,928
Fixed assets 81,490 64,850
Investment in management contracts 187,861 164,932
Investment in trademarks 4,224 4,210
Future income tax assets 9,099 14,439
Other assets 54,729 34,324
---------------------------
$ 991,967 $ 880,201
---------------------------
---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 74,307 $ 54,797
Long-term obligations due within one year 2,350 4,853
---------------------------
76,657 59,650
Long-term obligations (note 3) 266,835 273,825
Shareholders' equity (note 4):
Capital stock 287,576 250,430
Convertible notes 36,920 36,920
Contributed surplus 11,881 10,861
Retained earnings 207,600 160,741
Equity adjustment from foreign currency
translation 104,498 87,774
---------------------------
648,475 546,726
Subsequent event (note 10)
---------------------------
$ 991,967 $ 880,201
---------------------------
---------------------------
See accompanying notes to consolidated financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended Years ended
(Unaudited) December 31, December 31,
(In thousands of US dollars) 2006 2005 2006 2005
-------------------------------------------------------------------------
Cash provided by (used in):
Operating activities:
Net earnings (loss) $ 16,879 $ (37,770) $ 50,287 $ (28,223)
Items not affecting cash:
Stock-based compensation
expense 3,613 839 5,255 2,333
Depreciation and
amortization 4,723 2,675 14,598 11,187
Foreign exchange loss
(gain) (7,976) 4,778 (1,343) 24,632
Gain on disposition of
assets (620) (9,015) (620) (3,175)
Loss on retirement benefit
plan transition - 35,467 - 35,467
Provision for loss 2,712 25,559 3,074 32,284
Future income tax expense
(recovery) 601 (8,954) 5,505 (12,753)
Other 102 3,482 1,291 4,969
Amount paid relating to
partial termination of
currency and interest rate
swap (note 3) (21,000) - (21,000) -
Amount paid relating to
retirement benefit plan
transition - (36,029) - (36,029)
Changes in non-cash working
capital 21,407 9,061 20,925 (4,215)
--------------------------------------------
Cash provided by (used in)
operating activities 20,441 (9,907) 77,972 26,477
--------------------------------------------
Investing activities:
Advances of long-term
receivables (3,787) (6,216) (25,568) (44,865)
Receipt of long-term
receivables 50,900 15,159 65,336 34,561
Investments in hotel
partnerships and
corporations 510 2,081 (190) (8,732)
Disposal of hotel
partnerships and
corporations 15,873 11,935 16,580 24,607
Purchase of fixed assets (6,034) (5,885) (22,182) (18,706)
Investments in trademarks
and management contracts (655) 11,148 (17,506) 10,473
Other assets (3,357) 288 (9,883) (7,614)
--------------------------------------------
Cash provided by (used in)
investing activities 53,450 28,510 6,587 (10,276)
--------------------------------------------
Financing activities:
Long-term obligations,
including current portion (323) 1,259 (3,099) 39
Issuance of shares 30,669 54 36,305 7,046
Dividends paid - - (3,378) (3,142)
--------------------------------------------
Cash provided by financing
activities 30,346 1,313 29,828 3,943
--------------------------------------------
Increase in cash and cash
equivalents 104,237 19,916 114,387 20,144
Increase (decrease) in cash
and cash equivalents due to
unrealized foreign exchange
gain (loss) 470 790 2,384 (4,343)
Cash and cash equivalents,
beginning of period 254,242 221,472 242,178 226,377
--------------------------------------------
Cash and cash equivalents,
end of period $ 358,949 $ 242,178 $ 358,949 $ 242,178
--------------------------------------------
--------------------------------------------
Supplementary information:
Interest received $ 8,061 $ 8,127 $ 21,186 $ 18,576
Interest paid (101) (140) (6,172) (5,056)
Income taxes received
(paid), net 1,146 521 (979) (6,376)
See accompanying notes to consolidated financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(Unaudited) Years ended December 31,
(In thousands of US dollars) 2006 2005
-------------------------------------------------------------------------
Retained earnings, beginning of year $ 160,741 $ 192,129
Net earnings (loss) 50,287 (28,223)
Dividends declared (3,428) (3,165)
---------------------------
Retained earnings, end of year $ 207,600 $ 160,741
---------------------------
---------------------------
See accompanying notes to consolidated financial statements.
FOUR SEASONS HOTELS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of US dollars except per share amounts)
-------------------------------------------------------------------------
In these interim consolidated financial statements, the words, "we",
"us", "our", and other similar words are references to Four Seasons
Hotels Inc. ("FSHI") and its consolidated subsidiaries. These interim
consolidated financial statements do not include all disclosures required
by Canadian generally accepted accounting principles for annual financial
statements and should be read in conjunction with our most recently
prepared annual consolidated financial statements for the year ended
December 31, 2005.
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, 2005, except as disclosed below:
(a) Non-monetary transactions:
In June 2005, The Canadian Institute of Chartered Accountants
("CICA") issued Section 3831, "Non-Monetary Transactions",
which introduces new requirements for non-monetary transactions
initiated on or after January 1, 2006. The amended requirements
will result in non-monetary transactions being measured at fair
values unless certain criteria are met, in which case, the
transaction is measured at carrying value. The implementation
of Section 3831, on a prospective basis for transactions
initiated on or after January 1, 2006, did not have any impact
on our consolidated financial statements for the three months
and the year ended December 31, 2006.
(b) Financial instruments:
In January 2005, the CICA issued three new accounting standards
related to financial instruments: Section 3855, "Financial
Instruments - Recognition and Measurement", Section 3865,
"Hedges", and Section 1530, "Comprehensive Income". These new
standards are effective for fiscal years beginning on or after
October 1, 2006. Section 3855 prescribes when a financial
instrument is to be recognized on the balance sheet and at what
amount, and also specifies how financial instrument gains and
losses are to be presented. Section 3865 provides additional
accounting treatments to Section 3855 for entities, which
choose to designate qualifying transactions as hedges for
accounting purposes, by specifying how hedge accounting is
applied and the required disclosures. It also defines a fair
value hedge, a cash flow hedge and a hedge of a net investment
in a self-sustaining foreign operation and provides guidance on
how to account for each. In addition, it requires that any
ineffectiveness in a hedging relationship be recorded
immediately in income. Section 1530 introduces a new
requirement to present certain revenues, expenses, gains and
losses, which may include the impact of certain financial
instruments, that otherwise would not be immediately recorded
in income, in a statement of comprehensive income with the same
prominence as other statements that constitute a complete set
of financial statements. We are still assessing the
implications of these new standards and have not yet determined
the impact of the implementation of these standards on our 2007
consolidated financial statements.
(c) Stock-based compensation:
In July 2006, the Emerging Issues Committee of the CICA issued
Abstract EIC-162, "Stock-Based Compensation for Employees
Eligible to Retire Before the Vesting Date", which requires
compensation cost to be recognized over the period from the
grant date to the date the employee becomes eligible to
retire. The implementation of EIC-162, on a retroactive basis
from January 1, 2006, did not have an impact on our
consolidated financial statements for the three months and year
ended December 31, 2006.
(d) Comparative figures:
Certain 2005 comparative figures have been reclassified to
conform with the financial statement presentation adopted for
2006.
2. Hotel investment transaction:
In February 2006, we exchanged our equity interest in a property
under our management for a management contract enhancement of
approximately the same fair value. No gain or loss was recorded in
connection with this transaction.
3. Currency and interest rate swap:
In December 2006, we terminated 80% of the notional amount of the
currency component of our currency and interest rate swap relating to
the final exchange of principal by making a payment of $21,000. The
swap had been designated as a fair value hedge of our convertible
senior notes. The book value of the terminated portion of the swap at
the date of termination was C$19.5 million ($16,980). The loss of
C$4.6 million ($4,020) was deferred for accounting purposes
and recorded in "Other assets", and is being amortized over the
period to July 30, 2009, which is the maturity date of the swap
agreement. For the three months and year ended December 31, 2006,
$87 of the deferred loss was amortized and recorded as a foreign
exchange loss.
Under the amended swap, we will pay C$62.4 million and receive
$50,000 on July 30, 2009. There were no other changes to the original
swap, including the notional amounts relating to the exchange of
interest.
As a result of the partial termination of the swap, we no longer met
all the conditions for designating the amended swap as a fair value
hedge of our convertible senior notes, and therefore ceased hedge
accounting as at this date. The unrealized loss relating to the
remaining notional amount of the currency component of the swap of
C$1.2 million ($1,005) and the unrealized loss relating to the
notional amount of the interest component of the swap of
C$2.1 million ($1,794) were deferred for accounting purposes and
recorded in "Other assets". These deferred losses are being amortized
over the period to July 30, 2009. For the three months and year ended
December 31, 2006, $22 of the deferred loss relating to the currency
component of the swap was amortized and recorded as a foreign
exchange loss and $39 of the deferred loss relating to the interest
component of the swap was amortized and recorded as interest expense.
The amended swap is being marked-to-market on a monthly basis and
accrued under "Long-term obligations", with the resulting changes in
fair values being recognized in "Other expenses, net". For the three
months and year ended December 31, 2006, a gain of $752 was
recognized on the marked-to-market valuation.
4. Shareholders' equity:
As at December 31, 2006, we have 3,725,698 outstanding Variable
Multiple Voting Shares ("VMVS"), 33,661,638 outstanding Limited
Voting Shares ("LVS"), and 3,666,079 outstanding stock options
(weighted average exercise price of C$59.70 ($51.23)).
(a) Earnings (loss) per share:
A reconciliation of the net earnings (loss) and weighted
average number of VMVS and LVS used to calculate basic and
diluted earnings (loss) per share is as follows:
Three months ended
December 31,
2006 2005
-------------------------------------------------------------------------
Net earnings Shares Net loss Shares
-------------------------------------------------------------------------
Basic earnings (loss)
per share amounts $ 16,879 37,118,121 $ (37,770) 36,640,579
Effect of assumed
dilutive conversions:
Stock option plan - 1,223,754 - -
------------------------------------------------
Diluted earnings (loss)
per share amounts $ 16,879 38,341,875 $ (37,770) 36,640,579
------------------------------------------------
------------------------------------------------
Years ended
December 31,
2006 2005
-------------------------------------------------------------------------
Net earnings Shares Net loss Shares
-------------------------------------------------------------------------
Basic earnings (loss)
per share amounts $ 50,287 36,843,367 $ (28,223) 36,628,206
Effect of assumed
dilutive conversions:
Stock option plan - 886,929 - -
------------------------------------------------
Diluted earnings (loss)
per share amounts $ 50,287 37,730,296 $ (28,223) 36,628,206
------------------------------------------------
------------------------------------------------
The diluted earnings per share calculation excluded the effect
of the assumed conversions of 84,600 and 804,436 stock options
to LVS, under our stock option plan, during the three months
and year ended December 31, 2006, respectively, as the
inclusion of these options would have resulted in an anti-
dilutive effect. As we incurred a net loss for the three months
and year ended December 31, 2005, all 4,485,463 outstanding
stock options were excluded from the calculation of diluted
loss per share for these periods. In addition, the dilution
relating to the assumed conversion of convertible senior notes
to 3,489,525 LVS has been excluded from the calculation, as the
inclusion of this conversion resulted in an anti-dilutive
effect for the three months and year ended December 31, 2006
and 2005.
(b) Stock-based compensation:
We use the fair value-based method to account for all employee
stock options granted or modified on or after January 1, 2003.
Accordingly, options granted prior to that date continue to be
accounted for using the settlement method.
Stock options to acquire 41,650 LVS were granted in the year
ended December 31, 2006 at a weighted average exercise price of
C$62.61 ($53.65). The fair value of stock options granted in
the year ended December 31, 2006 was estimated using the Black-
Scholes options pricing model with the following assumptions:
risk-free interest rates ranging from 4.09% to 4.17%; semi-
annual dividend per LVS of C$0.055; volatility factor of the
expected market price of our LVS of 27%; and expected lives of
the options ranging between four and seven years, depending on
the level of the employee who was granted stock options. For
the options granted in the year ended December 31, 2006, the
weighted average fair value of the options at the grant dates
was C$21.49 ($18.41). 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. There were no stock options granted in the three months
ended December 31, 2006 and the year ended December 31, 2005.
Pro forma disclosure is required to show the effect of the
application of the fair value-based method to employee stock
options granted during 2002, which were not accounted for using
the fair value-based method. For the three months and years
ended December 31, 2006 and 2005, if we had applied the fair
value-based method to options granted during 2002, our net
earnings (loss) and basic and diluted earnings (loss) per share
would have been adjusted to the pro forma amounts indicated
below:
Three months ended Years ended
December 31, December 31,
2006 2005 2006 2005
-------------------------------------------------------------------------
Stock option expense
included in compensation
expense $ (664) $ (839) $ (2,305) $ (2,333)
--------------------------------------------
--------------------------------------------
Net earnings (loss), as
reported $ 16,879 $ (37,770) $ 50,287 $ (28,223)
Decrease (increase) in stock
option expense that would
have been recorded if all
stock options granted during
2002 had been expensed (625) 463 (2,579) (1,626)
--------------------------------------------
Pro forma net earnings (loss) $ 16,254 $ (37,307) $ 47,708 $ (29,849)
--------------------------------------------
--------------------------------------------
Earnings (loss) per share:
Basic, as reported $ 0.45 $ (1.03) $ 1.36 $ (0.77)
Basic, pro forma 0.44 (1.02) 1.29 (0.81)
Diluted, as reported 0.44 (1.03) 1.33 (0.77)
Diluted, pro forma 0.42 (1.02) 1.27 (0.81)
5. Other income (expenses), net:
Three months ended Years ended
December 31, December 31,
2006 2005 2006 2005
-------------------------------------------------------------------------
Costs related to pending
arrangement
transaction (note 10) $ (3,452) $ - $ (3,452) $ -
Asset provisions and
write-downs(a) (2,712) (25,558) (3,074) (32,284)
Foreign exchange gain
(loss)(b) 7,976 (4,778) 1,343 (24,632)
Unrealized swap derivative
gain (note 3) 752 - 752 -
Gain on disposition of
assets(c) 620 9,014 620 3,175
Loss on retirement benefit
plan transition - (35,467) - (35,467)
--------------------------------------------
$ 3,184 $ (56,789) $ (3,811) $ (89,208)
--------------------------------------------
--------------------------------------------
(a) Asset provisions and write-downs of $2,712 and $3,074 for the
three months and year ended December 31, 2006, respectively,
relates primarily to a write-down on investments in hotel
partnerships and corporations. Asset provisions and write-downs
for the three months and year ended December 31, 2005 includes
a provision for loss of $8,829 on long-term receivables, a
write-down of $15,923 and $17,853, respectively, on investments
in hotel partnerships and corporations, a write-down of $479
and $5,105, respectively, on investment in management contracts
and other provisions of $327 and $497, respectively.
(b) The foreign exchange gain (loss) in 2006 and 2005 related
primarily 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 local currency foreign exchange gains and losses
on net monetary assets incurred by our designated foreign self-
sustaining subsidiaries.
As at December 31, 2006, we have foreign exchange forward
contracts in place to sell forward $39,068 of US dollars to
receive Canadian dollars at a weighted average forward exchange
rate of 1.11 Canadian dollars to a US dollar maturing over the
period to April 2008. All our foreign exchange forward
contracts are being marked-to-market on a monthly basis with
the resulting changes in fair values being recorded as a
foreign exchange gain or loss. This resulted in foreign
exchange loss of $1,813 and $544 being recorded in the three
months and year ended December 31, 2006, respectively (2005 -
foreign exchange loss of $127 for both periods).
(c) Gain on disposition of assets for the three months and year
ended December 31, 2006 includes a net gain of $620 (2005 -
$9,892 and $9,337, respectively) on the dispositions of
investments in hotel partnerships and corporations and the
settlement of long-term receivables, and in 2005, also included
a gain on the exit from certain management contracts. For the
three months and year ended December 31, 2005, it also included
a loss of $878 and $6,162, respectively, on the assignment of
leases and the sale of related assets of The Pierre.
6. Income taxes:
During the three months and year ended December 31, 2006, we did not
record approximately $1,477 and $3,434, respectively, of a tax
benefit related to the foreign exchange losses, due to the
uncertainty associated with the utilization of these losses.
In connection with the disposition of The Pierre in June 2005, we
recorded an income tax benefit of approximately $9,400 for the year
ended December 31, 2005.
7. Pension expense:
For the year ended December 31, 2006, we incurred a pension expense
of $1,816 (2005 - $2,001) related to the defined benefit retirement
plan and $2,160 (2005 - $2,243) related to the defined contribution
retirement plan.
8. Guarantees and commitments:
We have provided certain guarantees and have other similar
commitments typically made in connection with properties under our
management. These contractual obligations and other commitments are
more fully described in the consolidated financial statements for the
year ended December 31, 2005. Since December 31, 2005, we have
decreased our guarantees and commitments by approximately $1,300.
9. Segmented information:
Our strategy is to focus on Management Operations rather than
Ownership Operations. Four Seasons Hotel Vancouver is our only
remaining hotel whose results we currently consolidate. As a result,
commencing January 1, 2006, corporate expenses are reflected as
general and administrative expenses in the consolidated statements of
operations for the three months and year ended December 31, 2006.
Corporate expenses for the three months and year ended December 31,
2005 that previously were included in our Ownership Operations
segment have been reclassified to the Management Operations segment
and included in general and administrative expenses in the
consolidated statements of operations.
Three months ended December 31, 2006
--------------------------------------
Management Ownership
Operations Operations Total
-------------------------------------------------------------------------
Revenues:
Hotel management fees $ 33,243 $ - $ 33,243
Other fees 4,216 - 4,216
--------------------------------------
37,459 - 37,459
Hotel ownership revenues - 8,633 8,633
Reimbursed costs 23,674 - 23,674
--------------------------------------
61,133 8,633 69,766
--------------------------------------
Expenses:
General and administrative
expenses (18,361) - (18,361)
Hotel ownership cost of sales
and expenses - (8,398) (8,398)
Reimbursed costs (23,674) - (23,674)
--------------------------------------
(42,035) (8,398) (50,433)
--------------------------------------
Operating earnings before
other items $ 19,098 $ 235 $ 19,333
--------------------------------------
--------------------------------------
Three months ended December 31, 2005
--------------------------------------
Management Ownership
Operations Operations Total
-------------------------------------------------------------------------
Revenues:
Hotel management fees $ 25,239 $ - $ 25,239
Other fees 4,057 - 4,057
--------------------------------------
29,296 - 29,296
Hotel ownership revenues - 7,505 7,505
Reimbursed costs 21,697 - 21,697
--------------------------------------
50,993 7,505 58,498
--------------------------------------
Expenses:
General and administrative
expenses (16,653) - (16,653)
Hotel ownership cost of sales
and expenses - (7,897) (7,897)
Reimbursed costs (21,697) - (21,697)
--------------------------------------
(38,350) (7,897) (46,247)
--------------------------------------
Operating earnings (loss) before
other items $ 12,643 $ (392) $ 12,251
--------------------------------------
--------------------------------------
Year ended December 31, 2006
--------------------------------------
Management Ownership
Operations Operations Total
-------------------------------------------------------------------------
Revenues:
Hotel management fees $ 123,866 $ - $ 123,866
Other fees 17,521 - 17,521
--------------------------------------
141,387 - 141,387
Hotel ownership revenues - 33,374 33,374
Reimbursed costs 78,664 - 78,664
--------------------------------------
220,051 33,374 253,425
--------------------------------------
Expenses:
General and administrative
expenses (62,428) - (62,428)
Hotel ownership cost of sales
and expenses - (32,212) (32,212)
Reimbursed costs (78,664) - (78,664)
--------------------------------------
(141,092) (32,212) (173,304)
--------------------------------------
Operating earnings before
other items $ 78,959 $ 1,162 $ 80,121
--------------------------------------
--------------------------------------
Year ended December 31, 2005
--------------------------------------
Management Ownership
Operations Operations Total
-------------------------------------------------------------------------
Revenues:
Hotel management fees $ 100,841 $ - $ 100,841
Other fees 14,048 - 14,048
--------------------------------------
114,889 - 114,889
Hotel ownership revenues - 65,475 65,475
Reimbursed costs 67,974 - 67,974
--------------------------------------
182,863 65,475 248,338
--------------------------------------
Expenses:
General and administrative
expenses (58,148) - (58,148)
Hotel ownership cost of sales
and expenses - (66,086) (66,086)
Reimbursed costs (67,974) - (67,974)
--------------------------------------
(126,122) (66,086) (192,208)
--------------------------------------
Operating earnings (loss) before
other items $ 56,741 $ (611) $ 56,130
--------------------------------------
--------------------------------------
10. Subsequent event:
On February 12, 2007, we announced that we had entered into a
definitive acquisition agreement (the "Acquisition Agreement") to
implement a previously announced proposal to take FSHI private at a
price of $82.00 cash per LVS (the "Arrangement Transaction").
Following completion of the Arrangement Transaction, FSHI would be
owned by affiliates of Cascade Investment, L.L.C. ("Cascade") (an
entity owned by William H. Gates III), Kingdom Hotels International
("Kingdom"), a company owned by a trust created for the benefit of
His Royal Highness Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud and
his family, and Isadore Sharp (collectively the "Purchaser").
The Arrangement Transaction, which would be implemented by way of a
court-approved plan of arrangement under Ontario law, has been
approved unanimously by our Board of Directors (with interested
directors abstaining) following the report and favourable, unanimous
recommendation of the Special Committee of independent directors. A
meeting of shareholders to consider the Arrangement Transaction
is anticipated to take place in April 2007. It is anticipated that
the Arrangement Transaction, if approved by shareholders, will be
completed in the second quarter of 2007.
Pursuant to the Acquisition Agreement, FSHI agreed to certain
customary negative and affirmative covenants relating to the
operation of its business between the date of execution of the
Acquisition Agreement and the closing of the Arrangement Transaction.
FSHI and the Purchaser may terminate the Acquisition Agreement by
mutual written consent and abandon the Arrangement Transaction at any
time prior to the effective time. In addition, either FSHI or the
Purchaser (and, in certain circumstances, only one of these parties)
may terminate the Acquisition Agreement and abandon the Arrangement
Transaction any time prior to the effective time of the Arrangement
Transaction if certain specified events occur. The Acquisition
Agreement provides that FSHI will pay a termination fee of $75,000
less any amounts actually paid or required to be paid by FSHI to the
Purchaser for reimbursement of expenses (as described below) if the
Acquisition Agreement is terminated in certain circumstances. The
Acquisition Agreement provides that the Purchaser will pay to FSHI a
termination fee of $100,000 if the Acquisition Agreement is
terminated in certain circumstances. This obligation is guaranteed by
Kingdom and Cascade. The Acquisition Agreement also provides that
FSHI will pay to the Purchaser reasonable documented expenses of the
Purchaser and its affiliates incurred in connection with the
transactions contemplated by the Acquisition Agreement (up to a
maximum of $10,000) if the Acquisition Agreement is terminated in
certain circumstances.
Although there is no certainty that the Arrangement Transaction, or
any other transaction, will be completed or the timing of completion
of the pending Arrangement Transaction, some of our arrangements and
agreements may be impacted by the pending Arrangement Transaction,
including the following:
(a) Convertible notes:
The convertible senior notes issued by FSHI in 2004 are
convertible into LVS (although at our option, FSHI may make a
cash payment in lieu of all or some of those LVS) in certain
circumstances, including upon the occurrence of a "fundamental
change", as defined in the indenture pursuant to which the
notes were issued. The Arrangement Transaction, if completed,
would result in a fundamental change. As a result, holders may
convert the notes during the period from and after the tenth
day prior to the anticipated closing date of the Arrangement
Transaction until and including the close of business on the
later of the tenth day after the actual closing date and the
thirtieth business day after notice of an offer to repurchase
the notes has been mailed, as described below. Upon such
conversion, holders of the notes would be entitled to receive,
subject to our right to make a cash payment in lieu of some or
all of the LVS that otherwise would be issued, 13.9581 LVS for
each one thousand US dollar principal amount of notes and an
additional number of LVS equal to (a) the sum of a make whole
premium, and an amount equal to any accrued but unpaid interest
to, but not including, the conversion date, divided by (b) the
average of the closing sale price (or, in certain
circumstances, an average of bid and ask prices) of the LVS on
the New York Stock Exchange for the ten trading days before the
conversion date.
If the Arrangement Transaction is completed, FSHI will be
required to make an offer to repurchase the notes at a purchase
price equal to the principal amount of the notes plus a make
whole premium (as described above), and an amount equal to any
accrued and unpaid interest to, but not including, the date of
repurchase. FSHI must make this offer by providing a notice to
the trustee and the holders of notes within 30 days of the
completion of the Arrangement Transaction.
Further information regarding the terms of our convertible
senior notes is set out in the indenture pursuant to which the
notes were issued.
(b) Long-term incentive arrangement:
Pursuant to an agreement approved by the shareholders of FSHI
in 1989, FSHI and its principal operating subsidiary, Four
Seasons Hotels Limited, agreed to make a cash payment to Mr.
Isadore Sharp, the Chief Executive Officer of FSHI, upon an
arm's length sale of control of FSHI. Under the plan of
arrangement through which the Arrangement Transaction will be
implemented, Mr. Sharp will receive the amount payable to him
calculated in accordance with this long-term incentive plan in
full satisfaction of all obligations to him under the plan.
Based on an acquisition price of $82.00 for each LVS and VMVS,
and using the noon rate of exchange as quoted by the Bank of
Canada for the conversion of Canadian dollars into United
States dollars on March 9, 2007, Mr. Sharp would receive
approximately $289,000 in satisfaction of the obligations to
him under the long-term incentive plan.
(c) Stock options:
On February 9, 2007, the vesting of a total of 616,980 unvested
stock options (which excludes those outstanding options with an
unsatisfied performance condition) was accelerated for the
purpose of allowing these individuals to participate in respect
of such options in the Arrangement Transaction. If the
Arrangement Transaction is not completed, the vesting of the
616,980 stock options will not be accelerated and the stock
options will continue to vest in accordance with their terms
in existence prior to the acceleration. Pursuant to the plan of
arrangement in respect of the Arrangement Transaction, any
options that have not been exercised prior to the effective
time of the Arrangement Transaction will be transferred by each
holder thereof to FSHI without any further act or formality in
exchange for a cash amount equal to the excess, if any, of (a)
the product of the number of LVS underlying the options held by
such holder and $82.00, over (b) the sum of the exercise prices
for each LVS underlying the options held by such holder
(converted at the applicable foreign exchange rate).
(d) Other arrangements and agreements:
Certain other arrangements and agreements are subject to
"change of control" provisions. These include, among others,
the following:
(i) Under the terms of the current $125,000 bank credit
facility of FSHI, a change of control triggers a default
under the bank credit facility, and if not waived, would
require the repayment of all amounts outstanding under
this credit facility and would also result in the
termination of this credit facility. As at March 9, 2007,
no amounts were borrowed under this credit facility, but
approximately $1,600 of letters of credit were issued
under this credit facility.
(ii) Pursuant to a cross default provision, a default under
the bank credit facility in turn would cause a default
under FSHI's currency and interest rate swap agreement.
In such circumstances, the counterparty to the swap
agreement may demand that the swap be terminated. As at
March 9, 2007, the net amount that would be required to
be paid by FSHI to the counterparty on termination was
approximately $5,800. As at December 31, 2006, the
estimated fair value of the swap on that date of $6,757
is included in "Long-term obligations".
(e) Costs related to pending Arrangement Transaction:
In connection with the pending Arrangement Transaction, we
incurred costs of $3,452 in 2006 and expect to incur costs
of approximately $12,600 during 2007, primarily relating to
legal fees, filing fees, financial advisory, printing, proxy
solicitation and consulting services.
FOUR SEASONS HOTELS INC.
SUMMARY OF HOTEL OPERATING DATA - CORE HOTELS(i)
Three months ended December 31,
(Unaudited) 2006 2005 Variance
-------------------------------------------------------------------------
Worldwide
# of Properties 56 56 -
# of Rooms 14,290 14,290 -
Occupancy(ii) 67.2% 66.1% 1.1pts.
ADR(iii) $383.87 $342.97 11.9%
RevPAR(iv) $258.13 $226.61 13.9%
Gross operating margin(v) 32.5% 29.4% 3.1pts.
United States
# of Properties 20 20 -
# of Rooms 6,195 6,195 -
Occupancy(ii) 70.3% 69.7% 0.6pts.
ADR(iii) $423.52 $394.25 7.4%
RevPAR(iv) $297.83 $274.83 8.4%
Gross operating margin(v) 30.2% 28.3% 1.9pts.
Other Americas/Caribbean
# of Properties 10 10 -
# of Rooms 2,165 2,165 -
Occupancy(ii) 61.7% 60.3% 1.4pts.
ADR(iii) $383.37 $342.22 12.0%
RevPAR(iv) $236.60 $206.41 14.6%
Gross operating margin(v) 26.7% 22.9% 3.8pts.
Europe
# of Properties 10 10 -
# of Rooms 1,720 1,720 -
Occupancy(ii) 63.6% 61.3% 2.3pts.
ADR(iii) $598.79 $497.32 20.4%
RevPAR(iv) $380.59 $304.68 24.9%
Gross operating margin(v) 31.9% 29.6% 2.3pts.
Middle East
# of Properties 5 5 -
# of Rooms 1,215 1,215 -
Occupancy(ii) 66.5% 64.0% 2.5pts.
ADR(iii) $287.72 $211.00 36.4%
RevPAR(iv) $191.42 $135.08 41.7%
Gross operating margin(v) 50.9% 37.9% 13.0pts.
Asia/Pacific
# of Properties 11 11 -
# of Rooms 2,995 2,995 -
Occupancy(ii) 67.3% 66.5% 0.8pts.
ADR(iii) $223.49 $202.13 10.6%
RevPAR(iv) $150.37 $134.37 11.9%
Gross operating margin(v) 38.8% 36.3% 2.5pts.
-------------------------------------------------------------------------
(i) The term "Core Hotels" means hotels and resorts under
management for the full year of both 2006 and 2005. 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 2005/2004 Core Hotels are the additions of Four Seasons
Resort Scottsdale at Troon North, Four Seasons Resort Whistler,
Four Seasons Resort Costa Rica at Peninsula Papagayo, Four
Seasons Hotel Gresham Palace Budapest, Four Seasons Resort
Provence at Terre Blanche and Four Seasons Hotel Cairo at Nile
Plaza, and the deletion of The Regent Kuala Lumpur. All room
numbers in this table are approximate.
(ii) Occupancy percentage is defined as the total number of rooms
occupied divided by the total number of rooms available.
(iii) ADR is defined as average daily room rate per room occupied,
calculated as the weighted average for each region. In 2004 and
2005, ADR was calculated as a straight average for each region.
(iv) RevPAR is defined as average room revenue per available room.
It is a non-GAAP financial measure and does not have any
standardized meaning prescribed by GAAP and is therefore
unlikely to be comparable to similar measures presented by
other issuers. We use RevPAR because it is a commonly used
indicator of market performance for hotels and resorts and
represents the combination of the average daily room rate and
the average occupancy rate achieved during the period. RevPAR
does not include food and beverage or other ancillary revenues
generated by a hotel or resort. RevPAR is the most commonly
used measure in the lodging industry to measure the period-over
-period performance of comparable properties. Our calculation
of RevPAR may be different than the calculation used by other
lodging companies.
(v) 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(i)
Years ended December 31,
(Unaudited) 2006 2005 Variance
-------------------------------------------------------------------------
Worldwide
# of Properties 56 56 -
# of Rooms 14,290 14,290 -
Occupancy(ii) 69.0% 68.3% 0.7pts.
ADR(iii) $372.36 $336.59 10.6%
RevPAR(iv) $257.03 $229.80 11.8%
Gross operating margin(v) 32.4% 30.2% 2.2pts.
United States
# of Properties 20 20 -
# of Rooms 6,195 6,195 -
Occupancy(ii) 73.6% 73.0% 0.6pts.
ADR(iii) $406.03 $371.59 9.3%
RevPAR(iv) $299.03 $271.32 10.2%
Gross operating margin(v) 30.4% 28.6% 1.8pts.
Other Americas/Caribbean
# of Properties 10 10 -
# of Rooms 2,165 2,165 -
Occupancy(ii) 64.6% 64.4% 0.2pts.
ADR(iii) $376.57 $335.58 12.2%
RevPAR(iv) $243.33 $216.06 12.6%
Gross operating margin(v) 27.8% 26.4% 1.4pts.
Europe
# of Properties 10 10 -
# of Rooms 1,720 1,720 -
Occupancy(ii) 66.7% 62.6% 4.1pts.
ADR(iii) $596.20 $534.37 11.6%
RevPAR(iv) $397.92 $334.70 18.9%
Gross operating margin(v) 33.7% 31.5% 2.2pts.
Middle East
# of Properties 5 5 -
# of Rooms 1,215 1,215 -
Occupancy(ii) 69.3% 67.3% 2.0pts.
ADR(iii) $258.31 $212.05 21.8%
RevPAR(iv) $178.90 $142.79 25.3%
Gross operating margin(v) 50.5% 44.5% 6.0pts.
Asia/Pacific
# of Properties 11 11 -
# of Rooms 2,995 2,995 -
Occupancy(ii) 63.9% 65.0% (1.1)pts.
ADR(iii) $211.36 $197.69 6.9%
RevPAR(iv) $134.99 $128.57 5.0%
Gross operating margin(v) 34.8% 33.1% 1.7pts.
-------------------------------------------------------------------------
(i) The term "Core Hotels" means hotels and resorts under management
for the full year of both 2006 and 2005. 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 2005/2004 Core
Hotels are the additions of Four Seasons Resort Scottsdale at
Troon North, Four Seasons Resort Whistler, Four Seasons Resort
Costa Rica at Peninsula Papagayo, Four Seasons Hotel Gresham
Palace Budapest, Four Seasons Resort Provence at Terre Blanche and
Four Seasons Hotel Cairo at Nile Plaza, and the deletion of The
Regent Kuala Lumpur. All room numbers in this table are
approximate.
(ii) Occupancy percentage is defined as the total number of rooms
occupied divided by the total number of rooms available.
(iii) ADR is defined as average daily room rate per room occupied,
calculated as the weighted average for each region. In 2004 and
2005, ADR was calculated as a straight average for each region.
(iv) RevPAR is defined as average room revenue per available room. It
is a non-GAAP financial measure and does not have any standardized
meaning prescribed by GAAP and is therefore unlikely to be
comparable to similar measures presented by other issuers. We use
RevPAR because it is a commonly used indicator of market
performance for hotels and resorts and represents the combination
of the average daily room rate and the average occupancy rate
achieved during the period. RevPAR does not include food and
beverage or other ancillary revenues generated by a hotel or
resort. RevPAR is the most commonly used measure in the lodging
industry to measure the period-over- period performance of
comparable properties. Our calculation of RevPAR may be different
than the calculation used by other lodging companies.
(v) 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(i)
As at December 31,
(Unaudited) 2006 2005 Variance
-------------------------------------------------------------------------
Worldwide
# of Properties 73 68 5
# of Rooms 18,025 17,300 725
United States
# of Properties 26 23 3
# of Rooms 7,445 6,845 600
Other Americas/Caribbean
# of Properties 10 10 -
# of Rooms 2,165 2,165 -
Europe
# of Properties 12 12 -
# of Rooms 1,960 1,960 -
Middle East
# of Properties 7 7 -
# of Rooms 1,735 1,740 (5)
Asia/Pacific(ii)
# of Properties 18 16 2
# of Rooms 4,720 4,590 130
-------------------------------------------------------------------------
(i) All room numbers in this table are approximate.
(ii) Since December 31, 2006, we have commenced management of Four
Seasons Resort Koh Samui, Thailand, which has 65 rooms. This
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,
US dollars) 2006 2005 2006 2005
-------------------------------------------------------------------------
Revenues under
management(i) $ 801,612 $ 676,662 $2,943,795 $2,559,746
------------------------------------------------
------------------------------------------------
-------------------------------------------------------------------------
(i) Revenues under management consist of rooms, food and beverage,
telephone and other revenues of all the hotels and resorts that we
manage. Approximately 59% of the fee revenues (excluding
reimbursed costs) we earned represented 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
Approximate
Number
Hotel/Resort/Residence Club and Location(i)(ii) of Rooms
Scheduled 2007/2008 openings
----------------------------
Four Seasons Hotel Alexandria, Egypt 125
Four Seasons Hotel Beijing, People's Republic of China 325
Four Seasons Hotel Beirut, Lebanon 235
Four Seasons Resort Bora Bora, French Polynesia(x) 105
Four Seasons Hotel Florence, Italy 120
Four Seasons Hotel Hangzhou, People's Republic of China 100
Four Seasons Hotel Istanbul at the Bosphorus, Turkey 170
Four Seasons Hotel Macau, Special Administrative Region 370
of the People's Republic of China(x)
Four Seasons Resort Mauritius, Republic of Mauritius(x) 120
Four Seasons Hotel Moscow, Russia(x) 185
Four Seasons Hotel Mumbai, India(x) 230
Four Seasons Hotel Seattle, Washington, USA(x) 150
Four Seasons Resort Seychelles, Seychelles(x) 65
Beyond 2008
-----------
Four Seasons Hotel Bahrain, Bahrain 270
Four Seasons Hotel Baltimore, Maryland, USA(x) 200
Four Seasons Resort Barbados, Barbados(x) 120
Four Seasons Resort Cham Island, Vietnam 80
Four Seasons Hotel Doha at the Pearl, Qatar(x) 250
Four Seasons Hotel Dubai, United Arab Emirates(x) 375
Four Seasons Hotel Guangzhou, People's Republic of China(x) 325
Four Seasons Hotel Kuala Lumpur, Malaysia(x) 275
Four Seasons Hotel Kuwait, Kuwait 300
Four Seasons Hotel Marrakech, Morocco(x) 140
Four Seasons Hotel Moscow Kamenny Island, Russia(x) 80
Four Seasons Hotel New Orleans, Louisiana, USA(x) 240
Four Seasons Resort Puerto Rico, Puerto Rico(x) 250
Four Seasons Hotel Shanghai at Pudong, People's 190
Republic of China(x)
Four Seasons Hotel St. Petersburg, Russia 200
Four Seasons Hotel Toronto, Ontario, Canada(x) 265
Four Seasons Resort Vail, Colorado, USA(x) 120
(x) Expected to include a residential component.
---------------------------
(i) Information concerning hotels, resorts and residential projects
under construction or under development is based upon agreements
and letters of intent and may be subject to change prior to the
completion of the project. The dates of scheduled openings have
been estimated by management based upon information provided by
the various developers. There can be no assurance that the date of
scheduled opening will be achieved or that these projects will be
completed. In particular, in the case where a property is
scheduled to open near the end of a year, there is a greater
possibility that the year of opening could be changed. The process
and risks associated with the management of new properties are
dealt with in greater detail in the Operating Risks sections of
our 2006 Management Discussion and Analysis.
(ii) 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.
FOUR SEASONS HOTELS INC.
FORM 51-102F1
MANAGEMENT'S DISCUSSION AND ANALYSIS
March 9, 2007
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Forward-Looking Statements
This document contains "forward-looking statements" within the meaning of applicable securities laws, including RevPAR, profit margin and earning trends; statements concerning the number of lodging properties expected to be added in this and future years; expected investment spending; similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts; and statements relating to the proposal to take Four Seasons Hotels Inc. private and anticipated financial results. Various factors and assumptions were applied or taken into consideration in arriving at these statements, which do not take into account the effect that non-recurring or other special items announced after the statements are made may have on our business. These statements are not guarantees of future performance and, accordingly, you are cautioned not to place undue reliance on these statements. These statements are subject to numerous risks and uncertainties, including those described in our annual information form and in this document. (See discussion under "Operating Risks" at page 55.) 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, fluctuations in relative exchange rates of various currencies, supply and demand changes for hotel rooms and residential properties, competitive conditions in the lodging industry, the risks associated with our ability to maintain and renew management agreements and expand the portfolio of properties that we manage, relationships with clients and property owners 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. In addition, actual results and developments relating to the proposal may differ materially from those contemplated by the statements herein, due to, among other things, the risks that the parties will not proceed with the transaction, that the terms of the transaction will differ from those that currently are contemplated, and that the transaction will not be successfully completed for any reason (including the failure to obtain the required approvals or clearances from regulatory authorities and the timing of completion). All forward-looking statements in this document are qualified by these cautionary statements. These statements are made as of the date of this document 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. Additionally, we undertake no obligation to comment on analyses, expectations or statements made by third parties in respect of Four Seasons Hotels Inc. ("FSHI"), its financial or operating results or its securities or any of the properties that we manage or in which we may have an interest.
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Arrangement Transaction
On February 12, 2007, we announced that we had entered into a definitive acquisition agreement (the "Acquisition Agreement") to implement a previously announced proposal to take FSHI private at a price of $82.00 cash per Limited Voting Share (the "Arrangement Transaction"). Following completion of the transaction, FSHI would be owned by affiliates of Cascade Investment, L.L.C. ("Cascade") (an entity owned by William H. Gates III), Kingdom Hotels International ("Kingdom"), a company owned by a trust created for the benefit of His Royal Highness Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud and his family, and Isadore Sharp. The transaction, which would be implemented by way of a court-approved plan of arrangement under Ontario law, has been approved unanimously by our Board (with interested directors abstaining) following the report and favourable, unanimous recommendation of the Special Committee of independent directors. In doing so, our Board determined that the Arrangement Transaction is fair to the shareholders of FSHI (other than Mr. Sharp, Kingdom, Cascade, their respective directors and senior officers and any other "related parties", "interested parties" and "joint actors") and in the best interests of FSHI and authorized the submission of the Arrangement Transaction to shareholders of FSHI for their approval at a special meeting of shareholders. Our Board also has determined unanimously (with interested directors abstaining) to recommend to FSHI shareholders that they vote in favour of the Arrangement Transaction.
As previously disclosed, upon completion of the Arrangement Transaction, Triples Holdings Limited (which is Mr. Sharp's family holding company) would hold a significant continuing interest in FSHI and Mr. Sharp would, as Chairman and Chief Executive Officer, continue to be directly involved in all aspects of the operations and the strategic direction of Four Seasons, which will remain headquartered in Toronto. If the Arrangement Transaction is completed, Mr. Sharp will be entitled to realize proceeds of approximately $289 million related to a long-term incentive agreement that was approved by FSHI's shareholders before it was put in place in 1989. (See "Description of Share Capital - Sale of Control Agreement" in our Annual Information Form.)
A meeting of shareholders to consider the Arrangement Transaction is anticipated to take place in April 2007. To be implemented, the Arrangement Transaction will require approval by two-thirds of the votes cast by holders of Limited Voting Shares, voting separately as a class, and approval by Triples, as the sole holder of the Variable Multiple Voting Shares, voting separately as a class. Kingdom, Cascade and Triples have agreed to vote their Limited Voting Shares and Variable Multiple Voting Shares to approve the Arrangement Transaction. The Arrangement Transaction also will require approval by a simple majority of the votes cast by holders of Limited Voting Shares, other than Mr. Sharp, Kingdom, Cascade, their respective directors and senior officers and any other "related parties", "interested parties" and "joint actors". In addition, the Arrangement Transaction will require approval by the Ontario Superior Court of Justice. The Arrangement Transaction also will be subject to certain other customary conditions, including receipt of a limited number of regulatory approvals. The transaction is not subject to any financing condition, and FSHI has been advised that commitments for the required debt financing have been received. FSHI has received from Cascade and Kingdom a limited guaranty of certain obligations of FS Acquisition Corp. (the "Purchaser"), the newly-formed company that is the purchaser under the Acquisition Agreement. There are certain risks inherent in the Arrangement Transaction which are described in the management information circular prepared in connection with the special meeting of shareholders, a copy of which will be available as part of FSHI's public filings at http://www.sedar.com/ and http://www.sec.gov/. Among other things, there are risks that the parties will not proceed with the Arrangement Transaction, that the ultimate terms of the Arrangement Transaction will differ from those that currently are contemplated, and that the Arrangement Transaction will not be successfully completed for any reason (including the failure to obtain the required approvals or clearances from regulatory authorities).
Copies of the Acquisition Agreement and certain related documents have been filed with Canadian securities regulators and with the United States Securities and Exchange Commission and will be available at the Canadian SEDAR website at http://www.sedar.com/ and at the U.S. Securities and Exchange Commission's website at http://www.sec.gov/. The management information circular in connection with the special meeting of shareholders to consider the Arrangement Transaction is currently expected to be mailed to shareholders on or about the week of March 12, 2007.
It is anticipated that the Arrangement Transaction, if approved by shareholders, will be completed in the second quarter of 2007.
Given the current Arrangement Transaction, it is likely there will be no annual meeting and therefore no management information circular in connection therewith. As a result, some of the items usually included in the management information circular for the annual meeting will instead be included in the annual information form this year.
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This Management's Discussion and Analysis ("MD&A") for the year ended December 31, 2006 is provided as of March 9, 2007. It should be read in conjunction with the consolidated financial statements including the notes thereto and the Annual Information Form for the year ended December 31, 2006. All amounts disclosed in this MD&A (including amounts for prior periods) are in US dollars unless otherwise noted. Our consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles ("GAAP").
This MD&A generally reflects the historical operations of FSHI as a public entity and is generally drafted from the perspective of FSHI as a continuing public entity.
Endnotes can be found at the end of this document.
Business of Four Seasons
Four Seasons is one of the world's leading managers of luxury hotels and resorts. We endeavour to offer business and leisure travelers the finest accommodations and experiences beyond compare in each destination in which we operate.
Four Seasons has a portfolio of 74 luxury hotel and resort properties (containing approximately 18,090 guest rooms), several of which include a residential component. These properties are operated primarily under the Four Seasons brand name in principal cities and resort destinations in 31 countries in North America, the Caribbean, Europe, Asia, Australia, the Middle East and South America. In addition, 30 properties are under construction or development around the world including properties in a further 13 countries. Of these, 20 new properties are to include a residential component.
Objectives
Our core strategic goal as a public company is to be recognized as the undisputed global leader in luxury lodging. Supporting that goal are the following strategic objectives:
- Create guest experiences beyond compare so that we are first choice
for luxury travelers.
- Maintain and enhance our unique culture based on treating all others
- partners, guests and employees - the way we would want to be
treated.
- Provide economic returns that are acceptable to our hotel owners to
sustain our portfolio and generate new opportunities.
- Protect and enhance the value of Four Seasons reputation and brand
name globally.
- Generate premium shareholder returns over the long-term.
Set out below are key financial and growth objectives that have been and continue to guide us as a public company:
Revenue Growth:
- Achieve leading RevPAR(1) results in each of the hotels and
resorts we manage.
- Produce leading profitability performance in each of the hotels
and resorts we manage.
- Identify and secure new development opportunities in destinations
and locations that meet the needs of our international guest base.
- Successfully open an average of six to eight new projects per year
over the long-term.
- Be the first choice for existing and new capital partners for
luxury hotel development.
- Generate top-tier management revenue growth through improved
results at properties under management and through the addition of
new properties under management.
Cost Management:
- Control general and administrative expenses to increase operating
earnings before other items.
- Minimize exposure to short-term fluctuations in foreign exchange
rates on operating results.
Capital Allocation:
- Achieve over the long-term an average return on capital employed
in excess of our long-term cost of capital.
- Maintain a strong balance sheet and a low cost of capital.
- Deploy the majority of our annual operating cash flow to obtain
and enhance management opportunities that expand the Four Seasons
brand and further improve the overall liquidity of the Company.
- Divest equity investments or advances when appropriate
opportunities arise, to allow previously committed capital to be
made available for new investments or enhanced management or
royalty opportunities.
- Maintain a prudent risk profile when investing our cash.
In achieving our key financial and growth objectives, we seek to balance any associated risk. See "Operating Risks" for a description of the risks inherent in our business.
DATASOURCE: Four Seasons Hotels and Resorts
CONTACT: John Davison, Chief Financial Officer, (416) 441-6714; Barbara
Henderson, Senior Vice President, Corporate Finance, (416) 441-4329